The wording about getting the elderly to pay up before dying may be harsh but the reality of a crushing deficit on the prospects of the young is far harsher, says Laurence Kotlikoff, a Boston University economist.
Official debt numbers vastly understate America’s true indebtedness, but in the coming weeks the U.S. may see a signal change in our means of tackling the problem, Kotlikoff says. Kotlikoff (left) told AdvisorOne that he was advising a U.S. senator on legislation that would institute “fiscal gap and generational accounting on a routine basis” in government data.
The idea is for U.S. economic data to offer a true measure of government indebtedness by looking at all projected spending—including off-the-books Social Security commitments—and all projected revenue.
Official statistics put U.S. public debt at $16.8 trillion, but according to Kotlikoff the true fiscal gap is some 12 times that amount, at more than $200 trillion, indicating that the U.S. economy is objectively in far worse shape than politicians let on.
The gadfly economist, who ran for president in 2012 on a third-party Internet-based platform, wouldn’t name the senator introducing the accounting change, citing efforts under way to gather bipartisan support, but he expects introduction of the bill in a matter of weeks.
Kotlikoff, who helped draft the bill’s language, pledges his assistance to any policymaker of either party who wants to address America’s challenges.
“I am willing to talk to any member of Congress anytime, day or night,” he says, noting that time is not on our side as the medicine needed to cure U.S. economic ills becomes progressively harsher.
“Every year we don’t address them, we let older people pass away without letting them play their roll to contribute to the solution,” he says, alluding to his oft-stated critique of a system he says showers benefits on the affluent elderly to the disadvantage of struggling young Americans.
“Rich older people need to pay more in taxes and consume less,” the 62-year-old economist says.
“If you let people off the hook from contributing, they’ll consume more. There’ll be less domestic investment. We’re adding to our productive capital at a much lower rate. Our kids get stuck with a bill [the elderly] should have paid plus a worse economy,” he says.
Kotlikoff’s solution is to replace income and payroll taxes with a broad-based consumption tax that taxes people in proportion to their spending.
“It’s a way to get Warren Buffett to pay even more,” he says, while a monthly rebate for those living at or below the poverty line will ensure the poor pay no net taxes.
These and a host of other economic policies are what Kotlikoff refers to as his “purple plans,” nonpartisan solutions that should appeal to red Republicans and blue Democrats alike, and for which he has created several websites spelling out the details.
Kotlikoff says his policies are based on widely accepted principles that most economists share, and takes strong exception to those who have publicly differed, like New York Times columnist and Nobel Prize-winning economist Paul Krugman.
“Paul Krugman has moved away from economics to politics,” he says. “He should hand back his degree. He’s doing a disservice to the profession.”