A taxing debate: Who should pay more?
Talk about taxing times! Even as the presidential candidates wrangle publicly over who should pay what, a special congressional committee is wrangling in private over just the same thing. The saying is "Don't tax you, don't tax me, tax the fella behind the tree." They're trying to figure out who IS the fella behind the tree? Our cover story is reported by Martha Teichner:
Here we have a super-committee, six Democrats and six Republicans, battling behind closed doors to cut at least $1.2 trillion from the federal deficit.
You can imagine an alarm clock ticking away toward a November 23rd wake-up call. If the super-committee doesn't agree on a deal by then, the alarm will go off, triggering draconian budget cuts in both military and domestic programs neither side wants.
What's the fight about? Taxes ... whether some Americans should pay more to help achieve deficit reduction. If so, who?
And would higher taxes help or hurt the economy? Kill or create jobs?
It's a fight Occupy Wall Street has taken to the streets, in city after city.
It's a fight the Republicans have taken to the talk shows.
"I just don't believe that raising taxes in this weak economy makes any sense at all," said House Speaker John Boehner, R-Ohio.
Are they right? Or is President Obama, arguing for a millionaire's tax to pay for his jobs bill? You remember this?
"Right now, Warren Buffett pays a lower tax rate than his secretary, an outrage he has asked us to fix," Mr. Obama told Congress.
According to a CBS News poll out earlier this month, most Americans think millionaires SHOULD pay more. - 64% said yes, 30% said no.
This may be why: In 1980, the top 1 percent of earners in this country made 10% of total income. By 2007, they made nearly 24%.
"When you see this picture where most Americans - let me repeat, most Americans - are worse off today than they were more than a decade ago, there's only one group that is better off, and that's the people at the top," said Columbia University professor Joseph Stiglitz, who won the Nobel Prize for economics in 2001.
"And that is the only place that you can get, in a sense, in a fair way, money."
You'd expect Stiglitz to say that - he's a Democrat. He worked in the Clinton administration.
Saying practically the same thing is Michael Graetz, a professor of tax law at Columbia who has advised two Republican presidents: "Underlying the political debate is this ongoing shift for about 35 years in the distribution of income in the United States, so that the people who have done the best are the people at the very top.
"We're now talking about people who are earning a million dollars or more a year, and the idea that, you know, raising the tax rate from 35 percent to 40 1/2 percent would be such a lightning rod politically, somewhat seems preposterous to me," Graetz said, "because it's NOT going to affect the economy.
"It is obviously appropriate for people who have that much money to contribute more to the financial problems that we're all facing."
Surprised? Listen to this, from President Obama: "That's why this plan eliminates tax loopholes that primarily go to the wealthiest tax payers and biggest corporations."
And President Ronald Reagan: "We're going to close the unproductive tax loopholes that have allowed some of the truly wealthy to avoid paying their fair share. In theory some of those loopholes were understandable but in practice they sometimes made it possible for millionaires to pay nothing while a bus driver was paying 10% of his salary. And that's crazy."
Yes, President Reagan lowered the top income tax rate from 70% to 28%. But when the deficit skyrocketed - sound familiar? - he RAISED other taxes substantially.
Nobody accused HIM of class warfare.
Not seen through the prism of political and ideological gridlock, the tax issue looks a little different.
Thirty-two years ago, Lew Prince started Vintage Vinyl in St. Louis. "In a weird way, we're the classic small business," he said. "We have at the moment 22 employees, 16 of whom are full-time."
Prince doesn't buy the Republican claim that extending the Bush tax cuts for individuals making over $200,000 will create jobs.
"To me, cutting taxes to jump-start the economy is like trying to start your car by pouring gasoline on the hood," he said.
"The reason a business hires - any business, but a small business especially - is 'cause they think there will be more business if they hire someone," Prince said. "And the way to create more business, the quickest and most efficient way, is to put money in the hands of people who will spend it."
Many of whom, right now, are selling, not spending.
"I just bought a 4,000-something piece collection," Prince said. "That money's going in the gas tank, that money is helping to pay the rent for someone whose $20-an-hour factory job has turned into a minimum wage job at a fast food restaurant."
And now, the flip side of the coin: An argument FOR low taxes as a boost to growth.
Pam Hendrickson is chief operating officer of the Riverside Company, a private equity firm that buys small companies, helps them grow, then sells them.
"We've been doing this for 24 years," Hendrickson said. "Over the course of that time, we've purchased 266 companies around the world. Today we own 79 on four continents."
"Do you have any idea how many jobs you've created in this country?" Teichner asked.
"I didn't look at the numbers going back five years, but over a thousand in the last two," Hendrickson said.
For instance, Riverside bought Commonwealth Laminating and Coating in 2006, and sold it four years later.
"This company is in Martinsville, Va., a town very badly hurt," said Hendrickson. "It's now the world leader in laminate providers, and 67 new jobs got created during our ownership."
"Now, you put in $13 million and you got out $130 million," Teichner said.
"Our investors did, uh huh," said Hendrickson.
She thinks it's only fair that the Riverside team paid the same low tax on that gain as the investors - 15% - as opposed to the higher corporate tax rate of 39.2 % that the Obama administration says private equity firms (like hers) and hedge fund managers ought to be paying.
"If you take that away, I suppose the incentives really aren't the same, because I might as well just invest in a stock when I can sell whenever I want, rather than investing in a long-term company where I've tied up my money for eight years, potentially," said Hendrickson.
The operative word here is "incentive." And that brings us to corporate taxes.
The U.S. rate ranks among the highest, compared with other countries.
Tax law professor Michael Graetz said, "We've got a tax system that is broken for multinational corporations. And I believe the only way to solve the problem, and to create a system that's conducive to investment in economic growth in the united States, is to lower that corporate tax rate down to a level that's at least competitive with the rest of the world. I think it should be lower than that."
But wait a minute, consider this:
"If you taxed corporations that invest in America at a lower rate, but tax those who are just distributing dividends - not really contributing to the country and investing and creating jobs - you tax them at a higher rate, you will encourage more investment and more job creation," said economist Joseph Stiglitz
Right now, multinationals can game the system, according to Stiglitz. "They try to take advantage of all the differences in taxes around the world, to try to get their overall tax liability as low as possible."
And now another wrinkle: Republican presidential candidate Herman Cain is not alone in suggesting we start over.
"This is why we developed '9-9-9' - 9 percent corporate business flat tax, 9 percent personal income flat tax, and a 9 percent national sales tax," said Cain.
It's catchy, it sounds simple, but will it work?
"It's a HUGE tax cut for people at the top, and a major tax INCREASE for people in the middle," said Graetz. "This is just not the moment for that kind of shift in the tax burden."
Graetz does like the idea of some form of national sales tax. He recommends 12 1/2%.
"It turns out 150 countries in the world do have that kind of tax," Graetz said. "We've got ourselves in a situation by refusing to have a national sales tax that makes us put all of the tax revenue burden at the federal level on the income tax."
If there's one thing economists, the White House, even GOP presidential candidates agree on, it's that some kind of tax reform is way overdue.
Meanwhile, a look at the U.S. national debt clock ticking toward $15 trillion. Think of it as that alarm clock ticking away while the super-committee counts down to its November 23rd deadline ... deal, or no deal.
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