About the Speech
Labor supply is not inelastic and responds to changes in tax rates. This insight, so simple and yet so powerful, has profound implications for the performance of the U.S. economy and for the design of tax policies, from income tax rates to Social Security. Regarding federal income taxes, policymakers should establish an efficient tax system with low tax rates that do not change with the political climate. We should roll back the 1993 tax rate increases and re-establish those from the 1986 Tax Reform Act. Just as they did in the late 1980s, these lower rates would increase the labor supply, output would grow and tax revenues would increase.
The same holds true for Social Security. We need a Social Security program that provides incentives for people to work and save. We should establish a system of individual savings accounts for retirement. If people are in control of their own savings, and if their retirement is funded by savings rather than transfers, they will work more. National savings will increase, as will participation in the labor force, in a way that benefits everyone. More private assets means there will be more capital, which will have a positive impact on wages. Also, more capital means that the economy will have more productive assets, which also contributes to more production.