In Which Mr Cogito Asks About National Savings At A National Tax Reform Seminar Sponsored By The American Enterprise Institute In The Nation's Capital
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"R. Glenn Hubbard: Thanks, Dale. At this time, some questions from the audience?
Garth Trinkl: Thank you for the presentation, I'm Garth Trinkl from BEA, but I am speaking for myself. Could you tie your efficient tax reform discussion into your earlier question to Dr. [The Honorable Edward] Lazear [Chairman of the President's Council of Economic Advisers] about his chart three? I attended a tax reform discussion 20 years ago, "Tax Reform for the 21st Century" held in 1986, and many of the speakers indicated then that the tax reform would lead to increased economic growth and increased national savings.
So, could you talk a little more about net domestic savings, the business, the international components, the personal components of that, and could you tie that in, perhaps, to 1997? You talked about going back to 1997, the GDP level and the national wealth level. You talked about the revenue neutrality of this efficient tax reform proposal. Tying it all together, as my question cannot do, how do you see your efficient tax reform program addressing net domestic savings? And will it return net domestic savings to perhaps six percent over the next 10 years, including the revenue neutrality points that you made?
Dale Jorgenson [Samuel W. Morris University Professor at Harvard University]: That is a very important comment. I forgot to mention something that I should have mentioned, and that is that you have heard the executive summary, the paper is pretty long as you can see from the version that has been distributed to you. But there is an even longer version. So suppose your appetite is whetted by this challenging intellectual exchange, and you want to read the book-length version – well, here it is. It is a book called Lifting the Burden. You can tell that we are into catchy titles right? Lifting the burden, the tax burden, and it is co-authored with Kun-Young Yun.
Kun-Young Yun was, like many people here at one time, a Harvard graduate student, and we have collaborated in this area for a number of years. And he is now a professor in Korea, but he has a second life as a politician. He is now the leader of the Conservative Opposition in the Korean parliament. And I do not know what his views about US tax policy are, but I know he is following this debate. So I just wanted to mention that fact.
Now, let us go back to your question about saving. It turns out that the downward trend, as majored in the saving rate, and I think Eddy's figures are as good as indicators that I could produce on this subject, and I have produced figures, as you know, on the subject, is something that has been going on for a long time, at least 20 years. And so we go back to the 1987 reform. My analysis, and that of my co-author, we have done this in collaboration and separately, is that that did have a big boost, even though it did not do very much towards leveling the playing field between housing and business, because it leveled the playing field among different kinds of assets, which is something that I emphasized in my early life as a tax reformer.
So we do not know a lot about the story of the saving rate and why it is not keeping up with the investment rate, but that has been with us now for at least 20 years. So we have had a pretty healthy investment rate, it is just the Lazear story. But what we did not emphasize is that it goes back a long way. So I think that has to do with the international tax treatment of income. I think it is not a big mistake to focus on the fact that Microsoft, for example, which is known for its generosity, is also a big player in the transfer of income to Ireland.
And so, a lot of income that is accruing to foreigners in Ireland, for example, is accruing to US entities, namely, Microsoft and other high-tech firms that may have a manufacturing presence there, that may have a distributional presence there, but they have got a big financial presence there. And it does not take a lot of people. It just takes a pretty good-sized computer and a couple of really smart, sharp, pencil people, they used to be called. And so they get huge tax benefits. That is one of the reasons that a lot of tax experts point to the fact that US earnings from foreign investments turn out to be roughly comparable to foreign earnings of their investments in the US, despite the fact that this appears to be a situation where there is a lot more capital flowing out.
So how do we explain that? Well, I think the fact is that a lot of this so-called foreign source income, foreign source investment turns out to be US domestic investors who have these international vehicles. But I do not know that, and that is not dealt with in the book, but that is my offhand impression.
R. Glenn Hubbard: Maybe one other quick question for Dale if somebody has..."
Corporate Income Taxation and the Economy American Enterprise Institute for Public Policy Research June 2, 2006 Transcript
Addressing the press, President George W. Bush stands with Ed Lazear of the Council of Economic Advisers, left, and Al Hubbard of the National Economic Council, in the Rose Garden Friday, April 28, 2006. "I'm joined my two top White House economic advisors. The reason why is because we've had some very positive economic news today: the Commerce Department [Bureau of Economic Analysis] announced that our economy grew at an impressive 4.8 percent annual rate in the first quarter of this year. That's the fastest rate since 2003," said President Bush. "This rapid growth is another sign that our economy is on a fast track."
Photo and caption credit: White House photo and caption. Photo by Eric Draper. With thanks.
"R. Glenn Hubbard: Thanks, Dale. At this time, some questions from the audience?
Garth Trinkl: Thank you for the presentation, I'm Garth Trinkl from BEA, but I am speaking for myself. Could you tie your efficient tax reform discussion into your earlier question to Dr. [The Honorable Edward] Lazear [Chairman of the President's Council of Economic Advisers] about his chart three? I attended a tax reform discussion 20 years ago, "Tax Reform for the 21st Century" held in 1986, and many of the speakers indicated then that the tax reform would lead to increased economic growth and increased national savings.
So, could you talk a little more about net domestic savings, the business, the international components, the personal components of that, and could you tie that in, perhaps, to 1997? You talked about going back to 1997, the GDP level and the national wealth level. You talked about the revenue neutrality of this efficient tax reform proposal. Tying it all together, as my question cannot do, how do you see your efficient tax reform program addressing net domestic savings? And will it return net domestic savings to perhaps six percent over the next 10 years, including the revenue neutrality points that you made?
Dale Jorgenson [Samuel W. Morris University Professor at Harvard University]: That is a very important comment. I forgot to mention something that I should have mentioned, and that is that you have heard the executive summary, the paper is pretty long as you can see from the version that has been distributed to you. But there is an even longer version. So suppose your appetite is whetted by this challenging intellectual exchange, and you want to read the book-length version – well, here it is. It is a book called Lifting the Burden. You can tell that we are into catchy titles right? Lifting the burden, the tax burden, and it is co-authored with Kun-Young Yun.
Kun-Young Yun was, like many people here at one time, a Harvard graduate student, and we have collaborated in this area for a number of years. And he is now a professor in Korea, but he has a second life as a politician. He is now the leader of the Conservative Opposition in the Korean parliament. And I do not know what his views about US tax policy are, but I know he is following this debate. So I just wanted to mention that fact.
Now, let us go back to your question about saving. It turns out that the downward trend, as majored in the saving rate, and I think Eddy's figures are as good as indicators that I could produce on this subject, and I have produced figures, as you know, on the subject, is something that has been going on for a long time, at least 20 years. And so we go back to the 1987 reform. My analysis, and that of my co-author, we have done this in collaboration and separately, is that that did have a big boost, even though it did not do very much towards leveling the playing field between housing and business, because it leveled the playing field among different kinds of assets, which is something that I emphasized in my early life as a tax reformer.
So we do not know a lot about the story of the saving rate and why it is not keeping up with the investment rate, but that has been with us now for at least 20 years. So we have had a pretty healthy investment rate, it is just the Lazear story. But what we did not emphasize is that it goes back a long way. So I think that has to do with the international tax treatment of income. I think it is not a big mistake to focus on the fact that Microsoft, for example, which is known for its generosity, is also a big player in the transfer of income to Ireland.
And so, a lot of income that is accruing to foreigners in Ireland, for example, is accruing to US entities, namely, Microsoft and other high-tech firms that may have a manufacturing presence there, that may have a distributional presence there, but they have got a big financial presence there. And it does not take a lot of people. It just takes a pretty good-sized computer and a couple of really smart, sharp, pencil people, they used to be called. And so they get huge tax benefits. That is one of the reasons that a lot of tax experts point to the fact that US earnings from foreign investments turn out to be roughly comparable to foreign earnings of their investments in the US, despite the fact that this appears to be a situation where there is a lot more capital flowing out.
So how do we explain that? Well, I think the fact is that a lot of this so-called foreign source income, foreign source investment turns out to be US domestic investors who have these international vehicles. But I do not know that, and that is not dealt with in the book, but that is my offhand impression.
R. Glenn Hubbard: Maybe one other quick question for Dale if somebody has..."
Corporate Income Taxation and the Economy American Enterprise Institute for Public Policy Research June 2, 2006 Transcript
Addressing the press, President George W. Bush stands with Ed Lazear of the Council of Economic Advisers, left, and Al Hubbard of the National Economic Council, in the Rose Garden Friday, April 28, 2006. "I'm joined my two top White House economic advisors. The reason why is because we've had some very positive economic news today: the Commerce Department [Bureau of Economic Analysis] announced that our economy grew at an impressive 4.8 percent annual rate in the first quarter of this year. That's the fastest rate since 2003," said President Bush. "This rapid growth is another sign that our economy is on a fast track."
Photo and caption credit: White House photo and caption. Photo by Eric Draper. With thanks.
posted by Garth Trinkl at 10:37 AM
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