Nobel laureate calls for steeper tax cuts

Augustus · Post by **Augustus** » 2004-10-12 03:37pm

Mon Oct 11, 5:21 PM ET Politics - AFP

WASHINGTON (AFP) - Edward Prescott, who picked up the Nobel Prize for Economics, said President George W. Bush's tax rate cuts were "pretty small" and should have been bigger.

"What Bush has done has been not very big, it's pretty small," Prescott told CNBC financial news television.

"Tax rates were not cut enough," he said.

Lower tax rates provided an incentive to work, Prescott said.

Prescott and Norwegian Finn Kydland won the 2004 Nobel Economics Prize for research into the forces behind business cycles.

The American analyst, who is a professor at Arizona State University and a researcher at the Federal Reserve Bank of Minneapolis, said a large tax cut in 1986 had lowered rates while collecting the same revenue.

But "in the early '90s the economy was depressed by the tax increase in '93 by about four percent, and it's right at that level now," Prescott said.

Bush, who is fighting to get re-elected November 2, has cut taxes by about 1.7 trillion dollars during his term.

The US leader accuses his Democratic rival John Kerry of favoring tax increases, despite Kerry's promise to cut taxes for everyone earning less than 200,000 dollars a year.

Hurray for The Chicago School of Economics! ...Again!

Its hard to believe that anyone could get the impression that Kerry would raise taxes...he has barley even mentioned his record in the Senate

Seriously though...anyone ever read any of Prescott's work?

Augustus · Post by **Augustus** » 2004-10-12 03:39pm

Oops. Screwed the link up...

Nobel laureate calls for steeper tax cuts in US

The Dark · Post by **The Dark** » 2004-10-12 09:30pm

Is Prescott the one at Arizona?

And whether you raise or lower taxes depends on where you believe you are on the income curve, and administering it depends on whether you believe in "trickle-down" theory or the discretionary income theory. I agree that we need more tax cuts, but disagree with how they have been administered.

The Kernel · Post by **The Kernel** » 2004-10-12 09:38pm

Trickle down economic theory is bunk, there is no evidence to suggest that it works, at least not in the "Reaganomics" sense of giving tax relief to ultra wealthy individuals. I don't know why this stupid idea has persisted for so long, even a cursory look at the economy during the Reagan years shows that the rich were just getting richer.

Furthermore, all of this doesn't even take into account the affect of payroll taxes on the middle and lower classes (especially the lower classs) whenever anyone talks about income tax cuts. Because of the fact that it is income tax and not payroll taxes that are almost always cut, even if you were to eliminate all of the income tax to the lower income families it would not make nearly as much difference as a modest tax cut to the middle and upper classes since the lower class pays the majority of their taxes as payroll taxes anyways.

The Dark · Post by **The Dark** » 2004-10-12 09:42pm

The Kernel wrote:Trickle down economic theory is bunk, there is no evidence to suggest that it works, at least not in the "Reaganomics" sense of giving tax relief to ultra wealthy individuals. I don't know why this stupid idea has persisted for so long, even a cursory look at the economy during the Reagan years shows that the rich were just getting richer.

Yeah, no shit. One hundred years of empirical evidence shows trickle down is a bunch of bunk. Or, as Bush Sr. called it, "voodoo economics." The wealthy already have sufficient discretionary income to afford what they need and most of what they want, so their extra cash goes to savings, as opposed to the poor/lower middle class who don't have discretionary income and would use the cash for purchases of things they want.

Furthermore, all of this doesn't even take into account the affect of payroll taxes on the middle and lower classes (especially the lower classs) whenever anyone talks about income tax cuts. Because of the fact that it is income tax and not payroll taxes that are almost always cut, even if you were to eliminate all of the income tax to the lower income families it would not make nearly as much difference as a modest tax cut to the middle and upper classes since the lower class pays the majority of their taxes as payroll taxes anyways.

Actually, cutting incomes tax wouldn't help my family all that much at all...there is no state income tax here. I do like the proposal to make either income or sales tax a write-off, since that helps (IIRC) 6 states that have a sales tax but no income tax. Don't know much about payroll taxes; I'm in my labor course this semester, and we're only to quasi-fixed costs.

Post by **Alyrium Denryle** » 2004-10-12 10:38pm

And whether you raise or lower taxes depends on where you believe you are on the income curve, and administering it depends on whether you believe in "trickle-down" theory or the discretionary income theory. I agree that we need more tax cuts, but disagree with how they have been administered.

Both ends are important to an economy, and arent mutually exclusive.

Trickle down economic theory is bunk, there is no evidence to suggest that it works, at least not in the "Reaganomics" sense of giving tax relief to ultra wealthy individuals. I don't know why this stupid idea has persisted for so long, even a cursory look at the economy during the Reagan years shows that the rich were just getting richer.

trickle down works, when used in conjunction with middle class tax cuts. When a businessman put all that money into savings, it gives banks money to lend to small business owners looking to start up companies, and for people to buy houses and cars and go to school on private loans etc etc etc. Hence boosting the economy.

When used in conjunction with middle class tax cuts, the people have more to spend, and can therefor buy more stuff, and line the bank accounts of businessmen, and the cycle can continue again.

Everyone wins, its like the special olympics

Rogue 9 · Post by **Rogue 9** » 2004-10-12 10:47pm

Okay, with the deficit the way it is and the military stretched as thin as it is, this is the last time to be cutting taxes any more than Bush already has.

The Silence and I · Post by **The Silence and I** » 2004-10-12 10:49pm

This is good news as a republican, real support of trickle-down theory is always a good thing from my point of view

I'm sure my dad will get a kick out of this, oh yeah and:

Go ASU! Hehe, my school rocks.

Post by **Alyrium Denryle** » 2004-10-12 11:25pm

The Silence and I wrote:This is good news as a republican, real support of trickle-down theory is always a good thing from my point of view
I'm sure my dad will get a kick out of this, oh yeah and:

Go ASU! Hehe, my school rocks.

Why yes, our School does rock

SirNitram · Post by **SirNitram** » 2004-10-12 11:32pm

The Silence and I wrote:This is good news as a republican, real support of trickle-down theory is always a good thing from my point of view

What support? An appeal to authority? The mounds of empirical evidence aren't gonna go away for that.

Howedar · Post by **Howedar** » 2004-10-13 12:26am

The Dark wrote:Is Prescott the one at Arizona?

Arizona STATE, motherfucker.

But yes, he is. Good to know that we finally get a Nobel winner and he's off his fucking rocker

The Dark · Post by **The Dark** » 2004-10-13 01:23am

Howedar wrote:
The Dark wrote:Is Prescott the one at Arizona?
Arizona STATE, motherfucker.

Apologies; I'd only heard he was "in Arizona" from my professor.

But yes, he is. Good to know that we finally get a Nobel winner and he's off his fucking rocker

I thought you had two in your Ec dept. Besides, he's not totally off.

Alyrium Denryle wrote:trickle down works, when used in conjunction with middle class tax cuts. When a businessman put all that money into savings, it gives banks money to lend to small business owners looking to start up companies, and for people to buy houses and cars and go to school on private loans etc etc etc. Hence boosting the economy.

When used in conjunction with middle class tax cuts, the people have more to spend, and can therefor buy more stuff, and line the bank accounts of businessmen, and the cycle can continue again.

Unfortunately, you get the exact same result out of just doing middle class tax cuts, which also has the added benefit of slowing down the accumulation of wealth in the hands of the extreme wealthy (which has been occuring for the last 35 years). Pure or near-pure trickle down, such as Reagan and Bush II have attempted, have led to a slowed economy every time I'm aware of them being attempted in the last century. At this point in time, when corporations are still using only around three quarters of their capital equipment, added investment money does jack shit except sit in bank coffers. We need added spending, which means lower and middle class tax cuts. Actually, what we really need is to shoot all the supply-siders, but that wouldn't be PC. I'm quite aware of the money multiplier effect, and also quite aware that it only works if capital purchases are occuring. They aren't, so the money multiplier will be extremely low.

Howedar · Post by **Howedar** » 2004-10-13 02:13am

The Dark wrote:
Howedar wrote:
The Dark wrote:Is Prescott the one at Arizona?
Arizona STATE, motherfucker.
Apologies; I'd only heard he was "in Arizona" from my professor.

Nobody's perfect

I thought you had two in your Ec dept. Besides, he's not totally off.

My understanding is he's our first, but frankly I pay very little attention to the school of business here.

Post by **Edi** » 2004-10-13 03:57am

Tax cuts without accompanying spending cuts are pretty worthless, because they will just lead to increased debt.

Edi

Tsyroc · Post by **Tsyroc** » 2004-10-13 05:29am

I tend to like any kind of tax cuts even if they are on the higher tax brackets because thanks to inflation eventually more and more people will be in those brackets. It lets the government keep sucking in more and more money without having to technically raise taxes.

I'd like to see someone actually cut the budget and stick to it in a meaningful way.

Faram · Post by **Faram** » 2004-10-13 05:32am

Technically they are NOT Nobel Prize winners.

The win the “Riksbankens Ekonomipris in the memory of Alfred Nobel” it just happens to be awarded at the same time and at the same place as the Nobel Prize.

Petrosjko · Post by **Petrosjko** » 2004-10-13 05:40am

Tsyroc wrote:I'd like to see someone actually cut the budget and stick to it in a meaningful way.

Want to find spare room in the budget? Put government agencies through a ruthless independent audit. (If somebody could be found to do the auditing.)

Go through and chop away all the useless handout appointment positions and axe them. Find all the useless, obsolete functions, and get rid of 'em.

Clean up the procedures, clean up the rules, defund programs that are no longer needed, fire people who aren't doing anything useful.

It'll never happen, but damn, wouldn't it be nice?

The_Nice_Guy · Post by **The_Nice_Guy** » 2004-10-14 12:50am

A modest deficit is fine, but the current program indicates that Bush is gambling heavily on increased tax revenue from growth due to tax cuts to offset his spending.

Risky, risky. If it doesn't pan out, the US would be servicing its debt for centuries. Too bad Kerry might be even worse.

TWG

Quadlok · Post by **Quadlok** » 2004-10-14 01:57am

Petrosjko wrote: Want to find spare room in the budget? Put government agencies through a ruthless independent audit. (If somebody could be found to do the auditing.)

Go through and chop away all the useless handout appointment positions

and axe them. Find all the useless, obsolete functions, and get rid of 'em.

Clean up the procedures, clean up the rules, defund programs that are no longer needed, fire people who aren't doing anything useful.

It'll never happen, but damn, wouldn't it be nice?

That won't do shit. sure, you'll save some money, but not that much. Almost all governmental costs are going into three things: Social Security, Medicare, and defence, in that order, I'm not quite sure how much the yearly cost of these things are, but certainly its over $1.5 trillion and quite possibly over $2 trillion. there's already a 50 some trillion dollar projected debt due to these things, mostly the first two, and further tax cuts will just make that problem worse. Unless you're suggesting that one or more of these things is unneccesary?

Double post deleted.

Petrosjko · Post by **Petrosjko** » 2004-10-14 06:05am

Quadlok wrote:That won't do shit. sure, you'll save some money, but not that much. Almost all governmental costs are going into three things: Social Security, Medicare, and defence, in that order, I'm not quite sure how much the yearly cost of these things are, but certainly its over $1.5 trillion and quite possibly over $2 trillion. there's already a 50 some trillion dollar projected debt due to these things, mostly the first two, and further tax cuts will just make that problem worse. Unless you're suggesting that one or more of these things is unneccesary?

I lean toward the libertarians, so yeah, there's a hell of a lot in all three areas that I think could be chopped. For example, our main conventional forces opposition right now is North Korea. We're still sitting on the architecture of a WW3 army when most of what we're facing involves small-unit operations.

Furthermore, it is in the nature of noncompetitive bureauracies to gather resources in terms of budget and manpower that they don't need, across the board and definitely in the three institutions you named.

Modernize the systems, means-test programs and especially subsidies, trim out the goddamned pork, and ruthlessly cut into the administrative overhead.

Take Kerry's oft-repeated stance on competitive bidding by Medicare for drugs... now he's never stated what percentage of the 139 billion dollars in drug expenses would be recouped by the system by this bit of reform, but taken in conjunction with other reforms, you are talking about chopping significant amounts of fat from the system.

Conjoin this with market reform. Take for example the ridiculous fact that a lot of medical coverage is overpriced by dint of a government-supported monopoly in legitimate medical care. A whole lot of basic procedures are handled by highly overqualified professionals, such as simple suturing. Last time I had to get a stitch job, I sat around for three hours waiting for a doctor to do what any nurse on the floor could've done, for a final company-billed expense of seven hundred and some-odd dollars.

Engage in some targeted deregulation of the system, and yeah, it does add up to shit. Three damn stitches to a wound on my foot should not require the expense of the attentions of a guy who went through ten years of medical training.

It'll never happen, but if the Federal budget could stop being used as a means of payoff and payback.

I'm not fond of most government programs, but I accept I'm in the extremely small minority on the matter. But can you point out to me any government agency that wouldn't benefit from a strict and ruthless outside audit and restructuring?