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Moving the Growth Debate Beyond Taxes

Article by Ike Brannon February 1, 2013 //   6 minute read
Most discussions these days about how to kick start economic growth begin and end with tax reform. There’s good reason for this, of course: Our tax code happens to be a serious impediment to economic growth. The good news though is that we can engineer a tax reform that would boost growth while generating more tax revenue at the same time. If it weren’t for the politics, that is. Regardless of who wins the White House, fundamental tax reform faces steep odds in the next Congress. A host of entrenched interests are lined up lockstep in opposition, and pliant politicians are ready to help them in their quest to maintain the status quo. It will take a concerted bipartisan effort to pass legislation that fundamentally changes the tax code for the better, and the current environment may simply preclude that from happening. Therefore, pro-growth conservatives need to start thinking about other avenues that can achieve higher economic growth, and then make the case for those reforms. Some of those reforms — such as dealing with congestion on roads and at airports by charging market prices, which I wrote about last week — don’t even have the full support of Republicans, so we need to first educate conservatives on why such changes are worth doing. Mitch Daniels discovered this in his quest to lease Indiana’s portion of the Tri-State tollway to a private operator, something for which he was initially vilified. It was only after he and his staff travelled the state and plainly made the case for doing so (“We will get billions of dollars to spend on other transportation projects, and the result of this is that driving to Chicago will no longer automatically include being stuck in a traffic jam”) that the voters came around to seeing things his way. Today it ranks among his most popular acts as governor. While we’re trying to privatize things we should take another run at doing this for the Post Office. The Postal Service’s woefully underfunded pension is going to require an infusion of government money at some point, but it is time we insist that we disentangle it from political interference and make it a free-standing entity where Congressman can’t use their leverage to keep open redundant post offices and where unskilled workers aren’t paid five times more than elsewhere. If we can allow an entity that employs well over 500,000 people to do what’s necessary to improve productivity, the rest of the economy’s going to see some benefits. Another way to get more growth is to get more bandwidth in the hands of the private sector. Right now broadcasters have large swaths of the spectrum that they’re using to reach a relatively small cohort of folks who don’t have cable or Satellite, and we are about to run out of space for smart phones. The FCC is starting to lay the groundwork for acquiring some of that bandwidth, and broadcasters are naturally reluctant to give anything up unless they are compensated in some way. There’s room for a deal here. The smart-phone environment promises to be to this decade what the Internet revolution was for the 1990s — the key engine of productivity growth — but only if we give it room to grow. Finally, Republicans should embrace the educational reforms going on throughout the country. Rahm Emmanuel may not be a friend of conservatives, but he was on the side of God when he tried to lengthen the school day and weaken teacher tenure protections in Chicago. Instead of gloating over his political struggle — as not a few Republicans were doing — conservatives should be happy to have someone on the other side fighting what has been our fight for a long time. Indeed conservatives should take it another step and team up with  Democrats like Emanuel in order to make sure all children have access to a decent school. Shades of the Carter Era In the late 1970s the somnolent Democratic majority in Congress got a wake-up call when a stagnant economy and rampant inflation threatened to undo their lock-hold on Congress. They responded by telling their staffers to come up with a way to kick start the economy, and were told that the only way to do so was to begin deregulating the economy. They agreed, and thus began the end of the government control over the trucking, train, and airline industries. While the Reagan Administration rightfully gets credit for vigorously pushing a deregulatory regime, it was during the Carter administration that much of the heavy lifting was actually accomplished. We may reach a similar tipping point in the near future, when a populace angry about a lack of jobs and a debt market wary of our ability to make good on our debts bring about a day of reckoning, and a sense of urgency on the part of politicians to fix our moribund economy. Our laundry list of reforms needs to go well beyond merely fixing the tax code.