and, we have got to watch our expenses, because that's -- the equivalent of a tax also. the one we have talked about the most, and where we are pleased, we have made progress is really on mentions. mayor bloomberg showed up. our pension bill was $1.5 billion. this year, a little bit more than $9 billion. basically an 18.8% compound annual rate of increase in pension expense. there is no expense in the world that can increase, increase at that rate and you can have a biz not that works. impossible. so basically trying to attack that to bring that down, and we have to do it with the leadership of the governor. things like that that we think about. make government work. watch our expenses. that's the equivalent in my mind of what the governors are preaching in terms of their displaidi discipli discipline. >> robert steel was undersecretary, during president bush's administration. he knows whereof he speaks. >> let me go back to specific issues. a lot of tax reform and

regulatory reform on the table. governor, let me ask you this, governor christie made ate ve v emphatic point. and you want pro-growth policies, bush 4% growth target. but you have to get your books in order. you have to get your budget balanced. before the lower tax rates kick in. now, i know that's his path in new jersey. and, it is what it is. that's the best thing he can do. was that the case in oklahoma or work, spending reductions, you took out of the base line. and tax reductions at the same time. >> we did it at the same time. we had a $500 million short fall. when i took office. we had $2 and rainy day savings account. we balanced our budget over the years, with a short falls by the stimulus money you mention, the governor, education budget, whatever it might have been. then we took money from our

savings account to balance our budget. and grant weed weed we went thr tough times. 2008, on and on. we decided we were going to prioritize our spending, the core governmental services. we weren't going to starve government. we were going to right-size government. we were going to really look at what do we need to be spending money on. what is our priorities in the state? we did that. as the i mention we cut our income tax, quarter percent. now, after recession got over. and by the way we passed four major lawsuit reform bills. hard cap on noneconomic damages. passed workers compensation reform to lower the cost. pass made your education reform in our state.passed pension ref too.

now i have under $500 million in the rainy day account. i cut our income tax, and will really cut our income tax in the state. i do think you can do it all. you have to be careful and measured. you have to go out and talk to the people of your state. why it is important to them? what is going to make, what type of difference it will make? and my whole goal was to create the very best, competitive, business environment possible, while also helping our businesses with their bottom line. and, you mentioned -- in new york, about, how, many permits and licenses. every day some one has the to watt to get a permit and license its money. when you are a small business person. you don't have time. you have different places. all these lengths of time to get the permits. one thing we did was we pass aid one-stop shop licensing and permitting to where you could go on the internet, fill out your information, what we found in oklahoma, we were operating, operating government. what i would call in an eight-track, bureaucracy in an

ipod world. it just wasn't working. one of the things i found in the state of oklahoma we had 76 financial software accounting programs to operate government. can you imagine owning a business, 76 different financial programs, couldn't match apples to oranges. we changed that too. >> do you get rid of stuff? i was on the air last night suggesting that, we ought to get rid of the government service administration, the gsa, the thing that is ripping off taxpayers. just puny little, puny little thing. but you know, puny little things add up. you've could get a bunch of private real estate operators to do what nay do which is run the government buildings and sell them off. i don't want to be long-winded. in your experience, did you get rid of stuff, programs, agencies, like a lost art, or a lost thought in government. >> isn't it though? >> get rid of it. >> we do what we call shared services. we found we had small agencies that had their own different

divisions of personnel, time keeping, payroll, financial accounting systems. we brought all that under the office of state finance. we actually consolidated all of our -- chief information officers in our state. under one person. one thing we found. each agency wanted to have their information technology specialist. wanted to purchase things on their own. computers. software. that gets expensive. so we brought all them under one person. who is under my purview. con con sol dated. consolidated. we will save $170 million in just in personnel and time keeping, payroll systems unour state which that money can go towards infrastructure, roads. bridges, education and whatever it is that is in prmportant to state. >> governor christie was feeling your pain about being in, dare i say, a blue state.

new jersey is a blue state. i feel your pain. i lived in new york for the belter part of my life when i wasn't in washington, d.c. my question to you is, you are embarking on this tax reform. you want to be competitive. you want to grow. what do you do, how do you say, how do you react to the critics who are going to say you are going to end public education, and you are going to tear down -- poverty programs. how do you do it? >> in our case, it is a challenge, in ape state, blue state. in the state of maine, 82% of all state revenues go into two programs. welfare and education. and so we are -- making a major effort now in reforming -- welfare, medicaid. my point is -- i simply want to go. because obamacare is coming in. i just want to bring the state from where we are today to the national standards.

and we are way above. i mean we are 200% of poverty. in some programs. 350% of poverty. we are just way too generous. education its just a matter getting more efficient in the classroom. and, my point, and this is what i say, to our main people, it's all about the kids. and every program, every public policy you deal with, if it is not about the kids, it doesn't work. for the state of maine. we have added $60 million to our education in first, we built rainy day fund. talk about, we had zero, on january 5th, 2011, we had no money in the rainy day fund, had not had any for eight years. now we are about -- well, we just paid back federal government for $29 million. now we are about $60 million. and we have lowered our taxes. we lowered our taxes $400 million.

in addition to -- having a billion dollar shortfall in january, 5, 2000. >> just to understand. you are essentially, you have to lower spending. and the tax at the same time. you don't have luxury. because you are deeper in the hole, is that fair? >> that is correct. >> did you have a sequence, where you went for the spending first and tax rate came second? was the tax reform in the same, legislative session or the same time frame? >> they're both ongoing. for instance, cutting state spending on -- on state employees, we are one of the highest -- per capita number of employees to population. and so i have just put a 6% cut in education and it's all through, i mean -- state employees, and we're doing it through -- attrition. so, we, we were at 5% last year. we are up to 6% now. we are going to maintain it all the way through.

stow when peop so when people leave, we consolidate, do what we can do. we are doing work in systems. in fact we were very fortunate to get the cio from insurance to come join the state. he is a brilliant man. bringing us into the cloud. all kinds of different systems available that we -- spent $100 million every year just, chugging along, not making any, not much improvement. and so we are moving ahead. we believe that -- more money in private sector. more opportunity for job creators to create jobs. pay more taxes and voile, our revenues are up. >> really supply side model. >> yeah. >> extraordinary. >> governor, going to come become to you. you haven't had an income tax. so i did a little home work also. we talked about the estate tax.

i don't know if i have this right. you have ended collective bargaining or curtailed collective bargaining. i think you were quoted some place. i mean we have a lot of great governors, scott walker, and john kasich and others. you said you were doing quietly. care to talk about it. describe it, what motivated that and where you are now with this? >> what we really did we took on the civil service system of government employees. i loved your comment about unseen taxes. if you look -- actually, we have 22 different departments in the state. i asked every one of them after a year, i said what its the biggest thing you can do, get better service at a lower price. every one said the way weep hire. right now you get rewarded for breathing the longest. that's how we, that's how we decide to who we are going to hire, who we are going to promote. who we are going to give raises to. who is going to get laid off when we do that. so we addressed that. and moved, not finally passed.

i'm -- hope i am not jinxing myself. pretty certain we will get it done this year. basically do away with civil service system that used -- time served instead of merit to determine how we do things. if you don't think that makes a difference. ask if any business in the country would ever say we are going to make every decision ba based on length of service rather than merit. it's like a football team who e decides who will play by who is on the team longest. it is a dressing unseen costs of government. >> how much flak did you take? >> we are fortunate. governor christie made a joke about things being easier in tennessee and oklahoma than in new jersey. that's true. we have a little different culture and environment. unions aren't nearly as big of a deal. but it is. interesting. the question you were asking both the other governors which comes first, the spending cuts or tax cuts?

i think they go hand in hand. republicans love the tax cuts. they don't want to cut the programs. i had a lot of folks who are, strong, strong conservatives who were all for us, in kufting the estate tax. cutting the grocery tax, but when it came to it, we'll change the civil service system. i don't know if i want to do that. i have a lot of people in my district who work for the state. and so, i think you have to -- if you are going to show the reward, you have to help people understand the cost of the same time. >> do you thinthink, went to fo through on that. this is a great debate. issue is lowering tax rates. also lowering spending at the same time. do you think, from your experience as governor, your observations of washington, that -- there ought to be dollar for dollar reductions in taxes and spending. if you will do it that is the best we to do it? >> i really do. i think without that you are kidding yourself, long term. how you are going to pay for that. now i think our experience shows that cutting taxes brings in more revenue.

but, i think you can -- show the increased revenue. and then make those cuts. that allow the, the tax cuts to happen at the same time. i think you will have an accelerated model doing it that way. >> do you think the congress, just going to call it the congress. i don't want to do partisanship right now. just want to ask do you think the congress -- has any sense of the urgency to do both -- tax reform -- and spending reduction. i am listening to the governor. you are taking stuff out of the base line. which is really -- that's it. that's the total. i was the former deputy, omb, assistant in the reagan administration. that's the bone. that's great. that's what you have to do. i don't see anybody talking in those terms. the game in washington is, as you know, to cut the rate of increase, off the base line. so, instead of going up 10%, if you want it to go up at 8%, you are considered a kill joy. you are going to throw grannies

off the cliff. right. that's the way of the game. the way the game works. it's like if you -- if, if you are, if you go to the car dealership and you are going to buy $100,000 mercedes, but instead you decide to buy a $50,000 chevy, you have spent $50,000. in washington they call that a $50,000 budget cut. right? i don't know. my math. i'm an old guy. that is really not right. >> you see that with congressman ryan's budget. he came out. said, okay. here's how we will do this. and then that just opens him up to shots from everybody. oh, look what he is going to cut. right. when you are spending more. than you are bringing in you have to cut something. and -- i think in -- until we have more people of courage willing to say, here's how i would do that, put themselves on the line, we're going to stay in trouble. >> bob steel. i ask this with the greatest respect. okay. new york -- >> that is a set up. ha-ha. >> new york has got high tax rates.

you didn't start it. all right. you haven't made it any worse. just saying, new york has high tax rates. city and state level. i did not -- hear, e.j. mcmahon and the prior panel. sure he had something to say about that. my question is, are you worried about tax competition? are you worried? connecticut is actually edging up its taxes. don't worry so much about that. new jersey, you heard governor christie is going to have a 10% reduction. you have, the low tax states now. throughout the south and the sunbelt and soap forth. what do you think? how difficult is it going to be for new york to be hospitable to business growth and jobs with -- with, you know, much higher tax rates? >> well, your basic premise is correct. new york is an expensive place. period. and we speech it, present itself. in all kinds of ways. and -- some of the things -- we can try to control and others are part of the invisible taxes

i alluded to earlier. and i think that -- it is unlikely, certain businesses, i don't believe, will find new york the most logical place for them to build their businesses. and, so, really -- i think the strategy is to do everything we can to keep costs as low as we can. if you look at construction costs, it is basically embedded in the work ruflz and things like that which we are trying to fight and press back on. and the reality is we also have to be cognizant of how to attract new, different types of businesses as we reshape our economy. and the reality is that -- i don't think that -- that there are certain types of manufacturing. i think they have left for good. that's not -- something that's -- positive to say. so instead, the real role of -- of the mayor, has been to encourage, an economy that is diversified. it is not just a way from industrial activity, it is also -- understanding that we'll benefit from diversifying financial services.

if you look at the mayor's focus on technology, tourism, transportation and the fact that google is here -- with a huge building and that facebook is here, and jetblue is here. and we have $50 million tourists. that is the way he thinks about it. this is a different pattern how we are trying to reshape the economy to accept the reality. the way i think about it we had 3,000 years of an economy, 30 years of in dus treldustrial ec. that's what our policies are. we haven't really gotten into the business of bidding for business. that's been a mayor's mantra. we are not going to fight making this cheaper with government money. instead we think we will make it a place that wins if we win on quality of life. we have regulation that works. we continue to invest. i think one of the things that i would want to put a marker down is that -- not all government spending is bad.

i thin whuk what we see sometim my experience is that when -- when legislatures are elected bodies, al low kate capital. they tend to allocate towards consumption versus investment. i think the executive branch, mayor, governor has to be the parent. and say, we don't need to just do consumption, we need to do investment. and some times it's not just, spending less. it's how you spend it. and i think, what mayor bloomberg talked about all the time is trying to invest in our economy. and, do things that we think will have high returns. and, not to pick winners, so, much, but to try to effect the playing field so it is an attractive one. >> that is a really important one. city, state. federal. governor lepage. let me ask you about that. how do you handle the business tax, corporate tax question. some states -- will pony up -- subsidies and tax credits. targeted businesses who, you know -- orchestrate beautiful

campaigns and make a lot of promise as ts about jobs. many promises never pan out. it is taxpayer money. mom and pop shop doesn't get a tax subsidy. but the big -- you know, fortune 500 international globalization, whatever, do. or would it be better to just lower the corporate tax rate for everybody? >> i believe that corporate tax rate has to come down. you are lowering the tax. >> kind of a loaded question. sorry. >> you go from the largest tax rate in the world -- and if you lowered it. i believe canada is a good example of what happened in the last two decades. in their -- they're bringing down their business tax. i frankly am not a big fan of subsidies. because you have local, state, federal, i shy away from the federal as much as i can. i try not to talk any of their money. because every time i take their money. they have all kinds of little -- little hooks on them.

and they hurt. and so i shy away from them. what we fry to do with business, we just got carbonite in maine. they closed an office and braupt it back to the u.s. basically on -- on the premise when they inquire, we jumped all over it. we said you want to be here, you are here. and we'll just -- make it work. >> they showed up. did you give them subsidiesubsi. >> no subsidies. we drove them through the permit process. licensing process. before they could finish their spiel, we were ready. >> bob steel model essentially? >> yeah. i believe what we have done uno unouruin our economic development, the jobs, they get inquiry. we get them through the process. >> what's the corporate rate? >> 7.95, our top rate. we lowered a little bit. hopefully end of my first terp. i would lock ike to see 4%. >> what is it in oklahoma? >> 6%.

one thing you talked about earlier, maybe governor christie or president bush talked about this how small businesses can file as the individuals. how we believe by reducing our individual income tax rate. if i can reduce my top rate done to 3.5%. that affects our small businesses that file that way. that is a huge tax cut for our businesses. especially small businesses which majority of jobs in oklahoma. of course, all we have to do is look at america and their high, high, corporate tax rate. and how that -- that discourages job production in the united states and ships job overseas. we can show in our states when we loper the tax rates down we can create strong growth. more than 4% growth in our local economies. >> i don't know where mr. flaherty is, he has the it down to combined rate, 29%. our combined rate is 40%. we can't win that, we will lose out to canada. didn't you give the republican radio address, rebuttal?

>> i did on energy. >> i was going to say. thinking i went from corporate tax rates to the canadian corporate tax rates. then i was, this is how my mind works. then canada, to the keystone pipeline. >> we're all connected. >> canada is a great ally. oklahoma has this surplus of oil shale related at cushing terminal. can't get it down to the, to the gulf refineries. that's one reason gasoline prices are high. what did you say in the radio address? >> well, of course we support the keystone pipeline from canada down to the gulf coast. and the president state of the union speech he mentioned the cushing pipeline which is the hub, which has the a glut of oil on the marketplace. which is not helping our market frankly in oklahoma and the pricing of that. and how we want, he mentioned maybe completing the keystone portion of sfrfrom cushing to t gulf coast. i had the opportunity to be in the white house four weeks ago with the governors, i asked the

president, i said i know you are not for the keystone pipeline which i am for. it would create american jobs, revenue back into our states. reduces dependency, on foreign oil. and i said i hope that since you mentioned -- the portion of cushing down to the gulf that you will go ahead and complete that. three weeks later he shows up in oklahoma and says i am for it. it's good. but the problem is. it could happen without him. it's within the united states. we didn't have to have his approval on that. but he came done to take credit in the state of oklahoma for that portion of the keystone pipeline. and for the tremendous jobs. i told the president, i said we got one of the lowest unemployment rates, double digit revenue growth. we are doing very, very good in the state. we are cutting our taxes in oklahoma. so of course he wanted to come down and make a point that he supports that portion of the pipeline. he needs to approve the whole thing t if we really want to jump-start america's economy, quickest way to do that its producing american-made energy,

american-made jobs. [ applause ] >> all right. well done. well said. want to open it up to questions and answers. i didn't know we had a q & a. i am relieved to hear that. i'm sishgs morry, i may not rec everybody with these old eyes, yes, go ahead, sir. >> wait for the mike. >> hi, i'm david fenstermaker, with raymond james out of washington, d.c. i have clients who live in tennessee. and we run into something called the hall tax. >> right. >> i think it's fair that the people in the room here should understand how that works. because you have plans for senate -- that? >> we don't have an income tax in tennessee. we do have a tax on income and, interest and dividend, which,

obviously chases some folk as way as well. we made the first stretch uncuttiuncuin cutting that, folks over age 60 last year. we will try to chew and bite away at that, try to do away with all of it at one typime. discouraging capital from being in our state. particularly people over age 60 what our surveys show. >> how soon? >> i, i don't, i can't give you a answer on that. i don't know how fast i can get all that done. >> what do you think abougt tt president, out on the campaign trail pushing the buffet tax? what do you think about that? >> i heard, heard our president bush say earlier that, i would hate to have a tax increase named at after me permanently. own thing worse would be a maximum security prison. so, hope you don't mind me borrowing your quote. i think that's -- you know?

>> can i say something, just a quick, i don't mean to be, not rude. the when president bush lowered the top marginal tax rate. >> right. >> and the capital gains tax rate. and the dividend tax rate. on a permanent basis which occurred roughly in the spring and early summer of 2003. the u.s. economy almost to the nanosecond began an ambitious recovery. an ambitious recovery. not some weak-kneed, little, nothing-heimer, 2% recovery. but the economy started jumping up fast. and if my memory serves me in the next four years, created 8 million or 9 million new jobs, right after he lowered marginal tax rates. the reason i'm saying that, you know that. god bless him, he knows that. i don't understand. you just had a lousy jobs number. the whole recovery is in doubt.

we'll probably muddle through. because private enterprise will do it. but why would we go out, tax successful, i don't get the logic, you are a successful governor, maybe you can explain. >> there are two fallacies, one you take money out of the private sector and put it in the government sector it will do better. a little easy example of why government doesn't work when sp money you don't do as good a job of it. we have an issue in the country with methamphetamine, the illegal production of it. federal government used to come in and clean that up. it cost them $2,000 to clean up every time there was an illegal lab. we took it over in the state. we now do that for $300. now that's just a little example. $ 1,700 saved. the federal government will spend it more efficiently is crazy. the big lie of all of it is that somehow with the new buffett rule the money we're going to bring in there is going to solve

the deficit problem. it doesn't. it doesn't even come close and somehow they've communicate this had fallacy that, oh, if the rich people just pay their fair share of taxes we'll solve the problem. even without the lost revenue growth that you have from the money come out of the market, it doesn't come close. >> the combined tax, remember, capital gains -- this is mostly about capital gains, i guess -- combined tax you have passed through the corporate tax, so the integrated capital-gains tax rate right now is slightly higher than 50%. and in view of rolling back the push tax cuts on capital gains and dividends, if all of this goes through in 2013, that integrated tax, whether it's dividends and cap gains, will be over 65%. >> right. >> 65%. okay. let's take some more questions. yes, sir? >> mark, editor "forecast and strategies." it seems like everybody here is

talk i talking about tinkering with the system. yeah, you're lowering rates a little bit here and there. how many of you know when hong kong last changed its tax code? >> about 1950. i don't know. >> you're right. 1956. >> wow. >> was the last time it changed its tax code. now they're not a democracy and we are, but nobody is talking about long-term real fundamental reform of the tax system that steve forbes tried to get into the presidential debate even during the bush administration. we tinkered again. when are we going to see long term real tax reform, flat tax or whatever it is to really simplify the tax system? >> i will just say one thing relative to reforming the tax code. and in the stateof maine that's exactly what we're trying to do is g