Taxes, Outsourcing and Social Security

"An economist's guess is liable to be as good as anybody else's."

    - Will Rogers (1879-1935), American humorist

Arizona State professor Edward Prescott recently shared some of his views about the U.S. economy with Russ Wiles of The Arizona Republic. Wiles asked him to comment on the impact of taxes on economic growth:

" 'That's an easy one,' said Edward Prescott, the Arizona State University professor who shared the 2004 Nobel Prize for economics.

'When you cut tax rates, employment always goes up,' he said in a phone interview Monday with The Arizona Republic."

Prescott, who supports the president's tax policy, declared that Kerry's proposal to roll back the tax cuts for those earning more than $200,000 a year would be counter-productive:

"Prescott, speaking from Minnesota, where he advises the Federal Reserve Bank of Minneapolis, described Kerry's plan to roll back tax cuts for top wage-earners as counterproductive.

'The idea that you can increase taxes and stimulate the economy is pretty damn stupid,' he said.

Bush's campaign on Monday released a letter signed by Prescott and five other Nobel laureates critical of Kerry's proposal to roll back tax reductions for families earning $200,000 or more.

In The Republic interview, he said such a policy would discourage people from working.

'It's easy to get over $200,000 in income with two wage earners in a household,' Prescott said. 'We want those highly educated, talented people to work.' "

Prescott also questioned Kerry's claims that outsourcing jobs to countries where labor costs are cheaper is damaging the economy:

" 'All the rich countries are economically integrated,' he said, citing a jump in productivity and wealth in Western Europe after Germany, France and neighboring nations formed the Common Market after World War II.

By contrast, Prescott cited high tariffs imposed by the United States as a 'disaster' that exacerbated the Great Depression.

'All economists are for free trade,' he said."

Mr. Prescott also believes that reforming Social Security by allowing people to invest a portion of their payroll taxes in private savings accounts is a good idea and would incent more people to work. I assume his logic here is that giving workers the opportunity to increase the size of their retirement fund would provide that incentive. 

He suggests that such an arrangement would eventually lead to more tax revenues for the government. If I'm continuing to follow his logic correctly, the resultant larger base of worker/taxpayers would generate more revenue without having to burden anyone with additional tax increases.

This all makes sense to me but I must admit that I've always been in favor of minimal taxes and maximum ownership. If that's not your cup of tea, you don't have to look very far to find someone who disagrees with Prescott's theories. There's always Paul Krugman and, let's don't forget, John Kerry.