"The flat tax has some serious hurdles to overcome before it can go from tax concept to tax code."
-- J.D. Foster
The flat tax is the vanguard of tax reform, and for good reason. It is sound economically and easy to explain. It corrects some long-standing problems with the current tax system: complexity, high costs of administration and compliance, a depressing effect on the economy, and the unfairness of double taxation of income from capital. Its strengths have gained the flat tax many ardent fans and have brought it from an obscure oddity debated by economists to the forefront of the tax-policy debate.
Flat-tax advocates are nearly evangelistic in their drive to replace the current tax system, often as an integral part of their broader agenda to reshape government. They are also often unwilling to acknowledge that, despite its strengths, the flat tax also has some weaknesses and some serious obstacles to overcome before it can go from tax concept to tax code.
Any tax with a single tax rate could be considered a flat tax. A flat tax on labor and business income has been popularized by professors Robert E. Hall and Alvin Rabushka of the Hoover Institution. A flat tax on labor and business income is also embodied in legislative proposals advanced by Congressman Dick Armey, the majority leader in the House of Representatives, and Senator Arlen Specter, a presidential contender. These flat-tax proposals do not tax income from saving; they are therefore a form of consumption tax.
One of the great advantages of a flat tax is its neutrality. It taxes all forms of income only once and does so at a single rate. It taxes individuals' labor income at a single rate after allowing for personal exemptions, and it taxes business's net cash flow at the same rate that applies to individuals. The flat tax thus gives no relative advantage to any means of earning income. It favors neither capital nor labor, neither physical nor intellectual capital, neither manufacturing nor real estate. By contrast, under current law, the federal government uses the tax code to micromanage the economy, distorting the allocation of resources such as capital and labor, and thereby diminishing both the level of economic activity and the standard of living.
The flat tax is also vastly simpler than the current system and thus virtually transparent to taxpayers -- that is, taxpayers need not become lawyers or CPAs to understand the intent and application of the tax system. Such transparency is important for individuals and businesses making economic decisions, for taxpayers' confidence in the fairness of the system, and for assuring taxpayers that the tax code will not become a tool of deliberate or accidental oppression by government. Much of the distrust bred by the federal tax system derives from a suspicion that it conceals traps to snare the unwary taxpayer and torture him with tax penalties, interest charges, tax liens, and possibly jail. The flat tax aims to be so simple and transparent that taxpayers could shelve their fear of the tax man.
Individuals under a flat tax. Taxable income under a flat tax includes all wages and salary, and excludes all capital income such as dividends, interest, rental income, and capital gains. In addition, all nonwage forms of labor compensation are also excluded, such as employer-provided health insurance and subsidized parking. The tax on individuals, therefore, is essentially a payroll tax collected at the employee level. Most flat-tax proposals also allow the taxpayer to take personal exemptions and an additional exemption for each child in the household, effectively creating a zero tax rate for low-income filers. Under the Armey version of the flat tax, for example, a single filer is allowed a $13,100 exemption ($26,200 for married, filing jointly), and the plan allows for a $5,300 exemption per dependent. Having calculated taxable income net of the personal and child exemptions, a flat tax imposes a single tax rate on any remaining taxable income.
The most striking feature of a flat tax is that it eliminates the special deductions, phase-outs, and credits in the federal income tax, ensuring that most individuals could calculate their tax liability easily -- hence the claims by flat-tax advocates that a tax return could be filed on a postcard. (In his plan, Specter retains the two most popular individual deductions, the home-mortgage interest and charitable deductions.)
Simplicity for the individual is indeed one of the flat tax's best selling points. It is a point that is often oversold, however. Under the flat tax, there are two tax rates -- zero and approximately 20 percent. No doubt a reduction in the number of tax rates would make tax planning easier, but for most individuals the number of rates is irrelevant to their actual tax filing.
The simplification of the calculation of taxable income may also be oversold. For the approximately 80 million tax filers who take the standard deduction, the difference in tax computation between the flat tax and current law is that taxpayers today must add their interest, dividends, and capital gains to the tax base. They do not suffer the complexities of tax deductions because they opt for the standard deduction. For the approximately 32 million itemizers, the flat tax offers a clearly simpler system. But taxpayers who itemize do so voluntarily. They itemize because it lowers their tax liability. Thus, for itemizing taxpayers, the flat tax represents a loss of a preferred option in the way they file their taxes. Flat-tax advocates assume that most itemizing taxpayers would happily give up their credits and deductions in exchange for a simpler tax system.
Businesses under a flat tax. The taxation of businesses under a flat tax makes even greater strides towards simplicity and neutrality. All businesses are treated the same; no distinction is made between partnerships, sole proprietorships, corporations, and any other business form. There is a single tax rate. And businesses are taxed on their net cash flow, not on their net income as under current law, thereby eliminating all the complications of attempting to match the timing of income and expenses.
Under a flat tax, a business calculates its net cash flow for the year by totaling its receipts from all sources and subtracting all payments made to its employees and all payments made to other businesses for such things as plant and equipment and inventory. Businesses would deduct from income the full cost of their investments at the time of purchase, instead of stretching out these expenses according to complicated depreciation schedules. Employee fringe benefits would not be deductible. Nor would interest payments. The business then calculates its tax liability by applying a single tax rate to its net cash flow.
More than just a tax system. In the current political environment, the flat tax is far more than an alternative tax system. The flat tax is also a strong political and philosophical statement about the role of tax policy in society, as seen most clearly in the strong preference of flat-tax advocates for a single tax rate for all taxpayers.
For decades, the prevailing doctrine of "tax fairness" has dictated a highly progressive income-tax system. This means that, as a family's income rises, so do its average and marginal tax rates. Under current law, progressivity is achieved through a combination of deductions, exclusions, phase-outs, and rising tax rates imposed on a comprehensive measure of income. For example, in 1994 a married couple with $50,000 in Adjusted Gross Income (AGI) and two children, taking the standard deduction, would pay 10.1 percent in federal income tax, whereas the same family with $100,000 in AGI would pay tax at an 18.5 percent rate.
Under a flat 20 percent tax rate, a family would be subject to a 20 percent rate however high its labor income above a certain threshold. Having exempted lower-income taxpayers from the tax, many flat-tax advocates believe that proportionality, not progressivity, reflects the prevailing sense of fairness in America: Taxpayers should pay more tax as their incomes rise, but the amount of tax should not increase more than proportionally.
Flat-tax proposals actually include two tax rates -- zero (by virtue of the personal exemptions) and about 20 percent. Some critics worry that the inclusion of a zero tax rate in the flat tax will maintain a large constituency for expanded government. The dangers are apparent in any general system of taxation that allows any but the poorest of the poor to escape paying at least some tax when they have taxable income. Taxes reflect a price we pay for government. Whenever someone escapes paying tax to finance government services, the direct cost of those services is zero and the amount of services demanded is high. Even a minimal tax of a few dollars a month would remind taxpayers that government services are not free.
Many advocates of the flat tax are using the tax reform debate as a means of reshaping the political debate. By directly challenging the doctrine of tax progressivity in the federal tax system, they seek to change not only established ideas about desired tax burdens, but also the very notion of using the state as an instrument of incomes policy. Nor does the challenge stop there.
Armey has included as part of his proposal the elimination of income-tax withholding. To many, withholding is simply a convenience whereby their employers subtract a certain amount from their paychecks each pay period based on an estimate of the total tax due for the year. To Armey and others, however, tax withholding disguises the true magnitude of the taxpayer's federal individual income-tax liability. By clouding the amount paid, they argue, taxpayers object less to the tax burden and to the amount of government spending that tax receipts make possible. By replacing the withholding mechanism with a monthly payment directly from the taxpayer to the Treasury, Armey believes he will bring powerful new forces to bear on the size of the tax burden and the size of government.
Tax reform is a long and difficult process. Even the adoption of an ideal tax system creates transition costs for taxpayers, economic dislocation, and uncertainty. What benefits would justify these costs?
Saving, investment, and economic growth. The net national savings rate in the U.S. has averaged 2.7 percent per year in the 1990s, less than one third the rate of the 1950s and 1960s. The savings rate is a prime determinant of the growth of incomes and wealth, so a low savings rate obviously does not bode well for future growth in standards of living. Certainly one contributing factor to the low savings rate is the high tax rate on saving and investment, due in part to the double taxation of income from capital. The flat tax would tax income from capital only once -- in the form of a tax on business income. Dividends, capital gains, interest payments, and other forms of capital income received by individuals would not be taxed, because they had already been taxed before. The flat tax would thereby reduce the tax burden on saving, which means, everything else held constant, that a flat tax would increase the rate of private saving.
The flat tax may also reduce the tax burden on investment by eliminating the double taxation of corporate income and allowing businesses to deduct in full the cost of their plant and equipment purchases. However, the flat tax also appears to increase the overall tax burden of businesses (more on this later) so the net effect on investment incentives may be muted.
The purpose of encouraging saving and investment is, of course, to promote faster non-inflationary economic growth, boost real wages, and raise the nation's standard of living. At a recent conference sponsored by the Hoover Institution, Dale W. Jorgenson of Harvard presented a paper, "The Economic Impact of Fundamental Tax Reform," showing that the adoption of a consumption tax such as the flat tax would increase the discounted value of Americans' future income by about $1.3 trillion.
Such increases certainly justify considering a change in tax systems. Projecting increases in economic activity is risky business, however, since the projections always depend on the underlying assumptions. At the same conference, Laurence J. Kotlikoff of Boston University presented results based on a different type of economic model indicating that a switch to a consumption tax would eventually increase real wages by 7 percent and GDP per capita by 8 percent. These two studies are impressive and, because they are based on different types of models, credibly imply that the economy would perform significantly better under a flat tax or another consumption tax than it would under the current income tax.
It is important to recognize that accelerated economic growth also means accelerated tax collections for federal, state, and local governments. While congressional and Treasury Department analysts persist in ignoring these additional revenues, policymakers should understand that additional economic growth will mean additional tax revenue. Using Jorgenson's estimates of economic growth, in present-value terms a flat tax could eventually raise well over $200 billion in additional federal revenues and $150 billion in additional state and local revenues.
Compliance and administrative-cost savings. According to an analysis by the Tax Foundation, the annual compliance costs associated with the federal personal and corporate income taxes are roughly $200 billion. These costs result from recordkeeping, tax filing, litigation and appeals, and so forth. In addition, the federal government spends almost $14 billion administering the system, for a total annual cost of well over $800 per person.
Most compliance costs are borne by the business sector, and most of these costs can be attributed to those areas of the tax code dealing with the timing of income and expense, and with the taxation of foreign- source income. The flat tax is a tax on cash flow, and so at a stroke it eliminates the issue of timing. It also exempts from U.S. tax the foreign- source income of U.S. citizens, so it eliminates this compliance cost as well. And, at the individual level, most compliance costs arise in relation to capital income, which would no longer be taxed, so these costs, too, disappear. While every tax system imposes some administrative and compliance costs, there is good reason to believe the flat tax eventually would dramatically reduce this burden on the taxpayer and on the economy.
Thoughts of lower interest rates. Proponents of the flat tax (and of many other tax reform proposals) often suggest that lower (nominal, after-tax) interest rates would ensue. If a flat tax raises saving levels as promised, the amount of capital available for domestic and foreign investment would increase and, if everything else were held constant, this could reduce interest rates under certain circumstances. Everything else is not held equal, however.
The flat tax may also improve investment opportunities by reducing the marginal tax burden on capital income. Recall that the double taxation of corporate income would cease and that businesses could, for example, expense their capital purchases. Thus, the domestic demand for new investment in plant and equipment may also increase. At this point, we cannot say whether saving would increase more or less rapidly than investment.
However, as the modern mantra runs, we live in a global economy, and no markets are more completely integrated than the capital markets. This means that, to the extent domestic saving exceeds the demands of the economy for capital, the excess saving finds its way overseas in search of more profitable investments. And, when domestic saving is insufficient to meet domestic investment demands, we import capital from abroad. Thus, whether domestic saving increases more rapidly than investment following a flat tax, or vice versa, no significant effect on after-tax interest rates should be anticipated on this score.
Pre-tax interest rates are nevertheless sure to decline following a flat tax. Interest rates reflect many factors, including expected inflation, a real, after-tax required rate of return, a degree of uncertainty and, possibly, a degree of credit-market tightness. Interest rates also reflect the taxes the interest income recipient must pay, which explains, for example, why there is a significant difference in the interest rates paid to taxable and tax-exempt bond holders. Under a flat tax, interest income is tax-exempt, so pre-tax interest rates would fall to about what are currently the rates paid on tax-exempt bonds.
On the flip side, interest expense is not deductible under a flat tax, so there would be no net reduction in after-tax interest costs to borrowers and hence little or no stimulation of growth from lower interest rates.
At the tax rates currently discussed, the flat tax appears to impose a higher share of the total federal tax burden on middle-class taxpayers and appears to raise their taxes in dollar terms as well. Each of these represents an enormous political problem for flat-tax advocates.
A progressive rate structure means that upper-income taxpayers pay a higher proportion of their labor income in taxes than do all other taxpayers. A revenue-neutral flat tax would shift some of the tax burden on labor income from upper-income taxpayers onto the middle class. This shift of tax burden to the middle class is exacerbated by the exclusion of capital income from the tax base, which on a per-capita basis is a larger fraction of a typical upper-income individual's taxable income than that of a middle-income individual. Finally, large personal exemptions would remove millions of lower-income individuals from the tax rolls. Consequently, the middle class would be forced to bear a greater share yet of the total tax burden.
Flat-tax advocates take the fairness issue head on by advocating only one (or two) tax rates. Where the flat tax really attempts to redefine tax fairness, however, is in the exclusion of capital income from the tax base. Justice and tax neutrality are both served by excluding capital income since the capital has already been subject to tax at least once, if not many times over. Nevertheless, a clear problem of perceptions must be admitted.
Consider two families. The Joneses have a combined salary of $50,000 in wages and salary. Under the Armey plan with a 20 percent tax rate, this family of four would owe $3,700 in tax. Now consider the Smiths, who in retirement consume every dollar of their $1 million in dividend income. Under the flat tax, the Smiths owe no tax at all because capital income is excluded from the tax base. This is appropriate, because their dividend income was taxed at least once before the Smith family received it. But the perception would persist that a wealthy family is paying no tax.
|Less progressive. One potential criticism of the flat tax is that high-income groups appear to pay a lower percentage of their personal income in taxes than middle-income groups. This occurs because higher-income groups receive a greater share of their earnings from capital income, which is exempt under the flat tax. Source: The Tax Foundation.|
When capital income, which would not be subject to personal income tax, is considered along with wage income, average tax rates for higher- income groups are lower than for middle-income groups under the individual side of the flat tax (see chart below). And so this may be the Achilles' heel of a flat tax: Are the majority of the American people willing to define tax fairness entirely in terms of labor income? Can tax fairness be defined in such a way that individuals who consume significant amounts of capital income would be allowed to pay little or no tax? If so, then the flat tax has overcome its biggest hurdle. If not, then a flat tax solely on labor income probably cannot succeed.
Flat-tax advocates can overcome this hurdle through careful analysis. As we shall soon see, a flat tax will shift the incidence of taxation sharply from individuals to business. While individuals will pay no tax on their own capital income, the businesses from which they earn capital income will pay higher taxes. The crucial point is this: The burden of business taxes is ultimately borne not by the entities that pay them but, one way or another, by workers (in the form of lower compensation) or by business owners (in the form of lower profits), who tend to belong to the higher- income group.
The chart on page 29 shows the average tax paid at different income levels under a flat tax when business taxes are imputed to individuals. Following procedures adopted by the Congressional Budget Office, the Tax Foundation assumes that half of the business tax is ultimately paid by business owners and half is paid through reduced labor compensation. The imputation of the business tax shows a disproportionate share of the business-tax burden falling on upper-income taxpayers.
The chart shows the distribution of the tax burden when we account for both the individual and business taxes under current law, under the Armey proposal with a 20 percent rate (which Armey argues reduces revenues by $40 billion annually relative to current law), and under a revenue-neutral version of the Armey proposal which the Tax Foundation calculates would require a 21.1 percent rate. (The lower rate claimed by Armey probably arises because his plan, by design, loses revenue relative to current law.) As the chart shows, when income is measured comprehensively and both labor and business income are taxed, the flat tax imposes a remarkably proportional tax burden (once individuals earn enough to pay tax).
Analysis of the likely distribution of the tax burden also reveals some disturbing news for flat-tax advocates, however: At the proposed rates, the flat tax would impose a tax increase on middle-income taxpayers. This obviously creates an enormous political problem for flat-tax proponents. Many middle-income voters may object to a significant tax increase in exchange for a simpler tax system and the promise of a stronger economy. One solution is, of course, to cut spending to reduce the tax rate below 17 percent. This is Armey's solution. As noted below, however, this is far easier said than done.
Successful tax reform must always originate in the barber shops and bingo parlors outside the Washington Beltway. Without sustained popular support, the enormous effort of fundamental reform will fall short. A new tax principle, having gained the necessary popular support, must then gain the support, or at least the acquiescence, of the bulk of the business community. Tax reform that fails employers will fail their employees as well.
The simplicity of the flat tax would eventually benefit the business sector by reducing both compliance costs and the uncertainty that a complex tax code imposes on business decisions. On the other hand, the business sector, at least under the Armey flat tax, appears to bear a much higher share of the total federal tax burden. Currently, the business sector bears about 31 percent of the burden. Under the Armey flat tax, according to Tax Foundation analysis, the business sector would bear about 50 percent of the burden, an increase of about two thirds. In other words, under the Armey plan about 19 percent of the total tax collection is shifted from individuals to businesses. The higher burden on businesses is due to such things as the loss of the deductions for state and local taxes and for employee fringe benefits. (Some of this burden would eventually be shifted back to individuals, as companies convert fringe benefits into labor income on which individuals would have to pay taxes.)
It is, of course, true that businesses only collect taxes; individuals ultimately bear the tax burden. Nevertheless, business leaders are very aware of their average tax rate and the after-tax earnings they report to their owners. The business community in the aggregate suffered a hefty tax increase as part of the 1986 Tax Reform Act, though much smaller than that apparent in the Armey flat tax. Many of today's CEOs and chief financial officers were tax directors and tax vice-presidents in 1986, and they remember how a laudatory tax principle eventually boomeranged to their firms' detriment. Business owners are likely to resist any tax proposal that would raise their effective tax rates, even if it promised to accelerate economic growth.
At the very least, successful tax reform should probably avoid increasing the net tax burden on America's businesses. Even so, such reform would still create lists of winners, losers, and uncertains. Traditionally, the uncertains oppose tax reform while projected losers fight harder against their losses than winners will fight for their gains, so even a revenue- neutral tax reform between individuals and businesses is likely to create important opposition to a flat tax.
Aside from the basic tax-burden questions, there is a long list of obstacles for the flat tax to overcome:
Charitable contributions. Under the current income tax, itemizing taxpayers can deduct amounts contributed to charitable organizations (churches, certain civic groups, educational institutions, research organizations, etc.) in calculating their taxable income. The charitable deduction is defended by politically powerful organizations from Harvard University and the Boy Scouts to the Catholic Church and the American Association of Retired Persons. For itemizers, contributions to these groups under current law are made in pre-tax dollars. Under a flat tax, the tax incentive to make a contribution is eliminated, so all such contributions must be made in after-tax dollars. Some decline in charitable giving should be expected for virtually all charities, at least initially, following the enactment of the tax. Over the long run, of course, the higher incomes and capital accumulation produced by a flat tax will lead to increases in giving that will offset the initial decline. Even so, charitable groups, recognizing the immediate threat to their funding, will surely lobby to keep the charitable deduction in the tax base.
Tax receipts under the Armey plan. Flat-tax advocates also often strongly favor a smaller federal government, and the arguments in favor of one occasionally intermingle with arguments in favor of the other. However, a flat tax implies little or nothing about the desired level of government spending or taxation. It is a revenue system capable of raising a wide range of tax revenue levels depending on the tax rate chosen. Without question, a flat tax would be easier to enact and implement if the federal government
|More proportional. When income is defined comprehensively to include business income, taxes on higher-income groups remain remarkably proportional. That's because the flat tax appears to shift some of the overall tax burden to businesses, whose taxes are borne disproportionately by (higher-income) business owners. Source: The Tax Foundation.|
needed less revenue. General tax cuts would help avoid the contest of winners and losers that typically impede tax reforms. Also, all tax reforms impose adjustment costs on the economy as resources are re-allocated and re-priced. These costs would be easier to bear in the context of reduced overall tax burdens.
The initial tax rate under the Armey flat tax is set at 20 percent, which Armey argues would reduce federal collections by about $40 billion annually; the tax rate drops two years later to 17 percent. The Armey plan argues forcefully for funding these cuts with spending cuts. Over the traditional five-year budget window, setting the flat rate at 20 percent means cutting spending by about $250 billion. To put it in perspective, the budget passed by the House Budget Committee in May to eliminate the deficit called for spending cuts of $459 billion over five years.
The spending cuts needed to fund the Armey flat tax would be in addition to those in the Fiscal Year 1996 Budget Resolution. For advocates of a dramatically smaller government, a call for additional spending cuts to fund flat-tax reform is more of an opportunity than a problem. But, given the difficulties of achieving the cuts in the budget resolution, it is fair to question whether additional cuts of this size are possible. At this stage, the possible responses of the flat-tax advocates would seem to be either that the revenue scoring must include revenue gains from projected accelerated economic growth or that the extra spending cuts are possible and desirable.
The flat tax and the health care debate. Under a flat tax, the employer would no longer be allowed to deduct the cost of employee health- insurance coverage. This arrangement eliminates a serious distortion in the current system -- the tax advantage of employer-provided health insurance. Denying employers the ability to deduct the cost of health insurance will discourage them from continuing to provide insurance as a benefit. Instead, they are likely to raise wage and salary income, and families would have to buy their own insurance. Eventually, such a family-based system should work as well for health insurance as it does for any other form of insurance.
At the outset, the flat tax could expose individuals to much higher insurance premiums if they no longer receive the benefit of group rates. This is a serious transition issue for the flat tax for which no good solution seems available. One could, for example, require employers to continue to offer insurance for a specified period following tax reform. Another solution would be to require insurers to continue coverage indefinitely for previously covered employees, and set insurance premiums at the levels applicable to the employee's previous group.
Double taxation and state and local taxes. Alongside tax neutrality, avoiding double taxation between tax jurisdictions is a fundamental goal of good tax policy. Double taxation occurs when an individual pays tax to one entity and must pay tax to another jurisdiction on the tax paid to the first. For example, when a taxpayer pays $100 in state tax ad the federal government includes that $100 in the taxpayer's income for federal income-tax purposes, then the individual is effectively paying tax on taxes received by the state. This is unfair to the taxpayer.
With the exception of sales taxes, state and local taxes are currently deductible for itemizers at the individual level and for all corporate taxpayers, thereby avoiding double taxation. This deduction is typically eliminated under a flat tax, thereby assuring double taxation and bringing new pressures on state and local government finances. A flat tax would disproportionately raise the costs of living and doing business in high-tax states and localities. Recognizing the threat, state and local government officials would strenuously oppose this change in policy. On the other hand, many advocates of smaller government would applaud the additional fiscal pressures on government under a flat tax, even at the price of a measure of unfairness.
Transition issues. They say the Devil is in the details, and that is certainly true of tax reform. But the Devil is in his Heaven when dealing with transition issues. A complicated economy subject to a complex tax system produces extraordinary business and contractual arrangements. A simpler tax system may eliminate the need for some of these complications going forward, but the old arrangements would still be in force and must be addressed. The limited space available here precludes a discussion of these issues, but they would include the depreciation of previously purchased plant and equipment, the taxation of deferred foreign-source income, the use of accumulated Alternative Minimum Tax Credits, etc.
Tax reform, and the flat tax in particular, is intended to replace a very poor tax system with a simpler tax promising better economic performance. Once such a system has been designed, the level of collections demanded of it is a matter of choosing the tax rate.
The federal government, however, collects a wide variety of other taxes, including sales taxes on gasoline and other items, payroll taxes, and user fees which should also be considered for replacement. For example, federal sales taxes are highly distortionary, require separate and costly collection mechanisms, and are generally thought to be regressive.
Once a new tax base has been established, strong arguments should be required in favor of keeping any of the other existing components of the federal tax system. Failing such arguments, we should give serious consideration to replacing these other, inferior tax systems, making up the revenue with a higher flat tax rate. A flat-tax rate of between 38 and 40 percent would likely raise enough revenue to allow the elimination of the payroll tax and all other federal taxes.
The nation faces many serious economic problems, including Social Security and Medicare systems racing towards bankruptcy, a costly private health-care system, and high regulatory burdens. So tax reform has some steep competition for national attention. It is all the more impressive, therefore, that the flat tax's advocates have succeeded in moving tax reform to the forefront so quickly. Replacing the current tax system with something significantly better, whether a flat tax or an alternative, will not solve all our economic ills. But the more rapid economic growth it promises may make finding the other solutions a little easier.