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WHEN: Thursday, November 9th

WHERE:'s Speakeasy with John Harwood

Gary Cohn was in some ways an unlikely choice for Donald Trump's White House. He is a Democratic Wall Street veteran serving a Republican president who cast himself as the champion of "forgotten people" battered by economic change. But Cohn, 57, jumped at the chance to leave a top job at Goldman Sachs and become director of the National Economic Council at the White House. His introduction to government has been relentlessly turbulent, marked by staff shakeups, a damaging defeat on health-care policy, and a president whose popularity sags under the weight of self-generated controversy. After Trump failed to unequivocally denounce white supremacists and neo-Nazis this summer, Cohn himself felt compelled to speak out. But the moment Cohn has waited for is here. He and his boss, along with Republican congressional leaders, have begun the effort to enact their tax-cut plan despite tepid public support, fierce Democratic resistance and uncertain GOP unity. Cohn sat down to discuss the plan in a classroom at American University, where he gained his first exposure to financial markets at a student. A partial transcript from Speakeasy with John Harwood featuring Gary Cohn follows.

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John Harwood: So, we're at American University, where you went to school. Tell me what you learned about yourself.

Gary Cohn: I learned a lot about being confident, about learning how to succeed. I did get introduced to the financial markets while I was in college after my freshman year. And I think I learned also how to sort of filter out all of the nonrational, or nonsensible, noise and sort of concentrate on what matters, and that's really what markets are about. What matters –

Harwood: But separating rational from not rational.

Cohn: Exactly. Separate the rational from the irrational; separate what matters now to what doesn't matter now.

Harwood: I think most people looking from the outside see more irrational stuff happening in this White House than in any White House that they've seen.

Cohn: I'm involved in the economic side of the White House. On the economic side, I think the reality is pretty strong for what's going on in this White House. You know, you can look at the jobs data. You know, we had 4.1 percent unemployment last month, which is a 16-year low. We've had two-consecutive quarters of over 3 percent GDP growth with hurricanes in the last quarter. You look at what the stock market's telling you about people committing capital and willing to invest in our economy. Things are really strong.

Harwood: But all those strengths kind of undercut the argument that 'Oh, we have to do tax reform right now,' don't they?

Cohn: We have not had wage growth in this country. So, we've got a lot of Americans finding work, but they're finding work at stagnant wages. Really to continue going on with this recovery, this long recovery, is we have to find a way to really drive wage growth. What our tax plan is really aimed at doing is creating wage growth.

Harwood: What were the one or two most important principles that drove what you did?

Cohn: So, the president had two really important principles. Number one is we have to deliver middle-class tax cuts to the hardworking families in this country. Number two is, our corporate tax system just is not competitive with the rest of the world. We have to create a corporate tax rate, and along with that a pass-through tax rate, that makes us competitive with the rest of the world so we can attract businesses back to the United States.

Harwood: Let me suggest an alternative principle. Look at the components of the plan: big corporate reductions, big pass-through reductions for business, much more tax cuts for businesses than for individuals. You've got the elimination of the estate tax, you've got the preservation of the step-up basis, you've got the elimination of the alternative minimum tax. What you have is a bunch of people, including you, including the president, who think 'What I do is good for the economy, therefore, taxing the things that I do less will be good for the economy and good for other people' instead of giving direct benefits to those people. Because middle-class people in this tax cut do not get very much in direct benefit.

Cohn: I disagree with you. I just completely disagree with you.

Harwood: Look at the numbers.

Cohn: I've done nothing but look at the numbers for the last 90 days.

Harwood: If you look at Joint Tax, $1 trillion in net cuts for business, $200 billion through the estate tax –

Cohn: Oh, ok. I agree with this.

Harwood: And $300 billion for individuals. So, four times as much in business tax cuts and estate tax as for individuals.

Cohn: Yup. But, John, if you look at what we're doing for middle-class taxpayers, the reality is kind of simple. The median-income family in the United States, the family that earns about $60,000 in the United States, the Speaker [Paul Ryan] talked about them getting a $1,182 tax cut. That family is now paying a marginal tax rate of less than 1 percent. They're paying less than $500 of total taxes in the system. So a $60,000 earner, family of four, is paying less than $500. We have cut their taxes significantly. You can't go much further in the tax system.

Harwood: You're saying you can't give middle-class taxpayers more of a tax break than you've done?

Cohn: Unless you want to start going negative tax rates and go into the negative world. So, when people score this, you're scoring against the bound of zero.

Harwood: You have a tax bill that takes away deductions for high medical expenses; that preserves carried interest — I know they're working on that; that takes away deductions for grad school tuition breaks; that takes away an adoption credit. And on a percentage basis, people in the top 1 percent get twice as much of a reduction in their effective tax rate as everyone else.

Cohn: Yeah, look, first of all, we're not done. And the only thing you have to work on now is the House blueprint. We're going to get a Senate plan later this week. Remember, the big thing we're trying to do is we're trying to solve for middle income, hardworking families.

Harwood: The companies that benefit from pass-through rates are high income because if they were middle income they'd be paying at the 25 percent rate already. The vast majority of those benefits going to wealthy businesses.

Cohn: I think you've got to wait till the whole plan is done and see where we finally end up, and see what the plan comes out. Everything in our tax plan is meant to encourage investment.

Harwood: You're not saying, as you did a few weeks ago, that the wealthy do not get a tax cut under your plan?

Cohn: I'm saying there's unique situations to everyone out there. Everyone has their own story. It's not our intention to give the wealthy a tax cut.

Harwood: But they're getting one.

Cohn: I don't believe that we've set out to create a tax cut for the wealthy. If someone's getting a tax cut, I'm not upset that they're getting a tax cut.

Harwood: Your old colleague, Steve Bannon, in the White House says, 'Ask him why they didn't design a tax plan focused on average Trump voters.' And when I talked to Larry Summers, who's your predecessor at the NEC, also Treasury Secretary, he said, 'Look, they're doing what their money wants.'

Cohn: They're entitled to their opinions.

Harwood: Why are they wrong?

Cohn: We have achieved our objectives. We are delivering a middle income tax cut and we are lowering –

Harwood: Small.

Cohn: We are lowering corporate taxes to make ourselves competitive with the world.

Harwood: Big.

Cohn: Yeah.

Harwood: If you look at the center of gravity of the economics profession, what they will say is that the deficit will go up more than you guys say, growth will increase less than you guys say, and that workers will get less than you guys are projecting.

Cohn: We vehemently don't agree. When you take a corporate tax rate at 35 percent and move it to 20 percent, and you see what's happened over the last two decades to businesses migrating out of the United States, migrating profits out of the United States, migrating domicile out of the United States, and hiring workers out of the United States, it's hard for me to not imagine that they're not going to bring businesses back to the United States. We create wage inflation, which means the workers get paid more; the workers have more disposable income, the workers spend more. And we see the whole trickle-down through the economy, and that's good for the economy.

Harwood: Another thing Larry Summers told me, 'The country wants to spend more on defense. We've got a whole lot of baby boomers retiring. We are going to need more money for government and not less.' So, the Penn-Wharton model — run by a former Bush administration economist, not a Democrat — says that this plan by 2040 will lose $4 trillion. During that time, the number of people on Social Security is going to go from 45 million to 72 million. How in the world does that make sense?

Cohn: We firmly believe that we are creating a model that creates economic growth in this country.

Harwood: But you know no tax cut's ever paid for itself.

Cohn: The years that we increased deficit are years when our economy is slowing down. We continue to borrow more and more money. So, the number one thing we can do for the United States citizens is to grow the economy. This tax plan is meant to grow the economy.

Harwood: Are you thinking that you'll deal with that Social Security/Medicare/baby boomer retirement issue later by entitlement reform that reduces benefits?

Cohn: Look, the President on the economic front laid out three core principles, three core initiatives that he wanted to get done in his first couple years. Number one was reg reform, number two was taxes and number three was infrastructure. We're working our way methodically through reg reform, taxes and infrastructure. I think when he gets done with those, I think welfare is going to come up. That's our near-term economic agenda.



Harwood: Compare the construction of this tax plan that you've been a part of with the process of a major initiative at Goldman Sachs, where you came from.

Cohn: You know, it's similar in many respects, and it's different in many respects.

Harwood: Less rational, right?

Cohn: Well, I don't know if it's less or more rational. So, a major initiative at Goldman Sachs, we would literally go through and we would be very methodical, and very organized, and we would think through what we wanted to achieve, how we were going to achieve it. What would be the intended outcomes; what would be the unintended outcomes? Could we live with the unintended versus the intended? What could go wrong? What could go right? How would we solve for all of the issues? And we would test that over, and over and over again, and bring in as many smart people as we possibly could to test that scenario.

Harwood: And how is it different now?

Cohn: But at the end of the day, you only had to convince one, two, or three people to do it. At the end of the day there was a small, small group of us. In dealing with what we have to deal with in taxes, we have 400-plus members of Congress and 100 members of the Senate, where we have to get 218 votes and 51 votes. So, we not only have to think about what the objective is with taxes, and tax reform. We have to think how do we get 218 votes, and how do we get 51 votes on top of understanding the intended consequences, the unintended consequences. We have to overlay that with a big political umbrella.

Harwood: Compare Donald Trump and Lloyd Blankfein as bosses.

Cohn: They've got a lot of similarities.

Harwood: What are the similarities? I'm surprised to hear you say that. What do you mean?

Cohn: Look, they're both very driven. They're both very passionate. They both strongly believe in what they're doing. Their core messaging is very similar. I mean, they come into the office with passion every day. And they are both driven by the mission and feel like they need to get the mission accomplished, day in and day out. So in many respects, they have a lot of similarities.

Harwood: How are they different?

Cohn: A corporate setting and the White House are different settings. You know, one's an elected official with a very public persona, one's a CEO with a fairly private persona and driving messaging inside the private persona where your clients don't really want to see you make news. Where on the other side, where your clients want to see you make news, which is the electorate, you approach those two things from a very different perspective. So, they're both managing their clients very effectively. And I think they both understand who their client base is, and they manage their client base effectively.


Harwood: Why do estate tax at all? If you preserve step-up basis, that means many capital gains for your kids, for Donald Trump's kids, will never be taxed.

Cohn: Like, I said, let's wait and see where the final plan comes out. On the estate tax in isolation, if you look at the couple of groups who are the biggest advocates for repealing the estate tax, it really is the pass-through business and it's the farmers.

Harwood: It's Donald Trump, Gary Cohn, people like you guys.

Cohn: Gary Cohn doesn't care about the estate tax, I can guarantee you. I can guarantee you.

Harwood: You're the one who said only a moron pays the estate tax.

Cohn: I can guarantee you Gary Cohn doesn't care about the estate tax.

Harwood: When you look at the actual number of real farms that pay the estate tax, it is tiny — in the dozens.

Cohn: Well, I think people have managed to keep themselves below the estate tax. This is the whole issue. Many people are smart enough to know how to manage themselves out of the estate tax. So, if you have a family farm that's big enough that it's going to hit the estate tax, you start paying lawyers, consultants, and accountants to break up your land, and break up your farm, and giving it to the kids when the families would prefer to keep the farm intact, keep it whole, and manage it as one big farm. We're forcing people into irrational behavior, when we'd like to keep them in rational behavior, and run the farm as one big farm.

Harwood: Are you seriously saying with a straight face that getting rid of the estate tax is about farmers and not about very wealthy families?

Cohn: What I'm saying is that it benefits farms, it benefits small businesses, it benefits a lot of different people. We do not believe –

Harwood: Small businesses with more than $11 million estates?

Cohn: We do not believe that death should be a taxable event.

Harwood: It's not about stimulating the economy?

Cohn: It is both. We want –

Harwood: How does it stimulate the economy?

Cohn: Well, look, we want that farmer to go out and buy the next piece of land, and the next piece of land, and the next piece of land, and create the economies of scale and be able to compete in the world. That makes sense to me. We want the small business to go double the production line and not have to worry about the size of his factory, worrying that, "Oh my God, I may incur estate tax and my family is going to have to sell this business."


Harwood: Do you think the economic effects you're describing will take place even if firms don't take money that they repatriate and invest, but instead give it into share buybacks as they did the last time we had a holiday?

Cohn: Absolutely. The minute we pass the law, you are going have to take an accrual on your books for the taxes owed on that money. Once you end up owing us the taxes, now you're making a business decision. If people bring the money back because they think there's an economic return that makes sense here in the United States, we believe there's a great economic sense. If they go to your alternative, which is that they issue dividends, or they buy back stock, guess what? We get another 20 percent tax on the money that they issue in dividends or they issue in taxes. So, we get a repatriation tax, we get a dividend or capital gains tax. The people to get those dividends, or they get those capital gains, they're probably investors. What are they going to do? They're going to go reinvest that money back in the market.

Harwood: That doesn't limit the wage effects you guys are expecting, the idea that you're going to hire more workers and pay the marginal worker more?

Cohn: The open investor doesn't want the money. If I got a pool of capital invested in the market today, and you send me a big dividend, I'm most likely sending that money back to someone else so they can reinvest it and hire workers.

Harwood: This Penn-Wharton model that was run by this former Bush economist has got a new projection out that shows that there is a chance that this will shrink the economy in the long run because of the deficit drag, the debt drag on growth.

Cohn: We don't agree with that. We believe that we're going to have a very stimulative effect on the economy by lowering the business tax rate, by lowering the corporate rate, and making America competitive with the rest of the world. A year ago, I was on the other side of this equation. I was advising companies how to get out of the burdensome U.S. tax system. We were talking about inversions, we were talking about moving companies out of the United States. It was the most compelling presentation I could make to a board is, hey, I can turbocharge your earnings without doing anything in your company. I can just relocate your domicile, and you can hold your board meetings, you can do a few things, and you can go from a 35 percent tax rate to a 15 percent tax rate. You can deliver 20 percent of your earnings to the bottom line.

Harwood: Did you feel guilty advocating that as an American?

Cohn: That's amazing. No. I didn't feel guilty because boards have a fiduciary responsibility to their shareholders. That's what they're supposed to do. So, you know what? We're going to make America competitive. We're going to make it compelling for people to build their companies in America.

Harwood: You, I imagine, are the point person in the White House for big CEOs because you come from their world, they know you. What are you hearing from them right now?

Cohn: The most excited group out there are big CEOs, about our tax plan. They all tell me how they excited they are to get a tax plan that makes the United States competitive, makes it so they can grow their business domestically, makes it so they can actually pay wages here. People have trapped their money offshore. So, you can't pay U.S. workers. You can pay non-U.S. workers, because you've got the money offshore.

Harwood: Don't businesses have a ton of domestic cash?

Cohn: Well, they borrow money at home to expand if they want to expand at home, but their real earnings are trapped offshore. If companies were making that money onshore, they'd be paying their labor, they'd be paying their workers more money. So, our biggest supporters are really the Business Roundtable. When you talk to all the CEOs — they're the most excited about this and they are the ones that are telling us what they are going to do in the United States, how they are going to invest capital, how they are going to grow their business.


Harwood: After the events of this summer, many of your friends, peers in the business world decided, 'I don't want to, for my reputation, my company's reputation, I don't want to be associated with this White House.' They disbanded these economic councils. There was a lot of speculation that you were going to leave. Why didn't you?

Cohn: Look, I am in an amazing position. The President has given me unbelievable task, unbelievable responsibility to help him drive his economic agenda. I believe in his economic agenda. I believe in what he's doing on deregulation. I believe what he's doing on taxes, and I believe what he's doing on infrastructure. When I look at myself, I have been really a lucky American to end up where I am. I owe it to the country to work for the citizens of the country, work for the President, and try and help him drive his economic agenda.

Harwood: You're not worried that your reputation will suffer by association with the administration?

Cohn: I'm not. And when we get tax reform done and the economy grows, I'm really not worried.

Harwood: You did speak out though. Do you think the fact that you spoke out is the reason that you were not in the Rose Garden the other day being announced as Fed chair?

Cohn: Look, I think the President picked the exact right person to be the Fed chair.

Harwood: But do you think that's why?

Cohn: And I'm very supportive of Jay [Powell]. I think Jay is a great selection, and he's the perfect choice to be Fed chair.

Harwood: Once tax reform is done, are you going to leave the White House?

Cohn: Nope.

Harwood: There's been a lot of speculation.

Cohn: Nope. I know. There's speculation on anything.

Harwood: Is it your plan to stay through the entire first term?

Cohn: It's my plan to stay and work as long as I can help the president drive his economic agenda. A year ago today, I wasn't thinking I'd be here. So, for me to tell you where I'm going to be four years from now, I have no idea.

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