March 30, 2006
JS-4143

The Honorable John W. Snow
Prepared Remarks
Edison Electric Institute Board of Directors

I'm particularly concerned these days about enacting policy changes that would prompt companies from other countries to scale back or pull back their investments in the United States.

America is, and must remain, open for foreign investment. We attract an enormous amount of foreign investment every year and it helps our economy, it helps job creation.  Indeed, 5.3 million U.S. workers alone are directly employed by U.S. affiliates of international companies. These tend to be well-paying jobs, too. International companies support an annual U.S. payroll of $318 billion, with the salary for employees averaging nearly $60,000. And this doesn't count the multiplier effect as all that spending moves through other businesses in local communities.

I visited a company in Hagerstown, Maryland last week that was a case-study in the importance of investment from abroad. It was a truck engine manufacturing facility that was purchased by Volvo – a Swedish truck manufacturer – in 1999 to produce the Volvo product in conjunction with the Mack truck engines that were already being produced. Volvo retained the facility's highly-skilled local workers and has since invested $150 million to upgrade the facility and construct a state-of-the-art Engine Development Laboratory that employs hundreds of engineers who work on more advanced, cleaner-running engines.

The chief executive of Volvo's Mack unit put it best when he said, simply: "Mack could not exist as a North American-only company." Volvo's takeover, he said, was "mandatory for us."

We want the employees of companies like Mack to continue to have the opportunities that global investment offer. That means we want to continue to make America the best place in the world to invest.

Again, the people in this room appreciate what I'm talking about because you yourselves are dedicated to working with the groups from your industry all over the world. You are keenly aware of how small the world has become and how great the opportunities offered by international business activity are.

I want to outline a few more issues that impact our economy, and the work the Administration is doing to address them, but it's important to first note how very well the American economy is doing. We'll have to work hard to keep it on this path, but the good news is that it's got a full head of steam and is creating jobs and raising living standards for millions of Americans.

I really can't say this often enough: tax cuts work. In the case of the President's jobs and growth tax initiatives, the impact has been undeniably positive, proving that President Bush is a very good steward of the U.S. economy. The facts are clear:

Nearly five million new jobs have been created in the past three years – two million of them in the last year alone. Unemployment is at a very low rate of 4.8 percent – that's lower than the average for the 1970s, 1980s and 1990s. We found out yesterday that consumer confidence in the U.S. economy is at the highest level in almost four years, and that bodes well for good, strong economic growth and job creation in the coming months.

In short, there is much for both the American worker and the American employer to be proud of.

Well-timed tax relief, combined with responsible leadership from the Federal Reserve Board, clearly created an environment in which businesses, entrepreneurs, and workers could bring our economy back from its weakened state of just a few years ago. What's important going forward is that we preserve the policies that will sustain U.S. economic strength for future generations.

An under-reported fact is how much tax relief encouraged investment, which is so important because investment has ultimately led to job growth. Those who call for a tax increase on capital gains and dividends are, in my opinion, playing Russian roulette with our economic strength. As virtually all main-stream economists will tell you, higher tax rates actually create dead-weight losses by reducing economic output. Put more bluntly, you always get less of what you tax, and we don't want less investment and job creation.

Another aspect of tax relief that I think is important to touch on here today since it is often on the minds of American taxpayers, in particular families and small businesses, is the estate tax, the death tax. This tax is without a doubt one of the larger undue burdens weighing on taxpayers today. And I want to make it clear that Congress needs to pass legislation that permanently repeals the death tax, without compromise. As a matter of good tax policy, we should always avoid taxing income more than once.

Of course, the President understands all this and he won't accept any tax increases, period.

I know that I'm `preaching to the choir' on this point, and I appreciate how much work this group has done to champion the cause of lower rates on investment.

Your steadfast support has rewarded the American economy and the American workforce. In the past two years, the economy has generated more than 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 so far this year.

Good, steady job growth is no surprise, given that GDP growth was a strong 3.5 percent last year. Private forecasters, like the National Association for Business Economics and others, are expecting very strong growth to continue this quarter.

It has been a long time since I've been asked about a "double dip" or a "jobless recovery." A more recent criticism has been that income and wealth gains are uneven, and that average Americans are somehow not better off.

Well, the answer to the question of whether Americans today have more money in their pockets is, unequivocally, yes. Yet again, we are able to prove the critics wrong. Federal Reserve data shows that median family income is picking up. We can see, when we compare wages at this point in the business cycle with the same point in the last business cycle, that we're doing better during this recovery. We are at a point in this recovery where it is reasonable to expect real labor earnings to rise.

We are, it appears, at the tipping point on returns to labor – when incomes rise for workers and business combined, but workers once again increase their incomes faster than businesses. Once businesses have been doing well for a while – which I'm sure you can confirm first hand--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.

Given the trends that we are seeing, the strength of the economic recovery and the underlying strong fundamentals of our economy, I'm confident that median income will eclipse the previous peak before the end of this Administration.

So a continuation of lower tax rates is critical. But there are so many policies that impact the economy, and we must be mindful of doing the right thing on each one.

One more economic issue that I want to point to before I take your questions relates directly to your industry, and that's the importance of innovation and technology, particularly when it comes to energy. In his State of the Union Address, President Bush pointed out that the best way to break America's dependence on foreign sources of energy is through new technology. There's a national security component to this as well a critical economic one, and I can tell you it's good to have the leadership of Sam Bodman – a former Deputy Secretary at the Treasury – on these efforts.

The President knows that accelerating research in clean coal technologies, clean and safe nuclear energy, and revolutionary solar and wind technologies will reduce overall demand for natural gas and lead to lower energy costs, so his Advanced Energy Initiative proposes speeding up research in those areas

President Bush also knows that we are on the verge of dramatic improvements in how we power our automobiles, so he wants to accelerate the development of domestic, renewable alternatives to gasoline and diesel fuels.

As you know, at Treasury we help to encourage good energy practices through tax credits. For example, as part of the energy bill passed last year, Treasury is proud to offer tax credits to homebuilders to build energy-efficient homes, homeowners who improve the energy efficiency of existing homes and individuals who purchase vehicles that utilize hybrid technology.

We had a wonderful event with a weatherization expert from Dominion down in Richmond at the end of February, where we actually visited with a homeowner to discuss ways they could improve their energy efficiency and qualify for a tax credit. I appreciated Tom Farrell's invitation for that event – thanks, Tom – it really showcased the impact that individual families can have on energy conservation.

The President understands, and I understand, that government can and should encourage innovation, but it is business, entrepreneurs, and individuals who must and will take the lead. I know your industry is dedicated to innovation, and I appreciate the work that you are doing today to have a more energy-independent future for America.

The involvement of the electric industry in all of the efforts I've discussed today is critical. I encourage you to keep up a dynamic dialog with both Congress and the Administration.

Once again, I appreciate the chance to meet with you all today; I'd be happy to take your questions.