A Compelling Case for Political Reform

Last week I felt somewhat redeemed for my belief that the largest impediment to a more robust economic recovery is a combination of inaction and inappropriate action by the federal political system. This includes our election system, the rules of Congress, administration, the acrimony between the two major political parties, and more. The feeling of redemption arrived from a new report issued by the Harvard Business School 2016 Surveys on U.S. Competitiveness, titled “Problems Unsolved and a Nation Divided, the State of U.S. Competitiveness 2016.” Authored by Michael E. Porter, Jan W. Rivkin, Mihir A. Desai, with Manjari Raman, the report concludes that the largest impediment to a more robust economy in the United States is the failure of government ‒ primarily the federal government.

The report cites an Eight-Point Plan, put forth in 2012 by the Harvard Business School:

  1. Simplify the corporate tax code, with lower statutory rates and no loopholes;
  2. Move to a territorial tax system, like all other leading nations;
  3. Ease the immigration of highly skilled individuals;
  4. Aggressively address distortions and abuses in the international trading system;
  5. Improve logistics, communications and energy infrastructure;
  6. Simplify and streamline regulation;
  7. Create a sustainable federal budget, including reform to entitlements;
  8. Responsibly develop America’s unconventional energy advantage.

The report identified two other weaknesses that are primarily controlled by state legislatures. Those are public education and health care.

The authors opined that the most important area to deal with to impact the economy positively is tax reform, both corporate and personal. Additionally the survey results indicate that ‒ whether Democrat, Republican or neither ‒ 95 percent of those surveyed were supportive of tax reform: specifically, reducing the corporate statutory rate by at least 10 percent, moving to a territorial tax regime, and limiting the tax-free treatment of pass-through entities for business income. There was no consensus on personal tax reform, beyond the need for discussing it.

The U.S. political system is in need of revamping. The polarization between the two major parties has now resulted in 42 percent of those surveyed stating that they are independents, more than those claiming to be Democrats or Republicans. The majority believe that the polarization is a root cause of the failure to build consensus to create an atmosphere where sensible economic policy can be reached.

There is strong support for political reform among both Harvard alumni and the general public, but no clear agreement on what that might entail. Many times over the past six years, this column has expressed these same frustrations. Whether from a Washington policy level or navigating through the personal mortgage process, there is an obvious disconnect as to what makes an economy run smoothly.

Perhaps this study can act as a catalyst to spur political cooperation and the type of leadership that we the people expect and deserve. Only with true leadership can we hope to regain the economic luster that we have historically enjoyed. Please take some time to read at least a summary of this survey, if not the full report, for a deeper understanding of the issues surrounding political reform.

– S. Joe DeHaven
09/21/2016

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