A Policy Agenda for Closing the Deep Gaps in the U.S. Economy: Revisiting Past Administrations for Solutions

By SBE Council at 2 November, 2016, 10:06 am

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FOR IMMEDIATE RELEASE

Washington, D.C. – After publishing a series of seven “Gap Analysis” reports exposing daunting shortfalls plaguing our economy, the Small Business & Entrepreneurship Council (SBE Council) released a final report today laying out a pro-entrepreneur, pro-small business, pro-growth agenda to close these assorted gaps.

Raymond J. Keating, SBE Council chief economist and author of the new report – “Gap Analysis 8: Policy Solutions for Closing the Gaps in Our Economy: Proven Models and Actions from Past Administrations” – noted, “The SBE Council ‘Gap Analysis’ series has highlighted deeply troubling shortfalls in our economy, including lost GDP, a lost decade of private investment, a dramatic decline in entrepreneurship and the number of businesses, poor productivity growth, lost income for Americans, millions of missing jobs, and a shortfall in terms of U.S. exports and a decline in small business exporters. The question then becomes: How do we close or eliminate these gaps, and get back on a robust growth track? Interestingly, during these finals days of a presidential campaign, answers can be found among policies implemented by recent U.S. presidents.”

In this new report, Keating turns to policy examples offered during the terms of recent U.S. presidents from both sides of the political aisle. For example, much-needed tax reform and relief would do well to look to Presidents Ronald Reagan, Bill Clinton and George W. Bush. As noted in the report:

“President Ronald Reagan came into office and led the effort for a combination of tax relief and reform, which played a central role in reigniting robust economic growth. For good measure, President Bill Clinton signed a bill into law that provided substantive relief in the individual capital gains tax, as did President George W. Bush.”

In the report, it was pointed out that tax reform and relief should center on: 1) a two-rate personal income tax with a top total rate of 25 percent; 2) a capital gains tax of 15 percent, or even better, 0 percent; 3) no death tax; 4) a corporate income tax rate of 25 percent, and 5) expensing as an option for all businesses.

As for regulation, the starting point would be the Reagan administration, which working with Congress, achieved a unique period of true regulatory relief. As Keating noted, “But even that did not last, so institutional reforms are needed.”

Among the regulatory reform measures called for in the report are improving analysis of regulatory impact on small businesses and establishing a meaningful procedure for engagement and feedback; congressional approval of all major rules and regulations before they are imposed; strengthening the integrity of scientific data and increasing transparency; sunsetting all rules and regulations so that Congress is required to re-evaluate regulations after a certain period of time; establishing a regulatory budget; supermajority votes in Congress to pass bills imposing major regulations on businesses, entrepreneurs and investors; and setting up an independent congressional body to fully analyze proposed and existing rules and regulations.

On the trade front, reducing governmental barriers in order to expand international trade opportunities is critical, and policymakers would do well to follow the leads of Presidents Ronald Reagan, George H.W. Bush, Bill Clinton, and George W. Bush.

Also, government spending and debt must be limited. As noted in the report, “President Bill Clinton, largely with the help of a Republican Congress, took federal outlays as a share of GDP from 21.5 percent at the end of President George H.W. Bush’s administration in 1992 to 17.6 percent in 2000 at the end of Clinton’s years. Capping federal government outlays at a percentage of GDP, with some exceptions for wartime scenarios, would be beneficial for the economy, by limiting the level of resources drained from the private sector, and would force Congress and the president to make true decisions about setting priorities for the nation’s government.”

Keating concluded: “We have some good examples of what’s needed from a policy perspective from some recent presidents. Tax and regulatory relief and reform, freer trade, limiting the size of government, along with other measures, are required to close the gaps in our economy, and get us back to robust investment, business, economic, income and job growth.”

The GAP Analysis Series

The first analysis – Gap Analysis #1: The GDP Shortfall – estimated a GDP shortfall of $2.7 trillion (in 2009 dollars) in 2016 thanks to real GDP growth running at less than half the rate it should during a recovery/expansion period.

The second report – Gap Analysis #2: Lost Decade of Private Investment – reported a historic gap or shortfall in private-sector investment over the most recent decade, for example, with real fixed nonresidential investment (or business investment) coming up $1.1 trillion (in 2009 dollars) short of where it should be in 2016.

Gap Analysis #3 – Entrepreneurship in Decline: Millions of Missing Businesses – pointed to an estimated gap or shortfall of between 867,000 and 4.8 million businesses in the U.S. economy.

“Gap Analysis #4 – The Productivity Shortfall: Causes and Results” – noted the dramatic slowdown in productivity growth in recent years, with annual labor productivity growth averaging a woeful 0.4 percent from 2011 to 2016, compared to average annual growth of 2.0 percent from 1956 to 2016.

“Gap Analysis #5: Americans’ Lost Income” – reported that if per capita real personal disposable income grew at the average historic rate since 2009, real per capita personal disposable income in 2015 would have been $2,000 higher (2009 dollars) on average for individuals, and $8,000 higher for an average family of four.

Gap Analysis #6: America’s Lost Jobs – showed dramatic shortfalls in the U.S. labor force and in job creation, in particular, noting that the U.S. effectively is suffering from a shortfall of 8.1 million jobs.

Gap Analysis #7: Lost Exports, Lost Small Businesses – showed dramatic gaps in U.S. exports, registering a shortfall as large as $635 billion in 2016, and big declines in the number of U.S. exporting firms, including 49,800 missing small exporting firms with fewer than 100 workers.