The U.S. economy eked out a gain of 0.1% in the first quarter, the government said yesterday, as exports plummeted 12% and gross private investment tumbled 6.1%.
What's worse, gross domestic product expanded 2.6% in the previous three months.
What can America do to reverse the trend and accelerate growth? Here are four ways, each of them within our grasp.
Fix the Affordable Care Act. Health-care expenditures grew by 1.1% on an annualized basis in the first quarter, a record. Despite President Obama's promise that health reform would lower the cost of care, the Affordable Care Act is raising costs.
One reason health-care spending is rising is that people are forced to buy more expensive plans than they need. Why should single men have to buy maternity coverage and pediatric dental care? One solution is to permit a broader choice of plans on the exchanges, including bare-bones and inexpensive plans, and allow people more choices.
Another problem with the structure of the Affordable Care Act is that there is practically no cost to preventive or routine care, discouraging people from shopping around and economizing on care. Yet the plans charge a substantial amount for cures for major illnesses, such as cancer drugs. As National Center for Policy Analysis President John Goodman has written , this is the opposite of what insurance should be. It should encourage people to shop around for routine expenses, which are predictable and manageable, and cover large unexpected costs, such as major surgery.
The increase in health-care spending in the first quarter left less spending for other goods and services, and for savings, which powers investment.
Allow exports of natural gas. With exports of goods declining by 12%, the largest drop since the first quarter of 2009, America could sell natural gas to Europe and Asia, undercutting Russia's market, at no additional cost to the federal government. On the contrary, increased production means additional tax revenue to federal and state governments.
Over two dozen applications to export liquid natural gas are waiting at the Department of Energy for approval, some since 2011 and 2012. (See table below.) In total, potential exports of 29 billion cubic feet per day of natural gas are being held up by delayed reviews from the Department of Energy. This amount highlights the strength of both domestic supply and international demand for natural gas. If the export process were not so onerous, even more companies would be willing to invest in natural gas exports and apply for export permits.
America has massive natural gas expansion capacity. In North Dakota, according to the Energy Information Administration , the average amount of non-marketed natural gas output per day — output that is wasted, not sold — through the end of 2013 was 0.31 billion cubic feet, up from 0.16 billion cubic feet a day in 2011. That is an increase of almost 100%.
Most non-marketed natural gas is wasted, flared into the atmosphere like an open burner on a gas stove. Flaring gas releases CO2 as a byproduct of combustion, so it would be environmentally preferable for the gas to be sold. A third of North Dakota's total production is flared, or burned. North Dakota's goal is to reduce its percentage of non-marketed gas to 10% by the fourth quarter of 2020. Allowing more exports would help North Dakota's economy as well as increase U.S. GDP.
Reform taxes. French economics professor Thomas Piketty, author of “Capital in the 21st Century,” does not want the rate of return on capital to be higher than the GDP growth rate. His solution is to raise taxes on capital and wealth. With the low GDP growth rate, a Piketty solution would be to raise taxes on capital until the rate of return of capital was also 0.1%.
A better solution would be to lower taxes on capital to encourage more investment. Spending on equipment declined by 5.5% in the first quarter, the largest one-quarter decline since the second quarter of 2009.
Lowering the U.S. corporate tax rate to the Organisation for Cooperation and Development average effective rate of 20% from the U.S. rate of 35% would attract investment from abroad. In addition, allowing firms to expense purchases of capital equipment, rather than depreciate them, would move our tax system closer to a progressive consumption tax, where firms and individuals are taxed on consumption rather than savings and investment.
Our tax system already has elements of a consumption tax. The vast majority of Americans do not exhaust their tax-free savings accounts, ranging from Individual Retirement Accounts to college savings accounts. An expansion of these accounts and a move to expensing capital equipment would encourage investment.
Overhaul immigration. Republicans and Democrats in Congress need to move on portions of immigration reform where they find common ground. Almost everyone agrees that Congress should raise the number of H-1B visas that admit skilled foreigners, now 85,000 annually. The 2014 allotment was exhausted in the first week in April. This would encourage innovators to come into the country and create more products, at no cost to Uncle Sam.
Immigrants have a higher propensity to start businesses than do native-born Americans, according to a 2012 study by the Kauffman Foundation , which champions entrepreneurship. The author, Duke University professor Vivek Wadhwa, reported that immigrant founders of engineering and technology companies started between 2006 and 2012 employed approximately 560,000 workers and generated $63 billion in sales in 2012. In California's high-tech Silicon Valley, 44% of businesses had at least one immigrant founder.
On Saturday, New York Times columnist David Leonhardt reported that leading American universities are taking a declining percentage of American students and offering more places to foreigners. These foreign students should be able to get green cards or H-1B visas to stay if they choose to do so, since they are educated partly at U.S. taxpayer expense and crowding out American students. At Harvard University, for example, the percent of Americans enrolled declined by 27% between 1994 and 2012. Yale and Dartmouth saw a 24% drop.
Let us hope that immigration reform passes in 2014. The world is engaged in a global race for talent, and the economy will grow faster if the talent comes here.
The first-quarter GDP growth rate will be revised twice in the next few months. With more data, especially on international trade, the overall rate might go up, or it might go down. Despite the uncertainty, this report should be a wake-up call to Congress and the president.
Original Source: http://www.marketwatch.com/story/4-easy-ways-to-boost-the-us-economy-2014-05-01