That is of course awful in every way, but I really wonder, isn't the real problem that there are bad people? I think we can agree that people who are heartless enough to bully a vulnerable person like that, they will not stop just because a new euphemism is promoted. So how does it actually help? I can understand that if you are being called a slur, you want that slur to go away, but if it's going to be replaced by another slur, what is actually achieved?
It won't stop people from bullying the vulnerable person, but it will mean that the bullied person won't have to hear the same term in a bunch of contexts, and it will mean the bully will have less plausible deniability if confronted by authority over their behavior.
That's pretty different from calling the kid with the obvious intellectual disability by the term every day as he waits to board the bus home.
And given that there's people with that experience, perhaps it's time to heavily discourage use of the word in general. Calling your buddy it to be funny helps normalize it for the people who want to use it to be cruel, and gives them cover.
OK, so if we accept that something that is a neutral term can turn offensive (retarded) and that we should stop using it as a result... why not do it for other terms that have the same problem?
Right around 1990, and I don't think the "really, don't say 'retard'" thing took strong effect until early 2000's.
Our culture's imperfect, but there's a fair bit of evidence that it's a kinder, more courteous world-- especially for youth-- than 30 years ago. Taking some sharp edges off language may have helped with that.