JEFFREY BROWN: And we turn to what is clearly becoming an election-year fight over tax policy.
PRESIDENT BARACK OBAMA: Do we want to keep giving those tax breaks to folks like me who don’t need them or give them to Warren Buffett? He definitely doesn’t need them. Or Bill Gates? He’s already said, “I don’t need them.” Or do want to keep investing in those things that keep our economy growing and keep us secure? That’s the choice.
(CHEERING AND APPLAUSE)
JEFFREY BROWN: The president renewed his call for higher taxes on the wealthy on a swing into Florida. He urged Congress again to adopt the so-called Buffett rule.
Billionaire investor Warren Buffett had famously observed that, under the current system, his secretary pays a higher tax rate than he does.
WARREN BUFFETT, Berkshire Hathaway: I don’t think our tax system is very equitable.
JEFFREY BROWN: The new rule would impose a minimum 30 percent income tax on those earning at least a million dollars a year.
BARACK OBAMA: I’m saying you’re bringing in a million bucks or more a year, then what the rule says is you should pay the same percentage of your income in taxes as middle-class families do.
(CHEERING AND APPLAUSE)
BARACK OBAMA: And if we do that, then it makes it affordable for us to be able to say for those people who make under $250,000 a year, like 98 percent of American families do, then your taxes don’t go up.
(CHEERING AND APPLAUSE)
JEFFREY BROWN: The president originally made the proposal last September. He raised it again in his State of the Union address last January with Buffett’s secretary, Debbie Bosanek, seated in the first lady’s box.
Now it’s a centerpiece of the president’s reelection message and aimed squarely at his wealthy Republican challenger, Mitt Romney. The former venture capitalist had a reported income of $21 million last year. He’s released tax statements for the last two years, but has resisted calls to make previous years public.
In January, he acknowledged paying a tax rate that is less than many Americans pay.
MITT ROMNEY (R): I’ve been paying — it’s probably closer to the 15 percent rate than anything. My income comes overwhelmingly from investments made in the past, rather than ordinary income or rather than earned annual income.
JEFFREY BROWN: Romney has opposed the Buffett rule.
And in a statement yesterday, his campaign called Barack Obama — quote — “the first president in history to openly campaign for reelection on a platform of higher taxes.”
A congressional committee has estimated that implementing the Buffett rule would raise $47 billion over the next decade.
But, today, Congressman Paul Ryan, who authored the House Republican budget and endorsed Romney, said the Buffett rule is not a magic fix. He spoke on MSNBC.
REP. PAUL RYAN, R-Wisc.: I think people think the Buffett rule is sort of like this sort of budget pixie dust, that if we just do this, we’re going to fix our fiscal problems.
WOMAN: No, we don’t think that.
REP. PAUL RYAN: I’m not saying you say — think that. But I think a lot of people believe this.
REP. PAUL RYAN: Number one, it pays for about 6 percent of the president’s proposed deficit spending. Number two, it represents a huge tax increase on job creators.
JEFFREY BROWN: The Senate will vote on the Buffett rule next week, but with Republican opposition, it’s given little chance of clearing Congress.
Two views of the Buffett rule now, beginning with Gene Sperling, President Obama’s director of the National Economic Council and assistant to the president for economic policy. He joins us from the White House briefing room.
Well, Gene Sperling, why — let me start with this — why 30 percent? Why a million dollars? What’s the economic reasoning behind these particular numbers?
GENE SPERLING, director, White House National Economic Council: I think this is a basic issue of fairness and a basic principle for tax reform.
And I think it’s important to the trust in our overall tax system for typical Americans, which is the basic notion that those very few Americans, probably less than about two-tenths of 1 percent, who make over a million dollars shouldn’t be able to use preferential rates, tax planning, et cetera, so that they’re actually paying less taxes or a lower tax rate than hardworking families who are out there working as nurses, as police officers, as construction workers.
This is a basic issue of trust and fairness. It’s also one component of an overall plan the president has for job growth and to restore fiscal discipline in a way that represents shared sacrifice, which means tough spending cuts across the board on a lot of difficult things, but also means that you’re asking those who are most fortunate and are paying exceptionally low tax rates to contribute and do their share, because if you don’t, where’s that going to come from?
It’s going to come from things like cutting Medicaid or education or research, like the House Republican budget plan proposes. We think this represents a component of a much more balanced growth and fiscal discipline.
JEFFREY BROWN: Well, on the question — you started talking about fairness, but on the question about debt relief and deficit cutting, you’re not claiming that the Buffett rule by itself would have much of an impact there, are you?
GENE SPERLING: Well, let me just do the numbers and let me just be clear.
If we had tax rates for the highest-income Americans where it is today, at 35 percent, this would actually raise $160 billion. If we let tax rates go up to their higher rates that they were in the Clinton administration, then it would still raise an additional $47 billion. I know people have become cynical out there, but I don’t think $47 billion or $160 billion is chicken feed.
And the reason it’s important is of course not that it’s the whole deficit reduction plan. It’s just one component. But it’s part of an overall deficit reduction plan that represents shared sacrifice and a way of bringing down our deficit in a way that doesn’t put too much burden in the middle class and most vulnerable.
And the really important thing you have to ask when you’re doing a deficit reduction plan is, if you don’t want to raise the $160 billion this way, where do you want to get that extra $160 billion from? The House Republican plan would do very, very painful cuts in things like Medicaid that people with disabilities and those in nursing homes rely on.
We think there’s a different choice to make. So it’s one component of a larger $4 trillion deficit reduction plan. But, hey, every $50 billion or every $160 billion matters, particularly when they help make the whole package more share — more fair and more part of the value of shared sacrifice.
JEFFREY BROWN: But it is, of course, a component that the president is really taking out there on the stump and to the country. And your opponents, of course, quickly came out and said this is all about politics and especially meant to put a focus on Mitt Romney.
Now, given the timing of this, why should people not think that this is more of a political gesture?
GENE SPERLING: Well, first of all, first of all, look at the timing of this. We proposed this in September, many, many months ago.
And, secondly, we were doing it in the context of trying to promote Barack Obama promoting tax reform that could lower rates and lower deficits. And one of the things the president felt was very important was that, if we’re going do more tax reform, we have to increase the trust that typical Americans have in our tax system.
And right now, typical Americans, American families rightly believe that the tax system is rigged against them, that those people who are extremely well-off have the ability the park money places, to use tax accounting, get preferential rates, so they end up paying less than again a police officer might who has put in an extra hour of overtime.
That seemed wrong. I think this type of proposal helps build trust that, as we do tax reform going forward, we’re going to have a system that’s fair across the board and isn’t going to allow some people who are the most well-off to use their advantages in tax planning and preferential rates that are not available to middle-class families to pay lower rates than those middle-income families who are fighting hard every day just to pay their bills. . .
JEFFREY BROWN: Well, why not — you just mentioned going forward with tax reform and you mentioned a couple of times this is part of a larger package.
Why not go bigger? Why not put something out there at a time when everybody seems to agree that the tax system, as we have it, just simply doesn’t work, inefficient, unwieldy, unfair? Why not come up with a bigger plan, rather than, even by your own admission, something relatively small, hitting a relatively small number of people?
GENE SPERLING: Well, first of all, let’s remember that the president is the only person out there, only major leader now who has a very specific and detailed plan that would raise well over a trillion dollars in revenue as part of a $4 trillion deficit reduction plan.
His plan does take on a lot of the issues that lead, for example, high — major companies, through transfer pricing and other devices, to not pay their fair share. So the president has put out the specific details, been very specific about how he would make reforms in our current system. But what he’s also said is that he would be willing to engage in an effort to raise a similar amount of money through tax reform, through both corporate tax reform and individual tax reform.
But he said that a very fundamental principle in doing that is that you want the tax system to be more fair, not less fair, as part of tax reform, and that rather than have the alternative minimum tax we have today, which ends up having to be fixed every year, so it doesn’t hit middle-income families, let’s have the type of alternative minimum tax that I think most people always thought they wanted when they heard that concept, which is one aimed at the very, very most fortunate and to make sure that they’re not using their tax planning, tax preference advantages, so that somebody who’s making $100 million is actually paying less than some middle-income families.
And to put a fine note on that, when you look at the 400 most well-off, the 400 most well-off Americans, the average tax rate for them was 18.1 percent. Now, how does that build trust in our tax system and our country when then you have a police officer or construction worker who is out there doing overtime paying a 25 percent rate on that and paying payroll taxes?
JEFFREY BROWN: Okay. Gene Sperling from the White House, thanks so much.
GENE SPERLING: Thank you.
JEFFREY BROWN: And for an opposing view, we’re joined here by Douglas Holtz-Eakin. He’s a former director of the Congressional Budget Office, served on the Council of Economic Advisers for President George W. Bush, and was chief economics adviser to John McCain’s presidential campaign. He now heads the American Action Forum, a policy think tank.
Welcome to you.
DOUGLAS HOLTZ-EAKIN, former Congressional Budget Office director: Thank you.
JEFFREY BROWN: Well, you heard the argument.
Now, what is wrong with having the wealthiest pay the same rate as middle-class Americans?
DOUGLAS HOLTZ-EAKIN: Well, let’s look at the problems that Gene identified and ask how it does.
First of all, it creates not one new job. Indeed, it will hit some small businesses. It amounts to one-tenth of one cent of every dollar of deficit that we have this year. So it does nothing for our budget problems.
And it doesn’t get rid of the Alternative Minimum Tax. It doesn’t get rid of any special loophole. It doesn’t get rid of any special tax preference. So it really doesn’t move the ball on tax reform either.
JEFFREY BROWN: Now, wait a minute. I asked you a question though first about fairness. Is there a fairness argument here? Is it a problem. . .
DOUGLAS HOLTZ-EAKIN: There’s always a fairness argument. I agree with that. There’s always a fairness argument in tax policy.
And if you look at the data, on average, those who are making a million dollars have a higher effective tax rate than those making less. Indeed, as incomes go up, average effective tax rates do go up. So it’s indisputable that we have a progressive tax code. You can find it from the CBO. You can find it from any of those entities.
JEFFREY BROWN: But he was citing a number just now, 400 of the wealthiest who pay, what was it, 18 percent or 19 percent.
DOUGLAS HOLTZ-EAKIN: So, on average, millionaires pay more. Now, some don’t.
Now, how would they do that? We don’t think they’re breaking the law. Indeed, what they’re doing is they’re taking advantage of special provisions in the tax code. Now, those are probably there because tax codes are about more than fairness. It’s also about social goals, such as encouraging charitable contributions. It’s about economic growth objectives, so lower taxes on dividends and capital gains.
So the way those millionaires have lower effective tax rates is they do things that are deliberately in the code and have purposes. And if they aren’t something that we value, we should get rid of them. But that’s tax reform. And that’s not what they’re doing.
JEFFREY BROWN: Now, you then moved to the deficit cutting. You heard Gene Sperling say that 47 — he had a higher number, but stay with the congressional tax budget committee. That was $47 billion, was it, they said over 10 years.
DOUGLAS HOLTZ-EAKIN: It’s a $1.2 trillion deficit right now. The president’s plan that Gene talks about does not control deficits. We have deficits 10 years from now that are rising as a fraction of our economy.
We have a rising debt as a fraction of our economy. So it’s not the case that the president has put out a plan to stabilize the debt and control the deficits. This is a trivial amount of money. He had such an opportunity. The Bowles-Simpson commission gave him a blueprint and said, here’s something that in a bipartisan fashion has been supported. It includes tax reform and it does stabilize the debt.
And they didn’t do that. So they must have thought the politics of this are better than the substance of actual tax reform and actual deficit reduction.
JEFFREY BROWN: But why is $47 billion trivial? If there’s a big problem — and we heard Paul Ryan say this is a small amount, too — but it’s something. I guess that’s the argument from the Democrats. It’s something.
DOUGLAS HOLTZ-EAKIN: Right. It’s a big problem, and this is a tiny, tiny, tiny solution.
I would prefer to have the president, the leader of this country, find a big solution, so we have tiny, tiny problems.
JEFFREY BROWN: All right.
So when you get to the question of big solutions, and I asked Gene Sperling about why not go bigger, and you mentioned Simpson-Bowles.
DOUGLAS HOLTZ-EAKIN: Yeah.
JEFFREY BROWN: Right. But isn’t the reality of the situation that that’s hard to do politically and with opposition from Republicans as well?
DOUGLAS HOLTZ-EAKIN: The president never even picked up a single proposal from Simpson-Bowles. It’s never been something he’s written down and said, I would like the Congress to pass this.
Even the Buffett tax, he has never actually written down what he wanted. When it came out in the budget, you couldn’t find it anywhere in the details. So the White House has been unwilling to take the leadership necessary to take on these big problems. They’re happy to go do the politics of the Buffett tax, but the actual tough work of leading through a Democratically controlled Senate and a Republican controlled House, a real solution for Americans, problems, they’re missing in action.
JEFFREY BROWN: So you would see the Buffett rule as pure politics?
DOUGLAS HOLTZ-EAKIN: This is pure politics.
Simpson-Bowles, again, was a way to get fairness and revenue and economic growth, actual tax reform. This is none of those things.
JEFFREY BROWN: But do you acknowledge — you said the president didn’t sign on. Neither did Republicans.
DOUGLAS HOLTZ-EAKIN: We got Republican sign-on in the Senate. That’s actually not true. It didn’t get enough Republicans to get a forced vote, but that’s actually the template for how we solve our problems.
It was supported in a bipartisan fashion. So it’s the political template. It had real entitlement reform, it had real tax reform, it controlled spending across the board, and we need to go back to, if not the details, that kind of a template.
JEFFREY BROWN: Is the contention that doing something like that would also solve this fairness issue?
DOUGLAS HOLTZ-EAKIN: Absolutely. That was the goal in Simpson-Bowles. It was real tax reform, so that you get rid of those loopholes that allow somebody to get a subsidy through the tax code, to get a special preferential treatment, so that you’re paying the tax you owe for the income you have.
JEFFREY BROWN: But there not a sense — again, whether it’s Simpson-Bowles or any of these proposals — that Republicans, at least the perception, is the Republicans will not allow any hike on taxes?
DOUGLAS HOLTZ-EAKIN: I think that’s actually just not been the case.
JEFFREY BROWN: Where have you seen. . .
DOUGLAS HOLTZ-EAKIN: We saw — with the so-called super committee, we saw Sen. Pat Toomey, someone who has been very, very, very vocal about avoiding tax increases, putting $300 of additional revenue on the table.
We saw Jeb Hensarling, Republican from Texas, agreeing to do the same thing. So Republicans have made this offer. It didn’t go anywhere.
JEFFREY BROWN: In sufficient numbers to pass something like that?
DOUGLAS HOLTZ-EAKIN: John Boehner made this offer to the president. The president was never willing to actually do the leadership role to get it done.
JEFFREY BROWN: Now, you have been involved in campaigns, as we said. You say this is a political issue at the moment. Is it going to remain as one? You see this as one that sort of continues with us over the next months?
DOUGLAS HOLTZ-EAKIN: I think the president’s clearly decided that this is a valuable political tactic.
I expect him to continue with it. There is some polling suggests that he’s making a mistake, that Americans who matter, swing voters in particular, aren’t interested in this pointless battle about fairness. They want the jobs. They want the debt controlled. They want real changes to the programs that matter.
JEFFREY BROWN: All right, Douglas Holtz-Eakin, thanks for joining us.
DOUGLAS HOLTZ-EAKIN: Thank you.