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Hank Paulson: Political system stunting U.S. growth

The U.S. economy needs to grow faster.  But the biggest obstacle, right now?  Political gridlock in Washington.  That's according to former Treasury Secretary Henry Paulson.

“It’s a good news, bad news story,” says Paulson, who served in George W. Bush's administration and helped engineer the $700 billion Troubled Asset Relief Program--or TARP--during the financial crisis.  Before heading to Washington, Paulson was CEO of Goldman Sachs (GS).

“The good news story is, ‘Hey [the U.S. economy is] one of the bright spots in the world right now. We’re growing, we’re creating jobs…housing prices are rising,” he tells Yahoo Finance Editor-in-Chief Andy Serwer in the video above.

“The bad news is we’re not growing quickly enough,” according to Paulson.

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Last year, the U.S. economy grew at a rate 2.4%. It was the highest level in four years, but economists and policymakers alike had hoped for a rate closer to 3%.

On Tuesday, the International Monetary Fund cut its forecast for U.S. GDP growth in 2015 to 3.1%. That was down from the IMF’s 3.6% forecast in January.

“I don’t see us growing at much above the 2% level,” he says, “until we have some structural reforms.” Those reforms include new corporate tax system that lets corporations compete “on a level playing field globally,” federal income tax reform that allows the government to raise revenues while creating jobs, entitlement reform, and getting trade deals done.

Another problem stunting economic growth?  Income inequality. Paulson says there is a “serious problem with income disparity” and that too many Americans have been left behind in the years the economy has come clawing back from the Great Recession.

In his new book, Dealing with China: An Insider Unmasks the New Economic Power, Paulson looks at the China’s growth in relation to the U.S. economy. “People say to me, ‘Don’t you see China as a threat to the United States’ predominance as a global power?’ I say no. I think the threat is our own political system.”

Watch the entire Yahoo Finance interview with Fmr. Secretary Paulson

Paulson has visited China more than 100 times, as head of Goldman Sachs as well as Treasury Secretary.  Today, he is head of the Paulson Institute at the University of Chicago which focuses on resolving economic and environmental challenges by improving U.S.-China relations.

“Our fate is in our own hands. If we do the things we need to do, we are going to be a major economic power for a long time. And if we don’t, regardless of what China does or doesn’t do, we won’t be.”

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