Gen O Discovers Washington's Debt Bomb

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You're breathing a sigh of relief because you've filed your taxes for 2011. But what if your taxes reflected the true cost of the federal government's annual expenditures? How much more would you have to pay?

To find out how much that true cost might be, go to Debt Bomb, a new 99-cent app launched last week for your iPhone, iPod Touch, or iPad. You key in your age, your income, your expected income over the next few years, and the software will give you your household's average tax bill to cover Uncle Sam's annual spending.

Then, through the app, you can email or tweet President Obama and your congressional representatives and tell them to cut spending, raise taxes, or some combination. To show them you are serious, you could tell them which programs to cut, whether agriculture, unemployment benefits, high-speed rail, mass transit, energy loan guarantees, or others.

Debt Bomb is the brainchild of 25-year old Kyle Smith, who's getting his MS in engineering at the University of Texas.

Working with some friends, he figured out a way to tell his contemporaries, and others who buy apps, how much the government's spending spree would cost if the government were to live within its means, just as do households and states.

Alternatively, the app can calculate taxes based on a target of holding the budget deficit to no more than 2 percent of GDP. Kyle wants the users of the iGadgets to see the consequences of the government's largesse.

Kyle and his buddies are members of Generation O, the young people who contributed, registered, volunteered and voted for Barack Obama with greater intensity than we have seen since at least the 1960 election of John F. Kennedy.

Ironically, the effect of President Obama's failed economic policies has fallen most heavily on them. Their unemployment rates and student loan debt loads have risen in tandem-along with federal debt, and the taxes that will be required to foot the bill for the failed stimulus.

Debt Bomb's assumptions start with the non-partisan Congressional Budget Office's projections of deficits over the next decade. Debt Bomb raises your assumed taxes to shrink the deficits.

You enter basic information such as your age, income, spouse's income, number of children, and state of residence. You can show your income increasing with inflation, or changing over the next decade. Debt Bomb estimates average taxes for your household under two scenarios: a balanced budget, and a deficit of no more than 2 percent of GDP.

Take two 25-year olds, a married couple earning $30,000 a year each in Massachusetts with no children. Their average taxes in 2011 would have been about $13,700. If the budget were balanced through tax increases, they would owe $18,900, or 38 percent more. If the deficit were on a sustainable 2 percent path, their average taxes would rise by $4,000, or 29 percent.

In a phone conversation on Tuesday, Kyle Smith told me that his longstanding interest in the deficit drove him to create Debt Bomb, which took him a year to build with his friends.

"The idea just came to me last year," he said. "I thought there had to be calculators that showed simulations of tax increases to cover the deficit because it's important to show the cost of maintaining government programs." When he couldn't find one, he decided to create it.

It's understandable that young people are concerned about their future tax burden. Their economic prospects are stark as the economy appears stalled in a rut of 2 percent annual growth, well below the 1947 to 2007 trend line of 3.4 percent a year.

The unemployment rate in 2011 for newly graduated men and women ages 20-24 with BAs was 9 percent, almost twice the 5 percent rate young adults experienced in 2006, as the recession has discouraged hiring.

These unemployment rates among Generation O not only suggest personal disappointment, but also large and lasting implications for them and for society.

In a new study, economists Philip Oreopoulos, Till von Wachter, and Andrew Heisz found that graduating in a recession leads to earnings losses that last for 10 years. Earnings losses are greater for new entrants to the labor force than for those existing workers who keep their jobs.

That may explain why Generation O has a fear of downward mobility, that they will not do as well as their parents.

Some young male graduates have been particularly adversely affected, with unemployment rates of 9.8 percent, compared to 8.3 percent for women. Five years before male graduates had an unemployment rate of 5.5 percent, and the rate for females was 4.5 percent. Male-dominated industries such as manufacturing have fared worse than female-dominated service industries, such as education and health services, which generated new jobs every month of the recession and the sputtering recovery.

As if lack of a job isn't bad enough, large increases in college tuition in recent decades mean that Generation O is climbing the career ladder with substantial debt. Students who graduated in 2011 left school with almost $23,000, on average, of student loans, the most ever, according to Howard Dvorkin, founder of Consolidated Credit Counseling in Fort Lauderdale. For graduates of some private colleges, law schools, and medical schools, debt to be repaid was even higher.

America has seen four years of deficits exceeding $1 trillion. In one neat app, Debt Bomb shows how Generation O will bear the brunt of this spending spree.


Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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