FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you, Ray for that kind introduction.  I am very pleased to be here with all of you today, and glad that Greg Jenner, our Acting Assistant Secretary for Tax Policy, is here with me today.  I know that Secretary Snow wanted to be here.  He asked me to pass along to you all his warm greetings and sincere apologies for missing this event.  You are a very important group to him, but sometimes the schedule of a Cabinet member is not his own.
 
I’m particularly pleased to be here at the start of my tenure at the Treasury.  After all, you are the folks who have to sort out the tax laws that we in government come up with . . . and so it is tremendously important for the Treasury Department to have an open and productive dialogue with you. 
 
I trust that this will be my first of many interactions with TEI and its members.  Secretary Snow has asked me to focus my attention on several key priority areas for the Department . . . one of which is the IRS.  I know you heard from Commissioner Everson yesterday . . . in addition to being a colleague, Mark is a good friend . . . and we will work together to confront the challenges that the IRS faces. 
 
We will focus on three major goals: first, we will continue to improve service delivery at the IRS, in part through enhanced e-filing services; secondly, and related, we will push forward with a right-sized IT modernization effort at the IRS; and lastly, but no less importantly, we will focus on increasing compliance with the tax code.  In my view, this last point is critical.  We owe it to the millions of Americans who pay their fair share every year to make sure others do as well.  I know you heard from Mark yesterday about our plans in this area . . . to, among other things, crack down on abusive tax shelters . . . continue to augment our efforts to detect and deter domestic and offshore-based criminal tax activity . . . and discourage non-compliance within tax exempt and government entities.  And we will do this without compromising on service quality and the protection of taxpayer rights.

To do our job effectively at the IRS – and throughout the Treasury Department – we need input from all of you.  If anyone appreciates the burden that taxes – and the complexity of our tax code – puts upon American businesses and American families, it’s the people in this room today. That’s why this Administration so greatly appreciates your perspective and your expertise. 
 
President Bush is fond of saying – and Secretary Snow and I certainly share this view – that government doesn’t create wealth in this country, people do.  American business is the engine that keeps our country moving forward . . . and you all are part of that engine of growth, innovation and prosperity.  Since his first days in office, this President has consistently proposed and supported policies to create the conditions for economic growth and job creation across our economy.  From decisive action to lower the tax burden on American consumers and businesses . . . to confronting the rising costs of doing business in this country . . . to pushing hard to open foreign markets and promote fair competition. 
 
And, as we survey our economic situation today, it is clear that the President’s policies are having a very real and positive impact.  It is my belief, Secretary Snow’s belief, and the President’s belief that tax cuts are one of the best ways to stimulate economic growth.  You and your employers know this on a very personal level, because tax cuts have always been good news for your business.
 
Thanks to the actions which Congress took in passing the President's Jobs and Growth bill, the economy is now in a strong recovery, with a GDP growth rate of 6.1 percent in the last half of 2003, the fastest six-month growth rate in nearly 20 years. Leading private forecasts are projecting growth of four percent plus for 2004, well above historical growth rates.
 
In addition, we are starting to see a pick-up in the manufacturing sector. The housing industry remains very strong: construction is booming and home ownership is at the highest level in history.  Business confidence is up and business investment has rebounded. We are beginning to see some – certainly not enough, but some – come-back in the labor markets.  I can assure you that the President and this entire Administration are very focused on employment . . . the President will not rest until every American who wants to work can find a job.
 
By sustaining growth going forward, I am confident that we will see job creation pick up in the months ahead, as indicated by all the private sector surveys which we have seen.  In light of our economy’s momentum, one thing is clear: we must make the President’s tax cuts permanent.  The tax cuts have been the linchpin of the improving performance of the economy . . . and I am confident that if we make them permanent, we will continue to have above-normal growth for the American economy for a good stretch of years ahead.

Now, some have proposed repealing or significantly scaling back the tax cuts . . . and, to be sure, what that really means is that they want to raise taxes.  Some cite concerns about the deficit . . . and I can tell you this: the deficit is a great concern for the President as well.  Deficits do matter.  But raising taxes is not the answer.  Higher tax rates are a powerful disincentive for growth, and would be the wrong medicine for our economy and its job-creating potential.
 
Our budget deficit is too large, of course . . . frankly, any deficit at all is too large for my taste. But we need to keep in mind that the federal deficit is manageable . . . and, we will bring it down quickly. The President’s budget plan cuts the deficit in half over five years, bringing it to a level that is historically low as a percentage of GDP.
 
A couple of key factors must be held in place in order to shrink deficits: One, we must restrain federal spending. Two, we must not raise taxes . . . the tax cuts enacted by President Bush have stimulated our economy into recovery.
 
Continued economic growth is essential for job creation.  As I mentioned, while there has been jobs growth over the past six months, it has been slow. As economists and government officials look for answers on job growth, there are drags on our economy, and on job creation in particular, that we have to examine and deal with. One such drag – and disincentive for hiring – that Secretary Snow and I am particularly concerned about is excessive and frivolous litigation.
 
As effective as tax cuts are in terms of stimulating growth, lower taxes do not impact the “tort tax” that is being paid by every American in the form of lower wages, higher product prices, and reduced investments. The burden of frivolous, unnecessary litigation hits especially hard on our small businesses and entrepreneurs. And it is precisely these small businesses that produce the jobs in this country. How can the engine of growth work effectively when it is slowed by the headwinds of frivolous litigation?
 
Efforts at the state and federal level to curb abuses and control lottery-sized jury awards are essential as we look at ways to increase hiring and ensure that every American who seeks work can find it.
 
Another drag on our economy that is not discussed often enough is the complexity of our tax code. Very few groups appreciate this issue as much as you do . . . and I want to thank you for being at the forefront of efforts to simplify the tax code. 
 
You’ve spoken out in support of some basic, common-sense changes to the code like simplifying the tax laws for families, including adopting a uniform definition for a child, and eliminating the household maintenance test for head-of-household filing status.  Your organization has shown a willingness to step forward and say that these simplifications are necessary even though they may not benefit your companies directly.  That recognition – that complexity is bad for the system as a whole – demonstrates the high level of integrity and ethics that our tax system requires to function properly.
 I would like to publicly acknowledge your efforts – and the efforts of Timothy McCormally, Fred Murray, Mary Lou Fahey and others . . . I urge you to keep up that good fight.
 
The expected growth in the individual alternative minimum tax is another major problem in the tax code that must be addressed . . . and it represents another area where we need your input and expertise.
 
The President’s budget extends through 2005 the temporary increase in the AMT exemption and the provision that allows certain personal credits to offset the AMT.  These temporary provisions will keep the number of taxpayers affected by the AMT from rising significantly in the near-term.  More importantly, they will allow the Treasury Department the time necessary to develop a comprehensive set of proposals to deal with the AMT in the long-term. 
 
Because of the revenues involved in any significant reform of the AMT, and the number of taxpayers affected, any long-term solution to the AMT could well require significant changes to the regular income tax code as well.  The Treasury Department looks forward to its task. 
 
Turning now to the global economy, let me say a bit about open markets and international tax rules.  Only 5% of the global population lives in the U.S.  That means that 95% of our potential market is outside of our borders. We must stay engaged with the rest of the world, to keep those markets opened to our farmers, our service industries, and our manufacturers.  Economic isolation is not the answer, as some in this town might suggest.  We have the best workforce in the world, and the most innovative, productive and competitive businesses.  The United States can compete with anybody, given the chance. 
 
Free trade creates jobs at home by opening foreign markets to American exports, and by encouraging foreign companies to set up operations here in the U.S.  Trade means lower prices and more choices for American consumers.  Keep in mind that exports supported about 12 million jobs during the 1990s . . . and foreign-owned firms provide jobs to over 6 million workers in this country today.
 
In today’s global economy, the United States needs a tax system that is truly world class.  Viewed from the vantage point of the global economy, some of our tax rules are outmoded at best . . . and inconsistent with U.S. economic interests at worst. 
 
Our international tax rules, which largely date back to the 1960s, can impose burdens on U.S. businesses not borne by their competitors from our trading partners.  If we handicap American businesses in this way, we pay for it . . . and we pay for it in American jobs.  
 
Rationalization of our international tax rules means enhancing the ability of U.S. businesses and American workers to compete and prosper in today’s global economy. 
 
It means ensuring that we make the most of the tremendous opportunities that globalization and technological advances provide.
 
It means helping U.S. businesses and American workers to realize their full potential, not just today but tomorrow as well.
 
Part of having a healthy tax system is making sure that we rein in tax abuse here at home.  For example, this Administration has proposed to limit certain types of abusive leasing transactions, known as SILOs – so-called “Sale In, Lease Out” deals.
 
These arrangements are entered into with tax-indifferent parties, such as domestic municipalities, tax-exempt organization, and even foreign governments.  They purport to be leasing transactions but, in substance, provide no meaningful financing to the tax-indifferent party aside from a fee. These arrangements have no meaningful financial or economic utility other than the transfer of tax benefits to a U.S. taxpayer (by means of a purported “sale” of property) in exchange for the payment of an accommodation fee to the tax-indifferent party. 
 
Although Treasury has been aware of SILOS for some time, the extent of the problem has only recently come to light.  Our data indicate that hundreds of billions of dollars of SILO deals have been done in just the last four years.  Because these transactions essentially involve no risk to either party, and require very little in the way of actual cash investment, corporations seeking to reduce their U.S. tax liability will face no economic bar to seeking out these arrangements on an increasing basis. 
 
Proponents of SILOs argue that the transactions benefit state and local governments.  However, the Joint Committee on Taxation put this myth to rest – hopefully forever – by demonstrating that the tax revenue loss to state treasuries exceeds any benefit received by municipalities participating in SILOs. 
 
SILOs represent a clear threat to the viability of the corporate tax base.  We are encouraged by the Congressional response to this proposal . . . and we urge the Congress to act promptly.  Otherwise, any corporation with the wherewithal to do so could plan itself out of corporate income tax. American citizens rightfully expect their government to ensure that all taxpayers pay the taxes they owe, unreduced by artificial transactions.
 
Let me end where I started . . . we all want economic growth and robust job creation.  But, we must make choices. We must choose a path that we know will lead to growth.
 
We must choose between higher taxes and lower taxes. We must choose between economic isolationism and embracing the opportunity of the world’s markets.

President Bush, Secretary Snow and I are dedicated to keeping the tax cuts that have helped you help your employers over the last few years. We’ll keep telling Congress to make them permanent.
 
And we will remain committed to making sure the federal government is creating an environment that encourages economic growth. We will not isolate America from opportunities.
 
I look forward to working with all of you, as tax professionals, to keep our country’s financial system as fair and free as possible . . . and to unleash the full potential of the greatest economy in the world.
 
Thank you for your time this morning . . . and thank you for the efforts of your organization to make our tax system the best it can be.