Borrowing from Millennials to Pay Boomers: Can Tax Policy Create Sustainable Intergenerational Equity?

JurisdictionUnited States,Federal
Publication year2020
CitationVol. 36 No. 3

Borrowing from Millennials to Pay Boomers: Can Tax Policy Create Sustainable Intergenerational Equity?

Jonathan B. Forman

University of Oklahoma, jforman@ou.edu

Roberta F. Mann

University of Oregon, rfmann@uoregon.edu

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BORROWING FROM MILLENNIALS TO PAY BOOMERS: CAN TAX POLICY CREATE SUSTAINABLE INTERGENERATIONAL EQUITY?


Jonathan Barry Forman* & Roberta F. Mann**


TABLE OF CONTENTS

Introduction.......................................................................801

I. Sustainable Intergenerational Justice and Tax Policy 803
A. What Is Sustainable Intergenerational Justice ? .. 803
B. How Can Tax Policy Influence Sustainable Intergenerational Justice?..................................806
1. The Resources of U.S. Households................806
2. Taxes Can Influence the Level of Resources that Are Available to Future Generations.............807
3. Taxes Can Influence the Mix of Resources that Are Available to Future Generations.............809
II. An Overview of U.S. Taxes, Deficits, and Debt.........810
A. Taxes..................................................................810
1. Income Taxes................................................811
2. Payroll Taxes................................................812
3. Consumption Taxes.......................................813
4. Wealth and Property Taxes...........................813
B. Spending and Deficits.........................................814
C. Debt...................................................................815
1. U.S. Federal Government Debt.....................815

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a. Explicit Debt...........................................815
b. Implicit Debt...........................................815
c. Measuring the Fiscal Gap.......................817
2. State and Local Government Debt.................819
3. Infrastructure................................................821
4. The Carbon Budget.......................................821
III. How Taxes Influence the Level of Resources for Future Generations..............................................................823
A. Taxes, Deficits, and Public Debt.........................823
B. Tax Systems and Economic Growth....................826
1. Lower Rates and Broader Tax Bases.............827
a. Lowering Marginal Tax Rates.................827
b. Broadening the Tax Bases.......................829
2. Choosing the Right Mix of Taxes for Economic Growth.........................................................832
a. Choosing Between Income and Consumption Taxes......................................................832
b. Taxing Wealth.........................................834
IV. How Taxes Influence the Mix of Resources for Future Generations..............................................................834
A. Externalities.......................................................834
1. Oil, Gas, and Coal Tax Expenditures............835
2. Other Aspects of Energy Policy.....................836
a. The Gas Tax............................................836
b. A Carbon Tax..........................................837
c. Renewable Energy and Energy Conservation ....................................................................838
3. Subsidies for Education and Research..........839
B. Taxes to Encourage and Discourage Certain Kinds of Consumption...................................................841
1. Home Ownership..........................................841
2. Influencing Fertility and Population Size......843

Conclusion..........................................................................843

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Introduction

This Article explores the relationship between taxes and intergenerational equity. Tax policy has traditionally been analyzed using three metrics: equity, efficiency, and administrability.1 Equity contemplates fairness and is generally viewed as having two dimensions: vertical equity and horizontal equity.2 Under vertical equity principles, differently situated taxpayers should be taxed appropriately given their individual situation. Progressive tax rates, in which higher income taxpayers are taxed at a higher rate than lower income taxpayers, reflect vertical equity by recognizing the superior "ability to pay" of higher income taxpayers.3 Despite a progressive tax rate structure,4 income and wealth inequality have significantly increased in the U.S. and other countries over the past thirty years.5 Future taxpayers may well be in a very different situation than current taxpayers, both from increasing income and wealth inequality and from the anticipated increasing burden of government deficits.

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Moreover, government investments in education and infrastructure have declined, which may impact the productivity of the future economy and the future taxpayers' ability to pay.6 Furthermore, the current and past generations have prospered by free riding on the environment, leading to the highest-measured carbon concentrations in the atmosphere.7 Climate change threatens the existence of many communities and may result in significant economic impact on future generations.8

In an attempt to stem this rising tide of generational inequity, we developed a concept of "sustainable intergenerational justice," and we use it as a lens for examining tax policy. Equity and justice are interrelated. Both involve considerations of fairness. Resolving inequity may require redistribution. To achieve consensus on distributional goals, the distribution must seem just or equitable. In our view, to attain sustainable intergenerational justice, the current generation must ensure that future generations have adequate resources to sustain life and prosperity. This Article shows how tax system design could help achieve sustainable intergenerational justice. To be clear, tax policy is only one tool for achieving intergenerational justice, but we will show that it can be a powerful tool. In exploring this topic, this Article uses the U.S. tax system for most of its examples.

At the outset, Part I of the Article provides an overview of sustainable intergenerational justice and tax policy. Part II then provides an overview of the U.S. tax system, deficits, and public debt. Part III then considers how taxes can influence the level of resources that are available to future generations, and Part IV considers how taxes can influence the mix of resources that are available to future generations.

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I. Sustainable Intergenerational Justice and Tax Policy

A. What Is Sustainable Intergenerational Justice ?

Intergenerational justice involves comparing the well-being of one generation with that of other generations. In that regard, intergenerational justice can be seen as the logical result of a Rawlsian experiment in which the decisions about societal rules are based on the choices made by individuals from an original position—one that lies behind a veil of ignorance that includes generational blindness.9 For example, as baby boomers, we might ask whether we are "better off than our parents.10 We have color TVs and personal computers, but perhaps they had cleaner air and water.11 We may live longer, but their lives may have been less hectic.12

If we ask whether our children will be "better off than us, the answer is not clear. On the one hand, technology continues to improve lives.13 On the other hand, we cannot even say that our children will live longer than we do.14 In the U.S., life expectancy has stagnated,

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even relative to other countries with developed economies like Sweden.15

Creating a formal accounting model of intergenerational justice would probably require us to take all of the resources that relate to individual utility into account. Indeed, a thousand different valuations might be needed to truly compare the utility of different generations.16 To be sure, it may be appropriate to try to make those thousand different valuations. The focus of this Article is on tax policy, however, and not on intergenerational justice per se. Accordingly, this Article is less concerned with comparing the absolute utility of different generations and more concerned with how taxes might affect the relative positions of present and future generations. Pertinent here, recent research links income inequality with declining life expectancy.17 Other research links geography to social mobility.18 In the U.S., the income inequality gap began to grow in the 1980s when the authors were young adults.19

In any event, we believe that the problem of intergenerational justice can be simplified. Certainly, most of us would agree that to attain intergenerational justice, the current generation must ensure that future

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generations have adequate resources to sustain life and prosperity. This Article goes further by assuming that, at a minimum, intergenerational justice demands that future generations should be able to live at least as well as we do, and in addition, we hope that the future will bring us a more equal society. All in all, intergenerational justice means that the current generation should not impose economic and resource burdens on future generations.

We recognize that the world is already in an environmental and economic crisis caused by the overuse of certain resources, but our conception of intergenerational justice does not focus on preserving particular resources; although, tax policy could have an impact on both the use and preservation of resources.20 Intergenerational justice does not demand that the current generation use less depletable resources (like coal or oil) today so that future generations can have a "fair share" of those resources tomorrow; nor does intergenerational justice require that the current generation preserve the current sea level, particular species of animals and plants, or even current air quality. Instead, our concept of sustainable intergenerational justice requires that the current generation use resources at the same...

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