Given Kotlikoff’s public policy background, unsurprisingly perhaps, he also has strong ideas about how unsustainable welfare and health systems in the United States and other countries can be put right. “With Social Security, we have a program that’s 27% under-funded in the US. The simplest solution would be to freeze the Social Security system and force everybody to put 8% of their salary into a retirement account. The government makes matching contributions for the poor to make it progressive.
“The entire asset base would be collectively invested in a global, market-weighted index fund of stocks, bonds and real estate trust. This investment would not be done by Wall Street, but by a single government computer. Wall Street would have nothing to do with the Personal Security System I propose. Each worker’s savings would be invested in the private market, and at retirement age the account balance is gradually transformed into inflation-protected pensions by the government.”
He points to successful forerunners such as Norway’s generational fund, in which the government invests on behalf of the public abroad. The German health care system also has lessons for the United States, he adds. “You eliminate Medicare, Medicaid and employer-based health care and give everybody a voucher that they can take to an insurance company and buy a basic health plan. The size of the vouchers depends on your pre-existing condition, so if you have diabetes, you get a big voucher; if you’re healthy, you’ll get a smaller one. This plan is highly progressive, as the poor are sicker, on average, than the rich and would, therefore, get larger vouchers.”
Kotlikoff also proposes replacing income, corporate income, estate and gift taxes with “highly progressive” payroll, consumption and inheritance taxes. “All these rates would be 15% at the top, but the poor would be much better off. This tax reform hits those with wealth with a larger tax burden.”
Such a tax regime would have a broad base and would be fairer to the young, who are paying disproportionately to fund the old, he says. This “Purple Tax Plan” should bring in 20% of GDP in revenue and get rich and middle-class members of older generations to “start paying their fair share.”