Tax Reform Will Give Workers a Raise
Wall Street Journal
Lawrence B. Lindsey
October 10, 2017
"The tax-reform package now working its way through Congress is well-designed and far-reaching. It aims to address the reasons that the current economic recovery has been the most anemic on record. If it becomes law, we can expect economic growth to accelerate to roughly 3.2% for the next three to five years, then settle in at a sustainable pace of around 2.5%. This is well above current official expectations for long-term growth of about 1.9%.
"Any growth-oriented policy must therefore address the problem that, in the current recovery, capital-formation growth was nearly cut in half and productivity growth by more than half. The bill now under consideration does exactly that by focusing on incentives to increase investment in fixed capital. It also promotes entrepreneurship and small-business formation—the ultimate driver of productivity growth. In the current expansion, the pace of new business creation relative to business closure paled dramatically in comparison to the historical average.
"The package also promotes entrepreneurship, the key to productivity growth. Productivity growth does not descend magically upon workers once they get up to speed in their jobs; it occurs when individuals take on new jobs better suited to their skill sets. The signal for this is that the new job pays more—if it didn’t, the worker probably wouldn’t take it. New jobs open up in the economy when businesses are formed that create fresh market niches and exploit existing ones more efficiently than legacy companies.
"The proposed legislation favors these businesses, as well as smaller businesses in general, by making expensing permanent for them and allowing an interest deduction up to a capped amount. It also provides a 25% rate on pass-through income from businesses that are not merely providers of personal services.
"A rise in real wages would dramatically improve America’s society as well as its economy. It would lead to the first sustained decline in income inequality in more than 40 years. The American economy will finally start working in the interest of the great middle class and not simply those at the top. This is an important piece of legislation to pass. The country must not miss this opportunity."
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