Former Federal Reserve Chairman, Chairman of the President’s Economic Recovery Advisory Board and Co-Chair of the International Economic Alliance Paul Volcker spoke with FOX Business Network’s David Asman about the expiration of the Bush tax cuts saying “raising taxes is not exactly an opportunity.” Volcker also addressed how to fix the housing sector, the financial reform bill and the anti-business perception of the Obama administration.
Here are the key highlights from the interview, courtesy of FOX Business Network:
On business being worried about a tax increase:
“Let’s do what we can in those areas but if we are left with the Federal Government running 22, 23, 24 percent of the GDP we have to look at the revenue side. That raises interesting questions about taxes and in my view raising taxes is not exactly an opportunity, but if we have to do it it’s a good excuse for reviewing some basic issues in our tax system. And let’s see if we can’t have a tax system that is more friendly to incentives than our current system.”
On bailouts:
“The US should not be in the business of affectively subsidizing. In fact, or under the impression that they are going to be saved from that kind of activity…It’s been cut legislatively and I think it will have an impact, a healthy impact. And restraining the tendency in that direction. A lot is going to depend upon how the regulators themselves enforce this and keep on the ball…I think this is going to take a lot of attention.”
On Larry Summers replacement:
“I think what you want is somebody who to some extent, I don’t want to be little this, it’s very important, a kind of honest and bringing to the President the views not only of people within the administration, but people outside the administration including in the business community. And getting somebody in there with the talent to do that I think is extremely important.”
On the perception that the Obama Administration is anti-business:
“I think the perception is wrong. I simply do not underrated what everyone thinks of President Obama and the political situation. He is not a wild-eyed leftist radical. It’s ridiculous…Generally, they are worried about his positions on trade, but he hasn’t done anything with trade. Had some rhetoric in the campaign, but since he has been in office he has been a defender of open markets. I can’t really explain to my own satisfaction why the mood is as you describe.”
On how to fix the housing sector:
“I think one thing to say is don’t create another hybrid institution that’s half public half private. They are private when things are going well and public when things are going badly. They rise to enormous excesses in the housing market and it gave rise to the biggest single shock of the financial system…They are abnormal institutions and we shouldn’t expect them to work. They became convenient political compromise. That really was unfortunate.”
On what needs to be changed to incentivize business:
“Let’s assume that we are going to need some tax increased for the moment, as little as possible, but something. I think basically, you’ve got at least 3 choices maybe some combination. Do we have an environmental problem, do we have a warming cycle that is partly due to human activities? How do we deal with that? Well one way of dealing with it is a carbon tax which would raise some revenues depending on how high it is.”
On an energy tax:
“Well none is this is going to go through now. I’m telling you what I think the facts are…you know why do we have gasoline here at one third the cost of the gasoline in Europe? European economy doesn’t collapse, but they use a lot more efficient transportation than we do. So the idea of some kind of energy tax makes sense.”
On boosting corporate confidence:
“I do think the corporate income tax is a mess. It’s a mess domestically, but it’s a mess in terms of international competitiveness. Our corporate taxes with the single exception of Japan, and I think they are bring theirs down, is significantly higher than any other developed country…And how we treat foreign earnings is difficult…This is an area where I think we could come together, right in that area and make some constructive changes that everybody ought to support.”
On lack of spending and business growth:
“Well I think one reason they are not spending it is because of big excess capacity and they don’t see the demand with confidence that’s going to support business investment. So or at least, business investment is actually going up, not as fast and as far as you would like to see it. But it’s kind of a chicken and an egg. You’re not going to invest out of thin air if you don’t see the market there. And we are going through a very difficult period and it’s not entirely surprising that people are a little cautious about investing.”
On the redistribution of wealth:
“We have had an enormous income redistribution, from the average person to the rich person. It’s been the biggest income redistribution in our history as far as I know away from the average American family away from a very small group of rich people. And saying that that is going to be a change or effect the tax structure seems to be quite reasonable. Whatever he is proposing is not going to change the fact that redistribution of income to the richest part of America society.”
On comments Peter Orzag made against raising the marginal rate on top earners:
“He was expressing a political judgment that to get the relief for the average person maybe we have to give into politically to the other. I was surprised he said that, but we will see. That’s what the political system is here to resolve…I don’t think there are people in the administration, I don’t know what everybody in the administration is thinking. He was expressing a political judgment that as far as I know the President does not share.”
On weaning housing away from the government:
“That’s a relevant question that came up earlier and my answer again is yes we want to wean it away, but it’s not something we can snap our finger and say we have a new construct for the biggest part of American capital markets and within 6 months or a year we are going to change it. It’s just not possible. We are dependant. That whole sector of the economy which is very depressed is dependent upon government support of the mortgage market.”
On being against the repeal of Glass-Steagall:
“Nobody listened to me then…Let me say, I actually was in favor of removing some of the restrictions in Glass-Steagall.”
On the banking industry:
“Banks have their function in the economy…They are protected, but they have a public service and a customer service and a customer responsibility that are important and should be protected and are protected, but the same institution shouldn’t be engaged in a lot of speculative and proprietary trading. And more and more that has become the case. Particularly the case with nonbanking institutions. The old investment banks. But I don’t want the banks to become for better or worse a trading operation and that’s where the market was going. So I like to say no, stick to your netting. You’re an important function, a profitable function. It is a profitable function. Don’t get into speculative trading which will distort your incentives. And lead among other things to great tension about how you pay people, because those people won enormous bonuses than all of the rest. Then that affects the risk taking.”
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