The $700 billion U.S. intergovernmental grant system is often poorly targeted to areas that are struggling. Tracy Gordon proposes reforms to Medicaid and other programs that would make federal aid to states more targeted toward struggling areas and more responsive to economic shocks.
For a century, the progress our nation made toward realizing broadly shared economic growth gave our economy much of its unparalleled strength. However, for the last several decades, that progress has seemed to stall. On critical measures such as household income, poverty, employment rates, and life expectancy, there exist yawning persistent gaps between the best- and worst-performing communities. These conditions demand a reconsideration of place-based policies. The evidence-based proposals contained in this volume can help restore the conditions of inclusive growth that make it possible for individuals from any part of the country to benefit from economic opportunity.
Over the past few decades there have been troubling indications that dynamism and competition in the U.S. economy have declined. Markets are more concentrated than they were a few decades ago, and entrepreneurship is less common, with both the number and employment share of new firms well below the levels of previous decades. Carefully assessing these trends as they relate to public policy is necessary to achieving a more competitive, productive economy that generates broadly shared growth.
State business incentives tilt the economic playing field in favor of large, incumbent firms and thereby discourage economic dynamism. However, basic collective action problems prevent any state from unilaterally eliminating these incentives, as businesses would migrate to states that continued to provide incentives. Chatterji proposes a federal Main Street Fund that would encourage states to redirect incentive payments towards initiatives that support new businesses and economic dynamism. These initiatives include management training for new entrepreneurs, increased occupational licensing reciprocity, investment in broadband infrastructure, and customized initiatives to support the creation and success of new businesses.
Ordinarily, the progressive income tax system acts to mitigate differences in before-tax earnings. However, the tax treatment of married couples tends to raise the tax rate faced by the spouse who is the lower earner in a couple. This group of spouses, often referred to as secondary earners, is still predominantly female. Consequently, the current tax treatment of married couples reduces wives’ labor force participation and creates other inefficiencies. LaLumia proposes a new second-earner deduction equal to 15 percent of the earnings of a lower-earning spouse. The proposed deduction would raise the after-tax return to work for many wives, encouraging an increase in married women’s labor supply, and would reduce marriage penalties on average.
The United States has an enviable entrepreneurial culture and a track record of building new companies.Yet women and minority entrepreneurs often face even greater obstacles. In this discussion paper, Michael Barr calls for an expanded State Small Business Credit Initiative and an enlarged and permanent New Markets Tax Credit to encourage private sector investment in new and small businesses.