Defusing the baby boomer time bomb: Projections of after-tax income in thetwenty-first century

There has been a major national policy debate over the prospective tax burd en facing future generations of workers as a result of the impending retire ment of the baby boom generation. However, the real determinant of well-bei ng is after-tax income, not the tax rate on before-tax income. This study c onstructs a series of projections of after-tax income, for workers and fami lies at different points in the income distribution, to examine the effects of several different trends. The author first calculates the extent to whi ch after-tax income can be expected to decline as the result of the aging o f the baby boomers, then calculates the impact on after-tax income for fami lies at different points in the income distribution of a continuation of re cent trends in wage inequality. He also constructs a category of "after-tax , after-health-care spending" income, which examines the impact of the cont inued rapid growth in health care costs. The findings suggest that the cont inuation of recent trends in inequality and health care cost growth will ha ve a much larger effect on future living standards than will the aging of t he baby boomers.