Thank you for the opportunity to testify on the important topic of the economic and fiscal benefits of pro-growth policies. In my testimony today I would like to make five points:
1. The growth rate has been slower over the last decade primarily because of demographic factors. The baby boom generation contributed to growth from the 1970s up until about a decade ago, but now the generation is beginning a retirement boom that is subtracting from growth. In addition, women’s entry into the workforce from the end of World War II to about 2000 was another engine of growth that cannot be repeated on the same scale a second time.
2. Additional economic growth would be welcome and would help both increase household incomes and improve the long-run fiscal outlook.
3. Additional demand could help strengthen the economy in the short run, but with the cyclical recovery largely complete, faster growth will require a combination of faster productivity growth and an expanded labor force.
4. A number of budgetary policies would contribute to these goals. Productivity growth could be enhanced by well-crafted, revenue-neutral business tax reform and increased investments in public infrastructure and research. The labor force could be expanded through active labor market policies and efforts to make workplaces more flexible for workers. Finally, immigration reform and expanded educational opportunity would boost both productivity growth and the labor force.
5. A number of fiscal policies advanced by President Trump would worsen economic growth. These include unpaid-for tax cuts, reductions to infrastructure and research investments, and reductions to safety net programs that foster mobility. Other policies, like restrictions on immigration and restrictions on trade, would also worsen economic growth. While some policies could have a very small positive impact on measured economic output, these effects would not be sufficient to overcome their other drawbacks.
Let me now elaborate on these five points.
