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. What follows is a condensed, edited transcript of that conversation.
HARWOOD: This bar that we're sitting in is hallowed ground for tax reform. Give me your diagnosis right now of what you expect to happen, and when.
BOLTEN: 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 the kind of outline that Packwood and [former Packwood Chief of Staff Bill] Diefenderfer came up with here 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 and it would be a dramatic improvement on measures that currently, basically incent corporations to move overseas.
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. I don't think this tax reform can be just cuts. 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: It has not been agreed whether this is going to be deficit-neutral or whether it's going to be deficit-expanding. The president's campaign proposal would expand the deficits by around $5 trillion. Does that worry you?
BOLTEN: Sure. I mean, 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., which we've eluded so far. Does that mean budget-neutral? I don't know. A relatively modest increase in the deficit and the long-term debt that may or may not occur, and that, on the other hand, the tax reform would cause a bump up in our growth potential — let's say from 1.5 percent to 2.5 percent or even 3 percent — that's 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: I think the most important thing is the business rate and the territoriality. 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 and is something that is going to perpetuate income inequality?
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. And they're pushing for tax reform not because they want to more money. They're pushing for tax reform because they're worried about the competitiveness of U.S. companies. They're worried about their ability to invest capital and create more good jobs here in the United States.
So the fact that you've got, you know, investment bankers working on this, or you've got CEOs behind corporate tax reform — 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. So I don't think there's an inconsistency at all.
HARWOOD: Give me your straight-up, realistic assessment of the likelihood that a significant tax reform is enacted before the 2018 elections. You said at the outset, they're still not where they need to be.
BOLTEN: Not right now. And so, that's why, you know, you want to get the distractions out of the way, you want to move health care out of the way, because it will require a huge both substantive and political effort and a lot of focus from the administration and the members in both houses of Congress. 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.
HARWOOD: 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 are serious possibilities, and 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 percent 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 gotta be able to produce for the world. And Mexico makes us more competitive that way. Two-thirds of all the imports that come in from Canada and Mexico under NAFTA go into other products in 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. An effort actually to restrict trade is absolutely the wrong way to go.
HARWOOD: The administration has pulled out of the Trans-Pacific Partnership. 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 and trying to wring more money out of our counterparts?
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.
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 H1B 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.
HARWOOD: You serve on the board of the ONE Campaign. 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'll they typically give a number like 25 percent. It turns out that the amount that we spend on foreign assistance is less than 1 percent 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, 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 — to the serious conversation about how to restrain the unsustainable growth in Medicare and Medicaid, Social Security, all of our entitlement programs.