May 19, 2006
JS-4275
The Honorable John W. Snow
Prepared Remarks to:
The Bond Market Association
Thank you for having me here today. It's always good to visit with your group. Yours is the largest fixed-income market in the world, with Treasuries at its center, so it is good and fitting that we maintain open communication and a productive working relationship. I hope you know that our goal at Treasury is to always ensure that the bond market continues to be the largest and strongest in the world.
On the specific issue of Treasury bonds – some have asked why we chose this year to reintroduce the 30-year. Well, this is the 30th anniversary of your organization, so it seems appropriate, if coincidental.
In all seriousness, congratulations on this milestone. Your 30th year has been an important one. During this year, you worked closely with Congress to help provide critical relief for the areas of our country devastated by hurricane Katrina. Your leadership on the issue helped Congress find innovative ways to help the Gulf region – like using private activity bonds in the GO Zone Act – and you are to be commended for your efforts.
On Capitol Hill recently, we all faced the threat of tax increases. With the President's critical, pro-growth tax relief set to expire, and with more middle class citizens teetering on the edge of AMT exposure, Congress needed to act.
Fortunately they did, and workers, investors, businesses and really the whole economy achieved a real victory. I was proud to stand with Congressional leaders this past Wednesday while the President signed the new tax bill into law which avoided a tax increase on millions of Americans by extending low tax rates on capital gains and dividends, extending increased expensing for small businesses, and protecting taxpayers from the reach of the Alternative Minimum Tax.
The extension of low tax rates on investment capital is good news for workers because it will provide certainty and growth opportunities for the employers who create jobs. It was good news for
Protecting taxpayers from the AMT was extremely important and part of the critical element of continuity, certainty, that the Tax Relief Extension Reconciliation Act has brought to taxpayers and markets alike. When it was created, the AMT was designed to ensure that wealthy people paid their fair share of taxes. Instead, it is ensnaring millions of unsuspecting taxpayers.
A long-term solution for the AMT, of course, will need to be addressed through fundamental tax reform – and this is an issue on which the President and I appreciate your support. The President's Panel on Tax Reform did outstanding work, the kind of work necessary to start the national discussion on this truly massive issue. Reform of the code is so important and the opportunity to really improve it only comes around every twenty years or so, so we want to be sure that we get it right. At this early stage we must consider all options carefully and be sure that we are creating a tax system for all Americans that is simple and more fair.
Addressing and solving the long-term unfunded liabilities of Social Security and Medicare are similar in that solutions must be thoroughly examined, debated and thoughtfully implemented. While saving those programs is an issue that I consider quite pressing, it is also true that we have no choice but to get it done right.
When I visited your group last year, we talked mostly about the issue of Social Security reform and I appreciate your support of reform – an important part of which would be personal accounts. The President remains dedicated to this issue, for the sake of our children and grandchildren, and I know he is pleased to have your support on it. We understand that unfunded obligations are real obligations and we have a shared interest in solving the problem of the government's long-term unfunded liabilities.
As we celebrate the 30th anniversary of your group, we are also marking the third anniversary of the Jobs and Growth Act, another piece of good tax legislation which propelled the economy on a good path.
In the three years since its enactment, job creation has been very strong – over 5.2 million workers have jobs today who didn't three years ago. The unemployment rate is lower than the average of the 1960s, 1970s, 1980s and 1990s at 4.7 percent. GDP growth has been excellent, around 3.5 percent last year and a very impressive 4.8 percent rate for the first quarter of this year. That was the fastest growth rate since 2003 and the fastest of any major industrialized nation.
Consumer confidence is at its highest level in nearly four years, business investment has seen 12 straight quarters of positive growth and given strong labor markets, we should see compensation rise in the months ahead.
At an average of 2.41 million over the latest four weeks, the number of people receiving unemployment insurance benefits is at the lowest level since January 2001. Overall growth is strong, and while it's true that headline inflation has picked up, core inflation remains in check. I have full confidence that Chairman Bernanke and the Fed are committed to price-stability and understand that this is their No. 1 priority.
I mentioned business investment, and I want to point out that it is not only growing, it's growing at a rate last seen at the peak of the high-tech boom in 2000, but fortunately without the market excesses we saw then. No one is talking about "irrational exuberance" today. This is a well-grounded, durable expansion.
Rarely in public life do we get to see a real test of an economic policy theory. But three years ago we put together a hypothesis: Are low tax rates consistent with growth and increasing revenues? Our critics said "no," but the evidence is a resounding "yes."
Of great importance to the country, and particular interest to this group, is the effect of low tax rates and robust growth on our budget deficits. Again, the results are in and they are clear: economic growth has led to a surge of tax revenues and shrinking deficits. Despite the cries from our critics, it cannot be denied that low taxes truly are consistent with rising federal revenues – which of course help bring the deficit down.
The numbers don't lie: With lower tax rates and higher growth, the federal government ran a monthly budget surplus of $118.85 billion last month, with tax receipts at all-time highs. In fact, government receipts are now close to their historic average of about 18% of GDP and are projected to rise above it. Lower tax rates are, in fact, consistent with rising revenues as job growth returns to natural levels.
Those strong April receipts were really just what you would expect with an economy that is growing, expanding, creating jobs and with rising equity markets.
The Congressional Budget Office, notably, recently released new estimates on the budget deficit for the year, bringing it to the range of $300 to $350 billion. Our own estimates will be out sometime soon after we complete the mid-session review; I am confident we will continue to see good progress on the deficit, and that the President's objective of cutting the deficit in half will be met and exceeded ahead of schedule.
There is much obvious good news in deficit reduction: it increases long-term savings, helps the
The bad news for the bond market is, of course, that there will be less debt to issue. But I think you'll agree that the good news is the clear winner on this issue.
I want to comment briefly on another pressing economic issue that I know this group cares deeply about, and that's pension reform.
This Administration is dedicated to ensuring that pension promises made are pension promises kept. To that end, our plan for fundamental reform is based on the following three simple principles:
- Ensuring pension promises are kept by improving opportunities, incentives and requirements for funding plans adequately;
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Improving disclosure to workers, investors and regulators about pension plan status; and
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Adjusting the pension insurance premiums to better reflect each plan's risk and to ensure the pension insurance system's financial solvency.
We are pleased that both the House and the Senate have taken action on this important problem by passing pension reform legislation, and we remain committed to working with Congress. Nevertheless, the Administration is concerned that the reforms currently being considered by Congress are inadequate and that stronger action is needed to improve the protection of pension benefits, to ensure the integrity of the pension insurance system, and to avert the need for a taxpayer bailout.
The current pension legislative agenda is not solely about defined benefit pensions. It is critical that we continue to improve the regulatory structure around 401(k)-type plans as they continue to increase in popularity. We need to encourage, in a prudent and balanced manner, more employers to adopt automatic enrollment to boost 401(k) participation among their employees. Also, the increased contribution limits and catch-up provisions that were enacted as part of the 2001 tax cuts should be made permanent.
Before taking your questions, the last issue I want to touch briefly on is that of the Government Sponsored Entities, in particular the concern about the concentration of risk inherent in their portfolios.
I know Under Secretary Quarles discussed it in his speech to you this morning, but I simply want to echo that the Administration's reform proposals are intended to ensure greater regulatory oversight, enhanced market discipline, and appropriate capital requirements for the GSEs. We believe that limitations should be placed on the size of the housing GSEs' retained mortgage investment portfolios, and that the GSEs should have a "world class" regulator with the authority and direction to limit the size of their retained portfolios. We continue to urge Congress to take action soon to address these issues.
Thanks again for having me here today; I look forward to taking your questions now.