A modest proposal for using retroactive tax cuts as a solution to "political risk"

For anyone interested, the following is a reply I posted on the New York Times forum in response to an op-ed in that paper by John Tierney on May 7, 2005. I have to say, I've been very disappointed by Mr. Tierney. The NY Times needed a good conservative columnist to replace Saffire - the kind of person liberals respect, but love to hate. Instead, Mr. Tierney seems to be the kind of columnist that simply annoys, without saying anything very useful or informative (rather like Ms. Dowd on the left, except she at least is entertaining).

In an earlier op-ed (4/26) Tierney had compared the returns experienced by a Chilean friend under their fully-funded pension system to the "return" Mr. Tierney calculated he will get on OASDI payroll taxes . In his second, 5/7 op-ed on the subject, Mr. Tierney ignored all the wide-ranging critiques on his previous argument and shifted gears, rebutting the "privatization means more risk" claim by arguing that this argument assumes only financial risk and ignores political risk. The thing is, I am sympathetic to the argument he tried to make! However, as with his previous argument about returns, I felt that Tierney's arguments varied between disingenuous, incorrect, and vapid...to the point where he actually changed my mind so that I now disagree with his view!

However, in formulating my response, I stumbled upon an idea that I think has some promise. How is that we, the young (under 40) generation should "punish" the older (over 50) generation of supply-siders whose "starve-the-beast" philosophies have saddled us with such massive future tax liabilities? My answer: pass the buck right back to them.

Here's what I posted:
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Once again, Mr. Tierney seems to glide past all the decent arguments for Social Security reform and a nationalized saving account system (a "Big Government" program a conservative can love), to focus on the worst possible one.

First, let's get the facts straight: Tierney writes "In theory, there is a trust fund to cover this shortfall. When Congress sharply raised Social Security taxes in the 1980's, the idea was to generate surpluses during the baby boomers' working years that would finance our retirement. Instead, Congress spent our money, leaving the Social Security trust fund with a file cabinet full of i.o.u.'s in the form of Treasury bills"

Technically, there is a trust fund, which is those IOUs...just as was intended. While it's true that the government ran huge deficits in the 1980s and early 1990s so now we face billions more in interest payments...to Social Security. In other words, the cost of those past deficits may make it more painful now to fix Social Security, but that has nothing to do with Social Security! It has to do with the country's failed experiment in supply-side economics in the 1980's...(and 2000's).

Second, while I agree that "political" risk in a pay-as-you-go system is as important as market risk, there is little risk of benefit cuts in the future (as we see now - Pres. Bush has proposed grandfathering in all the grandfathers in any changes). Rather the risk is higher taxes in the future. But as a "baby boomer", Mr. Tierney lives up to his reputation - greedy and introverted: his concern is not that his generation has saddled the next with the tax burden of paying for the free lunch they enjoyed, it's that that this next generation may instead respond by lowering his benefits when he retires!

My thinking is...why not? In 2000, we had a surplus and the country widely supported allocating it to pre-fund the hole in Social Security. Instead, it was all blown on generous tax cuts for the rich. So my idea is this: when 2017 rolls around, instead of raising taxes on current workers, my generation should pass a retroactive tax on the Baby Boomers, particuarly those who made over $200,000/year in the 2000s.

The beauty is: a retroactive tax on past generations to cover their deficit spending has no negative disincentive effects save one: it may make future generations think twice about partying for decades and then walking out on the bill....