WHEN: Today, Wednesday, January 30, 2019
WHERE: CNBC's "Closing Bell " – Live from the Context Summits in Miami, FL
The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Former National Economic Council Director and Former Goldman Sachs President and Chief Operating Officer Gary Cohn and CNBC's Leslie Picker on CNBC's "Closing Bell" (M-F 3PM – 5PM) today, Wednesday, January 30th, live from the Context Summits in Miami, Florida. The following is a link to video from the interview on CNBC.com: https://www.cnbc.com/video/2019/01/30/gary-cohn-jay-jerome-powell-doing-great-job-managing-fed-federal-reserve-economy-interest-rates.html.
All references must be sourced to CNBC.
WILFRED FROST: Welcome back. Fed Chair Jay Powell saying the case for raising interest rates has weakened and stocks are soring off the back of it. Let's head now to Leslie Picker, who has an exclusive interview with former National Economic Council Director Gary Cohn at the Context Summits in Miami. Leslie, over to you.
LESLIE PICKER: Thanks so much. So the FOMC meeting just concluding – the press conference just concluding. Do you think that Jay Powell is handling the economy the right way, with today's decision?
GARY COHN: I actually do. Look, I think Jay was put into a very difficult position but he's actually handled it very well. I listened to the conference.
LESLIE PICKER: Difficult, how so?
GARY COHN: I think Jay acknowledged that the United States economy is growing and is growing well. But if you look at what's going on in other parts of the world, he is having to deal with the slowing economic conditions in other parts of the world. So on one hand, the United States continues to grow and continues to show good signs of strength, but other parts of the world continue to slow. And he is trying to balancing the equation between domestic growth and global growth. And that is a pretty difficult part of the equation. He is also realizing that we do not have a lot of inflation in the United States. And in fact the only real inflation we hopefully will have in the United States is wage inflation. We've seen wages in the United States get up to 3.1%, so we're starting to see some real wage growth in the United States. But outside of that, we really don't have inflation in the United States. And I know as Chairman of the Fed, you are always worried about being behind the curve on inflation. So I think that Jay and the rest of the committee is doing a pretty good job here.
LESLIE PICKER: Are you personally concerned about a slowdown given some of the risks that are out there? A lot of the people who come on CNBC -- Ray Dalio to name one, Scott Minerd – has recently said that they're concerned that a recession is in the near future.
GARY COHN: Well, I have been teasing you and a lot of your colleagues recently that CNBC seems to be obsessed with the recession. I am not obsessed with the recession. I actually think the United States is in pretty good shape. We continue to see the very positive effects of the stimulus from tax cuts to the United States. We haven't even seen a tax filing season yet. No one has really filed their taxes yet to see what the effect it. I think that the effect is going to be quite positive. Not only on the business side, but equally as important on the personal side. We continue to see the consumer in the United States spend money. Yes, we saw a funny consumer confidence number yesterday, but remember that data was taken during the middle of a government shutdown. It is hard to have real consumer confidence during the middle of a government shutdown. So I believe that the consumer will continue to spend in the United States. We have a five year investment cycle for companies to invest in the United States. We'd like to see more capital investment in the United States. But look at what's going in with these external factors. The rest of the world is slowing down a little bit. We've got a lot of discussion about trade and the price of underlying commodities, steel and aluminum that you need to build factories. So companies have yet to invest. And when we start seeing that investment cycle, I think the U.S. economy will continue to grow.
LESLIE PICKER: Now you have been outspoken about the tariffs, you've been outspoken about the shutdown, saying that neither are really what the country needs at this time. Have you lost confidence in this administration from an economic standpoint since you've left the White House?
GARY COHN: I've made my point on tariffs and on trade very clear. U.S. consumers are paying the tariffs. No foreign entity has paid a dollar of tariff to the U. S. government. So when we make goods more expensive for the U.S consumer, it means that they can buy less other goods or less other services or even worse of all, save less money. That's not what we need to be doing to our consumers. So I feel very strongly that it is our job to make goods as cheap as possible in the United States, so our consumers can consume as much as they want and hopefully save at the end of the day.
LESLIE PICKER: Now in terms of that tax stimulus that you talked about a few questions ago, there was recently a NABE survey that came out a few days ago, which said that about 84% of the people surveyed believed that they hadn't really felt much of an impact from the tax bill, that they haven't increased their hiring, they haven't increased their CAPEX spending as a result. What's going on there? Are you disappointed with the results? Or --
GARY COHN: Well look, I think there's a couple different things going on. We came out with a great tax plan. We came out with a great deregulation plan. Both meant to stimulate growth. On the flip side, we've come out with things that are anti-stimulus at the same time. And you and I both know that corporations, A) Take a long time do their CAPEX plan. You know, companies can't decide today that they are going to go buy a 100 acre piece of land and go build a factory. They need to buy the land, design the factory, get the permits. That itself will take a year or two. And that is why we made the investment window a five year investment window. But then if you see the price of steel of goes up, you see the price of machinery goes up, it makes it less and less compelling to build those factories. So we need to make it compelling for people to build those factories, and we need to keep people investing in the businesses. So look, my view is that investment will come when there is more and more clarity in what our trade relationships are with countries around the world.
LESLIE PICKER: Is there a risk that it is too late though? That the benefit of that stimulus will come to pass by the time the government figures out its way on trade and figures its way out with regard to the shutdown?
GARY COHN: Look, there is risk to everything. When you are dealing with corporate decision making, when you are dealing with economic growth, when you are you dealing with jobs, there is always risks. You know, things happen that you can never foresee or foreshadow, things good and bad. So there is risk to all of these scenarios. We are hoping that we stay more or less on the path that we hoped we would be on. We continue to have companies be more competitive in the world environment because our tax rate makes them more competitive. We continue to hire more people. In fact, you see that. We've got an unemployment rate below 4%. We'll continue to have qualified skilled labor in the United States to hire from. And we're continuing to grow our economy. But these things take time. As I said, we haven't even gone through a full tax cycle yet. In fact, many of the tax rules were just released by the IRS within the last 6 to 8 weeks. Not that I'm complaining about that. They had so much rule and regulation to write. The opportunities on regulation was just written at the end of last year.
LESLIE PICKER: And yet we're starting to see this sentiment really build in this country, whether it is with regard to representative Alexandria Ocasio-Cortez, Elizabeth Warren, even Howard Schultz is talking about fiscal responsibility. But the first two, AOC and Warren, have both proposed plans that would incorporate raising taxes on the wealthy. What do you make of those proposals? Do you think that is what the economy needs at this time?
GARY COHN: Look, first of all, the U.S. tax code is very, very complicated. I spent, you know, over a year of almost every waking hour in the U.S. tax code. It is very, very complicated. So the one thing that I would tell people: before they start talking about the U.S. tax code, they need to understand it. The U.S. tax code is really three different tax codes. We have a corporate tax code, which I think people understand. We have an individual tax code, which I'm not sure people understand. But most importantly, we have this tax code in the middle which is the pass-through tax code, which is the vast majority of businesses in America. The vast majority of people work for pass-through entities which is really part of the personal income tax cut. It's really this hybrid. And the relationship between the corporate tax code and the pass-through tax code is very, very important. Because people or businesses can always turn themselves into a corporation or a corporation can always turn themselves into a pass-through.
LESLIE PICKER: So you're saying if there was some sort of wealth redistribution policy put in place, that people would just find ways to skirt it? Or --
GARY COHN: I'm saying we have to make a level playing field for everyone in the system. So look, if you and I were in the exact same business, and you were a corporation and I'm a pass-through, and you were paying 20% income tax on your income and I'm a pass-through and I'm -- today I'm paying 37% less maybe 20%, but then my incremental rate goes up dramatically, I wouldn't be competitive in the world, you would be competitive in the world. I wouldn't even be competitive with you. I wouldn't even be competitive domestically.
LESLIE PICKER: But they are talking about individuals they're talking about. They're talking about billionaires --
GARY COHN: By the way, I'm talking about some of the biggest pass-throughs in the United States are bigger than some of the corporation in the United States.
LESLIE PICKER: But do you think if this plan passes – and I don't even know if you think it has a chance at passing – that it would be harmful to the economy or helpful to the economy?
GARY COHN: It would be harmful to the economy. And I'm not saying that collecting more tax revenue is harmful to the economy. I'm saying that we have to compete in a global theater. And when we look at cutting the business tax and also cutting the pass-through tax down, the main driver for that was to allow U.S. companies to compete in a globalized world. So we were trying to tell U.S. companies to compete against companies in other parts of the world – they were paying substantially less tax than their U.S. competitor. And now we've got it more or less on a level playing field.
LESLIE PICKER: Now, Gary, I have to ask you, because you are here at a hedge fund conference, there are headlines about you joining the board of a block chain startup, there are headlines about you joining a Harvard fellowship. What are you doing these days? What is your act three? What are your plans for the future?
GARY COHN: Wellall of those are true. So you happen to be three for three there. So I am involved in a block chain business and I believe very much block chain as a business process makes an enormous amount of sense going forward. I am continuing in the process I started in the U.S. government. Former Senator Heidi Heitkamp and myself are going to be teaching a class at Harvard starting next week on what we call 'The Real Estate Of The Union.' It's going to a policy class of the Kennedy School where we'll go through all of the big policy issues in the U.S. government, which I'm very excited to do to – just to continue to talk about many of these policy issues that have gotten very important to me. And I'm continually investing in new companies I think are really important for the United States. Look, one of the biggest competitive advantages we have as a country is we have an entrepreneurial spirit and we tend to invent some of the best companies in the world. And I'm having a great time working with some of those young inventors in the world.
LESLIE PICKER: So we may see you show up in Silicon Valley one of these days.
GARY COHN: You may. I'm out there a lot.
LESLIE PICKER: Alright. Gary Cohn, thank you so much.
GARY COHN: Great seeing you. Thanks.
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