Five Steps to Higher GDP Growth

U.S. GDP fell by one percent in the first quarter of 2014, according to the Commerce Department’s second estimate. This follows a fourth quarter GDP growth rate of 2.6 percent, slightly above the average over the past three years.

The U.S. economy shrank for the first time since the first quarter of 2011. Exports declined by 6 percent and gross private investment dropped by 11.7 percent. The decrease would have been even larger if federal non-defense government spending had not increased by 5.9 percent.

America can take five common-sense steps to increase economic growth. 

Develop energy resources. Since 2008, U.S. oil production has grown nearly 50 percent. This is small compared to the over 400 percent increase in shale gas production from 2007 to 2012 (latest data available). 

Yet federal acres leased for oil and gas exploration have decreased by 24 percent over the last 5 years. In 2013, the federal government leased 36 million federal acres compared to 131 million acres in 1984. America should take full advantage of its resources and open up more federal lands for energy exploration, charging royalties that would bring in a stream of revenue to Uncle Sam. 

Employment in the oil and gas sectors has increased 40 percent since 2007. Eleven million Americans now work directly and indirectly in the oil and gas industry. Additional permits on federal lands could result in an additional 3 million to 4 million additional jobs from increased U.S. hydrocarbon production, according to Manhattan Institute senior fellow Mark Mills.

Implement regulatory reform. Nearly 90,000 new final regulations have been promulgated over the past 20 years, for an average of more than 4,300 each year. The overall negative economic effect of these regulations is $1.9 trillion annually, or 9 percent of GDP, according to estimates by the Wayne Crews of the Competitive Enterprise Institute. 

Small businesses and start-up companies are disproportionally harmed by regulations because they cannot afford in-house legal departments. America is discouraging entrepreneurs and start-ups, major contributors to innovation and productivity gains. 

In the first quarter of 2014, productivity, measured as output per hour worked, declined at an annual rate of 1.7 percent. After growing at an average of around 2.5 percent per year since 1948, productivity growth has averaged only about 1.1 percent since 2011.

The United States needs to grow itself out of its economic problems, and senseless regulations discourage investment and make growth more difficult.

Eliminate corporate taxes. The United States has the highest corporate tax rate in the developed world. As calculated by the Tax Foundation, America’s 35.3 percent effective tax rate on business is more than 6 points higher than the world average. Reforming the corporate tax rate to meet or better the world average is a solid start, but complete elimination of the corporate tax would offer the best results for economic growth. One study by Boston University professor Laurence Kotlikoff estimated that real wages of American workers would grow by 12 percent if the corporate income tax was abolished.

Despite all the economic damage done by the corporate tax, its benefits are minimal. Less than ten percent of federal tax revenue came from the corporate income tax in 2013, an amount that could be offset by higher economic growth.  

Enact comprehensive immigration reform. In 2014, the annual allotment of H-1B visas for skilled foreigners was exhausted in just one week. The rapid depletion shows the high demand for skilled immigrants, since every applicant must have a sponsoring employer. By denying employers the skilled labor they need to succeed, firms go offshore. Arbitrary immigration laws are holding back the economy.

Critics contend that immigrants displace American workers, but new research from University of California professor Giovanni Peri shows otherwise. Even low-skill immigrants, who typically receive less pay than American workers, boost job growth for native-born workers, since low-pay workers boost earnings for job creators. On the high-skilled end of the labor market, increasing immigration for workers in science, technology, engineering, or mathematics can boost the wage growth of native-born workers by seven to eight percentage points. Immigration reform would create additional wage and job growth and contribute to a strong economy.

Fix the Affordable Care Act. Health-care expenditures grew by 1.01 percent on an annualized basis in the first quarter, a record. When people spend more on healthcare, they have less money available to spend on other goods and services, and for savings. Despite President Obama’s promise that health reform would lower the cost of care, the Affordable Care Act is raising costs.

One reason health-care spending is rising is that people are forced to buy expensive plans that they do not need. Single men have no need for mammograms or well-baby visits. One solution is to permit a broader choice of plans on the exchanges, so individuals can choose plans that fit their needs.

Healthcare costs are also rising because the Affordable Care Act’s structure provides preventive or routine care practically cost-free. As John Goodman of the National Center for Policy Analysis makes clear, this discourages people from shopping around for these services. Insurance should encourage people to shop around for routine expenses, which are predictable and manageable, and cover large unexpected costs, such as major surgery.

This GDP report should be a wake-up call to Congress and President Obama. It is a bad sign that the federal government is growing faster than the economy. America’s economic policies of over-regulation and excessive taxation are leaving American workers behind. Congressional gridlock is no excuse to delay on common-sense reforms. Reform of the energy industry, regulations, taxes, immigration, and healthcare are needed now, before the economy gets even worse. 

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