Why taxes should be low
Snow met his Polish counterpart last week on route to the G20 summit in Berlin. During his visit to Warsaw he sat down with the WBJ's Andrew Kureth to discuss the falling dollar, the current account deficit, and business ties between the U.S. and Poland
The United States and Poland are close allies politically, but economically, ties are not so close. What, in your opinion, can be done to increase and strengthen those economic links?
The path that the Polish economy is on-it's growing, it's stable, it's got low interest rates-that creates an environment for investment. This came up during my discussions with the Finance Minister, Mirosław Gronicki. That's what makes an economy grow, just to keep managing things the right way. Low tax rates influence higher rates of return.
You've talked very much about 'barriers to growth' that are preventing European countries from performing as well as they could. Do you see any of those barriers here?
That's what I and the Prime Minister Marek Belka and the Finance Minister were addressing: getting the deficit down and watching spending. High spending rates burden the taxpayers. And when you have high spending rates and deficits it's hard to keep tax rates low, and I think the government has made a commitment to low tax rates. Low tax rates work. We've seen in the United States that low tax rates are the path to expansion, growth of the economy and creating lots of jobs. I don't want to be in the position of giving lots of advice to heads of other states and finance ministries, but your government here, the Polish government, has laid out the right agenda: the privatization activities, the speeding up of the court process, limiting regulation. All of those things are very, very positive; they're on the right path.
Very recently, the government passed a law placing a 50 percent tax rate on the country's highest earners. Are tax rates really dropping as quickly as you'd like to see them?
Well, corporate tax rates are down.
So is it much more important that the government lower corporate tax rates rather than personal rates?
It is important to have low tax rates generally available, because they lead to better results. Over and over and over again, the record shows that lower tax rates produce prosperity. It affects behavior: more risk-taking, effort, work and energy. But I'm not close enough to it to begin to offer advice.
The dollar's rate is falling, and fast. What concrete measures are being taken to keep the dollar strong?
First, we need to deal with the deficit. The U.S. government needs to save, and we also need to take steps to increase our household savings. The administration has put proposals before Congress to do just that. We have sent proposals to Congress to create tax advantage vehicles and savings. Some of them have been adopted.
But our trading partners need to grow faster. Their slower growth rates mean that they're not generating as much additional disposable income as we are. Some of our disposable income shows up buying things from people around the world.
And finally, the third big piece, as we think about it, is encouraging countries who have fixed exchange rates to greater flexibility; China, for example. That greater flexibility will also help the adjustment process. So it seems to me that the trading countries of the world have a shared responsibility to deal with this issue.
The United States and Poland are close allies politically, but economically, ties are not so close. What, in your opinion, can be done to increase and strengthen those economic links?
The path that the Polish economy is on-it's growing, it's stable, it's got low interest rates-that creates an environment for investment. This came up during my discussions with the Finance Minister, Mirosław Gronicki. That's what makes an economy grow, just to keep managing things the right way. Low tax rates influence higher rates of return.
You've talked very much about 'barriers to growth' that are preventing European countries from performing as well as they could. Do you see any of those barriers here?
That's what I and the Prime Minister Marek Belka and the Finance Minister were addressing: getting the deficit down and watching spending. High spending rates burden the taxpayers. And when you have high spending rates and deficits it's hard to keep tax rates low, and I think the government has made a commitment to low tax rates. Low tax rates work. We've seen in the United States that low tax rates are the path to expansion, growth of the economy and creating lots of jobs. I don't want to be in the position of giving lots of advice to heads of other states and finance ministries, but your government here, the Polish government, has laid out the right agenda: the privatization activities, the speeding up of the court process, limiting regulation. All of those things are very, very positive; they're on the right path.
Very recently, the government passed a law placing a 50 percent tax rate on the country's highest earners. Are tax rates really dropping as quickly as you'd like to see them?
Well, corporate tax rates are down.
So is it much more important that the government lower corporate tax rates rather than personal rates?
It is important to have low tax rates generally available, because they lead to better results. Over and over and over again, the record shows that lower tax rates produce prosperity. It affects behavior: more risk-taking, effort, work and energy. But I'm not close enough to it to begin to offer advice.
The dollar's rate is falling, and fast. What concrete measures are being taken to keep the dollar strong?
First, we need to deal with the deficit. The U.S. government needs to save, and we also need to take steps to increase our household savings. The administration has put proposals before Congress to do just that. We have sent proposals to Congress to create tax advantage vehicles and savings. Some of them have been adopted.
But our trading partners need to grow faster. Their slower growth rates mean that they're not generating as much additional disposable income as we are. Some of our disposable income shows up buying things from people around the world.
And finally, the third big piece, as we think about it, is encouraging countries who have fixed exchange rates to greater flexibility; China, for example. That greater flexibility will also help the adjustment process. So it seems to me that the trading countries of the world have a shared responsibility to deal with this issue.
