Technical Paper Series 

Congressional Budget Office 

Washington, DC

Generational Accounts for the United States: 

An Update

Jagadeesh Gokhale∗

Federal Reserve Bank of Cleveland 

Benjamin Page 

Congressional Budget Office 

Joan Potter 

Federal Reserve Bank of Cleveland 

John Sturrock 

Congressional Budget Office 

February 2000 

2000-1 

Technical papers in this series are preliminary and are circulated to stimulate discussion 

and critical comment. These papers are not formally reviewed or edited, and the analysis 

and conclusions expressed in them are those of the authors and should not be interpreted 

as those of the Congressional Budget Office, the Federal Reserve Bank of Cleveland, or the 

Federal Reserve System. References in publications should be cleared with the authors. 

Papers in this series can be obtained by sending an email to techpapers@cbo.gov. 
Generational Accounts for the United States: An Update 

Although relatively new, generational accounting has been used in 26 countries to 

evaluate the generational stance of national fiscal policies.1 Generational accounting calculates 

the size of prospective net tax burdens and lifetime net tax rates that different generations face 

under current fiscal policy—information that standard budget presentations do not reveal.2 This 

method can also be used to calculate the policy changes required for achieving a generationally 

balanced and therefore sustainable fiscal policy—one that implies equal lifetime net tax rates on 

today’s newborns and future generations (those born after 1998). 

Calculations made two years ago suggested a sizable generational imbalance in U.S. 

fiscal policy, implying lifetime net tax rates on future generations that are 72 percent higher than 

those on newborns in 1995.3

 Since then, unexpectedly strong growth in both gross domestic 

product (GDP) and the tax share of GDP has boosted revenues, and slow growth in defense 

spending has reduced federal purchases as a share of GDP to a postwar low. Those 

developments augur federal budget surpluses for at least a decade and portend a corresponding 

reduction in the generational imbalance. 

This paper presents the latest generational accounts and lifetime net tax rates for the 

United States. As before, calculations are based on a reference path modified from a 75-year 

projection by the Congressional Budget Office (CBO).4

 The reference path used here 

incorporates a growth rate of labor productivity of 2.2 percent per year, a rate consistent with the 

historical record, given the most recent data revisions and changes in the measurement of prices.5

As expected, the reference projection suggests a much smaller generational imbalance 

than before. However, to consider the possibility that projected surpluses will not fully 
 2 

materialize, we calculate U.S. generational accounts under three alternative assumptions: faster 

growth in government purchases, lower federal income taxes, and a policy that maintains the offbudget (trust fund) surpluses through 2009 and “spends” the on-budget surpluses through a 

combination of lower taxes and higher discretionary spending. 

The reader is referred to earlier papers on generational accounting for a description of its 

methodology.6

 The following sections report the latest generational accounts for the United 

States under reference and alternative projections and describe policy changes that would achieve 

a generationally balanced fiscal policy in the United States.

I. Generational Accounts and Lifetime Net Tax Rates in the United States 

The generational accounts of those alive in 1998 exhibit a significant life-cycle pattern 

(see Table 1). The accounts of working-age generations are large and positive: they will pay large 

sums in taxes in the near future and will receive Social Security and Medicare benefits only after 

many years. Prospectively, retired generations receive large transfers but pay little in taxes, 

making their accounts negative. Women have smaller generational accounts than men of the 

same age. Compared with men, women earn less and hence pay lower taxes; they also live 

longer and often receive benefits based on their spouses’ earnings, making their transfers for 

health care and Social Security large relative to the taxes they pay. 

Under reference policy, the generational account for a 1998 newborn male is $122,100. It 

is $61,100 for a newborn female. Those figures imply a per capita residual burden on future 

generations of $142,500 for males and $71,300 for females. On a growth-adjusted basis, those 

payments by future generations are larger than those of 1998 newborns of the same sex by 14.2 

percent—the degree of imbalance implied by reference policy. 
 3 

Table 2 shows lifetime net tax rates for the reference projection (averaged across men and 

women). Under reference policy, people born in 1998 are expected to pay just over a quarter of 

their lifetime labor earnings to the government as net taxes. The accounts published earlier 

exhibited higher lifetime net tax rates for the youngest living generations. One reason for the 

lower rate reported here is that labor income is expected to grow more rapidly in the future. In 

addition, transfers for medical care are projected to grow faster, thus reducing net tax burdens on 

young generations. Higher projected income taxes partially offset these differences. 

Lifetime net tax rates have varied for people born during the 20th century (see Table 2). 

Given available historical data and the reference projection, the estimated rate is 23.3 percent for 

people born in 1900; it rises to 30.2 percent for those born in 1960, then falls back to 25.6 

percent for those born in 1998.7 The decline in the rate for successive generations born after 

1960 is due to longer life expectancy and—more important—the rapid growth since the 1960s in 

per capita transfers for health care and Social Security.

Tables 1 and 2 indicate that if living generations pay net taxes according to reference 

policy, 1998 newborns will pay lifetime net taxes of 25.6 percent, and future generations will pay 

29.2 percent. That implies that the reference policy is unsustainable. Either projected 

government purchases must fall, or the effective schedule at which people pay net taxes must 

rise—if not for current generations, then for future ones. 

II. Sensitivity to Alternative Assumptions 

The calculations reported above depend on economic and budgetary assumptions that are 

uncertain or debatable. For example, the reference projection assumes that nominal discretionary 

spending remains capped through 2002 and then grows at the rate of inflation through 2009. 
 4 

Those assumptions imply that, on average, real federal purchases would fall by 2.7 percent a year 

through 2002 and then grow at just 0.3 percent a year from 2003 to 2009. But it may prove 

difficult to rein in federal purchases to that extent. Federal income tax revenues are subject to 

similar uncertainty. The reference projection assumes that most of the recent unanticipated 

increases in federal income taxes as a share of GDP will be permanent rather than temporary. 

How are the accounts affected if we adopt different budgetary assumptions to allow for 

uncertainty? To find out, we calculated lifetime net tax rates and the degree of imbalance under 

three alternative assumptions: first, federal purchases grow after 1998 at a rate equal to the sum 

of the rates for labor productivity and population; second, federal income taxes as a share of GDP 

immediately fall from 11.9 percent to 10.4 percent—the average from 1970 through 1998; and 

third, the federal government preserves the projected off-budget surpluses under the reference 

path but “spends” the on-budget surpluses—half through lower income taxes and half through 

higher discretionary spending. 

Given the other reference assumptions, the alternative projections increase the degree of 

imbalance. Under faster growth in federal purchases, the lifetime net tax rate of living 

generations is unchanged, but that of future generations increases from 29.2 percent to 46.0 

percent—reflecting a generational imbalance of 79.9 percent. Maintaining federal income taxes 

at 10.4 percent of GDP reduces the per capita net taxes of those born in 1940 or later. Because 

they pay less, the lifetime net tax rate for future generations increases to 35.9 percent. 

Incorporating both alternatives raises it to 52.7 percent. Finally, maintaining off-budget 

surpluses for the next 10 years but spending the rest would require future generations to pay net 

taxes at an average rate of 32.3 percent. 
 5 

III. Policies for Eliminating the Generational Imbalance 

 So far, we have assumed that living generations pay net taxes as scheduled under 1998 

policy for the rest of their lives. However, if a fiscal schedule is unsustainable, lawmakers must 

eventually change it. Thus, we calculated illustrative policy changes that would achieve 

sustainability by equalizing the lifetime net tax rates of current newborns and future generations. 

 The policies examined involve immediately and permanently raising all taxes, cutting all 

transfers, or reducing government purchases. The resulting equalized lifetime net tax rates for 

1998 newborn and future generations differ by policy and require different dollar amounts of 

changes in taxes, transfers, or purchases in the first year of their implementation. 

 The results appear in Table 3. The rows list alternative ways of restoring generational 

balance, and the columns indicate the initial policy assumption. The first panel assumes that 

policy changes are initiated in 1999 and shows the percentage increases required in taxes (or the 

percentage cuts in transfers or in government purchases). The table also shows the equalized 

value of the lifetime net tax rate under each row-specific policy and column-specific assumption. 

Restoring generational balance under reference assumptions requires permanently 

boosting all taxes by 2.0 percent or hiking federal income taxes by 5.3 percent. Permanently 

cutting all transfers requires an immediate cut of 4.0 percent. Raising all taxes equalizes the 

lifetime net tax rates at 26.4 percent—slightly higher than the 26.2 percent rate needed if all 

transfers were cut; higher taxes mainly affect working-age generations, whereas the lower 

transfers compel greater net tax contributions from older living generations as well. 

Alternatively, all government purchases would have to be trimmed by 4.1 percent, or federal 

purchases alone would have to be cut by 12.5 percent. Cutting purchases does not change the net 

tax rates of living generations; it only reduces those of future generations. Even greater fiscal 
 6 

changes are required to restore generational balance under the alternative budgetary projections. 

Under the assumption of faster growth in federal purchases (column 2), for example, federal 

income taxes have to be raised by 29.9 percent. 

 The second panel of Table 3 shows that postponing such policy changes requires even 

larger changes later. Under reference projections, for example, a 5-year delay in trimming 

federal purchases increases the required percentage cut—from 12.5 percent to 15.5 percent. 

Moreover, waiting for 5 years before raising taxes or cutting transfers equalizes the lifetime net 

tax rates of 1998 newborn and future generations at a higher rate. That occurs because some 

living generations escape the higher net tax payments (through retirement or death), thus forcing 

larger lifetime net tax payments onto the remaining generations. 

IV. Conclusion 

Under the latest available long-term economic and demographic assumptions, U.S. fiscal 

policy remains generationally imbalanced, although less so than earlier. The reference scenario 

implies a lifetime net tax rate of 25.6 percent for 1998 newborns and 29.2 percent for future 

generations. The imbalance is greater under alternative budgetary projections for which the 

recent surge in revenues and decline in the growth of discretionary federal outlays do not persist. 

 At some point, projected government purchases must fall or scheduled net tax rates must rise—if 

not for living generations, then for future ones. 
 7 

Table 1: U.S. Generational Accounts (r = .06, g = .022) 

Present Values in Thousands of 1998 Dollars 

 Age in 1998 Net Tax Payment 

 ______________________ 

 Male Female 

 

 0 122.1 61.1 

 10 169.4 82.0 

 20 238.2 109.4 

 30 268.1 111.4 

 40 236.9 77.8 

 50 152.9 10.5 

 60 10.8 -95.6 

 70 -92.4 -135.9 

 80 -83.6 -112.3 

 90 -61.5 -74.3 

 FGa

 142.5 71.3 

 

 Percentage 

 Differenceb

 14.2 

_____________________________________________________________________________ 

a

 FG refers to future generations—those born in 1999 and later. 

b

 The percentage difference is calculated as GA(FG)/[GA(0)*(1 + g)], where 

GA(0) is the generational account of 1998 newborns and g = 0.022. 

Source: Authors’ calculations. 

Table 2: Lifetime Net Tax Rates Under Alternative Federal 

Purchases and Income Tax Assumptions 

Year of Reference Faster Growth Lower Faster Pur- Maintain 

 Birth Projection in Federal Income chases’ Growth Off-Budget 

 Purchasesa Tax/GDP and Lower Surplus 

 Ratiob

 Income Tax/ 

 GDP Ratio 

1900 23.3 23.3 23.3 23.3 23.3 

1910 26.5 26.5 26.5 26.5 26.5 

1920 27.9 27.9 27.9 27.9 27.9 

1930 29.2 29.2 29.2 29.2 29.2 

1940 29.6 29.6 29.5 29.5 29.6 

1950 29.9 29.9 29.5 29.5 29.9 

1960 30.2 30.2 29.3 29.3 30.0 

1970 29.7 29.7 28.2 28.2 29.2 

1980 28.1 28.1 26.3 26.3 27.4 

1990 26.4 26.4 24.6 24.6 25.7 

1995 25.8 25.8 24.0 24.0 25.1 

1998 25.6 25.6 23.8 23.8 24.9 

 

 FGc

 29.2 46.0 35.9 52.7 32.3 

Percentage 

Difference 14.2 79.9 50.9 121.6 29.9 

a Federal purchases grow with population and productivity after 1998. b

 Federal income tax/GDP ratio equals 10.3 percent. 

c

 FG refers to future generations. 

Source: Authors’ calculations. 
 8 

Table 3: Policies Beginning 1999 for Equalizing the Lifetime 

Net Tax Rates of Newborn and Future Generations 

 Reference Faster Lower Faster Pur- Maintain 

 Projection Growth in Income chases’ Growth Off- 

 Federal Tax/GDP and Lower Budget 

 Purchasesa

 Ratiob Income Tax/ Surplus 

 GDP Ratio 

Policies Begin in 1999 

 _Percentage Change ________________

Raise All Taxes 2.0 11.4 7.1 16.9 4.2 

Raise Fed. Inc. Taxes 5.3 29.9 19.7 47.1 10.9 

Cut All Transfers 4.0 22.3 13.2 31.5 8.1 

Cut All Govt. Purchases 4.1 19.6 13.8 27.7 8.4 

Cut Federal Purchases 12.5 57.2 41.6 83.8 24.3 

 

 ____________Equalized Lifetime Net Tax Rate____________

Raise All Taxes 26.4 30.1 26.5 30.2 26.5 

Raise Fed. Inc. Taxes 26.3 29.6 26.1 29.4 26.3 

Cut All Transfers 26.2 28.8 25.7 28.3 26.0 

Cut All Govt. Purchases 25.6 25.6 23.8 23.8 24.8 

Cut Federal Purchases 25.6 25.6 23.8 23.8 24.8 

Policies Begin in 2004 

 Percentage Change 

Raise All Taxes 2.4 13.7 8.5 20.4 5.1 

Raise Fed. Inc. Taxes 6.4 35.8 23.6 56.4 13.1 

Cut All Transfers 4.5 25.2 14.9 35.7 9.2 

Cut All Govt. Purchases 5.0 23.1 16.7 32.7 10.1 

Cut Federal Purchases 15.5 71.7 51.7 101.4 30.0 

 

 _______Equalized Lifetime Net Tax Rate___ ________ 

Raise All Taxes 26.5 31.0 27.0 31.4 26.8 

Raise Fed. Inc. Taxes 26.4 30.4 26.6 30.6 26.6 

Cut All Transfers 26.2 29.2 25.9 28.9 26.2 

Cut All Govt. Purchases 25.6 25.6 23.8 23.8 24.8 

Cut Federal Purchases 25.6 25.6 23.8 23.8 24.8 

a

Growth of federal purchases equals that of population plus productivity 

 after 1998. 

b

Federal income taxes/GDP ratio equals 10.3 percent. 

Source: Authors’ calculations.
 9 

References 

Auerbach, Alan J.; Gokhale, Jagadeesh; and Kotlikoff, Laurence J. “Generational Accounts: 

A Meaningful Alternative to Deficit Accounting,” in D. Bradford, ed., Tax Policy and the 

Economy, 5, Cambridge, MA: MIT Press and NBER, 1992, pp. 55–110. 

_______. “Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy,” Journal of 

Economic Perspectives, Winter 1994, 8(1), pp. 73-94. 

Congressional Budget Office. Long-term Budgetary Pressures and Policy Options, Washington, 

DC: U.S. Government Printing Office, March 1997a. 

________. An Economic Model for Long-run Budget Simulations, Washington, DC: U.S. 

Government Printing Office, July 1997b. 

________. The Economic and Budget Outlook: An Update. Washington, DC: U.S. Government 

Printing Office, September 1997c. 

________. The Long-term Budget Outlook: An Update, December 1999. Available at 

http://www.cbo.gov/showdoc.cfm?index=1806&from=4&sequence=0. 

Gokhale, Jagadeesh; Page, Benjamin; and Sturrock, John. “Generational Accounting for the 

United States: An Update,” Economic Review, 1997, Federal Reserve Bank of Cleveland, 

33(4), pp. 2–12. 

Haveman, Robert. “Should Generational Accounts Replace Public Budgets and Deficits?” 

Journal of Economic Perspectives, Winter 1994, 8(1), pp. 95-111. 
 10 

Endnotes 

* The authors thank Felicitie Bell for providing crucial population projections, Jonathan Skinner 

for providing data on Medicare expenditures, and Alan Auerbach and Larry Kotlikoff for 

providing very helpful comments. 

1 See Generational Accounting Around the World. Ed. by Alan J. Auerbach, Laurence J. 

Kotlikoff, and Willie Leibfritz, NBER and University of Chicago Press, Chicago, 1999. 

2

 A generation is defined as all individuals of a particular sex and born in a particular year. See 

Gokhale, Page, and Sturrock (1997) and CBO (1997b). 

3 See Gokhale, Page, and Sturrock (1997). 

4

 CBO (1999). The reference path is a modified version of CBO’s “maintain surpluses” scenario; 

one of several projections presented. 

5 Since the construction of the reference path, CBO has updated its 10-year economic and budget 

projections. A reference path consistent with the latest 10-year projections would be closer to 

generational balance than the one considered here.

6 For a more detailed description, see Auerbach, Gokhale, and Kotlikoff (1991, 1994). 

7

 The rates are ratios of population-weighted net taxes to population-weighted labor incomes.