U.S. Economy Could See Dramatic Gains from 1 More Percentage Point of Growth
November 11, 2014
For 40 years, the American economy grew at a rate of 3.3 percent annually after World War II. That trend, however, has halted; growth since 2007 has been just 1.5 percent, writes Douglas Holtz-Eakin, president of the American Action Forum. Unfortunately, the Congressional Budget Office does not expect robust growth in the foreseeable future, predicting 2.5 percent growth over the next decade and just 2 percent growth after that.
Holtz-Eakin explains how the national growth rate directly affects individuals, of all income levels. In fact:
- Growth of just one-tenth of one percentage point higher than CBO projections would reduce American deficits by $300 billion over the next 10 years.
- One percentage point in growth above CBO projections would reduce the United States' debt by $3 trillion.
- Were the United States to grow at an annual rate of 3 percent, it would create 1.2 million more jobs and boost average incomes by $4,200. Were it to grow at 3.5 percent, average incomes would grow by $9,000.
- Gains from faster economic growth accrue to Americans at all levels of the income spectrum.
So, how can America achieve that growth? In addition to entitlement reform, some of Holtz-Eakin's suggestions include:
- Tax reform: The American tax code is complicated and full of perverse incentives. By simplifying the individual income tax, Congress could improve work people's work incentives. Similarly, corporate tax reform would improve the atmosphere for business, encouraging American investment and creating jobs.
- Regulation reform: Federal regulations cost businesses billions -- from January to July 2014, over $116 billion in compliance costs were imposed on businesses and individuals by the federal government. That's 23 million hours of paperwork. With regulatory reform, employment would rise; according to Holtz-Eakin, $1 billion in new regulations are linked to a 3.6 percent decline in employment within an industry.
- Energy reform: More domestic energy production and increased trade would boost the American economy. Holtz-Eakin encourages policymakers to repeal the ban on crude oil exports, and he encourages faster processing of permits for natural gas export facilities.
Source: Douglas Holtz-Eakin, "The Growth Imperative: How Slow Growth Threatens Our Future and the American Dream," U.S. Chamber of Commerce Foundation, November 2014.
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