NCPA - National Center for Policy Analysis


February 15, 2007

Economic growth in the United States has been above the historic average and faster than any other major industrialized economy in the world.  The economic expansion continued for the fifth consecutive year in 2006.  This economic growth comes despite numerous headwinds and results from inherent U.S. economic strengths and pro-growth policies.

According to the "The Economic Report of the President," an annual report written by the Council of Economic Advisors:

  • Real gross domestic product (GDP) posted above-average 3.4 percent growth in 2006.
  • The composition of growth changed, with more coming from exports and business structures investment, while residential investment flipped from contributing to GDP growth in 2005 to subtracting from it in 2006; also, consumer spending remained strong.
  • Labor markets continued to strengthen, with the unemployment rate dropping to 4.6 percent and payroll job growth averaging 187,000 per month; real average hourly earnings accelerated to a 1.7 percent increase during the 12 months of 2006.
  • Energy prices rose sharply in the first half of the year, but then declined just as sharply in the second half.

The report also discusses the advantages of adopting a more pro-growth tax system.  Most economists agree that lower taxes on capital income stimulate greater investment, resulting in greater economic growth, greater international competitiveness and higher standards of living.  For example:

  • The tax code contains provisions that discourage investment and create distortions that affect the level, distribution, and financing of capital investment; estimates from research suggest that removing these tax distortions to investment decisions could increase real GDP by as much as 8 percent in the long run.
  • Since 2001, temporary changes in the tax code have reduced the tax on investment; these pro-growth policies have stimulated short-run investment and economic growth, however, the temporary nature of the provisions eliminates desirable long-run economic stimulus.

Source: "Economic Report of the President," Council of Economic Advisers Publications, February 12, 2007.

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