How Do We Speed Up Economic Growth?

 

The 2015 Economic Report of the President has just been released.  It shows that the slow growth of productivity is playing a bigger role in squeezing middle class incomes than the rise of economic inequality.
CaptureThe above chart makes some dire predictions:

  • The labor force, which has averaged 1.5% growth since 1950, is likely to grow just .5% a year in coming decades, because any increase in new workers is likely to be swamped out by baby-boomer retirements.
  • Productivity has grown just 1.3% a year since the end of the last expansion in 2007.
  • These two figures together predict an anemic, less than 2% growth, economy going forward.

The President proposes several policies to address this slow growth:

    • Immigration Reform would provide more highly skilled workers for the economy as well as a more efficient guest worker system for low-income labor.
    • Increased Foreign Trade would expand our export economy.
    • An Expanded Workforce could be achieved with a higher Earned Income Tax Credit to boost dual-income households.
    • An increase of Infrastructure spending of 1% of GDP is estimated to boost output by 2.8% after 10 years.
    • Corporate Tax Reform would encourage U.S. multinationals to bring their foreign profits home for reinvestment.

These are good ideas but much more could be done as well:

  • Individual Income Tax Reform, exchanging lower tax rates for all by closing loopholes and deductions would boost spending by middle- and lower-income tax payers.
  • Reforming Social Security and Medicare by setting higher retirement ages would encourage longer work lives.
  • Reforming the Affordable Care Act by removing the employer mandate would boost productivity by making the labor market more efficient.

Faster economic growth will not only reduce unemployment, it will also make it much easier to shrink the deficit as more tax revenue is raised.  This should be one of the very highest priorities for our elected representatives in Washington!

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