On April 10th, the George W. Bush Presidential Center and Forbes presented Tax Policies For 4% Growth, a day-long conference aimed at identifying and advocating changes in government policy and business practices necessary to spark economic growth. Prior to the conference, Steve Forbes sat down with President George W. Bush for a rare interview. The transcript of that interview follows.
Steve Forbes: Welcome, and thank you for agreeing to do a little interview.
President George W. Bush: I’m rarely in the news, because I don’t want to be in the news. I’m obviously interested, but I think it’s inappropriate for former presidents to undermine the current president. That’s not to say I’m not passionate about certain issues, such as low taxes. But I’m happy to sit down with you.
Forbes: You have a sense of decorum and dignity that sometimes gets lost sight of.
Bush: I appreciate it. Plus, I really don’t miss the limelight. One of the things that’s hard to do is to regain a sense of anonymity. It’s virtually impossible, but I’m giving it a shot anyway.
Forbes: Just all the things we take for granted, like going out and getting coffee.
Bush: Yeah, going to Wal-Mart.
Forbes: Let me start by asking: Cutting tax rates worked for Coolidge in the ‘20s, it worked for Kennedy in the ‘60s, worked for Reagan in the ‘80s and worked for the early part of the last decade. Why still the resistance, in your mind?
Bush: I think there is a basic philosophical difference in the tax debate. I used to like, and still today will simplify it down to, “Who do you trust to spend the money?” If you trust the individual, the collective wisdom of the American people, then you understand why it’s important to let them have more money in their pocket. If you basically believe that government is a better allocator of resources, then you advocate more taxes.
The debate is couched in fairness. Our tax code is very progressive. And what we’re trying to do today – and I know you do as well – is find what is the best tax code and what are the best tax rates to stimulate private growth. But I think the debate is over who best to spend the money.
Forbes: When you did your tax cuts, you went out of your way to make sure that middle and lower income people, proportionately, got more of a cut. Tried to undercut this idea of it being all for the rich.
Bush: Yes, I did.
Forbes: How would you advise people today, candidates today, officials today? How do you fight this populist demagoguery?
Bush: Our tax cuts were cuts for everybody who pays taxes. In other words, I didn’t believe that the government ought to be selecting who were the winners and who were the losers. If you’re going to have a tax cut, everybody gets tax cuts.
The rhetoric ought to be not dividing people. We ought to have a tax code and an economy that enables people to succeed. We want everybody to succeed. And it’s very hard to defeat populist rhetoric, whether it be in the immigration debate, or whether it be in the trade debate, or whether it be in foreign policy or tax. There’s a populist strain in our system that people like to exploit. You can find it in a variety of issues. Tax, of course, is an easy issue to try to pit one group of people against another.
Frankly, we’ve gone through these periods throughout our history, and fortunately every time the country has been able to recover from divided rhetoric. But it takes a leader who can paint an optimistic future where everybody can succeed. That’s the kind of country we want.
Forbes: One more question on the tax cuts you enacted in 2003. They were extended in 2010 for two years. Two part question: How much of a role do you think that played in preventing a re-descent into recession, and what happens if they’re not renewed again this December?
Bush: The answer is the same for both questions, in a way. First of all, I think most people don’t understand that most new jobs are created by small businesses. And small businesses pay individual income tax.
Forbes: Right.
Bush: If the goal is private-sector growth, tax policy ought to encourage, not discourage, the job creators, the small businesses, the 70% of new jobs. I don’t think people really understand that aspect of the tax code. Therefore, if you raise taxes on the so-called rich, you’re really taxing job creators. Which either means that people don’t really understand the implications or the objective is not private sector growth but public sector growth.
I think that keeping taxes low did help buffer a difficult economic situation. And I think raising taxes is going to take capital out of the hands of those creating jobs.
Secondly, if you raise taxes on capital gains and dividends, you’re taxing investment. The private sector requires investment in order to grow. You’re taxing pensioners and savers. The fundamental question is, “How do you believe the economy of the country should grow in the long term? Do you believe it ought to be through public sector initiative or do you believe it ought to be stimulating the private sector?” I’m confident we’ll hear people making the case that the best way to grow our economy is through stimulating the private sector.
Forbes: It’s very telling that at a time when taxes rose very sharply in the 1970s, we had European-style growth rates. When the reforms started in the early 80s, we went back to having fun again.
Bush: No question, much of my thinking was informed by President Reagan. He had a vision and a philosophy. I’ll never forget the days of malaise in the late-70s. We were basically told our country was through – that’s a slight exaggeration, but nevertheless there was the sense that America had lost a step. Then we have a president show up and say, “Here’s a better tomorrow. And oh by the way, I’m going to trust the people by working on tax cuts.”
No one could have predicted at the time – you might have, but very few people predicted the robust economic recovery after a very deep recession.
No doubt the tax cuts that we put in place were inspired by the decisions in the early ‘80s. And the consequences of those actions – supply-side economics was no longer just a theory, it was a practical way, in my case, to deal with a recession that was ongoing when I first got elected.
Forbes: Yeah, people forget that you came in with a declining economy.
Bush: It was the dot com bust. It affected the economy. Plus, we looked at taxes as a percentage of GDP, and I felt they were too high. So the tax cuts were really a way to rebalance taxes vs. the economy, but also – more importantly – stimulate economic growth so we could recover.
And then 9/11 hit, which required more tax cuts in order to stimulate the private sector.
I keep saying, “The goal ought to be private sector growth.” In other words, when you’re running an organization – you know this – you’ve got to set clear goals. The goal ought to be private sector growth.
That ought to help inform people about a Keystone Pipeline. So if the whole administration understands that private sector growth is the objective, then the Keystone Pipeline becomes an easier answer for people.
Forbes: Decision making.
Bush: Yeah. Part of the purpose today is to enhance the discussion about the goal for our nation. And tax policy clearly is an important part of growing the economy and the private sector.
Forbes: Briefly, on another form of taxation, trade barriers and trade protectionists. When you were president you had the Central American Free Trade Agreement. You negotiated others.
Bush: Yeah, a lot of others.
Forbes: There’s a lot of talk about a trade war with China and other things. How does that picture look to you today?
Bush: Well first of all, protectionism and isolationism tend to run hand-in-hand. I sense an isolationist mood in the country. “The spread of democracy is difficult work. Maybe it’s none of our business. Afghanistan is really almost too hard to do.”
Forbes: “A far away country.”
Bush: Yes, a far away country. But that also has a twin, and that’s protectionism. I am deeply concerned about trade wars. I would hope people would pay attention to history and recognize that prior to World War II we were an isolationist nation – basically saying, “Who cares what happens in Europe?” Smoot-Hawley was one of the cornerstones of economic policy.
We have differences with China, no doubt. But those differences can be better solved with open and fair trade as opposed to walling ourselves off. I think it would be a missed opportunity for the United States to become even more protectionist.
One of the signs that’s indicative of the mood is that the president does not have Trade Promotion Authority, which makes it impossible to negotiate any trade deals. I would hope whoever wins this upcoming election insists that Congress grant him the authority to negotiate trade deals that cannot be amended on the floor of the Congress once approved by the two parties.
Forbes: Yeah, that’s the only way you get trade agreements.
Bush: You’ll never get trade agreements otherwise. That’s right. Most Americans don’t understand that. Without Trade Promotion Authority you can talk free trade all you want, but the true indication of whether or not a president is a free trade advocate is insisting that Congress give him that authority.
I was fortunate to have that authority. It lapsed under my predecessor and I was fortunate to convince Congress to give me that authority, and then used it. Quite aggressively. But I would remind people that we got TPA (Trade Promotion Authority) by one vote.
Protectionism lurks in both parties, and it requires a concerted effort by the White House to remind the American people why trade is in our interests. We’re publishing a book called Four Percent Growth – Crown is publishing it, The Bush Center is the catalyst for the book – and one of the points in the book is if you want to grow the private sector and you want to achieve 4% growth, you’ve got to have a robust trade policy.
To the president’s credit, he did get the South Korean and the Colombian and Panamanian trade agreements through. Took a while.
Forbes: Five years later, but hey, why quibble.
Bush: Yeah. But he got it through. And hopefully that’ll be an indicator. Nothing is going to happen between now and the election. My hope is that the next president, whether it be this current president or the challenger, will work hard for free trade.
Forbes: During your presidency you warned – and Congress resisted it – about Fannie and Freddie. What should be done with those entities today?
Bush: Well, I think they ought to seriously consider phasing them to a private sector type guarantor. Fannie and Freddie were neither here nor there, and they ought to be one or the other. I tend to be more trusting of the marketplace, and therefore they ought to be the other.
But yeah, we warned. The financial meltdown was an unfortunate period of our presidency. One, we really didn’t see it coming. We saw something wrong. I don’t want to make the excuse – very few other people did either – but we didn’t see the magnitude of the bust.
Forbes: Right. Only after the fact did everyone see it coming.
Bush: It’s interesting, the presidency works this way: What do you do about it, once it happened? I made the difficult decision – at least it was for me, particularly since I was raised out in West Texas where there’s a fairly deep suspicion of Wall Street – to use taxpayers’ money to give to Wall Street in order to prevent the TED Spread from worsening. I’ll be frank with you, when you and I debated, I had no clue what the TED Spread was.
Forbes: I thought Ted was a name.
Bush: Exactly. Fine sounding fellow.
But that’s just the nature of the presidency. You’re dealt a hand and you have to play it. So the question really is not to linger over the debate about whether or not TARP prevented a depression; you can’t prove it one way or the other. I happen to believe it did prevent a depression. But the question is, “What do you do now?” And that’s what our initiative is all about. What do you do now?
Hopefully people will hear our strong views that what you do now is you stimulate the private sector. You figure out tax policy, energy policy, regulatory policy, all aimed at creating private sector jobs.
Forbes: The true source of wealth.
Bush: Yeah, it is. And it’s the only way to fix the balance sheet. There is a focus on the balance sheet, and there should be, but the debate ought to be first – how do you stimulate the private sector so we have enough revenues to deal with the balance sheet? Otherwise you’re never going to fix the balance sheet.
Forbes: Well and also, if you’re growing, assets go up in value. Which makes the liability side a little more bearable.
Bush: Absolutely. As a percentage of what? Debt as a percentage of what? I don’t know what our debt as a percentage of GDP is, around 90% or 80-something percent now. I think when I left office it was 30% or 31%. So the question is, how do you grow the pie? Obviously Congress is going to need to hold down the expense side.
Forbes: One other area you fought for as president was reforming Social Security. What lessons did you learn from that?
Bush: Yes I did. Thanks to your help. I learned that Congress is risk averse.
Forbes: Well our party headed for the hills when that battle happened.
Bush: It did. Congress is risk averse. First of all, big ideas are hard, unless there is an imminent crisis. The big idea that we put in the mix was that younger workers ought to be allowed to transition to a defined contribution plan. My own judgment is very few pension plans, particularly public pension plans, are going to be able to endure if they remain as defined benefit plans. In other words, defined contribution plans are the future.
Policy has got to recognize that people get frightened. Therefore, there ought to be a statement that says nothing’s going to change if you’re at a certain age. But younger workers ought to be given the option.
Secondly, we figured out that the only way to make the math work was to slow down the benefit increases. We laid out a pretty good plan. And our own party was risk averse. I’ll never forget them saying, “We’re not going to be for you.”
I said, “Why?”
“Because we’ll lose seats.”
Forbes: They did anyway.
Bush: They did anyway. That’s the reason why. It wasn’t because of Iraq, in my judgment. It was because there was a perception that people were there just to hold their offices. And there were some sex scandals and some money scandals, but people want their government to take on big challenges. There’s just something that the public respects in leadership. Power, or the desire to hold power, can diminish that boldness. And I believe that’s what happened. It’s not just our party that balked. Both parties have balked. And President Clinton, to his credit, tried.
One thing is clear on the entitlement debate, though. It requires presidential leadership to get a risk averse body to respond.
Forbes: Do you think it’s a more propitious time now to get something done, after November?
Bush: I thought it was, leading into right after the crisis. Hopefully the magnitude of the problem will get the attention of everybody after the elections. Time will tell. It’s just hard to create a sense of worry amongst the people.
I always felt like, on the Social Security debate, by telling older workers, “You’re going to be fine,” and telling younger workers, “I’m going to do something about it,” you would earn their respect. Because they’re basically putting their money into a bankrupt system. It’s not exactly the spirit of government to know the system is bankrupt and continue to insist people put money into it.
I thought you would be rewarded. And I think I was rewarded, to a certain extent, by being able to tackle the issue. It’s different, however, when you’re dealing with people whose job it is not to look over the horizon – fairly myopic, with two year time horizons – and a fear of harsh ads coming their way. Therefore I’m not very confident that Congress will take the lead without the executive branch being out in front.
Forbes: What can a president do about gasoline? Which obviously then leads to the whole topic of energy.
Bush: First of all, not much in the short term. I was reading an article the other day – and maybe I just don’t understand – that somehow the supply of crude oil doesn’t affect the price of gasoline. If you want to affect the price of gasoline, you affect the amount of the main price ingredient of gasoline, which happens to be crude oil. So the more crude oil there is, the less pressure there will be on price, and the less pressure there is on price the less pressure there will be on gasoline prices.
So energy policy ought to be, “How do you increase supply?” The amazing thing that’s happening right now is the United States is becoming less dependent on foreign sources of crude oil. And when you count Canada, which is a friendly neighbor, our national security – and economic security, for that matter – is being enhanced. You couple that with a natural gas boom, and all of a sudden you can see a different future. Particularly since the one we’ve had to deal with in the last couple of decades.
This is a very optimistic period. And yet there’s still a great skepticism and bashing of the energy companies. It turns out the energy companies are some of the most productive and innovative companies in America. They basically changed how energy is extracted, to our nation’s advantage.
So my answer is that you can’t do much in the short term. You can call for investigations of price gauging, which happens every single time; I’m sure I did the same thing at some point in time. But the long term economics are really related to the supply of crude. And refining capacity.
What will be interesting to watch in terms of natural gas – and I’m not predicting anything – is the revitalization of the manufacturing capacity of the country. Natural gas is really important for certain sectors of our economy. I remember during my presidency the high price of gas was causing many chemical manufacturers and fertilizer companies, to think about and/or deploy capital overseas to find cheaper natural gas.
All of a sudden we have a lot of it now. What’ll be interesting to watch over the next five or six or ten years is whether or not this gas supply will cause the manufacturing sectors, particularly in the Midwest, for example, to take off again. To be revitalized.
I predict, so long as the tax policy is right and regulatory policy is fair, it will.
Forbes: Well you can see the future even in trucks – diesel and natural gas.
Bush: Absolutely. We’re just beginning. I also believe that at some point battery technology will catch up with reality, and we’ll be able to have a lot of our cars driven by electricity. And they won’t look like golf carts.
Then the question is, “How do we generate electricity?” And no question, natural gas and coal will be an important part of the mix. But I also believe that over time we’ll have a fifth or sixth generation nuclear power plant, which will enable us to better deal with waste.
Forbes: Probably recycling.
Bush: Absolutely. I’m very optimistic about our country. I’m optimistic about our energy future and optimistic about our country.
Forbes: That’s a good message to have. Thank you.
Bush: Thank you.
