>> there are a number of ways to get there, and the way i like best, the easiest way to get there would be to allow full and immediate expensing of all investments and no taxation of dividends, no taxation of capital gains. the flat tax are pretty close to the.

that's a property the flat tax is also something else called the x. factor which is a more progressive version of the flat tax. >> that doesn't sound to me like the above attacks at all. because in real life i don't think warren buffett doesn't pay any taxes. we will get back to that. steve forbes. >> that sounds like a flat tax, single raid generous exemptions for adults and children, everything else is out of the code. you have a low 17% rate, instant depreciation, instant right off, no tax on investments, whether it is interest, dividends or capital gains and no death taxes. you should be allowed to leave the world unmolested by the irs, or as our founders would say, no taxation without respiration. [laughter] sounds like your plan for 1996. and i think even before that,

right? >> hey, keep at it, you know? >> john taylor. >> i'm very concerned with the unpredictability of the tax code. i think the first thing we could do is get something put in place were permanently. so we don't have 100 divisions of the tax code expiring issue. and when you do this broadening of the base and lowering of the rates, which we need to do, i would emphasize don't broaden the base too much. don't try to take stock tax increase in this tax reform. it should be revenue neutral and economic growth will generate more revenue. so be careful with this tax reform. >> when you say don't broaden the base too much, are you saying that you should leave the kinds of exemptions, preferences and deductions that currently exist like mortgage deduction? >> there's really a battle about broadening the base and lowering

the rates. some people like to just broaden the base without even changing rates. that's not tax reform the tax reform is where you lower the rates enough, stimulate economic activity, but you don't broaden the base so much that you're kind of a self tax increase i would put that would. when you do that, it's good for growth. which want to do, the ideal thing here is the tax reform which lowers these marginal rates, increases economic growth, and that's what brings the additional revenue. >> i would like to echo, i think something to look sustainable, which partially means we better move quickly. something that looked sustainable and more important than a lot of ways, if people in a planning horizon don't know what the changes are going to be because the current system doesn't look sustainable, that retards growth. >> the one thing i guess i would say that i think i have changed my mind on, versus where i've been my whole career is that

i've always been in favor of lower taxes on capital gains and dividends. i believe that as capital has gone global, politics is local, so we have to complete locally so that they would say this. and i believe we will have to bring rates down. i do believe we should bring rates down in a where we harmonize the rate for earnings and capital gains and dividends. i think there's a lot about demographics that says we should do that anyway. but change my view on that, and that's different from the orthodoxy i've had. the last thing i would like to see is i would like to see warren buffett taken the pledge on top of when he had at his way to avoid estate taxes. i would like to see new pledge you will pay 100% of his income in taxes and then it will be more than a secretary and we don't have to worry about it anymore last night. >> just to clarify, so you are saying that ordinary income

raise and capital gains rates would be the same? >> yes. >> if dividends, capital gains would be the same, i think we need to bring down the marginal rate on corporations, bring down the margin of top rate, and combined rate of dividends and capital gains will be close to where we are today anyway. >> kevin? >> i agree with just about everything that has been set. rather than just say -- i was going to raise another issue which i guess you come to new york and get surrounded by left-wingers like i am of you on the stage but i don't hear is rejecting the design of the founders. i just want to point to the fact i think the reason why the u.s. code is so terrible is we abandon the view of the founders but the u.s. is such a big economy and so separate from the rest of the world that we have

not been engaged in competition and tax competition. so i'd like to go back to the original ideas with the federal tax needs to be if it's going to be constitutional but that is the federal government figures out how much money it needs and bills a bill to the states and let the states raise the revenues and the states compete among themselves with the tax code. if you want to be a new yorker who redistrict like crazy thing you can raise your federal tax that would. if you want to do some other way and some of state you can do how you like. so i think imposing this -- keeping on how much we want to spend. >> the federal government -- [talking over each other] then the states can compete for the tax credit if we could do that they'll be much better to anyone here on the stage could come up with it because in the competition would produce the code. >> what do you think of that, governor?

do you think should be on a per capita basis? >> that's a good question. >> what would happen, kevin, if kansas decided not to send anything? send the troops of? >> in fact there's historical precedence. [laughter] >> with whiskey, that's right. >> i like kevin's idea. i would just say simplify the damn thing and whether it's flat tax or a consumption tax, get rid of all deductions and that will create growth. >> lots of great ideas we're going to explore. alan schwarz raise this notion of something that is sustainab sustainable. we have heard this time and time again today that there's a lack of certainty. how to get certainty into a tax

code without a constitutional amendment? or maybe it doesn't require a constitutional amendment. steve? >> you get it through a consensus. i think paul ryan made a point earlier today in one of his interviews that if you're going to make a substantial change whether it's entitlements or the tax code, you first have to take it before the voters the way ronald reagan did in 1984 the 30% across the board tax cut, you get the mandate for, therefore it has legitimacy. that's the only way you can do. if you want permanency, franklin was right. taxes and death. other than that you be vigilant. there is no automatic mechanism to do it. the constitution could be changed as we saw with the prohibition. >> does anyone else have an idea for sustainability? >> i think the word certainties of use because i don't think there is any such thing in anything, except death and taxes i guess. but i guess what you really want

is something that people can look at that say at least it looks like a sustainable path. therefore, i can make decisions on my assessment that that path will stay in place. i think what you have a spending, a spending path and a revenue path that absolutely are impossible to sustain. and, therefore, if your business personnel, it's to have absolutely no idea what the rules might be as to what consensus will develop, how to deal with that. >> one thing that undermines the code is -- they have no faith in it, and, therefore, you don't get the kind of self-policing that you would have that they would feel is legitimate. they will go along with it. >> john taylor, you are right and so may things i had to say, but i think you have been pushing this whole certain

angle. it's in your book. what do you think about certainty or sustainability? >> i think the unpredictability of the tax code, more sustainable tax reforms will alleviate some of that. one thing you can do is just get what i think should a consensus already is these temporary, like a temporary cut for payroll tax or too much. who could possibly think that is good for the economy? it goes exactly against the idea of sustainability. 1986 tax reform did last quite a while. that was the kind of thing that was more permanent. you need to have a consensus the best you can come it will not be uniform but the idea that some of these things just don't work, these temporary things in particular seem destructive and people can see that. >> it so great of all the smart people on the panel. i'd like to drill down. the first one is larry lindsey's vat, which is a simpler way to talk about value-added tax,

consumption tax. one of the arguments against it, larry, when you look at what happened in europe is they got a fat tax, that was fun, and then they brought a personal income tax on top of that. spent they have the personal income tax and then had vat. what i would do, get rid of the personal tax, corporate tax, social security tax which are all income-based tax. and switch to a single -- basically gross receipts tax. i think it is three advantages it. first with regard to sustainability, one thing we learned during the recent crisis, cash is the fact, income is an opinion. when it comes to income-based taxation, that is exactly the thing that changes all the time. when you know longer have to define income, section 3-c sub 2

up income, or is it does come a income, that's what they claim all the time to i just finished my taxes. we have to move away from the definition of income. and i think you what to do it is to get into a cash tax. second, for simplicity, right now we will raise about a trillion individual income tax, not 400 billion in corporate tax, the compliance costs on that are about 300 billion. so we are paying 22 cents in compliance for every dollar we collect in revenue. if you're looking for low-hanging fruit which wanted to issue a to minimize, and want a simple the definition of income. i think you can get rid of three separate kinds of taxes, all of which define income carefully. and you move to a single tax base. the third big piece of

low-hanging fruit has to do with border adjustability. what you can't do with any income-based tax. and here, i have forgot to say the word territoriality. i will be wonky but cynical. the candidates out there are all talking about a territorial tax. what territorial means is if you do it here, you tax it. well, what dumb thing to do. i mean, we have a very high tax, why would you only want to tax things done in america, especially if you want things to be done in america? what you really want is border, you want not to matter whether it is done in china or done in america. and what you do with border adjustability is as soon as it hits the border, you impose a tax on the value as it comes to the border.

that way you don't discourage production in america. so three big advantages, first you define, get rid of the opinion about income. secondly, cut compliance costs dramatically by reducing the number of taxpayers. and third, you stop this discrimination we have about producing in america. and your question was how do you get more growth? i think that's what the low-hanging fruit is. >> does anyone have a reaction to that? >> i had a thought. i me, i certainly agree with larry's point that i think most economists like to see conception it is probably the best tax, the easiest and but it also has a nice feature in order to raise my faction up to raise your own. it's very difficult to do, to raise the one without the other. this is where we would have to worry about it. because when you implement it practically what you tend to do

with vatkeys and retail tax is youth tend to exempt certain things from a. if you look at the size of the base, these things tend just to shrink. we would like to assume that away. profits i don't think it's a reality as a practical matter, you can't assume. we would be unique if we are able to to. >> i want kevin to respond. >> the first thing i want to add is herman cain 9-9-9 plan was essentially vat. it was so close to a vat, you've heard it on the site it is kind of a vat. during the debate over the 9-9-9 plan, the distribution and thus a complex came out of the 9-9-9 plan, and made sort of a glaring error that is a point that is not well understood that i should not i should race right

now. one argument against larry's vat that people might think is it's so unfair because sales tax is going to be paid by poor people and they consume other income and so on, but when you make that observation you forget the fact that right now if warren buffett takes 1 dollar out of the bank and buys an airplane, that's a lot of dollars, and he won't pay tax. but if you have a value-added tax, then he would have. off economist would tell you if you introduce the value-added tax today, it in part attacks on old capital, and so it is a tax on wealth. because your wealth is only useful to you if you can go buy something. so the wealthy folks go buy things with subway pay a tax that they weren't going to pay before. so i think the point i just wanted to make was vision economic efficiency argument that larry raise, and distribution arguments against the vat that ignores tax on wealth which is a really, really big component.

if you look at a vat, even if you're a fairness guy, then you should be wanting to embrace a vat. >> larry then now. >> i think exempting anything is a bad idea. and that includes by the way defining things has interest from dividends or whatever. i know it is tempting to want to avoid it, but if i get to define what interest is, and by the way, if you just did your tax return you know you go through the, or i get to define what he did the news, you don't do. that's why you want to cache the tax. on the way -- one of the ways would be i called a two-stage vat we have a basic vat, then you subtract say 10,000 a month in income from all your workers and in for a second stage vat on top of it so is a two-stage vat but i don't like it as well but if you have to compromise, that is the way.

>> i will go to alan and then we will talk about solutions and maybe more practical than a vat, as much as a lot of people like the vat. >> i just want to raise one thing i've thought a lot about, whether the consumption tax or vat is that i think we have to address what was very different, let's go back to the reagan time when the baby boomers were entering the workforce, and the things you are doing and with much less total debt. so you're looking at taxing income had one effect. baby boomers are leaving the workforce in record numbers every day, which means that we know the main way we collect taxes now is through, you know, social taxes, or your payroll taxes and income taxes. and more and more people are going to be living off of the capital. those same people are going to be driving up the expenditure side of the equation, and so while they are in the sense of not taxing wealth again, if you don't find a way to have my

generation paying their fair share of taxes while they're absorbing so much expense account you are setting up a real battle. >> almost everyone agrees to some sort of consumption tax. steve, is that right speak with your talk about flat income tax. flat income tax which is a variation of consumption tax but i think much more palatable. the idea that you can have a single sales tax like the so-called fair tax, once they get into political realities, the thing fell apart because they had to make exemptions for food. they had to deal with the bases, rebates in advance, and as soon as you go out on a campaign trail and say i'm proposing a 30% sales tax or x. percent v.a.t., you can talk all you want about embedded taxes and all that kind of thing. it is a killer. just as some of the candidates in 2010, colorado and elsewhere

who got taxed. it went down to defeat. it is toxic. and in the real world if you have a consumption tax i guarantee you she most states in this country and most countries around the world, and in default and you get crushed. >> one way to turn into a consumption tax is by allowing deductions for anything that you invest, full expensing. >> yeah. the flat tax is the easiest way to get simplicity without putting on a brand-new tax. >> i worked on this in congress. we did a decade going at different times in to the wishes political reality by how you can go at it. and steve is right, when we first went out and said okay we will abolish the income tax and we're going to go to a flat tax, just a whole system, everybody

that had something stuck in the income tax code came out of the woodwork and said okay, except for this deduction for this group, for general motors, for the forest, for oil and gas. you just got eaten alive by everybody that add the code for their little area just the way they wanted it. so we got killed. so the next round we went, which actually had some local stability to is you create the option. lay the current go the way it is, if you want to use it, god bless you, it's yours, but anybody else, here's a flat tax. and you pick which one you want to go to and use this. that's when you can actually sell in the political marketplace. people will migrate, my estimation, and am almost certain this would happen, most people would migrate to it on your compliance costs, don't go down to near what you are proposing but they go down. >> hong kong has a variation of

that. you can do it at a single rate or you can do the progressive system. they felt that for 60 years. >> you choose your tax code. >> maybe even more than two choices. >> i'm not qualified to add to steve's panel on that. make you sound like a politician. [laughter] >> what i would like to focus on, i'm glad the governor brought that up, is what is realistic? we have a lot, we have there is here on the panel but we have a lot of people, the majority of the spent has served in government, probably has a good sense of the politics. we've got the bush tax cut expiring at the end of the year. if nothing is done. pretty serious situation. what can actually get done either in a lame-duck congress or right after the elections? does anyone have any ideas?

>> paul ryan talked about the proposal, broaden the base, but it's not exactly a flat tax but it's in that direction. there's a proposal to reduce rates 20% across the board, which is out there. getting pretty close to practical. i think from a point of view of development policy, that's in fact the way to go. >> all those reproductions are a company by a base broadening, and i know you said you don't want the base to be broadened to much. but certainly the base broadening would include things like ending deductibility of state income taxes, or him the mortgage deduction, and maybe even the deductibility or the exclusion on medical insurance. >> whatever it happens to be it should match the rate reduction.

and what i think as people think about 25% rate or 10% but, they will be saying well, i will be willing to think about some of that stuff. who knows what exactly it will be? but that is a debate we should be having. it may not be 25. it may be 20% reduction. but it seems to me that's where the momentum is going. that's what the discussion is going to the biggest criticism is tell me what the base broadening is going to go. >> one point in terms of suffocation. in 1986 when the top rate was cut from 50 to 28, even though they kept deductibility of local taxes in, or state income taxes were forced states to reduce their rates to suddenly get a deduction. so in new york under mario cuomo, liberal, cut their rates about 10% i think, or 7.5% because the top rate at the

federal level went from 50 to 20. so virtually -- >> i'm worried we're taking our eye off the ball because this is an opportunity right now if we're in a very low growth period if this is the time we can focus on trying to increase growth. why do we need to do that? because wages are connected to productivity and productivity is connected to investment. that window. so the key thing is using this opportunity to try to get investments going. i would argue again for, this is the time to propose not taxing investment. this is exactly time we should be focusing on cutting dividends, cutting capital gains taxes, and allowing full depreciation right away with infinite care reform. is probably the best opportunity to do it. >> let me ask the panel whether they agree. let's just say hypothetically it was just about impossible to make any cuts in personal income tax rates, but you could either

eliminate entirely capital gains rate and dividends, that sort of thing that eddie is talking about. is that something you would go for? >> as i said in the beginning, i think i've changed my mind on after being folded on the side of encouraging investment. i think i talk joke about buffett but i think you stoned issue with electric. i think that the notion of people saying understanding its rich people of capital gains and dividends and they will pay no income tax and i'm going to be a much higher rate. i think it is politically stillborn and i think that keeps us from getting to an answer. i will say on the other hand, i will say, corporations more than i've ever seen in my career are embracing the idea of getting a lower marginal rate. when you try and poke through why i believe, and by the way, from a bunch of companies that

said if the rate comes down to it's a debate between 20 and 25%, if it comes down to there, my effective tax rate last five years has been below that for my taxes will go up. but i think the reason i say that is their compliance costs, because you don't see, all of the hours spent in tax planning. i was in a meeting today with a major corporation, one of the things they are talking about which would save so much money to locate your pleasure, they say yeah but it will come in taxes because i justify my profits in these low tax places. so there's so much in the way that i think you're getting a consensus that corporate taxes, lowering the rate and broadening the base i think both sides of the equation agree with the. >> we haven't heard much about corporate taxes here. kevin hassett i think has been kind of the most tireless campaigner. we have heard from a few. how important is it to bring down the corporate tax rate?

>> well remember that the flat tax, death tax, all these come in essentially 20. that's the whole point. once you allow for full appreciation of investment right at the outset you're really not taxing capital, you're not taxing investment. that's a whole point. if you go that way, that's essentially the plan. we a let's bring it down to 25%, the idea is if we look at our competition around the world, other countries have rates at that level, that may be true and capital will move overseas, but i would be much more radicalized, i would at least bush going in the direction where we may end up something that is not that. but i would at least start at that point. >> there's been a little bit of misleading conversation today innocent people are saying the u.s. as i dashed the -- the

highest corporate tax rates. we're not. where the third highest. >> our main competitor. >> that's right. if that is high corporate tax it is the most damaging policy rate we're making right now. i had an academic paper that they wrote in "the wall street journal," -- it is supported by big literature that shows that key economist -- the money goes to the low tax rate really, reay reticle depicts what that means is 35% in u.s., we're chasing the revenue away. we are on the wrong side of the carpet and affect president obama says he wants revenue neutral. but if you want a revenue neutral reform right now, given

the curve, then you have to cut the rate all the way to 17% to 80 cut the rate to 25%, you can get showered with revenue because we're so far on the wrong side of the curve. i think that's indicative of how terrible this policy is and how harmful. we should just go -- say the democrats don't believe the paper on this. they still should be willing to let's cut the rate 2% this year and see what happens. what would happen if we get a lot more revenue. we've got to start this process sooner or later because we'll keep having unemployment if all of factories are being introduced overseas. >> i'm going to shift gears. go ahead. >> one thing on the dividends, bush tax cuts was an incredibly important victory for lowering tax on capital. to the extent that we can just preserve that, because i think

it would be an important way to get consensus. that was tremendous. but for the economy, good for revenue. 15, that's good. and try to prevent them from rising. >> and that underscore something very important about those who do a preemptive surrender. you have say 10 or 12 years ago, could you have a president and the congress seriously past something that looks so favorable to capital. they would have said impossible, but by asking for a complete elimination of the tax on personal dividends, they got about 60% of them. john is right, the revenue came in. companies start to pay dividends in which is good for management. instead of companies wasting capital they rated know what to do with, they sent out to shareholders and let them decide what the capital is sufficient to be held spent i want to talk about state taxes for a second because governor brownback

earlier today, governor christie spoke and talk about how in new jersey he cut spending for, he approached the question of cutting taxes, and on a panel of other governors, there was some disagreement on that question. whether you do them at the same time, with you cut spending first or whether you cut taxes first. what is your view on that? >> might view is what i practice basically. we made minor tax cuts last year but we really fixed the sinking ship it with a $500 million budget hole when i come into office it is a substantial piece of it. so we fix the whole first by cutting spending. then when you get your growth that takes place, and it has been taking place, we have now gotten 400 our surplus and we're cutting taxes in a major way. cutting our rates down, taking the taxable it off small

business, trying to compete. i'm tired getting beat by the texans. married if you're from oklahoma. she's in the same ballpark. we're going to get these rates down and to try the capital and, but i felt like we had to convince the citizenry, look, we'll be responsible, we are not doing this in a vacuum and will be able to pay for essential services. so we cut a bunch of spending but we kept our essential service. we didn't have anybody off medicare. we didn't get any payments on medicare we didn't get any services off medicaid. we made sure our schools were funded, but now we did eliminate a bunch of other funding areas and had a big discussion about what's the government role funding of the arts. of which i got all sorts of criticism about. but our point was if you can't pay your mortgage, would you be buying a piece of art? if you can't pay your mortgage. and people said well, i would probably pay my mortgage. well, what about your government

and? so what we did is we got are spinning out of control and now we are making major changes in the tax code to move forward. >> you said when you got your spending under control, growth began to rise. >> it did. it did. he told the business when i managed this, it starts attracting more capital into the place but one of the things that got to do in the public sector is gone top of -- that's something that people haven't, they're talking about more, but we are talking about a cash balance system where you guarantee a 5% rate of return but anything over that we pay back into it. or going to a defined contribution system, allowing the employed the option of getting one but i would rather just go to a defined contribution system over all. i'm having trouble selling that. the price tag is pretty high on just moon pool stock into that.

>> by the public sector has got to do a lot more discussion on the. and a final point, i'm talking too much on this, but now is actually the time to propose bold public solutions. most of the political space is occupied by and criminal ties, wages, you can on proposing incremental solution to something. the public is scared now. they are scared for the future of their country. you can go across the state of kansas and get any 100 people and ask how many of you are scared for the future of your country? and you get 90% of the hands shoot up. people like my parents who been salted the earth farmers all their life, they are scared. they don't think the smart people are willing to dig in and handle it or they can't figure out where nobody has a plan. you know, about what i'm going to do. and they are smart people but they're just saying where's the plan, and i'm scared that people aren't thinking and they're not

willing to do the tough things. now is the time the public is willing to engage tough discussions. and major solutions. so now is the time to be bold and aggressive with good, thoughtful plans. >> one question for john and then will take questions from the audience. so the title of your book is no, they can't. how does that relate to tax his? >> no, they can't was a takeoff on the obama slogan of yes, we can. the subtitle is government sales, but individuals succeed. the governor talks about cutting spending first. i would agree with that. i think you lose people and much of this discussion as soon as you even say depreciation or carry forward, even defined benefits, most public stops listing. maybe in kansas they are scared. i think in the upper west side outside this building they don't

think there's a problem and they are just happy to go forward spending as much as possible. a simple buzz at propose that says government can't do these things can go back to basic principle. unity department of defense, even in epa, consensus, justice department to enforce the rules and that's about it. we will start over but i don't think the public is ready. maybe after greece, riots began in japan blows up, maybe then they would be ready. >> thank you. questions from the floor? >> i'm with the manhattan institute. some people say that we already have in essence a consumption tax because people have a shelf at the end, they do not spend through iras and college savings accounts, 401(k) accounts, and people don't take

full, most people are not at the maxim in those accounts. so according to your recommendation, all we would have to do is move full expensing of investment in businesses and we were practically already have the system you proposed. what does the panel think about that? that would be simpler than putting in a value-added tax and some of these other methods. >> yeah, i agree with you, diane. that is essential to proposal the bush tax and came up with it that was the idea. we scored that, by the way, and compare that to the effect of that on the economy of cutting corporate income tax rate. hank and iran conference together on this, and treasury scored it. and bang for the buck is about 41 in terms of expensing forces cutting corporate tax rate to the reason is simple. when you cut corporate tax rate which are doing is you're grandfathering in old capital when you are giving full expensing, your only affecting

new capital. so for any dollar that you spent on reducing taxes, you're only affecting new capital when you do the full expensing the that's the main reason for. i think that's the primary argument that both economists would use instead of going in the direction that i think you're quite right. we're almost there. it would be a pretty simple step to move in that direction. it wouldn't do everything but it would probably get us 80% of the way in terms of encouraging economic growth. >> larry? >> i think so, and i hate to gush that but you have to give the deductibility of interest. >> that would be the full side of it. >> anybody else? question over here. >> i'm buck weinstein, a bush growth fell. i have a question for the panel. in the past whenever that vat

trial balloon is going up was shot down by the governors associations, mayors association, is a consumption tax, that's our sandbox, essentially stay out. so as the perspective of the government and the mayors change? if not, what can be done to change that perspective? >> first of all, i think we have to say get rid of the phrase consumption tax and the value-added tax. consumption tax is related to income and things like that. value-added tax is a business cash flow tax. >> maybe she just unpacked though so i don't understand what a value-added tax. >> here's the deal. i make cars. i sell my cars. i get 5 billion for selling my cars. from that i subtracted the billion i paid to the company.

4 billion, ice and 25% of that to government. i'm done, that's it. that's the whole thing. so cash comes in, cash goes out, cash is the only deductible if i said to somebody who will pay tax on it. steel company or glass company. it's very simple to administer tax. no definitions of income to worry about. how about toyota? when toyota of american gets a car, comes off the dog in seven cisco or long beach, coming over at $30,000, subject to 25% vat right there. by the way, toyota of america has embarked upon, the whole car is subject to the tax. it is a level playing field between a domestically produced car and a ford car. the depreciation doesn't take it of the problem. simplification, we need a level playing field, competitively,

and we have to get rid of the multiple definition of income. i think, by the way, in fact i was on a panel before senate budget committee, and there were four of us, have not compared notes across the puck inspection, and senate budget committee was asking us what would we do. all four of us separately answer the question, said the country is going to end up with a vat. we were then lectured by the centered on how the senate has voted 93-3 to never ever consider a vat in its history, which talks about the political from. we are going to be boxed in the corner. we have a huge debt overhang, went to solve our budget from, et cetera. we are no longer at some point going to be able to solve this. then we will turn to solution. the most efficient way of paying for government. i'm sorry to say, i know it is politically unpopular but if you want efficiency, if you want

growth, people need to wake up. >> would you at anonymity the constitution undoing the 16th amendment speak with you can try to move. i don't think it's necessary. i think once you abolish the corporate tax, abolish the personal income tax, abolishing the social security tax, obama politician is another we have a trances, i want to bring back the income tax, i do think it will get any votes. so yes, i don't think we need a constitutional amendment. it would be nice to have the eye which is move forward with it and abolish the current taxes and put in one simple tax to replace it. >> in answer to the question, i'd want to turn to governor brownback, would you be kind of jealous to see the federal government institute a vat or even a more transparent consumption tax? would you say that's my sandbox, stay out of the? >> well, as i stated earlier, i think the field is more open to bold solutions now than it's been anytime during my political

lifetime. because people, they're looking and we're getting boxed into a big hole, like larry said. so i think you'll be less of a response what you are saying. i see steve forbes political problems. i think of the people stand for election and saying i am for 20% value-added tax, and somebody puts up the ad, here's your price of milk now, here's your price of milk if he is elected. the person -- >> but you don't pay any personal income tax. >> that would be a long discussion. people won't believe -- >> have to people aren't anyway. >> by the way that could be another problem. >> this side of the supreme court hasn't said anything. [laughter] so how big a problem is it that

half the people aren't paying any taxes anyway as steve forbes says? kevin spent i had a piece in the "washington post" a couple years back. >> we don't read the "washington post." [laughter] >> i know. i have another one in the new york times with the same issue. [laughter] no. the idea is that come in fact, you can't find a big government without taxing everybody, as we see the buffett rule will raise 30-$40 billion over 10 years by the joint tax assessment at all this hubbub over the buffett rule is really a tiny bit of revenue. so you have to tax everybody. so what politicians are done, made in both parties is they've reached an equilibrium with a tax rich people with taxes that are highly visible, and to tax for people with taxes that are difficult to attribute. but if you look at the taxes relative to income across the income distribution, this is what i did in the article you did read, it's pretty much always about 30%.

and support people pay about 30% of income in taxes because they pay a lot less income tax, some of them pay no tax at all, but they pay sales tax, income tax, cigarette tax. i included in the analysis the lottery because people at the bottom play the lottery a lot to a lot of is a real unfair way to gamble. you should go to atlantic city and yet much better odds. the taxes are approximate latitude just this morning, ugly system that does in a way that is ghana satisfy for politicians. >> other questions? >> go ahead, john. >> i was going to sit on issue about income taxes, it used to be we be excited by taxes on proposals that would take 5 million off the payroll tax will or 10 men off the tax shall. i would like a positive thing to say. i would say we should stop thinking that as a positive thing to do if you think about your taxes in the other we've

been talking about. >> question? >> a lot of discussion recently, maybe six months ago in "the wall street journal," about flat tax, tiered by taxes and whether to the deductibility of home mortgage loans would be included in the. i just haven't heard any of that, which seems to me to be much more politically feasible. i am a television producer. >> does anybody -- >> again, that's what the ex-taxes. it is the forbes flat tax but it is a bit more progress. one of the things again when president bush put me in his unkempt position of being on a tax panel and having to say things that were definitely unpopular, when things we we talked about was deductibility of mortgage interest. the other thing was the non-taxability of health care benefits that are provided by the employer but, in fact, we

are able to cut rates at the margin isn't for the highest tax bracket. but it was only by limiting the deductions and that's how we pay for it. and that created a firestorm. so, you know, again, he doesn't allow me to talk about politics so i won't. that's for others to do, but it's certainly not something that is easily accomplished. >> that's what i can you give people a choice, you have a simple flat tax fewer, and into if you want to stay with the old, if you like to punish yourself, if you low self-esteem, if you want to go do that, go ahead. [laughter] >> kevin? >> there's just one other thing to add in defense of the lindsey plan, which is both value-added taxes, they don't tax all things. they wouldn't tax the used car sale but you would tax the purchase of a new automobile but this has an unusual effect on real estate. which is the value-added tax would apply to the purchase of a new house most of the time, not

for the purchase of an old house. so if you have an old house today, it's really good for you because suddenly you have a tax-advantaged vehicle. so the prices of old houses can actually surprisingly respond to the introduction of a value-added tax. >> isn't that part of 9-9-9? as i recall. we have come to the and of our day of discussing growth and taxes. and i think it may be appropriate to end, in fact, with something that governor brownback said. now actually twice. that now is the time to propose bold public solutions. i think we've heard a range of solutions, and a lot of the decisions about which solution to choose has to do with how we gauge politics. but maybe this is the time in our history to propose and then

ultimately enact bold public, bold policy solutions. i want to thank president bush, first of all. there would be no bush institute without president bush to his participation today has just been stunning, and i really, really appreciate you being here. [applause] >> and everyone just assumes a conference like this runs and currently smoothly all by itself, but it doesn't. and i wanted to thank all the people on our events team for making this work. and i also want to thank stacy, who makes the entire institute work. so thank you all. and i should finally, here's -- after the operas over and the curtain comes down, some comes out with roses for the diva.

and as we all know, the diva is amity shlaes. we have no roses. we do thank her for everything she has done. [applause] >> and thank you all for being such a wonderful and tremendously engaged audience. one of the things that we do at the bush institute is we do this little survey after the conference is over, because we are big on metrics and goals and that sort of thing. one of the things we've learned is where done conferences before is people really like the times when they can mingle with the other people who were at the conference. and so we have reserve plenty of time to do that at this conference. so there's a little reception outside sponsored by views chamber of congress, so please have lots of fun, and thank you all for coming. [applause] ♪

♪ >> today on c-span2, a look at promoting u.s. exports at the annual meeting of the export-import bank.

>> the export-import bank is a federal government agency with the authority to lend $40 billion to facilitate u.s. exports. at its annual meeting thank president fred hochburg argued against what he said as an effort by lawmakers to quote gut the agency. will also hear from white house adviser valerie jarrett, and the ceos of companies john deere and orbital. this is an hour and 40 minutes. >> please welcome chairman and president to the export-import bank of the united states, mr. fred hochburg. [applause] >> good morning, and thank you for coming. on behalf of president obama and the entire administration, we want to welcome you to the 2012

x. in bank annual conference. the president has asked valerie jarrett to represent him today and you'll be hearing from her shortly. she's going to take about this export. it's not a piece of equipment that got left her by mistake. we are joined today by people from over 40 countries, a record, from businesses, large and small, government officials and foreign buyers. you're here to buy, sell, the network. i have a feeling a few of you here but just to listen to president clinton. that's okay, too. he will be out later. in fact, one of the reasons you're getting from me now that made it a practice, never and i really mean never, to follow my boss, current or former. exports are more important than ever. and that means that i work at transport is more important than

ever. now surprisingly not everyone seems to agree. i will get back to the animal. but before i go any further, i wanted to, let's take a look at how the united states advocates for our interests around the globe, particularly our national security interest. this graph shows the amount of military personnel we have employed -- deployed around the world. it is twice the amount of the rest of the entire world combined. what does that tell us? it tells us america is pretty serious about our strategic and security interests. it tells us we're willing to devote lots of money and manpower to navigate a very dangerous world. what about america's economic interest? do we have the same bipartisan system that america must do what it takes? no, we did not. some in washington think government has no role to play

in helping our companies compete abroad. they think we should stand down as american companies compete with foreign companies, backed by foreign governments. they think we should disarm in the middle of an economic arms race. for example, lets take a look at export financing overtime. here's brazil, china and germany, all surging ahead of us. now, let me be clear. export finance is the one measured of a countries commitment to its economic security. but it's an important management and a key measurement. and it reveals a troubling trend. other countries have simply been more aggressive than we have been pursuing global economic interests. and their work is paying off. let's take a look at india, for example. in 2000, the united states had a healthy lead over china in

selling goods to india. and we have grown our export substantially since. but let's take a look at china. now they are exporting twice as much to india then we are. now, we have no problems with china increasing its exports to india. they are creating jobs in lifting people out of poverty in both countries. this isn't a zero-sum game. it's something that benefits all of us. what america can and should be telling -- selling more. 95% of the world consumers live outside our borders. and we must follow them abroad if we're going to create more jobs here at home. and that's why in 2010 on this very stage, president obama lost the national export initiative. the president knows the competition for exports is heating up. he knows foreign governments are supporting america's competitors like never before.

and that's why president obama is committed to ensuring that companies have the financing and other tools they need to compete in the international marketplace. american companies can't effectively be on cause come on back, on quality and reliability of the product. that is a competition we have to win day in and day out. and in the eye has provided an important jumpstart. exports are up over 15% since 2009. in 2011 alone, america exported more than $2 trillion worth of goods and services. an all time record. american exporters have reasons to be proud. we have never sold more, more places. but now a few in congress want

to gut the nei by gutting the export ban. they want to unilaterally disarm american government, just as foreign competition is heating up, just as american companies are dealing with -- industrial policy on steroids. that are over 60 export credit agencies around the world, and each and every one of them is working to expand their footprint and increased their activity. this is the world we live in. we have got to compete in the world as it is, not as we would like it to be. now, some in congress don't accept this. they actually want to move in the opposite direction. and unless they act, our authorization expires on may 31. now let me be clear. no matter what happens in congress, ex-im obligations will not be affected.

the loans, guarantees or insurance will still be fully backed by the full faith and credit of the u.s. government. but if congress fails to act, all new activity will grind to a halt. and many american companies, large and small, will find themselves at a huge disadvantage. this administration is fighting hard for u.s. companies and their workers, and ex-im is critical for that fight. but a vocal few don't like our government financing u.s. exports to foreign buyers. others simply don't get why america that produces some of the best products in the world needs any help at all. our role at ex-im is to help american companies compete in foreign markets where financing isn't readily available or affordable. we give u.s. companies a

competitive edge they need. last year alone, we provided $33 billion on a record amount, to export finance to support over 3600 companies. and nearly 90% of that was for small businesses. i know it's dark in here but look around this room, there's quite a few people here today, more than 1000, each and every day the we create or sustain 1000 jobs, each and every working day. last year alone, that was 290,000 jobs, a record for the export-import bank. ..

>> a company i had the chance to visit in december of 2009 during the very first hours of the first blizzard of that christmas season. the company was orville sciences, they're a virginia company, they're out by dulles airport. they make satellites just like this one. the real one's about ten times this size that orbits the earth. it's the kind of satellite that's used so you can use your mobile phone to make calls anywhere in the world, so you can watch any of 500 channels under the sun. i don't know about you, but i have to tell you i can still never find a single channel i want to watch. 500, but i never can find what i want to watch.

[laughter] in 2009, there were only two companies that made the kind of satellite that a company wanted to buy, orbital and a french country named astreum. and it looked like orbital had a leg up, but it had a problem: no private sector financing was available. satellites are expensive, and they require much more extended terms than many banks are willing to provide. so orbital was in a tough spot, they had a foreign country ready to buy, but astreum had something they didn't have, a french export credit agency, and that package was tipping the scale in their favor, and that's when ex-im came into play. orbital put them in touch with john schuster and his team. they rolled up their sheaves,

and they -- sleeves, and they found a way to provide a $215 million long-term loan to avante. today 300 americans have jobs building that satellite, and orbital is on schedule to launch that satellite in july from french guyana, and avante has plans for more satellites, hopefully now from america. in fact, we're joined by dave thompson who's the ceo, and he's going to be on the next panel talking about competitiveness. additionally, the company's ceo, garrett pierce, serves on our advisory committee, and they can tell you about the difference we made. now, what happened here is pretty simple. two companies competing, the french company got financing from its export credit agency, and ex-im bank leveled the playing field. orbital and astreum then went head to head on cost, on value,

on schedule, on quality and reliability. and in the end, orbital won. the workers at orbital won. and america won because this single deal continues to spur growth in the satellite industry throughout america. last year ex-im bank financed $1.3 billion to finance seven satellites and saved over 4,000 jobs at boeing, orbital and lorral. these satellite dealers have a multiplier effect up and downstream. you've got suppliers selling parts to orbital, and you have other companies making launch vehicles and communications equipment, this the the type of work ex-im bank supports day in and day out. i want to just ask all the ex-im employees in the room to just stand and be acknowledged. can you all stand? [applause]

now, we have a sellout crowd, so a few of them couldn't get in here today. the rest are back at the office. somebody's doing the work. you know how essential ex-im as your business, and you know it's often the difference between winning and losing a deal. the business community understands that. so do most in congress. but we still hear criticisms of ex-im that, frankly, make no sense to me. they don't reflect whoer, and they don't -- who we are, and they don't reflect what we do. some critics don't think ex-im should exist at all. they think we're engaged in crony capitalism. they think we're peddlers of corporate welfare. really? corporate welfare? we don't spend taxpayer money, we don't provide subsidies with

tax breaks. our funding comes from our customers, and our customers pay all of our expenses. that charge just doesn't add up. ex-im makes money for taxpayers. that's not corporate welfare. others say ex-im's destroying markets because we pick winners and losers. this one's pretty simple. we don't pick anybody. orbital picked us. our customers pick us. when a customer approaches us, we begin with two fundamental questions. one, will the loan be repaid? that's very important. two, is our financing essential to make the sale happen? if answer's yes, then we're a go. now, i have a new favorite newspaper in washington, it's called "the washington times." and "washington times" said the following: far from picking winners and losers, ex-im loan guarantees simply insure the

united states has a chance to have winners in the international marketplace. that's all ex-im does. we give american companies a shot to compete on a level playing field. whether they win or not is entirely up to them. now, for all the controversy about ex-im, you'd be surprised to learn that 98% of u.s. exports are financed in the private sector. but that 2% that ex-im finances is still too much for some people. what our critics miss is that ex-im is essential in the markets we operate in. we're essential in emerging markets where the number of promising projects outstrips the amount of available credit. last year we supported a third of all exports that went to colombia. just under 10% of the exports that went to sub sahara africa and about 20% of all exports that went to turkey and india.

now, some say the private sector could handle all of this. there are lots of banks with a robust presence where we operate. this is not a presence. just because there are atm machines on street corners doesn't mean there's a lot of money in the banking system. there's no shortage of worthy infrastructure projects in places like vietnam and nigeria, to name just two. but there is a shortage of good financing options, and we help fill that gap. ex-im fills the gap for very big and very small companies that just don't get enough attention from banks. we're essential in the types of deals that a multiyear and multimillion dollar like orbital. banks aren't knocking down the door to offer long-term, $100 million financing for satellites or locomotives or airplanes or power plants for that matter. and we're essential to small

businesses which account for nearly 90% of all the transactions we do. now, let's take a company called air tractor, a small texas company that sells crop dusters and fire-fighting airplanes primarily to farmers worldwide. air tractor has orders to ship 176 of these airplanes in 2012, a record for that company. forty of those planes are going to latin america. most of them to argentina and brazil. now, dave eichert of air tractor will tell you how critical ex-im is to his business, and here's a clip that appeared recently on "cbs evening news." >> it helps to create jobs right here in arlington, texas. we're a small, rural community, but we export. we export our planes all over the world. and those exports create jobs in

arlington, texas. ex-im bank helps not only create jobs, but ex-im banks help retain jobs. but especially in the economic times we're coming out of, job creation and job sustainment ability has got to be critical, in my opinion, to the whole country. >>day went on -- dave went on to tell me, you know, fred, banks aren't lining up five deep to finance argentinean farmers. and the loans that we help support at ex-im bank are supporting 69 good-paying jobs in texas. and that's what it comes down to; manufacturing jobs, good jobs, middle class jobs. ex-im bank's work is good for air tractor and their workers. it's good for texas. it's good for the american taxpayer because we haven't lost -- i have it right here -- a single dime on this deal, and we've been working with air

tractor since 1994. eighteen years, not one deem. dime. now, the reason that's important, there are a few who think ex-im is the next fannie or freddie. i'm the next freddie. [laughter] where do i start? we don't operate in one country, we operate in 70. we don't operate in one industry, we operate in dozens of industries. and ex-im's historical loss rate is less than 1.5%. ex-im makes money for the u.s. taxpayer, and he's the final kicker -- here's the final kicker. we don't answer to wall street, we answer to u.s. taxpayers, period. now, that's a pretty compelling case of what ex-im does and equally important what we don't do, and that's still not enough. some people just don't like the idea of a government-backed export credit agency. it offends them philosophically. they say america should counter state-backed financing with

tougher commercial diplomacy, more trade deals. and you know what? i agree. you know what? so does president obama. that's why this administration has aggressively challenged countries that break trade rules at the wto. that's why we developed tough, new oecd rules to finance aircraft exports. here's the problem. these things take time. wto complaints are important, they can take up to five years to complete. that oecd aircraft deal, we opened negotiations in 2009, we inked the deal in 2011, it won't take effect until 2013. then there are the trade deals. agreements with south korea, colombia and panama were all signed into law by president obama this fall, and they're going -- but they took years to negotiate. negotiations on panama and colombia began in 2004. i'm going to put that in

perspective. my chief of staff, kevin varney and his wife betsy, have a beautiful 13-year-old daughter, julia. [laughter] this is what she looks like today. everyone meet julia. she's in school. here's what she looked like when the panama negotiations began. [laughter] in the time it took to get this deal done, julia journeyed from childhood to adolescence. [laughter] in the same time export finance exploded around the world. so here's the takeaway. the rest of the world is not going to stand down while the united states builds a more perfect international trading system. they're not going to disarm. there are millions of people around the world that need jobs. china alone is working to create 45 million jobs over the next four years. they're not going to be shy about using export finance to put these people to work. and you better believe they will

use every tool at their disposal for as hong as they can. and so -- for as long as they can. and so will many, many countries around the world. this is no time for america to let ideology triumph other pragmatism. we need to keep fighting so that american companies are competing on a level playing field, and that means we must keep ex-im open at the level that u.s. exporters require. identify been in -- i've been in this job now for three years, and the bank has been at this work for 78 years, and one thing is clear: america has to keep pushing harder and harder for our economic interests around the globe. and let's not forget what america's interests are at this moment in time. it's jobs. jobs at orbital, jobs at air tractor, and thousands and thousands of jobs around this country. the types of jobs we need to rebuild the middle class in america. last year ex-im supported almost

290,000 of them. now, as congress ponders our fate in the weeks ahead, i hope they will realize that some of these jobs are already in jeopardy because of uncertainty about ex-im's future. last month julie martin of marshall mcclellan told cfo magazine significant amounts of sales by u.s. companies could be lost if ex-im bank isn't reauthorized at all or at the appropriate level. i'm hearing the same thing from ceos i speak with. last week i spoke with one who met with my counterpart in korea. within two minutes of the conversation, the koreans said they'd approve a deal, and they could double that amount if it was needed. this is very serious business. other countries will happily step in if we can't finance the deal, and that's why i hope congress will ask the same

questions our friends across the pond are asking. >> now, do we watch as the brazils and the chinas and the indias of this world power ahead of us in the global economy, or do we have the national resolve to say, no, we will not be left behind, we want to be out in front? >> that's the question. do we have the resolve to say, no, we won't be left behind in this race for exports? i often hear people in congress talk with pride about the quality of american craftsmanship, the skills of our workers, the innovative spirit of our businesses. i see it when i visit businesses from coast to coast around this country. i hear it when i travel abroad. other countries want to do business with us. they want to buy what we make. and ex-im makes it possible. we give u.s. workers a competitive edge. but if congress does not act by may 31, our charter will expire. there are times in life when one

day at a time makes sense. this isn't one of those times. if we want an economy built to last, we need an ex-im bank authorized not for a few months, not for a year, we need exactly what president obama is asking for, a full, four-year authorization with a $140 billion lending cap. that's what we need to support hundreds of thousands of jobs across america. that's what our exporters need to help them compete all around the world. this is no time to disarm. this is no time to stand down. we have to compete with everything that we've got. american businesses and american workers deserve nothing less. thank you. [applause]

now, we have some great panels and a number of very good meetings over the next few days and some very insightful speakers. i am pleased my former boss, president clinton, is going to be joining us. in addition we have chicago mayor rahm emanuel, ambassador john hunts month, sam allen, james fallow, from nigeria we have the vice president and many, many others. but before we go any further, i'd like to introduce a friend of mine, a woman who's a close friend to the president and a trusted adviser, a woman who's been his keeley yea son to the business community and a woman who's worked closely with ex-im and has been a champion for us both inside the administration and out. with that, let me introduce and bring to the stage valerie jarrett. [applause]

>> well, good morning, everyone. how you doing out there? you look fantastic. i am delighted to be here on behalf of president obama and bring you greetings from him. i want to thank fred for that introduction and for his presentation and for his amazing leadership of the ex-im bank. how about a round of applause for fred? [applause] i'd also like to thank the board members of ex-im, members of the diplomatic community, business leaders from the united states and other 40 countries who are here today. good morning, one and all. the american business community represents just a few of the many companies who have been able to compete and work is so hard to develop this level playing field that fred mentioned. there are companies such as serve lift, a small business from phoenix, arizona.

entrepreneur ray zuckerman founded the company in 2002 and began manufacturing equipment for transporting servers to data centers. recently, serve lift moved its operations in china back to the united states, doubling the number of american workers who are employed there. serve lift is exactly the kind of small business that can export to new markets but often needs support to take those initial steps. in june of 2011 serve lift received a 250,000 express insurance policy from the export bank, and it was approved for buyers for ireland and for turkey. and as ray zuckerman put it, the bank's support gives us the credibility that we need to pursue foreign buyers. and, he added, extending credit makes us more attractive to our

customers and allows us to sell to larger companies. small business success stories such as ray's helped build the world's largest economy and the strongest middle class right here in america. and we know that when small business owners like ray get the credit financing they need, it doesn't just help the company's profitability -- which it does -- it helps create jobs for american workers. it helps support other businesses in their community, and it helps our country recover from the worst economic crisis in our lifetimes. now, there's no question that we still have a long way to go. but each and every month for the past 25 months here in the united states, we have added private sector jobs for a total of more than four million jobs created. after the worst recession since the great depression, we are moving strongly and boldly in the right direction. and that's exactly why we can't afford to go back to the policies that got us into this mess in the first place or

ignore our responsibilities as public servants. washington still has to work. that's what america deserves. because this is no ordinary time in our country's history. this is a make or break moment for the middle class and for those who are working so hard to get into the middle class. together we must decide what kind of country we want to be; an america where most people have to work harder and harder to get by or an america that remains true to its values where hard work pays off and responsibility is rewarded. an america that lives up to the basic promise that no matter who you are, where you come from you can make it if you try. now, president obama firmly believes that our recovery will be driven by the private sector, not by washington. but it is ultimately america's businesses that will create jobs and insure that our country

maintains our competitive edge over economies around the world. but those of us here in washington have an important role to play, to foster the kind of an environment where businesses can thrive and grow and expand and hire. as the president has said, he shares the belief of our first republican president, abraham lincoln, a blow that through -- a belief that through government we should do together what we cannot do as well for ourselves. that is why in his 2010 state of the union address the president unveiled the national export initiative that fred mentioned. he set an ambitious goal to double our exports in five years supporting millions of jobs in america. two months later at this very conference, the president outlined the specific steps that his administration would take. so today i want to thank all of you who are here because with your help we are on track to meet the goal ahead of schedule

and in 2011 u.s. exports reached historic levels totaling over 2.1 trillion. 33.5% above the level of exports in 2009. and as u.s. exports support 9.7 million u.s. jobs in 2011, we are well on our way. that's an increase of 1.2 million jobs supported by exports in just two years which is fabulous work and, again, fred, you deserve an enormous a amount of the credit for your leadership on that. of course, behind these statistics are real success stories. stories of businesses and workers who have had the chance to compete on a level playing field and see their hard work pay off. you heard fred tell the story about orbital and air tractor, and i thought i would share another story with you today. this story comes from oshkosh

corporation, a manufacturer of heavy trucks. like most businesses, they were hit very hard by the economic crisis and the recession that followed. the company was facing the prospects of massive layoffs. then in 2010 the export-import bank guaranteed a loan that enabled oshkosh to sign a $41 million deal with the republic of ghana. because of this deal, workers at oshkosh subsidiaries in wisconsin, pennsylvania, iowa and illinois are still on the job building 100 fire-fighting trucks and other emergency equipment for ghana. president obama stands solidly behind companies such as oshkosh and the jobs that they create. this is why he fully supports the export-import bank's important mission, and he stands with the community, the business community and the workers who benefit from the efforts of the

export-import bank. now, as fred mentioned, members of congress will soon have to decide where they stand. they'll vote on whether or not to reauthorize the export-import bank. and let me be clear where president obama stands. he stands fully behind the reauthorization just as fred said. there are some who assume that in today's divided washington congress will put partisan politics ahead of doing the right thing. that politicians will turn their back on the thousands of small businesses and howns -- hundreds of thousands of jobs that could be created through the efforts of the bank. but we're hoping that working together we can prove the skeptics wrong. just last week when president obama signed the bipartisan jobs act into law he pointed out that we still have a long way to go, and as he put it, we've still got a lot of americans out there who are looking for jobs or who

are looking for better pay with the jobs that they have, and we're going to have to keep working together so that we can move the economy forward. so let's continue to come together and get great things done for our face -- our nation and all of the jobs we can create. we do big things here. and let's make sure, as fred said, that america doesn't get left behind. president obama has laid out a bold vision for america, an optimistic vision for america. one that recognizes that if political leaders do their jobs, then there are no limits to the innovative spirit that we can unharness in our companies. the business community is counting on members of congress to join the president to work together and put partisan politics aside. if they do, the export-import bank will be able to help, again, provide that level playing field so america's

businesses can compete from a position of strength in the global marketplace and put those americans who so desperately need jobs back to work. in many closing, i want -- in closing, i want to thank you for all you have done to meet your responsibilities and for all you will do to meet them in the future. and know that as you do your part to create an economy that's built to last, president obama will stand right there in your corner each and every day. thank you very much. [applause] >> moderator -- bernard schwartz at the council of foreign relations, he is joined by panelists sam allen -- [inaudible] and david thompson, chairman, ceo and president of orbital sciences corporation. [inaudible conversations]

[applause] >> welcome, everyone. please, take your seats, and i'm not going to be able to see through these lights whether you done it or not, so i'll assume everyone is sitting. thank you to the export-import bank and for the invitation to this event. my name is ted allman, i was recently the prompt director -- project director of the cfr independent task force chaired by tom daschle and andy card and really started from the evidence that the u.s. has been an export underperformer and talked a lot about how to improve things on that front. i'm delighted to be moderating this panel. we have a particularly superb set of panelists to take us through these issues. on my immediate right, samuel

allen, who's the chief executive of john deere. his full bio is in your material, i'll do brief introductions. to his right, hal circumstancen who is the senior partner and managing director of the boston consulting group, and then to the far right david thompson, chief executive of orbital sciences who was wonderfully introduced by chairman hochberg to start the previous speech. so i'm just going to give a little introduction. the title of our session is "competing around the world," and it will focus largely on how the united states and u.s. companies are doing in the competition for international markets. and i would suggest this is a particularly fluid time to be trying to address this question. just to sort of frame it on the positive side, some of you might have seen the recent article in the american interest by an economist at george mason university. it got a lot of attention, and it makes the argument that the u.s. is poised to become an

export powerhouse. notes that since the end of the -- since the end of the recession exports have accounted for fully half of total u.s. economic growth. so the rather weak recovery that we've had would have been positively anemic without strong growth on the export side. and secondly cowan notes that the obama administration rather surprisingly appears to be on track to meet the national export initiative target, to double exports by 2014. even starting from the depressed base of 2009. there were very few economists that thought that was achievable, that's a 15% annual growth rate. so barring a real downturn, that number gets hit in 2014. so that's a kind of positive story. on the negative side, i would point you to a recent survey by the u.s. competitiveness project at the harvard business school. michael porter, professor there, long been the guru on these topics, and they went out, and

they did a survey of 10,000 harvard business school grads who are now in senior management positions in companies all across the country. i suspect mr. thompson may have received that questionnaire as well. the most intriguing part to me was they did a targeted survey of officials in those companies who'd actually been involved in location decisions. do you leave an operation in the united states, do you move abroad for greenfield investments, do you do it in the u.s., and do you do it elsewhere? two to one, the u.s. lost those investment decisions. those investments went to other places. and when they asked people why, the reasons were varied. the one was most common was what we'd expect, low wages abroad. and number two was proximity to customers which makes sense given the rapid growth in the developing world. but there were some that were striking and disturbing. better access to skilled labor was more often cited by

companies as a reason for locating abroad than locating in the united states. so i want to start off for our three panelists with a fairly open-ended question. which of these stories should we believe? the united states as an emerging export powerhouse or the united states as a nation that really is at a serious competitive risk? and i'm like to start with sam allen who among the many hats he wears is the chairman of the council on competitiveness, a group established in the '80s led by chief executives and involving a great research team, and they've done some of the best work in this country on these issues over the last 20 years. we'll start off with you, sam. >> at risk being in washington, d.c. and answering this way, i think the answer is yes and yes. [laughter] i think both are true. you know, if i look at our company, john deere, we'll be about 32 billion this year, 50% of it is in the u.s., 50% of it is outside the u.s.

we're from 2010 to 2018 going to double the size of the company, and a lot of that will come outside of the u.s. about 50 % of what we do outside of the u.s. we export from the u.s. i think one of the things and why there could be a manufacturing renaissance here is there is this combination of going through the '09 financial crisis, every one of the companies here in a free market society made tough decisions very quick, very lean, very efficient. combine that with the situation with the dollar right now being very competitive on global markets. it is a very, very positive time, and we have a number of plants where we make very similar or identical products, large products, 2-$400,000 products. and we'll have the same product mean in east moline, for example, illinois that's made in brazil that's made in germany. and right now exiting the factory are the highest wages

actually are in germany but very close to the second highest are in the u.s. but by far the most competitive exiting the factory is our plant here. and it's because our labor force is very efficient, it's because of a combination of a number of other factors. having said that, there are a number of other issues like what we're talking about here with ex-im bank whether we're talking tax code, whether we're talking the ability to get workers hired, especially highly-skilled workers hired true visas. -- through visas. if those respect handled properly in the coming months, then we ruin the manufacture for the renaissance that i, for one, would argue definitely have the opportunity to see here in the u.s. over the coming years. >> it's interesting, in the hbs survey that i mentioned, they asked those surveyed, you know, what are the biggest problems in terms of your ability to compete in the united states, number one was the complexity of the tax

code. and number two, which surprised me, was immigration. the inability to get skilled workers from overseas when you need them. i'd like to turn to hal, he's done some tremendous work on what's happening on the manufacturing economy in the united states. give us an overview, hal. >> i mean, to answer your basic question, you know, i think that we are looking at a manufacturing renaissance, although we could mess it up. so the answer is sort of yes and yes as well. [laughter] and let me, let me talk about what i see is going on, and you go back to probably 2001 when china entered the wto and wages in china were 58 cents. and what we're seeing is a pendulum s, is there was arush to build in china, there was a massive rush to build in other countries because the wages were just so low. the companies had to take advantage of it. but as with any economic trend, you find that the pendulum swings too far first and then swings back. and what we're see anything the u.s. is the beginning and just

the beginning of that pendulum swinging back in the u.s.' favor. wages in china are rising at 15-20% a year, and it looks like that may even increase from that level. that makes china less competitive. the weakening of the dollar, obvious, has also helped relative to europe and other countries that have floating currencies. and we're seeing china doing some revaluation of the yuan. so the basic economics are looking, in essence, right now less bad for the u.s. because the pendulum is swinging the other direction. bottom line is we think that sometime in around 2015 for a series of goods that are very important to the u.s. economy the economics of produce anything china will be somewhere around 10% lower cost at the factory gate than the economic producing in certain parts of the united states, the same kinds of products. that spread gets pretty low when you start to think about things like transportation costs, country risks, the thought of being 5-7,000 miles away from

your customer. o all these things start to add up and say that we would expect to see jobs and economic activity return to the u.s. because the pendulum just swung too far in the other direction. we're a little surprised because we weren't expecting it when we started to look for companies that were participating in this and started to see literally dozens and dozens, well over 100 companies who are repatriating jobs back to the u.s. not for patriotic reasons, but for pure economic reasons. >> thank you, hal. david thompson, you operate in a sector, the satellite business that can's been extremely competitive internationally for a long time. how would you assess the current competitive position of the u.s. in your industry and more broadly if you want? >> okay. well, thanks, ted. the satellite industry is a relatively new one. the first manmade object to reach outer space did so in the

middle years of world war world war ii, about 70 years ago. it was a military rocket. but it's really only been for about the last 30 or 35 years that practical applications of satellites have developed to the point that it's turned into a business. now, in the, in recent years the trends have been positive. u.s. satellite builders today have about a 55% global market share for the products that our companies provide. but as you pointed out, we compete intensely to retain that share with competitors from europe, japan and china principally. our european competitors who have gotten very good in the last decade or two currently have about a 35% worldwide

market share, and our friendly competitors in ya a pan and china -- in japan and china have a more limited share, only about 10% of the market today, but with trends suggesting their shares are on the rise. building a satellite in some ways is a little like building a human being. the amount, the cost of the raw material that goes into the product is a very small fraction of the value of the product and the selling price. in the case of satellites, it's probably 5 or 10%. in the case of human beings, arguably less, even less than that. unlike humans, though, that can be created largely through the efforts of unskilled labor -- [laughter] without a lot of training and so

on, satellites are created by small groups of engineers and technicians whose knowledge contributes to the ultimate performance, reliability and value of the product. and so as long as we continue to lead the world in awe tracting -- attracting and keeping the best and the brightest from our technical schools and we continue to invest in research and development to improve the products incrementally every year, i think we'll do okay. but we certainly face circumstances in which the playing fields are not always level, and initiatives aren't carried out -- carried out by the u.s. government are vital to giving u.s. manufacturers a fair chance at winning those next overseas sales.

the role of the export-import bank has been critical in a number of our recent contracts around the world. we've sold satellites now in 18 different countries, and i'd say about 20% of the time those sales probably would have gone to one of our international competitors who would have benefited from some nonproduct-specific advantages that we would not have been able to match had the export-import bank not been active in our sector. in addition, u.s. satellite builders today face other challenges that make our jobs a little more difficult, perhaps, than those of our competitors in europe and china. one of the principle areas in which u.s. satellite builders sometimes are disadvantaged is

in the area of state support of product r&d which is pretty common in europe and very frequently encountered in china. and not so much the case in the united states. and so we're hopeful that as the congress considers measures to improve our country's economic growth and to sustain the job creation trends that you heard about earlier, that in addition to reauthorizing for an extended period the ec port-import -- export-import bank that additional reforms will be passed in the way of r&d tax incentives that are important in the many technology-based sectors including our own. >> thank you. thank you very much, david. dave's comments about building a satellite remind me we still haven't learned what this machine is yet. so there's going to be a quiz at

the end of today's meeting. i'm guessing it's a new kind of tearmaster, but you'll all -- stair master, but you'll all be quizzed at the hend. hal -- >> sure. >> want to talk about tipping point sectors where the u.s. competitive position appears to be improving strongly. walk us through that. what are some of these sectors and what's driving the improvement? >> well, the sectors are chosen because of two factors, the first one being the labor content in a product. shoes and clothing tends to have about 60 president labor when -- 60% labor, that puts the u.s. at a disadvantage. so the goods that tend to have the highest probability of repatriating to the u.s. are ones around 25% labor, things like computers and electronics, machinery, transportation equipment where the u.s. is very strong, plastics and rubber, appliances and electrical equipment and other goods that are in that order of magnitude.

the second factor, of course, is transportation costs. again, when china entered the wto in 2001, oil prices were closer to $20 a barrel than they are to the $100-plus rate, so transportation has become a much more important portion of the mix and energy being part of that. so ones where transportation costs are high also make them favorable to the u.s. so those are the two dimensions that matter, and we're expecting to see those are the maces where the u.s -- places where the u.s. will be resurgent in manufacturing. >> talk a little more, some of the sectors specifically, i think you listed seven -- >> yeah. so computers and electronics are likely to come back to the u.s., at least they'll have a very vibrant computers and electronic segment although you wouldn't know that by reading the newspaper, but we still manufacture the majority of what we use. transportation equipment, obviously, you know, places like boeing on the high end, but also automotive. the u.s. is one of the most

competitive automotive, cost competitive automotive manufacturing locations in the world. we see companies like toyota looking at the u.s. as an export platform because testify the ability to ship -- because they have the ability to ship from kentucky and other parts cheaper than they could from most of their fact about ris around the world. you see also other products that are likely to do this, and one of the, i think, interesting facts are, we're watching european companies who are looking at the situation in europe with the exchange rate and with the exit barriers that exist to leaving plants in europe as they think about new plants, looking at the u.s. as a very good manufacturing location because the quality of workers are high. i know we hear a lot about the lack of skilled workers and, sure, there's shortages, but they're no different than in most other countries. we just maybe feel them a little bit more. but the fundamentals are we have a very good supply of skilled workers, and we have very competitive cost positions.

and as we start to look at things like energy, um, as you start thinking about chemicals or even heavy energy-intense i have businesses -- intensive businesses, natural gas now selling at $2 from what was four not long ago and was up to the eight-ten not that long ago, makes the u.s. more competitive. the transportation of natural gas is very, very expensive, far more expensive than the gas itself in the u.s. so it gives the u.s. a lot of advantages that i think will play out the next ten years. >> sam, did you want to weigh in? >> i might just echo what hal's talking about. you know, if i take our company over the last five years including this year, we will have invested about $4.5 billion in capital. this year alone 1.3 billion. what gets all the press is we also announced over the last 14 months that we're putting in seven new plants, two in brazil, three in china, one in india, one in russia. and that gets all the press. yet during that, of that $4.5

billion, 57% of it was invested in the united states. and to hal's point, a good example is we announced over a year ago we're putting $150 million upgrading the mold lines in our foundry in waterloo, iowa. fifteen years ago, you can go anywhere in the world the get foundry castings at cost effective prices. today out of that foundry we estimate we're 20-0% more competitive on large, complex castings than any merchant foundry we can find anywhere in the world. and the nice thing this gets back to when the government policies reinforce those type of investments, when you put a $150 million investment in a foundry, it's not a job you put in place and take away next year, it's a you're planning on keeping for 15-20 years. >> a lot of what hal is talking about, i think, are companies that used to be using china as an export platform to serve u.s.

markets, and that advantage has been shrinking, so they're serving for of the u.s. market domestically. what you're talking about is different, your u.s. operations are geared as much toward export -- >> right. >> where does the u.s. fit? >> sort after -- sort of a global sourcing plan. you're not going to service india from the u.s. it's a totally different product form for us, totally different price point. you're not going to service china. it's the largest market in the world, you've got to be in that market. but, for example, a large market for us, probably the largest growth market is the cis. we will do -- eventually the market will be big enough, we estimate the ag equipment market in russia, cis by 2018 will be a $15 billion market. we'll have plants there. but all the components of significance -- engines, power

train components, transmissions as well as the foundry -- those assets will stay in the u.s., and we will keep a lot of the critical assets, the very strategic assets where you don't want to put hem at risk -- put them at risk, we'll deep them in the u.s. they have a tendency to be higher capital intensive assets. so the u.s. role in the future will be one towards capitally intensive assets. you just want to make sure in a global environment that, obviously, it's just going to continue to get more uncertain over time, that one of the more secure places to be is the united states. >> and just briefly, where are the biggest growth markets for you looking out five, ten years? where to you see the strongest growth? >> for us it's southern cone, particularly brazil and argentina. cis market is -- those are the two really, really big markets and the third big one for us is china. >> dave, i want to ask you the

same question, where are the beg growth markets in satellites, and where does the u.s. fit in terms of your global sourcing? >> well, at this point looking out both near term for the next year or 18 months and midterm, say to the middle of the decade, i would say our single biggest growth market from a geographic standpoint is in south america. that is followed fairly closely by opportunities in eastern europe and throughout the middle east and in sub-sahara africa and spots, it's not uniformly true, but certain countries and regions in south asia. from a service standpoint, um, the real drivers of growth today and for the near term are expected to be in three areas. first, the conversion from

normal television formats to hi-definition tv. we talked or fred talked earlier about not being able to find the channel he wanted on the 500 channels currently available. the satellite that he referred to that we're launching in a couple of months for a u.k.-based operator that's going to provide services throughout sub-sahara africa will carry in total the equivalent of about 2500 hi-def tv channels, so if fred travels anywhere in that part of the world, we'll be able to follow him. [laughter] so that's the first one. broadband services from satellites, particularly in those parts of the world where terrestrial services are not available and probably won't be for the foreseeable future, is

the second largest area. and then ubiquitous mobile data communications, primarily to connect machines with other machines instead of people with other people would be the third area. and then, finally, increasingly we see the u.s. military and the militaries of many of our allies relying on commercial satellites to connect our deployed forces around the world back home, those 375,000 or so troops that fred referred to earlier today receive about 80% of their communications through commercial satellite networks. so that's a fourth area that looks like it should continue to support growth in a variety of regions around the world. >> you both, you both mentioned south america as promising developing markets for your

products. when you think about the trade agenda, south america's kind of fallen off. it took photographer to get the -- forever to get the colombia deal through congress. is the united states doing enough, the government apart from what you're doing as companies, but is the united states doing enough to make sure that american companies are able to take full advantage of the market opportunities that are coming in south america? for anyone on the panel or all of you. do you want to start off, sam? >> well, it's just interesting that the chamber hosted a session between the brazilian government and be us -- >> the president was just here, yeah. >> the president here and talked about areas of cooperation x. from what i heard of it, i participated in part of it, it was a recommitment to really -- we are the two big countries in this hemisphere, and there should be a lot of opportunities there. also the council on

competitiveness has a sister organization that works with a number of other countries and in particular brazilian government on innovation. and ways that we could spur innovation to the good for all. not just for one country pitted against another country. so i think the short answer is that there are some things now underway that are starting to gain traction. i think as those of us that have been involved in it, it's clear there's a lot of opportunities, a lot of potential areas of cooperation. and while we talked about all of south america, i think not to single out countries but, clearly, for that cooperation to reach it full potential it will have to be led by brazil from that side and us on this side. and i think there are a number of people that are trying to work towards that aim. >> do we need an active trade agenda in south america? do we need to revive free trade

with the americas, do we need other bilateral -- or was the current structure reasonably well placed? anyone want to take that on? no enthusiasm. because, you go back five or ten years and the question of where the next trade association was going to be was a big question, and i don't think it's as front and center as it used to be. >> i would say whether you're going to south america or whether you're going to the pacific area, we need every free trade agreement we can come up with. you know, just to put a plug in, the one that we've got sitting in front of us right now with permanent, normal trade relations with russia. we've been dealing with this for almost 15 years and finally have a deal from all respects relative to the ability to trade and provide advantages for companies in the u.s., it's a great deal. and now we're, like, actually what's going on here with the bank, being held hostage. and the reality is all that ease going to do is a lot of ore --

other countries and companies in those countries are going to have that competitive advantage that we aren't going to have. and we're a good example of that. we've got a 15% import duty on all product we bring in there that overnight goes down as part of the wto ascension to less than 5%, and if we don't give them permanent, normal trade relation, then we'll stay at 15, and our competitors in germany or italy or wherever else, they'll be done at 5. >> right. i wanted to talk to you about the government role when it comes to manufacturing. there's been a big debate in this government over, you know, should we be doing special things for manufacturing. christine roamer wrote a piece -- romer wrote a piece in "the new york times," no, there's no case for manufacturing, gene sperling made a strong argument. from your research, looking at the sources of comparative resources, how much does government action matter? >> it's going to matter in a more transitional phase.

i think it's going to be important to help bridge the gap between the changing economics of china today and the changing economics of the u.s. and government can play an important role to sort of, in essence, make up that difference. in ways that i think are, you know, good for society beyond just manufacturing. so i think jobs training is clearly something that new manufacturers are clearly worried about. it's a very substantial start-up cost. people have forgotten in many ways that when you build a new plant, you have to train people on how to do things. we see some of the states like georgia doing a very good job, and that's allowing them to attract a lot of economic development, so i think jobs training is an important part. related to that is creating a series of what i would call vocational colleges. part of the american dream is not just a house, but it's also sending your children to college. but we define college almost as a liberal arts degree rather than a different kind of degree. obviously, there's engineering, but we also need to be training

workers, and we should be thinking about sort of four-year colleges that are, in essence, what i did at the wharton business school. i spent half of my time getting a liberal arts degree and half of my time learning a trade. that trade in my case was business, but others could be welding or computer technology that's required for manufacturing and other things because we have not encouraged our children to go into these folds. they were viewed as dead fields, and i think that's very much not the case now. there's lots of opportunity. if i think think about experiences with service jobs, if you're going to work at a pharmaceutical place or a retail shop, you're going to get a job that's in the service business that's going to pay entry level around $10 an hour. in manufacturing those wages as everybody who knows in the manufacturing sector knows are far more than $10 an hour. those are very good jobs, and that's the basis for the middle class of the country, and that's the basis for a lot of our competitiveness, and