Top Three Policy Reforms to Grow the Economy
Economist Jeffrey Miron of Harvard University outlines three policy reforms that he thinks would promote economic recovery and growth in the United States: cutting entitlements, freezing regulation, and replacing the existing tax code with a flat tax on consumption.
For all these difficulties and all these problems and all the recent upheaval, the US still has the most vibrant, the most potentially dynamic economy in the world. We can again be this huge engine of growth, be the country that everyone else wants to emulate, the place that competes with every business owner for the place to locate their business, if we simply can stop shooting ourselves in the foot. My name is Jeff Miron, I’m director of undergraduate studies in Economics, in the Department of Economics at Harvard University, and I would like to offer my 3 preferred policy proposals for helping the US economy grow and become vibrant again. First, we have to cut entitlements that is spending on programs, like Medicare, medicate and social security that are baked in the current policy and that are on the path to explode over the next several decades. Unless we cut those, we have no hope of getting our fiscal house in order because those are growing so much faster than everything else. Second policy proposal is to freeze regulation. The food and drug administration, the federal trade commission, the environmental protection agency, all these agencies, a huge alphabet soup in Washington are issuing new regulations that affect businesses and US economy every single day. And it’s not just that they’re enforcing existing stuff, they’re adding more and more new stuff. And that is crushing for businesses, because they constantly spend their resources trying just to comply with all these new stuff being thrown at them, rather than just making new products. We need to take a time out, freeze making any new regulations, and then take the time to evaluate what part of existing regulation is useful. Some of it indeed is, but what part is not useful, and a huge fraction of it is not, it is incredibly counterproductive. My third policy proposal is to scrap the existing tax code and replace it with the flat tax on consumption. We have to scrap the existing code because tinkering with it is just impossible. It’s so complicated. It’s so messy, if you just try to make small adjustments, it will go on forever. It will never really address the fundamental problems in the existing tax code. Second, we need to be taxing consumption, not income, because if we focus on taxing consumption, we will do much better job of encouraging saving and investment in the US economy, and that’s crucial for productivity, for building factories, for doing research and development, for innovating, and that’s what makes economies productive and fast growing over the long haul. Finally, we need to make it flat that is one simple rate that applies to everything. Because first that helps keep it simple. And second that just makes it so much easier for everyone to know what tax rate they face, what the consequences are of their actions vis-à-vis taxes, and therefore, they plan in a sensible consistent way, rather than having what happens now which is people spending huge amounts of effort and energy in trying to avoid taxes rather than just doing productive stuff and then paying taxes in a simple clean understandable way. So by simplifying the tax code, by rolling back regulation, and by getting our fiscal house in order, we have a much better playing field and rewards the people who do sensible, innovative, smart things, are successful in the marketplace, not the people who are insiders and politically connected to government.