Pro-growth tax policies, reform of the nation’s retirement system and fiscal discipline are the keys to unlocking a wave of corporate investment that will create lasting economic stimulus, the chief executive of Putnam Investments said this morning.
Robert L. Reynolds, whose dramatic turnaround of Boston-based Putnam landed the company atop the 2009 Barron's mutual-fund rankings, told the AIM Executive Forum that the federal government must move away from reviving debt-driven consumption and public employment to approaches that spur private-sector growth and jobs.
“Financially speaking, corporate America is as strong as it has ever been,” Reynolds said during remarks to almost 200 Massachusetts business leaders at the Westin hotel in Waltham.
“One of Putnam’s leading fund managers noted recently that S&P 500 companies today hold over $3.2 trillion in cash … his analysis suggests that these companies would need to spend $1.5 trillion by 2012 just to reduce their cash holdings to normal levels. Corporate spending on that scale could deliver a lot of the best kind of stimulus – via new job creation first of all, plus merger and acquisition activity, stock buy-backs and more investment in capital goods and plants.”
Reynolds offered a detailed public-policy agenda to encourage economic growth:
- A three-year program to give a 10 percent federal corporate tax reduction to any company that increases its work force by 1 percent. Companies that increase their payrolls by 10 percent would pay no federal corporate tax.
- A multi-year holiday for taxes on capital gains that an investor holds for a year or two from any initial public offering.
- A 10-year green card to any foreign student who graduates from an American university.
- A “race to solvency” among nations seeking to balance their budgets and establish sustainable fiscal foundations.
- Freeze the compensation of federal employees.
- Link federal aid to states to the ability of those states to lower their deficits.
But the heart of Reynolds’ approach to economic recovery is overhauling a retirement system caught between gaping deficits in Social Security and inadequate levels of private savings. Strengthening retirement savings, he said, will help the nation avoid a pending “human tragedy” in which millions of elderly people will not have enough money for food, shelter and medicine.
“Job one, in my view, is to make Social Security solvent for the long term,” Reynolds said.
“Making Social Security solvent would take our country one giant step – at least $5 trillion worth – towards fiscal sanity.”
Another giant step, according to Reynolds, will be to boost private savings rates and expand retirement savings accounts to the 70 million people who do not currently have access to those accounts through an employer. Putnam supports pending proposals in Congress to create a so-called universal IRA and a new regulatory body to approve and oversee annuities and other lifetime income options.
“That’s the kind of change I am asking for from every political candidate I meet this year and beyond. I hope every member of AIM will do the same because we get what we fight for – no more, no less. “