Brief Series • No. 11 • August 2000URBAN INSTITUTE AS THE BABY BOOMERS LEAVE THE WORK-

force, additional stress on programs designed to support retirees will build, and some combination of benefit reductions and tax (or other revenue) increases will be necessary to maintain fiscal balance in both Social Secu-rity and Medicare. Benefit reductions might involve further increases in the Social Security retirement age, selected reductions in cash benefits, or increases in Medicare cost sharing. Revenue increases could involve general revenue transfers to finance either the cash ben-efit or hospital insurance programs directly or to fund a transition to individual accounts, or a more traditional payroll tax increase. Both approaches would require financial sacrifice from some segment of the population. Relative to current trends, the income after taxes of either the working-age population or of the elderly popula-tion—or both—will have to be reduced. To date, too little attention has been paid to how different adjust-ment approaches affect who gets stuck with this finan-cial sacrifice. This brief explores a couple of these distributional consequences. It focuses first on the impact of Social Security and Medicare financing policies on the distri-bution of the gains from economic growth and then on the impact these policies would have on intergenera-tional transfers. A growing economy will allow both workers and beneficiaries to be better off in the future than they are today, but the relative rate of improvement for each group will depend on the particular tax and benefit changes that are used to balance Social Security and Medicare. This analysis finds that using increases in the payroll tax rate to close the projected Social Security and Medicare financing gaps would allow workers and beneficiaries to share the gains of future economic growth equally without imposing an undue burden on future workers