Gary Cohn, former president and CEO of Goldman Sachs weighs in on working with President Trump and how the U.S. can restore the economy.
ADAM SHAPIRO: I'm Adam Shapiro. Joining us now, Gary Cohn. He served as the 11th director of the National Economic Council from January 2017 until April 2018. That was under President Trump. Before that, before he went to Washington, DC, Gary Cohn rose through the ranks at Goldman Sachs and served as president and chief operating officer of the company from 2006 to 2016.
Before I jump into everything I want to talk about with you, I've got to acknowledge the fact that as we go towards the closing bell, Dow is off almost 700 points. The S&P 500 is off almost 70 points. Is this just more pandemic volatility? Is this the election? What do you think about those numbers?
GARY COHN: So, Adam, first of all, thanks very much for having me here today. I'm happy to be here with you. I think it's a combination of a lot of issues. And I think you touched on a couple of them. Number one, we've clearly seen the COVID virus numbers come back up as predicted. I think we're starting to see the fall to winter spikes that people predicted starting to come back into real numbers. And we saw some of those numbers come back over the weekend.
Number two, fiscal stimulus. You know, last week, we thought or we were being told that we're making enormous progress with fiscal stimulus, that Secretary Mnuchin and Speaker Pelosi were very, very close. We were on the verge. I think now, eight days away from an election, no one thinks we're going to have fiscal stimulus till after an election. I think that's 100% probability we won't.
And, you know, the market's been fairly volatile as we go into the election here. And we're starting to see a little bit more volatility around the election. We're starting to see a little bit more movement in polls. And you take all three of those together, the three unknowns, and we know that the market does not like unpredictability.
So we've just thrown more unpredictability at the market. And we've seen a little bit of a retracement here. I don't think this is a major retracement. We're sort of back to where we were a couple of weeks ago. We're still in a fairly positive uptrend. And business is still pretty good. We've got some pretty important earnings numbers coming out in the next few days in the tech sector. And so far, earnings for the quarter have been pretty good.
ADAM SHAPIRO: So let me ask you this. And we're in an election. You have had experience in Washington. I want to go back 2018. And this is something you said after your service in the Trump administration. Quote, "I'm proud of my service in the Trump administration, and I continue to support the president and his economic agenda."
And in this era where people are split, we should point out, you are a Democrat in the Trump administration. So what was that like?
GARY COHN: And I still am a Democrat.
ADAM SHAPIRO: And you still are a Democrat. So what was that like? And what do people get wrong or misunderstand about President Trump?
GARY COHN: Well, I don't know people get things wrong or not. You know, we're now-- when I said that, that was 2018.
ADAM SHAPIRO: Right.
GARY COHN: We're now almost at the end of the four-year term. And I've said this. You know, what you see is what you get with President Trump. And it doesn't matter if you're in private or you're in public. So the president that I dealt with one-on-one with in personal sessions with him, talking to him about the economy, talking to him about the economic agenda, is very much the president you get in a public format.
That said, he very much cares about the economy. And he's very much driven by the economy. He's driven by GDP numbers. He's driven by employment numbers. He's driven by wage growth. Yes, he talks about the stock market a lot because he views that as a big public barometer. But below that, he does care about the fundamentals of the strength of the economy and job and wage growth.
ADAM SHAPIRO: So what you've hit upon is important because if you're a Fox News viewer, you might think that the president absolutely gets it. If you're a MSNBC viewer, you might think he's clueless. You were in the office. You were in the room where it happened. Does he get it?
GARY COHN: So, absolutely yes. And the reason I can say this is, remember, in the White House, we get the economic data a little bit before it comes out to the public. And one of my jobs and my team's jobs was to brief the president on what the economic data was saying.
And so if it was unemployment data or GDP data, Kevin Hassett, myself, we would brief the president on that data. He was very interested in that data, very curious on that data, what was the data saying.
So when he would talk about manufacturing jobs being created in the job report, when he was talking about Black unemployment, Hispanic unemployment, in the jobs report, he would dig into those numbers, and he would want to know beneath the surface of what the core unemployment rate was or what the core wage growth was, what was really going on beneath the surface.
ADAM SHAPIRO: I want to ask you about those numbers. But I got to ask you as a Democrat, and your friends who are Democrats, does it annoy them when you say things like that? Because it paints the president in an understanding-- an economic understanding way that they would not get in their echo chambers.
GARY COHN: I don't know if that annoys my Democratic friends. I think on the economy, most of my Democratic friends would probably agree with me. And most of my friends are Democrats. So I think on the economy, we tend to see eye to eye. And so I think that side of the equation, there's a lot of meetings of the minds. The president was trying to drive an economic agenda that was pro-growth, pro-jobs, pro-business. And that was our objective.
So if you look at the actions in the first year and a half or so that we were-- when we were in the-- when I wasn't there in the White House. They're still there. We were driving an agenda that was trying to grow the economy.
So if you look at the tax reform bill, it was pro-jobs, pro-growth, pro-business, pro the economy. If you look at deregulation, when we tried to deregulate the small and medium-sized banks, that was pro-growth, pro the economy, pro-jobs. Those all had the same intended consequences to them.
ADAM SHAPIRO: Let's talk about the historic 2017 Tax Cuts and Jobs Act. And I want to save time to talk about stimulus because you're very big right now on that. We need stimulus. I'll make sure we get there. But let's go back to the rearview mirror. You just brought up jobs as part of the effort there. Different data says that-- and this is something Democrats like to point out-- that under President Obama, the last three years of his administration created 1.6 million more jobs in the first three years of President Trump's administration.
And then if you look at GDP numbers, GDP under President Obama was in 2014, 2.4%, 2015, 2.6%. '16 was a bad year, 1.5%. But then under President Trump, '17 was 2.3, '18 was 2.9. Last year was 2.3. Not really that much of a difference.
GARY COHN: Well, remember-- OK, so let's talk about it. And I don't want to cherry pick with you, but you sort of almost have to go into this, and I'm trying to be very sincere and very honest in here. The year that we had in there is-- so '17 is the year we changed the tax plan.
ADAM SHAPIRO: Yeah, that's an Obama legacy year.
GARY COHN: Right, well, I'm not saying it's Obama's legacy. I'm just being realistic. That was the old tax plan. So '18 is the full year where we get the tax plan. So when you start looking at '18 and '19, you get real years of seeing what the stimulus of the tax spend looks like. And I think '20, everyone probably is going to agree, is a tough year to throw in the comparison, what's going on with the virus.
So if you look at sort of the 3% GDP growth, the 3% wage growth, the 3% unemployment numbers, you start looking at the 3, 3, 3, those are pretty good numbers in there. And you started seeing disposable income go up. You started to see the economy grow up. I think we achieved what we were trying to achieve.
ADAM SHAPIRO: Your critics would point out when-- and this is pre-pandemic, though. The deficits, it came at a great cost. Deficits under President Trump started to go up and were projected to be $1.3 trillion a year to 2030. Now I realize Congress controls spending. Never met a Republican or a Democrat who didn't like to spend more money.
GARY COHN: Exactly.
ADAM SHAPIRO: But we wouldn't have $1.3 trillion a year if we had kept the old tax code. So have we looked into the future?
GARY COHN: How do you know that? I don't want to pick a fight with you, but how do you know that? Because you just said it.
ADAM SHAPIRO: I'm using CBO.
GARY COHN: Both sides like to spend money. So we never left the baseline spending in place. We actually add a lot of spending programs in there. So we never left the spending side of the equation in place. When people talk about the deficit side, let's talk about the deficit side on the revenue side.
So the place where I'm willing to defend, because this is the only side of the equation that I can defend is, did we or did we not collect equal or more tax revenue? We collected equal or more tax revenue. So then the question becomes, did we spend more money, or did we not spend more money? We did spend more money.
ADAM SHAPIRO: When-- and this is the last on the Tax Reform Act. When critics point out-- and I think it was just Washington Post the other day and Larry Summers as well, point out that 20% of corporations with $100 million or more profit don't pay any tax, and that the average tax, the real tax actually paid now that's dropped to 21%, is around 12%. The point being, what good is a tax if people don't pay it? We didn't eliminate all the loopholes if it's a 12% rate in real world.
GARY COHN: We eliminated a bunch of the loopholes. But look, again, let's compare to what it was prior. There were many corporations paying no tax under the prior tax law as well. We eliminated a lot of the loopholes. I'm not going to sit here and say we eliminated all the loopholes. We still-- we eliminated many, many of the loopholes.
We tried to get rid of as many as we could. We still have a huge offshoring issue. You can create these IP boxes offshore and put your intellectual property and then license it back to your US subsidiary. We were doing a lot of work on that. We went as far as we thought we could go and get a tax bill passed.
ADAM SHAPIRO: Now we have Joe Biden, who is proposing raising the corporate tax to 28%, even if the real payment is 12 right now. You told me in June when you were on our program that you'd be OK with that. Why?
GARY COHN: And I still am OK with that.
ADAM SHAPIRO: Why? Because isn't that counter to what you're saying?
GARY COHN: No, look, I think you have to get the corporate tax rate to a level that makes sense in a global competitive landscape. Remember, on the federal tax rates, whether it's corporate, and when you're really talking about corporate, you're talking about, how do you compete against every other nation in the world? Because international corporations can decide where they're domiciled. They can decide where their corporate headquarters is. They can invert to another country.
How do we make ourselves attractive as a home, a place where companies want to be domiciled, where they want to have their corporate headquarters, where they want to pay their taxes? The United States needs to be that place. There is a rate where it gets too high, where they don't want to be that. 21%, to me, was the lower end of where we needed to be.
ADAM SHAPIRO: You wanted to be in the mid 20s.
GARY COHN: I wanted-- yeah, honestly, I was happy in the mid 20s. So to me, 28% is probably a good number to land on to end up being attractive to corporations to be in the United States. But again, we have to talk about this in its entirety. It's not just the tax rate. It's what are you taxing?
So, look, even in this last CARES Act-- which I'm a big supporter of stimulus, so I don't want anyone to be misconstrued. We took out a lot of the expenses-- we brought back a lot of the expenses that we'd eliminated in the last Tax Act because we wanted people to spend money on travel and entertainment. So in our tax bill, we eliminated the expensing of a lot of those things. They brought them back in.
So to get the CARES pack done, they said, OK, we're going to allow companies to now expense travel and entertainment, which is probably a good thing because we want people out there spending money in restaurants. We want them spending money on airplanes. We want them spending money entertaining. But again, so you can't just look at the tax rate. You have to look at the tax rate times what number.
ADAM SHAPIRO: So in the next stimulus that we get-- there's going to be stimulus, as you pointed out-- what do you want to see? Because--
GARY COHN: We hope there's going to be stimulus.
ADAM SHAPIRO: President Trump wants there to be stimulus. He said $2 trillion plus, whether Republicans in the Senate will go there. But what should it look like? We've got-- we're in New York City right now. And you've talked about this. The restaurants-- 50% to 60% of restaurants here are going to go out of business. And that's not unique to New York. That's San Francisco, Chicago, major cities, small cities across the country. What do you want to see in the next stimulus?
GARY COHN: So the first thing I care about is jobs. And really, when you talk about jobs, you're talking about small businesses. As we know, unfortunately, the way the last economic shutdown worked, is that the large businesses were all able to stay open, and they were deemed essential, and they were able to keep their employees.
And so when you're talking about jobs, you're talking about small businesses in America. You're talking about the restaurants. You're talking about the dry cleaners. You're talking about the hair salons. You're talking about the bakeries. You're talking about the delis. You're talking about all the businesses that you see on Main Street America all over.
So the first place I think we have to go is we have to go into the small businesses, and we have to go into job creation. It's some combination of PPP. It's some type of economic stimulus for small and medium-sized businesses. And for those that can't even stay in small and medium-sized businesses, we're going to have to help with unemployment benefits in this country.
ADAM SHAPIRO: When you talk about job creation, how do you put people to work in an industry that, for instance, restaurants are only allowed to have 25% capacity, or even we had on Ed Bastian from Delta Airlines. He's cut his workforce. He's had to, and it's a lot of early retirements from 90,000 there down to 74,000. How do you do job creation in that kind of environment?
GARY COHN: So I think we all recognize that the travel leisure, hospitality industries, entertainment industry, they're the industries that are really suffering. They're all based on travel. They're all based on densification. They're on people meeting, people being together. That is the toughest industry to come back. And I think it's going to be a long, slow slog to get back.
ADAM SHAPIRO: Should we give these people universal basic income? I mean if it's going to be that long a period?
GARY COHN: So it's going to be a long period to think about. What I think is we have to start thinking outside the box. We know we're going to need a long recovery period for this. So we've been talking about things like infrastructure in this company-- in this country for a long time. Why don't we take a big chunk of this federal stimulus money and really turn it into something that we desperately need in this country?
We not only need to modernize our existing infrastructure. We need to think about what a real true infrastructure for the next century looks like.
ADAM SHAPIRO: How does that help, though? I hear what you're saying, but how does that help a waiter or somebody who's worked in those kinds of service industries?
GARY COHN: We're going to take them, and we're going to give them new job opportunities in a new industry, in a new place where they can get a new job. And we're going to move people from the waiter industry, or from the restaurant industry, or from being a chef, or from being in a hair industry, into a new industry. We're going to move enough people out where there will be less competition in those areas, where you'll start migrating people into different industry. So we'll move people into new opportunities.
So if you think of a country like the United States that still does not have a modernized air traffic control system-- we're still a land-based air traffic control system, which seems a little bit out of date. We're one of the few major countries in the world that doesn't have a GPS-based system. I think we're one of the few major countries in the world that doesn't have high speed rail system. Why wouldn't we take some of this major fiscal stimulus and start building it? Those are tens of millions of jobs, high paying jobs.
ADAM SHAPIRO: How much? Are you talking the $2 trillion? They were talking about a trillion dollars when you were in Washington, and it never materialized.
GARY COHN: We were definitely talking about a trillion dollars. If you're talking about these big fiscal stimulus plans, instead of just giving people money, which I'm supportive of right now, why don't we give people money and employ them in something that's going to make the country more efficient and more competitive for the next century?
ADAM SHAPIRO: When you say give people money, are you saying universal basic income? Are you saying through some kind of job--
GARY COHN: I'm saying unemployment benefit. We've got to allow people to live to get through this crisis. So what I'm saying is I acknowledge that right now is the economies are shutting down, Congress slowing down, restaurants are going to be less busy since we're dining outside. And it's cold and wet in a large part of the country.
ADAM SHAPIRO: Retail stores as well.
GARY COHN: And a large part of the country is getting colder and colder, and it's tough to eat outside. Restaurants are going to have to lay off people. Airlines are going to have to lay off people. Let's take the stimulus money and let's spend it in a way where we can employ people. People get up and go to work in a way that's socially distanced. It's safe, but we can build a better infrastructure in this country.
ADAM SHAPIRO: Let me ask you about cities like New York, San Francisco, Chicago, the state and local tax deduction-- not an original idea, by the way. Dan Rostenkowski wanted to get rid of it in the 1980s. But the federal government made a decision 30 plus years ago, we're going to allow those deductions for places that are higher tax, and then reversed it when you were one of the co-authors of this legislation. Would that help to restore that, a city like New York, or Chicago, or San Francisco, recover from this pandemic?
GARY COHN: It may. Look, I'm not saying it-- but it may be a temporary issue. What you have to do when you look at a place like a New York, like a Chicago, like a San Francisco, these are densified cities. And as we all know, there's been a move towards a more urban area where there's more space, where you don't have to get in elevators, where you don't have to get in mass transit, where you don't have to be densified. We're trying to de-densify.
Right now, these cities have to think about making themselves more competitive, more attractive. Raising taxes is not going to make themselves more attractive. You have to attract people back, especially in an environment where we've now learned that a lot of the people that needed to live in these cities because they needed to be close to their office or needed to be close to their place of employment, they're now working remotely and working successfully remotely. So the attraction of being close is no longer as compelling as it was.
ADAM SHAPIRO: So in New York, forget raising taxes. How do you get people to come back if you just keep the tax structure as it is now? Because it's a high tax city and high tax state.
GARY COHN: It is a high-- in many respects, I would think of ways of giving tax holidays and lowering taxes. So take your local restaurants. Take not your national chains, but take your local restaurants and say, guess what? If you're going to a local restaurant, we're going to waive sales tax for local restaurants. Make the local restaurant have a competitive advantage.
And yes, look, the city and the state will lose money on that. But if they can put more people to work there, they're not paying unemployment benefits. So you have to think of both sides of the equation. Right now, the government is paying unemployment benefits. If I can get people back to work, I'm not paying unemployment benefits. So you know what? I'll forego the tax, but I won't be paying the expenditure of unemployment benefits.
ADAM SHAPIRO: Are you talking to potential candidates in, say, New York, or Chicago, or in San Francisco, whether at the city level or at the state level, about this kind of future tax regiment?
GARY COHN: So I'm talking to, I would say, a bunch of the consultants that are talking about some of these plans. I wouldn't say I'm talking directly to candidates. But I'm talking to people that sort of fashion these plans for people.
ADAM SHAPIRO: Lastly, it's a presidential election. You have dodged the question in the past. Who are you voting for?
GARY COHN: It's a presidential election, and I'm going to-- I am going to actually go to the polls next Tuesday and vote.
ADAM SHAPIRO: But you won't say publicly whether you would vote for President Trump or Vice President Biden?
GARY COHN: I'm going to the polls and voting. I actually think that who you vote for is a private question.
ADAM SHAPIRO: All right. Gary Cohn, we appreciate your being here. Thank you very much.
GARY COHN: Thanks for having me.