February 27, 2006
JS-4073

The Honorable JohnW. Snow
Prepared Remarks
Credit Union National Association (CUNA)
Government Affairs Conference

Thank you so much for having me here today.

This is the fourth year that I've been able to come to this great conference, and it's always a pleasure to work with your group.

I meet and work with financial leaders every day, but I can easily say that Credit Unions have the most heart. Your motto rings true to your culture: "not for charity, not for profit, but for service."

You do good work: loans to small business, home mortgages, financial education and working in partnership with the government to fight the financial war on terror. You were wonderful in your response to hurricane Katrina, in a time when American's helping each other meant so very much.

Each one of these efforts is critical to our country's economic health and strength, and I applaud you for doing good while you do business.

I believe I told you last year that this administration understands the basic economic principle that you get less of anything you tax -- and we don't want less of what you do. Well, that principle, and that position, remains true today.

We don't want less small-business lending. We don't want fewer home mortgages. We want a continuation of your tax exemption and we want to continue to have a strong relationship with a group of financial institutions that are dedicated to their communities, who want to see their customers educated and financially literate.

And we want to continue working with you as we cut off the flow of blood money to the terrorists who seek to do our country harm.  While hatred fuels the terrorist agenda, cash helps to make it possible. America's credit unions have shown tremendous resolve in this fight, and I want to personally thank you for your efforts.

After the 9/11 terrorist attacks, the dark side of the threat we face became terribly clear, and the U.S. Government needed to focus on protecting itself through proactive, preventive policies. This shift included the need for greater domestic and international accountability – including financial accountability. Ensuring the integrity - the safety, soundness, and security - of our financial system was viewed clearly as a national security issue.  In this new environment, the private sector had an obligation not only to facilitate the movement of capital around the world, but also to prevent that capital from supporting terrorism or crime. And in this charge, you have been a true partner.

For the U.S. financial sector, this has meant the need to adjust to a more vigilant mindset. The application of the Bank Secrecy Act (BSA) – principally aimed at achieving the appropriate level of financial transparency to detect and prevent illicit financial activities – is absolutely critical. We are, of course, also sensitive to the burdens on financial institutions and seek to ensure that those burdens are never unnecessary. 

Fighting the financial war on terror also meant the need for acute awareness of the USA PATRIOT Act (Patriot Act) and applying targeted financial sanctions to ensure that dirty money is kept out of the U.S. and out of the hands of rogue actors.  

Our efforts are working. We are driving terrorist financiers out of the traditional financial sector by making it harder, costlier and riskier for them to move money. We are seeing terrorist groups avoiding formal financing channels and instead resorting to riskier and more cumbersome conduits, like bulk cash smuggling. Our work is by no means complete, but we've made considerable strides under these authorities. Our commitment to identifying and disrupting terrorist funding has been and continues to be very robust.

Our country must be safe in order to be prosperous and create jobs. I emphasized loans for small-business start-ups and expansions because that leads to job creation, which is the ultimate goal of a strong economy.

Credit unions have been there for entrepreneurs when they needed you most. You understand their needs, and our President does, too. When small business needed tax relief to grow and create new jobs, President Bush responded with reduced marginal rates, an increase in expensing and a whack at the death tax. Small business has responded with growth and job creation.

The first time I spoke to this group, you may remember, our economy was struggling. But look at the U.S. economy today. Looking back, there can be no question today that well-timed tax relief, combined with responsible leadership from the Federal Reserve Board, created an environment in which small businesses, entrepreneurs and workers could bring our economy back from its weakened state of just a few years ago. Tax relief encouraged investment, which has ultimately led to job growth. The American economy is now unmistakably in a trend of expansion, and those trend lines can clearly be traced to the enactment of tax relief.

Early this month we learned that unemployment has fallen from 4.9 percent to 4.7 percent -- lower than the average for the 1970s, 1980s and 1990s. Since May of 2003, the economy has created 4.7 million jobs, two million of them in the last year alone.

In the past two years, the economy has generated about 170,000 jobs per month, and that includes the two-month slowdown in job growth in the aftermath of Hurricanes Katrina and Rita. In the past 32 years, new claims for unemployment insurance have almost never been as low as they have been recently, the only exception being the peak of the high-tech bubble from November 1999 to June 2000.

Good, steady job growth is no surprise, given that GDP growth was three and a half percent last year. Private forecasters, like the National Association for Business Economics and others, are expecting very strong growth to continue this quarter.

Core inflation also remains low, and that's good news for everyone. U.S. equity markets have risen, and household wealth is at an all-time high. Additionally, real per capita disposable (after-tax) income has risen by 7.3 percent from 2000 to 2005 and that's very good news for workers.

A recent report on retail sales was yet another unmistakable sign that the U.S. economy is strong, it is heading in the right direction and Americans are confident. With a jump of 2.3 percent for January, this was one of the biggest month-to-month increases in over a decade and a half. That's the kind of number we expect to see when consumers are confident about the economy and optimistic about the future. And it is no wonder they are feeling that way, given the strength in the job market.

Independent private-sector forecasts point to continuing good news. Inflation-adjusted hourly wages grew 1.6 percent between September and December and this trend should continue.

Both on leading indicators and a deeper background analysis, the American economy proves to be on solid footing. The question that those of us in government must look at now is this: what can we do to continue these positive trends?

The answers as I see them: First, keep taxes lower on both incomes and investment. I sent a letter last week to the conference committee on tax relief reconciliation urging them to do so.

I know that, in your business, you see the economic benefits of investment every day. Money for business expansion or development improves the communities where it's invested. So I'm sure it's no surprise to people in this room that since the implementation of a lower, 15 percent rate on investment capital in May of 2003 we have seen a remarkable turn-around in the economy. After nine consecutive declining quarters of real annual business investment, we have had 10 straight quarters of rising business investment. This business expansion led to a substantial increase in employment, as I just mentioned – 4.7 million new jobs. There can be no question that we need to keep the tax rate on capital gains and dividends where it is; a tax increase would be a terrible mistake. While many factors contributed to the improved performance of the economy, the tax reductions on capital have been at the heart of the progress we have seen.

Lower tax rates on individual income are important because, as the President says, they let the people make their own decisions about their own money – and individuals make better financial decisions than governments.

There is also a significant small-business component to lower marginal rates. Since small-business owners often file their business income on personal forms, lower marginal rates help this sector that creates two-thirds of the country's net new jobs.

The President is also placing an emphasis on affordable health care, innovation competitiveness (with an emphasis on education) and reducing our dependency on foreign energy through new technology. These are all central to keeping our economy on track for generations to come.

Our economic challenges are not over, of course; we still have plenty of work to do.

Credit unions are in an excellent position to help their customers – both small businesses and individuals – to afford health-care coverage. You can do that by offering Health Savings Accounts (HSAs) as a product to your customers.

HSAs are really rising in popularity and I wouldn't be surprised if a lot more of you are offering them than when I saw you last.

I think HSAs are a great option to have because choosing an HSA over traditional insurance plans puts patients in charge of their health-care purchasing decisions. That's why the creation of HSAs was so important – it was historic, really, because it embraces a philosophy that favors the individual, versus an employer or the government.

As you know, the President's is proposing to expand HSAs by making premium costs deductible from income and payroll taxes when purchased by individuals, raising the cap on the amount of money that can be saved in an HSA and making the high-deductible insurance plan that accompanies an HSA fully portable.

Congress should help him make that broader vision of HSAs a reality. It would be very good news for Americans struggling to afford health insurance.

As you know, the President supports this type individual control and ownership in many areas. He wants to see as many Americans as possible own their own homes, their own businesses if they want, their own health care and their own retirement savings.

As credit union operators, you are also dedicated to individual ownership and savings, so I know the concept is not a new one to you.

You understand as well as anyone in the financial community the benefits that come from financial ownership and independence. It's one of the reasons you've been such a great partner in the effort to increase financial literacy in this country.

Of course credit unions have long been known for their strong commitment to meeting the needs of their members, and you know that financial literacy is one of those needs. And I'm proud to say that Treasury has been at the forefront of the cause of financial literacy. Since 2002 Treasury has had an office dedicated to financial education and more recently I've been pleased to chair the Financial Literacy and Education Commission, a group of 20 federal agencies committed to spreading financial literacy. I'm sure many of you use and link to the Commission's web site mymoney.gov for free financial literacy materials.

We are proud to count the credit union industry as a valued partner in the continuing efforts to help Americans learn about money.   Whether it is saving for a college education or a first home, learning how to manage credit or avoiding fraud, financial education is the way so many Americans can live better lives.  We hope your industry continues to play a key role in financial education when Treasury launches its National Strategy for Financial Literacy this spring.  I'd like to see CUNA and individual credit unions work with us to implement that strategy so we can help all Americans understand and manage their money.

As with so many other things, we accomplish the most when we work together. Whether it's fighting terrorists, or teaching teenagers about financial responsibility, or helping entrepreneurs pursue their American Dreams.

I'm glad to work with the nation's credit unions on all these efforts.

I thank you for the work you do, and the chance to speak to you today.

Have a great conference.