Taxes: Y Asks Why, Boomers Ask Why Not

Cassandra Devine knows how to solve the coming "entitlements" crisis, preordained when the 77 million baby boomers begin hitting 65 in 2011: Pay retirees to kill themselves, a program she calls "transitioning."

Volunteers could receive a lavish vacation beforehand ("a farewell honeymoon"), courtesy of the government, and their heirs would be spared the estate tax. If only 20% of boomers select suicide before the age of 70, she says, "Social Security, Medicare, Medicaid will be solvent. End of crisis."

OK, Devine is a 29-year-old fictional blogger in Christopher Buckley's satirical novel "Boomsday." Infuriated at the injustices awaiting her generation, she becomes an instant media celebrity with a gift for incendiary rhetoric. "Someone my age will have to spend their entire life paying unfair taxes, just so the Boomers can hit the golf course at 62 and drink gin and tonics until they're 90," she tells one TV reporter.

Her plan, once in cyberspace, incites spontaneous uprisings. In Florida, "several hundred people in their twenties stormed the gates of a retirement community. . . . Residents were assaulted as they played golf."

Buckley, born in 1952, is a boomer himself, and his novel is in the best tradition of Jonathan Swift, 1667-1745 (the writer who once suggested that the Irish relieve a famine by eating their young), of using the absurd to discuss moral outrages. Buckley's comic tale revolves around two truths usually buried in our dreary budget debates.

First, a generational backlash is inevitable. It may not come as attacks on sunbathing retirees, but the idea that younger workers will meekly bear the huge tax increases needed to pay all boomers' promised benefits is delusional. The increases are too steep, and too many boomers — fairly wealthy and healthy — will seem undeserving.

Consider: In 2007, Social Security, Medicare and Medicaid constitute 44% of the $2.7 trillion federal budget. To pay all future benefits could (depending on assumptions) easily require tax increases of 30% to 50% by 2030. Many retirees are quite comfortable. About 42% of Americans 65 to 75 have assets (homes, stocks, cash) worth $250,000 or more; 23% have annual incomes exceeding $69,000, says the Employee Benefit Research Institute.

Second, boomers will want even more benefits. Buckley imagines them clamoring for subsidies for Botox, grandparent day care and "giant flat-screen plasma TVs (for boomers with deteriorating eyesight)." Their actual demands may be less exotic and more expensive: closing the "doughnut hole" — a gap of coverage — in Medicare's drug benefit; more lenient tax treatment for retirement accounts; more payments for nursing homes.

Out in front will be the 38 million-member AARP, the nation's most powerful interest group. In the past four years, notes National Journal, it's spent $88 million on lobbying. AARP says that in the last election half the voters were older than 50 and a quarter were its members.

AARP's new public-relations campaign (slogan: "Divided We Fail") misleadingly aims to project an unselfish and high-minded image. In practice, it means AARP will support higher government spending for all age groups, which (of course) will increase taxes further for tomorrow's workers.

For example, AARP urges the expansion of SCHIP, a program of health insurance for poor children that, ironically, illustrates the nation's twisted priorities. In 2007, SCHIP will cost $5.7 billion; Social Security and Medicare, $1 trillion. Well, maybe SCHIP should be expanded, but only if — a test of AARP's real commitment — cuts in Social Security and Medicare benefits pay for the expansion. A doubling of SCHIP would require cuts of about one half of 1%.

Social Security and Medicare are an essential part of the social fabric. Millions depend on them. But the vast benefits — paid too early and too indiscriminately — have become disconnected from genuine need. Unless the two are reconnected, these successful programs will tear at the social fabric.

It is unfair to blame only baby boomers for not acting pre-emptively to curb the known costs of their retirement. The "greatest generation" bears equal responsibility. Politicians have done nothing, because voters — present and prospective retirees — have wanted them to do nothing.

Still, boomers deserve special disapproval. "Baby Boomers," says Buckley's Devine, "made self-indulgence a virtue." Sure, that's a stereotype, but for opinion leaders and politicians, it is uncomfortably accurate.

Consider Newsweek. It has a regular feature, "The Boomer Files," that celebrates boomer musicians, comedians, sports heroes and TV series. It discusses how boomers are "redefining the 'golden years' " — but not a peep about the costs for their children.

I was born in late 1945 and count myself a part of this failure. In our careless self-absorption, we are committing a political and economic crime against our children and perhaps — when they awaken to their victimization — even ourselves.

Maddam, You wrote:

Tomorrow morning a bright young 42-year-old and her husband and child, leave on an all-expenses-paid business trip to Dubai to discuss working with people who want her there. She is an excellent maker of wedding cakes and is in high demand. She is being offered very good money to leave for Dubai, where things are tax free.

More and more young entrepreneurs will LEAVE the USA and not pay taxes, retaining the right to return when they are older or if things go bad overseas. In the meantime the ridiculous taxes paid here, will not be paid by them.

You are badly misinformed. American citizens owe taxes on all income, no matter the source or their place of residence. You can not report your income, but I would not count on a happy welcome when you try to use your "right of return" in the future. Expect IRS agents to sieze you at the aiport and jail you for tax fraud.

I went and looked up some IRS codes. Like everything else it’s way more complicated than either my view or yours. From the web site:

Topic 854 - Foreign Earned Income Exclusion —Who Qualifies?

To be eligible to claim the foreign earned income exclusion or the foreign housing exclusion, you must have a tax home in a foreign country and meet either the bona fide residence test or the physical presence test.

The bona fide residence test can be used by United States citizens; and by United States resident aliens who are citizens or nationals of a country with which the United States has an income tax treaty with an applicable nondiscrimination clause. You must be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.

The characteristics which qualify you as a bona fide resident usually include establishing a home and settling in that country with some degree of permanence. An individual is not a bona fide resident of a foreign country if, the individual claims to be a nonresident to the authorities of the foreign country and his/her earned income is not subject to tax in the foreign country because the individual is considered a nonresident in the foreign country.

The physical presence test can be used by any United States citizen or resident alien. You must be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. The 12–month period can begin with any day of any calendar month.

If you violate U.S. restrictions that prohibit travel to certain countries, you will not be able to count your presence or residence in those countries in meeting the bona fide residence test or the physical presence test.

Generally, your tax home is the general area of your main place of business or post of duty, regardless of where you maintain your family home. If you do not have a regular or main place of business because of the nature of your work, then your tax home may be the place where you regularly live.

You are not considered to have a tax home in a foreign country for any period for which your household is in the United States. However, if you are temporarily present in the United States on vacation or for your employment, it does not necessarily mean that your household is in the United States during that time.

You qualify for the foreign earned income exclusion only if your tax home is in a foreign country throughout your period of bona fide residence or physical presence abroad. For related information, refer to Topics 853 and 855. Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, contains detailed information on the foreign earned income exclusion and other related areas.

If the information you need relating to this topic is not addressed in Publication 54, you may call the IRS International Tax Law hotline. The number is (215) 516–2000. This is not a toll-free number.

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