How the Budget knife missed richer, older people

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By Leith van Onselen

John Daley, CEO of the Grattan Institute, has given a fantastic critique of the generational warfare inherent in the May Budget, which left untouched the ridiculously generous entitlements provided to richer, older Australians. From News.com.au:

Mr Daley said people over 60 years old were essentially able to enjoy a tax-free threshold of almost $55,000 a year because of super tax concessions. This is because they are able to put up to $35,000 of their income (before tax) into super, it will not be taxed and because they are 60 years old they can withdraw this money at any time.

This is regardless of whether they were actually retired. They can still be working but they can benefit as long as they are registered as being in the “transition to retirement phase”. They can freely take money out of their super funds and potentially pay no tax on the super fund’s earnings for the rest of their lives. Everyone else pays 15 per cent on super earnings, as well as paying income tax on everything they earn over $18,200.

“If you think this is outrageous, then you’re right,” Mr Daley said. “Young Australians should be furious about this.”

Even the controversial Commission of Audit suggested this perk should be pulled back but “apparently super is sacred”.

Many older people are also enjoying a generous aged pension scheme.

“You have to ask, why did the inquiry into welfare in Australia look into disability and unemployment benefits, which are growing at about the same rate as GDP, but explicitly exclude the age pension, which costs much more and is growing at a faster rate?” Mr Daley said… the aged pension was not well targeted…

“You can have a house worth $5 million and other assets of about $1 million and still get a part pension, well someone with $6 million in assets is not doing it tough.”

Daley is 100% correct. While the Budget attacked younger people via higher university fees and tighter restrictions to accessing welfare, it has largely left wealthier older Australians alone.

That said, the Budget represents more than a case of generational warfare. Rather, it is class warfare, whereby the poor have been mostly targeted for cuts over the rich. It just happens to be that the poor tend to be younger, whereas richer Australians tend to be older.

This view is perfectly encapsulated by the Freedom of Information (FOI) request lodged by Fairfax Media, which revealed Treasury modelling showing the measures introduced in the May Budget would be highly inequitable and punish lower income workers:

ScreenHunter_3581 Aug. 04 10.48

The combined effect is that an average low income family loses $844 per year in disposable income (earnings after tax and government payments) due to the budget. Middle income earners forgo $492; while a high income family is down by $517.

As argued by Daley, instead of punishing lower income families and the young, the Budget should instead have targeted Australia’s world-beating and poorly targeted tax concessions, which tend to favour higher income earners and wealthy retirees.

Superannuation is obviously a large part of the tax expenditure problem. In addition to the issues inherent with over-60s effectively enjoying tax free income, the superannuation concession structure also provides the lion’s share of benefits to higher income earners, whilst ignoring (or punishing) lower income earners (see next table).

ScreenHunter_3605 Aug. 05 09.00

Hence, according to the Murray Inquiry into Australia’s financial system, “the majority of superannuation tax concessions accrue to the top 20 per cent of income earners (Chart 4.3). These individuals are likely to have saved sufficiently for their retirement, even in the absence of compulsory superannuation or tax concessions”. 

ScreenHunter_3316 Jul. 15 13.21

The huge inequity of superannuation concessions, along with their massive (and growing) cost to the Budget, is the elephant in the room that the Abbott Government refuses to address. It is also a key reason why its Budget is widely viewed as being inequitable.

The means test for the Aged Pension is also way too lax. As noted by Treasurer Hockey on Budget night, “currently, an individual with a home and almost $800,000 in assets still qualifies for the age pension; a couple with a home and almost $1.1 million in assets also qualify for the age pension”. This level of taxpayer support is clearly more generous than necessary and allows precious tax dollars to flow to those that are not in genuine need.

All of which highlights why the Government must place superannuation and pension reform front-and-centre of its Budget repair job, with the principle aim of improving the equity and sustainability of the retirement system by ensuring that taxpayer assistance only goes to those in genuine need. Otherwise, richer older Australians will continue to receive a free taxpayer ride, while poorer segments of society (and the young, in particular) are required to shoulder the burden of Budget cuts.

A reform-minded government would also champion fundamental tax reform that broadens the base and shifts the tax burden away from labour and onto more efficient and equitable sources (e.g. land, resources and consumption), raising productivity in the process.

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Comments

  1. reusachtigeMEMBER

    Of course the budget knife missed the oldies. Like, derr! These are the better people of society that have contributed far more to this nation than any other generation… by investing the most in housing! Good on them!!

    • I think that your comments should be collected and put together in a little book of wisdom that all Australians should have in their possession. In fact, I believe that the citizenship test should be a sequence of ‘Did reusachtige say this?’.
      And your face should be on our million dollar note, which is only ever used to buy one bedroom apartments in the most lucky of suburbs in this, the most lucky of countires.

    • @reusachtige. Investing in housing? haha. You mean speculating and now hoping their investment nest eggs won’t blow up when NG is inevitably reformed. Mate, the mob made asset holders wealthy – they can also unmake what they made.

    • I think the budget knife was meant for poorer people of any age group. Low to middle (and that really means Median) paid workers don’t get these massive concessions on account of needing most of their income in order to survive. As per the graph, the top 20% get the lions share of it and seem to be fully protected.

  2. I will state foremost that I agree with most of what is said. Gen-X and after will not enjoy these perks but, over a lifetime, how much tax is fair? Have you not paid your dues if you have faithfully paid taxes over 40 years? The concessions are out of place.

    • Not only that, they’ll keep pushing the preservation age out. If you were born before 1960 you can get at your super at age 60. Born after 1965, you can’t get it until you’re 65. I reckon I’ll be 70 or 75 by the time I can get it, and it certainly won’t be tax free!

    • Paid dues?

      There hasn’t been a current account surplus in the life of the boomers, and stuff all budget surpluses.

      Everything they have earned they have spent. They’ve spent their parents legacy and are now hell bent on spending their kids and grandkids future.

      Paid dues, sheesh.

    • Methinks everyone was reading too hastily. I did not say I agreed with the concessions. I am stating that those currently over 60 are enjoying concessions that will not be enjoyed by future generations. Thinking of future generations though how are you going to draw a line? Everyone needs to nominate a death date and work backwards? You have the right to 5 or maybe 10 years of free retirement before you get locked away in a, probably foreign owned, retirement home to whom you surrender all your remaining assets.
      At some point, as a Gen-X taxpayer, you have put enough into the kitty. Tax consumption. That’s a bit more discretionary.

  3. Love those super charts Leith. How many times have you posted them now? Too many times is barely enough.

      • UE,

        Maybe I’m innumerate, but I think you underestimate the concession that super gives higher income earners. 15c in the dollar compared to 45 in the dollar is a 66% discount on tax payable. The 30c saving is 2/3 what would have been paid, is it not??

      • Keep it up UE, I redistribute what I can to whomever I can, & I presume others are doing the same, Thanks!

      • Hi Coolhand,

        Yeah, I can see that, but if you look at it like this…….

        45% tax rate on $100 = $45, 15% of $100 = $15, saving is $30. The non discounted tax due is $45, $30 is the saving out of 45, which is 66% discount on what tax was due??

  4. The reason there is not a lot of uproar is that Gen X’s parents are approaching 70+ years of age. Rocking the boat now will detrimentally effect their inheritance. Gen X is just grinding away because they know the pay day is just around the corner.

    Gen Y and younger are too busy with their heads in facebook to even look up and see what is happening around them. As long as they have enough cash to go out on the weekend and get pissed then they will continue to stay complacent. Sure, some have looked up and are voicing concerns but starting a facebook campaign won’t yield the viral results they so desire.

    If Gen Y want to see change they will have to wait for the next recession and hope that those in power enact real change and don’t kick the can down the road like their messiah Krudd did.

    Never waste a recession.

      • migtronixMEMBER

        Exactly!! The only inheritance of any worth with be not having the me me me me booMErs around any more. Oooooh for that blissful day…

    • There’s a large cohort of Gen Xer’s whose parents are the Silent Generation, silently squirelling away their pennies, having learned that habit from the Great Depression years. Those Gen Xer’s will probably do alright.

      Then there’s the large cohort of BB’ers whose parents were the Greatest Generation, and those parents were determined to make it good for their kids growing up in the prosperous, post-WWII world after the privations they went through. Those BB’ers & their offspring probably wont do too well, too much me, me, me that came about from such an upbringing.

      • Squirrelling away/saving, taking on little debt, living within my means, etc has turned out to be the path to financial failure – all the while the prolifigate specufestors have scored beyond their wildest dreams.

        I confused ideals with actuals once too.

        All will be fixed & fair when rates are normalised, but that’s unlikely with the unaccountable RBA.

      • migtronixMEMBER

        @Andy! Indeed and don’t you just love being lectured to by boomers/proto-boomers about how much we suck, instead of following my Grandads advice I should have splurged as much as I could possible get myself in debt to.

        #recrashnik

      • Andy!

        “All will be fixed & fair when rates are normalised”

        What’s a normal rate?

        What are you basing it on?

        What other normal conditions are you basing it on?

        What’s the chance of all things becoming normal so that we end up with normal rates?

      • There is also a large cohort of Generation X’ers whos parents immigrated to Australia in the late 1950’s and through the 1960’s from various parts of Europe. Most of them came here with very little, were uneducated yet were given the opportunity to work in the manufacturing sector and worked damn hard they did.

        The Generation X’ers like myself that were born between 1960 to the early 1970’s were nowhere near as “spoilt” (for want of a better word) as Gen Y or the Millennials. We were and are a transitional generation. Having to deal with the cultural baggage that our parents brought with them from Europe etc and also having to grow up in a Western Capitalist system.

      • I’ll tell you what is NOT normal, Escobar.

        Pricing debt at less than zero is not normal or sustainable.

      • Pat. Agreed.

        And having huge private debt is (as a result) not normal.

        High debt can’t function without low rates.

    • Dunno. I’m seeing a whole lot of Gen X’s and to a lesser extent Y’s who have bought the sales pitch and are busy building property empires just like mum, dad, Rupert and Sydney Morning Domain told them to. Should they feel reticent, they will given a friendly shove by supposed financial advisors like Bruce.

      http://www.realestate.com.au/blog/pessimistic-gen-x/

      • You can’t blame them can you?

        I’m going to throw a spanner in the works and suggest that there are a few other, underlying, less politically correct factors at work here.

        Feminism combined with unrestrained Female Hypergamy have had a profound influence on society.

        Use your Google-fu to look into that yourself.

      • Gen X and Ys may have started their property portfolios but they’ll never see reasonable returns. If they don’t realise that then they deserve to lose everything.

      • Yep, and no doubt their kids will be complaining about the unfair advantages mum and dad had too.

      • “” Yep, and no doubt their kids will be complaining about the unfair advantages mum and dad had too. “”

        I have no doubt they will. Because human nature is such that we are most aware of what we are able to see in front of us.
        What most of Gen Y and beyond will not be able to see is the big, corporate controlled pseudo-democratic globalist c*** that they will have shoved up their a**

      • The data and evidence is out there. I have no sympathy for those Gen Y’s who hock up now. They deserve what’s coming

      • according to my gen Y nephew, Im a grade’ A’ A-hole on account of not getting up to my neck in property investment, unlike his GenX dad who by the way was close to punching my nose when I suggested that house prices might fall one day. Gen Y boy (got a big A++ degree in something or other) also stated that he would not ever want to buy a house if prices dropped on account of that would defeat the purpose of buying a house, ie a only a mere home not a cash machine. Dad also wanted to punch my nose when I told him that equity withdrawal (his new ute, his new boat, holidays etc) is just a loan that has to be paid back, genY boy takes sides with him to explain to me in aggressive and certain terms that price increases is their money to spend as they please, their money, not a loan. ??? go figure Half the population is like this of all age groups, I hope all of them get what they deserve. And younger people are probably getting what they deserve (en-mass at least) on account of taking no collective political interest.

  5. rolling back rorts like this is all very well, but knowing our generation’s luck the rorts will be unwound just as we get into a position to benefit from them … so maybe dont protest too loudly. I am looking forward to being in a position in 8 years time to maximise super payments and avoid ludicrous tax rates – but I reckon by then these concessions wont exist.

    • Good point squirrel, and not singling you out, but sadly it is this belief which makes necessary change a lot harder than it should be. Many have seen the benefits of dodgy policy and hope to cash in too.

      How many years into the future can the benefits accrue to the same extent they have in the past. I’m sure the vested interests in charge will give it their best shot.

      Good luck with that.

      • agree Slambo – i gues the point i am making is our generation has worn the cost of a reduced tax base due to rorts. When we get into a position to reap the benefits of the rorts then they will be taken away. So we lose twice. Given super concessions dont really impact asset prices of necesary goods (eg like housing, except SMSFs which shoudl be removed) its a rort i am happy to live with. we pay a horrible amount of tax in this country, would like to reduce it anyway i can.

      • Hard to begrudge you for that view squirrel given a long and continuing history of boomers always escaping the cut off or being grandfathered from any negative effects of policy change. That carrot always seems to be just out of reach.

    • So when you are safe and cosy then its ok to pull up the rope? then what is the difference between you and a BBoomer that had it all on a plate it that is how you think?
      As a tail end BBoomer myself I have never seen all these opportunities and free rides that seem to have ben handed out like sweeties, I believe its only the top 20% getting the free rides and Im sure the top earning 20% of gen X and Y will also get everything.

  6. Nice piece, good analysis, well summarised UE!

    #GENYWAKEUP

    #openyoureyes

    #areyouevenenrolledtovote?

    • migtronixMEMBER

      Enrolled to vote for fucking who!?!?!?

      Get real dude no one you can vote for will do sh#t to help.

      • migtronixMEMBER

        @Windy its another Monday dominated by the sacrifice of the nations youth to the boomer juggernaut. Glad you’re chipper…

      • well I had assumed that the democratic process would be the best avenue, but if you propose some kind of revolution then I have large kitchen knives and a car

      • Uranium GeoMEMBER

        Hey bendy you are going to need a bigger knife the cancer is now bigger than the patient. 🙂

      • Enrolled to vote for fucking who!?!?!?

        The Greens. Least bad option.

        You want someone else to vote for? Start a party … or you could waste your time at a march with rainbows, beards and dreds.

      • migtronixMEMBER

        This time around yes the Greens are an option, last 10 years not so much..

        And yeah I’ll still be marching and you’ll still be entertaining idiotic melthouseian fantasies.

      • Even StevenMEMBER

        The Greens are not an option. But neither are Liberal or Labor. I am a disillusioned voter. So disappointing.

    • Get a democracy first.. 🙂 Remove the States and introduce Proportional Representation. People want to vote nationally but are forced to vote only within their constituencies.

    • Stormy WatersMEMBER

      The vote is emigration and the best and brightest of Gen Y are staunch supporters…we are running a generation out of the country.

      • Stormy where will you all go? What nation is crying out for the various skill sets represented by various would-be émigrés ? What nation for combination of employment, standard of living, lack of language barriers etc. A genuine question.

        I’ve been fortunate to work in a number of very interesting countries and recommend it if the opportunity arises – but I had the benefit of placements organised by employers and living costs etc catered for. It’s not always so straight forward.

      • migtronixMEMBER

        @HMV I believe the mantra is “Anywhere but here” but you wouldn’t know anything about that…

      • Uranium GeoMEMBER

        The younger generation are more adaptable. They will adapt and overcome. If you are in the sciences most of the work is done in english, meetings, writing, conferences are conducted in english.

    • Uranium GeoMEMBER

      @ Stormy

      You are right Australians are becoming the new Irish and the effect will be more accentuated as the remaining chapter unfolds.

      The apathy of the youth who remain silent on this is obscene. Reality TV and cheap money are a cancer which operates under a guise of the new black. C’mon everyone is doing it! Ponzi on up brothers and sisters, it’s more fun when your boomer parent’s generation are licking their lips waiting for their returns and egging you on.

      The last of the greater fools will be gen Y and the imported demand.

      What then? The sheep’s back is seen as Jason’s golden fleece but all that will be left is a mangey festering hide.

      *sigh*

      rant complete

      • migtronixMEMBER

        Don’t complete your rant there, THERE’S SO MUCH MORE!!

        All technological innovation will be sacrificed at the alter of the Boomer CashCow, you’ll be able to import some and you’ll import the tech support too, but Australian will be become a much more backward looking place with technologists seen as unwelcome uppidy types who don’t get the property ponzi…

    • Gen y are more concerned about brown people than themselves.

      Well half of them seem to be specufestors so who knows they might not end up being so dumb.

  7. A reform minded government would’ve…

    It appears no longer possible for a ‘reform minded’ Government to exist in Australia. Partisan agreement on the future direction of our economy and ensuring a sustainable budget structure for coming years no longer an interest of Labor certainly not an interest of the nuisance parties.

    The press has tied itself in knots attempting to portray unfairness and inequity instead of coming to grips with a looming $660,000,000,000 deficit that the young of today will shoulder the burden of repaying in the days of tomorrow.

    Remarkably, given the histrionics surrounding the comparatively small measures suggested by the budget, now we have the spectacle of a growing clamour from media for changes to some big ticket items like super and NG!

    Yeah, right.

      • ‘The Midyear Economic and Fiscal Outlook showed without “remedial action” and significant savings debt would blow out by to close to $700 billion – or around 26 per cent of GDP – by 2022-23.’

        Now that is unfair to the young.

      • That’s debt. You said deficit.

        In any case, 26 per cent of GDP is not that big a deal. We’ve had much bigger debt in the past without terrible consequences for subsequent generations. Our biggest debt to GDP ratio was at the end of the second world war, which was fought at great cost and won much to the benefit of future generations. This was followed by 30 years of rapidly growing living standards.

      • Yes, poor wording and I realised when seeing your first comment – I was too late to amend.

        It is the trajectory of the debt burden that is of concern.

      • Acme our banks get their super low cost foreign funds due to the Government’s AAA rating and guarantee. This is why the RBA hasn’t needed to go ZIRP on us yet.

        Moody’s have already told us they’ll re-rate us if government debt hits 30% GDP. This will increase banks borrowing cost and they’ll need to increase rates irrespective of what the RBA does.

        That is why the government is obsessed with our historically low debt levels. They’re worried about a housing collapse off the back of high unemployment and loss of control of monetary policy by the RBA.

    • All bullshit and obfuscation as usual 3diks. Nobody disputes that debt needs addressing, or that a failure to address it would be unfair to the young.

      It is the manner in which it is addressed which is being questioned, and you bloody well know it.

    • now we have the spectacle of a growing clamour from media for changes to some big ticket items like super and NG!

      Let me spell it out for you:

      They should have done the big ticket items first, when they had political capital to burn, like Howard did with the GST, and Hawke-Keating with the big reforms of the mid-1980s.

      Instead they burnt their capital pursuing idealogical-driven policies that were intended to send a message to the poor, the sick and the underprivileged. These measures delivered very little in the way of savings, but have come at huge political cost.

      This is not a view held only by rabid lefties, its a view held by pretty much everyone — including the Australian! — except it seems your good self.

      Now either you are in wilful denial of the bleeding obvious, or your head is so far up your arse you have completely lost touch with what mainstream Australia is thinking. So which is it?

  8. Daley understates the problem. The big rorts kick in at age 55. Not as big as from age 60, but still very big.

  9. You guys have got to stop talking about this and actually do something… Get a couple of senators in the parliament.

    There must be 500 people who come to this site… That’s a start.

  10. Good point made yet again about high value housing being exempt from assets tests, given that much of the value of that housing is derived from privatised economic rents.

    This is another sacred cow discussion, like inheritance taxes, that hardly anyone wants to have.

    It was interesting watching Dick Smith at the Press Club the other day. Dick said almost all his right wing business mates and politicians agreed with his points on unsustainable population growth, but no one was game to say anything about it. Funnily enough, at the same time he had an enormous amount of feedback from voters who also agreed with him.

    I don’t think the pollies have a clue what issues people really care about.

  11. ceteris paribusMEMBER

    This series of articles goes to the very heart of the matter with respect to the current Budget.

    It is indeed time for the LNP to move away from their pretty disgraceful imposts on the poor/young and start considering cutting the notorious tax concessions rorts (super, NG, CG discounts, novated leases etc) and tightening welfare means tests.

    But I am almost to the point of feeling sorry for the Government. They have taken a bashing, we’ll deserved,for their unfair budget. But lately in media appearances, key LNPers have been asking the Senate opposition parties to put forward their own suggestions to commence a budgetary rebalance.

    I reckon the LNP is probably now ready to consider the cutting of some tax expenditures and some tightening of means testing instead of attacking the poor. But being so battle-scarred, they are almost begging for some bi- partisan support from their rivals to achieve a fiscal win.

    Will Labor lend this support? upfront, Labor will give them nothing, even it is the fair and right thing for the nation. Labor may just allow some such measures to pass but will want the LNP to bear the full middle-class backlash for any savings proposals.

    Gee, this Lib/Lab Party is full of grubs. What did we, the people, do to deserve them?

    • “Gee, this Lib/Lab Party is full of grubs. What did we, the people, do to deserve them?”

      Part of the reason is that we had a nutcase called Rudd become Prime Minister and before that we had a pathetic little man called Howard become Prime Minister.

  12. I suspect that the rules will be changed so that many of us younger ones aren’t able to make a similar ‘transition to entitlement’ phase.

  13. Those super tax concessions shown in that tax table are imaginary.

    They accrue to the FIRE industry in fees.

    Superannuants get virtually none of it.

    If you increase the tax take, it is the young who pay the most due to the effect of compounding on their losses to the FIRE industry and tax.

    The Murray Report said 25% goes in fees.

    Saying that there is an advantage in the present system for superannuants is a con that helps only the FIRE industry.

  14. Our Government needs to get a backbone, stop pandering to politics & expediency and make significant changes rather than just tinkering at the edges of a broken funding model. With a focus on fairness and equity – especially cross-generational equity and wage vs capital earning equity, we can fix the budget whilst setting up the country’s future productive capacity. None of the suggestions are new and have been discussed at length on this website:
    1. Abolish negative gearing (at least ringfence so only against property income; initially could be restricted to one property per household).
    2. redress super-concessions (eg this article)
    3. remove capital gains tax concessions
    4. reintroduce carbon tax/ or an ETS (an economically efficient way of dealing with pollution)
    5. broaden taxes on “super profits” eg mining, banks
    6. simplify the welfare system whilst protecting the most vulnerable
    7. remedy distortions that prevent return to work (eg revisit childcare & family payments)

    Tax income generated could then be redirected to building the productive capacity of our economy – in R&D, new economy innovations, high technology industries and infrastructure. We can create jobs, boost productivity and move beyond housing.

    Shame our politicians are so beholden to the media cycle and interest groups rather than the national interest.

    • Sarah; you should add.

      8. Increase funding to education and health.
      9. Greatly decrease immigration / cut back on 457 visas.
      10. Crack down hard on illegal foreign ownership of Australian properties.

      • Hi, I’m not quite that left wing! I agree to 8, education in particular is a key driver of economic growth and well-being, although I disagree with you on 9 (&10).
        Personally, I think immigration is good for the economy
        Foreign ownership of properties isn’t such an issue per-se … we could just tax that higher if it was a policy decision to discourage such activity.

      • Charge all new immigrants and 457 Visa recipients with an infrastructure levy for the first five years of residency.

        I don’t see things as Left or Right wing anymore.
        I see it as what is practical, equitable and fair, sustainable and in the interest of the common good.

      • For most Australians to maintain a standard of living that we are used to, we are going to have to be just a little selfish when it comes to the rest of the world. We cannot be a liferaft for the untold billions of the second and third world.

        Often it is those that are the most pro-immigration, e.g. big business corporate types that have the most to gain from a “BIG” Australia while simultaneously being able to insulate themselves from the negative aspects of such a society.

  15. Have Grattan got any pull with anyone? It seems like they have been saying this forever and are pretty much ignored by everyone except MB.

    Does anyone from Grattan read MB?

  16. Funny. What would be even funnier would be to compare this with community medical costs by age decile.

    Feed your grey masters debt slaves

  17. A class mate I went to school with has her own business in helping people who normally can’t get credit, help them get credit, aka people who can’t afford it, to get a property. This is web-site she runs her business from.

    https://www.facebook.com/AmieTennant1

    Dated the 3rd of July

    -selling
    -refinancing
    -debt consolidation
    -purchasing
    -investing
    -smsf
    -personal loan finance
    -commercial finance

    Reading through her posts apparently she goes to sleep happy rafter “helping people” afford their own homes, and has “super low” interest rates of 4.66%

    Great she has her own business but she’s a shark and luring people with this fallacy is nothing great.

    Gen Y – Former Real Estate agent turn to mortgage sprucer with a Cert IV in financial services.

    • Uranium GeoMEMBER

      When it’s being marketed on FB by a Gen. Y you know this thing is at epidemic proportions. A quick glance at those drawn to the page reveals a demographic of 25-35 year olds.

      Heaven help us.