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Surplus is a chance to think of future

Self-denial has never been the strong suit of the baby boom generation, which for years ranked its priorities as sex, drugs and rock 'n' roll, and only recently added IPOs and SUVs.

But history, with its eternal fondness for irony, now is offering the boomers an opportunity to leave a very different political legacy. As the United States debates what to do with the federal budget surplus, the question largely may turn on whether the baby boomers, as the nation's largest voting bloc, want to spend it on themselves _ or are willing to make the kind of sacrifice for the future that lastingly marked their parents, the GI generation that came of age during World War II.

Over the next 15 years, the federal surplus is expected to total a staggering $5.9-trillion _ $3-trillion in the Social Security accounts and $2.9-trillion in the rest of the federal budget. So far, the debate over this windfall has focused on how the competing alternatives allocate benefits between the rich, the poor and the middle class. That's an important debate. But even more consequential may be how the plans allocate benefits between generations.

Carving out a huge tax cut from the surplus, as congressional Republicans are proposing, would primarily benefit workers who are middle-age and older _ that is, the baby boomers and their older siblings. Applying the surplus toward paying down the national debt, as President Clinton and Federal Reserve Board Chairman Alan Greenspan are urging, would produce the greatest benefits in 15 or 20 years, when today's young workers would reap the maximum advantage.

"We are poised to make a choice . . . that has a stark, black-and-white generational impact," says Hans Riemer, the 26-year-old director of the 2030 Center, a think tank focused on economic issues facing young adults.

Those generational choices are inextricably woven into the competing alternatives. Consider tax cuts. The 10 percent cut in marginal tax rates approved last month by the House concentrates its benefits on workers in their prime earning years. Seventy-eight percent of the benefits in the House plan would flow to families earning $100,000 or more, according to Treasury Department calculations. Those earning $35,000 or less would reap just 8 percent of the benefits. The proportions are similar in the Senate bill.

That's good news for baby boomers, less so for the generations (X and Y) behind them. Families headed by boomers (roughly those ages 35 to 54) now make up 57 percent of all working-age families. But they account for 68 percent of all families earning $100,000 or more and just 46 percent of those earning $35,000 or less, according to Census Bureau figures.

Notwithstanding the occasional Internet millionaire, the proportions reverse for younger families. Families headed by men or women under 35 constitute 28 percent of all working-age families _ but just 11.5 percent of those earning at least $100,000 annually. By contrast, young families make up nearly 40 percent of all families earning less than $35,000 _ the group that benefits least from the tax cuts.

Riemer sees another whammy for young families in the tax proposals. Both the House and Senate tax cut plans are structured so that their costs explode around 2010. The House plan is expected to cost the government more than three times as much in its second decade as its first.

That means the tax plans will open a trapdoor under the Treasury just as the baby boomers begin to retire, adding 3-million to 4-million new names a year to the Social Security and Medicare rolls. Riemer's prediction: That enormous strain on the budget will force Washington to repeal the tax cuts just as today's young workers reach the point when they could genuinely benefit from them.

On the other hand, using the surplus to reduce the federal debt gives its greatest benefits to the next century. Over the next 15 years, paying off the $3.65-trillion in federal debt held by the public would provide some immediate benefits for all Americans by helping to keep down interest rates. But the real payoff comes later as the shrinking debt reduces the federal government's enormous interest costs.

This year, Washington will spend $229-billion in interest on the debt (an expenditure exceeded only by defense and Social Security). As that number shrivels toward zero, it would give the next generation more flexibility to make its own decisions about how to spend tax dollars. It also would reduce pressure on 21st century workers to raise their own taxes to pay for the baby boomers' retirement. For that reason, "debt reduction . . . is a tax cut for future generations," says Robert Bixby, the research director for the Concord Coalition, a budget watchdog group.

It's an unnatural act for politicians to favor tomorrow's voters over today's. Even Clinton's plan, although admirably aimed at eliminating the publicly held debt by 2015, slights future generations by promising huge infusions of general revenue to Social Security and Medicare for the boomers' retirement, without demanding enough cost-cutting reform in return. Public investments (such as education and research) could offer more tangible benefits to future generations than either more spending on seniors or tax cuts. But, within a balanced package, giving top priority to reducing the debt may be the single most reliable way for today's leaders to nourish the next generation's economic opportunities.

It also might be the best way for the baby boomers to rewrite their epitaph. It's easy to overstate generational stereotypes. Yet the GI generation did consistently shoulder the burden of building the future. It defeated fascism in World War II, rebuilt Europe and manned the watch through the Cold War, paved the interstate highway system and constructed schools and great public universities for its children (almost half of all K-12 schools in use even today were built from 1950 through 1969). Compared with that, the boomers' record of public stewardship looks pretty thin.

Paying down the national debt isn't as profound a sacrifice as storming the beaches at Normandy. But if over the next 15 years the baby boomers become the first generation to eliminate the national debt since Andrew Jackson's, it might reverse the reputation for self-indulgence that's surrounded them since Benjamin Spock first counseled their parents to spare the rod. "It could," notes Riemer, "clean up the baby boom's image for the next 50 years."

Ronald Brownstein covers politics for the Los Angeles Times.

Los Angeles Times