rich carlgard is the guy who brought forbes into the modern age with the support of steve forbes, absolutely. rich is the publisher of "forbes." also the author of the book "life 2.0." he writes the innovation rules column. it was really quite remarkable what rich has done in the time he's been at "forbes." he will lead this distinguished panel on markets and taxes and we mean markets in the broadest sense. capital begins. you take it away and you'll learn all about it. rich? >> thank you, jim, for your kind introduction. it so happens that we have a

panel that's pretty neatly aligned here. we have a couple of experts on energy taxes and a couple of transaction taxes. now, if you think about the taxes that are kind of hardest to defend in out there among the people, i don't think broadly, the american people want their income taxes to go up or even capital gains taxes, but there probably is a pop list outcry somewhere for taxing transactions on wall street and energy companies and so we're going to hear why that would be an unwise thing to do if we are going to get back to 4% growth. brian westbury is going to pile in and give his opinion on these and it's always very refreshing. so, don evans, i'll start with you. don evans, the 34th u.s. secretary of commerce under the president. why president obama and his side

of the argument gets a lot of mileage saying that the energy industry gets a lot of tax breaks. tell us why this isn't so and what is a proper tax seem for the energy industry if we want to have a maximum amount of energy. >> let me try and bring the thinking of the oil and gas operator from west texas or the state of texas or my good friend bill armstrong, rocky mountains into this room for just a minute and tell you how he thinks. first of all, the oil and gas industry is a high risk energy and those that participate in the industry think long and hard about how they're going to deploy their capital and what kind of risks they're going to take. and you know, the very simple principle of the lower the taxes are, the more risk that you're able to take.

when you think about the oil and gas operator in west texas and let me give you an example, this is probably the best way to explain how it works and how it's working today and in this country in an incredibly remarkable way. the independent oil and gas operator in west text in the early part of the last decade was continuing to take risks and trying to continue to develop technology that would increase the simply of oil and gas in america and independent operators started pursuing technologies that were risky. believe me. i mean, as i said, oil and gas industry is a lot of risk. i've certainly drilled my share of dry holes along the way and others have, too. and so, when you think about that independent oil and gas

operator and he begins to explore new ideas because the risk, because taxes are friendly to him as they were in this last year, in large part because of the tax cuts of 2001 and 2003. he felt like he was able to take those risks. and what that has led to is probably one of the most remarkable transformations of the oil and gas industry in its history. in the last ten years, the independent oil and operator in america has developed technology that has unlocked natural gas reserves and has been a total complete game changer. >> horizontal drilling you're talking about. >> yeah, it's been a game changer in all of a sudden, the united states of america instead of having some 10% of the gas reserves in the world by some estimates we've got 25% of the

natural gas reserves in the world. in 2008, natural gas prices were hovering around 14 or $15. today, they are $2. the rest of the world is $15. $16. $14. you go to asia, europe, they're paying $15 for a natural gas. this has been said earlier today. it's a game changer in terms of the development of industry here in america. the petro chemical industry is going to absolutely have a resurgence. and the interesting thing is that this game about because of independent operators who were comfortable with the friendly tax environment they were in at the time to take the risk to try new ideas that would absolutely lit up the entrepreneurial

spirit and the innovators and it changed the game of natural gas in north america and it will the world. that led to oil. next thing you know, the same independent operators who were felt like they were in a friendly tax environment and could afford to take the risk, a lot of people said we can do it in natural gas, but not oil in terms of the new technology and extracting natural gas. well, guess what? it's now working in oil. and guess what? we're going to reverse a decline in oil production the united states for the first time in 40 years. and guess what? for the first time, in certainly my lifetime, it's not real unrealistic to talk about energy independence here in america. and it's certainly very easy to talk about how because of this entrepreneurial spirit of the independent oil operator that tried some new ideas in an

environment where taxes were low and he was willing to take the risk, it's not unreasonable to talk about greater energy security, greater economic security and greater national security for america. a lot of that happened because that independent operator, where ever he might be, in west texas, north texas, in colorado, was willing to take the risk to try something new and it's turned into something that's total game changer for this country and i think eventually, the world. so, if you start to take that away, just think about taking it away in the sense of higher taxes. all of a sudden, they can't take the risk. keep trying the new ideas and the developing new technology. what with the lower taxes and the entrepreneurial spirit, what you do is create this incredible opportunity for research and development that's in the

private sector. and that's, and that's -- as i said, i think it's a game changer. so, look, in west texas, the oil and gas industry, they love competition. competition's been talked a lot about during the day. this is the key. how do you, my good friend glenn hubbard when i first came up there, the president always used to say, which was absolutely right. that government what it does is creates the environment for the private sector to do what it does so well. the private sector does what it does so well when you create that competitive environment and glenn hubbard always used to say look, if it makes it usier to compete, it's probably a good idea. if it makes it harder, it's probably not a very good idea. lower taxes mean it's easier to compete. higher taxes means it's harder to compete. >> that's a great point. i think that's lost in this edition of the marcellus natural

gas boom in north dakota, that the groundwork was really laid by these independent drillers who were responding to tax environment that was let them take risks. bud, you want to jump in on this energy. >> i wanted to make an important observe vague. we shouldn't get the impression that the oil and gas spri is particularly favored when it comes to taxes. 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 mere $2.8 billion. so the balance sheet is very much in favor of the federal treasury. for these obscene profits are too high, that the oil and gas industry aren't getting their fair share, he's completely off

base. they're paying more of their fair share if you look at the other tax burdens as a percent of their profits. i always don't see the logic of talking about increasing taxes on the fastest growing industry of the united states. we have seen an inkress crease in domestic oil protection. last year, we saw record output. so at this point, to be talking about taxing or increasing the 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 bad public policy. >> another thing people don't realize is the oil companies, even the large ones, may have huge revenue numbers, but their

profits, margins aren't that great. there's a reason apple with one fifth revenue of exxon has a greater market value than exxon. >> the effect of tax rate on the oil and gas industry is about 41%, about 26%. >> brian, i'll get to you later on. with your -- >> i think bud hit on this and that is that the one thing that i as an investor, are they really getting those kinds of tax breaks that the politicians keep telling us oil companies do. they get paid taxes in lower tax jurs dictions. by the way, paul ryan will help fix that with a territorial tax system, but the second thing is

being allowed to depreciate 100% of the investment on a new well immediately. . i personal believe every company should be allowed to do this. we should have instant depreciation or no depreciation. energy company t do get that. the timing of when you get to take that. i just get to take it on the first day rather than spreading it out over the three, five, ten years that a norm alex would have to be appreciated. this is a normal misnomer. >> i think the president is being disingin.

>> this conference is about 4% growth. that's what we're trying drive toward and reducing taxes and tax policy is a big part of that. you cannot get to 4% growth without affordable clean burning energy. seems to me you want to put the policies in place to encourage that. you alwa you also cannot attack poverty without affordable, available, clean burning energy, so as a country, we ought to be thinking. what are the kind of policies that we can put in place to encourage the simply of energy in the world. affordable, available, clean burning energy. >> i will add on to that, north dakota has one of the lowest

unemployment rates in the cou y country. there are just stories of redemption for people who have lost jobs where the real estate boom has collapsed and they've gone to north dakota and lite l literally found work within 24 hours. it's just a booming area that housing is impossible to find. and so, clearly, when you find a technology, and it's not just in energy. it's in the cloud. rich, your area of focus, which is technology. this is how you create growth. it's you 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 are created. >> i'm fascinated by don's point of horizontal drilling. where i live in silicon valley, what's the most impactful technology of the last years,

you would get search engines or something like that. but probably as it impacts the entire world, horizontal drilling, i bet i'm the only one in this room born and raised in north dakota in a town called willsiston where a mcdonald's franchise is paying $20 an hour for counter help to compete with unskilled labor in the oil fields earning $80,000 a year. let's move to the area of transaction taxes. i dare say that if you took a poll of americans, the one place you'd probably see a con sense would be on wall street in general and on transactions. there's a feeling out there that high volume transactions were creating instability in the world. flash crashes and all of that.

starting with you, cameron, say why that's a bad idea. >> the story don just told is pretty constructive in an energy where there's lot of innovation from firms innovating new ways to drill natural gas. in a lot of ways, that's what's happened in the trading industry, the capital markets. there was a quiet revolution from 2000 up in through today where we had this major move to automated markets and trading. and despite what a lot of the articles you might see say, it's been an incredible success and boom for investor. there's ways that economists can speak to this that measuring markets. some standard measures. by ever measure, the markets

have never been healthier. in this environment, when we're at this pinnacle of health, the transz transaction task. over in europe, the french have actually and the germans want to do a transaction tax. no one else wanted to do it, but the french being french passed a transaction tax. goes into effect august 2nd, so we're going to see what happens with that. but we kind of know. the e.u. commissioned some studies to find out and the results are why there is no transaction tax. they found a logic chain that aren't good for investors. that's an observe, direct impact. but what they also found is that

asset prices go down, so instantly now, you're 401(k) goes down, your pension plan. the cost of capital then depose u goes up. gdp goes down. employment goes down. or employment goes up, however you want to look at it. this is not me saying. this is the e.u. in their november report. the french went ahead and i think those reports actually underestimate the impacts because trs another aspect of the market that people don't think about and of course i'm sensitive to it. that's part of what this automation has been the talk about. and for some reason when it comes to markets, people have a discomfort with that. if you think about the rest of your life, go to the grocery store, that's a person who bought those dproesryes for a short-term. whole foods doesn't buy them to

take them home and cook. when you go to the gas station, they're going to try to resell that gas. we bridge that gap between supply and demand. if vanguard wants to buy 500,000 shares, what are the odds -- pretty small. you need professional traders to low lower the costs. >> when people fear instability in the global capital markets, the markets fell what 21% in 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? are there other means other than transaction taxes that can be redone, the short uptick rule,

not permitting as much leverage? are there other means to making the markets more stable? >> i think government engineered stability, they are more stable now than ever in terms of the volatility. we have a unique environment now with a macro economic factors are driving volatility. there's been some study where is the open to close volatility is pretty stable, but then you get closed to the next open, where nobody's trading, so clearly, that's not trading volatility. that's just a macro environment. what we should be doing and what we are doing is putting in circuit breakers. the one risk of automated market is that they can move before anyone reacts. a specialist could call a time-out. and then reopen the stock. try to so lis it some buyers. you can replicate without a

specialist if you had electronic circuit breakers. they're widespread. that's why the flash crash was an isolated incident. >> it's scary times and the facts, the percentage drops in the market aren't what people really think they are. bob whiten, you're an expert on the transaction tax. what's your take on it? >> there are two units that have been advanced. one is that it would raise a lot of money. there was a bill by defazio and harken that claimed it would raise about $150 billion. just a tiny tax would raise all this money and then the second argument is that it would reduce speculation and so reduce somehow this volatility. let's take both of these arguments. first on the money thing. the whole theme of this morning's panel about the states

is that if states raise taxes, people will just move and go somewhere else or companies will move. well, that logic aplied in the capital markets because money moves instantaneously. and you put on a small tax in a market where roughly 50% of the volume is high frequency, you will basically mark out 50% right there. so already, just do the math. you're down to 75, but it gets worse. sweden tried a transaction tax in early 1990 and found that essentially, it's trading just went out to other countries in europe and my preduction is that if the french go ahead with this tax in august, you're just going to watch trading go to frankfurt, london and 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 this money. you're probably going to just raise a fraction of the 150. but suddenly, there is no evidence that i know of at least in academic literature, that transactions tax will reduce speculation. in fact, firms like his that will be penalized, they don't speculate. they arbitrage and you're basically going to throw all the arbitragers out of the market and you'll have much less liquidity in the market. much less to trade and so you'll end up with more volatility and to the extent you have more volatility, you're more susceptible to the kind of events people have criticized and you may even augment speculation because it may pay people to speculate, so i think there's no evidence that you will reduce speculation. both arguments fall on their

face. >> there's a third argument that we'll get wall street to pay for the bailout, but again as i talked about that change that took place, what people didn't realize, people trade, equities, those days are over. most of the exchange traded markets are dominated by small firm located around the country, the world, that you've never heard of. if you think you're going to pass the transaction tax and you 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 and make nothing there. most of the money is made in all the over the counter market. >> let's put this in a larger context. go back to the 4% growth ofbtive. the focus of this conference. we had a hypothetical experiment

a couple of years ago and it's reflected in the volume that jim talked about. we asked the question if the country wanted to increase the growth rate by 1% a year how many additional high growth firms would it take to get there. quickly to do the math, it comes out and you need 30 to 60 firms. you don't need as many if you're willing to accept singles and triples. the only way if a good bunch go public. a couple of weeks ago, last week, president obama signed a jobs act, which is probably the only bipartisan piece of legislature that's going to pass

this year in congress that's going to reduce the cost of raising money and is going to make it easier for firms. then asked the question, we've now just passed an act to make it easier to go public. we had the volcker rule, for example, which is going to diminish liquidity and we had a lot of people worried about that. if you then add a transactions tax on top of the volcker rule, you're going to also further deminnish liquidity and off set to a significant extent, the act we just passed because you need liquid markets in order to be able to sell stock and you're not going to have new companies grow at the rapid rate that you want unless people know especially the venture capitalists and angel investors. >> that's a profound point.

i want to get brian's thoughts on that and then more broadly. i thought the work you and carl did showing that extra 1% growth and extra growth compounded over generations is huge. the number of firms that can get to a billion dollars in revenue over a 20-year period. it's not facebook type growth. it's companies that steadily grow because they do something else. they don't just add incremental jobs, but challenge the incumbent industries to get fitter and better and that's the only way we know they will get fitter and better. otherwise, they run to washington and ask for production. brian's thoughts on the transaction task. tax. financial stability. i know you have some opinions there, then i'll ask you a general question. >> sure and i just, i want to broaden this out or way the i of this is a little broader.

the transaction tax, you're both right. chase it immediate hi overseas. we've done that with ip market. that's before dodd frank, so what's happened is that 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. i love it when i listen to people talk about europe saying gosh, these banks have bought all these risky assets. these are government bonds. it's the governments that went bankrupt and they're going to blame the financial system for the problem. i find it fascinating. so we have dodd frank. we have starbanes oxley.

the buffett rule in a way also gets to private equity and capital, so it would harm the economy because the financial system's at the center of the economy. i want to talk real briefly as a participant in the financial markets. first trust is a money manager. we have about $55 billion under management in wheaton, illinois. we follow where tax rate rs going. what might happen in the future very closely. i'm going to back up just a second because what really matters is when 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 spend i spending was over 19.5% of gdp. not once have we been able to balance the budget and that's us