My Interview with Obama’s Director of Economic Policy

What follows below is an unofficial transcript of my interview on Kudlow & Company last night with Jason Furman. Mr. Furman is Barack Obama’s director of economic policy.

Kudlow: Alright, can Senator Obama reassure Wall Street and become the growth candidate? To talk about this we have Jason Furman. He’s Obama’s director of economic policy. Jason, welcome back to the program. Appreciate it.

Furman: It’s great to be here Larry.

Kudlow: Alright, good to see you. Congratulations on your new post. Look, you know as well as I do, Wall Street is worried, or at least some people on Wall Street are worried about tax increases and future economic growth. What can you say regarding Senator Obama’s message that would reassure people here up in New York?

Furman: Sure. I mean, the folks I’ve talked to on Wall Street are worried that we’re going to have a continuation of the economic policies of the last eight years. And, they don’t want to see the type of economy we’ve had in the last eight years. When you look at what Barack Obama is talking about, number one, we need to get our economy going today. We have real serious problems. They’re looking more serious by the day. He was out in front in fiscal stimulus in January. Out in front again, calling for another $50 billion dollar round of stimulus.

Second, if we don’t have buy-in, in this economy, Larry, if we don’t have an economy that’s working for people, we’re not going to have people with a lot of support for overall economic, pro-growth, pro-market strategy. So you want tax cuts for middle class families. You want health insurance for everyone. But finally…

Kudlow: What do you think about this bond guy – this is so fascinating Jason, I want to let you take a whack at this – famous bond guy Bill Gross of Pimco out in the West Coast. He’s posted this letter to Senator Obama, and basically he says we need a trillion dollar, a trillion dollar deficit, in order to stimulate the American economy. You’re an old hand on fiscal policy. What’s your response to Bill Gross’s recommendation to Senator Obama?

Furman: Well Larry, you know Senator Obama likes to listen to a wide range of voices and a lot of different ideas. [But] I think a trillion dollar deficit is a little bit outside of the range of advice we’re interested in getting. We want to cut the deficit from where it is this year, and that’s one of the important changes that should reassure people about our economic policy.

Kudlow: In the early 90s – I don’t remember I think it was ‘90 or ‘91 Jason – Papa Bush and Congress instituted a luxury tax on a lot of things, furs, boats, yachts and so forth. And one of things they found out was that well yeah, the wealthier people stopped spending on boats and yachts, but the real losers were the blue-collar workers who were building the big boats. Do you worry that if you raise taxes on the rich you’re going to cut off their demand and the boat builders and the blue-collar folks might get hurt by this?

Furman: You know, if we had a proposal to tax yachts I might be interested in looking into the evidence in that. But we don’t. We have a proposal that says to some of the most affluent families, you can keep only a portion of the Bush tax cuts that you’ve gotten over the last seven or eight years. You can still keep a portion of them, but you’re going to have to give up some, because we need that money for our deficit. We need it for some of the critical investments in education and infrastructure to move our country forward. And we’ll have tax rates below where they were in the 1990s, a period where we created 23 million jobs.

Kudlow: So you’re not worried that if you let the top tax rate go up, and they keep less of what they earn, that they would – I mean a lot of people talk about cap gains and supply-side, I’ll get to that in a second – but just on the demand side, might it not backfire so they have less discretionary income after tax, and again, you know whatever it is, boats, houses, anything, that it’s the blue-collar folk that might get hurt?

Furman: There’s just no evidence for that Larry. Again, we’re going to have lower tax rates than we had during a decade when we created 23 million jobs. Some of the biggest threats to this economy are that it’s getting unbalanced. And it’s getting unbalanced, you see that in the fiscal deficit, you see that in cutting Head Start, you see that in under investment in research and healthcare for example. And it’s some of those imbalances that we need to redress. Those are the real threats to our economy. And we can’t redress those problems while continuing to let the most affluent keep every single one of those very generous tax cuts they’ve gotten over the last seven or eight years.

Kudlow: Going back to the capital gains tax, Senator [Obama] said he would raise the capital gains tax for upper-end people. If we’re looking to generate more energy – and particularly more advanced technology in energy, especially in the alternative energy sources – wouldn’t you want to keep that cap gains tax as low as possible because of the need for these very high risk investments?

Furman: Well first of all lets just remember Ronald Reagan raised the capital gains rate to 28 percent. After that, the stock market went up 270 percent over the next decade. We wouldn’t go above 28 percent. In fact, we believe we can make our budget work with a number coming in a lot closer to 20 percent. Second, no one below $250,000 would be affected. This is a new rate. Families below $250,000 wouldn’t be affected. And finally, and to your point, small businesses and start-ups, they’re going to have a zero capital gains rate. It’s John McCain who wants to tax their capital gains. Barack Obama doesn’t. He wants a zero capital gains rate for small businesses, for start-ups. They’re the ones generating these new ideas. And he wants to encourage that type of growth.

Kudlow: Actually, Reagan cut it. Reagan got it at 28, he took it down to 20. In ’86, in the tax reform, it did move up to 28…

Furman: Uh no, the tax reform, you should look at, oh the Tax Reform Act of 1986 took it up to 28, then we…

Kudlow: Yes. Yes. Initially, Reagan’s tax reforms of ‘81 lowered the cap gains, although it was mostly aimed at reducing the income tax. Jason, let me go to a couple other points though. Here’s George Bush today in the Rose Garden of the White House on energy. Let’s take a listen.

[President Bush: Nobody likes high gasoline prices. And I fully understand why Americans are concerned about gasoline prices. But I want them to understand fully, that we have got the opportunity to find more crude oil here at home, in environmentally friendly ways. And they ought to be writing their congress people about it. And they ought to say you ought to be opening up ANWR and Outer Continental Shelf, and increasing oil shale exploration for the sake of our consumers, as well as become less dependent on oil.]

Kudlow: Jason I hope you heard him. Open up the drilling, Outer Continental Shelf, shale and ANWR. What is Mr. Obama’s take on this?

Furman: Right. I mean, first let’s look at our energy policy today. We’re where we are, John McCain has been in Congress for 26 years. George Bush has been president for eight years. Neither of them has done anything about the problem. They’re the ones that have been overseeing this. They’re the ones that have allowed this to happen. And the reason they’ve allowed this to happen is because they’ve never wanted to make the types of investments in alternative energies, and new energies and efficiency in raising fuel efficiency standards for cars.

There’s a whole range of things we’d do that we know can really work. The problem with [President Bush’s] plan is you don’t get a single drop of oil for another decade. John McCain and his top economic advisor Doug Holtz-Eakin, they admitted it wouldn’t do anything for prices. They did say it would help psychologically, which is Washington-speak for ‘does well in a poll.’

Kudlow: Well it does do well in a poll, you’re quite right. Did you see Marty Feldstein’s story in the [Wall Street] Journal today? He says if you have the expectation of more drilling as the moratoriums come down, traders would sell oil and prices would fall?

Furman: I saw Marty said that. And most of the energy experts I’ve talked to say the exact opposite. You’re talking at something that – and, and one of those experts by the way is the administration’s own Department of Energy, which doesn’t think this would have very much of an impact on prices, and that impact would be, you know, 10 or 20 years from now.

Kudlow: Alright, Jason Furman. We’re going to leave it there. I appreciate you coming back on the show. Hope to see you soon.

Furman: Okay, great Larry. It’s terrific to be back.

Kudlow: Alright, take care.