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March 28, 2006
JS-4138
The Honorable John W. Snow
Prepared Remarks
The Tax Executives Institute
Good morning. It's great to be here with you, and I hope your meeting is going well. I know you've heard already from our fine IRS Commissioner, Mark Everson. I always hope that anything I say after the IRS Commissioner has to sound good!
More seriously, this is the second time I've had the privilege of speaking to your group. I am always humbled and impressed by the detailed knowledge and expertise about the tax code that is assembled under your sponsorship.
But I'm also reminded of the now-famous statement by Albert Einstein, about that same tax code being the only thing in his estimation that was "impenetrable to the human mind." So, yours is truly a special calling--perhaps a "mission impossible." I feel as if you are owed an apology for the current state of the tax code – it is neither simple, nor fair, nor does it do what it should to promote a growing economy.
I'm here to let you know how dedicated I am, and how dedicated President Bush is, to making the tax code better for all Americans. That means simpler and better for businesses and individuals, fairer and more pro-growth. The President has shown real leadership on improving the tax code already throughout his term, acting on major pro-growth tax relief measures in 2001, 2002, and 2003, and in signing the JOBS bill in 2004 – something I know many of you were an important part of.
Simpler-but-fair, as you well know, is a hard balance to strike. The President's Panel on Tax Reform did some excellent work on this subject, and it was an important first step toward eventual overhaul of the code. This is something that we only get the chance to do every 20 years or so. And so we need to take the time to do it right, to build understanding and to build support for change. On all my many travels around the country, not once has anyone put their hand up and said: "Mr. Secretary, please tell Congress to keep the tax code just the way it is--don't change a word…" The realization that something has to be done about the tax code--which the President has led--is now starting to take hold with people from across the political spectrum. But we have to be very careful to avoid the temptation by some to use "tax reform" as cover to actually raise tax rates! That is not real tax reform--and it would be a step in the wrong direction. As virtually all main-stream economists will tell you, higher tax rates actually create dead-weight losses by reducing economic output.
Rather, as we move along toward pro-growth tax reforms, Congress must take action right now to make sure we keep tax rates low. We need to make the President's tax relief permanent, period. Congress especially needs to extend capital gains and dividends tax rates which have been at the center of millions of new jobs, and rising incomes for American families and businesses.
I mention keeping tax rates lower first because there really isn't anything that ranks higher in importance in terms of the strength and health of the American economy. I know that all of you witness, first-hand, how taxation impacts business decisions. I'm sure you won't be surprised to hear that the American Shareholders Association estimates that S&P 500 shareholders will receive $201 billion in regular dividend payments this year – a 36 percent increase over 2002, the year before the President's tax reductions on dividends took effect. The dividend tax reduction reversed a 25-year decline in companies paying dividends to their shareholders. In fact, today 77 percent of S&P companies now pay a dividend.
Tax cuts work. In the case of the President's jobs and growth tax initiatives, the impact has been undeniably positive, making President Bush a very good steward of the
Nearly five million new jobs have been created in the past three years – two million of them in the last year alone. Unemployment is at a very low rate of 4.8 percent – that's lower than the average for the 1970s, 1980s and 1990s. So there is much for both the American worker and the American employer to be proud of, and there is no reason to abandon the policies that helped them achieve this success.
Looking back, there can be no question today that well-timed tax relief, combined with responsible leadership from the Federal Reserve Board, created an environment in which businesses, entrepreneurs, and workers could bring our economy back from its weakened state of just a few years ago.
Importantly, tax relief encouraged investment – again, you all saw this, first-hand in the work that you do – and investment has ultimately led to job growth. The American economy is now unmistakably in a trend of expansion, and those trend lines can clearly be traced to the enactment of pro-growth tax relief.
In the past two years, the economy has generated more than 170,000 jobs per month, and that includes the two-month slowdown in job growth in the aftermath of Hurricanes Katrina and Rita. In the past 32 years, new claims for unemployment insurance have almost never been as low as they have been so far this year.
Good, steady job growth is no surprise, given that GDP growth was 3.5 percent last year. Private forecasters, like the National Association for Business Economics and others, are expecting very strong growth to continue this quarter.
It has been a long time since I've been asked about a "double dip" or a "jobless recovery." A more recent criticism has been that income and wealth gains are uneven, and that average Americans are somehow not better off.
Yet again, we are able to prove the critics wrong. Federal Reserve data shows that median family income is picking up. We can see, when we compare wages at this point in the business cycle with the same point in the last business cycle, that we're doing better during this recovery. We are at a point in this recovery where it is reasonable to expect real labor earnings to rise over a short period of time.
We are, it appears, at the tipping point on returns to labor – when incomes rise for workers and business combined, but workers once again increase their incomes faster than businesses. Once businesses have been doing well for a while – which I'm sure you can confirm first hand--they ultimately compete those increases in income away by competing harder for labor. The result is higher wages and higher standards of living for workers.
Given the trends that we are seeing, the strength of the economic recovery and the underlying strong fundamentals of our economy, I'm confident that median income will eclipse the previous peak before the end of this Administration.
The question that those of us in government must look at now is this: what can we do to ensure that these positive trends continue?
The answers as I see them: First, keep taxes low on both investment and incomes. The conference committee on tax relief reconciliation is considering this matter now and I have been strongly urging them to keep these tax rates low. We must protect and nurture our economic growth – not put it in jeopardy with tax increases.
Some observers have started to opine about the "inevitability" of a tax increase in coming years. Those who argue for tax increases seem to think that the American people and American businesses are not taxed enough. But tax revenues are now at an all-time high. If anything, it's not that we're taxed too little, but that we spend too much. That's why the President is so right to demand that Congress give him the line-item veto to rein in wasteful spending, help reduce the budget deficit, and improve accountability.
While we work with Congress to control spending and keep taxes low, we at the Treasury and the IRS have an awfully important job to do in administering the current tax laws. I want to particularly recognize Eric Solomon and his team at the Treasury, who do such terrific work to provide individual and business taxpayers with the guidance that they need to know where they stand, and know what they need to do to follow the law.
The President's Budget proposal included a very important piece for Treasury's Office of Tax Policy, and I hope the Congress grants them this wish: to create a dynamic analysis function within their office. I see this as an enormous opportunity for Congress to have access to the information it needs to make good policy. Tax policy has such a profound impact on the economy – as all of you know – so it's really important that we be able to look at the impact of tax cuts or increases in an economic light.
As those of us in government work through the public policies of taxation we very much appreciate the perspective and counsel of
Thanks again for having me here today.
REPORTS