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. and so what's interesting is that these calls fhigher tax rates on energy, they're just more ways the government is trying to find to fund the spending they've done. yes, taxes, that's what we're talking about mostly today are absolutely essential in how they're put together and what kind matters a great deal. we will still be talking about this for ever and ever if we don't find a way to pull spending back so we can actually afford with any tax system, the government we have. >> let me ask a follow up

question, then i'll get you in. we'll go to audience questions in about 15 minutes. i saw a couple of hands moving up. as the chief economists at first trust advisers, you put yohyde t on the line all the time with bond rates and unemployment rates and all those things and you've been very, very accurate in the 95th percentile or better over your career. how much can you predict? can you look at countries tax scheme and monetary policy and predict what the country will do and its market sns. >> i think in general, you can make very broad and mostly accurate forecasts by using simply side principles. large spending tends to reduce

growth, and vice versa. that doesn't mean you're always going to get everything right. i miss, thank you very much, for that comment. i miss 2008. it was much worse than i thought was. by the way, i think it was a panic we haven't seen one of those in over 100 years. steve forbes and i agree almost completely on the causes, what happened in '08 and i still plooef mark to market accounting was one of the biggest mistakes we made. we should have changed it, never put it in or gotten rid of it sooner. yes, i believe you can make some general, very accurate, directional calls on the economy. for example, today, i am long canada and australia. and one of the reasons i like canada and australia is that they're two of the lowest tax

countries in the world. >> but also commodity producers. >> that's helped, but it's more than just commodities, too. if you get into their growth and what's happening, they're starting to produce, i know rim's on the bad side of the news cycle these days, but that was one of the most successful smart phone companies of the last move. and so, and that came out of canada. and so we're seeing more and more of those kinds of things happening in free countries? >> this is the last question and then we'll open it up to the panel for other comments. art lapt said there are two rates of taxation that guarantee you're going to get no rate of income. 0 and 100. so sliding it along, where do you think you can pluck the most are from the goose with the goose squawking the least? >> larry had some great comments on this today. my view is that we're about 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%. i would put it in a little bit lower. a lot depends on how many deductions there are, but the bottom line is that if it was a completely flat tax, i think around 20% is where it should be be if we have deductions that exist today. >> i know bud wanted to get in. i just couldn't resist making a point i sometimes make when people say 20 in the book of leviticus, there's a referral to the double tie, so maybe the ancients knew about the proper level of taxization. bud? >> just going to make a general observation. maybe this could be my last comment. we've been talking about capital markets and energy. today, those two industries are

perceived as somehow villainous. i think that's one of the reasons, where can we gain additional revenue, let's see what we can squeeze from the cap it will markets. these are bad guys. they're 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%? it just seems to me in order to get this, we've got to have robust 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 in north dakota, but lived by adult life in silicon

valley, so have seen the mother of all creation policy that exists from people's ears. silicon valley in the 1980s used to be very libertarian. represented by ed chao, a nearly 100% rate frg the cato institute. why is it so many successful entrepreneurs, maybe particularly in technology, but why do so many successful entrepreneurs add vocate the l policies that would be a daser for the american economy in which they created their billions and how do we change them? >> west texas aren't advocating those policies. >> ask them that. >> we should. we should have mark zuckerberg and eric schmidt of google.

it is funny that steve jobs in his dying days lectured president obama, but nobody wants to jump in on that one. sfwl i'd like to jump in on a previous question, which is your magical, you know, what's the golden name? i would phrase it differently and go back to something said this morning and back to some history. i think there is broad-based consensus that people would vote for essentially lower rates. for joe peck mann at the brookings institution, he was a die hard democrat, spent his life, a leading tax expert before he died. arguing exactly this. and he lived long enough to see bill bradley make a deal with ronald reagan. in 1986 and we have gone backward since 1986 and jumped

up the tax code and i think i mean i know where the optimum rate is and the optimal design is the reagan 1986 tax cut and what the right number s 28 or 30, i think the right number on the top right may have to be a little hire than we were in '86. we have the ageing baby boom generation and we have huge entitlement obligations. costs that i don't think are going to be easily restrained. the principle ought to be enkonzed and something that's doable. the kind of guts that paul ryan showed need to be infected with the rest of congress and whoever wins the presidency. >> i think you're exactly right with that. another profound point. you're winning on points on this panel. >> by accident. >> but i think the fact that

this unevenly applied tax rate, how demoralizing it is to small business people, i mean the large globally facing trading companies are doing well right now. it's reflected in stock market values and they pay effective tax rates that is lower than the nominal rate gets down to general eckert, which paid less than jeff imelt's personal taxes and google, which paid 4% and the average, the small business owner that paul ryan referred to looks at this and feels piled on and demoralized. i think the small business sector is easily robbing america of 1 or 2% of gdp growth per year. thoughts on that, brian? >> i'll come back to that. just to go where bob said, i remember designing and well everybody that worked on the hill for the last 30 years

worked around a flat tax, but for connie mack, we worked on a flat tax. the question was were we going to keep the mortgage interest deduction in there. i swear we had had a secret meeting and somehow, the next day, all of the lobbyists for housing showed. took them less than 24 hours and they were there. with mortgage rates so low today, i believe it's a perfect opportunity to get rid of this thing. and i even think that we're starting to hear some noise behind the scenes that even the realtors and homebuilders are willing to talk about it today. we've never had a better opportunity. if rates go up, we might lose that opportunity. the second thing is the growth. growth is being undermined. i have no doubt that the cliff coming next january, matter a great deal. but i think bad policy is

harming growth even more than the uncertainty about bad policy in the future. spending is too high. regulations are too high. taxes are in good shape. reasonably good shape. but it's the spending that's killing us and the bigger the government is, the smaller the private sector is. the less dynamic the economy is, the higher unemployment will be. we're living through that today. we have a double whamy hurting our growth. bad policy, two, the impact that has on creating uncertainty about future tax rates et cetera. >> i'd like to open it up for audience questions and particularly, if you disagree with with any of the panelists on oil, energy taxes or transaction taxes, we'll start here. >> i just wanted to -- >> i think we'll get you a mike, yeah. is the protocall to say who you

are? okay. you can say who you are. >> my name is ashley eye. i live in new york city. i'm a turkish american. i want to react to your question about why all those very smart and accomplished silicon valley entrepreneurs seem to advocate the type of policies that are wrong for the country. i can think of three reasons why. one, they're not dealing with unions. in silicon valley. there are none. so they don't understand. i think the type of decisions that boeing is trying to make. that's number one i can think of. number two is those guys are become billionaires or millionaires or whatever, but they're really making their wealth pay in capital gains. that's another reason why. that's the reason. the third thing is i think the technology sector and particularly, the internet, relative, i've spent nine years doing investment banking. relative to the financial

services sector, my god, it's a paradise of deregulation. so they live in a different world. they don't live in the world that we live in doing banking in new york. paying 35% of taxes and you know the drill. so, i just wanted to react to that. thank you. >> very good and literally, silicon valley, it is not, it's creating wealth, but it's not adding net jobs because all the manufacturing jobs left a long time ago. >> but they are paying high state california taxes. >> and you know, what's another proof how fast growth works, right? they're growing so fast they don't even have time to think about what policies are working. >> yes -- one over here. >> okay. who first? >> okay -- >> i'm scott with the tax

foundation. i'll ask you the question that's been burning up my blackberry for the last hour. how might the buffett rule should it be implemented affect capital gains, markets, realizatio realizations, economics, et cetera? >> brian? >> i mean, if i understand this correctly, i mean, what we're really talking about is i think there's two parts. minimum tax kind of thing and also, sort of a carried interest issue and it would affect all private equity, all venture capital and i think it would undermine growth dramatically in addition. it doesn't raise as much revenue as people think because of the reasons we talked about with the, not that i talked about, but that bob and cameron talked about with the transaction tax. so did you do scott, a study on how much it might raise and i

think it was you. >> i think you were somewhere around $40 billion r, which is about ha the joint committee came in on. it's not a whole lot of money for a lot of pain. >> it's a lot of pain. here's the deal. i mean, we all know this. it's all base e e e ed misinfor. it's not true that warren buffett's assets and person, if you think of him and his assets as a person, pay less in taxes than his secretary, it's just not true. those corporations pay a 35% tax rate on all money that they earn in the united states and if he's not then that's a reason to go to a territorial tax system. it's just based on a fallacy and any kind of law based on a fallacy, two wrongs don't make a right. if you will. and so -- i mean, i haven't

followed -- i know what the -- any way. bob probably -- >> one of the interesting aspects of the joint committee was the admission on their part that it would have tremendous behavioral affects. i wanted to get into from people in the market and really understand it a lot better than we do from washington. >> i have two points. it's not just a tax carried interest. it's a tax on capital gains by significant number of market participates and if you think higher capital gains rates are bad, well then you're going to have a negative impact. but i have another point. a larger point that i don't understand i know the answer to. i know why, being a democrat, i understand why democrats are making a fairness argument. huge rise in inequality. if you look at the public opinion polls, there are a lot f

people very upset about it. so you know why president obama's arguing for a higher rate. but if they went to a reagan style, you know, clean tax, lower tax rate, down to 28 or 30%, with a lot fewer deductions and by the way, i don't think we can get rid of all the deductions politically. i like the simpson bowles which put a cap on all deductions. that's a politically sellable thing to do. if you went to that as a practical matter, the rich would pay more, all right? so i don't understand why democrats who were so intent on trying to sock it to the rich, why don't they go with something like simpson bowles which will correct our fair share problem. much lower rates. screws up small business less and so forth, so it gets what we want. what republicans awant. >> now, do you tax cutting democrats, you and --

>> i don't understand why more democrats don't figure this out. >> i have an answer for you. >> could you introduce yourself? >> i'm chris shays, i was in congress for 21 years. don't actually don't want to tax the wealthy more. they want their constituency to think they're taxing the wealthy mo more. >> i understand that. so it's usier with a higher rate. >> if there are write-out ffs, y don't care. i'm having a bit of a struggle because i found this an exciting day. you had the governor set it off with saying we had to get our financial house in order and candidly, anyone who's in public would understand that. how do you ask for a tax cut when you're starting to cut programs? the second thing that i wrestle with, i don't want to use the

word wrestle. have a challenge with, suddenly austerity has a bad word to it. i found myself contemptuous of the greeks not wanting to suck it in. hello, get real. i think you've got to tell the american people the truth. why are we making austerity speak like a material thing? if you're at 24 freaking percent of gnp and spending, you need a little austerity. >> anybody want to jump in on that? >> spending cuts are progrowth. especially when you're talking about 24% of the gdp. there's no doubt. spending cuts would actually bring in more revenue because the economy would do better. and that's the kenzians have won the day with the mainstream media and many members of congress. that's unfortunate. you know, and it's -- so i would agree with that 100%.

>> in terms of buffett rule, one of the things from economic standpoint, because i'm not an economist, that's for sure, but just from trading globally and trading globally, i think it adds to the uncertainty out there. we're seeing trading volumes are down whether it's u.s. equities, european equities, we're just assuming there is this uncertainty out there and nobody is doing anything. it doesn't matter what the asset class is or what the geography, and i think just the hostility to the rich and sock it to 'em kind of thing just adds to it as well. it's not going to do anything for growth. >> and if you think babout a capital gains tax, and it's not just all that, all income, but it's a wall between the old and the new. so the higher the cost of it for

me to get out of my original investment to put it into a new investment, the higher that cost is the less willing i am to do that warren buffett hardly sells anything, so maybe he doesn't even care about that. somebody who is helping to invent microsoft and taking that money and moving it into facebook, it matters a great deal. and it limits the amount of resources that can actually be moved from the old to the new. >> starting with you, bud, i'd like to go down the line and each give the optimal tax program for 4% growth. give us the top income tax rate, the number of brackets and then the capital gains rate. >> let's get let's get it all out on the record here. >> that's not really what i do. but -- >> the optimal tax rate for bringing oil out of the ground. >> let me put it this way.

the debate over the uncertainty of taxes and budgets, we have uncertainty about uncertainty out there. i think that has been a tremendous retardant to a robust economic recovery. i think rather than signalling out a particular rate, i think what we need in tax policy is some degree of certainty and predictability. i mean, it's like if the average tax rate is 30%, businesses will adjust. if it's 50%, businesses and people will adjust. but i think first we have to involve the senses or have some certainty. the final point i'd like to make, and i was just thinking as we were sitting here, my mentor at columbia university 40 years ago, c-lo harris, he used to say, remember, businesses don't pay taxes, only people pay

taxes. and we need to keep that in mind whether we're talking about the individual tax rate or capital gains or death taxes or corporate taxes. >> your point about uncertainty is a very good one. brian, where would you peg these numbers? >> yeah, it all depends on where you start the tax, et cetera. i've always been an advocate of a flat tax, but let me take this opportunity just to talk about a nationwide sales tax or a value-added tax. if i were going to design a country from the ground up, if you gave me an island and said you're going to start a country, i would put a sales tax in. because it's -- you only pay it when you spend. if you're a busboy at a restaurant, you can live in a box in the alley and eat all you're mea your meals at restaurant and never spend a dime in tax until you save enough to open your own restaurant. you can do that.

it's your god-given right to live exactly like that. with an income tax, you don't have a choice. so what i'm saying is, if i were going to do that -- the problem is we've started with an income tax at 1913, so if i were to tray away the income tax today and put in a sales tax, all these people who have saved after tax to spend in their retirement will actually be taxed twice. they'll be taxed as they saved it and then they'll be taxed as they spent it. that makes it unfair to switch in midstream. so i'm -- the perfect tax, it can only be instituted if it were to start a country off brand new. >> you guys are just both wonderfully evasive here. >> i would do a flat income tax of about 20% with no deductions whatsoever for anything, and i would pay that tax on income, not on capital gains, not on dividends, not on interest.

it depends on where you kicked it in, chris. if i started at $10,000 per family, yes. i could pretty much guarantee it. if i made it to 30, i would probably have to go to 22 or something or 23. >> do you think it could be politically pallia trtable, you could say 20%? we're going to get 20, anyway. >> we would have to reduce the corporate tax rate to the same rate. >> 20 across the board would be the most politically sellable thing. >> probably. >> bob? >> i have a variation of that. i could go with 20 but i still am in favor of a lower bracket. so, you know, for lower income. and i have one additional qualification. i haven't run the numbers so i don't know how much money that raises. let's say that raises about as much money as we have now.

it's not going to be enough to still deal with the aging baby boomers so i have been attracted to the notion, which has been advanced by john shrksobin of stanford, and that's time medicare financing to a sales tax. it would automatically discipline -- at least have some discipline on medicare spending, and it will be a way to finance medicare spending. i don't know where that would end up as a percentage of gdp. i would sleep safer at night that we're going to attack this budget deficit and at the same time help the anyoning population. >> this economy, as i predict, as god is my witness, is going to be a revolution at health care, is going to give us health care at half the cost in a shorter period of time. today you can get your dna sequence for less than $500. if you're so brave, you can put that up on a network and have

really smart people run algorithms on it and find out where you're most likely to encounter fatal disease down the road. once facebook goes public, money is just going to shift. it's going to be bored with social networks. the big event will have happened. what i'm seeing at sea level right now is is health infomatics and it's going to have a dramatic effect. >> coughlin is coming out with a report on exactly that issue next week. so watch out for it. it's a big day that comes to health. >> cameron and bob, if you were the tsar -- >> steve forbes isn't here now, but i'd have to go with the flat tax and 20% like brian. that makes the most sense. >> would you apply capital gains? >> yeah, i would do it across the board. >> probably the most productive thing to beat capital gains is zero, but in terms of getting it passed, you probably have to go across the board. don?

>> i'm not an expert, certainly, on tax policy. i am an expert in knowing that if you keep spending more than you're making, you'll eventually go broke. and i would be one that would say, look, we're going to cap this spending. we're going to move toward capping the spending of government of 20% gdp. the idea that we're at 24, going to 25, 26, 27, that leads toward bankruptcy. so i would -- yeah, i would put the cap on spending at 20%. you would have to have a glide path to get there, and then whatever kind of tax policy would generate the 18 or 19% and in the most productive way is what i would be in favor of. you hear lower the tax base and broaden the tax base. lower taxes and broader base make sense to me. but let's get the spending under control. the idea that we're going to kind of move toward 26, 27, 28 spending gdp is just disastrous for the country. >> well, you could -- you're

quick with math. if we had 20% flat taxes starting with the base of the trillion-dollar economy, it's 24% taxes across the board. to the congress' question, what do you think that would do to government receipts? >> they would explode upward. 4% growth compared to 2% growth, do the math. the revenue potential would be like the '80s where, yes, i would agree with larry lindsay that the reagan tax cut in a whole cost revenues, you know, relative to the path that we would have been on initially, but it grew the economy so much that by the late 1980s, early 1900s, we had more revenue and more gdp than we would have had under the other tax code. >> well, thank you, panelists. i would just conclude by saying there is not a problem the united states faces that