John Cogan, Glenn Hubbard, John Taylor, and Kevin Warsh of the Hoover Institution believe changes in key federal policies could produce significant improvement in economic growth.
Economic theory and historical experience indicate economic policies are the primary cause of both the productivity slowdown and the poorly performing labor market. High marginal tax rates, especially those on capital formation and business enterprises, costly new labor market and other regulations, high debt-financed government spending (largely to fund income transfer payments), and the lack of a clear monetary strategy have discouraged real business investment and reduced both the supply of—and the demand for—labor.
The policy changes of the kind proposed by the Congress and the Administration, if enacted, would significantly improve the economy’s growth prospects.
The tax reform plans propose significant reductions in marginal tax rates on corporate income (to 20 percent or lower), reductions in marginal tax rates on business income and earnings from work at the individual level (to 33 percent or lower), fundamental tax reforms to limit special interest benefits and increase employment opportunities. These proposals, if enacted, would raise both productivity and employment, and provide opportunities for broad-based prosperity. These needed reforms would help turn the recent upswing in animal spirits into a significant improvement in economic activity by resetting long-term higher economic growth expectations.
The Administration’s proposed regulatory reform agenda—including the reinvigorated presidential effort to remove unnecessary, antiquated federal rules, a rigorous, independent benefit-cost analysis of proposed rules, and a regulatory directive to ensure that regulations are pro-competition, not pro-incumbent—would further enhance economic growth by boosting net returns to investment in physical and human capital, and by reducing barriers to employment.
Spending restraint, especially through legislation, along the lines proposed in the House Budget Committee’s 2018 Budget Resolution, that slows the growth in entitlement spending, is essential to achieving higher economic growth.
