The ink on my recent tax column had barely dried when e-mails from furious readers started piling in. Three readers out of four concluded I was a misguided socialist, possibly even a democrat, in favor of raising taxes. Here are a few samples:
"Your Democratic Party roots are showing in the piece, 'Tax cut: It's fiscal child abuse.' I wonder how and why you could have ignored the true fiscal child abuse of the federal government--- the Social Security Trust Fund."--- Bob Carroll
"Well, Mr. Burns, you definitely showed your true political bent today. What Mr. Bush is trying to do is put more money back into the hands of the people that earn it."--- Betty Kubiak
"You should stick with financial analysis vs. writing about your liberal political views."--- Greg George
The source of this heat was a recent column suggesting that the proposed elimination of taxes on dividends was a bad idea because tax cuts today only mean that our children and grandchildren will pay higher income taxes in the future.
We might have an idea how much higher those taxes may be but the Bush administration--- like the Clinton administration before it--- recently decided to cut the latest generational accounting figures from the coming annual budget.
Why? The numbers are frightening.
What's the alternative to massively higher taxes on our children and grandchildren? Government default (or weaseling) on promises of retirement and health care benefits.
So lets talk about this a little more.
For the record, I am not a democrat or a socialist. My personal leanings are libertarian, which means I believe individuals spend their money better than the government can. Nor do I want higher taxes. They are quite high enough already, thank you.
That said, we have a major ethical problem. As a parent, I have no enthusiasm for cutting my personal taxes today if it means my children and grandchildren will be paying far higher taxes tomorrow. And that's where we are heading--- much higher taxes tomorrow.
What we need is something I call Truth-in-Promising. What we are getting is the opposite--- willful suppression of just how much higher future tax burdens will have to be if government is to provide promised benefits. In an eye-opening speech in Columbus Ohio, Under Secretary of the Treasury Peter R. Fisher recently pointed out that Social Security and Medicare are under funded by $26 trillion--- in today's dollars. To put that number in some perspective, our entire net worth as consumers is $38.3 trillion. Government, under both parties, has promised far more than it can deliver.
We also have another issue. Every reader response to my follow up column--- the one on senior citizens getting hit with marginal tax rates as high as 50 percent--- was positive.
This is not surprising. People like lower taxes. They don't like higher taxes.
But here's a fact. The higher taxes senior citizens are paying today are exactly what are coming for our children and grandchildren.
They are the direct result of a tax bomb planted in 1983 by politicians who didn't plan on being around in 2003. While only a miniscule number of senior citizens had to pay taxes on Social Security benefits in 1983, the law was written to expose future retirees to the tax because the income threshold, unlike virtually everything else in the code, wasn't indexed to inflation.
This tax was voted into law during the administration of President Ronald Reagan, a Republican. Not indexing the thresholds so that the tax would bite lower incomes in the future came from his budget director, David Stockman.
The tax was increased in 1993, during the administration of William Clinton, a Democrat.
Our lesson? Planting tax bombs to hose future taxpayers is a bi-partisan activity. The only counter to this is Truth in Promising--- full disclosure of how any tax change will affect future generations. We need it today, not tomorrow.
Further Reading on the web:
Under Secretary of the Treasury Peter R. Fisher on government obligations
Financial Report of the United States, 2001
Partial data on Social Security, official figures:
75 Year Unfunded Liabilities of Social Security
January 21, 2003: Double Taxation Takes Many Forms
January 19, 2003: Tax Cut: It's Fiscal Child Abuse
January 14, 2003: How Can We Cut Our Children's Tax Burden? Reader Ideas
December 8, 2002: Sending Our Kids the Tax Bill
Earlier columns on generational accounting:
April 19, 1998: Politics, Footnotes, and Your Children
October 22, 2000: Truth, the Third Rail of American Politics
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