04/05/2012 02:58 pm ET | Updated Jun 05, 2012

Both Parties Are Engaged in Fiscal Child Abuse

The Democrats are yelling at the Republicans for trying to cut taxes. The Republicans are yelling at the Democrats for trying to raise spending. They are both putting on a good show. President Obama has called the budget Governor Romney supports "social Darwinism". Governor Romney has called President Obama a coward when it comes to entitlement reform.

What no one in the press, which reports this drivel, seems to get is that both parties are advocating much the same thing. A tax cut raises people's disposable incomes. But so do entitlement spending hikes.

But what about the rich versus the poor? Isn't Governor Romney helping the rich and President Obama helping the poor?

The answer is, surprisingly, unclear. Governor Romney certainly sounds very callous when it comes to the poor. And President Obama keeps lambasting millionaires for not paying their fair share. But if you look carefully at their proposed policies, they are both mixed bags. Romney wants to cut everyone's tax rates by 20 percent and, presumably, eliminate tax breaks that differentially help the rich. Obama wants to raise the top rate on the rich by a very small amount. No one has done a careful analysis of how these two proposals would impact various measures of tax progressivity. And as I've written in Bloomberg columns, the standard method of doing such analyses down in Washington -- comparing current taxes with current income -- is a far cry from the remaining lifetime tax burden analysis (comparing remaining lifetime taxes with remaining lifetime income) that economists think is appropriate.

How about entitlements? Well, take Medicare. Romney would, it seems, cut Medicare more than Obama. But the rich live longer than the poor, and even though the poorer are sicker on average, the rich may end up with more lifetime benefits from Medicare, on average, than the poor. Medicaid is a different story. Here the payments are just to the very poor, so cutting back on Medicaid would be quite regressive. Social Security is also less progressive than one might think because the poor die earlier and because of its regressive payroll tax. Free, at the margin, spousal and survivor benefits are also larger for those with higher earnings.

On balance, President Obama may be advocating policies that are more progressive within cohort, but no one can say for sure, in part because we don't know all the details of Romney's tax and entitlement plans. Nor do we know how the President's plans to curb entitlement spendings will work even in principle, let alone in practice.

But the real problem with both sets of policies is the burdens they impose on our children. The U.S. currently has a fiscal gap of $211 trillion, where the fiscal gap measures the difference between all projected future spending commitments (including serving the debt) and all projected future tax payments -- all valued in the present. This fiscal gap is calculated based on CBO projections and grew by $6 trillion last year! This is the true measure of the government bill we are passing to our kids. Spending more on oldsters or taxing them less means hitting youngsters with a higher lifetime net tax bill.

That bill is already humongous. As Scott Burns and I point out in our new book -- The Clash of Generations -- we are on a sure course of bankrupting our children. Yet neither President Obama nor Governor Romney have acknowledged this problem, which is arguably the moral and economic problem of our times.

As a candidate for the Presidency (see and, I've put generational equity front and center. With the help of some of the best economists in the world, I've designed policies that eliminate our fiscal gap, without pulling the rug from beneath the elderly.

As I say on my site, "Our Kids Are Us." Unfortunately, for the two parties, it's "Our Toys are Us."

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