May 3, 2006
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The Honorable John W. Snow
Prepared Remarks
The Investment Company Institute's 2006 Mutual Fund Leadership Dinner

Good evening. It's great to be with you in this beautiful space.

This historic and splendid setting, along with the distinguished list of attendees tonight, reminds me of the essential genius of our founders who created a government representative of the people. It's important to remember that all of the people are represented here on Capitol Hill--not just Republicans, not just Democrats. On the great issues of the day, the people expect us to work together for the good of the nation. The diverse group assembled here tonight reminds us of that aspiration.

Likewise, one of the essential roles for government is to create the conditions for prosperity in the land. And we are now blessed with an economy that is the envy of the world. There should be a bipartisan consensus that we want our economy to do well for the sake of all Americans. And the economic record represents much progress that has been made in the last several years.

In the past three years the US economy has grown at a 3.9 percent annual rate. GDP growth for the first quarter of this year, we learned on Friday, was a very strong 4.8 percent, making up for the fourth quarter's hurricane-related slowdown.

Business investment is growing at a rate last seen at the peak of the high-tech boom in 2000, but fortunately without the market excesses we saw then. No one is talking about `irrational exuberance' today. This is a well-grounded, durable expansion.

With 5.2 million new jobs created in the past three two and half years and unemployment at a very low rate of 4.7 percent– that's lower than the average for the 1960s, 1970s, 1980s or 1990s – there is much for you and your customers to be proud of and optimistic about.

We really are firing on all cylinders when you look at homeownership, real disposable income, consumer confidence and a host of other indicators. And of course it has not escaped my attention, or the attention of this group, that, propelled by the economy, the Dow is approaching its all-time high closing. The economy is clearly moving in the right direction now, and your industry is part of that success in that you both create growth, household wealth and jobs and provide the vehicles by which all types and nearly all income-levels of Americans are becoming savers and investors.

I want to note that the savings vehicles of your industry are at the forefront of one of the most important economic goals of any economy – a higher rate of savings. And we want to help you and your customers with that. We think the tax code shouldn't penalize savings, rather it should encourage it. Lower taxes on savings, permanence of those lower tax rates, and savings vehicles like HSAs, LSAs and RSAs are all part of that effort. In this country, we need to put in place a framework to encourage savings so that we won't have to rely on savings from the rest of the world. We also need stronger economic growth among our trading partners, and more flexible currencies by those who don't have them to address global imbalances, but we do need an increase in savings to complement our terrific economic growth here at home.

Of course there are some headwinds to the economy. Gasoline prices are one area that is a concern. The President has presented a four-part plan that includes making sure consumers and taxpayers are treated fairly, promoting greater fuel efficiency, boosting our oil and gasoline supplies, and investing aggressively in alternatives to gasoline, so we can eliminate the root cause of high gas prices by diversifying away from oil in the longer term.

Everyone appreciates that high gas prices act like a tax on families and businesses, and we need to ease the pain to the extent it is possible. But the good news is that our strong economy has proven so resilient in handling these headwinds to this point.

Looking back, there can be no question today that well-timed tax relief, combined with responsible leadership from the Federal Reserve Board, created an environment in which small businesses, investors, entrepreneurs, and workers could bring our economy to this point of strength.

Clearly, tax relief encouraged investment and investment has led to high growth rates. Anything you tax, you get less of. And anything you tax less, you get more of.

We're all encouraged by the recent news on the economy, which is unmistakably in a trend of expansion. All the economic data are positive – it's difficult to find an indicator that isn't good news. The trend lines can clearly be traced to the enactment of pro-growth tax relief.

This month marks the three-year anniversary of the Jobs and Growth Act that helped the economy pivot from nine consecutive declining quarters of real annual business investment, to 12 straight quarters of rising business investment. Rarely has there ever been a piece of public policy so effective, with the effects so tangible.

Since the Jobs and Growth Act, we've seen a great strengthening in labor markets. The economy has generated slightly less than 170,000 jobs per month, and that includes the two-month slowdown in job growth in the aftermath of Hurricanes Katrina and Rita. The news on unemployment insurance, with new claims so low in the first quarter of this year, is also heartening.

The American economy proves to be on solid footing. The question we face now is: what can we do to continue these positive trends?

The answers as I see them: First, keep taxes lower on both investment and incomes. The conference committee on tax relief reconciliation has now reached an agreement on extending this essential relief, and I urge swift action to get it to the President's desk. The markets need certainty, and this will certainly send the right signal.

I know that, in your business, you see the economic benefits of investment every day. You see money invested grow like seeds. Some grows faster than others, but over time the benefits are almost always worth the wait. You see both investors and businesses – which, in turn, create success for workers in the form of new jobs – profiting from the investment. So I know I'm preaching to the choir when I say that there can be no question that we need to keep the tax rate on capital gains and dividends where it is; a tax increase would be a terrible mistake. While many factors contributed to the improved performance of the economy, the tax reductions on capital have been at the heart of the progress we have seen.

And by the way, as I discuss specifics of your industry's activity I want to take a moment aside, to note how important it is, and how admirable it is, that the first thing ICI states in your core mission is: "encouraging adherence to high ethical standards by all industry participants."

Because while we all see the benefits to society of investment, growth and prosperity the truth is that we've also seen corporate scandals weaken trust in markets.

At that point, we faced a crisis of confidence in those who were charged with the responsibility to oversee the corporate sector. Trust had been broken and trust is a precious thing. Trust under-girds our capital markets. It is perhaps the one single element without which an impersonal capital market cannot operate. If we can't trust the numbers how can capital markets function, how do you know where to invest?

The response we got to that question, at that time, of course was the Sarbanes-Oxley legislation. Considering the context in which it came about, Sarbanes-Oxley actually was in most respects quite a measured response. Despite its celebrated status as the most far-reaching capital market legislation since the creation of the SEC in the thirties, the fact is it essentially reaffirms established norms and codes of corporate governance, albeit with criminal penalties.

Sarbanes-Oxley was an absolute necessity, no doubt. It played the crucial rule of giving the public confidence that somebody was in charge, somebody was looking out for their interests, and somebody would hold corporations and the auditing profession accountable. But the subtlety of Sarbanes-Oxley is that it did all of this by reaffirming the basic rules of corporate governance, not by transforming them. And I know that Chairman Cox is working hard to apply the rules in a common-sense way.

The dedication of the private sector to corporate governance – seen in your mission statement – is such an important part of keeping investor confidence strong. Sarbanes-Oxley was necessary, but your own vigilance is what will keep markets truly strong for centuries to come. New ideas and advancement for transparency and enhanced communications will ultimately come from your industry and other private-sector sources. Paul Schott Steven's call for mutual fund disclosure over the Internet is a great example of the forward-thinking that I believe the private sector provides best.

There is certainly more long-term work to be done on the economy – making these tax cuts permanent, not mere extensions; encouraging the expansion of Health Savings Accounts as part of a plan to rein in health care cost growth; and taking additional steps to simplify the tax code, which we at the Treasury Department are currently studying. Once Congress passes and the President signs these tax cut extensions, the tax code improvements achieved by the Bush Administration and the Republican Congress over the past 5 plus years will be extensive: Lower income tax rates for all taxpayers, lower taxes for investors and small businesses, tax cuts for families rearing children, a repealed death tax, and Health Savings Accounts.

Pension reform is another economic issue that is extremely pressing. President Bush and his Administration are dedicated to ensuring that pension promises made are pension promises kept. To that end, our plan for fundamental reform is based on the following three simple principles:

• Ensuring pension promises are kept by improving opportunities, incentives and requirements for funding plans adequately;
• Improving disclosure to workers, investors and regulators about pension plan status; and
• Adjusting the pension insurance premiums to better reflect each plan's risk and to ensure the pension insurance system's financial solvency.

We are pleased that both the House and the Senate have taken action on this important problem by passing pension reform legislation, and we remain committed to working with Congress. Nevertheless, the Administration is concerned that the reforms currently being considered by Congress are inadequate and that stronger action is needed to improve the protection of pension benefits, to ensure the integrity of the pension insurance system, and to avert the need for a taxpayer bailout.

The current pension legislative agenda is not solely about defined benefit pensions. It is critical that we continue to improve the regulatory structure around 401(k)-type plans as they continue to increase in popularity. We need to encourage, in a prudent and balanced manner, more employers to adopt automatic enrollment to boost 401(k) participation among their employees. Also, the increased contribution limits and catch-up provisions that were enacted as part of the 2001 tax cuts should be made permanent

As we work together on these and other issues that will keep America economically strong and resilient, I want to thank you for all that your industry does to enable this country to become, more and more each day, a nation of investors. I thank you for the work you do, and the chance to speak to you tonight. I'd be happy to take your questions now.

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