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Remarks by John Engler at Economic Club of Grand Rapids, Michigan

Remarks

John Engler

Economic Club of Grand Rapids

Grand Rapids, Michigan

April 16, 2012

[As Prepared for Delivery]

 

Good afternoon, everyone. Thank you, Mark [Murray].  It's a pleasure to be back at the Economic Club of Grand Rapids.

Congratulations to West Michigan. It’s great recognition that Forbes just named Grand Rapids the best city to raise a family.

Strong families produce great kids, like today’s essay contest winners. And by the way, when Emily Cole responded to the question, “What Value Will You Bring to the Future Economy of Michigan?,” she wrote about the role of education.

There’s no question that one of the challenges of Michigan and the other 49 states face today is to build an education system that simply has to be the best in the world.

More good news: Last month, the Brookings Institute identified Grand Rapids as one of 20 metropolitan areas in the nation recovering strongly from the recession – especially in terms of improved employment numbers.

Despite gains in manufacturing, Grand Rapids, Michigan, and America still need economic growth and more jobs.

The most telling national employment statistic is not three consecutive years with an official unemployment rate above 8 percent, but the fact that fewer people are working now in 2012 than were working in 2008.

And that 8 percent rate doesn’t factor in the millions of people who have stopped looking for jobs over the last four years, and it doesn’t factor in population growth. If it did, the national unemployment rate would stand closer to 11 percent!

Add to this soaring deficits, rising gas prices, and political paralysis in Washington.  Well…you get the picture…and it’s not very pretty.

Still, the United States remains a nation blessed with tremendous strengths. Our people, our resources and our free-enterprise system all represent incredible assets.

But we are underperforming, and we need to step up our game.  We can't accept a world in which unemployment above 8 percent becomes the new norm, where the economy grows at just 2 percent annually – half the rate of previous recoveries – and trillion-dollar deficits are tolerated at all.

 

Next January marks 10 years since I left the governor’s office. I’ve had the opportunity to do some interesting things. I spent nearly six-and-a-half years heading the National Association of Manufacturers, and since January of last year, as Mark told you, I’ve been privileged to lead the Business Roundtable.

While we had 13,000 companies in the manufacturing association, the Roundtable is a little different. The members are the CEOs themselves, the men and women in charge of leading U.S.-based corporations.

The companies of our 210 CEOs annually:

·         Generate $1.6 trillion in annual revenues a year

·         Employ 14 million people.

·         Invest $150 billion in research and development – nearly half of all private U.S. R&D spending.

·         And generate an estimated $420 billion in sales for small and medium-sized businesses annually.

I was recruited to the Business Roundtable position by CEOs who feel the need to be more vocal on the vital issues of the day.

America’s best CEOs are used to winning and they want to see our country win. They believe it matters how our nation approaches issues like competitiveness, tax and regulatory policy, trade and energy, education and health care.

A few weeks ago, we released a report entitled “Taking Action for America: A CEO Plan for Jobs and Economic Growth."

I thought today it might be good for me to talk about some of the recommendations we made, and the urgency we feel if are going to meet the competition we are facing from virtually every corner of the world.

BRT leaders recognize intense competition exists among countries. In the 21st century global economy, competition is everywhere. Capital is incredibly mobile, and able to deployed anywhere in the world. Today’s technology has virtually triumphed over geography…and there’s no point in being nostalgic.

Many national governments are aggressively recruiting companies to invest in their countries. They’re offering tax incentives, modern infrastructure, trained workers, stable regulatory climates, and an impressive array of other inducements.

So the question is, can we compete?

America’s governors understand the imperatives of competition.

 

Governor Snyder is acting to make Michigan more competitive, and I commend him for his leadership: Modernizing Michigan’s business tax structure, bringing fiscal discipline to state government, even working with Mayor Bing to address a bankrupt Detroit.

When you look at what Michigan's neighboring states are doing to improve their business climates, these kinds of reforms prove even more critical. The governors of Indiana, Wisconsin, Ohio have all controlled spending, kept taxes in check, and brought efficiency to government.

How could you claim you’re meeting the competition if in Washington – in sharp contrast to the governors on the states – what’s been offered is gridlock, polarization and inaction?

Oh, I know what they’re saying. Don’t worry. We’ll take it up when the election’s over.

Well, I’ve been around a long time and it seems like there’s always another election.

I have news for the President, for Congress, and for everybody else who makes this argument.

The rest of the world is well aware we’re having elections, and they’ve decided NOT to take the year off.

Let’s talk about taxes.

The United States has not undertaken major business tax reform since 1986. In 1986, the Soviet Union still existed and China's economy had yet to take flight.

The commercial Internet was in its infancy, and the closest thing to a "smart phone" was the communicator used by Captain Kirk in Star Trek reruns -- and he didn't even have any apps.

The world's economy has changed since 1986, but our tax system has not.  As a result: We are now No. 1.

What do I mean?

On April 1, Japan dropped its combined corporate tax rate five percentage points, leaving the United States with the highest corporate tax rate in the world -- 39.2 percent. This is a ranking that we do not want.

While we’ve sat back, the world has passed us by.

 

Canada has been steadily lowering its corporate tax rate over the last decade, reaching 25 percent on January 1 this year. Tax reduction -- tax competitiveness -- has been a bipartisan policy, too, pushed through first by the Liberals and more recently by the Conservative government of Stephen Harper.

Canada’s not only cut its tax rates, it’s balanced its budget, and improved its competitiveness in every way.

The result, the “Lost Decade of the ‘90s” -- with unemployment above 9 percent -- has been replaced by a thriving economy that with a robust growth rate that allowed Canada to emerge almost unscathed from the recession. And unemployment stands at 7 percent, a full percentage point below the U.S.

While the European economy has slowed considerably, it doesn’t mean European countries are ignoring the need to compete.

Gordon Osborne is Britain’s Chancellor of the Exchequer -- our equivalent of the Secretary of the Treasury. Last month, Osborne announced that the U.K. was speeding up its plans for reducing its corporate tax rate to 24 percent -- effective this month. In his budget speech, he said, and I quote:

"[It's] a headline rate that is not just lower than our competitors, but dramatically lower. 18% lower than the US. 16% lower than Japan. 12% below France and 8% below Germany. An advertisement for investment and jobs in Britain."

He made an explicit plea based on competitiveness – arguing lowering taxes would promote growth and jobs in the U.K.

One other benefit of cutting corporate tax rates is that helps workers. It’s the opposite of highest corporate tax rates that punish America’s workers…Michigan’s workers. A relevant study by the Congressional Budget Office revealed that labor bears up to 75 percent of the costs of corporate taxation in the form of lower wages.

In our "Taking Action for America" report, Business Roundtable's CEOs laid out a plan to streamline and modernize taxation to make the United States more competitive.

Business Roundtable believed that for reducing tax rates to 25 percent and moving to a competitive territorial system would go a long way to making us much more competitive.

I mention the territorial system. We’re virtually the only country that believes a company, when it makes money overseas, should subject to those profits to taxes here, in the United States.

Here’s a simple example of what I mean: Coca Cola, and a German competitors both sell their products in Malaysia. They each make $10 million there. They each pay $2 million in taxes -- that's a 20 percent rate in Malaysia.

 

The German company is then free to take the remaining $8 million home to Germany or anywhere else in the world.

The U.S. company, like the German, can use its profits around the world -- except, if

they bring it back to the United States, they’d have to pay another $1.6 million in taxes, or an additional 16 percent.

It appears comprehensive reform will have to wait until after the election. Something that can’t wait is action on the 60 tax provisions that expired at the end of 2011, and the 41 tax provisions expiring at the end of this year.  How can any business plan for investment or hiring when no one knows what the tax code even looks like?

Modernizing our tax code is not our only challenge. Our broken regulatory system puts the entire nation at a disadvantage.

Our CEOs recommend that the entire rule-making process be revisited. We need to have more effective cost-benefit analysis, we need more timely action, we need more scientific expertise, and generally we need fewer rules – and where rules are required, they need to be a lot better.

I know some would say, oh, there aren’t that many rules. Is it really a problem? Well, here’s an example of what I’m talking about.  

During its first three years, the Obama Administration has imposed 106 major new regulations totaling more than $46 billion in new costs.

Dodd-Frank alone is expected to add $7 billion in annual compliance costs and require companies to hire more than 26,000 new employees just to do the paperwork.

And health care reform? As we all know from the Supreme Court case, the bill itself is 2,700 pages long. No one even dares estimate how many thousands of pages of rules will be needed to implement the 2,700 pages of law.

Sometimes it isn’t a rule, it’s a permit....Like the Keystone pipeline out west.

This was the most studied pipeline project in history, one that would create tens of thousands of jobs, but its permit was blocked because of what appears to be political considerations.

Since then, President Obama has ordered agencies to expedite the permitting for energy and infrastructure projects.

Why just those sectors? Shouldn’t regulators expedite EVERY permit?  And the President has been unclear about what "expedite" really means in this case.

Again, we can look to our competitors -- Canada.

 

When the Harper Government released its federal budget earlier this month, Finance Minister Jim Flaherty announced a new policy on permits for major economic projects. Minister Flaherty said: "We will streamline the review process for such projects, according to the following principle: one project, one review, completed in a clearly defined period."

If our competitors are changing, then that tells me that we cannot only change, but that we MUST change if we are to keep pace.

These are not trivial matters. Last October, Dr. Michael Porter of Harvard Business School and his colleague surveyed nearly 10,000 alumni of the business school on U.S. competitiveness,  men and women who understand the economy and the imperatives of global competition.

And the survey's disturbing top-line result? The Harvard Business Review reported that the vast majority, 71 percent, expected U.S. competitiveness to deteriorate over the next three years, with firms less able to compete, less able to pay well, or both.

The respondents viewed the United States as already weak and in decline with respect to critical factors: the complexity of its national tax code, the effectiveness of its political system, the K-12 education system, macroeconomic policies -- that's fiscal policy, or the federal debt -- the efficiency of the legal framework, and regulation. We addressed all these issues in “Taking Action.”

The greatest concern was the complexity and uncertainty surrounding the U.S. tax system.

But I want to highlight what I find to be very disturbing -- dissatisfaction with our political system.

The CEOs of the Roundtable are men and women of different parts of the country, some quite different backgrounds.

But after a year of experience, I can tell you the one attribute they all share: When faced with a problem, they act. CEOs don't have the luxury of saying, oh, we'll deal with that after the next election.

That’s what leaders do.

A week ago today, I heard Governor Chris Christie talking about the things he’s done in New Jersey with the Legislature entirely in the hands of his political opponents, yet he has restored fiscal discipline and held the line on taxes because he had a plan, he fought for it, and built public support for it.

Other governors across America have also had success.

 

One of the most senior members of Business Roundtable, Fred Smith, CEO of FedEx, spoke for many in a recent speech. He said, and I quote:

“I think it’s time to follow the advice of one of the greatest Americans, General George C. Marshall, who said, ‘Don't fight the problem, decide it.’ Let’s all tell our leaders to get back to business — now, not seven months from now, after Election Day. Let’s take an absolutely positive attitude toward serving the American people by working together to renew America’s economy. Stop fighting, and decide.”

Fred Smith is exactly right. Our leaders need to get back to business. We need to renew America’s economy. It is time to decided – that decision must be to unleash the American spirit, to allow our people and enterprise to compete. That’s what you’ve done in Grand Rapids. That’s what America can do.

That's the message our CEOs are sending, a message I encourage you to continue to send, all well.

An America that works will be an America in which more people are working. It’s time to take action.

Thank you.


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