Saturday, December 11, 2004

we've done it before

Earlier, I asked how we could absorb the 10% drop in production implied by 2030 demographics. Can we all just accept a 10% decrease in our standard of living relative to what it would have been without retiring boomers? Do we have to? It's hard to say, but we've done it before.

Between 1970 and 2002, real per capita GDP rose 86%. Over the same period, the post tax income of the bottom 90% of taxpayers declined slightly. Our society became far more productive, but the circumstances of the vast majority of the population did not change. If the next 30 years are similar, all we need to do to absorb the retirement bubble is redirect some of the wealth headed for the richest 10% to retirees. All we have to do is get over the quaint notion that the wealthiest of us are "punished" by higher marginal tax rates. Even with higher marginal taxes, the wealthy would remain wealthy.

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