An increasing choir of decision-makers representing right and left properly diagnosed the deepest self-inflicted injury in the country: we are not building enough. The so-called “abundance program»Use us to cut administrative formalities, to rationalize permits, to revise zoning codes and to eliminate the bottlenecks made by the government which limit the creation of more things we need, such as houses, energy infrastructure, health services, innovation and opportunities.
It is a convincing vision with a critical blindness: fiscal policy.
If the United States is serious about abundance – not only as a slogan, but as a strategy – we must twin the regulatory reform with a budgetary reform. A country will not build much more if the tax code punishes those who try.
The logic is simple. Even if the development of housing survives the license labyrinth, the developer can move away if the yield after tax does not justify the risk. A clean energy entrepreneur with regulatory green lights and a pierced idea will struggle for investors if taxes threaten to permeate the awards. The authorization to create and produce is not enough; We need capital to move on to new ideas and profits to reward their execution.
Today's tax code and the federal budget deficit of several dollars on the abundance program. We tax investment yields at each stage – once at the company level, once again on dividends and capital gains and still death. Inflation quietly increases the tax burden of even more economies and investments, increasing Effective tax rate on certain investments over 100%.
Tax policy is more than tax rates. It is just as important to obtain the tax plate – which is subject to tax – is just as important. For example, recent changes prohibit immediate deductions for research and development and investment in the equipment. Instead, companies must distribute these deductions over the years – sometimes decades – increase effective tax rates and erode interior investments. It is hardly suited to innovation.
The result? Slow bleeding of investment distantly precisely from the sectors that the champions in abundance want to grow. The timing could not be worse. From artificial intelligence to energy infrastructure, including biopharmaceuticals, the supply of abundance depends on the mobilization of unprecedented private capital levels. Instead, current politics often dissuades it.
Empirical evidence is clear and not in support. A historical study From the organization of economic cooperation and development, has once classified corporate income taxes and the most harmful to economic growth. The International Monetary Fund has shown that foreign direct investments are very sensitive to tax rates. Research by the former president of the Council of Economic Councilors of President Obama shows This increase in taxes reduces economic growth by two to three times the income they increase, mainly driven by investment in cream.
The most recent American experience supports this. Provisions in the law on tax reductions and 2017 jobs, including the reduction in corporate taxes and full expenditure Capital expenditure, stimulated significant increases in commercial investment. A study have found that companies benefiting from changes increased the investment by around 20% compared to companies that have not done so. The prices of President Trump's first term, a particularly expensive tax increase, pushed In the other sense, blunting what could have been an even more important economic response.
Many of these pro-growth provisions expire as well as political decision-makers speak of accelerating construction, manufacturing, energy development and innovation. Instead of modernizing the tax code to seek abundance, we risk bringing back to a structure that penalizes investments and awards. Full expenses, unlike prices, are one of the most effective policies to encourage investment in the United States
It is time to make budgetary policy a central pillar of the abundance program. Just as ugly regulations block the supply of online, ugly tax policy prevents capital from presenting itself in the first place. Both go hand in hand.
What would it look like?
It would restore and make permanent companies permanent so that companies can deduct the cost of new research, equipment and structures entirely during the year they invest. This would reduce the double taxation of savings and investment by reducing rates on capital gains, dividends, interests and income of companies. And this would deal with these reforms as a starting point towards a more neutral taxation and more based on consumption which ultimately allows complete deductions for economies and investments.
To maintain low taxes, we cannot forget the other side of the tax part: public spending. Without spending, the pressure for higher taxes is inevitable – and with it, complicated tax distortions and deterrents that undermine growth.
Many in the abundant coalition support the public on a large scale grants And redistribution. But in the long term, an economy rewarded by debt and taxes will find it difficult to provide general prosperity fueled by innovation and capital. An abundant economy will do more for low -income Americans than redistribution could never.
The abundance program has given us a powerful new vocabulary to describe what retains America. When companies invest, workers acquire better tools and higher wages. When capital flows, the accommodation is built, the energy is delivered and the innovation scales. But unless we extend the agenda to the budgetary reform, we risk stopping halfway.
The building is more than permits. It is a question of ensuring that the incentives – and the capital – are there to finish the work.
Véronique de Rugy is a professor of political economy at George Mason University and principal researcher at the Mercatus Center. Adam Michel is director of studies on tax policies at the Cato Institute.
