A key to the tax de­bate

Boost­ing worker pro­duc­tiv­ity may be the most im­por­tant eco­nomic chal­lenge fac­ing the coun­try.

The Washington Post Sunday - - SUNDAY OPINION -

THERE WAS more lack­lus­ter news about pro­duc­tiv­ity from the La­bor De­part­ment on Wed­nes­day, which means that a key en­gine of over­all eco­nomic growth re­mains stalled. Specif­i­cally, out­put per pri­vate-sec­tor worker rose at an an­nual rate of roughly 1 per­cent in the sec­ond three months of the year, bet­ter than last year’s, but still well be­low the post­war av­er­age and too slow to sup­port any sig­nif­i­cant im­prove­ment in the econ­omy’s 2 per­cent an­nual growth rate. What to do about this may be the most im­por­tant eco­nomic chal­lenge fac­ing the United States. As Fed­eral Re­serve Vice Chair­man Stan­ley Fis­cher noted re­cently, liv­ing stan­dards can dou­ble once ev­ery gen­er­a­tion with 2 per­cent pro­duc­tiv­ity growth; at 1 per­cent, that same im­prove­ment takes two gen­er­a­tions.

Ex­pect im­prov­ing pro­duc­tiv­ity to be one of the key talk­ing points when Repub­li­cans in the ex­ec­u­tive and leg­isla­tive branches re­sume their cam­paign for tax re­form af­ter Congress’s Au­gust re­cess. House Speaker Paul D. Ryan (R-Wis.) touted cor­po­rate tax re­form as a so­lu­tion for slow pro­duc­tiv­ity in his “Bet­ter Way” pol­icy agenda last year. And it’s true — cor­po­rate tax re­form could en­cour­age busi­nesses to in­vest in pro­duc­tiv­ity-en­hanc­ing cap­i­tal, and to en­hance the ef­fi­ciency of in­vest­ment de­ci­sions, as­sum­ing lower rates are ap­plied to a tax base purged of spe­cial-in­ter­est loop­holes. Whether Repub­li­cans can ac­tu­ally be trusted to de­liver a fis­cally re­spon­si­ble re­write of busi­ness tax­a­tion, as op­posed to deficit-fi­nanced tax cuts for cor­po­ra­tions and wealthy in­di­vid­u­als, is an­other mat­ter.

In truth, fed­eral taxes are only one fac­tor af­fect­ing pro­duc­tiv­ity — and not nec­es­sar­ily the most im­por­tant. Many pro­duc­tiv­ity-en­hanc­ing mea­sures might re­quire more gov­ern­ment in­vest­ment, and tax­payer re­sources to pay for them: health care to keep work­ers func­tion­ing at their best; ed­u­ca­tion to en­hance work­ers’ skills; ba­sic re­search to spawn new tech­nol­ogy; in­fra­struc­ture to speed move­ment of peo­ple, goods and in­for­ma­tion. Dereg­u­la­tion, an­other Repub­li­can panacea for pro­duc­tiv­ity, has its place, too. But much of the needed re­form in­volves not health and safety rules at the na­tional level but trim­ming ex­ces­sive pro­fes­sional li­cens­ing re­quire­ments at the lo­cal level. An un­der­ap­pre­ci­ated source of low pro­duc­tiv­ity may be ob­sta­cles to worker mo­bil­ity cre­ated by lo­cal land-use rules, which have the ef­fect of mak­ing it harder for peo­ple to find af­ford­able hous­ing near their jobs, ac­cord­ing to a 2015 study by Pres­i­dent Barack Obama’s Coun­cil of Eco­nomic Ad­vis­ers.

When it comes to im­prov­ing pro­duc­tiv­ity, then, the com­ing push for tax re­form has the po­ten­tial to do some good — but also mis­chief. Even good-faith pol­icy pre­scrip­tions suf­fer from the same flaw, which is that pro­duc­tiv­ity re­mains one of the least un­der­stood and, in­deed, least pre­cisely mea­sured con­cepts in all of eco­nom­ics. Im­prov­ing worker ef­fi­ciency prob­a­bly de­pends as much on main­tain­ing broadly sup­port­ive eco­nomic and so­cial con­di­tions as it does on this or that spe­cific line in the tax code or Fed­eral Reg­is­ter. And while achiev­ing those con­di­tions some­times re­quires less gov­ern­ment in­ter­ven­tion, some­times it re­quires more.

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