Top US economic panel urges tax cuts to boost productivity
Make more goods, have less inflation: That's the thesis of a report from the prestigious Committee for Economic Development (CED). The study immediately started debate here on the decline in US productivity, which is called "alarming" by some economists.
"There are serious signs that the nation is losing its technological edge," said a 29- member CED subcommittee headed by Thomas A. Vanderslice, president of Central Telephone & Electronic Corporation, and including such figures as Dereck Bok, president of Harvard University, and C.P. McColough, chairman of Xerox Corporation.
American productivity growth, almost 3 percent a year in the past, now has declined to "less than 1 percent," the report says. (The latest Federal Reserve Board figures show US productivity stagnant. Figures released Jan. 16 put productivity up 0.3 percent for December, but down a similar amount in November and down 0.1 percent in October. Average annual productivity growth in West Germany for 1960 through 1978 was 5.4 percent; France, 5.5 percent; Japan, 8.2 percent, the US, only 2.8 percent.)
The CED report deals with one phase of American's sagging productivity -- technology -- and asks for tax changes, regulatory reform, and modification of patent policies. The committee calls on the government to recognize the problem.
In a footnote, economist Robert R. Nathan argues that inflation itself is the "crucial deterrant" to investment in modern machines and factories, and that, hence, inflation feeds on itself.
Noting that a "large share" of US industry's resources has been diverted to complying with government regulations, the CED subcommittee says, " We place highest priority on specific changes in the tax law" to create greater investment incentives.
The five tax changes to committee advocates:
* Reducing the regular rate of income tax on all sources of individual and corporate income.
* Reducing the capital gains tax to encourage needed investment.
* Reducing the maximum marginal tax rate on all individual income from 70 percent to 50 percent.
* Increasing the tax credit of investment in research and development facilities from 10 percent to 20 percent.
* Allowing faster depreciation of patents over 10 years or their demonstrated life.