Charlie Rose Talks to Meredith Whitney

November 5th, 2010

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Charlie Rose Talks to Roger Altman, Glenn Hubbard, Glenn Hutchins and Meredith Whitney
An Election Night roundtable drawn from business and academia on debt, tax cuts, and the prospect of more regulatory uncertainty

By Charlie Rose
BW Magazine

Now that voters have had their say, what’s going to be done about the Bush tax cuts? The President has said he’s in favor of extending them for the middle class, but how do you see this playing out?

Columbia University economist R. Glenn Hubbard: I think the right answer for the economy is to extend all the Bush tax cuts until we’re ready to have a serious national conversation about two subjects. One is the size of government and whether we can afford any tax cuts, and second is tax reform. I see no argument for punishing high-income taxpayers in the middle of a recovery from a recession. A two-year extension is exactly the right answer, and I think that is ultimately what the President will decide.

What do you think the President—and Congress—will do on this issue?

Silver Lake Partners’ Glenn Hutchins: The tax cuts are part of a much bigger issue. The very biggest issue facing us—and I hear this from foreign leaders, both business and political, when I travel—is the U.S. fiscal situation in general. One thing government can do to stimulate investment and create job growth is to get its own house in order. It’s the only thing it can and should do. Tax policy is a key part of that, but we need to bring spending under [control] and have a long-term path to a stable future that businesspeople can build on top of. It’s pretty much the only important thing.

Much is said about uncertainty. Uncertainty about tax policy, about regulation, about trade. How will certainty be established?

Hutchins: The biggest issue of uncertainty for businesspeople is their revenues, what economists call aggregate demand. There is a tremendous amount of uncertainty about getting back to the level of economic performance we had before the crisis.

Put the U.S. in the context of other countries in terms of its tax policy. Where are we, and where might we go?

Evercore Partners’ (EVR) Roger Altman: If you look at the so-called richer countries, in terms of the federal tax burden we rank relatively low. That comes about because we don’t have a value-added tax. Most OECD countries do. Our income tax rates may strike some people as high, but by international standards they’re not that high. But the corporate tax rate in the U.S. actually is quite high.

And should be reduced?

Altman: Eventually. We do need a lower corporate tax rate, but it really needs to be part of an overall approach to tax reform on the one hand and deficit reduction on the other. Those two are going to have to be part of the same package in the end because there’s going to have to be some additional revenue before we can ultimately solve our deficit problem. That’s where tax reform comes in.

I think Glenn [Hubbard] is anxious to jump in.

Hubbard: That’s right on one level. But we do rely more on income and corporate taxes than many of our peer countries. Indeed, countries that tend to have larger governments rely very heavily on consumption taxes because it’s the most efficient way to fund a larger government. That’s a lesson for the U.S. We could cut our corporate taxes down to being in the high twenties from the present 35 percent with minimal revenue loss. It’s something we should do.

I want to come back to the topic of uncertainty. Meredith, you talk to a lot of CEOs. What are they looking for over the next two years? They’re sitting on a lot of cash waiting for something. Is it demand or is it certainty?

Meredith Whitney of Meredith Whitney Advisory Group: Resoundingly, the one thing they’re looking for is leadership. And antagonism is not leadership. If you had leadership positions on policies like taxes, like fiscal issues, like corporate governance, like reg reform, that would be certainty you could live with and plan on. But if the rules are changing constantly, it’s very difficult to budget. And that’s why so many corporations are sitting on so much cash. They don’t know what their needs are going to be in the future.

That then creates, at least for the banks, an environment where you’re hoarding cash, you’re not lending. Leadership could come in and rectify a lot of that. That’s what business is really looking for. The Republicans are in a tricky situation. If they slow things down and the unemployment rate doesn’t move, then they’ll get kicked out of office. Someone’s got to go cross-aisle and take the leadership position.

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