Any use of the word infrastructure risks automatically classifying you as a “deficit bore.” People like Peter G. Peterson have been lecturing us for years—decades—about the dangers of the national debt, and their terrible predictions have yet to come true. That’s correct. But remember Stein’s Law, named for the late Republican economist Herb Stein: anything that can’t go on, won’t. And Americans’ piling up of debt—governmental in bad times, like now, personal in good times, like most of the past couple of decades—can’t go on.
Who knows how much this whole pile of debt adds up to? Certainly many trillions of dollars. Let’s say it equals one year’s worth of the nation’s output—that is, one year’s GDP, or about $14 trillion. That much money would, at any rate, be a big help. Boomers, those lazy, self-indulgent bums, those drugged-out draft dodgers, those mincing flower-power hippies who morphed into Wall Street greedheads with nothing left of their culture of peace and love except a paisley tie: we may not have the opportunity to save the world like our predecessors, but we can save the American economy from the mess our predecessors are leaving.
If you think of this in the context of normal American politics, any talk of paying off the nation’s debts and leaving the next generation with a clean ledger sounds not just boring but insane. (And yet, still boring.) Where are we supposed to get $14 trillion? In this nation of taxophobes, raising taxes by even 1 percent of GDP would be a triumph of leadership, and probably fatal to the career of whoever proposed it. How are we supposed to raise 100 percent of GDP?
However, think of this as an extraordinary historic gesture in response to an extraordinary historic threat to our country and the world. Not a threat like Hitler, perhaps, but a huge threat nonetheless. True, this time it’s our own fault. But that recognition does not do anything to solve the problem. So Boomers will have to step in. Think of our doing so as one generation’s once-in-a-lifetime parting gift to those who follow.
Looked at this way, $14 trillion—it’s not so much. 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.
Critics of the estate tax like to say that it amounts to taxing the same income twice: once when it’s earned and again when you die. This is wrong, for the most part. People who leave estates of more than $1 million didn’t earn this amount through wages. Most of their fortunes consist of “unrealized capital gains”: property (paintings, houses, shares of stock, entire companies) that has become more valuable. As long as they don’t sell it, they pay no income tax. And there are plenty of other loopholes to provide untaxed spending money. Most of the people who would be affected by what we might as well call the Boomer Tax actually did pay taxes when they earned their money originally, because the loopholes and special rates don’t apply to plain old wages. They really will be paying twice, but that’s the idea. That’s what you do because you didn’t have to fight in World War II.
Here is another justification for taxing the money people leave behind when they die. According to a survey from the Federal Reserve Board, the average American household aged 65 to 74 has assets worth more than $1 million. Typically these amounts get spent down as people get older and sicker, so let’s say the second member of the typical couple dies leaving $500,000. That is far below the threshold for the estate tax. But for years, this couple has been collecting benefits from Social Security and Medicare. These are supposed to be insurance programs. Social Security protects you against the risk of being old and poor. Medicare protects you against the risk of being old and sick. Medicare operates like typical insurance: it pays to cover the costs of medical care and it pays out only if you actually are sick and suffer these costs. Social Security is different: it pays whether or not you’re actually poor.
But if a couple dies leaving assets worth half a million dollars, the risk they were insuring against—poverty in old age—evidently didn’t materialize. The money they received from Social Security, aimed at covering that risk, is instead passed along to their Boomer children. That, surely, was never the idea. Why shouldn’t they give it back? Or some part of it? Social Security sent out checks worth $682 billion last year, so there is real money here.
This involves all sorts of practical problems, of course. The big one is that you’re creating an incentive for old folks to spend down their nest eggs rather than let the money go back to the government. But then, as with proposals for universal national service, the government has two ways to induce desirable behavior. One is to legally require it. The other is the kind of combination of negative and positive inducements that supporters of national service tend to favor. Maybe returning the unused portion of your parents’ Social Security could become a social norm. Fashion and peer pressure might be more effective than a law.
One final thought: as we learned during the health-care debate, citizens of other advanced countries live longer than Americans, while spending far less per person on health care. How can that be? Well, it’s partly that they don’t try to save people through heroic, expensive, long-shot efforts, most of which fail. You’ve seen the figures: for example, last year Medicare spent $50 billion on the last two months of life. Trouble is, we don’t know when we’re two months from the end. CBS’s 60 Minutes reported last year that “20 to 30 percent” of this $50 billion “may have had no meaningful impact.” Of course, all $50 billion had very little meaningful impact, if the patient died within two months. It’s easy enough to be in favor of not paying for treatments that do nothing. The tough decisions involve treatments that do something, but not much. Or treatments they’re not sure about.
Even putting costs aside, if you could choose at the beginning of your life which health-care system you’d prefer to live under, you’d pick the one where you’d probably live longer, no? Yes, that medical system involves “rationing,” but rationing already goes on here, more than we admit. Why not make it official? Let’s be honest: such a system would cost some Boomers their lives, but they would die in their 80s or 90s, unlike the teens and 20-somethings who gave their lives in World War II. Just a thought.
Boomers: we’re all in this one together. You may be wondering, What’s stopping Mike from tearing up his Social Security checks [when they start to arrive—still a few years off!] or walking around with a permanent Do Not Resuscitate order tattooed on his chest? The answer is, I’m not doing this alone. That would not achieve the purpose of vindicating a generation. Anyway, democratic government is a way of saying “I will if you will.”
In case you haven’t figured it out yet, I’m not really pushing for Boomers to raise $14 trillion and use it to pay off the national debt and related obligations. I have no idea whether $14 trillion is even close to the right amount. I know that even if the money dropped from heaven, you can’t stroll into the bank with $14,000,000,000,000 in small bills and walk out a debt-free country. Sure, it’s much more complicated than that. But it’s not more complicated than D-Day. And it’s the least we can do.