Martin Feldstein writes The U.S. Underestimates Growth in The Wall Street Journal:
Americans are enjoying faster real income growth than the official statistics indicate, but we can achieve even faster growth with more capital accumulation, increased labor-force participation, and greater innovation that leads to new products and more efficient means of production. Better tax policies can help achieve all three.
Current tax laws hurt capital accumulation. Taxes on interest and dividends reduce the after-tax return to savers. High corporate tax rates encourage U.S. firms to invest abroad. The mortgage-interest deduction shifts capital from productive business investments into less productive investments in owner-occupied housing.
High marginal tax rates discourage labor-force participation, particularly for second-earners in families. These high rates on the last dollar earned reflect the personal-income tax schedules as well as the rules of means-tested programs like food stamps and ObamaCare, which reduce individuals’ benefits when their incomes rise.
High tax rates on income and capital gains also discourage risk-taking and entrepreneurial activities that contribute to the dynamic nature of the American economy. Changes in these tax rules should be high on the agenda of the next president.
In short, we should worry less about the appearance of slower growth of middle-class incomes and do more to increase that growth in the future.