INVESTING
spillovers , as demonstrated by the earlier Defense Department research expenditures that became catalysts for today ’ s digital revolution .
This being the case , cuts in federal support for basic research are inconsistent with a growth agenda . Still , policymakers should review how research funds are distributed to ensure scientific merit , and they should encourage a healthy dose of risktaking on newer ideas and researchers .
In addition to encouraging commercialization of spillovers from basic research and defense programs , federal support for applied research centers around the country would accelerate the dissemination of new productivity-enhancing technologies and ideas . Such centers also tend to distribute the economy ’ s prosperity more widely , by making new ideas broadly accessible — as agricultural- and manufacturing-extension services have done historically .
To address the second pillar of productivity growth , the administration should seek to extend the pro-investment provisions of the Tax Cuts and Jobs Act that Trump signed into law in 2017 . While the TCJA ’ s lower tax rates on corporate profits remain in place , the expensing of business investment — a potent tool for boosting capital accumulation , productivity and incomes — was set to be phased out over the 2023-26 period . This provision could be restored and made permanent by reducing spending on credits under the Inflation Reduction Act , or by rolling back the spending — such as $ 175 billion to forgive student loans — associated with former President Joe Biden ’ s executive orders .
If the new administration wanted to go further with tax policy , it could build on
If the new administration wanted to go further with tax policy , it could build on the 2016 House Republican blueprint for tax reform that shifted the business tax regime from an income tax to a cash-flow tax . the 2016 House Republican blueprint for tax reform that shifted the business tax regime from an income tax to a cash-flow tax . By permitting immediate expensing of investment , but not interest deductions for nonfinancial firms , this reform would stimulate investment and growth , remove tax incentives that favor debt over equity , and simplify the tax system .
That brings us to the third pillar of a successful growth strategy : efficient regulation . The issue is not “ more ” versus “ less .” What really matters for growth is how changes in regulation can improve the prospects for growth through innovation , investment and capital allocation while focusing on trade-offs in risks . Those shaping the agenda should start with basic questions like : Why can ’ t we build better infrastructure faster ? Why can ’ t capital markets and bank lending be nimbler ? Not only do such questions identify a specific goal ; they also require one to identify trade-offs .
Fortunately , financial regulation under the new administration is likely to improve capital allocation and the prospects for growth , given the leadership appointments already announced at the Securities and Exchange Commission and the Federal Reserve . But policymakers also will need to improve the climate for building infrastructure and enhancing the country ’ s electricity grids to support the data centers needed for generative artificial intelligence . This will require a sharper focus on cost-benefit analysis at the federal level , as well as better coordination with state and local authorities on permitting . Using federal financial support programs as carrots or sticks can be part of such a strategy .
Bessent ’ s emphasis on economic growth is spot on . By setting an ambitious 3 % target for annual growth , he has provided the new administration a North Star to follow in devising its economic policies .
GLENN HUBBARD , Professor of Economics and Finance at Columbia University , is a former chairman of the U . S . Council of Economic Advisers under President George W . Bush . The opinions expressed are his own .
This article was provided by Project Syndicate .
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