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The US economy is recovering from the Great Recession and near-term prospects are favourable. The sector of manufacturing durables is enjoying a particularly strong revival thanks to more competitive labour costs and low energy prices. The recovery is more sluggish than after past recessions because the damage of the financial crisis has not been fully repaired, government spending has exerted an unusual drag and, finally, the long expectedretirement of baby-boomers has depressed the labour supply. Hence, removing obstacles to growth comes with a certain degree of urgency. For this, tax reform has a key role to play: business investment is discouraged by high marginal tax rates while numerous tax expenditures distort resource allocation. Aggressive tax planning bymultinational firms also imposes a higher tax burden on everybody else; and individual taxpayers face costly compliance obligations. Other key reforms could also improve long-term growth prospects, notably policies to raise labour-force participation, improve immigration laws, help parents with young children and ease access to quality education for lower-income groups.
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