Giuliani on Taxes and Social Security

He would chop the federal workforce, make the Bush tax cuts permanent, and lower corporate rates.

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One issue the next president will have to deal with is whether to extend the 2001 and 2003 Bush tax cuts that reduced tax rates on income and investments and expanded the child tax credit. U.S. News caught up with Republican presidential candidate and former New York City Mayor Rudy Giuliani last Saturday after he had just finished speaking at a "tax summit" campaign event in Manchester, N.H. There, Giuliani offered his case for making the Bush cuts permanent, killing the estate tax (or "death tax," as he puts it), indexing the alternative minimum tax to inflation, and lowering corporate taxes.

The Democrats are going to say, "We raised taxes in the '90s, cut the deficit, and the economy boomed." Why not try and rerun the '90s instead of cutting taxes?

Because we have actually done more job creation by lowering taxes than by raising taxes. ... We're down to—I always hate to say—"virtual full employment." Economists would say that—at 4.6 percent. It's really quite remarkable. ... The federal government is collecting 21 percent more revenues from the lower taxes than the higher taxes. And when they argue with me about this, most of them are arguing about theory—meaning the Democrats. They've never done it. They've sat in a legislature somewhere and debated. I actually did it. I actually did what I'm talking about. ... I lowered taxes at a time in which we were in economic distress, when we had major deficits, major job losses, 10 percent unemployment, a city that people thought was gone ... and I turned the city around. It was a great decision as far as even getting revenues was concerned. I cut income taxes by 24 percent in rates. And I was collecting 40 percent more from the lower taxes than the higher taxes. ... We cut the hotel occupancy tax by 34 percent, and within a short time we were collecting $100 million more from the lower tax than the higher tax. ... And what happened to unemployment with all those tax decreases that I did in New York? Unemployment went down by half.

Under current congressional budget rules, tax cuts must be paid for by budget cuts. How would you deal with that?

I could give them endless numbers of budget cuts. I never ran out of budget cuts when I was mayor of New York City. ... A budget of that size [of the federal government], you can find budget cuts everywhere in the budget. The next president should work at budget cutting for eight years and not run out of them. I'll give you one big one—42 percent of the federal workforce is coming up for retirement from now until 10 years from now, which would effectively be at the end of the next president's term, if the president has two terms. You could not rehire half of them, and that would save you between $20 [billion] to $25 billion. It's a good start, and it would also be a good discipline because we would get all these agencies to do what businesses have done. It would get all these agencies to do more with less and take advantage of new technologies.

What do you think would happen to the economy if the Bush tax cuts were all left to expire?

The economy begins to go in decline. ... I did a forum on taxes just now, and a guy who runs a medium-size business was saying he's already starting to hedge his bets against the idea of a major tax increase in 2010. I mean, how many businesses plan three, four, five years ahead?

What's the logic behind cutting corporate taxes?

Suppose you're planning now where to put your business, in the United States or in Ireland [which has lower corporate tax rates], or where to put your business, in the United States or in France, and you've got a presidential race going on in the United States of America and one side ... is saying, "We are going to raise taxes by $3 trillion." ... [The business owner] is reading [French President Nicolas] Sarkozy's book, Testimony, and he hears Sarkozy saying, "I'm going to reduce rates." Sarkozy wants to reduce the corporate rate even though it's already lower than in the United States. Only Japan has a higher one. So if you're making choices like that now, and it takes you two, three years to build your factory or it takes two, three years to build your office building, I have to imagine if we're not losing business already, we're starting to.