Long term trends regarding productivity
are looking bleak. This portends poorly for future economic growth.
Productivity is an essential driver of economic activity and healthy standards of living.
Since the ending of the Great Recession in 2009, the average annual productivity increase has been 1.1 percent, compared with 2.6 percent during the previous economic expansion – a fall of 58 percent.
In the first quarter of 2015, compensation rose 6.7 percent relative to the previous quarter, while productivity declined 3.1 percent (seasonally adjusted): the result was an annualized average unit cost increase of 10.1 percent, following a revision to the original U.S. Labor Department data.
The drop in productivity was a reflection of a 1.6 percent fall in output and a 1.6 percent increase in hours worked.
Since 2006, this is the first time we experienced two consecutive quarters of decreased productivity growth.
Greater productivity tends to enhance profits that drive future investment in labor, equipment, research and development. This environment promotes sustained and robust economic activity and higher inflation-adjusted wages for many.
The key to increasing productivity is a rise in business investment.
For business investment to increase, the associated costs of these expenditures must fall: specifically, the tax rates on income generated by these activities need to be lower.
My tax plan
will increase investment and employment by reducing the cost of labor and capital.
It will do so by replacing all federal taxes with a low and transparent tax rate on consumption and savings. This will expand the tax base by including much unreported income and minimizing tax deductible income; lower tax compliance costs substantially; balance the budget at current spending levels; and keep a lid on inflation.
My tax proposal would eliminate all federal taxes, including income, Social Security, Medicare, unemployment, disability, interest, dividends, capital gains, gift, inheritance and corporate.
These taxes would be replaced by:
- a 10 percent consumption tax on expenditures that exceed $30,000 for a family of three in the form of a $3,000 refundable tax credit, and
- a 2 percent savings tax on assets above $100,000 for a family of three, excluding retirement funds ($25 trillion), direct capital investment ($5 trillion, or 30 percent of GDP), charitable foundations ($3 trillion) and education savings ($250 billion). The savings tax would be based on an average daily balance over the entire year to minimize tax arbitrage strategies.
Lower tax rates applied to more income will increase investment, productivity and inflation-adjusted income for many over the long-term.
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