Snow Credits Tax Relief With Economic Growth

I had the opportunity today to visit with members and traders at two of the great exchanges you have here in Chicago -- the Chicago Mercantile Exchange and the Chicago Board of Options Exchange -- and tomorrow I'll be stopping by to visit with the Chicago Board of Trade. Seeing these operations in action is such a clear reminder to all of us how this American economy of ours, which is the envy of the world, continues to be so dynamic and productive. What all of our exchanges do, through millions upon millions of transactions every day, is direct investment capital to its best use in the most efficient way possible. These exchanges provide such an enormous benefit to our economy that we should never take them for granted.

I'd like most of our time together to be spent in dialogue, but I'll begin with a few thoughts and, I hope, some perspective.

As you know, I've recently returned from the G8 meetings in Moscow. We had an excellent meeting, hosted for the first time by Russia and Minister Kudrin. We also had the opportunity to have a working lunch meeting with President Putin.

The meetings in Moscow reminded me, as they often do, of the leadership responsibility of the United States. We are the undisputed economic leader of the world, and my G8 and G7 colleagues consistently look to our economic policies for direction when crafting their own. I'm encouraged by that, particularly considering the fact that we do face a growth imbalance in the world today. It is critical for our trading partners to stimulate economic growth in their countries.

Our leadership, of course, goes beyond economics -- but our economic strength is tied to our founding, and guiding, principles. We represent freedom and justice to the world community, and with that honor comes a level of responsibility.

We are living up to that responsibility in Iraq and Afghanistan. We do so not only for the safety and security of our own citizens, but for the good and safety of the citizens of the world. As the President pointed out in his State of the Union Address, "The only way to protect our people, the only way to secure the peace, the only way to control our destiny is by our leadership -- so the United States of America will continue to lead."

He went on to point out that "Abroad, our nation is committed to an historic, long-term goal -- we seek the end of tyranny in our world."

A key part of that historic effort involves economic proficiency that leads to higher levels of standards of living throughout the world. Where there is economic opportunity, tyranny will not last.

At home, we seek to implement and maintain policies that are conducive to growth -- in other words, our growth is not an accident and I'd like to get back to that topic in a moment -- and the steady path of growth in the U.S. also enhances international economic stability.

The President has also been a tireless supporter of free trade and of debt relief -- two more areas that enhance economic freedom and therefore both opportunity and stability abroad. The current positive outlook for the world economy has made this an opportune time to push for progress on trade liberalization, and that has been a priority of mine at the G8 meetings. The potential rise of protectionism represents the most significant risk to the global economy today. In our discussions in Moscow we saw clearly the need to obtain an ambitious outcome from the Doha Development Round by the end of 2006. I welcomed progress made at the Hong Kong Ministerial meeting but recognize that further urgent efforts are necessary. We need to make significant progress on market access in agriculture and industrial products. In addition, if this round is to be truly development-focused, substantial progress on services is essential, since gains from services liberalization are estimated to be over four times greater than the gains from goods trade alone. Financial services trade, in particular, is important because it acts as a link to increased economic growth and development.

I also want to mention that I thought it was appropriate that Minister Kudrin placed a heavy emphasis on energy security in the G8 discussions because of the risk high energy prices pose for the global economy. There are many sides to energy security, but, as Finance Ministers, we emphasized market-based solutions, transparency, and the institutional framework necessary to encourage a friendly investment climate in energy development and infrastructure. Energy is a high priority issue for President Bush, and I had the opportunity in Moscow to review his ambitious new Advanced Energy Initiative to increase clean-energy research at the U.S. Department of Energy. In developing countries the lack of energy access is a critical obstacle to development.

Getting back to the international significance of economic growth, I believe, and my G8 colleagues believe, that the U.S. is playing its economic leadership role very well. Our policies and our growth are admired. But we all know that it is not enough, that the U.S. cannot be the lone engine of growth in this world.

There is good news beyond our borders, of course. The global economy is strong, and there are signs that the expansion will continue. However, relative growth performance, especially among the larger economies, continues to be uneven. More progress is needed to implement reform policies that will raise potential growth and to promote high sustainable growth of the world economy. All countries, including the United States, but also the countries of Europe, Japan, developing Asia and even the oil exporters, bear a responsibility to help effect global adjustment in a way that maximizes and sustains global growth. An increased rate of growth among our trading partners will also increase the investment opportunities in their countries, and citizens should be able to invest in opportunity at home. Today, they are investing here in this country and that adds to the current account imbalance.

I continue to emphasize to my G8 colleagues the importance of this shared responsibility of global growth and the importance of their growth to the current account balancing act.

And although the U.S. is currently fulfilling its end of that shared responsibility, we must be ever-vigilant if we are to continue to be an economic success and an economic leader.

It all comes back to good, smart economic policy for us, just like it does for our trading partners. 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, entrepreneurs and workers could bring our economy back from its weakened state of just a few years ago. Tax relief encouraged investment, which has ultimately led to job growth. The American economy is now unmistakably in a trend of expansion, and those trend lines can clearly be traced to the enactment of tax relief.

A couple weeks ago we learned that unemployment has fallen from 4.9 percent to 4.7 percent -- lower than the average for the 1970s, 1980s and 1990s. Since May of 2003, the economy has created 4.7 million jobs, two million of them in the last year alone.

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.

Good, steady job growth is no surprise, given that GDP growth was three and a half percent last year. Core inflation also remains low, and that's good news for everyone.

U.S. equity markets have risen, and household wealth is at an all-time high. Additionally, real per capita disposable (after-tax) income has risen by 7.3 percent from 2000 to 2005 and that's very good news for workers.

This week's report on retail sales was yet another unmistakable sign that the U.S. economy is strong, it is heading in the right direction and Americans are confident. With a jump of 2.3 percent for January, this was one of the biggest month-to-month increases in over a decade and a half. That's the kind of number we expect to see when consumers are confident about the economy and optimistic about the future. And it is no wonder they are feeling that way, given the strength in the job market.

Independent private-sector forecasts point to continuing good news. Inflation-adjusted hourly wages grew 1.6 percent between September and December and this trend should continue.

Both on leading indicators and a deeper background analysis, the American economy proves to be on solid footing. The question that those of us in government must look at now is this: what can we do to continue these positive trends?

The answers as I see them: First, keep taxes lower on both incomes and investment. Since the implementation of a lower, 15 percent rate on investment capital in May of 2003 we have seen a remarkable turn-around in the economy. After nine consecutive declining quarters of real annual business investment, we have had 10 straight quarters of rising business investment. This business expansion led to a substantial increase in employment, as I just mentioned -- 4.7 million new jobs. 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.

Lower tax rates on individual income are important because, as the President says, they let the people make their own decisions about their own money -- and individuals make better financial decisions than governments.

There is also a significant small-business component to lower marginal rates. Since small-business owners often file their business income on personal forms, lower marginal rates help this sector that creates two-thirds of the country's net new jobs.

The President is also placing an emphasis on affordable health care, innovation competitiveness (with an emphasis on education) and reducing our dependency on foreign energy through new technology. These are all central to keeping our economy on track for generations to come.

As I've said, our growth here in America is important to us, but it's also important to the global economy. When I meet my finance minister colleagues -- at the G8 and elsewhere -- the first question they ask me is, "How is the U.S. economy doing? Will it continue to be strong?" They know that a slowdown here affects all of their economies, whether in the major industrialized countries, in emerging market countries like China, India or Brazil, or in the developing countries of Latin America, central and eastern Asia, or in Africa.

My response, fortunately, has been that we're doing quite well, but that they need to make the structural reforms necessary to generate growth in their own economies. Since improvements in standards of living can only come from increased economic growth, I can't help but wonder how many of the world's citizens would be lifted out of poverty if the other major economies -- in particular Europe and Japan -- were growing at the same rate of the United States. Conversely, how many people would see declining standards of living if the United States had posted the same anemic growth rates of other major economies? We have a responsibility to keep our economy strong, and that's the focus I keep every day I'm on this job.

Before I take your questions, I want to express my gratitude for the work that you do here in Chicago to keep the economy healthy and job creation strong. The people here tonight represent the energy and the backbone of the most high-powered economy in the world, and you are to be commended. In government, our goal is to provide you with a good environment for innovation and growth and then, simply, let you do what you do best.

Thanks for having me here tonight; I'd be happy to take your questions now.