Neither Scot Lehigh, nor Penner and Reischauer whose work he reports, seem aware of the most sensible form for future taxation: a Tobin tax on financial transactions (The coming catastrophe, Boston Globe, April 30, 2010: A9).
This has many advantages:
It can be harmonized with similar taxes at the international level, to avoid firms' jurisdiction shopping.
It taxes activities that represent the bulk of the US economy: 61% at the latest count.
By increasing transaction costs it will reduce the kind of speculative activity that brought our economy to its knees, but if set at a low rate will not inhibit normal business transactions.
Part of the proceeds from the tax can be used to pay the Credit Rating Agencies and thus remove the horrendous conflicts of interest they currently experience.
Multiple wins, I'd have thought.
Sent to Boston Globe