FROM THE OFFICE OF PUBLIC AFFAIRS
May 6, 2004
JS-1520
Deputy Secretary of the Treasury
Samuel W. Bodman
Remarks to the NH Business Council Annual Legislative Breakfast
May 6, 2004
I'm very pleased to be here with all of you today. Having spent nearly 40 years in Boston, it's always a pleasure to be among colleagues from the New England business community.
I'd like to thank Governor Benson, Senator Eaton and Speaker Chandler for being here and for your support of the New Hampshire business community. And I especially want to acknowledge the eight legislators who are being honored this morning. As leaders in the New Hampshire State House, you share my desire and determination - you share President Bush's desire and determination - to do all we can to create the best environment for businesses to grow and flourish here in New Hampshire and across this great nation.
You know that government doesn't create wealth in this country, American business does. Business is the engine of growth, innovation and prosperity that keeps our nation moving forward. But government does have a role . . . and that role is to create the conditions for economic growth and job creation. Since his very first days in office, President Bush has consistently proposed and supported policies that do just that. 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. Just last week we got the first read-out of GDP for the first quarter of this year. The economy grew at a solid 4.2 percent. The last nine months represent the strongest three-quarter growth rate in almost 20 years.
Further evidence of the recovery underway: We are starting to see a pick-up in the manufacturing sector. And, the housing industry remains very strong. Construction is booming - we just got a very strong construction report for March earlier this week. Home ownership is at an all-time high of nearly 69%, with substantial gains among minority households. Business confidence is up and business investment has rebounded.
In addition, we are beginning to see some come-back in the labor markets. The economy has created over 750,000 jobs in the last seven months, with 300,000 coming in March alone. Layoffs are down, unemployment is down, and help wanted ads are up. Initial claims for unemployment insurance have fallen substantially - down 20% over the last year.
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 continue in the months ahead.
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 believe that if we make them permanent, we will continue to have above-normal growth for the American economy for a good stretch of years.
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 while unwelcome is understandable and manageable. While addressing the deficit, we must remember that it is not historically overwhelming. It is understandable given the extraordinary circumstances of recent history. The American people and the American economy have endured a tremendous amount of strain in recent years - from a recession, which thanks to the President's policies was much milder than it would have been . . . to the horrific terrorist attacks of September 11th, 2001 . . . to the uncertainty that surrounded the march to war in Afghanistan and Iraq. These are not excuses, for sure, but they do put the deficit situation in context.
Nonetheless, we will bring the deficit 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 (less than 2% of GDP). Economic growth is key to the prosperity of our citizens . . . and it also it increases Treasury receipts and helps to reduce deficits. But that isn't enough. We also have to control government spending in Washington. We need to do both - make tax cuts permanent and control spending - and the President is committed to doing both.
But there is still more to do. To help businesses continue to expand and create more jobs, the President has called on Congress:
- To take action to reduce frivolous and junk lawsuits;
- To make Federal regulations less burdensome on small businesses;
- To enact a national energy policy that ensures a more affordable and reliable supply of energy, and makes us less dependent on foreign energy sources;
_ To continue to open foreign markets to American products and services - we will not isolate America from opportunities;
- And we must make health care more affordable for families and small businesses.
Let me say a bit more on the topic of health care. At a time when health care costs are rising rapidly and families and employers are struggling to find lower-cost alternatives, we need new ideas and innovative solutions. One such option - and one that I believe has real potential to make a big difference - is Health Savings Accounts, or "HSAs."
Health Savings Accounts were created by the Medicare bill signed by President Bush in December. HSAs are designed with two major goals in mind: first, to help individuals take control of how their health care dollars are spent; and second, to help families save for future medical and retiree health expenses on a tax-free basis.
Let me cover a few basic features of the HSA program. In order to make a contribution to a Health Savings Account, an individual or family must be covered by a High Deductible Health Plan and have no other coverage. A High Deductible Plan is defined as having a minimum deductible of $1,000 for individual coverage or $2,000 deductible for family coverage . . . and it generally only pays for benefits after the deductible is met.
Both individuals and their employers can contribute to HSAs. And this provides a lot of options and flexibility for small employers struggling to keep costs reasonable for their business and for their employees. Individuals, employers, or both can contribute tax-deductible funds each year up to the amount of the policy's annual deductible, subject to a cap of $2,600 for individuals and $5,150 for families. Individuals aged 55-64 can make additional contributions. Contributions to an HSA by an employer are not included in the individual's taxable income . . . and contributions by an individual are completely tax deductible and are not subject to the itemized deduction limits.
When a family needs the money, if it is used for qualified medical expenses, the distribution is tax free. A few examples . . . the money in an HSA can be used to pay for: medical expenses not covered by the high deductible plan; health insurance if an individual becomes unemployed; health insurance or medical expenses after retirement; and long-term care expenses and long-term care insurance premiums. HSAs will encourage families to save for future medical expenses and will empower them to make decisions about their own health care.
The flexibility of these accounts is a big draw for employers and employees. Health Savings Accounts are completely portable - if an employee changes jobs, moves to another state, gets married, becomes unemployed, or changes health plans in the future. Accounts can grow through investment earnings. Many different investment options can be pursued based on a family's needs. And the interest and investment earnings generated by the account are not taxable while in the HSA. In addition, there are no "use it or lose it rules" like Flexible Spending Arrangements (FSAs). Unspent balances remain in the account year after year.
I hope, in particular, that HSAs will appeal to the small-business community, which faces the highest hurdles when it comes to affording coverage for their employees. By utilizing these flexible accounts and purchasing health insurance plans with a higher deductible, small businesses should be able to lower health insurance premiums and expand coverage options for their employees. I am told that that recent changes to insurance laws in New Hampshire mean that HSA products are already being sold here . . . and we hope more are on the way.
For more on the technical specifics of HSAs, I encourage you to visit the Treasury Department's web site at www.treasury.gov. There is an extensive section devoted to HSAs, which includes answers to frequently asked questions as well as details on implementation guidance. Treasury issued technical guidance in December and again in March, and we expect to issue additional guidance in June, so check for that.
As with any new product, one of the greatest challenges is getting the word out and helping people understand how it works. That's one of the reasons why I'm so glad to be here today.
I would also add that we need to continue to work together - the private sector and those of us in government at the state and federal levels - to explore policy solutions that make health care more affordable for businesses and families. In this and other areas, I can assure you that this Administration will remain committed to making sure federal policies encourage and support economic growth and job creation throughout our economy.
As everyone in this room well knows, our business enterprises - our nation's employers - are the foundation of the strongest, most vigorous and vibrant free enterprise system in history. . . a system that allows you to innovate . . . to take risks . . . to create wealth . . . and sometimes, to fail and start over. I thank you for the fine work that you do here in New Hampshire and across the country . . . and I thank you for being here today and for inviting me to join you.
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