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Former Director of the National Economic Council Gary Cohn discusses the impact of potential tax increases.
ADAM SHAPIRO: Welcome back to "Yahoo Finance Live. We continue our discussion with Gary Cohn, the former Director of the National Economic Council. And when we were going to break, I brought up the bipartisan infrastructure bill that is going to come at some point, perhaps next week, before the House. The question for you, Gary, is that when we talk about putting people back to work, some of the programs that kept people on the sidelines have expired already. So if those are gone and they're not coming back to work, would a big government spending bill like infrastructure be the motivation to get people to fill jobs?
GARY COHN: Well, look, historically, we have used big government spending programs to bring people back into the labor force. The irony is, as I said, we already have more jobs than we can find people to fill. And I hope it's a when-- when this bipartisan infrastructure bill gets passed, and, like I say, I hope it's a when. Remember, this is a bipartisan bill, they got 68 votes in the Senate, meaning that 18 Republicans voted for it. So it has pretty broad support.
When this bill gets passed, there are a lot of jobs being created in this bill to go out and fix a lot of our hard asset infrastructure that we all agree-- look, when I was in the White House four years ago, we spent an enormous amount of time talking about infrastructure, trying to get infrastructure deals done. It's hard. It's hard to get infrastructure done deal.
So look, I'm very supportive that we should get this bill done. We should get it passed. We should start rebuilding our physical infrastructure in the United States. This $1.2 trillion is just a start. Hopefully this money will be used to bring in a lot of private sector money as well. And we'll do public-private partnerships, and this will create more and more jobs. What I'm worried about is it just creates more wage inflation, because we can't get people back into the labor force.
SEANA SMITH: Gary, when we talk about the struggle of getting people back into the labor force, I guess, what does the timeline look like on this? Is this something that you think will take several months to resolve, something that will take several years to resolve? I guess, how are you looking at that timeline?
GARY COHN: Well, it's a really interesting question, because, you know, I think all of us have been wondering what will be the catalyst to get people back in the workforce. And look, there were a lot of legitimate reasons that people left the workforce during COVID. You know, kids were going to school from home. So we, as parents, had to be home with our kids.
We had to take care of grandparents. We had to take care of sick people. You know, all of these things were happening. So there was a natural phenomena that people potentially could not reenter the workforce. But we're now at a point where, I don't know, I turn on Saturday football games and I see 100-and-some thousand people sitting in a stadium. So it feels like people are comfortable to re-engage and get out, and they've got the ability to get out and leave their house.
I think what people have to understand is the financial stimulus that they received during COVID and they received in January of this year should come to an end. And that stimulus is not going to be the way they live their life. And that stimulus by itself is not going to keep up with inflation the way we're going right now, especially if we can't get people back in the workforce. So this is the question that I think we have to ask, we have to ask, what are we trying to achieve as a federal government? And so hopefully, we're going to try and achieve policy that incentivizes work and doesn't incentivize allowing people or encouraging people to stay at home.
ADAM SHAPIRO: We understand your concern and worry about getting people to fill those 11 million jobs that are open, 9 million unemployed. So this is something that would seem like a no-brainer, but it is an issue. Other than that, what emerging out of Washington is worrying you? I don't hear you being worried too much about proposals for tax increases, because they're not perhaps going to be as awful as some people worry they could be. But what is worrying you about what is taking place in Washington that could put a damper on getting people back into their jobs?
GARY COHN: Well, Adam, look, I am worried. I'm worried. I'm worried about competitiveness. I'm very worried about competitiveness. So if you take a international tax, to me, an international tax is a worrisome thing. Yeah, we've talked about other countries being willing to go to a minimum tax. Talking about having a minimum tax and implementing a minimum tax, they're different things.
When other countries implement a minimum tax, that's interesting. And by the way, those can be countries besides, you know, France, and the UK, and Germany. These are countries where the tax rates are very favorable and a lot of companies have domicile because of their favorable tax rates. When you get those countries to agree, that would be interesting to me.
So I'll give you a live example. I'll give you an IBM example since you talked about IBM in the opening. IBM is a company that has 2/3 of its revenue outside of the United States. On the flip side, they have 2/3 of their researchers and their scientists are here in the United States, which we think is important, because we're researching a lot of really interesting things when it comes to cybersecurity, security, artificial intelligence, quantum computing. So those researchers are here in the United States.
So when we repatriate back that money, if we're paying a huge punitive tax to repatriate that money, the logical answer is we should move those highly paid, highly skilled scientists, we should get rid of them in the United States and move them to countries where we're actually earning that money to lower our actual earnings that we're repatriating back, because we would save the tax. We would save the tax on foreign earnings by moving those jobs. I don't think we want to incentivize companies in the United States to move jobs offshore.
ADAM SHAPIRO: Gary, I think you've made a convincing argument about that. But I know your critics who are going to watch this interview are going to say, look, when we repatriated-- and it's a slightly different issue-- but the funds that were being stored offshore back in the United States, a large majority of that money actually went to stock repurchases. In just one case, I think Bloomberg did an analysis of this and companies used, I think it was like a trillion dollars to reward their shareholders. Not that there's anything wrong with that, but it wasn't quite the R&D investment that we thought would come with the tax reform.
GARY COHN: So look, Adam, you and I can talk about this for a long time. Had we not put that minimum tax in, that money-- we know this from history-- would have been invested overseas, because the penalty to bring it back was too high. So we lowered the penalty, and we forced the tax upon companies. So it came back.
If companies used it to buy back stock, they actually recirculated that capital within the capital markets here in the United States. So people that sold those companies back their stock, they now had cash to reinvest in new companies. And remember I said before, one of our huge competitive advantages in the United States is that we have risk base or venture capital start new companies. So that capital was then given to new entrepreneurs or new companies or led to companies to expand.
The capital got recirculated inside the United States. It didn't get spent in a foreign country to build a factory or a facility in that country where they were going to hire people in that country, not in the United States. So any way the money comes back and gets recirculated, it's bullish for the US economy. It's bullish for workers. It's bullish for wages. And it's bullish for GDP, which is exactly what you're trying to achieve.
SEANA SMITH: Gary, speaking of competitiveness here in the US, something that could affect that over the next couple of weeks is the debt limit, if the debt limit is not raised. Now, it's likely going to get worked out. But just from your experience, because I know this is an issue that you faced when you were part of the Trump administration back in 2017, but when we're up against a timeline like this, what are the potential implications of defaulting on debt, although we know that's not the likely scenario? And I guess, help us navigate some of these negotiations that are most likely taking place.
GARY COHN: Well, look, I think this is a tough debt limit discussion. And remember, people may not know this, but there's three things that can go through reconciliation, you know, revenue, expenditures, and debt ceiling. So the fact that the reconciliation laws are very clear the debt ceiling can be reconciled, the Republicans are saying, look, you know, the Democrats, you came in all by yourself and reconciled $1.9 trillion of spending in January. You're talking about spending another $3.5 trillion now. You're using reconciliation.
And by the way, you're well within your rights, and you're well within the law to do that. But you also have the same reconciliation power to expand the debt ceiling. So if you want to use reconciliation for these things, use it for the debt ceiling as well. So I think that's their argument.
I agree with you that debt ceiling's important. We have to expand the debt ceiling. The question is, is there a compromise between the Republicans and the Democrats? Or do the Democrats just need to go ahead and do it and do it through reconciliation? Look, I don't know that answer. That's going to be negotiated at the most senior levels in the legislative branch.
ADAM SHAPIRO: Gary Cohn is the former Director of the National Economic Council. And every time he joins us, I try to give him a little bit of a Cleveland, you know, nudge there. Bears are playing at Cleveland, I think, on Sunday. You mentioned 100,000 people in the stadium. And you know the Dawg Pound's going to be going. Gary Cohn, as always, thank you for joining us.
GARY COHN: Thanks for having me.