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The New Independent Party Blog


This Blog is maintained by Mike Barron, Executive Director and Founder of the New Independent Party. The views expressed here are not necessarily those of the Party, its Board of Governors or its Members.


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Laurence Kotlikoff

Someone sent me a link to a Youtube video by Laurence Kolitkoff. He is a Professor of Economics at Boston University and a candidate for President in the Americans Elect primary. His web site is kotlikoff2012.org.

Since he is an economist there are some, not terribly surprising, similarities in our approaches to a number of issues.

However, there are some significant differences.

First, as mentioned in the Platform Philosophy section of the Platform, we are focused on four key principles: economic efficiency, equity, personal freedom and political realism. A brief reading of his tax plan suggests that he tends to overweight equity (as narrowly defined in the form of the progressivity of the tax system) relative to us. We define equity more broadly to also incorporate social mobility, equality of opportunity and personal responsibility. In addition, we note that the current degree of progessivity of our tax system is part of our problem, encouraging the largely untaxed to prefer too much government and the over taxed to prefer too little of it.
 
Second, there are some specific differences in his plans that, I think, are bad public policy. For example he, like us, proposes a voucher system for subsidizing health care. But he argues that the size the the voucher should be tied to the health status of the recipient. I can only imagine the fraud and/or the massive bureaucracy that policing such a system would create. I am sure that the reason he does this is because he has no mandate to purchase insurance and as a result he anticipates that the cost of insurance for sicker people will be prohibitively expensive. We deal with this problem by making the voucher only available to purchase insurance policies from firms that don't discriminate on the basis of pre-existing conditions. If the voucher is large enough this should be a near perfect substitute for a mandate and it would avoid the fraud and bureaucracy problems of his plan.

Third, he proposes replacing the income tax with a combination of broad based consumption and inheritance taxes. Since he eventually taxes both consumption and savings (income) I suspect he believes that the advantage of this approach is ease of administration. Unfortunately, in all likelihood, a broad based inheritance tax would be a nightmare to administer. The only saving grace to the current estate tax is that if affects relatively few people.

Fourth, his carbon tax proposal is for a variable tax that falls as the market price rises and increases as the market price falls. He clearly recognizes that this creates a perverse incentive in the face of OPEC's market power over oil but his comment that this should be taken in account begs the question of how one might do that. In my view, there is no good way of doing this (we studied this at some length when I was at the Department of Energy). He also suggests that we should go ahead and impose a carbon tax on ourselves and encourage others to do the same. As a an economist he must know that this kind of a tax will be ineffective, and possibly counter productive, if others do not almost universally impose similar taxes. His suggestion for a tariff on all imports from countries that do not impose a carbon tax on themselves (or its equivalent) suggests that he does understand this. Unfortunately, his suggestion that we "coordinate" this with the World Trade Organization does not circumvent the fact that such a tarriff would be in violation of a wide variety of existing trade agreements.  We support the notion of a significant tax on carbon emissions provided that the vast majority of the rest of the world agrees to impose similar taxes on themselves. We believe that the only way we will get effective carbon restraints in place is by insisting that our cooperation depends on the cooperation of others like China and India. His desire to use some of the proceeds of the tax to subsidize low income people reflects his bias toward income redistribution noted above. His desire to use the proceeds to subsidize specific clean energy technologies is unnecessary, since the whole point of the the tax is to internalize the environmental costs of carbon. Once that is done there is no need for further government intervention with the possible exception of some basic research.

Fifth, his limited purpose banking proposal is intended to get at the same "too big to fail" problem that we address with a tax on the scale and leverage of financial institutions. His accomplishes the objective but only by eliminating leverage from financial institutions. Leverage can be useful in making legitimate economic activity worth pursuing that would not justify the costs in the absence of leverage. It makes financial markets more efficient than they would other wise be. I view his approach as throwing out the baby with the bath water. The problem is excessive leverage when combined with scale. Taxing these factors reduces the risk of the "too big to fail" phenomenon, while allowing firms to take advantage of leverage if they are willing to bear the cost of the tax.

Having said all of that, there is a lot in his platform that is appealing.

One thing I particularly liked was his approach to quantifying the deficit. He defines an infinite time horizon deficit equal to the difference between the present value of all future projected government expenditures less the present value of all future expected tax revenues. He cites an estimate of $311 Trillion. I agree that we ought to routinely look at this number since it shows how untenable our current fiscal policies are.




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