Call it the Baby Boomer Legacy Promotion Tax.
Or at least that’s what Michael Kinsley seems to be calling for in the October 2010 issue of Atlantic Monthly (our emphasis):
It’s not too late for a generational gesture, something that will be the equivalent of—if not actually equal to—our parents’ sacrifice in fighting and winning World War II: some act of generosity or sacrifice that will inspire or embarrass the next generation, as the sacrifices and achievements of the “Greatest” generation inspire and embarrass many Boomers. …
So what do you give the country that has everything? You give it cash. The biggest peril Americans now face isn’t Islamo-fascism. It’s our own inability to live within our means. It would be nice to give our country the wisdom and self-discipline to stop running up the credit card. And we should try. But it’s unlikely that we can remake the national character (including our own) in 19 years. What we can do is offer a lecture and a fresh start. We should pass on to the next generation an America that’s free from debt. Instead of ignoring it, or arguing endlessly about whose fault it is and who should pay for it, Boomers as an age cohort should just grab the check and say, “This one’s on us.”
Lectures and fresh starts are nice — even if the lectures would be coming from a rich (in the irony sense) source — but let’s focus on the cash bit.
How exactly are these goddamn hippies the Boomers going to pay down the national debt? Emphasis ours:
A widely noted 1999 study estimated that at least $41 trillion will have been transferred from parents to children and grandchildren between 1998 and 2052. Most of the transfers in the last half of that time period will be Boomers passing money along to the next generation. But in the first half, money will mostly be coming from the previous generation to the Boomers themselves. Boomers could forswear all or part of this unearned inheritance. Or, more realistically, they could allow the government to tax it. At the moment, there is no federal estate tax. Congress, in a spectacular display of incompetence, voted a decade ago to eliminate it for one year only, and this is that year. Next year, unless Congress fiddles again, the law reverts to what it was in 2001, and estates of more than $1 million will pay rates of up to 55 percent. In 2009, the last year the estate tax was in force, it imposed a tax of up to 45 percent on estates worth more than $3.5 million, and raised only $25 billion—in other words, only a small proportion of the population paid it, but the few who did pay really got socked.
This would not be what I am suggesting here. I am suggesting a tax that reaches far more people—essentially anyone who inherits any significant amount of money—but at a much lower rate. The principle behind the current estate tax (or once-and-future estate tax) is frankly redistributive: to prevent large private fortunes from growing, generation after generation, with the recipients accumulating power as well as money. It does this very poorly, because of tax shelters and loopholes (all made possible by the power that people with large fortunes have already accumulated). But that’s still the idea.
The idea of my tax is to produce a lot of money that can then be used to pay off, or at least buy down, society’s debts. If we could collect just 20 percent of the alleged $41 trillion about to pass through two generations, that would be more than $8 trillion.
So the Boomer project would be to widen the base of the estate tax while lowering the rate.
There are some obvious drawbacks to such an approach, and the article (which despite our jesting is really quite interesting) does include a brief discussion of those. One is that the loopholes and tax shelters protecting the largest estates would still exist, while the system would would also incentivise the elderly to spend away their money before having it taxed away.
But no matter: we put the chances of such a change actually getting enacted at somewhere between zero and miniscule. And frankly, we doubt the Boomer generation (or any) would be as up for giving away its inheritance as Kinsley hopes.
But if the Boomers don’t cough it up voluntarily, no worries — those of us in later generations (X, Y, Millenials, whatever) have been drawing up plans to kill the old.
So one way or the other, we’ll eventually get their money — but we’ll probably also be stuck with their debts.
Related links:
The Least We Can Do – The Atlantic
More reasons to kill the old – FT Alphaville