DOCUMENT RESUME

ED 215 264 CG 015 997

AUTHOR Beach, Morrison H.; And OthersTITLE [White House Conference on Aging, 1981. Creating an

Age Integrated Society: Implications for the Economy.Report and Executive Summary of the TechnicalCommittee.]

INSTITUTION White House Conference on Aging, Washington, D.C.SPONS AGENCY Department of Health and Human Services, Washington,

D.C.REPORT NO TCES-1; TCR-1PUB DATE 81NOTE 50p.; Paper presented at the White House Conference

on Aging (3rd, Washington, DC, November 30-December3, 1981). For related documents, see CG 015 980-987and CG 015 990-CG 016 022.

EDRS PRICE MF01/PCO2 Plus Postage.DESCRIPTORS Aging (Individuals); Economic Opportunities;

Economics; *Economic Status; *EmploymentOpportunities; *Futures (of Society); GovernmentRole; *Older Adults; *Poverty; Prediction; PublicPolicy; *Social Integration

IDENTIFIERS *White House Conference on Aging

ABSTRACTThis Technical Committee Report presents

recommendations and strategies designed to achieve continued economicimprovements for the elderly. Four specific recommendations serve asthe basis for this report, i.e.,: (1) the United States should expandemployment opportunities for the elderly; (2) both government and theprivate sector should encourage increased personal savings; (3) anincreased income transfer program targeted at the poorest elderly isneeded to reduce income inadequacy; and (4) national policies shouldencourage increased domestic investment aimed at improvedproductivity and economic growth. A picture of future economicconditions, based on current policies and social trends prevails and,developed by Data Resources, Inc. (DRI), provides a baseline againstwhich to measure the impact of new economic strategies recommended bythe Committee Report. Extractions and analyses of major DRI findingsare presented for the baseline along with four strategy forecasts andthe implications for current and future policy action. An executivesummary of this report is also included. (NRB)

************************************************************************ Reproductions supplied by EDRS are the best that can be made ** from the original document. *

***********************************************************************

WHITE HOUSE CONFERENCE ON AGING, 1981

Creating an Age Integrated Society:Implications for the Economy

Report and Executive Summary of the Technical Committee

Morrison H. BeachBoard Chairman & Chief Executive Officer

Technical Committee

Anna V. BrownElinor C. GuggenheimerMarshall HollebWilliam F. KieschnickRichard L. McDowellAida PerezEsther PetersonBert SeidmanThelma ZwerdlingU.S. DEPARTMENT OF EDUCATION

NATIONAL INSTITUTE OF EDUCATIONEDUCATIONAL RESOURCES INFORMATION

CENTER (ERIC)

This document has been reproduced asreceived from the person Of organizationoriginating itMinor changes have been made to improvereproduction quality

Points of view or opinions stated In this dotument do not necessarily represent official NIE

position or policy

Papers presented at the White House Conference on Aging, Washington, DC, November30 - December 3, 1981.

the 1981

White HouseConference

onAging

Report of

Technical Committee

on

CREATING AN AGE INTEGRATED

SOCIETY: IMPLICATIONS FOR

THE ECONOMY

C

NOTE. Toe recommendations of this document are not re,comm(nr-4-rt-on.- ihr :981 WhiteHouse Conference on Agincr. or the Deportment of Heelth Sr rvice,:, Thisdocument was prepared for the consuleratten of the Confer; Ice dley,rtec Thedelegates will develop their recnrrnendaticn, thel:qh the pmc' r,Pc of the niltionalmeeting in late 1981

TECHNICAL COMMITTEE XLMBER=,

:.orrison H. BeachBoar- Chairman & Chief Executive Officer

The Travelers Insurance Company, CT

Anna V. Blown, Executive DirectorMayors Commission on AginCleveland, OE

Elinor C. Guggenheimer, PresidentCouncil of Senior Citizens CentersNYC

Marshall Idol lei., MBA, MIA, JDBoard Chairman & Cnief ExecutiveOfficer

Urban Association of Illinois

William F. Kieschnick, President& Chief Executive Officer

Atlantic Richfield Company, CF.

Richard L. McDowell, Ph.D.Dean & Professor, Ech ,(-1. ofManagement

Suffolk University, MA

Aida Perez, MA, iDCom. Puertoriqueria dc

C-ric,.11tura, PP

Esther Petersen, AL, MASpecial Assistant to the

Presid,-nt for ConsumerAffairs, l971,-198n

Bert Seidman, DirectorDepartment of Social Security,ArL-CIO

Washington, D.C.

Thelma Zwerdling, MAConsultant, Women's Research

and Educational Institute ofthe Congresswomen's Caucus

Washington, DC

COMMITTEE STAFF, CONSULTANTS, EXPERTS

Mattnew Lind, Vice PresidentCorporate Planning & ResearchThe Travelers Corporation, CT

Peter Libassi, Esq.Washington, DC, Counsel forThe Travelers Corporation, CT

Stephanie Ross, ConsultantWashington, DC

Lynn Boode, T::?.search AssistantOffices of the Washington, DC,

Counsel forThe Travelers Corporation

Juanita Horton, BS Pharmacy,MBA, MPA, R. Ph.

White House Conference on AgingStaff

;1.

FOREWORDc,

In the 1960s and 1970s, millions of Americans were lifted above poverty to a more decentand humane standard of living. The greatest single power behind that remarkable socialachievement was steady job-creating and iob-sustaining economic growth.

The 1980s are watershed years for our ability to sustain this economic growth. We areentering the decade with sluggish capital spending and an inflation level that erodes ourwillingness to save and invest and care for the neediest segments of our society. Productiv-itythat key indicator of economic vitalitycontinues to decline.

Our goal must be to fashion economic policies that will create a robust and growing economyand permit us to continue the social progress for all Americans.

Morrison H. BeachChairman

February 1981

i5

I. CONCLUSIONS

We are convinced that a national objectiveto achieve continued improvement in theoverall economic position of the elderlycannot be realized in the midst of a na-tional economy confronted with high infla-tion, low saving, slow-growth, highunemployment and sigi :ant underu-tilization of productive capacity, much ofwhich is in need of modernization if it isgoing to be competitive.

we view inflation, in particular, as an en-emy of the elderly. It reduces the value ofsavings, depreciates the purchasing powerof fixed incomes, and increases the cost ofthose goods and services that are criticallyimportant to the elderlyfood, heatingfuel and medical care. Moreover, when in-creasing inflation is combined with saggingproductivity, the declining_ growth in ev-eryone's standard of living erodes our na-tional will and determination to addressthe remaining economic and socialproblems confronting the elderly. In thisregard, the hardships of inflation falldoubly-hard on the neediest elderly.

For these reasons, the members of ourCommittee believe that particular strate-gies to achieve continued economic im-provements for the elderly must be viewedin the context of a national commitment toaddress the fundamental ills of our currenteconomy. And while we may differ as tothe best measures that ought to be taken toassure a strong economy, we are unani-mous in our conviction that strong and sus-tained economic growth is essential to thecurrent and future well being of the eld-erly. A larger and stronger economy willincrease our nation's ability to help disad-vantaged groups. It will reduce inflation,with its corrosive effects on retirement in-come and national cohesion, and serve as ahedge against unforeseen economic events,and, thereby, provide and protect jobsthe best assurance of an adequate retire-ment income.

Within the broad context of a nationalcommitment to economic growth, we spe-cifically conclude that:

1

The country should start now toexpand employment opportunitiesfor the elderbt Studies conducted forthe committee showed that as the ;nun-ber of younger workers entering theworkforce slows durirg the 1980s, newwork opportunities would allow the eld-erly to improve their economic and gen-eral well being, and contribute to overalleconomic growth without adversely af-fecting the employment opportunities ofyounger workers.

While the benefits of expanded employ-ment opportunities will be concentratedamong those elderly willing and able towork, studies show that, when spreadacross the entire elderly population, thisexpanded employment may mean al-most $500 a year (1980 dollars) addi-tional income by 2005 for the averageelderly household. For the economy as awhole, Real Gross National Productmay be improved by almost 4%. Andthis expanded economic growth couldmean about $40 billion (1980 dollars)more in Federal, State, and Local reve-nues by 2005 without increasing taxrates. These additional revenues can beused to increase assistance to the needi-est segments of our population.

We believe that expansion of elderly em-ployment can be achieved through agovernment- private sector partnershipaddressing such areas as elimination ofjob discrimination, re-training and re-education, and the restructuring of jobsto permit more flexible work arrange-ments. While expanded elderly employ-ment opportunities will not be the an-swer for all elderly groups, and may notbe suited to certain industries, we be-lieve it is a sound strategy for the nation.

Government and the private sectorshould work together to encourageand foster increased personal sav-ing. Committee studies of increasedpersonal saving have shown that a sub-stantial increase in personal saving willbe necessary before personal saving cansignificantly add to elderly income.

We believe that individuals, during theiryounger and middle years, should be en-couraged to take greater personal re-sponsibility for their economic well-be-ing in retirement. Yet, chronically highinflation and government policies thatfavor spending over saving have helpedproduce the opposite behavior. Thus,while almost 81% of Americans expressa strong desire to save, only 39% are ac-tually able to save on a regular basis.

We believe that government should cre-ate additional incentives to promote per-sonal saving. We also believe that Amer-ican business, as employers, can helptheir employees to save through makingfinancial planning and savings and in-vestment programs available. In combi-nation, we are confident that such initia-tives will, as has occurred in other coun-tries, dramatically increase the personalsaving of individuals, particularly atmiddle and upper income levels. Theseincreases can add to retirement incomesecurity.

Only an increased income transferprogram targeted on the poorestelderly can quickly and signifi-cantly reduce income inadequacy.Committee studies have clearly shownthat strategies for improving the eco-nomic status of the elderly which de-pend upon expanded elderly employ-ment and increased personal saving can-not solve the income problems of thoseelderly groups least able to participatethe frail elderly, elderly women and mi-norities, and others who today are fre-quently without significant employmenthistories. For the same reason, manycurrent and future elderly groups wholive outside our economic mainstreamcannot directly share in the benefits ofpolicies expanding economic growth.

We believe the country should commititself to providing the neediest elderlywith a truly adequate income. For ex-ample, this would be an income consis-tent with the Bureau of Labor StatisticsIntermediate Budget for RetiredCouples. Our studies indicate that theinitial cost of such an income transferprogram would be almost $19 billion

2

(1980 dollars) in 1981, but might de-cline to about $12 billion (1980 dollars)in 2005. If paid for by increased taxes,such a program would not have a signifi-cant effect on the overall economy; how-ever, it would increase personal taxesthroughout the 1980-2005 period, start-ing at about $160 for every person in thelabor force in 1981.

These costs underscore ti.e need for ex-panded economic growth ti; create boththe economic capacity and national willto provide the elderly with adequate in-come. We have already cited, for exam-ple, that increased elderly employmentcould add as much as $40 billion (1980dollars) to Federal, State and Local cof-fers by 2005 without the need of addi-tional taxes. These monies could be usedto expand our assistance to the neediestamong us.

The country should pursue poli-cies encouraging increased do-mestic private investment aimedat improved productivity and eco-nomic growth. Committee studies ofinvestment oriented corporate tax mea-sures (increased investment tax creditsand liberalized depreciation schedules)showed significant potential gains forthe economy. The more than 15% in-crease in business investment which re-sults from such tax measure:, is expectedto add more than 4% to Gross NationalProduct by 2005 and reduce the infla-tion rate by about 0.3% beginning in thelatter part of the 1980s.

For individuals, by 2005, this addedgrowth is expected to product about 1%more income for the elderly and almost3% for non-elderly groups. Althoughnon-elderly groups realize greater in-come improvements, some of this addedincome could be transferred to the eld-erly .nd still leave all age groups sub-stantially better off than they would bein a slower-growth economy.

Although we did not study increasedpersonal saving in conjunction with in-vestment oriented corporate tax mea-sures, these policies may be mutuallyreinforcing. White personal saving will

?

0

make more capital available, it may not,alone, guarantee a level of investmentadequate to achieve strong economicgrowth. Therefore, linking personal sav-ing with policies promoting investmentcan provide greater assurance that avail-able capital will be put to timely use.

It should be noted that other approachesto investment and economic growthones that stimulate consumer demand,for examplemay also have potentialfor expanding the growth and productiv-ity of the economy, although they mayhave somewhat different inflationary ef-

fects. While our studies focused on in-vestment oriented corporate tax mea-sures, this should not be construed as anendorsement by the committee. We are,however, unanimous in the priority weattach to promoting economic growth.

We believe that these broad recommenda-tions represent a sound economic strategywithin which to fashion the detailed poli-cies and programsboth public and pri-vatethat can lead to an age-integratedsociety and thereby provide a better life forcurrent and future generations of elderlyAmericans.

II. OBJECTIVES

Progress has been made over the past twodecades in increasing the real income ofthe elderly and improving their economicstatus relative to the rest of the population.These gains, in part, reflect improvementsin Social Security, private pensions, otherincome and in-kind assistance programs,which were all made possible by a growingand more productive economy. They alsogrow out of an increased awareness of per-sonal and social responsibility toward theelderly.

Despite this progress, problems remain.Whil: poverty among the elderly has beensignificantly reduced, many continue tolack adequate incomes. In particular, thedecades of discrimination, poverty, unem-ployment, limited education, and lack ofcomparable compensation have deniedmany older women and minorities theskills, the work and earnings experience,and often the health, necessary to secureand maintain a decent standard of living intheir older years. For these same reasons,such elderly individuals are not in a posi-tion to avail themselves of employment op-portunities. And those elderly who canwork, and who want to, frequently facediscriminatory practices and retirementpolicies that encourage withdrawal fromthe workplace before they are ready.

We believe that it must be the objective ofnational policy to achieve continued im-provement in the overall economic positionof the elderly, with special attention tothose among the elderly who are the mostvulnerable: the frail elderly, minorities,and elderly men and women with few em-ployable skills.

Our challenge is to achieve this objectivein an aging societyto forge policies thatwill achieve gains for current and futuregenerations of elderly without creating in-ter-generational conflicts. All Americanshave a stake in this goal, for virtually all ofus desire to secure the well being of ourparents and to provide for our own old age.

It is our unanimous belief that no singlestrategy or policy can adequately addressthe diverse economic needs of the elderly.Rather, a combination of strategiesin-volving personal, business, and governmen-tal initiativesis needed. Therequirements of those elderly in good

4

health and with strong desires and capabil-ities to continue employment are far differ-ent than the needs of the frail elderly orthose elderly- with low incomes and fewemployable skills.

Our specific objective was to develop anumber of economic strategies that incombination could address the diverse eco-nomic and social situations of current andfuture generations of elderly Americans:We saw this combined strategy* as consist-ing of four key parts:

1) Expanded elderly employment oppor-tunities to benefit the elderly willingand able to work and the economy asa whole;

2) Increased personal saving viewedboth as a supplemental source of re-tirement income for those peopleable to save and as a source of capitalto help finance general economicgrowth;

3) Expanded income transfer paymentstargeted on those elderly most inneed and least able to provide forthemselves; and

4) Measures aimed at promoting im-proved productivity and economicgrowth, which might directly benefitall segments of our population and,in particular, increase the capacity ofour economy to meet the needs of theelderly.

Each part of our combined strategy wastargeted to a particular problem, opportu-nity, or various segments of the elderlypopulation. With so many elderly expres-sing a desire to work, and with the numberof young labor-force entrants likely to de-cline in the future, we asked, "What wouldbe the impact on the economy and the eco-nomic status of the elderly, if older Ameri-cans were once again encouraged toremain active in the workforce?"

In recent years, personal saving has de-clined sharply in America. On an individ-ual level, saving allows personsespeciallythose at the middle and upper incomelevelsto at least partially provide, duringtheir working years, for their retirementincome. Personal saving can also providecapital that may be used to expand invest-

ti

ment and increase the productivity of theeconomy. We, therefore, asked, "Whatwould happen if currently depressed sav-ing activity could be brought back to thehigher levels of the 1960s and early1970s?"

Expanded employment opportunities can-not really help the elderly worker who isphysically wasted after years of backbreak-ing work, or the frail elderly person, or theelderly woman or minority who never de-veloped the skills or employment history tomake themselves employable. In particu-lar, among older elderly personsa groupconsisting largely of single elderly womenliving aloneexpanded employment op-portunities is not the answer. And in-creased personal saving cannot impact onthe current generation of elderly, who areno longer earning significant wages. Norcan it help those future elderly who willnot have significantly participated in theworkforce or those who have lived on lowincomes during their younger and middleyears. For these needy elderly improve-ments in economic well-being can onlycome from increased public income trans-fer payments. Therefore, we asked, "What

would be the economic impact of assuringa more adequate minimum income for allof the elderly by means of a public incometransfer program?"

Finally, we wanted to address the impactof economic growth directly. Althoughthere are various approaches towards stim-ulating economic growth, we focused oninvestment oriented corporate tax mea-sures. Such measures have been proposedrecently as an effective means for promot-ing business investment which, if targetedto improvements in productivity and ourinternational competitive status, could pro-mote expanded economic growth and en-hanced productivity. We, therefore, asked:"How would corporate tax measuresaimed at increasing business investmentinfluence the economy and the position ofthe aged?"*Note:A supplementary statement byCommittee Members Thelma Zwerdlingand Bert Seidman on personal saving,transfer payments and economic growthmeasures is contained in the back of thisreport.

III. METHOD AND STRATEGIES

Through a grant from the Corporation forOlder Americans, our Committee was ableto secure the services of Data Resources,Inc. (DRI), one of the nation's most prom-inent economic consulting firms. Our firstcharge to DRI was to develop a picture offuture economic conditions assuming cur-rent policies and social trends prevail. Wewanted this "baseline" picture so we couldhave a basis against which to measure theimpact of new strategies. We then askedDRI to study the impact of each part ofour combined strategy on the economy as awhole and on older Americans inparticular.

The DRI :udies were conducted usingmodern economic forecasting methods andlooked out 25 years to the Year 2005. Theresults provided us with detailed informa-tion regarding the overall economy and theincome position of various elder ly and non-elderly segments of the population. Theseforecasts are largely based upon a knowl-edge of the past which, because of rapidchanges in the worldsocial, economicand politicalis no longer as reliable aguide to the future as perhaps it once was.

Although based upon strategies suggestedby the committee, DRI is wholly responsi-ble for the analysis underlying these re-sults. While members of our Committeedo not necessarily subscribe to this analy-sis, and some members, in fact, disagreewith parts of it, all of us felt that the DRIeffort provided a useful backdrop againstwhich to reach our conclusions.

Time and resource constraints limited thenumber of policies that the Committeecould study. Therefore, an attempt wasmade to define general policies representa-tive of a broader group of more specificpolicies. The Committee hoped this ap-proach would provide information thatother technical committees and the WhiteHouse Conference could apply to a widerange of policy questions. In theparagraphs below, we describe the key as-sumptions used in the various economicforecasts.

Baseline Forecast

The baseline forecast used for our analysisis based on DRI's most recent 25-year pro-jection of the aggregate economy prepared

6

for national release in September 1980.The baseline forecast assumes populationgrowth consistent with the Bureau of theCensus Series II population projections.This projection assumes that from 1980 to2015, the fertility rate increases from itscurrent level of 1.7 to 2.1. It also assumessome small improvement in mortality andnet immigration of 400,000 per year.These assumptions lead to total U.S. popu-lation forecasts of 244 million by 1990 and268 million by 2005 and a significant slow-ing in labor force growth. The latter pri-marily reflects slower growth in the primeage population and in labor force partici-pation rates. As regards the elderly, theforecast assumes that labor force partici-pation of the elderly will continue to de-cline, as it has for several decades, despitehigher inflation, an increase in mandatoryretirement age and a decreasing supply ofyounger workers.

In regard to fiscal policy, the baseline fore-cast assumes several conflicting forces op-erating on the public sector, including:public resistance to further increases intaxes; increased defense spending; lowergrowth in demand for state and local ser-vices; and a continuing need to providesome measure of income adequacy for thepoor. Under these conflicting forces, theshare of the federal budget in GNP is ex-pected to fall only slightly. On the otherhand, income transfers to persons are ex-pected to grow at only 3.5% per year from1980 to 2005, down sharply from the 8%rate experienced from 1965 to 1980. Nev-ertheless, they are expected to grow bothas a percentage of GNP and as a percent-age for the total Federal budget. Similarly,defense spending is expected to rise bothas a percentage of GNP and the Federalbudget.

The baseline projection also assumes a taxcut of $32 billion enacted during 1981 con-sisting of both personal ($25 billion) andinvestment oriented corporate ($7 billion)tax cuts. Beginning in 1984, discrete per-sonal income tax cuts are assumed everysecond year. 'These cuts partially offset"bracket-creep" increases in taxes broughtabout by inflation. However, despite thesecuts, the effective Federal personal incometax rate is projected to rise from 14.2% in1980 to 17.6% in 2005.

11

Finally, the baseline forecast assumes thatoil supplies will continue to be tightthroughout the next 25 years, resulting inenergy price inflation of 3-4% above theoverall rate of inflation.

Expanded Employment Forecast

In this forecast the impact of reversing thedecline in labor force participation amongthe elderly, which has been occurring fordecades was examined. Specifically, theforecast assumed that labor force partici-pation rates among four elderly and non-elderly groups increase over the next de-cade to the levels of 1970. The four groupsconsidered were: women aged 55-64; menaged 55-64; women 65 years and older;and men 65 years and older. The assump-tion was that the labor force participationrates of these groups rises over the nextdecade at the same average rate at whichthey declined after 1970. Other assump-tions in this forecast were the same as inthe baseline. The results of this forecastcan be used to explore the impact of in-creased elderly employment without speci-fying exactly how such increases arebrought about.

Increased Personal Savings Forecast

In this forecast, it was assumed that overthe next three years, personal savings as apercent of income gradually rises to about2 percentage points above the rate used inthe baseline. This increase would corre-spond to a return to the saving rate experi-enced over the late 1960s and early 1970s.The forecast assumes that this increasedsaving is distributed among assets (such assavings and loan deposits, stocks, bonds,etc.) in appruAimately the same proportionthat total saving is currently distributed.

Because of our interest in increased savingas it might provide for added retirementincome, it was assumed that all the in-creased saving would be done by those un-der age 65, and that interest incomederived from such new saving would betreated as ordinary income.

The degree to which increased personalsaving is eventually transformed into in-creased domestic fixed investment is an is-sue of great controversy among

economists. The issue revolves around thedegree to which reduced consumer de-mand (resulting from increased earnings)drives down investment in comparison tothe increased investment that should resultfrom a larger supply of capital. In thisforecast, it is assumed that three-quartersof the increased personal saving is trans-lated into domestic fixed investment, dis-tributed two-thirds to business fixedinvestment and one-third to housing.Other assumptions are essentially the sameas in the baseline.

As with the forecast of increased elderlyemployment, the forecast of increased sav-ing did not specify why such additionalsaving might occur. Different policies en-couraging savings would, of course, havesomewhat different implications for theeconomy. Nevertheless, it was felt that theanalysis could provide results that wouldbe indicative of the impact of a number ofsuch policies.

Investment Oriented Tax MeasuresIn this forecast, the long-term conse-quences of a highly specific par:), aimed atstimulating economic growth were ana-lyzed. The corporate tax cuts involved in-clude an increase in the investment taxcredit from 10% to 18%, and a reduction(liberalization) in the average allowabledepreciation tax lifetimes for equipmentand structures from 8.1 to 5.6 years and19.8 to 17.3 years, respectively, comparedto the baseline. These tax cuts wouldamount to $12 billion in 1981 and grow to$46 billion by 1986. Corporate tax cuts ofthis type have a double-barreled effect:they directly affect the incentive to invest,and they also increase corporate cashflowthe major financing source for busi-ness investment. Half of this corporate taxcut is assumed to be linanced by reducedFederal spending, in particular, throughcuts in grants-in-aid to state and local gov-ernments; the other half, at least initially,by means of a larger Federal deficit.

Corporate tax modification- have beenproposed by some policy makers as an ef-fective means of promoting investment,and consequently, raising productivity andeconomic growth. The goal in this forecast

was to determine the extent to which eco-nomic growth is, in fact, increased and thedegree to which the elderly share in it.

Expanded Income %infers

In this economic forecast, we analyzed theimpact of guaranteeing the elderly a mini-mum level of income. Specifically, it wasassumed that new Federal transfers wouldbe established guaranteeing all elderlyfamilies the BLS Intermediate Budget for

R

a Retired Couple ($8,562 in 1979) and anequivalent budget for single elderly indi-viduals ($4,941 in 1979). It was assumedthat these new transfers would be financedby increased personal tax revenues. In thebaseline it was assumed personal tax re-ductions to partially compensate for infla-tion induced "bracket-creep": thus, in thisforecast, these bracket-creep personal taxreductions are, in fact, reduced.

IV. FINDINGS

In this section, we present extractions and analyses of major DRI findings. These findings,along with other information, were reviewed by our committee in terms of their implicationsfor current and future policy actions. The results of our review, developed as key committeeconclusions, follow each major finding.

IF GOVERNMENTAL POLICY TOWARD THE ECONOMY AND THEAGED DOES NOT CHANGE, THE FUTURE MAY BRING THEFOLLOWING

1. Real Gross National Product (GNP)and consumption growth will slow sub-stantially from the rates achieved inthe 1960s and 1970s, while inflationwill moderate only slowly.

The baseline analysis of the futureperformance of the economy is sum-marized in Table 1. Average annualgrowth in real GNP is projected todecline from 3.1% in the 1965-1980period to 2.5% over the next 25years. After a period of moderategrowth, coinciding with economic re-covery from the current downturn,the growth rate is expected to declinecontinuously into the early 1990s.The economy in the 1990s is ex-pected to grow at a little more thanhalf the rate of the 1960s.

Potential GNP per person rose by anannual average of 2.6% in the 1960s.But this figure is projected to declineto about 1.6% by the mid-1990s. Thisdecline in potential output per personsuggests that expectations of incomeimprovements matching thoseachieved historically will be unreal-ized.

This sluggish growth reflects a signif-icant decline in labor-force growthand a continuing low relative level ofinvestment in business plant and re-search and development.

The historical and projected growthin the labor-force is illustrated in Fig-ure 1. Since 1970, the proportion ofthe population over age 18 has in-creased from 66.0% to 72.1%,swelled by the maturing of the post-war baby boom generation. Since thelast baby boom children were bornaround 1960, the number of potentialyoung new workers is already slow-ing. These numbers will decline for

14

many years. Thus, the average an-nual increase in the labor force is ex-pected to decline to about 1.1% dur-ing 1980-2005 compared to the 1.9%average growth achieved during1965-1980.

Key Economic ParametersUnder Current Policies

(Percent)

1955-1980 1981-2005

Avg. Real GNP Growth 3.1 2.5

Avg. Inflation(Implicit GNP Deflator) 4.5 6.9

Avg. Unemployment Rate 5.5 6.3

Avg. Growth in IndustrialProduction 3.7 3.6

Avg. Labor-Force Growth 1.9 1.1

Avg. Fuel Import Bill(Percent of GNP) 0.9 3.7

Avg. Tax Burden(Percent of GNP) 29.5 34.1

Table 1

The silver lining in this rather pessi-mistic baseline economic outlook isthat the underlying rate of inflation isexpected to decline from 9-10% in1981 to 7-8% in 1990, and to as lowas 6% from 1995 on (Figure 2). Thisimproving inflationary outlook re-flects improvements in productivityresulting largely from anticipated in-creases in the rate of capital invest-ment by business.

With labor growth declining in rela-tion to capital, productivity perworker is expected to increase. Ofcourse, inflation could be far worsethan this outlook suggests if some ofthe unfavorable "shocks" we have ex-perienced over the past 15 years

3.5

3.0

2.5

2.0

1.5

1.0

.5

0

Rate of Labor Force GrowthBaseline Projection(Percent Change)

History Projection

1960 1970 1980 1990 2000

Figure 1

reoccur. While the baseline outlookhas not accounted for such shocks,they can't be ruled out and their oc-currence could have severe repercus-sions for many aspects of the econ-omy.

2. Real income of the elderly grows at amuch slower pace than in the past andthe income position of the elderly rela-tive to the non-elderly deteriorates.

Figure 3 illustrates the historical ex-perience and projected outlook forthe average income of the over 65segment of the population comparedwith younger age groups. Real in-come of the elderly has grown at anannual rate of 2.4°k since 1967, sig-nificantly higher than the incomegrowth of the non-elderly. In 1967,the average person over age 65 hadonly about 49% of the income of theaverage person under age 65. Thisfigure increased to. about 55% by1980. Improvements in private pen-sion. programs and Social Securitybenefits account for most of these in-come gains for the elderly.

10

8

6

4

2

The Core Rate of Inflation(Percent)

History Projection

1960 1970 1980 1990 2000

Figure 2

Over the next 25 years, average in-come growth of the elderly is antici-pated to slow to about 0.8% annuallySeveral key factors account for thisexpected decline. The first is theslowdown projected for the economyas a whole. The fortunes of all seg-ments of our population are more orless linked to the success of the econ-omy. As a general fact, however, eco-nomic growth, though slow, will pri-marily benefit the younger, workingpopulation. The second is that thebaseline outlook assumes a continua-tion of the protracted declines thathave occurred over the past 30 yearsin the labor force participation ratesof elderly men and women. Such acontinued decline would lqwer futurewage earnings of the elderly. Figures4 and 5 illustrate both the historicaland projected patterns of elderly la-bor force participation. While a con-tinued decline is a distinct possibility,these projections are highly uncer-tain.

Chronic high inflation, the dramaticincrease in employment among

10 1 5

Average Income of Those Over Age 65Relative to Those Under 65

Baseline Projection

1960 1970 1980

Figure 3

Labor Force Participation RateMenAge 65 and Older

1990 2000

1950 1960 1970 1980

Figure 4

11 1G

1990 2000

Labor Force Participation RateWomenAge 85 and Older

1950 1960 1970

women, the raising of the mandatoryretirement age from 65 to 70, and theshrinking supply of younger workersmay all act to reverse these long-termtrends without any overt changes innational policy.

Finally, a slowdown in the growth oftransfer payments is anticipated.While transfer payments grew in realterms at an average rate of 8.5%from 1953 to 1979, pressures to holddown government's share of total do-mestic spending are projected to re-duce this growth to 3.2% annuallyover the 1990-2005 period. Insofar as

Total Income Received by ElderlyFamilies and Singles as Percentage of Income of All Households

1980

Figure 5

1990 2000

the elderly have a large stake in suchtransfers, their real and relative in-come growth will suffer.

In combination, by the year 2005,these effects are likely to reduce theaverage income of people over 65 toabout 47% of the average for thenon-elderly. Viewed from anotherperspective (Table 2), while the pro-portion of the population over age 65will increase from 11.2% to 12.1%from 1980 to 2005 , their share of to-tal national incor will decline from11.6% to 1980 to 9.69' in 2005.

1980 1985 1990 1995 2000 2005Elderly Income (Billions 80's Dollars) 198.1 228.0 259.9 285.6 301.8 318.6Elderly Share of Total Income 11.6 11.1 10.8 10.6 10.1 9.6

Table 2

1412

The percentage of the elderly with in-adequate income declines significantly.Some substantial income adequacyproblems remain.

The proportion of elderly people withincomes below the conventional defi-nition of poverty has declined sharplyin the past two decades (Table 3).Over the period 1959-1977, for ex-ample, the proportion of people age65 and older living below the povertylevel declined from 35.2% to 14.1%.However, as Table 3 indicates, minor-ities and individuals living alone didnot fare as well as other elderlygroups.

While these improvements are en-couraging-and are often cited as ev-idence that the income problem ofthe elderly has largely been elimi-nated-most people agree that con-ventional poverty standards fall shortof even a modest standard of incomeadequacy. Therefore, for purposes ofmeasuring income adequacy, DRI'sstudies have used the Bureau of La-bor Statistics (BLS) IntermediateBudget for a Retired Couple ($8,562in 1979) and a related measure forindividuals ($4,941 in 1979). Al-though significantly higher than theconventional standards used to mea-sure poverty, the BLS :tandardshardly allow for a lavish existence(Table 4).

Using these higher adequacy stan-dards reveals a far more serious in-come adequacy problem among theelderly than is typically reported.DRI's analysis indicates that the per-centage of elderly with incomes fall-ing below the BLS standards in 1979were 53.7% for individuals and34.8% fo: families. As a result ofgeneral economic growth, thesefigures are expected to decline to38.3% and 23.0%, respectively, by2005.

While the proportion of the elderlyhaving inadequate incomes is ex-pected to decline significantly, thenumber of elderly households withinadequate incomes is expected to re-main fairly constant (Table 5). This is

due to the sharp increase in the num-bers of people age 65 and older be-tween 1980 (24.9 million) and 2005(31.8 million).

Incidence of Poverty Among The Elderly(Percent Below Poverty Level)

1959 1970 1975 1976 1977

Total 65 + 35.2 24.6 15.3 15.0 14.1White 33.1 22.6 13.4 13.2 11.9Black 62.5 47.7 36.3 34.8 36.3Spanish Origin N/A N/A 32.6 27.6 21.9

In Families 26.9 14.8 8.0 7.9 7.8

UnrelatedIndividuals 61.9 47.2 31.0 30.3 27.3Male 59.0 38.9 27.8 25.9 23.6Female 63.3 49.8 31.9 31.5 28.4

Sources: Current Population Reports

Table 3

Intermediate Level Budget for a Retired CoupleUrban United States

Autumn 1979

Total Budget' $8,562Total Family Consumption 8,047

Food 2,507Housing 2,862Transportation 820Clothing 378Personal Care 247Medical Care 842Other Family Consumption 390

Other Items 515

' Income Taxes are not included in the budget.Source: Bureau of Labor Statistics

Table 4

Elderly Households (000's)With Inadequate Income

Projected UnderCurrent Policies

1980 2005Elderly Individuals 4,249 (53.7%) 4,220 (38.3%)Elderly Families 3,004 (34.8%) 2,451 (23.0%)Total Households 7,253 6,671

13 ,.,.1.

Table 5

The expected improvements in in-come adequacy result from compar-ing improving real income with afixed standard of adequacy. In thisregard, it is questionable whether anystandard of income adequacy will orshould remain fixed in real terms inthe face of overall improvements inthe standard of living. For example,DRI's projections of average incomefor elderly families between 1980 and2005 indicate an increase from$16,608 to $20,746 (1980 dollars). Itis possible that the standard of ade-quacy itself may undergo upwardmovement during this period. If thisis the case, then the problem of inad-equacy may loom even larger thanthese results suggest.

4. Income differentials between varioussegments of the elderly population con-tinue to diminish, with elderly womengaining the most ground.

Average income figures for the eld-erly as a whole tend to mask incomedifferentials that exist between var-ious segments of the elderly popula-tion. Table 6 illustrates the baselineprojections of average elderly incomefor families, and for single individu-als by age groups. For example, in1980 an elderly woman had an aver-age income that was only about 85%of an elderly man's income. People72 and older had significantly lowerincome on average than younger seg-ments of the elderly population. Thiswas especially true for older elderlywomen.

Looking ahead, some narrowing ofthese gaps is expected. The averageincome of elderly women relative toelderly men is expected to improvefrom the 85% level in 1980 to morethan 91% in 2005. Older elderlywomen, in particular, will realize sig-nificant gains relative to other elderlygroups. Labor force participation ofelderly men, declining rapidly in re-cent years, is expected to continue todecline at a faster pace than the ex-pected decline for elderly women.This trend accounts for some of theincome improvement of elderlywomen relative to men.

14

Average Income of ElderlyFamilies and Singles by Age Group

Under Current Policies(In Real 1980 Dollars)

1980 1990

Single Men

2035

65 to 71 8,369 9,078 10,09472 + 7,454 8,101 9,042All 65+ 7,850 8,537 9,517

Single Women65 to 71 7,297 7,989 8,99872 + 6,255 6,885 8,528All 65+ 6,658 7,303 8,703

Families65 to 71 18,019 19,925 22,27072 + 14,984 16,675 18,874All 65+ 16,608 18,452 20,746

Table 6

But the dramatic increase in labor-force participation among non-eld-erly women is the key factor. As largenumbers of women with significantwork experience move into the eld-erly ages, their work-related entitle-ments to Social Security and privatepension benefits will boost average in-come. This result, however, will occurgradually because women in their40's and early 50'sthe oldest agesat which significant increases in laborforce participation have been occur-ringwill not be reaching retirementage until the late 1990s.

The largest income differentials existbetween singles and families. Fami-lies with elderly householders haveaverage income more than doublethat of elderly singles. Yet, an elderlysingle living alone requires well over50% of the income of an elderlycouple at similar living standards.Since women tend to live longer thanmen, there are proportionately largenumbers of single women, with lowincomes characteristic of singles.This situation exacerbates the appar-ent economic hardship of elderlywomen. The income gaps betweenelderly families and singles are ex-pected to show little narrowing overthe next 25 years.

The income differentials betweenvarious segments of the elderly popu-lation have particular significance forincome adequacy (Table 7). While53.7% of all elderly individuals cur-rently' have inadequate incomes (be-low $4941 in 1979), fully 59% of sin-gle elderly women age 72 and olderfall below this standard.

For older men, the correspondingfigure is 49.8%. However, by 2005,this significant gap is expected to beeliminated. By that time, it appearsthat the incidence of inadequacy willbe relatively independent of age andsex. Although this is a positive result,we can't lose sight of the substantialand continuing problem of incomeadequacy.

Percentage of Elderly With Inadequate Incomeby Family Status and Age

Baseline Projection

1979 1990 2005Individuals

Men 65-71 44.6 42.1 36.4Women 65-71 49.6 45.8 38.8Men 72 + 49.8 46.6 39.3Women 72 + 59.0 52.1 38.

All ElderlyIndividuals 53.7 48.7 38.3

Families withHeed 65-71 29.1 24.1 18.6Heed 72 + 41.4 35.5 28.5

All Elderly Families 34.8 29.3 23.0

Table 7

Committee Coachaion

Based on the preceding Wings, the Committee coactuded that our nadonal objective shouldbe to continue the progress that has been made over the past two decades in theeconomic status of the elderly. Older Americus have made strong gains in average incomesince the 1960's, and further phis are expected is the years ahead. Howeve4 slow generaleconomic growth, co.thmed high Wisdom, and slower growth in income transfer programs areprojected for the conga' decades if current policy trends continue.

Under this outlook, future income gains of the elderly would come at an agonizingly slowpace. The elderly would not eves share fully in the gradual gales achieved by the rest of thepopulation. This might be acceptable to the nation if the elderly already enjoyed adequateincomes, but a large part of our older population still suffers from inadequate economicresources. In the future, our objective should! be to promote larger galas in general economicwell being gid to insure that the elderly share substantially in these gains.

15

A GRADUAL INCREASE IN ELDERLY AND NEAR-ELDERLY LABORFORCE PARTICIPATION MAY HAVE THE FOLLOWING EFFECTS

1. The economy could show significantlong-term improvement.

The baseline outlook for the economycontemplates a continuing decline inelderly and non-elderly labor forceparticipation. Thus, a gradual in-crease in these rates to the levels pre-vailing in 1970 would eventually con-stitute a significant increase in over-

0.28

0.26

0.24

0.22

0.20 ...

0.18

0.16 ...

0.14 .0.12 ...

0.10

all labor supply compared to thebaseline. The 1970 participation rateof elderly men, for example, is morethan twice as high as the baselinerate projected for 2005 (see Figure6). Thus, by 2005, a return to 1970for labor-force participation rates forthe elderly would raise total employ-ment 4.7% above the baseline.

Labor Force Participation RateMenAge 65 and Older

History Projection

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1970 1975 1980 1985 1990

Figure 6

16

1995 2000 2005

Baseline Projection: ParticipationRates Continue to DeclineParticipation Rates Return toLevels of 1970

2;

The effect of expanded elderly em-ployment on the future performanceof the economy is summarized in Ta-ble 8. The average annual rate ofgrowth in real GNP is raised to 2.7%compared with 2.5% in the baseline.By 2005, this increased growth raisesreal GNP to 3.9% above the baseline.These results largely follow from theincreased consumption generated byhigher numbers of employed persons.Specifically, the average annualgrowth in consumption from 1980-2005 moves to 2.6% from the 2.4%growth rate projected for the base-line. This increased consumer de-mand also stimulates significant in-creases in business investment, de-spite large increases in labor supplyand incentives to substitute labor forcapital.

In the short-run, however, this eco-nomic expansion may add signifi-cantly to unemployment as the laborforce grows faster than employmentin an initially sluggish economy (seeFigure 7). By 1985, the unemploy-ment rate may be as much as 0.7 of apercentage point higher than in thebaseline. The increased unemploy-ment will be borne by the new elderly

and near-elderly job seekers who, inany event, will continue to receivetheir income entitlements from othersources. By the late 1980s, however,the economy is expected to becomevigorous enough to absorb most ofthese new elderly workers. They, inturn, will help offset declines in laborforce growth among the young and,thereby, fuel more rapid growth.

The expansion in economic growth isnot accompanied by higher inflation.By the mid-1980s and thereafter, in-flation averages about 0.2% lowerthan in the baseline. In the near-term, higher unemployment con-strains growth in wages and miti-gates against a surge in inflation. Inthe long run, inflation declines be-cause of the more rapid expansion ofproductive capacity.

2. Real income of those elderly and near-elderly willing and able to work in-c eases substantially.

Expanded labor force participation ofthe elderly and near-elderly willbring about significant gains in bothreal and relative income. By the late1980's and thereafter, almost all of

Labor Force Participation Rates of the ElderlyReturn to Levels of 1970

General Economic Effects(Averaged Over Entire Projection Period)

Average Annual Growth Rates:

Baseline1981-2005

With Higher ParticipationRates

1981-2005

Gross National Product 2.5 2.7Consumption 2.4 2.6Investment 3.1 3.3Government Spending 2.1 2.2Disposable Income 2.4 2.6

Other Economic AggregatesCPI Inflation 7.5 7.3Unemployment 6.3 6.5Share of Personal Income

in GNP (Percent) 81.9 81.8Share of Transfers in

Personal Income (Percent) 14.8 15.2

Table 8

17 22

7.9

1981-1985

Unemployment Rate(Five Years AveragesPercent)

6.3

1986-1990 1991-1995

the new elderly and near elderly job-seekers are expected to find employ-ment. For the average elderly house-hold, this will add almost $500 a year(1980 dollars) by 2005. Gains to thenear-elderly, those between the agesof 55-64, will be even greater, averag-ing about $1050 (1980 dollars) perhousehold by 2005.

While not fully reflected in DRI'sanalysis, increased employment ofthe near-elderly can help them intheir later years by providing greaterincome for savings. It can also helpexpand their opportunities to qualify

Baseline Projecticu

1996-2000

5 9 5.9

Projections Assuming An Increasein Labor Force Participation of the Elderly

Figure 7

18

2001-2005

for private pension and Social Secu-rity benefits. Younger age groupsgain 'less since the expansion of em-ployment' is' presumed to occur atolder ages. But the improved econ-omy eventually benefits them as well,raising their average income by about$100 (1980 dollars) in 2005. Sincethe elderly realize larger improve-ments in income, their average in-come position relative to the non-eld-erly increases from 47% to about49% by 2005 compared to the base-line.

While significant gains in average in-come are achieved, these gains arenot uniformly distributed among var-ious elderly groups. Table 9 illus-trates this point. Although the aver-age elderly household is better off by$500 in 2005 compared with thebaseline, elderly men ages 65-71 arebetter off by more than $1000; eld-erly women, in the same age group,by about $600. Conversely, elderlymen age 72 and older are projectedto have about $436 more; older eld-erly women, less than $300. In gen-eral, gains are larger for men thanfor women, and for the younger agegroups among the elderly.

Impact of Increased Labor Force Participation of the Elderlyon Average Income of the Elderly

(In Real 1980 Dollars)

1980 1990 2005

Single Men65 to 71 8,369 9,603 11,13472 + 7,454 8,350 9,476A1165 + 7,850 8,910 10,226

Single Women65 to 71 7,297 8,258 9,59972 + 6,256 7,027 8,809A1165 + 6,658 7,493 9,104

Families65 to 71 18,019 20,176 22,92772 + 14,984 16,217 19,137All 65 + 16,608 18,653 21,226

Difference From Baseline

Single Men65 to 71 0 525 1,04072 + 0 249 436A1165 + 0 372 709

Single Women65 to 71 0 269 60172 + 0 142 281A1165 + 0 190 401

Families1980 1990 2005

65 to 71 0 250 65672 + 0 141 263A1165 + 0 201 480

Table 9

19

24

It should be emphasized that gains inaverage income of the elderly may bemisleading. The income of those eld-erly who postpone retirement or ob-tain new jobs will be increased sub-stantially. For example, the averageincome of those additional elderlywho are employed (beyond those as-sumed to be employed in the base-line) would increase in 2005 by$4360 (1980 dollars). Those elderlywho are unable or who choose not towork would receive no direct incomegain.

Elderly men gain more than womenbecause it was assumed that partici-pation rates of the elderly return to1970 levels.

At this earlier period, men had muchhigher participation rates thanwomen. In actuality, it might be ex-pected that future employment activ-ity of the elderly would not be soheavily skewed towards men. Policiesto encourage employment should beaimed equally toward women andmen.

Although these results, in part, re-flect the assumptions regarding im-provements in labor force participa-tion, they also underscore an impor-tant fact: expanded employmentopportunities for the elderly can onlybenefit those elderly groups in a goodposition to work. In general, theolder and poorer elderlythose with-out significant employment histo-rieswill not be able to take full ad-vantage of such opportunities. forthis reason, expanded elderly em-ployment opportunities do not haveas large an impact on income ade-quacy as the improvements in aver-age income suggests. In effect, ex-

nded employment opportunitiesfo r the elder ya boon for many eld-erly groupsleaves unsolved theproblems of the poorest and most dis-advantaged elderly groups.

3. The improvement in the economy cansigmficantly expand the nation's ca-pacity to support programs assistingthe elderly.

The expansion in the economybrought about by increases in elderlyemployment produces a sijnikantincrease in

However,revenues (fiscal

dividend). However, this increasedoes not become significant until themid-to-late 1980s, at which time theincreasing elderly labor supply is al-most fully absorbed.

In DRI's analysis, it was assumedthat part of the potential increase infederal revenues would be used to in-crease government spending, whilepart would be given back in increasedperiodic personal tax cuts. By 2005,non-military purchases, grants-in-aidto states and localities, and transfersto persons have all been increased by3.7% above the baseline. In addition,by 2005, personal income taxeswould be reduced from the baseline17.6% of taxable income to 17.1%.Under such a division of the fiscaldividend, transfer payments in 2005would be above the baseline levels by$14.3 billion (1980 dollars).

Since the bulk of transfers goes tothe elderly, most of the incrementaltransfers could also be expected toflow to the elderly.

Of course, the actual division of anypotential increase in Federal reve-nues would be determined by the fu-ture electorate, and it is unlikely thatrevenue increases would be dividedexactly as assumed in our analysis. Infact, it is possible that the countrywould allow an even greater share ofthe fiscal dividend to flow to ex-

panded programs for needy segmentsof the elderly population, in particu-lar those elderly groups which cannottake advantage of expanded employ-ment opportunities.

Table 10 shows the potential for in-creased general revenues if effectivetax rates are kept at baseline values.Increased revenue will accrue. notonly to the Federal government butalso to state and local governments.By 2005, the combined potential forincreased general revenues at alllevels of government is over S40 bil-lion (1980 dollars).

This total does not include increasesin contributions to social insuranceprograms (such as social security),which would be expected to flow al-most entirely into ,ransfer payments.Rather, these potential increases ingeneral revenues reflect a considera-ble increased capacity to expand ex-isting programs or initiate new pro-grams to aid the elderly.

Fiscal Dividend From Increased Labor ForceParticipation of the Elderly(Billions of 1980 Dollars)

Increased General Tax ReceiptsAssuming Effective Tax Rates

at Baseline LevelsFederal Receipts State and Local

Receipts

1985 2.1 3.31990 6.1 5.21995 9.9 9.62000 16.9 14.22005 20.7 19.7

26

Table 10

Committee Conclusion

Based on the preceding findings, the Committee concludes that the country should start now toremove job barriers and to expand employment opportunities for the elderly. Both governmentand private sector initiatives will be needed to expand employment opportunities for thoseelderly willing and able to work. This policy is all the more important because labor forcegrowth is projected to slow during the 1980s. Increased work opportunities would allow manyolder Americans to improve their economic And general well being, and contribute to overalleconomic growth without adversely affecting the opportunities of younger workers.Although increased employment opportunities for the elderly will provide significant gains tothose elderly in a favorable position to participate, other elderly will not be benefited directly.Many of those elderly not directly affected will be in the most needthe oldest and frailestelderly and those with minimal job skills. However, increased employment of the elderly willgenerate additional government revenues which could be used to increase aid to needy groups,including the elderly. This increased government revenue could amount to a significant re-source if employment of the elderly returned to levels that existed just a decade ago.

21

OUR ANALYSIS OF INCREASED PERSONAL SAVING TO THELEVELS EXPERIENCED IN THE 1960s AND 1970s INDICATES THAT

1. Modest long-term gains in the econ-omy and income of the elderly are ex-pected.

Personal saving in the U.S. has un-dergone a significant decline in re-cent years. As Table 11 shows, sincethe early '70s personal savings as apercentage of disposable income hasdeclined from 8-9% to 5-6%. Therate of personal saving is usuallythought of as contributing to overallproductivity and economic growth, sothat a continued and protracted de-cline in savings is viewed by some asan alarming possibility.

The effects of an increase in personalsaving activity (to the levels sus-tained in the late 1960s and early1970s) on future economic perform-ance is su- nriarized in Table 12.Whi! 0-term effects are generallypositive, DRI's analysis suggests thatthe initial effects of increased per-sonal saving cause the rate of activityin the economy to fall relative to thebaseline. The increase in personalsaving produces a decline in con-

Increased Personal SavingMacroeconomic Effects

(Averages Over Entire Simulation Period)

sumer spending sufficient to discour-age some of the increased investmentthat might otherwise result from anexpanded supply of capital. The neteffect is short-term decline in eco-nomic activity. The magnitude of thisdecline may be extremely sensitive toshort-term capital requirements.These requirements, in turn, are typi-cally related to the extent to whichthe economy is operating at or nearcapacity.

Personal Savings As APercent of Income

1970 8.01971 8.11972 6.51973 8.61974 8.51975 8.61976 6.91977 5.61978 5.21979 5.21980 5.7

Table 11

Average Annual Growth Rates:

Baseline1981-2005

With Increased PersonalSaving

1981-2005

Gross National Pt ,,'uct 2.5 2.6Consumption 2.4 2.5Investment 31 3.5Government Spending 21 2.1Disposable Income 2.4 2.5

Other Economic Aggregates:CPI Inflation (Percent) 7.5 7.1Unemployment (Percent) 6.3 6.6Share of Interest Income

in Personal Income (Percent) 8.0 87Share of Parsonal

Income in GNP (Percent) 81 9 81.5

Table 12

2722

In the current slack economic envi-ronment, it is possible that increasingpersonal saving to 1960s and 1970slevels could reduce GNP growth forseveral years. Thus, by 1983, realGNP could be down by as much as0.8% relative to a baseline economywith lower saving. We regard thisnear-term result, however, as highlyuncertain. The need for capital in thefuture may be determined more byneeds to modernize and innovatethan by the capacity surpluses orshortages that may have dominatedyesterday's business investment deci-sions.

In any event, by 1986, real GNP islikely to have recovered from its ini-tial decline, and thereafter would beexpected to grow somewhat fasterthan the baseline as a result of pro-

ductivity improvements broughtabout by increased business invest-ment. By 2005, real GNP is expectedto be 2.5% above the level of thebaseline, but substantially below the3.9% improvement projected for aneconomy with increased elderly em-ployment. As a result of increased in-vestment and somewhat lowered con-sumption, inflation is expected to de-celerate starting in the mid-1980'sfalling to 0.4% below the baseline by2005.

The elderly will benefit from a reduc-tion in inflation. But direct incomebenefits to the elderly as a result ofincreased personal savings may be along time in coming (see Figure 8).The income of the elderly will im-prove as people who have engaged inthe increased savings activity for a

Impact of Increased Saving Activity on Mean IncomeElderly and Non-Elderly

Difference from Baseline Projection(1980 Dollars)

400

300

200

100

0

-100

-200

.1111

to.

1980 82 84 86 88 90 92 94 96 98

Figure 8

23 2 0"

00 02 04

Elderly

Non-Elderly

number of years reach retirementage. This relegates direct income im-provement for the elderly to the fu-ture. In the short-run, elderly incomeis likely to suffer as a consequence ofan initial decline in the economy. Buteven after the economy has recov-ered, it may take another 10 to 15years before the income of the elderlyshows even modest improvementcompared to the baseline. During the1990s, the gains in elderly incomethat might result from the gradualimprovement in GNP are somewhatoffset by a decline in the return onsavings to investors resulting from anexpanded supply of capital. Althoughthere are some small income distribu-tional and income adequacy effects,they too are small and relatively in-consequential.

2. A radical change in savings behavior isnecessary before personal saving cansubstantially add to elderly income.

Even at higher levels of personal sav-ing, Americans have typically spentmost of the earnings on their savingsinstead of reinvesting them to in-crease wealth and potential retire-ment income. For this reason, DRI'sanalysis of increased personal savingdoes not show substantial incomegains for the elderly as a result of ac-cumulated assets. Considering onlythe direct effects of new savings, per-sonal savings could be expected to in-crease the accumulated wealth ofboth the elderly and non-elderly pop-ulation by $5.9 billion (1980 dollars)in 1981, and about $550 billion by2005. The $550 billion increaseamounts to about 14% of the totalpersonal income projected for 2005.Interest alone on this increasedwealth increases aggregate income in2005 by about $35 billion, or only 1%of all income. While the elderly couldalso "dissave", that is, liquidate someof their accumulated wealth so as toadd to their current consumption,such dissaving would not add appre-ciably to their income if spread overtheir life expectancy.

24

For individuals to accumulate sub-stantial assets for their elderly years,therefore, it would be necessary to re-invest, not spend, earnings on theirsavings. While this represents a radi-cal departure from current personalsaving behavior, it could mean muchhigher personal savings rates as inter-est income on accumulated assetsgrows over time. There is debate onwhether higher personal saving couldbe promoted during these inflation-ary times. But evidence exists thatincreases can result from appropriatetax incentives. Personal saving inCanada, for example, grew from lessthan 4.5% in the early 1960s to al-most 11% in 1979 following a seriesof tax incentives instituted by thegovernment to promote personal sav-ing.

3. The economic effects of increased per-sonal saving could be improved iflinked with other policies encouragingincreased domestic private investment.

Private investment in the economydepends upon many factors, includ-ing the level of consumer demand,the availability and cost of capital,and the need for more modern plantand equipment. Although an increasein the personal savings rate willsurely decrease personal consump-tion in the short-run, its influence onbusiness investment and, beyondthat, to the economy as a whole willbe linked to the general economic cli-mate.

The record suggests that the levels ofdemand and utilization of productivecapacity are greater determinants ofbusiness investment than the availa-bility of capital. The short-termweakness in the economy suggestedby DRI's analysis, which results froma sudden increase in personal saving,reflects this history as well as the factthat the economy is now operatingbelow capacity. There is, however, asecond emerging viewpoint today:that the crucial issue now facingAmerican industry is "re-industriali-

2:-)

zation", the need to modernize plantand equipment, not just increase ca-pacity. This modernization requireslarge infusions of capital; therefore,an increase in personal saving couldquickly flow into increased businessinvestment, thereby minimizing oreliminating any short-term economicdownturn.

Whatever the ultimate validity ofthese points of view, it is evident thatincreased personal saving will make

more capital avail4le, but it maynot, alone, guarantee a level of in-vestment adequate to achieve strongeconomic growth. This suggests thatincreased personal saving should belinked with programs and policiesthat insure that available capital isput to use in a timely and effectivemanner. If new personal saving in-centives are adopted by the govern-ment, this dual approach to increas-ing investment may be all the moreessential.

Committee ConclusionsBased on our analysis of saving activity, the Committee concludes that government and theprivate sector should work together to encourage increased personal saving. We believe thatindividuals, during their younger and middle years, should be encouraged to take greaterresponsibility for their economic well-being in retirement. Unfortunately, chronically highinflation and government policies that favor spending over saving have helped produce theopposite behavior.

Our analysis suggests that it will not be enough to return current depressed saving activityback to previous levels. A radical change in saving behavior is necessary before personalsavings can substantially add to elderly income. New government savings incentives, coupledwith financial planning and saving and investment programs made available to employees byemployers, could foster needed increased personal saving and increased personal responsibilityfor retirement income security.

These programs to encourage additional saving must be coordinated with policies to ensurethat these savings are utilized fully. In addition to providing individual income security, in-creased saving provides opportunities to expand investment and future economic growth.However, these latter benefits may be lost in part if policies discourage business investment. Ifbusinesses are not given incentives to use increased savings for productive purposes, the resultmay be higher unemployment and smaller returns to individual savers.

3 025

IF GOVERNMENT ENACTS CORPORATE TAX MEASURES AIMED ATINCREASING INVESTMENT, OUR ANALYSIS INDICATES THAT

1. The economy will expand significantlybut this expansion will produce few di-rect benefits for the elderly.

Over the next 25 years, investmentoriented corporate tax measures cansignificantly enlarge the total size ofthe economic pie (Table 13). The dif-ference between real GNP and itsbaseline value grows steadily overtime, rising 4.2% above the baselineby 2005. This favorable result islargely a consequence of a 15.7% in-

investriient Oriented Tax CutsGeneral Economic Effects

(Averages Over Entire Simulation Period)

crease in business investment, whichis expected to grow at an annual rateof 3.6% compared with 3.1% in thebaseline. The increase in investmentleads to greater growth in productiv-ity and, therefore, a lowering of infla-tion. Beyond 1986, the rate of infla-tion is expected to average about0.3% per year below the baseline.This will provide a direct benefit tothose elderly who receive significantincome from fixed sources.

Average Annual Growth Rates:

Baseline1981-2005

With Investment OrientedTwo Cuts1981-2005

Gross National Product 2.5 2.7Consumption 2.4 2.5Investment 31 3.6Government Spending 21 2.1

Disposable Income 2.4 2.5

Other Economic Aggregates:CPI Inflation 7.5 7.2Unemployment 6.3 6.3Share of PersonalIncome in GNP (Percent) 81 9 81.7

Table 13

There are, however, some costs asso-ciated with these tax measures. Overthe short-run, the housing sector maysuffer somewhat as a result of in-creased demands for capital from thebusiness sector. However, from 1990on, total housing starts are abovetheir baseline values as housing re-sponds to the higher real incomesgrowing out of faster economicgrowth. The short-term housingdownturn could be reversed if in-creased personal savings programsare linked with corporate investmentincentives. A significant portion ofpersonal saving often finds its wayinto housing. In addition to housing,employment will also suffer for a

26

time as a consequence of increases incapital, but the effects are relativelysmall.

Although the increased economicgrowth produces direct benefits to allsegments of the population, a dispro-portionate share of these benefits goto younger age groups in the absenceof increased transfer programs (Fig-ure 9). By 2005, average income ofthe elderly is exptcted to be only$170 (1980 dollars) higher then inthe baseline economy, an increase ofabout 1.1%. For younger workers, av-erage income improves by $930(1980 dollars), 2.9% above the base-line.

3 J.

This result underscores a key point:faster economic growth will have thegreatest impact on those who mostrally share in ne functioning of theeconomy, especially wage earners.For the poor elderly (those withoutsignificant employment history) andthose elderly groups less able towork, general economic growth willnot affect their situation without im-

provement in direct government as-sistance programs, i.e. transfer pro-grams.

Finally, to the extent that expandedeconomic growth favors wage earnersmore than non-wage earners, policiespromoting expanded employment ofthe elderly (those shown to have posi-tive effects for the elderly) will be en-hanced.

Impact of Investment Oriented Tax Cuts on Mean IncomeElderly and Non-Elderly

Difference from Baseline Projection(1980 Dollars)

800

600

400

200

0I

1 1

se

0 :00/8"....imm.m....".."1"."............"I'mamlaw.......m"

-2001980 82 84 86 88 90 92 94

Figure 9

2. The capacity of the economy to provideassistance to the elderly is significantlyincreased.

DRI's ahalysis of the outcome of in-creased elderly employment shows anincrease in Federal revenues (fiscaldividend) and also a decrease in per-

27

96 98 00 02 04

Elderly

Non-Elderly

sonal income taxes. In effect, in-creased elderly employment signifi-cantly expands the capacity of theeconomy to redistribute income tothose elderly groups that are poorand can't benefit from expanded em-ployment opportunities.

Unlike increased elderly employ-ment, investment oriented corporatetax measures result in neither a fiscaldividend nor a personal income taxcut. The increased Federal revenuesthat would normally flow out of ex-panded economic growth are offsetby the loss of revenue sustained bygiving tax benefits to an expandingamount of investment. This might, atfirst glance, suggest that the capacityof the economy to assist the elderlyhas not been increased. However, thisis not necessarily so.

The benefits realized by younger seg-ments of the population and businesscould be shared with the elderly. Al-though this may require somewhathigher taxes, the net effect can leaveall groups substantially better ofthan in the baseline economy. Just asthe tax system can be used to createthe benefits, it can also be used to re-distribute them.

For example, if taxes of the non-eld-erly in 2005 are raised by $100 perhousehold, transfers to the elderlycould be increased by about $450 perhousehold. Projections show that in2005 there will be 97.6 million non-elderly households compared to 21.7million elderly households. Each dol-lar of increased taxes levied per non-elderly household could finance $4.50

in increased transfers per elderlyhousehold. Thus, while ? $100 tax in-crease would lower non-elderly pre-tax income from $930 to $830 abovethe baseline, the pre-tax average in-come of elderly households wouldmove from $170 to $620 above thebaseline. Considering the highermarginal tax rates of the non-elderly,this relatively small tax increasewould almost close the considerableafter-tax gap in income gains.

The tax increase required by theabove example totals about $9.8 bil-lion in 2005. This would raise the ef-fective personal tax rate projectedunder our corporate tax cut analysisfrom about 17.5% to 17.8% higherthan the 17.6% rate projected for thebaseline. Whether the non-elderlywould support such a tax increase is aquestion of national will and values.But a stronger economy can createan environment that is more condu-cive to such transfers. Although thepersonal tax rate would be higher, thenon-elderly would still have higherafter-tax income.

Committee Conclusion

Based on our analysis, the Committee concludes that policies should be pursued to promoteincreased private investment and economic growth. In the long-run a robust, growing economyis the best assurance that the nation's elderly will enjoy an adequate level of economic well-being. In an increasingly competitive world, aggressive and innovative investment activity byour business sector is needed to assure plentiful jobs that will allow workers to provide forretirement through saving, pensions and social security entitlements. An increasing economicpie will reduce the social tensions of efforts to redistribute income to those groups unable todirectly share in the nations economic fortunes.

The Committee has looked only at a policy of tax incentives to promote business investment,and the analysis suggests that such a program does have a favorable impact on investment,economic growth, inflation and income. However, the Committee realizes that many policieshave been proposed for promoting investment and/or economic growthfor example, policiesthat stimulate consumer demand. The Committee is not unanimous on the particular policiesthat should be followed to boost economic growth; however, we are unanimous in the prioritywe attach to economic growth as a national objective.

3^28

OUR ANALYSIS OF A GOVERNMENT TRANSFER PROGRAM GUAR-ANTEEING AN ADEQUATE INCOME FOR THE ELDERLY INDICATESTHAT

1. Guaranteeing income adequacy for theelderly through increased transferswould have little impact on the aggre-gate economy but would require signif-icant tax increaser.

Expanded income transfer programsare a direct way to address incomeadequacy problems of the elderly.While all of the other policy alterna-tives, including expanded elderly em-ployment, increased personal savingand investment oriented corporatetax measures, provide some improve-ments in income adequacy relative tothe baseline, Table 14 clearly showsthat only an income transfer programdirectly targeted on the poorest eld-erly can have a significant impact.Although the benefits to the elderlyof an expanded transfer program areobvious, such a program raises anumber of key questions: Whatwould be the effects on the aggregateeconomy? Can the country affordsuch a program?

The analysis of an income transferprogram guaranteeing an adequateincome for the elderly shows little, ifany, impact on the economy (Table15). GNP, for example, never variesby more than 0.1% from the baseline.There is, however, a slight increase ininflation owing to the small increasein consumption accompanying a re-distribution of income towards lowerincome individuals. The consumerprice index is only 0.2% higher in2005 than in the baseline.

Initial net costs for such a programwould amount to $18.6 billion (1980dollars) in 1981, and gradually de-cline to about $12 billion (1980 dol-lars) in 2005 (Figure 10). This de-cline reflects the continually improv-ing income position of the elderly inthe baseline economy relative to afixed adequacy standard.

Percentage of Elderly with Inadequate Income,by Family Status: Summary Table'

1979 1990 2005Elderly IndividualsBaseline 53.7 48.7 38.3Increased ElderlyEmployment 53.7 46.8 35.3Income Transfer Program 53.7 0.0 0.0Increased Personal Saving 53.7 48.6 37.6Investment Oriented TaxCuts 53.7 48.7 38.4

Elderly FamiliesBaseline 34.8 29.3 23.0Increased ElderlyEmployment 34.8 28.7 22.0Income Transfer Program 34.8 0.0 0.0Increased Personal Saving 34.8 29.6 22.9Investment Oriented TaxCuts 34.8 29.5 23.0

'Adequate income is defined for elderly familiesby the BLS Intermediate Budget Level for aRetired Couple ($8,562 in 1979), adjusted forinflation; for elderly single individuals by ananalgously defined budget for retired individuals(64,941 in 1979).

3429

Table 14

In the absence of any other changesin economic or social policy, the costof increased transfers would requirean increase in effective personal in-come tax rates averaging 0.4% overthe 1980-2005 period. In 1981, theseincreased taxes would amount toabout $160 (1980 dollars) per personin the labor force and would thereaf-ter decline as the real cost of the pro-gram declines.

Program of Guaranteed Income Adequacy For The ElderlyGeneral Economic Impact

(Averages Over Entire Projection Period)

Average Annual Growth RatesGross National ProductConsumptionInvestmentGovernment SpendingDisposable Income

Other Economic AggregatesCPI InflationUnemployment

Baseline1981-2005

(1980 Dollars)2.52.43.12.1

2.4

7.56.3

With Income AdequacyTransfers for the Elderly

1981-2005

2.52.43.12.1

2.4

7.56.3

Table 15

The merits of a guaranteed adequateincome program for the elderlyclearly do not rest on the effects ofsuch a program on the overall econ-omy. More, it is a choice that must bemade on the basis of benefit to theelderly and tax burden on the non-elderly. In this regard, the results ofDRI's analysis of increased elderlyemployment suggest an importantpossibility: that the increased Federalreceipts generated by expanded eld-erly employment be used to financeincreased transfers to the elderly. Ta-ble 16 compares the expected cost ofa guaranteed adequate income pro-gram with the increased potentialFederal receipts coming from ex-panded elderly employment. Thiscomparison shows that expanded em-ployment could, over the 1980-2005period, finance a substantial portionof the cost of the increased transfers,thereby reducing the need for in-creased personal taxes. Of course,this assumes that elderly employ-ment increases as outlined here. This

3n

may not be the case. Nevertheless,the comparison suggests that policiespromoting increased elderly employ-ment and transfer payments could belinked.

Program of Guaranteed Higher ElderlyElderly Income Employment

Increase in Annual Increase in PotentialTransfers Federal Revenues*

(Billions of 1980 Dollars)

1985 18 2

1990 17 61995 16 10

2000 14 17

2005 12 21

From Higher Elderly Employment

Table 16

20

15

10

5

0

Total New Transfers to the Aged to Guarantee Income Adequacy(Billions of 1980 Dollars)

1980 82 84 86 88 90 92 94

Figure 10

96 98 00 02 04 06

Total New TransfersNet New Transfers

milmiwele Imo New Transfers to OffsetWage and Salary Loss

Committee ConclusionBased on the findings of this report, the Committee concludes that a program of increasedincome transfers to the elderly may be the only way to quickly and significantly reduce incomeinadequacy among older Americans. Our analysis suggests that the size of such transfers(about $18 billion) would have a minimal impact on economic activity if financed throughtaxes.

Although the general economic impact of such transfers would be small, the tax burden on thenonelderly would be increased. In an environment of sluggish economic activity, such anincrease in tax burdens could worsen intergenerational social tensions. To reduce the chanceof such tensions, the Committee concludes that any program of income transfers should becoordinated with programs to boost economic growth and government resources.Policies such as increased employment for older Americans would increase tax revenuesavailable for transfers and reduce the need to increase taxes on younger persons. Policiesaimed at general economic growth, such as investment oriented tax cuts, would raise theincome levels of the nonelderly and make tax increases more palatable. Through a combina-tion of increased transfers, personal saving incentives, expanded employment opportunities forthe elderly and general economic growth policies, the nation can significantly relieve incomeinadequacy among the elderly, while improving the economic well-being of all groups insociety.

3136

Supplementary Statementto the report of the

Technical Committee on the EconomyWhite House Conference on Aging

by

Thelma Zwerdling and Bert Seidman

We agree with much that is in this report and particularly its principal conclusion that"strong and sustained economic growth is essential to the current and future well being of theelderly."

We are, however, troubled by two major themes in the report which, we feel, could beseriously misconstrued to the detriment of the elderly and the nation as a whole:

1. We agree that there should be expanded payments "targeted on those elderly mostin need and least able to provide for themselves." But such improvements in the income oflow-income elderly persons should not be exclusively through means-tested welfare programsas the report could be construed. Instead, major efforts should be directed toward strengthen-ing the income protection Social Security gives to lower income persons. Even if this is done,it will still be necessary to raise the payment levels of the Supplementary Security Incomeprogram in order to raise the incomes of the poorest of the elderly to a decent level.

2. We recognize the need for increased investment aimed at improved productivity andeconomic growth. However, the reliance the report suggests should be placed on opening upnew tax loopholes in an effort to expand savings and investment would unduly benefitwealthy individuals and large corporations.

Appropriate and limited use of carefully drawn tax credits targeted on potential growthsectors of the economy might be beneficial. We do not think that savings, which in significantamounts are possible only for higher income persons, should receive any more favorable taxtreatment than wages or other forms of income. Tax credits have the same effect as govern-ment subsidies or other government expenditures. They should not be used to favor thewealthy at the expense of the rest of the population.

3

32

U G GOVERNMENT PRINTING OFFICE 120-019/61491

The following Technical CommitteeReports have been published:

Retirement IncomeHealth Maintenance and Health PromotionHealth Services

Social and Health Aspects of Long Term CareFamily, Social Services and Other Support SystemsThe Physical and Social Environment and Quality of LifeOlder Americans as A Growing National ResourceEmploymentCreating an AgeCreating an AgeCreating an AgeCreating an AgeCreating an AgeCreating an AgeCreating art AgeResearch in Aging

Integrated Society:Integrated Society.Integrated Society.Integrated Society:Integrated Society.Integrated Society:Integrated Society:

Implications for Societal InstitutionsImplications for the EconomyImplications for the Educational SystemsImplications for Spiritual Well-BeingImplications for the FamilyImplications for the MediaImplications for Governmental Structures

Experts from various fields were appointed by the Secretary ut Health and Human Services to serve on 1h lcchnteal Com-mittees, each charged with developing issues and recommendations in a particular area for consideration as h.R.kpr011Ild Ma-terial for the delegates to the 1481 White House Conference on Aging.

the 1981

White HouseConference

on-416'ng

Executive Summary of

Technical Committeeon

CREATING AN AGE INTEGRATED

SOCIETY: IMPLICATIONS FOR

THE ECONOMY

TCES - 1

NOTE. The recommendations of this document are not recommendations of the 1981 WhiteHouse Conference on Aging, or the Department of Health and Human Services Thisdocument was prepared for the consideration of the Conference delegates Thedelegates will develop their recommendations through the processes of their nationalmeeting in late 1981.

3f)

TECHNICAL COMMITTEE MEMBERS

Morrison H. BeachBoard Chairman & Chief Executive Officer

The Travelers Insurance Company, CT

Anna V. Brown, Executive DirectorMayors Commission on AgingCleveland, OH

Elinor C. Guggenheimer, PresidentCouncil of Senior Citizens CentersNYC

Marshall Holleb, MBA, MIA, JDBoard Chairman & Chief Executive

OfficerUrban Association of Illinois

William F. Kieschnick, President& Chief Executive Officer

Atlantic Richfield Company, CA

Richard L. McDowell, Ph.D.Dean & Professor, School of

ManagementSuffolk University, MA

Aida Perez, MA, JDCom. Puertoriqueria deGericultura, PR

Esther Peterson, AB, MASpecial Assistant to the

President for ConsumerAffairs, 1976-1980

Bert Seidman, DirectorDepartment of Social Security,AFL-CIO

Washington, D.C.

Thelma Zwerdling, MAConsultant, Women's Research

and Educatior.al institute ofthe Congresswomen's Caucus

Washington, DC

COMMITTEE STAFF, CONSULTANTS, EXPERTS

Matthew Lind, Vice PresidentCorporate Planning & ResearchThe Travelers Corporation, CT

Peter Libassi, Esq.Washington, DC, Counsel forThe Travelers Corporation, CT

Stephanie Ross, ConsultantWashington, DC

Lynn Bonde, Research AssistantOffices of the Washington, DC,Counsel for

The Travelers Corporation

Juanita Horton, BS Pharmacy,MBA, MPA, R. Ph.

White House Conference on AgingStaff

401

HIGHLIGHTS

Our national objective should be to continue the progress that has been made over thelast two decades in improving the economic status of the elderly. We are convinced,however, that this objective cannot be achieved in the midst of a national economyconfronted with high inflation, low saving, slow-growth, high unemployment, andsignificant und,rutilization of productive capacity, much of which is in need ofmodernization.

While members of our committee may differ as to the best measures that ought to betaken to assure a strong economy, we are unanimous in our conviction thatstrong andsustained economic growth is essential to the current and future well being of theelderly.

Within the broad context of a national commitment to ect.lomic growth, we specifi-cally conclude that:

The country should start now t' _pand employment opportunities for theelderly. Both government and private sector initiatives will be needed to expandemployment opportunities for those elder1,7 willing and able to work. As thenumber of younger workers entering the workforce slows during the 1980's,increased work opportunities would allow the elderly to improve their economicand general well being, and contribute to overall economic growth withoutadversely affecting the opportunities of younger workers.

Government and the private sector should work i.o,;ether to encourage and fosterincreased personal saving. Additional government saving incentives, coupledwith financial planning and saving and investment programs made available toemployees by employers, will foster increased personal saving and increasedpersonal responsibility for retirement income security.

Only an increased income transfer program targeted on the poorest elderly canquickly and significantly reduce income inadequacy. The country should com-mit itself io providing a truly adequate income to the neediest elderly. Althoughsuch a program would not have significant impact on the overall economy, itscost (up to $19 billion in 1981) could add significantly to taxes (almost $160 in1981 per worker). Economic growth can make the country more willing and ableto carry out this commitment. Expanded elderly employment, for example, has

41;

a favorable impact on economic growth and could add almost $40 billion (1981dollars) to governmental coffers by 2005, without new taxes.

The country should pursue policies encouraging increased domestic privateinvestment aimed at improved productivity and economic growth. Through itspositive effects on economic growth and productivity, investment oriented cor-porate tax measures could produce modest income improvements for the elderlyand more significant improvements for active workers. Some of the addedincome of workers could be transferred to the elderly and still leave all agegroups substantially better off than in a slower-growth economy. Linkingincreased personal saving with policies promoting increased investment couldlikely enhance these results by assuring greater availability and timely utiliza-tion of capital. While our studies focused on investment oriented corporate taxmeasures, this should not be construed as a preference by the Committee for thispolicy versus other approaches to economic growth.

2

SUMMARY

INTRODUCTION

Progress has been made over the last two decades in increasing the real income of theelderly and improving ther economic status relative to the rest of the population.These gains, in part, reflect improvements in Social Security, private pensions, andother income and in-kind assistance programs which were all made possible by agrowing and more productive economy. They also grow out of an increased aware-ness of personal and social responsibility toward the elderly.

Despite this progress, problems still remain. Although poverty among the elderlyhas been significantly reduced, many continue to lack adequate in'omes. In particu-lar, the decades of discrimination, poverty, unemployment, limited education, and alack of comparable compensation have d'-nied many older women and minorities theskills, the work and earnings experience and often the health necessary for them tosecure and maintain a decent standard of living in their older years. For these samereasons, such elderly individuals are not in a position to avail themselvesof employ-ment opportunities. And those elderly who can work, and who want to, must fre-quently face discriminatory practices and retirement policies that encouragewithdrawal from the workplace before they are ready.

We believe that it must be the objective of national policy to achieve continuedimprovement in the overall economic position of the elderly, with special attentionfor those among the elderly most in need and most vulnerable: the frail elderly,elderly women, elderly minorities, and elderly men with few employable skills.

Our challenge is to achieve this objective in the face of an aging societyto forgepolicies that will achieve gains for current and future generations of elderly withoutcreating inter-generational conflicts. All Americans have a stake in this goal forvirtually all of us desire to secure the well being of our parents and to provide for ourown old age.

3

4"0

OBJECTIVES OF THE TECHNICAL COMMITTEE

It is our unanimous belief, that no single strategy or policy can adequately addressthe diverse economic needs of the elderly. Rather, a combination of strategies"involving personal, corporate, and governmental initiatives" is what we feel isneeded. The needs of those elderly in good health and with strong-desires and capabil-ities to continue employment are far different than the needs of the frail elderly orthose elderly with low incomes and few employable skills.

With these thoughts in mind, our specific objective was to develop a number of eco-nomic strategies that in combination could address the diverse economic and socialsituations of current and future generations of elderly Americans. We saw this com-bined strategy* as consisting of four key parts:

1. Expanded elderly employment opportunities, to benefit those elderly willingand able to work and the economy as a whole;

2. Increased personal saving, viewed both as a supplemental source of retirementincome for those people able to save and as a source of capital to help finance gen-eral economic growth;

3. Expanded income transfer payments, targeted on those elderly most in need andleast able to provide for themselves; and

4. Measures aimed at promoting improved productivity and economic growth,which might directly benefit all segments of our population and, in particular,increase the capacity of our economy to meet the needs of the elderly.

Each part of our combined strategy was targeted to a particular problem, opportu-nity, or various segments of the elderly population. With so many elderly expressinga desire to work, and with the number of young labor-force entrants likely to declinein the fut'ire, we asked, "What would be the impact on the economy and the economicstatus of the elderly, if older Americans were once again encouraged to remain activein the workforce?"

In recent years, personal saving has declined sharply in Americ On an individuallevel, saving allows personsespecially those at the middle and upper incomelevelsto at least partially provide, during their workingyears, for their retirementincome. Personal saving can also provide capital that may be used to expand invest-ment and increase the productivity of the economy. We, therefore, asked, "What

*Note: A supplementary statement by Committee Members Thelma Zwerdli lig and Bert Seidman onpersonal saving, transfer payments and economic growth measures is contained in theCommittee's Final Report.

4

would happen if currently depressed saving activity could be brought back to thehigher levels of the 1960's and early 1970's?"

But expanded employment opportunities cannot really help the elderly worker whois physically wasted after years of backbreaking work, or the frail elderly person, orthe elderly woman or minority who never developed the skills or employment historyto make themselves employable. In particular, among older elderly personsagroup consisting largely of single elderly women living aloneexpanded employ-ment opportunities is not the answer. And increased personal saving cannot impactthe current generation of elderly, who are no longer earning significant wages. Norcan it help those future elderly who will not have significantly participated in theworkforce or have lived on low incomes during their younger and middle years. Forthese needy elderly segments, improvements in economic well-being can only comefrom increased public income transfer payments. Therefore, we asked, "What wouldbe the economic impact of assuring a more adequate minimum income for all of theelderly by means of a public income transfer program?"

Finally, we wanted to address the impact of economic growth directly. Althoughthere are various approaches towards stimulating economic growth, we chose tofocus on investment oriented corporate tax measures. Such measures have beenwidely proposed recently as an effective means for promoting business investmentwhich, if targeted to improvements in productivity and our international competi-tive status, could promote expanded economic growth and enhanced productivity.We therefore asked, "How would corporate tax measures aimed at increasing busi-ness investment influence the economy and the position of the aged?"

METHOD

Through a grant from the Corporation for Older Americans, our Committee was ableto secure the services of Data Resources, Inc., (DRI), one of the nation's most promi-nent economic consulting firms. Our first charge to DRI was to develop a picture offuture economic conditions assuming current policies and social trends prevail in thefuture. We wanted this "baseline" picture so we could have a basis against which tomeasure the impact of new strategies. We then asked DRI to study the impact of eachpart of our combined strategy on the economy as a whole and on older Americans inparticular.

The DRI studies were conducted using modern economic forecasting methods andlooked out 25 years to the Year 2005. The results provided us with detailed informa-tion regarding the overall economy and the income position of various elderly andnon-elderly segments of the population. These forecasts are largely based upon a

5

45

knowledge of the past which, because of rapid changes in the worldsocial, eco-nomic and politicalis no longer as reliable a guide to the future as perhaps itonce was.

The detailed results of the DRI studies are described in our final report to the WhiteHouse Conference on Aging. Although based upon strategies suggested by the com-mittee, DRI is wholly responsible for the analysis underlying these results. Whilemembers of our Committee do not necessarily subscribe to this analysis, and somemembers, in fact, disagree with parts of it, all of us felt that the DRI effort provided auseful backdrop against which to reach our conclusions.

CONCLUSIONS

We are convinced that a national objective to achieve continued improvement in theoverall economic position of the elderly cannot be realized in the midst of a nationaleconomy confronted with high inflation, low saving, slow-growth, high unemploy-ment and significant underutilization of productive capacity, much of which is inneed of modernization if it is going to be competitive in an increasingly internationaleconomic marketplace.

We view inflation, in particular, as an enemy of the elderly. It reduces the value ofsavings, depreciates the purchasing power of fixed incomes, and increases the cost ofthose goods and services that are critically important to the elderlyfood, heatingfuel and medical care. Moreover, when increasing inflation is combined with sag-ging productivity, the declining growth in everyone's standard of livingtheunfulfilled expectations for a better lifeerodes our national will and determinationto address the remaining economic and social problems confronting the elderly. Inthis regard, the hardships of inflation fall doubly-hard on the neediest elderly.

For these reasons, the members of our Committee believe that particular strategiesto achieve continued economic improvements for the elderly must be viewed in thecontext of a national commitment to address the fundamental ills ofour current econ-omy. And while we may differ as to the best measures that ought to be taken to assurea strong economy, we are unanimous in our conviction that strong and sustained eco-nomic growth is essential to the current and future well being of the elderly. A largerand stronger economy will increase our nation's ability to help disadvantagedgroups, reduce inflation and its corrosive effects on retirement income and nationalcohesion, serve as a hedge against unforeseen economic events, and, thereby, provideand protect jobsthe best assurance of an adequate retirement income.

Within the broad context of a national commitment to economic growth, we specifi-cally conclude that:

64 G

The country should start now to expand employment opportunities for theelderly. DRI's studies showed that, as the number of younger workers enteringthe workforce slows during the 1980's, new work opportunities would allow theelderly to improve their economic and general well being, and contribute to over-all economic growth without adversely affecting the employment opportunitiesof younger workers.

While the benefits of expanded employment opportunities will be concentratedamong those elderly willing and able to work, DRI's studies show that, whenspread across the entire elderly population, this expanded employment maymean almost $500 a year (1980 dollars) additional income by 2005 for the averageelderly household. For the economy as a whole. Gross National Product may beimproved by almost 4 ° /o. And this expanded economic growth could mean about$40 billion (1980 dollars) more in Federal, State, and Local revenues by 2005without increasing taxes. These additional revenues can be used to increaseassistance to the neediest segments of our population.

We believe that expansion of elderly employment can be achieved through agovernment-private sector partnership addressing such areas as elimination ofjob discrimination, re-training and re-education, and the restructuring of jobs topermit more flexible work arrangements. While expanded elderly employmentopportunities w ill not be the answer for all elderly groups and may not be suitedto certain industries we believe it is a sound strategy for the nation.

Government and the private sector should work together to encourage and fosterincreased personal saving. DRI's studies of increased personal saving haveshown that a substantial increase in personal saving will be necessary beforepersonal saving can significantly add to elderly income. Typically, mostAmericans spend the interest earned on their savings instead of reinvesting it toincrease their wealth and potential retirement income.

We believe that individuals, during their younger and middle years, should beencouraged to take greater personal responsibility for their economic well-beingin retirement. Yet, chronically high inflation and government policies that favorspending over saving have helped produce the opposite behavior. Thus, whilealmost 81% of Americans express a strong desire to save, only 39% are actuallyable to save on a regular basis.

We believe that government should create additional incentives to promote per-sonal saving. We also believe that American business, as employers, can helptheir employees to save through making financial planning and savings andinvestment programs available. In combination, we are confident that such initi-atives will, as has occurred in other countries, dramatically increase the per-

sonal saving of individuals, particularly at middle and upper income levels.These increases can add tc retirement income security.

Only an increased income transfer program targeted on the poorest elderly canquickly and significantly reduce income inadequacy. DRI's studies have clearlyshown that strategies for improving the economic status of the elderly whichdepend upon expanded elderly employment and increased personal saving can-not solve the income problems of those elderly groups least able to participatethe frail elderly, elderly women and minorities, and others who today are fre-quently without significant employment histories. For the same reason, currentand future elderly groups whose lives are largely lived outside our economicmainstream cannot directly share in the benefits of policies expanding economicgrowth.

We believe the country should commit itself tc providing the neediest elderlywith a truly adequate income, for example, an income consistent with theBureau of Labor Statistics Intermediate Budget for Retired Couples. DRI'sstudies indicate that the initial cost of such an income transfer program would bealmost $19 billion (1980 dollars) in 1981, but might decline to about $12 billion(1980 dollars) in 2005. If paid for by increased taxes, such a program would nothave a significant effect on the overall economy; however, it would increase per-sonal taxes throughout the 1980-2005 period, starting at about $160 for everyperson in the labor force in 1981.

These costs underscore the need for expanded economic growth, to create boththe economic capacity and national will to achieve the objective of providing theelderly with adequate income. We have already cited, for example, thatincreased elderly employment could add as much as $40 billion (1980 dollars) toFederal. State and Local coffers by 2005 without the need of additional taxes.These monies could be used to expand our assistance to the neediest among us.

The country should pursue policies encouraging increased domestic private invest-ment aimed at improved productivity and economic growth. DRI's studies ofinvestment oriented corporate tax measures (increased investment tax credits andliberalized depreciation schedules) showed significant potential gains for the econ-omy. The more than 15% increase in business investment which results from such taxmeasures is expected to add better than 4% to Gross National Product by 2005 andreduce inflation by about 0.3% per year beginning in the latter part of the 1980's.

For individuals, by 2005, this added growth is expected to produce about 1% moreincome for the elderly and almost 3% for non-elderly groups. Although non-elderlygroups realize greater income improvements, some of this added income could betransferred to the elderly and still leave all age groups substantially better off thanthey would be in a slower-growth economy.

8

Although we did not study increased personal saving in conjunction with investmentoriented corporate tax measures, these policies may be mutually reinforcing. Whilepersonal saving will make more capital available, it may not, alone, guarantee a levelof investment adequate to achieve strong economic growth. Therefore, linking per-sonal saving with policies promoting investment can provide greater assurance thatavailable capital will be put to timely use.

It should be noted that other approaches to investment and economic growthonesthat stimulate consumer demand, for examplemay also have potential for expand-ing the growth and productivity of the economy, although they may have somewhatdifferent inflationary effects. While our studies focused on investment oriented cor-porate tax measures, this should not be construed as an endorsement by the commit-tee. We are, however, unanimous in the priority we attach to promoting economicgrowth.

We believe that these broad recommendations represent a sound economic strategywithin which to fashion the detailed policies and programsboth public andprivatethat can lead to an age-integrated society and thereby provide a better lifefor current and future generations of elderly Americans.

9

4a

The following Technical CommitteeSummaries have been published:

Retirement IncomeHealth Maintenance nid Health PromotionHealth ServicesSocial and Health Aspects of Long Term CareFamily, Social Services and Other Support SystemsThe Physical and Social Environment and Quality of LifeOlder Americans as A Growing Niational ResourceEmploymentCreating an Age IntegratedCreating an Age IntegratedCreating an Age IntegratedCreating an Age IntegratedCreating an Age IntegratedCreating an Age IntegratedCreating an Age IntegratedResearch in Aging

SocietySociety.SocietySociety:SocietySocietySociety :

Implications for Societal InstitutionsImplications for the EconomyImplications for the Educational SystemsImplications for Spiritual Well-BeingImplications for the FamilyImplications for the MediaImplications for Governmental Structures

Experts from various fields were appointed by the Secretary of Health and Human Services to serve on I() I eclittical Com-mittees, each charged with developing issues and recommendations in a particular area for consideration dS haLkground 11 1,1

terial for the delegates to the 1981 White House Conference on Aging

50