AARP and the case of generational theft

The old are prospering at the expense of the young, and one culprit is AARP, says Duquesne University professor JAMES B. BURNHAM

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If you follow closely the heated debates in Washington over reducing government spending, it is increasingly clear that AARP, the old folks' lobby, is the most powerful voice in town.

AARP's primary mission is to make sure that Social Security, Medicare and its own health insurance business remain untouched by congressional budget-cutting initiatives. It has been extraordinarily successful. Even budget-whacker and Republican guru Paul Ryan has been justly criticized because his proposals spare older people from almost any change or sacrifice.

We should not be surprised. According to its IRS tax returns, the AARP has annual revenues exceeding $1.2 billion and a payroll of $360 million ($938,000 for the chief executive officer). It doles out $22 million a year in grants to all manner of advocacy organizations and has 53 field offices throughout the country with a mission to "drive social change through advocacy, education and outreach."

As a 501(c)4 "social welfare organization," AARP is free to lobby as much as it wishes, although it laughably owns up to only $90,000 of such spending in 2011 -- for "voter guides." However, it did report spending $117 million on "legislative activities and public policy."

PG graphic: Household incomes
(Click image for larger version)

AARP's extraordinary success is reflected in the accompanying chart on income trends (see page B-4). Old folk, defined as those living in households headed by someone 65 years of age or older, have seen their incomes increase at a remarkably steady pace throughout the last 30 years. Not even the nasty recession of 2008-2010 made much of an impact on them. Including federal government outlays on Medicare would have added $524 billion in 2010 to their income of roughly $800 billion and widened the gap substantially over younger households. In addition to their higher incomes, they also have larger savings.

Young household incomes have declined almost 10 percent since 1980 after adjustment for inflation -- from just over $33,000 to roughly $30,000 in 2011. At the same time, many in that age group are trying to pay off a staggering level of college or graduate school debt. Meanwhile, old folks' incomes trended upward for the entire period and now exceed those of young households. Congratulations, AARP.

Perhaps the best term to describe this development is "generational theft," which appears in a recent op-ed in The Wall Street Journal that was authored by three savvy political veterans: a Democrat, an independent and a Republican.

Geoffrey Canada, Stanley Druckenmiller and Kevin Warsh examined the ways in which federal spending and tax policies are harming the country's long-term growth prospects, emphasizing that such policies "constitute a clear and present danger to the prospects for the next generation." They pointed out that Social Security and Medicare as currently structured "are not just unaffordable, they are profoundly unfair" to the younger generation, and they accused Congress and the president of continuing "to allow the immediate to trump the important."

The Federal Reserve comes in for well-deserved criticism. By suppressing interest rates and trying to boost stock prices, the heat is off Congress to deal with its "spending addiction" and undertake real reforms. (Mr. Warsh is a former Federal Reserve Board member.) The three authors cite the recent postponement of "the fiscal cliff" with its grab bag of special-interest tax breaks as another example of the crony capitalism and corporate welfare that adds to the problem.

In the absence of credible action to deal with critical budget issues, Messrs. Canada, Druckenmiller and Warsh wrote, we will continue to saddle "school-age children with more debt, weaker economic growth and fewer opportunities for jobs and advancement."

Maybe the federal budget "sequester" is not a bad place to start. We should recall "Stans' Law," named for Eisenhower budget director Maurice Stans, which instructs that "good budgeting is the uniform distribution of dissatisfaction."

If AARP really wanted to help solve our country's deep-rooted fiscal problems, it should concede that its members need to share with all age groups the pain of dealing with them. Alternatively, it could go out of business and donate its $660 million net worth (accumulated profits) to the Social Security Trust Fund.

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James B. Burnham is distinguished service professor at Duquesne University's Donahue Graduate School of Business (burnham@duq.edu).


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