patrick.net

With the advent of the retiring baby-boom generation, Social Security and Medicare taxes will unquestionably increase. The only question is, "How much will these forms of taxation increase and how much will that subsequently reduce home values?” This analysis is not taking into account the adjustment of home values from the sell-off of assets from baby-boomers to smaller, underpaid cohorts. This analysis is strictly on the basis of an increased tax burden from a higher dependency ratio.

Naturally, with fewer workers supporting a larger amount of non-working individuals, the stress put on those current workers goes up. When higher taxes are placed on the individuals that are entering the home buying market, they subsequently cannot afford as large a mortgage. This equates to decreased asset prices in the future.

The problem does not only lie in the fact that there will be fewer workers supporting more non-workers. The fact is that the constituents of that non-working group will be adjusting rapidly over the next 20 years. No longer will there be a healthy balance between young (0-18) and old (65+) non-working individuals. With the retiring baby-boomers, the U.S. is going to witness a surge in high cost elders dependent on social programs for economic support. The government spends 8.2 times as much on the elderly than they do the young.

All of this information leads to an increased burden on the population that remains of working age. What is even worse is that only 75% of the people of working age actually work. This graph underestimates the tax dollars per worker required to pay for social obligations by 33%. Therefore multiplying each figure in the graph by 1.33 will give an indication towards what the average worker will need to earn just to cover social tax obligations!

The great equalizer between generations will be home values, the largest purchase of most people's lives. Elders may think they are getting a deal when they get their social security checks in the mail. But at a similar rate, the value of their assets will depreciate due to working individual's decreased ability to pay due to their higher taxation rates. The financial losers will be the younger people who do not see this correlation and still believe that buying an expensive, leveraged asset as the path towards success.

Formula used to figure cost per worker:
($2,119)*(# of children)+($17,362)*(# of elders)
Divided by
The number of working age individuals

http://aging.senate.gov/crs/ss4.pdf
Year 2000 dollars
Average cost per child from government support: $2,119
Average cost per elder from government support: $17,362

An elder is therefore about 8.2 times more costly to support than a child!

The graph is extracted from the website. The data of working age individuals vs. dependents per year in on pages CRS14 – CRS16. The cost per dependent in year 2000 was extracted from page CRS 5 in the last bullet point.

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