December 8, 2005
JS-3039
The Honorable John W. Snow
Prepared Remarks to PricewaterhouseCoopers’ 2005
Global Tax Symposium
Good afternoon; thanks so much for having me here. Your symposium comes at a critical time, as major decisions impacting tax policy are pending on Capitol Hill. Talk of raising taxes is coinciding with clear, outstanding evidence of how effective lower taxes have been. Furthermore, the economic future looks bright – why would we change course? Raising taxes on investment would harm the economic recovery America has been enjoying.
In just the last week, we've learned that GDP growth was a robust 4.3 percent in the third quarter. That's strong growth for any time, and it happened when the country faced devastating natural disasters.
We also learned on Friday that 215,000 jobs were added to the payrolls in November. Job creation is the reward of strong economic growth, and November's employment report brings the total of jobs created since May of 2003 to four and a half million -- with 1.8 million new jobs created this year alone.
Wages, by the way, will be the next number to rise. Historically, when an economy enters a recession, business income tends to fall more rapidly than the incomes of workers. In the early stages of the economic expansion that follows, income tends to rise faster for business than for workers. Ultimately, however, there is always a tipping point, when incomes rise for workers and business combined, but workers once again increase their incomes faster than businesses. We're approaching that tipping point now. Once businesses have been doing well for a while, 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.
The fact that payrolls have been growing for thirty straight months and we were able to achieve jobs gains even through a massive natural disaster like Hurricane Katrina suggests we are getting closer to the point when workers receive a greater share of economic gains. Workers can look forward to good days ahead.
Beyond numbers, the evidence of economic health is also clear to me, and to the President, when we travel the country. For example our trip to North Carolina on Monday to visit the John Deere-Hitachi plant in Kernersville where the President spoke about the vibrancy of our economy and the importance of maintaining the opportunities which make it so strong. The faces of the workers at John Deere-Hitachi are the faces of healthy economic expansion, and that means more to me and to the President than any number.
Lately it has seemed that good economic news comes almost every day. The Labor Department announced on Tuesday that the productivity of American workers increased at a 4.7 percent annual rate in the third quarter. Since productivity ultimately leads to higher wages and higher standards of living, this economic indicator is very good news for American families, both for today and for the future.
We also know that consumer confidence is rebounding, industrial production is up, early reports are that holiday sales are strong, and more Americans own their homes than ever before.
All of these are the unmistakable hallmarks of a strong economy, and each one is encouraging news for America's families.
From a government perspective, a steady stream of positive indicators has given us increased confidence that the underlying fundamentals of our economy are solid, and that our path of growth is steady. As the President has said, our best economic days are ahead of us.
When economic growth and job creation are mapped on graphs, the visual image makes clear what is happening in the economy, so I want to share it with all of you today.
The numbers, and these charts, tell a story of the impact of good tax policy.
They also remind us that changing the direction of successful economic policy – by allowing tax increases to occur -- would be a mistake.
Lower taxes – especially those that lower the cost of capital and encourage investment -- combined with sound monetary policy from the Federal Reserve, set American entrepreneurs free to do what they do best: innovate, invest, grow the economy, and create jobs. Millions of Americans have benefited from these policies either directly – through lower taxes – or indirectly through new and better jobs and greater economic security for families.
Congress this week and next week is debating tax legislation that could have an enormous impact on our economy – in particular the tax rates on dividends and capital gains.
In May 2003 when President Bush worked with Congress to enact the tax policy that lowered the rates on dividends and capital gains, there were many skeptics. Critics of the proposal disputed our view that this reform would create jobs and spur economic growth. One critic called the plan "tragic"; another leader said it was "reckless" and wouldn't create jobs.
But the past 30 months have demonstrated just how powerful those reforms were… and how mistaken our critics were. The evidence that that was the right policy prescription for America stream in every day:
• 4.5 million new jobs created;
• unemployment running lower than the 1970s, 1980s and 1990s;
• GDP growth averaging over 4.0% annually;
• household wealth at an all-time high;
• federal revenues increasing;
• U.S. equity markets rising steadily;
• Dividends paid to shareholders – millions of whom are senior citizens and middle class – are up.
There are a lot of things you can say about these statistics, but neither "tragic" nor "reckless" come to mind.
There is no question what we need to do: we must extend these good policies and not undermine economic growth. Raising taxes on investment would attack the roots of the economic recovery. I rejected the arguments of the pessimists before, and I reject them today. Gloom and doom rhetoric is absurd on a day when more Americans are working than ever before, more Americans own stock than ever before, and federal tax revenues are at an all-time high. We are experiencing record prosperity; we shouldn't punish the success of American entrepreneurs and workers with tax increases.
Reforming these tax rates have benefited our entire economy generally, and have quite directly benefited the nearly 57 million American households – that's half of all households – that own stocks either directly or through mutual funds. In fact, according to the Securities Industry Association, the median income of today's stock investor is just $65,000.
The American Shareholders Association estimates that S&P 500 shareholders will receive $201 billion in regular dividend payments this year – a 36% 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 seventy-seven percent of S&P companies now pay a dividend.
More than just lowering the tax burden, reducing the tax rate on dividends had an additional, fundamental benefit by reducing the disparity in the tax treatment between debt and equity financing. Before the reform, the bias in capital markets was tilted toward debt financing because of the tax code. While there is still a bias toward debt financing it has been significantly reduced. This reform is helping to reduce distortions in capital markets and is helping more companies to make more sound financing decisions by reducing distortions caused by the bias in the tax code.
One argument that was made against the President's tax plan was that it would cost the government too much revenue. But, again, the facts since 2003 have shown that the economic growth spurred by the President's tax policies have significantly swelled government coffers. In January 2004, for example, the non-partisan Congressional Budget Office projected that 2004 revenue would be $1.817 trillion. Actual revenue came in $63 billion higher – half a percent of GDP. In January 2005, CBO projected 2005 revenue would be $2.057 billion; actual revenue came in $96 billion higher – 0.7 percent of GDP.
We still have a federal budget deficit – one that is too large and that the President is firmly committed to reducing. But our deficits are not the result of lower receipts – tax revenue continues to be strong. Our deficits are overwhelmingly the result of the recession we inherited and necessary increases in spending to fight the war on terror. Deficits matter and one of our highest priorities is to achieve the President's goal of reducing our deficit to below 2.3 percent of GDP by 2009. Even in the face of increased costs to deal with this summer's hurricanes, I am confident that we will achieve this goal.
One more benefit of tax reform that I want to mention was actually a health benefit, the creation of Health Savings Accounts, which happened two years ago today. It's hard to put an exact number on this, but there are estimates that over a million Americans are now enjoying the tax and saving advantages of HSAs, and that number appears to be growing rapidly, with many large employers offering HSAs to their employees this coming year, including Wal-Mart, for example. HSAs are proving to be a break-through product that helps address the underlying problem of the affordability of health-care coverage. I think of them as super-charged IRAs for health care, designed to help individuals take more control over how their health care dollars are spent and save for future medical and retiree health expenses on a tax-free basis. Among its many benefits, an HSA puts doctors and patients back in charge of their health care purchasing decisions.
I hope you don't assume that because we were able to successfully use the tax code to create HSAs and spur growth in our economy that I'm pleased with America's tax code. As all of you well know, our tax code is not where it should be. In almost three years as Treasury Secretary, I've certainly never had anyone approach me to say the code is in good shape, don't change a thing!
You know the statistics – billions of hours of paperwork for tax filers and businesses, $140 billion dollars in lost time and money just trying to comply with our increasingly unwieldy tax code. It's easy to see that the code is a drag on economic growth in America, an unnecessary burden we all share.
At Treasury, we are reviewing the proposals from the President's Tax Reform Panel intended to simplify and streamline the tax code. I commend the work the Panel did under the leadership of the two co-chairmen, former Senators John Breaux and Connie Mack, and I look forward to making a thoughtful recommendation on reform to the President.
One thing remains true today, and will for all the days of this Presidency: we do not support tax increases. On the contrary, we support smart fiscal policy that provides oxygen and room to grow to the economic marvel that is the American economy. Our policies have been successful so far, and we want to stay on this path until every American who seeks a job can find one, and until every family that struggles to pay their bills can breathe easier.
Thank you again for inviting me here today. I would be happy to take any questions you might have.
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