NCPA - National Center for Policy Analysis


June 23, 2008

Robert Mundell, the father of the euro, isn't in the habit of making fruitless policy recommendations, though some take a long time ripening, says the Wall Street Journal.  Nearly four decades passed between his early work on optimal currency areas and the birth of the euro in 1999 -- the same year he received the Nobel Prize for economics.

At the Copenhagen Consensus summit in May, Mundell said the big issue economically in the upcoming U.S. presidential election is what's going to happen to taxes.  One of the original "supply-side" economists, Mundell has long preached the link between tax rates and economic growth.  Mundell says it would be "lethal" to suddenly raise taxes, and that rescinding the Bush tax cuts would be "devastating" to the world economy. 

Mundell recommends:

  • A ceiling of 30 percent on marginal rates (the current top rate is 35 percent).
  • Cutting the corporate tax rate to 25 percent, a proposal he first made back in the 1970s.

Democratic nominee Barack Obama regularly professes disdain for the Bush tax cuts, suggesting that those growth-spurring measures may be scrapped.  Mundell predicts that if that happens, the United States will go into a big recession, a "nosedive."

According to Mundell, the most important thing that could be done with respect to tax rates now is to make the Bush tax cuts permanent.  Eliminating that uncertainty would be more important than pushing for a further cut -- in the income tax rates, anyway.

Source: Kyle Wingfield, "Robert Mundell: An Economist Who Matters," Wall Street Journal, June 21, 2008.

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