Tuesday, August 10, 2010

Recommended Viewing: Two Treasury Secretaries on Taxes and the Economy

At a time when the two parties in Washington are barely speaking to each other, it is refreshing to hear two former Treasury Secretaries, one Democrat and one Republican, having a civilized conversation about taxes and the economy, and agreeing on a great deal. I recommend viewing the conversation between Robert Rubin and Paul O'Neil that took place on Fareed Zacharia's program GPS, broadcast on CNN, August 8, 2010. Here are some excerpts:


Host: Fareed Zacharia (FZ)
Guest: Robert Rubin (RR), Treasury Secretary for President Bill Clinton, 1995-1999 and former Co-Chairman of Goldman Sachs
Guest: Paul O'Neil (PO), Treasury Secretary for George W. Bush, 2001-2001 and former Chairman and CEO of Alcoa

On fixing the economy:

FZ: If you could wave a magic wand,  how would you create more demand in the economy?

PO: [I wish that the president and Congress would start] with things like fundamental tax reform. When I was Secretary of the Treasury, I was on this cause to create fundamental tax reform. Unfortunately my client [George W. Bush] didn’t agree with me. . . I kept saying that the tax code we have is proof that we are not an intelligent people, and it’s worse now than it was ten years ago when I was singing this song. . . When you think about how you get capital formation, fairness, the distribution of pain for public goods, if we have something simple instead of the current income tax and corporate tax, something simple like a VAT or a consumption based tax, I think that would create a basis for creating capital formation, and saving, as opposed to consuming everything in sight. . . No intelligent people would create a tax system like this if they were given the chance to create a system worthy of a people who need to free up resources that are being wasted.

RR: [If I had a magic wand] I would stay on roughly the current fiscal track . . . I wouldn’t do a major second stimulus, because I think it would run a risk of being counterproductive by creating a lot of uncertainty and undermining confidence. But at the same time, I would put in place a very serious beginning at deficit reduction that would take place at some specified time in the future, something like two years. It wouldn’t take place right now when the economy is still fragile, but if you could do it, and it was credible, and it was real, I think that would do a lot for confidence. But that is very easy to say and very hard to do.

On extending the Bush tax cuts

FZ: What would you do about the Bush tax cuts?

PO: I was strongly opposed to the Bush tax cuts that took place in 2003. That was one of the reasons I got fired, between that and saying there was no evidence of weapons of mass destruction in Iraq. First of all, I thought we needed the money to smooth the way for fundamental tax reform, reform of Social Security and Medicare. . . and getting ready to go to war in Iraq. I didn’t think we could afford another tax cut.

FZ: What do I think of the tax cuts now?

PO: I don’t think it’s the right issue. The issue is fundamental tax reform. If we let the tax cuts expire, are people going to say, hallelujah, everything is all right now with our tax system? Not me!

FZ: Should we just let [the Bush cuts] all expire?

RR “I’ll tell you what I would do. Number one, I would put on an estate tax right now, because there is no estate tax and I would fill that void. . .  Number two, I would increase taxes on the top two brackets and put them back up to the Clinton rate. I think there is no supply side effect there. I would leave the middle class tax cuts in effect for a limited period because I think the probability is high that we will have slow and bumpy growth.

On political gridlock

RR: I think our country is at a crossroads, I think we have tremendous long-term strength [but] the political system has deteriorated substantially in its ability to work across party lines and make tough decisions.

PO: That may be a blessing in disguise because if they could agree on something, it would probably be negative to the people. . . It is really tragic what has happened to our political system and its inability to have even a civil conversation. . . It is insane that otherwise intelligent people could participate in this folly when the country is at risk.

Follow this link to view the conversation in full. The extracts given here are transcribed by Ed Dolan, not by CNN, and may contain minor transcription errors.

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