Press Room
 

July 26, 2007
HP-507

Paulson Opening Statement at the U.S. Business Tax Competitiveness Conference

Washington, DC-- Good morning; thank you for coming today. And, thank you to the distinguished group of business, policy, and academic leaders who have joined us. With me here on stage for our first session are:

  • Michael Boskin, professor of economics at Stanford University and former chairman of the President's Council of Economic Advisors;
  • Safra Catz, President and CFO of Oracle Corporation;
  • Martin Feldstein, professor of economics at Harvard University and former chairman of the President's Council of Economic Advisors;
  • Alan Greenspan, former Chairman of the U.S. Federal Reserve Bank;
  • Jim Owens, Chairman and CEO of Capterpillar, Inc.; and,
  • Fred Smith, Chairman, President and CEO of FedEx Corporation.

Welcome, and I look forward to our panel.

My goal is to promote the policies and conditions for economic growth that will maintain and enhance our competitiveness, and lead to greater American prosperity. Enhanced competitiveness means new and better-paying jobs and higher living standards for American workers.

We all know two facts: first, that taxes are a drag on economic growth, and second, that taxes are necessary to raise revenues to fund federal government priorities. The question we must ask ourselves, then is this: for a given level of revenue, what business tax regime best maximizes job creation and economic growth and in doing so promotes higher standards of living for Americans?

Our current business tax system is clearly not optimal. It includes ad-hoc policies and preferences that result in a narrow tax base and create distortions that divert capital from its most efficient use. These include: complex, targeted provisions; depreciation schedules without clear rationale; taxation of capital income that discourages saving and investment; and, double taxation of corporate profits that can lead to misallocation of capital.

We have made great strides in the last few years. The 2001 reduction of individual income tax rates has helped flow-through businesses flourish and create jobs. In 2003 we reduced -- although we did not eliminate -- double taxation of dividends. Now, though, it is time for a comprehensive look at our system for taxing business.

Systemic distortions impact not only corporate owners, the shareholders, but also the employees. When capital is available to purchase new machine tools, to modernize an assembly line, or purchase laptop computers for a traveling sales force, employees are more productive. Greater productivity means a company can expand, increase wages, and provide new opportunities for employee advancement.

When an inefficient business taxation system discourages marginal investments, our workers pay the price.

We will discuss the economic distortions caused by the current system during our first roundtable session.

The business tax system must also take into account the reality of an integrated global economy, marked by borderless capital. Although many American workers don't feel that they are the essential drivers of the world's most powerful economy, they are.

Global economic expansion is not a zero-sum proposition -- it is no more true that a job created in Dublin means one less job in Denver, than that a job created in Miami means one less job in Minneapolis.

Foreign investments made by U.S. corporations bring real benefits to the domestic economy. A U.S. production facility overseas creates new export platforms, producing goods for sale in the world market that wouldn't be possible otherwise. U.S. companies support this international expansion by creating entry-level, mid-range, and high-paying jobs here -- productive jobs that raise living standards.

If American companies miss opportunities to build and sell overseas, it's a sure bet in this global economy that some other company will step in when we do not. Then the productivity and wage gains will go abroad, not to Americans. In today's competitive marketplace, if American companies can't expand globally, they risk stagnating at home.

Our business tax system should therefore not discourage inward and outward investment flows that are critical to U.S. businesses' ability to maintain their leadership positions around the world. Our second roundtable will look at the international tax system, and how we can best maximize our position in the global economy.

Now, when our economy is in a position of strength, is an opportune time to discuss the business tax system and its impact on workers, investment, and the United States' ability to compete in the world marketplace.

I look forward to hearing the panel's views and will ask them to start our conversation with this question: What is the impact of the business tax system on the competitiveness of U.S. businesses and how important are taxes relative to other factors which determine our economic competitiveness?