February 2, 2006
JS-4003
The Honorable John W. Snow
Prepared Remarks to
The National Association of Wholesaler-Distributors’ Executive Summit
Good afternoon; thanks so much for having me here today and thank you for the honor of receiving your Distinguished Leadership Award. I am deeply flattered that your group has chosen me for this tribute.
Providing economic leadership is a challenge. And, in fact, I think that companies like yours do it best. Those of us in government generally need to think about staying out of your way!
I am a great admirer of the leadership the President has shown on the economy. He has a keen understanding and a deep respect for what makes the American economy so special, and his policies are based on a respect for free enterprise, entrepreneurship and, as he so often says, simply "letting people keep more of the money they earn."
It was an important message the President delivered in his State of the Union Address this week. He told America, correctly, that our economy is performing very well – far better than other major economies. But, as the President said, we live in a new world and are facing competition from new economic players like China, India, and other "emerging market" countries. In order for America to continue to be a dynamic engine of growth, President Bush is outlining action in three key areas: health, energy, and America's competitiveness.
The President is seeking to make health care more affordable and accessible. An expansion of opportunities within Health Savings Accounts – which patients in charge of their health care – will contribute to this goal. We also need to make health insurance portable, make the system more efficient, and lower costs. Allowing Association Health Plans would address many these concerns in the small-business community.
The President said this week that the best way to break America's dependence on foreign sources of energy is through new technology. His Advanced Energy Initiative would provide for a 22 percent increase in clean-energy research at the Department of Energy and would build on the energy legislation finally passed by the Congress last year that encourages and rewards energy conservation activity.
In his Tuesday night address, the President also talked about an ambitious strategy we are calling the American Competitiveness Initiative. It would significantly increase federal investment in critical research, ensure that the U.S. continues to lead the world in opportunity and innovation, and provide American children with a strong foundation in math and science.
With a focus on these and other good policies, we'll keep America competitive in the world and keep our economy strong as it has been for some time now. Over the past two to three years, economic indicators have been a steady drumbeat of good news. It's really amazing to look back on the past five years. When President Bush took office just five years ago he was inheriting an economy in decline. The bursting of the stock market bubble pushed the economy into recession and then the terrible shock of September 11th made economic matters even worse.
Thanks to responsible economic leadership from the President and Federal Reserve Board, our economy is now unmistakably in a trend of expansion. GDP growth grew at over 3.5 percent last year. Four and a half million new jobs have been created since May of 2003; two million of them in the last year alone. Unemployment is running lower than the 1970s, 1980s and 1990s, payrolls are rising and household wealth is at an all-time high.
The contributions to the economy of the wholesale trade – your productivity and job creation in particular – are greatly appreciated. Thanks to businesses and workers like yours, the U.S. is both the economic envy of, and inspiration to, the world.
When we look at the underlying fundamentals of the economy, we can see that businesses and workers have every reason to be optimistic about the future.
For example, we see that productivity growth remains strong. Output per hour in the non-farm business sector has risen at an average annual rate of 3.2 percent since 2001, faster than any five-year period in the 1970s, 1980s or 1990s.
Consumer net worth – that's assets minus debts – is at a record high, and not just because of housing. Deposits – the money in checking accounts, savings accounts, and money market funds – are at a record high and are larger as a share of disposable income than at any time since 1993.
In the past two years, the economy has generated about 170,000 jobs per month, and that includes the two-month slowdown in job growth in the aftermath of Hurricanes Katrina and Rita. In the past 32 years new claims for unemployment insurance have almost never been as low as they have been recently, the only exception being the peak of the high-tech bubble from November 1999 to June 2000.
Core inflation remains low, and that's good news for everyone.
It is also noteworthy that new orders for non-defense capital goods were 20 percent higher in 2005 than in 2004 This tells us that the capacity of American businesses to produce in the future is rising. Meanwhile, the capacity utilization rate is 80.7 percent, which is below the level that in the past has been associated with rising inflation. In other words, American businesses are increasing capacity and at the same time have room to more intensively use the capacity they have, suggesting low inflation in the future plus pent-up demand for labor.
Independent private-sector forecasts point to continuing good news. For 2006, they predict a nice increase in real wages. Inflation-adjusted hourly wages are in fact already beginning their rise, growing 1.6 percent between September and December.
We are, right now, likely witnessing the tipping point on wages – when incomes rise for workers and business combined, but workers once again increase their incomes faster than businesses. As employers, you are familiar with the scenario: 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.
Both on leading indicators and a deeper background analysis, the American economy proves to be on solid footing. The question that business and government should look at is this: why is our economy performing so well and what can we do to continue these positive trends?
Put in the simplest of terms, you – the business community – create the jobs, develop the new products and services and so on. And we – the government – are responsible for creating an environment in which you can succeed.
The Federal Reserve has added to a favorable environment by implementing sound monetary policy. And there can be no doubt that the President's economic policies of lower taxes on income and capital have given both businesses and individuals the room they needed to grow and prosper.
The approach of this administration has been to implement the type of policies that have always, historically, enabled this nation to thrive. Ours is a country that is unique in its freedoms and we owe our prosperity to those freedoms. The simple fact that we operate as a free market is central to our success. The U.S. has tended to encourage small-business ownership, innovation and entrepreneurship, and that's essential for a thriving economy. Policies that let entrepreneurs and workers simply do what they do best have always enabled our economy to be more open, flexible, adaptive and resilient than any other in the world.
The President's tax cuts tapped into this proven, and I think uniquely American, economic theory on promoting growth, and effectively lightened the burden on individuals and businesses, leaving you to spend and invest, grow and create jobs. His American Competitiveness Initiative, with its increases in federal investment in critical research, will complement this entrepreneurial, creative and innovative environment.
The reduced burden on the cost of capital and investment was critical because it is the lifeblood of a free market economy. And as you are well aware, there is a risk right now that taxes on investment and job creation could be raised. That would be a terrible mistake, given the economic success that lower rates precipitated.
With more Americans working than ever before, more Americans owning stock than ever before and with federal tax revenues at an all-time high to boot, there is simply no reason for the Congress to accept a tax increase from the Congress. And I'm confident the President won't accept one, period.
But this fight to keep taxes low on business, families and individuals will take an extra effort from you and our friends on the Hill. They've got to make all of the President's tax cuts permanent; letting them expire would be a tax increase – there is simply no other way to put it. And tax increases would be bad for the economy, bad for every American who still needs a job or seeks a better job.
According to our own Treasury estimates, the lower tax rate on dividends and capital gains will ultimately increase national output by $35 billion. This is significant because it illustrates the real point of these policies: they increase savings and investment, increase labor productivity through this higher capital formation, and, ultimately, increase jobs, the size of our economy and raise livings standards.
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 revenues are coming in strong. Deficits matter and one of our highest priorities is to achieve the President's goal of reducing our deficit in half to below 2.3 percent of GDP by 2009. Even in the face of increased costs to deal with last summer's hurricanes, I am confident that we will achieve this goal through spending restraint and continued economic growth.
Good news on spending restraint came before the holidays, with final approval in Congress of the FY2006 appropriations bills. The President worked with Congress to reduce non-security discretionary spending below last year's level, terminate or reduce funding for 89 lower-priority or poor-performing programs, and rein in mandatory spending for the first time in nearly a decade. And yesterday the Congress wrapped up work on the budget reconciliation bill that reduced the rate of growth of entitlement spending for the first time in eight years.
The President's proposed FY 2007 budget will be released next week that is true to the President's goals of reducing the deficit and keeping the growth of government in check by holding overall discretionary spending below the rate of inflation. It proposes cutting 141 programs that aren't delivering their promises to the taxpayers and proposes tens of billions of dollars of savings on entitlement programs. It is a budget that works to ensure that future generations of Americans will have the opportunity to live in a Nation that is more prosperous and more secure.
The prescription for the near future, for our economy, is straightforward: if we keep on doing what we're doing, policy-wise, we should keep getting what we're getting – in this case, excellent economic growth, millions of new jobs and a deficit that is in decline.
Can we do even better? You bet. Policies that reduce the number of baseless lawsuits would be a great way to further free-up business and entrepreneurs to produce and create jobs.
Asbestos legislation may come to the Senate floor next week, and the Administration would like to see a bill get off the floor and into conference so the Congress can work on a final bill that brings certainty to the marketplace, allows actual victims to get payments and stops trial lawyers from stealing productivity and jobs from the American economy in the name of innocent victims' health.
Nearly $74 billion has been lost on the inefficient and ruinous asbestos litigation system, and nearly $30 billion of those dollars went to wealthy trial lawyers at the expense of asbestos victims. When you consider that these costs have already bankrupted 77 companies, cost America 60,000 jobs and caused workers to lose $200 million in wages it is unthinkable that we could go on without fixing the system. The President will be calling on the Senate to get this issue into committee quickly.
Another issue that I know impacts the cost of doing business for this group especially is the cost of energy. The President understands that impact, and it's why he fought so hard for last year's historic energy bill. There's work ahead on energy issues, and a reduced dependency on foreign sources is at the top of the President's energy agenda.
The President also appreciates the drag that excessive regulation can put on business, and therefore on job creation and innovation. That's why he tasks his cabinet with taking a close look at their agencies, at their regulations, and making sure that the benefits and protections of regulation are achieved without putting an undue hardship on you. We want you to be able to do what you do best, and that's create jobs. So there's a balance to achieve on regulation, and this entire administration is dedicated to achieving that balance.
Similar in some ways to excessive regulation is excessive complexity in our tax code. The code is not where it should be. After nearly three years as Treasury Secretary I have yet to find anyone who is happy with the tax code – unless you are in the tax preparation business, that is. Just to navigate it, millions of Americans have to enlist professional help. I know you've heard – and lived – 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. This is a drag on economic growth in America and an unnecessary burden we all share.
The President's Tax Reform Panel did excellent work under the leadership of the two co-chairmen, former Senators John Breaux and Connie Mack, and we're reviewing their proposals now. We only get the chance to reform the code every twenty years or so, so we've got to make sure it's done right. We're not going to rush the reform process because America deserves a tax code that meets the President's goals for fairness, simplicity, and economic growth.
The rising cost of health care is another critical issue that I know you all deal with every day, and we still need common-sense medical liability reform to help address those costs. Health care costs have got to be brought down, and we've included some mechanisms in the budget to address that pressing issue. As the President pointed out in his State of the Union Address this week, it's time to allow Americans to save more in their Health Savings Accounts. We hope this will encourage more people to start HSAs, which put patients back in charge of their health-care purchasing decisions while saving money on a tax-preferred basis.
For the longer term, we have economic issues that loom and the sooner we address them, the better. The President did the right thing by leading on Social Security reform. We appreciate your support for it. It remains the right thing to do.
I also appreciate, and share, the concern of this group when it comes to the skills and preparation of the American workforce. Education and worker training policies must be constantly adapted to the changing times and the changing, growing economy. As the President said in announcing the American Competitiveness Initiative Tuesday night, a strong economy depends on a skilled and talented workforce. The President sees great success and potential in the ability of community colleges to provide relevant, focused training for jobs that exist today – jobs that may not have existed even five years ago because of innovation. And workers should be able to continue to learn new skills for the changing business environment. This is an investment in our future that is more important than venture capital itself!
Our workers are already competing with workers all around the globe, and when the playing field is level both our workforce and our businesses will always prove themselves. That's why a level playing field is central to the President's free and fair trade agenda. This underscores the importance of the Doha trade round which has the potential to boost American jobs by reducing and eliminating tariffs and other barriers on farm and industrial goods, ending unfair subsidies and opening the global market to American services. The U.S. will push for a bold, wide-ranging agreement, and the President will continue to use the American influence to bring American workers even greater opportunities. With 95 percent of America's potential customers living abroad, opening up new markets is extremely important.
I would never advise anyone to bet against the American worker, American business or the American economy overall. When businesses, families and individuals are allowed to pursue their goals – with opportunities to invest and enjoy the rewards of innovation, risk-taking and entrepreneurship – our economy is incredibly resilient and powerful.
Again, I appreciate the chance to talk with you today about the prospects for our economy. I look forward to taking your questions.