Let's Get 'Unreal' to Stop From Drowning in Red Ink

This post is part of our forum on Michael Kinsley's October cover story exploring the legacy of the Baby Boomers and what they owe the country. Follow the debate here.

Lisa Chamberlain dismissed as unrealistic Michael Kinsley's idea of re-jiggering the estate tax to collect trillions of dollars for the government that would otherwise go to the Baby Boomers. Probably true, but when it comes to fixing the budget, nothing other than "unrealistic" ideas will get the job done. The typical earmarks, waste fraud and abuse, and tax increases on the super rich discussions just aren't going to cut it.

Because we have continually punted on the long-term entitlement problems (which are no longer so far off), combined with the huge costs of the Great Recession, we are going to have to make some really major and difficult changes to the budget to avoid a dangerous debt squeeze. In the end, we will have to consider a long list of unrealistic choices and implement quite a few of them.

So broaden the estate tax? I like it (having long argued we should tax all inheritances the same as normal income; why after all should regular workers pay higher total tax rates on their wages than those lucky enough to inherit their money?) Scale back the home mortgage deduction along with the other trillion dollars in tax breaks that permeate the tax code? You bet. Put a freeze on discretionary spending? Absolutely. A new carbon tax? The time has come.

Can the Boomers Save America?

I like Kinsley's estate tax idea because it is innovative. I also think the Baby Boomers bear even more of the responsibility than Kinsley suggests. They were in charge for much of the period when Social Security and Medicare surpluses were used to finance the rest of government--everything from defense to transportation to interest on the debt--rather than being used to increase national savings to prepare for their expensive retirement, thereby allowing them to pay much lower taxes than otherwise would have been necessary.

And Boomers are about to become an even bigger part of the problem. The real fiscal threat is not from the debt we have already accumulated, but what the future holds since we have over-promised entitlement benefits to Boomers with no plan for how to pay for them.  And a real risk not even built into the projections is that Boomers will vote themselves even more benefits. Thus, it seems in order to focus on the Boomer generation for a large portion of the solution. (And as an X-er, I have no doubt we will still end up picking an even larger share of the tab.)

But I also want to bring up another idea that should be on the table: means-testing.

The universal structure of our largest social insurance programs--Social Security and Medicare--comes with a huge price tag. Together, at over $1.2 trillion this year, Social Security and Medicare will make up more than one-third all federal spending. Both millionaires and the poorest participants alike collect retirement and health benefits, regardless of need. Sure, benefits in Social Security are progressive in that low-income workers receive a greater share of their earnings, but nonetheless, well-off participants who need the benefits less actually receive the larger checks.

Presented by

Maya MacGuineas is president of the Committee for a Responsible Federal Budget. Previously, MacGuineas has worked at the Brookings Institution and Concord Coalition.

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