September 22, 2015
Former Florida governor Jeb Bush announced his regulatory reform plan today, and together with his tax plan, it provides a clear and effective program to revive the moribund capital investment which has hamstrung the U. S. economy since the Great Recession. Weak capital investment (net levels in 2014 are still below those of 2008) is the primary cause of unacceptably sluggish productivity growth, and needs to be reversed to raise GDP, job growth and incomes out of a Japan-like level of stagnation. Ben Bernanke succinctly summarized the case for concern: “…productivity …is perhaps the single most important determinant of living standards.” And productivity growth since the onset of the Great Recession has languished at a 1% annual level, “…the slowest of any expansion in the post war era…less than half the rate of any expansion…” except for the 1.7% level in the 1974-75 recovery, according to Martin Regalia of the U. S. Chamber of Commerce.
Tax and regulatory policy are the two most important factors explaining this weak performance, especially since the start of Barack Obama’s presidency. Taxes on capital have been raised and a tidal wave of new regulation has undermined the animal spirits needed to boost investor confidence. For example, in the capital intensive manufacturing sector, average OECD effective corporate taxes have declined by 8.5% since 2005, while effective U. S. rates have been stable. Taxes on investment, including capital gains and small business profits, have been upped since 2009 in the United States. Effective taxes on manufacturers have been cut by 27% in China, 26% in Canada and even in Germany by almost 10% since 2005.
The U.S. is one of only a handful of advanced nations to tax profits earned outside the country. It has simply become more profitable to site major new investments outside the U.S. because of this relative decline in returns on capital. The U. S. share of worldwide foreign direct investment stood at 37% in 2009 but has plummeted to 17% in recent years.
Read the full article at Forbes.com: You Can Take Jeb Bush's Regulatory Reform Plan To The Bank