captioning performed by vitac with the lower taxes and entrepreneurial spirit, what you do is create this incredible opportunity for research and development that's in the private sector. and that's -- as i said, i think it's a game changer. so look, in west texas in the

oil and gas industry, they love competition. competition's been talked a lot about during the day. it is the key. how do you -- my good friend glen hubbard -- the president used to say government creates the environment for the private sector to do what it does so well. and the private sector does what it does so well when you create that competitive environment and glen hubbard auls used to salwa if it makes it easier to compete, it's probably a good idea. if it makes it harder to compete, it probably not a good idea. >> that's a great point. i think what's lost in this discussion, the marcelis boom, the bakken reserve, the ground move was this drillers

responding to a tax environment that let them take risk. bud, you want to jump in on this energy -- >> yeah, i wanted to make an important observation. we shouldn't get the impression that the oil and gas industry is particularly favored when it comes to taxes. in fact, last year the oil and gas industry paid $40 billion in taxes. income taxes, royalties, lease payments and the like to the federal government. their tax preferences were a mere $2.8 billion. so the balance sheet is very much in favor of the federal treasury. now, when president obama runs around as he's been doing saying that these obscene profits are too high, that the oil and gas industry aren't paying their fair share, he's just completely off base. they're paying lots of taxes and they're paying more than their fair share. if you look at their -- the other tax burdens as a percent

of their profits. i also don't see the logic of talking about increasing taxes on the fastest growing industry in the united states. as don pointed out, for the last three years we have seen an increase in domestic oil production. we hadn't seen that since the 1970s. last year we saw record output of natural gas in the u.s. so at this point to be talking about taxing or increasing the tax burden on the most successful industry that's helping to spur our modest economic recovery and percentage terms has shown more job growth than any other industry i think would be very bad public policy. >> another thing that people don't realize is that the oil companies, even the large ones, may have huge revenue numbers but their profits, their margins aren't that great. can into the

growth without affordable clean burning energy. it seems like to me you want to put the policies in play to encourage that. you also -- you are also cannot attack the number one problem in the world, which is poverty, without affordable, clean burning energy. as a country we ought to be thinking about what are the kind of policies that we can put in play to encourage the supply of energy in the world, affordable, available, clean burning energy. >> i just will add on to that, you just made me think of this, don, that north dakota has one of the -- and oklahoma have the lowest unemployment rates in the country. there are just stories of redemption for people who have lost jobs in california or florida or anywhere elsewhere

the real estate boom has collapsed and they've gone to north dakota and literally found work within 24 hours. it's such a booming area that housing is impossible to find. so clearly when you find the technology, and it's not just in energy, it's in, rich, your area of focus, which is technology, this is how you create growth you is find that cutting edge. and we should be doing everything we can to help that cutting edge industry because that's where real wealth and standards of living on created. >> i'm fascinated by don's point that horizontal drilling, where i live in silicon valley, if you ask people what's the most impactful invention of the last 20 years, would you get search engines or something like that but probably as it impacts the entire world it's been horizontal drilling. and i was -- i bet i'm the only one in this room that was born and raised in north dakota, in a

town -- there's a town called williston where a mcdonald's franchise is paying $20 an hour for counter help to compete with unskilled labor in the oil fields, which is earning $80,000 a year. >> well, let's move to the area of transaction taxes. i dare say that you if you took a poll of americans, the one place where you probably see a consensus, a large consensus of people saying, yes, raise the taxes would be on wall street in general and on transactions. there's a feeling out there that high volume transactions are creating instability in the world's splash crashes and all of that. i want you, starting with you, cameron, president of a high frequency trading firm, say why that's a bad idea. >> i think actually the story that don just told about the energy industry is pretty

instructive. we talked about an industry where there's lots of innovation from independent firms coming in and innovating new ways to drill for natural gas. and in a lot of ways that's what's happened in the trading industries, in the market, the capital markets. there was a quiet revolution from 2000 up until today where we had a major move from automated markets to automated trading. despite what a lot of articles recently say, it's been incredible success and boone for the american investors. there are ways that economists measure markets and market quality, just like when you go to the quality, you measure your cholesterol and there's some standard measures. by every measure our markets have never been healthier. so when you want to do a trade, can you do it for as little as possible. yet in this environment, like we're talking about in the energy industry, there are

transaction tax. if you can decipher what the occupy movement was about, at the end they said we want a robinhood tax. over in europe the french have actually and the germans want to do a transaction tax, the french -- no one else wanted to do it unless everyone did it but the french being french i guess went ahead and passed a transaction tax that goes into effect august 2nd. so we're going to see what happens with that. but we already kind of know what happens with that. the eu commissioned some studies to find out and that's why -- the results of these studies are why there is no transaction tax. what they fund was a logic chain of events that aren't good for investors. it starts with obviously when you tax something, people are now paying for money for that something, that's an obvious direct impact. but what they also found is that assets price goes down. so instantly now your 401(k) goes down, value of your pension plan goes down. you find that the cost of capital then goes up, cost of capitals going up, gdp goes

down, gdp goes down, employment goes down or unemployment goes up, however you want to look at it. this is not me saying it, it's the eu commission in their report. nevertheless, the french went ahead -- i think those reports actually underestimate the impact because there's another aspect of the market that people don't think about and since that's what our business is i'm sensitive to it and that is you need professional traders in a market. that's part what this automation and all that talk is about. but they use the term high frequency trading. we're really talking about professional traders. for some reason when it comes to market, people have a discomfort with that. but if you think about the rest of your life where you go to the grocery store, that's a person who bought those groceries for short term. they didn't buy them to take them home and cook, they're buying them to resell pup go to the gas station, they're not trying to fill their tank up with the gas, they're going to try to resell that gas, short-term intermediaries.

in financial markets, you need intermediaries for them to work. we bridge that gap between supply and demand. if van guard wants to buy 500,000 shares, what are the odds fidelity wants to shell 500,000 shares of the same stock on the same day? you need professional traders in there. it makes the market better. >> people fear instability in the global capital markets. number one, it seems, you know, the markets fell 21% one day in 1987 and we haven't had anything like that since. but there's this perception that they're more unstable. are they more unstable or volatile? and what -- are there other means other than transaction taxes that could be done reinstalling the short uptick rule, not permitting as much leverage? are there other means to making the markets more stable or do you just reject the idea of

government-engineering stability? >> we have where the macro economic factors are driving volatility. the closed volatility are stable but then you get closed to the next open. nobody's trading so clearly that is not trading volatility, that's just a macro environment. but what i but what we should be doing and are doing is putting in secretary breakers to prevent the markets from move so long quickly. with automated markets, they can move so quickly. you can replicate that same thing without the inefficiency of a specialist if had you electronic circuit breakers. the sec has put them in place in the u.s. they're already in all the other markets. that's why the flash crashes are completely isolated incident.

we need to appreciate how good the markets really are right now. >> yeah, it's scary times. the fact the percentage drops in the market aren't what people really think they are. bob, you're an expert on transaction tax. what's your take on it? >> well, there are two arguments that have been advanced for the transactions tax. one is that it would raise a lot of money. there was a bill by defazio and harkin introduced a couple years ago that claimed it would raise $150 billion, just a tiny several basis point tax would raise all this money. and the second argument is it would reduce speculation, reduce somehow this volatility. let's take both of these argument. first on the money thing. the whole theme of this morning's panel about the states was if states raise taxes, people will just move and go explanation else or companies will move. well, that logic applies

probably times ten or times a hundred in the capital market because money moves instantaneously. his firm moves it like that. you put on a very, very small tax in a market where roughly 50% of the volume is high frequency trading, you will basically wipe out 50% of the market right there. in addition -- so already just do the math, you're talking instead of $150 billion urks down to 75. but it gets worse. sweden tried a transactions tax in early 1990 and found essentially its trading went to other countries in europe. my prediction is if the french go ahead with this tax in august, you're just going to watch trading go to frankfurt and to london and probably to new york and the french aren't going to raise anywhere near the kind of money they're talking about. so at the end of the day it's really just an illusion that you're going to raise all this money. you're probably going to raise just a fraction of the 150. secondly, there is no evidence that i know of at least from the

academic literature that a transactions tax will reduce speculation. in fact, firms like his that will be penalized, they basically -- they don't speculate. they arbitrage. you're basically going to throw all the arbitragers out of the market. what will happen is you'll have much less liquidity in the market, much harder to trade and so you'llnd end up with more volatility and to the extent you have more volatility, you're nor susceptible to the events people have criticized and you may augustment speculation because in a market with wider spreads, it may pay people to speculate. i this there is no evidence you will reduce speculation. both of these arguments for a transactions tax seems to me fall on their face. >> there's a third argument that it will get wall street to pay for the bailout. but, again, as i talked about that change that took place,

people didn't realize wall street when you thought it was goldman sachs trading equities, that isn't true anymore. it's small companies around the world you've never heard of. if you think you're going to pass the transaction tax and hit these professional trading firms and think you're going to get morgan stanley, they don't trade equity markets. the margins are way too low. they don't make $100 million a day on certain trading days trading u.s. equities. their money is made and all the over-the-couldn over-the-counter markets. >> go back to the 4% growth objective, the focus of this conference. we ran a hypothetical experiment at kauffman a couple years ago and it's talked about in the 4% growth book.

we asked the question if the country wanted to increase the growth rate permanently by 4% a year, how many high growth firms would it take to get there? and quickly to do the math it comes out you need roughly 30 to 60 new home run firms if you want to get all the growth from those additional home runs. you don't need as many if you're willing to accept singles, doubles and triples. but the idea is if you want to microsoft needle on growth, we're going to have to have a lot of these new growth firms, regardless of whether their singles, doubles or triples and the only way we'll get them is if they go public. last week president obama signed a jobs act, which is probably the only bipartisan piece of legislation that will pass this year in congress, that will reduce the cost of raising money and make it easier both for firms to start and grow their firms. that's actually score points for both congress and the president

for doing that. but if you then ask the question we've now just passed an act to make it easier to go public, make the markets work better, we have forces in the opposite direction. we have the volcker rule, if you then add a transaction tax on top of the volcker rule, you'll first diminish liquidity and offset to a significant extent the act we just passed, making it easier for a company to public because you need liquidity markets to sell stock market and you're not going to have companies form and grow at the rate you want unless they know they can get out and sell their stock in liquid markets. >> that's a profound oupoint. i just want to add that i thought the work that you and carl shram did showing that extra 1% growth and the

difference between 3% and 4% growth compounded over generations is huge. so start with that. but it really is dependent on the number of firms that can get to $1 billion in revenue over a 20-year period. so it's not facebook-type growth. it's companies that steadily grow. they do something else. they don't just add incremental jobs but they challenge the incumbent industries to get fitter and better. otherwise they run to washington and ask for protection. brian, on the transaction tax, financial stability, i know you have some opinions there and then i'll ask you a general question. >> sure. i want to broaden this. the way i think of this is a little broader. the transaction tax, you're right, would chase it immediately overseas. we've done that with the ipo

market going back to sarbanes-oxley. that's even before dodd-frank. so what's happened is we have harmed the financial industry in a dramatic way. i want to make a broad point about this. one of the reasons that we go after the financial industry so quickly is that it's always at the center of an economic crisis. because it's at the center of the economy. for example, i love it when i listen to people talk about europe saying these banks have bought all these risky assets. those risky assets or government bonds. i find it fascinating. we have dodd-frank, sarbanes-oxley. they're talking about transactions and the volcker

rule, the buffett rule gets to private equity. it would harm the economy. the financial system is at the heart of commit. i want to talk first trust is a money manager. we have about $55 billion under management in little wheaton, illinois. so we follow obviously where tax rates are going, what might happen in the future very closely. i want to back up just a second because what really matters what wh we look into the future is the level of spending that the federal government is doing today. it's at 24% of gdp. we have never balanced the budget in the last 60 years when spending was over 19.5% of gdp. not once have we been able to balance the budget. and that's because when spending goes over that kind of level, it harms growth, reduces tax receipts, then the calls for higher tax rates come in and it's a vicious downward spiral.

we get virtuous upward spirals when we cut spending and that's what reduces pressure on higher tax rates. so what's interesting is the call for higher tax rates on energy, call for transaction tax, it's just more ways the government is trying to find to fund the spending we've done. i believe to solve -- yes, taxes, that's what we're talking about mostly today, are absolutely essential on how they're put together, what kind of tax matter a great deal but we will still be talking about this forever and ever and ever if we don't find a way to pull spending back so that we can actually afford even with any tax system the government that we have. >> let me ask you a follow-up question, then i'll get you in. we'll go to audience questions in about 15 minutes. i saw a couple hands moving up. as the chief economist at first trust advisers, you put your

hyde out on the line all the time with forecasts, gdp, growth rates, bond rates and unemployment rates, all of those things. you've been very, very accurate, in the 95th percentile or better over your career. how much can you predict? can you look at a country's tax scheme and monetary policy and predict what that country will do in the near term and predict what its markets will do? >> i think in general you can make very broad and i think mostly accurate forecasts by using supply-side principle, where high tax rates tend to reduce growth, large spending tends to reduce growth and vice versa. that doesn't mean you're always going to get everything right. thank you very much for that

comment. i missed 2008. it was much more than i thought it was. i think it was panic. we haven't seen one of those in over a hundred years. steve forbes and i agree almost completely on the causes, what happened in '08 and the mistakes that were made. i still believe market to market accounting was one of the biggest mistakes that we made. we should have changed it, never put it in, changed it very early or gotten rid of it sooner. so anyway, yes, i believe can you make some general, very accurate directional calls on the economy. for example, today i am long canada and australia. one of the reasons i like canada and australia they're two of the lowest tax, freest markets in the world. >> they're also commodity producing. >> that's happened. but it's more than just

commodities. they're starting to produce some of these -- i know rim is on the bad side of the news cycle these days, but that was one of the most successful smartphone companies of the last move. and so -- and that came out of canada. and so we're seeing more and more of those kind of things happening in free countries. >> just the last question. and then we'll open it up to the panel for other comments. art famous live said there were two rates of taxation that guarantee you're going to get no government income, zero and a hundred. sliding it along between zero and a hundred, where do you think you can pluck the most from the goose or the goose squawking the least? >> larry lindsey had some great comments on this today. my view is that we're right about there, in the low 30s. we get much higher than that, we're starting to harm the goose. larry kind of put a dividing line at about 40%. you know, i would put it a

little bit lower. a lot depends on how many deductions there are and but the bottom line is that if it was a completely flat tax, i think somewhere around 20% is where it should be. if we have some deductions for -- that exist today, i think in the low 30s is about where that peak in the curve is. >> i know bud wasn't to get in. i couldn't resist getting in. in the book of la vid cuss there's was in about a tie. >> we've been talking about capital markets and we've been talking about energy. today those two industries are perceived as somehow villainous.

when you say let's see what we can squeeze from the capital markets, these are bad guy, they're not well loved. i think that's fair to say, the oil and gas industry is not well loved and financial institutions are not well loved and that's because neither is properly understood. so this conference is about 4% growth. how do we get to 4% growth. it just seems to me in order to get there, we've got to have pro bust capital markets and we have to have a robust domestic energy sector. and we need public policies, including tax policies that encourage activity in those sectors, not penalize them. >> i'd like to ask everyone of the panel, i've -- you already know i was born and raised in north dakota but i lived my adult life in silicon valley, so i've seen the mother of all wealth creation purely from matters that exist between people's ears.

silicon valley in the 80s used to be very libertarian. it was represented by ed chow, i think had you a nearly hundred percent rating from the cato institute. but it not that way anymore. why is it so many successful entrepreneurs, maybe particularly in technology, but why do so many successful entrepreneurs advocate the policies that would be disastrous for the american economy in which they created their billions? anyone can jump in. and how do we change that? >> well, the entrepreneurs in way west texas aren't advocating those policies, i assure you. >> i think we should have them up here and ask them that. >> we should. we should have mark zuckerburg. it is funny that steve jobs in his dying days lectured president obama about his financial policies. >> i'd likeo