Thursday, May 31, 2007

The Wisdom of the OECD

The OECD has released its latest survey of the U.S. economy, and I am impressed. Let's look at a few highlights. First, on employment:
The trend growth rate of GDP has slowed, mainly because of tighter limits on how quickly employment can grow. In particular, the labour force participation rate, which used to be rising quickly, is now trending down. Against this background, this chapter considers three policies that bear on long term employment trends. Raising the age at which workers become eligible for full social security benefits would discourage premature retirement and make the social security system more financially secure. The disability insurance system is discouraging a rising share of the population from staying in the workforce and should be made less generous and more selective. Substantial increases in the federal minimum wage are planned; however, increases in the Earned Income Tax Credit would achieve the same objectives more effectively and with less risk of job losses.
Next, on tax reform:
On the revenue side, it may be difficult to sustain the recent reductions in marginal tax rates, while meeting the fiscal burden from entitlement programmes, although this would be clearly desirable. To the extent that revenues have to be raised, the tax base should be broadened, rather than reversing reductions in marginal tax rates. Since the comprehensive tax reform in 1986, which broadened tax bases and reduced marginal rates, most of the resulting gains in simplicity and efficiency have been lost through a renewed expansion in tax expenditures. To be sure, not all of them are undesirable. However, tax expenditures, which are distorting, ill targeted and ineffective, should be reduced or abolished. The President’s Advisory Panel for Federal Tax Reform has recommended, inter alia, that tax preferences for mortgage interest payments, employers’ contributions to health insurance plan premiums, and state and local tax payments should be reduced. But, in addition to the Panel’s proposals, consideration should also be given to shifting the tax burden from direct taxes to consumption based indirect taxes – such as a national sales tax or a value added tax. This would produce efficiency gains, including reducing disincentives to saving. Furthermore, higher taxation of carbon based energy consumption would help reduce greenhouse gas emissions.
Has an international bureaucracy ever made so much sense in so few words? If so, I missed it.