Global thinktanks recognise a fundamental shift in the balance of power is needed — a reshaping of what we tax and when we tax it

In the US alone, 53 million people – more than a third of the workforce – are freelance , with 43% of these being millennials.

By Philip Inman, cross-posted from The Guardian

Here’s a silver lining for the younger generation struggling to find a decent job, affordable home and a sense of security: many of the world’s most respected policy advisers understand their plight.

The International Monetary Fund, the Organisation for Economic Co-operation and Development and the Institute for Fiscal Studies are chief among the respected organisations that have published reports putting the growing financial burdens faced by young people to the fore.

It’s true that in-depth studies of how to improve education, skills and general employability drop off the thinktank production line almost every month. And government ministers say they worry about it, hence the apprenticeship levy on businesses to promote in-work training.

But practical support for the victims of the modern market economy is not enough, and the global thinktanks know it. They recognize that a fundamental shift in the balance of power is needed to rescue young people and, by that virtue, the rest of society. And that means a reshaping of what we tax and when we tax it.

Not so much because they believe fairness is a goal in itself – more because their analysis tells them that the accumulation by certain groups of property and pension wealth, kept out of the clutches of the tax authority for the benefit of their children, creates a debilitating system of winners and losers. This system forces millions of young people into a new kind of serfdom, killing any chance of the team spirit needed to improve productivity.

This accumulation of wealth, not only by the top 1% identified by Thomas Piketty in his book Capital, but also by a broader group of middle-income earners over the age of 55 – the baby boomers – needs to be addressed. It is time to ease the taxes on income, making work pay, and start to look seriously at the best ways to limit the gains from property and savings.

At the moment, politicians are in thrall to the baby boomers and, to the dismay of the OECD and IMF, tax policy is going in the opposite direction.

Take the changes to university education funding as a case study. Developed by the Liberal Democrats and seized on by a Tory leadership desperate to make savings, it shifts a large proportion of the costs to students, who must take out loans to fund themselves and then pay back the loan through a new tax system.

The first crop of graduates face a combined tax and national insurance rate of 41% on annual incomes above £21,000, compared with the 20% income tax and 12% national insurance paid by non-graduates.

A recent announcement by George Osborne makes a bad situation worse. Should a graduate complete a master’s degree (pdf), they would need to pay another 6% from their income (over a set threshold) to cover the extra debt on top of the 9% for their bachelor’s degree.

College educations are another instance of young people paying through the nose for something that the previous generation had for free. And soon the situation will worsen when ministers, under pressure from the Russell Group of universities, allow the annual fees cap to rise above £9,000, leading to even bigger loans and a bigger bill for future generations to pay.

It’s not hard to understand why Osborne would want to protect the accumulated savings of the older generation from extra taxes at the expense of the young. Older people vote, and in large numbers. At the last election, the over-55s made up more than half of the electorate.

So it may need another government before a tax on property sits alongside income tax, national insurance and VAT as the main revenue earners. Not stamp duty, which only taxes transactions and hinders the movement of young workers around the country while inflating estate agents’ commissions, but an annual tax on property with the promise that those in work get to keep more of their wages.

Many analysts inside the OECD and IMF agree on this, aware that 70 years of wealth accumulation has brought the west to a point where trading in assets – the stocks and bonds in pensions funds and ever-inflating property – is more financially rewarding than working for a living. That needs to end or the UK, like other developed nations, will continue to allow the desperate search for income and security from ever-greater wealth to create a society that is poorer and desperately insecure.

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Only a third of US millennials identify as middle class, cross-posted from The Guardian

Millennials in the US see themselves as less middle class and more working class than any other generation since records began three decades ago, the Guardian and Ipsos Mori have found.

Analysing social survey data spanning 34 years reveals that only about a third of adults aged 18-35 think they are part of the US middle class. Meanwhile 56.5% of this age group describe themselves as working class.

The large downshift in class identity among young adults may have helped explain the surprisingly strong performance in Democratic primaries of the insurgent presidential candidate Bernie Sanders, who has promised to scrap college tuition fees and raise minimum wages.

The last time almost as many people from any other generation described themselves as working class was in 1982, when 56.1% of baby boomers chose this label. That year, the oldest boomers were in their late 30s, Ronald Reagan was in his second year of office, and Time magazine celebrated the advent of the personal computer.

Bobby Duffy, global director of Ipsos’s Social Research Institute, said the results, obtained from the University of Chicago’s 40-year General Social Survey, were surprising.

“You expect future generations to keep improving their social and financial situations and what I’ve seen is instead that, if anything, there is a contraction in the middle classes for this cohort. We’ve got the lowest level of young people counting themselves as middle class going all the way back to the 1970s, which is a surprise,” he said.

“Some of that will be lifecycle effect as young people leave home … and start to establish their own life and that may shift what class they’re in, but it is still the case that that is the longest decline that we’ve seen in other generations and it’s gone to the lowest level compared to other generations.”

Carolina Cadavid, a 26-year-old assistant buyer in Boston, said she went to college thinking it would put her on track to have the typical American lifestyle her parents envisioned for her when they emigrated to the US from Colombia, but now that she is armed with a university degree she considers herself working class. “I thought I would be way better off by now,” she said.

Cadavid had to take out student loans two years into college, an unexpected financial necessity she said had prevented her from hitting the standards for “making it”.

“I’m definitely scared, mostly because I’m paying so much for myself and for my student loans, so I can’t put that money into a nest egg,” she said. “How will I ever be able to put down money for a house? How will I be able to afford a wedding?”

Cadavid also sees her peers delaying typical markers of adulthood – such as moving out of their childhood home, getting married and starting a family – for financial reasons. “I know so many friends who are paying off student debt and who live at home – it’s uncharted territory,” she said.

The self-reported data in class perceptions among the youngest in the US align with economic data obtained by the Guardian in conjunction with the Luxembourg income study, which shows that despite 30 years of average GDP growth, younger US workers are much worse off in real terms than their parents.

Dakota Clement, 23, does not see himself as strongly belonging to a class group because he is a student who also works full-time, earning the minimum wage, to make ends meet.

“I am reluctant to say that I am in the working class because that gives me more of a blue-collar feeling, but I’m very much in the academic sphere and I am not really making any money off of it,” Clement said.

Dakota Clement at the Oregon State University campus.
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Dakota Clement at the Oregon State University campus in Corvallis. Photograph: Natalie Behring for the Guardian

The graduate student and teaching assistant, who lives in Corvallis, Oregon, says he is “less interested in having a successful stock market than I am in having government policies that help the wealth of this nation, that help the citizens of the nation”.

“The numbers that show up in the Wall Street Journal don’t concern me. What concerns me is whether or not I’m going to be able to afford to go to the hospital if I need to.”

By 2013, wages for under-35s had declined in real terms compared with those of people the same age three decades earlier, even when stripping out the effect of long-term unemployment during the worst recession in recent memory. This means millennials are much poorer than their baby-boomer parents were at roughly the same stage of their lives.

However, wages for older cohorts have risen substantially in real terms over the same three-and-a-half decades. As the boomers have aged into their later working life, they have continued to earn more than their own parents did.

Duffy added that the millennial shift towards more radical presidential candidates from both parties, Bernie Sanders and Donald Trump, could well be linked to their diminishing economic prospects, a phenomenon that has been matched in the UK with the election of leftwing stalwart Jeremy Corbyn as leader of the opposition.

“When the current system doesn’t seem quite so certain, people are of more of a mind to shake things up. That’s what these candidates do, in very different ways, they give that sense of changing a system that actually has been really tough on this particular younger cohort,” said Duffy.

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“Unfortunately there is a growing sense, somehow, that Britain’s best days are behind us rather than ahead,” said Alan Milburn, chair of the Social Mobility and Child Poverty Commission. “That is so corrosive. And so I think genuinely, the wind of change does have to sweep through the country.”

Milburn was responding to a week of coverage in the Guardian that has exposed the scale of the financial betrayal of twentysomethings. Over 30 years, young adults have slumped from being a well-remunerated cohort able to buy property, settle down and start families, to being the poor relation of society.

The chancellor, George Osborne, has been accused of using his budgets to protect pensioners from austerity and of concentrating fiscal pain on young adults and families. A series of cuts has affected young adults in the past six years, including the tripling of tuition fees, the scrapping of the education maintenance allowance, and the slashing of housing benefit for single people aged 25-35.

Milburn, a former Labour chief secretary to the Treasury who was appointed by David Cameron as chair of the social mobility commission in 2012, added that Britain may be about to face an “existential crisis”.

“What both the polling and the data suggest is that we may have reached an inflection point which, if these trends continue, we may become a society that is permanently divided. Certainly on home ownership, we’re heading for a world where rates of home ownership among young people are below 50% for the first time. If this trend line continues, we’ll be there by the end of the decade. It is a wake up and smell the coffee moment,” he said.

“This idea that the succeeding generation would do better than the previous generation is part of the glue that binds, as has been the notion that if you put in effort, you get a reward. Certainly I was brought up to believe that if you stuck in at school, you’d get on in life.

“Unfortunately, there’s pretty compelling data to suggest that that may no longer be the case and that has got huge consequences for social cohesion in our country. It almost feels like we’re facing an existential crisis about what sort of society we want to be,” he added.

The poll, conducted by Ipsos Mori, asked 1,000 adults: “When they reach your age, do you think today’s youth will have a higher/better or lower/worse quality of life than you/their parents’ generation, or about the same?”

About 54% of the country believe young people’s lives will be worse than their own generation’s, the highest proportion ever recorded, Ipsos Mori said. A little over one in five thought life would get better. That was little changed from November 2011, but nearly half as optimistic as the mood in spring 2003, when the question was first asked.

The population’s deep sense of foreboding about the next generation’s prospects is in stark contrast to an overwhelming recognition from those born before the second world war, and the baby boomers (born between 1945 and 1964), that they have a much better life than their parents.

The over-50s were overwhelmingly positive about their own life course. When those polled were asked if they felt their generation “will have had a better or worse life than your parents”, two-thirds of boomers and 81% of the pre-war generation answered it was better. The younger the respondents were, the more likely they were to be negative about their prospects: nearly half of Generation Y (those aged 18-35) – also known as millennials – believe they will be worse off.

Bobby Duffy, managing director of Ipsos Mori’s Social Research Institute, said the fact that a majority of the populace believed the lives of today’s young adults would be worse than those of their parents was striking. “It’s the highest we’ve measured – it’s completely flipped around from April 2003.”