Playtime's over. Time to pay up, pops. (Photo Credit: ThinkStock)

As of now, the National Debt Clock reads nearly $13.5 trillion. That’s what the United States government owes to satisfy its debts. Individual debt is separate and equally massive. Atlantic Magazine argues that it can’t be an infinite spiral. As the nation’s annual gross domestic product is only about $14 trillion, someone has to step up to the plate and clear the bases, because they’ve been clogged for too long. Atlantic’s humble suggestion is that the “lazy, self-indulgent, drugged-out, draft-dodging, mincing flower-power hippies” who moved on to Wall Street and began chanting the mantra “greed is good” should clean up the mess they caused. The Baby Boomers, in other words, are on the hook.

Amidst the tongue-in-cheek, a real call for Baby Boomer action

Paying off the national debt seems impossible. “Raising taxes by even 1 percent of GDP would be a triumph of leadership …  and fatal to the career of whomever proposed it,” writes the Atlantic. Yet if Baby Boomers were to pick up the pieces before moving on, it would be quite a parting gift – and it could possibly be handled via estate taxes, suggests Atlantic. The publication cites a 1999 study estimating that $41 trillion will be transferred from parents to children and grandchildren from 1999 to 2052. If just 20 percent of that sum is collected via something related to but rather different than the federal estate tax that may be reinstated in 2011, more than $8 trillion in tax revenue would be generated.

It isn’t taxing the same income twice

The criticism levied by some is that estate taxes are unfair because it amounts to taxing someone’s income two times: when it’s earned and when the person dies. However, this is incorrect, as most of what estate holders have near the end does not consist of wages, but “unrealized capital gains,” as Atlantic puts it. It’s property. If the property isn’t sold, income tax isn’t paid, which is a significant tax loophole. The Atlantic’s suggestion – the “Boomer Tax” – would only apply to capital gains, not wages.

Even the average household can contribute, says the Fed

For those who aren’t convinced, consider a recent Federal Reserve study. Atlantic writes that “the average American household aged 65 to 74 has assets worth more than $1 million.” Factor in illness and increased medical care after that age window and the figure gets cut approximately in half. In other words, it falls below the estate tax threshold of $1 million. If there were a tax on Social Security – which sent out $682 billion in checks in 2009 – America would be that much closer to closing the deficit. There would have to be sufficient incentive to induce the heirs of the deceased to return their Baby Boomer parents’ unused Social Security, however, or the estate holder would spend it down before death. Which could come sooner rather than later if health care rationing were to become the norm, as Atlantic suggests.

While these ideas are decidedly unpopular in the current political climate, Atlantic suggests that they would pay down the national debt. It would be a gift of great magnitude from Baby Boomers to future generations of Americans.

Sources:

Atlantic Magazine

U.S. National Debt Clock

Borrow your way to wealth!

Americans lack financial literacy when it comes to taxation? Really? (Photo Credit: CC BY/Pargon/Flickr)

Turn out the lights, because nobody’s home when it comes to the taxation necessary to generate revenue for essential services across the board. That’s what Paul Krugman writes in the New York Times, and it may be that such concerns are falling on largely deaf ears in America. Cities shut off streetlights that would help curb crime, roads local governments had already spent a great deal of money on but can no longer afford to maintain are intentionally broken down into gravel and schools are laying off teachers at every turn. Cutbacks are the norm, yet scores of people from tea parties to corporate boardrooms continue to bury their heads in the sand when it comes to tax increases.

Governments are cash strapped; where’s the taxation?

While various economic theories exist regarding taxation, it is difficult to dispute that tax increases could help local governments provide more reliable essential services. Krugman points out that the federal government “isn’t cash-strapped at all,” considering that they’re more than willing to sell inflation-protected long-term bonds at only 1.04 percent interest. Thus, they should be doing more to aid local governments. The sense of priority is in effect warped, says Krugman. The richest two percent would apparently rather watch Rome burn than pay more taxes as they did during the Clinton administration – when the U.S. last experienced an economic boom.

Cutbacks equal higher unemployment

State and local governments are spending less on nearly everything, which does not bode well for families. Now that federal spending is actually beginning to slow down, Krugman sees an America stuck in reverse. Give a teacher their job back and that assaults runaway unemployment numbers directly. Allow millionaires to keep more of their money and while that could translate into job creation, there’s also a definite possibility that the Chicken Little “sky is falling” mentality will prompt the rich to stash their money away.

Demonizing the public sector

There is a definite belief that the public section cannot manage money to spite itself. Tea party anti-government, anti-taxation rhetoric has been couched in terms of avoiding waste and fraud. Krugman argues that there was never so much waste as the right claimed, however. Witnessing how much ground America has lost in terms of education and infrastructure should be enough evidence to suggest that America is not in fact sidetracked by oppressive taxation. On the contrary, “America is now on the unlit, unpaved road to nowhere,” writes Krugman.

Sources:

New York Times

Taxation, inflation and war (Courtesy of the Mises Institute)