New Issue Brief: Supply-Side Solutions to Boost Growth and Lower Inflation
How Congress can foster a pro-growth economy
New York, NY – If a recession materializes in 2023, Congress will have two options: unleash a flood of federal spending that only worsens the problem of excess demand and inflation, or employ a fresh approach that responds to this specific economic challenge. In a new issue brief, Manhattan Institute senior fellows Brian Riedl and Allison Schrager offer Congress a new playbook for handling recessions, presenting supply-side solutions to economic downturns.
Their policy menu centers on four pillars:
Encourage Work: Labor supply and productivity have been trending down, with over 10 million working-age men unemployed and 74 million baby boomers set to retire. Congress can encourage work and productivity by increasing benefits for earned income and expanding these for childless adults; enacting a tax benefit for secondary earners; reforming Social Security to promote working until retirement age; and expanding childcare access through reforming childcare subsidies.
Promote Investment: Averting an economic downturn means removing taxes that penalize investment and productivity. Congress should keep fully expensing business equipment and research expenses through tax deductions and accelerate the depreciation of building structures. To offset the decreased tax revenue that these reforms would cause, Congress can cap tax deductions that benefit mostly wealthy individuals in a few expensive states.
Revitalize Trade: Despite their political popularity, the Trump/Biden tariffs should be rolled back because they discourage trade and increase inflation. The Jones Act – which skyrockets the cost of shipping between U.S. ports – should be repealed. America should also re-engage and join the Trans-Pacific Partnership.
Cut Red Tape: There is ample room for regulatory reform aimed at decreasing inflation and increasing output. Requirements to pair new regulations with the repeal of old ones, revisions to strict “Buy America” rules, limits on Davis-Bacon rules that inflate government contractor wage costs, and fostering dynamic domestic oil and gas production are all ways in which Congress can promote a healthy economy.