WHEN: Thursday, May 18th
Josh Bolten is among the most experienced Republicans in Washington. He worked in the U.S. Senate for Republican Sen. Robert Packwood, who negotiated the 1986 tax reform signed by President Ronald Reagan. He served in the trade office of President George H.W. Bush, which laid the groundwork for the North American Free Trade Agreement. He had stints as budget director and White House Chief of Staff for President George W. Bush, who sought unsuccessfully to partially privatize Social Security. Now, as president and CEO of the Business Roundtable, Bolten encounters a Republican president with a dramatically different style and agenda. Donald Trump vows not to touch Social Security and Medicare, blasts NAFTA as "a disaster," and talks less of reforming the tax system than of simply slashing tax rates. That presents unusual challenges for a business lobby that shares traditional Republican economic priorities more than Trump's. Bolten sat down to discuss the Roundtable's approach at Irish Times, the bar on Capitol Hill where his boss held a crucial meeting that paved the way for his 1986 breakthrough on tax legislation. A partial transcript from Speakeasy with John Harwood featuring Josh Bolten, Business Roundtable President and CEO, follows.
All references must be sourced to CNBC.com.
HARWOOD: Give me your diagnosis right now of what you expect to happen and when on this subject because it is has been a long time and it takes a long time.
BOLTEN: My hope is that the administration will come together with the leadership and the House and Senate and craft a common path forward on the fundamental outlines of a real tax reform package. So, my hope for the tax reform is that we can get to a point where the administration has done enough with the leadership in both houses to get that outline, the kind of outline that Packwood and Diefenderfer came up here, to get that outline and build the momentum that, right now, looks like it's not present. You're not seeing that at this moment.
HARWOOD: If it's only tax cuts, and not reform, is that good enough?
BOLTEN: I doubt it. One of the most important reforms that can happen is switching from our very outmoded, worldwide system of taxation to a territorial system. That would be a big, dramatic change in the way the U.S. does its taxing of business and it would be a dramatic improvement on measures that currently, basically, incent corporations to move overseas.
HARWOOD: The Border Adjusment Tax, I know you don't have a position on that because you have businesses on both sides.
BOLTEN: If there isn't something like the Border Adjustment Tax, there's going to have to be some other base-broadening that brings in revenue. If it's a rate reduction of any substantial size, it won't be fiscally responsible to do it without some kind of base-broadening.
HARWOOD: Members seem, from what we can tell, much more interested in the cut part than the responsibility part.
BOLTEN: A fiscally irresponsible tax reform would not be a net benefit to the U.S. economy because we would ultimately pay the price in higher interest rates, in maybe a fiscal crisis in the U.S. Does that mean budget-neutral? I don't know. If we are talking a relatively modest increase in the deficit in the long term debt, the tax reform would cause a bump up in our growth potentially. Let's say from 1.5% to 2.5 or even 3%, that is a good trade off to make.
HARWOOD: Is the most important thing to overhaul the corporate tax system? Or does it need to be personal as well? And if it needs to be personal, is it critical in your view that the top rate come down, that the estate tax go away, that the cap gains rate comes down?
BOLTEN: The most important thing is the business rate and the territoriality. Those two things, I think, will really unleash the economy.
HARWOOD: That is where the growth comes. Not the stuff on the personal side.
BOLTEN: That's where the growth comes. As a regular American citizen who, you know, gets a salary, I'd love to see rates come down. And I think that'll be helpful for the economy. But what we really need is reform of the corporate side because that's where this country is uncompetitive right now.
HARWOOD: Goldman Sachs talent is a big part of this process. Is that evidence that what comes out of this process will not be good for average people?
BOLTEN: I don't think so. All of the CEOs in the Business Roundtable, they're fine. They make a lot of money. Probably like to make more — but they don't actually need more money. They're pushing for tax reform because they're worried about the competitiveness of U.S. companies. Their interests are now aligned, completely aligned, with the average worker who they want to employ. They want to pay him more. But in order to do that, they need to have the economic circumstances that make it possible for them to invest more in this country.
HARWOOD: Give me your straight-up, realistic assessment of the likelihood that a significant tax reform is enacted before the 2018 elections.
BOLTEN: They're not where they need to be right now. But I'm an optimist. I think they can get where they need to be this year.
BOLTEN ON TRUMP'S BUDGET PRIORITIES
HARWOOD: You serve on the board of the ONE Campaign.
BOLTEN: I do.
HARWOOD: I went to their website yesterday and they had an appeal to the Trump administration not to cut international aid funds, diplomatic funds, State Department funds, as the Trump administration has proposed. Why do you think the Trump administration is making proposals of that kind and what do you think will happen to them?
BOLTEN: Proposals to cut foreign assistance come up regularly. If you poll the American people and you ask them, you know, "How much of the federal budget goes to foreign assistance," they typically give a number like, most common number is 25%. It turns out that the amount that we spend on foreign assistance is less than 1% of the budget. So you're not going to solve any budget problems by, you know, reducing the number of anti-AIDS drugs that we're able to distribute around the world.
HARWOOD: Do you think President Trump realizes those facts?
BOLTEN: He may. He may. Mick Mulvaney is a very talented and, I think in many ways, inspired choice to be the budget director. And he had a tough job. He had to figure out how, in their first budget, to try to effect what was in many respects campaign rhetoric about increasing defense spending, which is necessary, while reducing other spending. And he didn't have the leeway, in this budget anyway, to go to where the real budget problem is, which is in entitlements.
HARWOOD: Not just didn't have the leeway, he has a president who's sworn not to do that.
BOLTEN: Right. And I think eventually they're going to have to get around — if they're serious about fiscal restraint and fiscal responsibility — we are eventually going to have to get around to a serious conversation about how to restrain the unsustainable growth in Medicare and Medicaid, Social Security, all of our entitlement programs.
BOLTEN ON THE H-1B PROGRAM
HARWOOD: The administration's immigration policy, the travel ban, the creation of an office to publicize crimes that have been committed by immigrants in the United States. Are you concerned about that whole set of issues?
BOLTEN: What our companies are concerned about is the ability to have access to the highest-quality talent available for employment in their companies. And if that means making sure that somebody who comes into this country, gets an education in engineering, a Ph.D., is a brilliant engineer, doesn't get kicked out of the country but is welcomed to stay and contribute to our world-leading technology in this country, that's what we want to see.
HARWOOD: The attorney general says the H-1B visa program, for example, is a lever for companies to drive down the wages of American workers and take advantage of them.
BOLTEN: Yeah, we don't see it that way. There are definitely improvements that can be made in the H-1B system, particularly to ensure that we're using it to – for the high-skilled workers that are difficult to get elsewhere. But the H-1B program is really critical to maintaining our competitiveness.
BOLTEN ON TRADE DEFICITS
HARWOOD: Going back to trade for a minute. You said that getting out of NAFTA would be a disaster. The president's still holding out the option of pulling out of it. His trade advisor, Peter Navarro, has talked about his desire to repatriate the supply chains that international businesses have. Does that make sense? And do you think that those remain serious possibilities, and as you see it, threats to American business?
BOLTEN: I don't think it makes sense if the objective of the NAFTA renegotiation is to somehow try to drag more of the supply chain back into the United States. What we should be looking at is how do we enhance our competitiveness and export opportunities. And a lot of that depends on the supply chain that's in Mexico, and the parts that come from there that can be made more cheaply there, and then go into the products that really make the U.S. competitive on the international stage.
You know, 95% of the world's customers don't reside in the United States. We cannot survive and prosper producing products for the U.S. alone. We've got to be able to produce for the world. And Mexico makes us more competitive that way. Here's an interesting data point. Two-thirds of all the imports that come in from Canada and Mexico under NAFTA go into other products here in the United States. They are inputs into products. And to the extent that we have an efficient, inexpensive way to get those inputs into our final products, that's what makes U.S. companies competitive. And that is why I say it would be a disaster for the United States to pull out of that now. Plenty of ways we can strengthen NAFTA. The Business Roundtable CEOs are fully behind that. They've got ideas that we will be presenting to the administration on what the negotiation ought to be about. But an effort actually to restrict trade is absolutely the wrong way to go.
HARWOOD: Well to that point, the administration has pulled out of the Trans-Pacific Partnership, which I would note included some modernization of NAFTA within it. The president says, "I don't represent the rest of the world. I represent the United States." Is the Business Roundtable comfortable with a policy of America first?
BOLTEN: Well, if what "America First" means is that we need to strengthen ourselves, to strengthen our competitiveness, sure. But we don't do that by putting up the barriers. And on the contrary, we strengthen ourselves, we strengthen our competitiveness by making sure that we can get the inputs that we need, that we have an open international trading system that lets us export our products.
HARWOOD: What if it means, as the president has suggested, reopening international agreements whether it is a bilateral relationships on defense and other issues, and trying to wring more money out of our counterparts?
BOLTEN: You mean in some of the defense arrangements?
HARWOOD: In the realm of defense as well as trade.
BOLTEN: Well, on the defense side, sure. If you can persuade our allies to pay for more of our common defense of our Western values, great. I don't have a problem with that. Where it gets problematic is if you mistakenly conclude that there's something wrong with a bilateral trade deficit with some country. You know, you have a bilateral trade deficit with the grocer. That doesn't mean there's something unfair in that relationship or we need to adjust that.
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