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Snow Says Failure to Make Tax Cuts Permanent Would Be 'Huge Mistake'

JAN. 7, 2004

JS-1087

DATED JAN. 7, 2004
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Citations: JS-1087
PREPARED REMARKS BY TREASURY SECRETARY JOHN SNOW DELIVERED TO THE U.S. CHAMBER OF COMMERCE

 

FROM THE OFFICE OF PUBLIC AFFAIRS

 

 

Wednesday, January 7, 2004

 

 

[1] Thank you Tom [Donohue] for inviting me to join you today. I appreciate the opportunity to share with you our thoughts on how the economy is faring.

[2] Let me take a moment to review some recent economic data.

[3] Last week's report on December's Purchasing Managers' Index was the sixth straight month above 50 index points, showing solid growth in all of its components. December's reading was the highest in twenty years, led by new orders which reached its highest point in more than fifty years. These numbers suggest good progress in manufacturing.

[4] Earlier this week the Commerce Department reported that construction spending in November set a record for the fifth month in a row, jumping 1.2 percent. Construction is up 15 percent in the past sixth months.

[5] The housing sector has buoyed the economy over the past few years and continues to be a point of strength. Housing starts jumped to a twenty-year high in November contributing to a remarkable year in home building -- possibly the best since 1978.

[6] Industrial production grew by a strong 0.9 percent in November, the biggest monthly gain since 1999. Consumer goods and business equipment both increased and high-tech goods were especially strong, up 27.5 percent over last year.

[7] Retail sales were up by a solid 0.9 percent in November, bolstered by strong auto sales. The holiday season appears to have ended well, with weekly reports showing a 5.6 percent increase in the most recent week, compared to a year ago.

[8] Job creation continued in November, rising for the fourth straight month. In the last four months, over 300,000 jobs have been created, putting the economy on the right path -- the most robust four-month job growth record in nearly three years. Weekly unemployment claims have declined for the past three weeks, pushing the four-week moving average down to a near three-year low.

[9] These recent encouraging signs suggest a sustainable economic recovery, building on a robust third quarter which saw real GDP growth of 8.2 percent -- the best in nearly 20 years.

[10] We are encouraged by these signs, but we are not satisfied.

[11] Let me take a moment to discuss the President's vision, which without a doubt is the primary reason why the economy is improving.

[12] This past May, the President signed the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Act provided a boost to the economy this year, and it will provide a sound basis for promoting economic growth in the future. The Act will continue to buoy the economy as taxpayers see increased tax refunds come April 15th from the increased child credit, reduced marriage penalty, and reduced rates, and as businesses invest to take advantage of the increased expensing and bonus depreciation.

[13] This legislation was the right action to take, at precisely the right time. It directly helps families and workers. For example:

[14] Taxpayers with children received an immediate boost from rebate checks of $400 per eligible child sent out in July and August.

[15] Because of lower tax rates and less income tax withholding, workers saw higher take-home pay in their paychecks starting in July of this year.

[16] Married couples benefit from reduction in the marriage penalty from expansion of the fifteen percent rate bracket, and an increase in the standard deduction for joint filers.

[17] Families benefit from increased child tax credits.

[18] Investors benefit from the lower tax rates on dividends and capital gains. These lower rates were a positive step toward the President's goal of reducing the double tax on dividends, and will help promote capital formation and an ownership society.

[19] Small businesses are benefiting from a four-fold increase in the amount of new investment they can deduct in one year, from $25,000 to $100,000.

[20] All businesses are benefiting from the increase in bonus depreciation from 30 to 50 percent, as well as its extension through 2004 (2005 for longer-lived property). This change addressed what had been a weak spot in the economic recovery -- low corporate investment.

[21] Now, consider the situation we might have without the President's tax plans. The Treasury Department ran an analysis on that scenario and the results were stark.

[22] Without the passage of the President's plans, by the second quarter in 2003, the unemployment rate would have been nearly 1 percentage point higher. As many as 1.5 million fewer Americans would be working, and real GDP would have been as much as 2 percent lower.

[23] What's more, without the President's tax cuts, it is likely that by the end of 2004 the unemployment rate would be as much as 1.6 percentage points higher than it will be. Three million fewer Americans would be working, and real GDP would be as much as 3.5 to 4 percent lower.

[24] Still, the labor markets aren't picking up as fast as we'd like to see. I can tell you that President Bush is not going to be satisfied with this recovery until every American who wants a job has one. We're not sitting back watching the numbers roll in -- we're out there making this economy better -- making conditions better for growth, investment, and job creation. President Bush has unveiled a six-point plan to further strengthen this economy, and set us on a long-term path toward growth.

[25] First, we are working to make health care more affordable and its costs more predictable, so employers can add new workers without also adding a large and uncertain burden of health care costs. We need to create an environment where health care spending is focused on providing high quality, high value care.

[26] Second, we are working to prevent frivolous lawsuits from diverting money from job creation into legal battles. We also intend to ensure that when necessary lawsuits proceed, the settlements are paid to the victims, not the trial lawyers.

[27] Third, we are working to build a more affordable, reliable energy system that can support the expansion of our economy.

[28] Fourth, we are streamlining regulations and needless paperwork requirements that reduce business productivity and deter growth.

[29] Fifth, we are opening new markets to high-value American products and bringing down prices for American consumers through trade agreements. Trade is a critical component of economic growth. The world economy is more connected than ever before, as a result of the dramatic expansion of trade and capital flows in recent decades. Financial markets are now closely integrated and businesses increasingly serve customers across the world. The United States stands ready to work with others who seek trade liberalization. On the matter of the importance of trade, here are some cold hard facts: trade benefits both emerging and industrial nations, trade leads to increased global prosperity, trade raises global standards of living, and trade creates jobs.

[30] And sixth, we are working to make tax relief permanent, so businesses and families alike can plan for the future with confidence. This is one of the most critical parts of the President's agenda to strengthen the economy. Nothing will kill our prosperity faster than a repeal of the President's tax relief, which is scheduled to happen at the end of this decade if we don't take action now.

[31] Consider this: if the 2001 and 2003 tax relief acts were to expire now, it would raise taxes by an average of $1,544 for 109 million taxpayers in 2003.

[32] Let me be perfectly clear: failure to make the tax relief permanent would be a huge mistake and would put our recovery in jeopardy.

[33] A key element of making tax relief permanent is making permanent the repeal of the death tax. The death tax falls on income that has already been taxed, sometimes twice before. It forces the destruction of thousands of small family businesses, and it discourages work, savings and asset-accumulation. It diverts resources into tax avoidance and enforcement that could be spent in economically productive activities.

[34] Finally, a word about fiscal discipline. Our fiscal situation remains a matter of concern. With major expenditures to protect our nation's homeland security and fight the war on terror, coupled with a recovering economy, we still face a deficit in the $500 billion range for the current fiscal year -- larger than anyone wants. But that size deficit, at roughly 4.5% of GDP (compared with a modern peak of 6% during the 80s), is not historically out of range; and it is entirely manageable, if we continue the president's strong pro-growth economic policies and sound fiscal restraint. Indeed, with adoption of the President's policies, our projections show a solid path toward cutting the deficit in half, toward a size that is below 2% of GDP, within the next five years.

[35] With renewed economic growth and Congress' cooperation in focusing spending on our most critical priorities, we can accomplish the great goals the President has set for the country, while dramatically improving our budget situation.

[36] Thank you. I look forward to your questions.

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