live saturday at 11 a.m. eastern. also this weekend, key political figures who ran for president and lost a change political history. the contenders sunday at 7:30 p.m. this week with with three-time democratic candidate william jennings bryan. >> this morning on c-span2, the tax analysts organization holding a roundtable discussion on the u.s. tax code and the wealthy. participating this morning and the conversation our three experts including the former deputy assistant treasury secretary for tax analysis, and a senior economist on the council of economic advisers under president george w. bush, robert carroll. it's just about to get underway with live coverage here on c-span2.

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>> [inaudible conversations] >> [inaudible conversations] >> this discussion on taxes and

the wealthy about to get underway. we will let you know about some of our live coverage coming up later today here on c-span2. this morning at 11:30 a.m. senator mitch mcconnell, minority leader in the senate, will be talking about the first amendment. we will have that for you life. .. [inaudible conversations]

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>> good morning. many old friends, many new friends. welcome, all. and welcome to the latest in tax analyst series of discussions on key issues in tax policy and tax administration. today's topic is taxes and the rich. i'm chris bergin, the president of tax analyst. tax notes today, tax notes international and many other fine print and online products on federal, state and international taxation. we are in our tenth year of such discussions on tax policy. if you are new to our discussions, let me first say it's great to have you here. also, let me take just a moment to explain our process today. i will open things up with some brief remarks to introduce our topic. i will then introduce our divisioned panel of -- distinguished panel of speakers. we will open up the discussion to all of you, and we encourage all of you to participate

whether you are seated at the table or just a bit away from it, just wave, and i'll find you. we are streaming audio of this event on our web site, and we will post both the audio and a transcript there. we're also tweeting this event as we try to reach more people beyond this room through social media. and, obviously, c-span is here. and thank you, c-span, for your interest in our topic today. so for all media purposes, we are on the record. for that reason when i recognize you, please, tell us who you are. also, please, speak into a microphone. for those of you away from the table, we have handheld mics, and we will quickly get to you. i will moderate the discussion, and we will end a little bit before 11. now, on to the subject at hand, taxes and the rich: what the rich should pay and why. first, i want to thank president obama, house speaker john boehner, house minority leader nancy pelosi, former top obama

adviser larry summers and most of all, former president bill clinton for highlighting this very topic in the last couple of weeks. they have made this conference even more timely than it already was. firstly, i am confused why president clinton's comments about our topic just a few days ago were so wrong or why they were proved so controversial. the way i heard what he said he wasn't questioning if we should raise income taxes on the rich, but when we should raise income taxes on the rich. seems sensible to me. actually, there's a lot about the current debate on taxing the rich that confuses me. for example, who is rich? is a family that makes more than $250,000 rich, or only those that make at least a million dollars a year, as ms. pelosi has suggested rich. seems to be a point of some confusion among the democrats. and if you're rich, does that mean you should never again face an increase in your taxes? ever? that seems to be a point of confusion among the republicans.

and can we tax the rich enough to address our problem of surging deficits and debt? you might think so if you follow the budget debate. and how important are the rich when it comes to investment and job creation? you might think they're more important than anything else based on some of the rhetoric we hear. in my own defense, i should point out i'm hardly the only confused person in america. tax practitioners often tell me what they should tell their high wealth clients about the future of estate tax. here's the most honest thing i can tell them: i have no idea. and they always seem dissatisfied with that answer. so here we are, democrats are frantically looking for rich people to tax, and republicans are adamantly refusing to tax anyone, especially the rich. with the parties largely gridlocks over tax policy, unable to set a long-term course for taxes, we now have a tax code that is increasingly temporary with major provisions due to expire at the end of the year and other provisions that

expire on a regular basis. that makes it impossible for practitioners to advise their clients clients and for businesses and individuals to plan a future. all of that hurts our economy over the long term. but i think the thing that i'm most confused about is why our elected leaders don't seem to understand -- or if they do understand, they don't seem to care -- all the problems this tax writing is making. we have a wonderful panel today. i will introduce them in the order in which they will speak. joe thorndike is director of the tax history project at tax analysts. len burman is the daniel patrick moynihan professor of public affairs at maxwell school of syracuse university, and bob carroll with ernst & young. now, all three of these gentlemen have books. i believe bob's book is already out.

[laughter] here's bob's book. len has a book coming out. i think i have the flyer here. yeah, i got a flyer here. taxes in america: what everyone needs to know. and joe has a book coming out, the title will be -- >> "their fair share." >> it's only a rumor that i'm getting a commission on this. [laughter] having said all that, joe, would you start us off? >> all right. well, you know, i've got to say i've got to start by confessing i promised i'd book at so many events, but it really is sometime soon, i hope. chris promised we're going to clear some stuff up, and i don't know if i'm going to clear anything up, actually, i think i'm going to embrace the confusion. but i can make a few points which are largely historical given my historical background, that makes sense. the first is obvious. when it comes to taxes, the tax politics, the fairness really matters. you can see that by the fact

that cnn -- c-span is here. i have an article in cnn today. tax fairness is always the hot issue at least among voters. um, what's less obvious but i think is just as true is that tax fairness is really important to tax policy. not just the politics, but the actual making of tax law. every major change in the federal tax system -- and by major change i mean regime change, the kind of change that lasts for decades -- every major change in the last 200 years has been prompted and shaved by an argument over what's fair. a current tax regime that dates from world war ii. and, you know, this was the time when they transformed the income tax from a mass tax to a class tax -- a class tax to a mass tax. used to be a narrow tax just on the rich. they changed it to a tax that really all middle class americans paid. the deal here, there was an implicit bargain that underlay this change, and we're going to

ask you middle class people to may a lot of -- pay a lot of money. you've never paid this before. we're going to ask you to pay the income tax and increasingly a lot of payroll taxes. in exchange for that, we're going to tell you that the rich people are going to pay that too. so progressive taxation really lies at the heart of what our current tax system is, and opinion polls -- and since world war ii -- have shown really strong and consistent support for the general notion of progressive taxation. but who knows what that might actually mean. you know, the thing about progressive taxes -- and it's a thing that i think drives a lot of conservatives crazy -- is that they are completely and totally arbitrary in operation. you can win a lot of agreement even from conservatives that the idea of a progressive rate structure is a reasonable one, but you can't win broad agreement on what that rate structure looks like, where the brackets should fall or anything like that. conservatives often object to

proposed tax increases by saying that the hikes are arbitrary. and there's a great quote from the scottish economist j.r. mccull howl: the moment you abandon exacting from all individuals the same portion of their income or property, you are at sea without rudder or compass. i think that's a statement of truth. there's really not much doubt about that. you don't have any clear standards. but, of course, the existing rate structure, if we're complaining about, you know, a tax increase, a rise from where we are, the existing rate structure is just as arbitrary. even a flat rate structure would be completely arbitrary. there's no scientific objective, disinterested starting point to talk about rates. every structure's a matter of opinion. even the overall structure of the system, you know, what sort of taxes do we use? they used to love excise taxes, some sort of broad-based value-added tax.

that's also completely arbitrary. the economists have lots to tell us about which they think will work better, but on the issue of fairness, there's no way to sort it out. so i think the starting point for any conversation about tax fairness has to be an admission, which is, essentially, we're all just sort of shooting from the hip. we can develop sophisticated theories, and lord knows the economists and philosophers have done so about marginal utility and sacrifice and you name it. no one, i don't think, has ever come up with a really convincing theoretical justification for any particular definition of what is fair in tax policy. tax fairness really is a social construction, and the only thing that matters is how people feel about it. so let me finish with a quick discussion of tax fairness in american history. i've already touched on it a little. but i think it's fair to say historically americans have felt pretty good about taxing the rich. they've tried to do it in a variety of ways with weird

excise taxes on things that only rich people buy like snuff back in the early republic. they've also tried to do it with an income tax first in the civil war, it was an explicit effort to make the tax system more fair. then it goes away and comes back in world war i. every time it's an effort to make the system more fair. now, it's not, in general, about redistributing wealth. and i think that this is a mistake that a lot of progressive voices make. american history doesn't lend a lot of support to the idea that americans think we should take money from rich people because they just have too damn much. they think we should ask rich people to pay their fair share. as ridiculous as that phrase may be, as open to debate, as meaningless in any specific sense, it's very powerful in a political sense. so i think that the issue here is not to simply say, ah, well, you can't talk about fairness, that's crazy. and you hear that today. that doesn't help us at all. it is, also, the only thing that

matters. i think whatever tax reform we choose going down the road, that issue of fairness is going to move the debate. it will actually, i think, be the key element in moving the debate. so how much is enough, how much do we tax them, what's the right number? i think that's what politics is for. >> thank you, joe. len? >> thank you, chris. i should point out that my book, which isn't going to be coming out for a while, a co-author who is kind of slow on his part of the book -- [laughter] so, you know, the question is, should taxes go up on the rich, and the answer is kind of a no-brainer. taxes are going to have to go up on everybody. federal taxes are at their lowest level since 1950, and that was before the interstate highway system and medicare and scores of other programs we rely on. we've promised all of these programs to take care of senior citizens; social security,

medicare, medicaid which pays for half of nursing home care. and the population is aging, so the demands on the federal government are going to be unprecedented in the coming years. it would be absurd to argue that the wealthy shouldn't pay more. so the real question is, you know, whether we should have a more or less progressive tax system. and as joe pointed out, there's no, you know, you've got two economists on this panel, and economics doesn't tell us what the right level of progressivity is. we can write down these models where you maximize social welfare, and then it becomes a trade-off between efficiency, you know, the economic costs of taxation and progressivity. but the thing that's left out is what's the social welfare function? how do you value the well being of people at the top compared to people in the middle or at the bottom in and that is, essentially, a value judgment. as joe pointed out, polls show that host people favor the idea

of a progressive tax people, and recent polls suggested that people think high income people should pay a larger share. in terms of, you know, what the right level of progressivity is, this isn't really -- again, as joe pointed out, it's not really about punishing the rich. i like rich people. they're successful. they, you know, we wouldn't have much of an economy without rich people. they're very generous. they support various kinds of nonprofit activities reflected in this firm, they support universities. but the question is how you determine what people at different income levels ought to contribute to paying for the government. and in a free market system, progressive tax system can help to mitigate the inequities that are the achilles heel of unrestrained free enterprise be. it's not class warfare to argue that the rich should pay a

larger share. in fact, i'd argue it's the opposite because if we can't figure out way to mitigate the inequityies of, inequities of our capitalist system where a very large and growing share of income goes to people at the very, very top, that system isn't really sustainable. in a democracy people vote on the rules, and if people think that the system is rigged in favor of a very small share of the population, that's going to change. and there are a lot of, you know, economists know that taxes entail economic cost. the whole notion of deadweight loss. and higher tax rates, higher tax rates are economically costly. there are two issues. one is that higher tax rates are not necessarily the way we want to raise more income from -- more revenue from higher income people. the other thing is that things we might do to mitigate income

inequality outside the tax system could entail much, much higher economic costs like, for example, putting a lot of restraints on the free market system. very, very high minimum wages, restrictions on executive compensation and things like that. there's a question about whether the wealthy are overtaxed. the congressional budget office has compiled income tax statistics going back to 1979, and over that -- from 1979 to 2007 the share of income going to the top 1% more than doubled from 10.5% to 21.3%. while their average federal tax rate, including individual and corporate taxes, excise taxes and payroll taxes, fell by more than 20 percent from 37% to less than 30%. during the same period, the share of income going to the middle 60% fell by, fell by a similar amount. basically, there was a shift in income from the middle to the top. and their tax burden also fell, but by much less from an average

of 8.8% -- 18.8% to 15%. capital gains tax rates have been much in the news because governor romney's tax return, the buffett rule, all of those things. capital gains taxes are at their lowest level since the great depression. and some, you know, one question is why are these, why are there such large income disparities? and some imply that it's a matter of effort. that the rich work really hard, and lower income people don't, that they're slackers. clearly, that's not the case. i mean, there are some people who are poor because they don't work very hard, but there are people who work full time at jobs close to the minimum wage or not much above, and their incomes have really stagnated. if you look at a set of charts that were handed out at the beginning, one of the slides shows the median earnings going

back to 1970, 1974, the median earnings for full-time four-year workers in constant dollars adjusted for inflation have been basically flat. so the economic gains that have produced huge income growth at the top, the first chart shows the share of income going to the top one-tenth of 1% and the top 3% -- and i'm sure a lot of you have seen these figures before, they declined a little bit in the recession, but they're much, much higher than they've been through the '60s, '70s and '80s. at the same time incomes at the top have exploded, incomes at the middle have been, basically, flatlined. now, the question is, you know, what do you do about that? and there's also a question about how much access that people at different income levels have to those, you know, high incomes at the top. the data suggests that economic mobility in the united states is lower than it has been

historically. the children of rich parents are much more likely to grow up rich than the children of lower income people. rich kids have access to better schools, syracuse university. they live in safer communities, and they have better connections to help them succeed. progressive taxation is not the sole solution to to income ine what lty in the -- inequality in the united states. we should invest more in education, but progressive taxation helps, and education takes a long time to play out. and we should also care about extreme inequality even if we didn't feel compassion for struggling middle class families. there's evidence that very unequal economies grow slower than economies with less skewed income distributions. it provokes regulations, trade sanctions and other provisions or maybe that workers in less

equal societies are less productive because they feel alienated. there is an issue about what is the cost in terms of economic growth of higher taxes. people often cite the experience of president clinton who raised taxes when he took office, and the economy did very well in the 1990s. president bush cut taxes, the economy didn't do very well in the last decade. ronald reagan, who was well known as a tax cutter, he promised tax cuts when he took office, was convinced to raise taxes in 1982 and 1984 and, actually, it was because he was concerned that the deficits that resulted from the big tax cuts in 1981 would entail huge economic costs, and that's another fundamental point. if we can't figure out a way to raise enough revenue to pay for the government, deficits are going to entail much more of an economic cost by raising interest rates, making it harder for people to buy homes, making it harder for businesses to informs than any of the costs from higher taxes. finally, the issue isn't whether

we should necessarily raise taxes on higher income people. the issue is whether we should make the tax system more progressive, and the best way to do that -- i think most economists would agree -- is to broaden the tax base, to eliminate as many as -- as many of the preference items most of which are screwed towards people with higher incomes to eliminate as many preferences as possible so that it's possible to actually lower marginal tax rates at the same time that you make the tax system more progressive. the bipartisan bowles-simpson commission proposed exactly such a plan. the bipartisan policy center, which i worked on, also proposed such a plan. so you can make the tax system more progressive at the same time that you raise more revenue and help reduce the deficit which is really the big threat to the economy. and with that i think i'll pass it off to bob. >> thanks, len. bob? >> well, a real pleasure to be here, chris. appreciate the opportunity to participate in the discussion.

it's really nice that tax analyst is able to put on these events and have a really interesting and deep policy discussion on important issues. it's another thing i ought to say is nothing i say should be construed to represent ernst & young, the organization i work for. it's interesting, when i wrote my notes for this talk, i was going to end with a particular point, it's actually the same point that len ended with. and i think that a discussion of whether we should have a more progressive tax system, whether we should tax the rich more is, and the focus on tax rates, i think, is where i kind of have, take issue with that discussion. i think the focus on tax rates is really problematic simply because the tax rates themselves, the graduated tax rates schedule contributes to the progressivity of our tax system. the progressivity of the tax burden. but it's not a determining

factor. and as the president's own fiscal commission showed, the fiscal responsibility commission more commonly known as the bowles-simpson commission, you can broaden the tax base very substantially and replicate the current distribution of the tax burden. i think the discussion i think as we proceed through tax reform and carefully weigh, um, what we want the distribution of the tax burden to be, i think we have to be very deliberate and very understanding of what economic costs come with, um, higher tax rates on high income taxpayers. i think from my own perspective, i really have no idea what the right distribution of the tax burden is, what it ought to be. um, that's not something, as len indicated, economists are very good at. that's something, in my own view, is best left up to people who are elected to office, to

politicians. i think everyone has a view, and probably everyone has a different view on how progressive a tax system ought to be. one thing i will say, however, is that i do though that the current tax system is progressive. i do know that some of the charts that length included, um, high income people pay a larger share of taxes than lower income people currently. my recollection of the statistics is the top 1% pay about 36% of individual income taxes. um, you don't have -- if you look more broadly at all federal taxes, you don't have that level of progress it, but you still have a substantial level of progressivity. so we do have a progressive tax system. that's something that should be a starting point for the discussion. um, in a sense, the discussion on whether we should tax the rich more, um, you really get at the core of some of the conflict in the tax reform debate. usually when we talk about tax

reform, we're talking about, you know, a set of objectives, policy objectives, a simpler system, a system that's more fair, whatever that might mean, and a system that's more pro-growth. today there are more issues or objectives that have added to that debate, having a more competitive system that better enables us to compete in a global marketplace and having a system that is more stable where we don't have roughly 25% of the tax code expiring every couple of years. to provide taxpayers with certainly. but going back to those core objectives of tax reform that usually come up simpler, fairer and pro-growth, the go objectives of fairness -- two objectives are often conflicting, up at odds. and it's important to when we talk about fairness to recognize that some of the policy remedies, many higher tax rates on high income people, do come with economic costs. this is a point that len made quite clearly.

high tax rates, higher individual tax rates come at a economic cost. the welfare loss, the efficiency loss associated with higher tacts related to the square of the tax rate, not the tax rate alone. as those tax rates get higher, the drag on the economy gets much, much larger. not in proportion to the tax rates, but relative to the square of the tax rates. just to put this into perspective, i have a long career working at the treasury department. and i was very involved in analyzing changes in individual tax rates when i was there as an economist and later as a political appointee. when, when you raise tax rates on high income taxpayers, one way to look at it is what is the revenue take to the government? treasury's own estimates when they estimate the raising the top two rates, they would estimate, um, that the revenue relative to the static revenue

gain from raising the top two rates about 25% of that static revenue gain pick up would be lost due to behavioral responses. other estimates would have those behavioral responses much larger, more like 40% of the revenue loss. that just gives you a sense for from the government's perspective the costs associated with higher rates. it also gives a sense from the taxpayers' perspective or policymakers perspective, what is the cost involved in raising those rates? the distodistortion their effect is much greater for high income people than lower income people. there's a number of papers that illustrate that point. so high tax rates carry large economic costs. another aspect of tax rates is what are they taxing? are they taxing the return to labor or the return to capital? economists generally have a great affinity for consumption taxes that would tax, um, you

know, that wouldn't tax the return, most of the return to capital or savings at all. i have a new book, i didn't get to mention the title of my book. [laughter] so just in the interest of fairness -- [laughter] fairness, progressive consumption taxation: the ex tax revisited. just released through aei press, co-author with alan viyard on june 4th available through amazon.com. [laughter] in any case, taxing capital income from a, you know, taxing capital income. so one of the arguments for taxing capital income is there's a perception that a great deal of capital income is disproportionately received by higher income taxpayers and, thus, if you want a more progressive system, you ought to include the return to capital in the tax base to achieve that objective. however, taxing capital income does come with an economic cost.

it's drag on economic growth. some estimates by a paper from about a decade ago suggest that if you went to a flat rate consumption tax -- not something i would advocate -- you could increase long run gdp by order of 6-9% in the long run. the size of the economy would be 6-9% larger. be you had a progressive consumption tax, um, the estimates would be smaller. um, and when i say a progressive consumption tax, i mean a progressive consumption tax that replicates the current distribution of the tax burden, something that's just as progressive as the current tax system at a high level. for the top 1%, for the top 5%, for the top 10%. those groups would pay roughly the same amount in taxes as they pay today based on treasury estimates for work, from work

related to the 2005 tax reform panel growth would increase in the 2, 3, 4% range in the long run. the size of the economy would be that much larger. another aspect of our tax system is that an awful lot of flow-through, pass-through income is funneled through and taxed through the individual income taxes subject to the individual tax rates. that's one of the reasons, um, there is a lot of resistance to raising the top rates because depending on the estimates, 40 or 50% of flow-through income is generally thought to be subject to those tax rates. so that's a consideration in terms of evaluating, you know, the economic costs to the economy of raising the top rates, how will that affect entrepreneurship, how will that affect the employment, the hiring decisions of entrepreneurs, the investment

decisions of entrepreneurs, how will that affect the growth rate for small businesses. all of those things are considerations and factors that enter into this, into this discussion. so i think you do really need to think about at what cost. and i'll go back to the, go back to the point that i started with that len ended with, um, in terms of thinking about the distribution of the tax burden, i think a much more relevant question is what is the distributional effect of the federal government can, not just the tax side? len has a paper where he makes the case, as i understand it, that a lot of the tax expenditures, the $1.1 trillion in spending that's run through the tax code, should perhaps be thought her of as spending than a part of the tax system and should be evaluated along the lines of spending programs. those provisions have profound effects on the distribution of

the tax burden just as the graduated tax rates schedule does. if we -- they are currently factored into distribution tables produced by treasury or cbo, the tax expenditures. i think for the -- we ought to also really think very much, we should think, um, we should think very carefully about how all the spending programs also effect the distributional, the distributional foot print of the federal government. and i think it's as we get into tax reform, it's kind of interesting because tax reform, um, there are reasons to do tax reform, really good reasons. but one of the reasons i think that tax reform, there's a very strong focus on tax reform today because there's a perception that in order to do entitlement reform, we'll have to do tax reform also to get it onto the table. and from a distributional perspective, there's a lot at stake through entitlement reform, and there's a lot at

stake for the nation in terms of addressing the long-term fiscal imbalances. probably a much, um, bigger issue for the nation than tax reform, addressing the long-term fiscal imbalance where the tax, the reform of the tax code probably has to be part of that discussion in order to get entitlement reform to work. but at the same time that we're talking about the distribution of the tax system, we ought to also be talking about the distribution of the entitlement programs. and can it -- and it would be, i think the current state of what economists know it's probably still a bridge too far, but it would be really interesting to see distributional tables that factored in both sides of the equation, spending and tax side. >> thank you, bob. um, going to open this up to anybody who wants to comment be. please, raise your hand. i'm going to go to len first. because he's panelist. and remember to state your name. especially those who know me and i know you, because that's hard

er for you. you have something to say, len? >> i just wanted to respond to a couple things bob said. first of all, i want to say that people should get bob's book. it's, you know, people talked about the national retail sales tax, flat tax for a long time. those are ridiculous proposals from my perspective because they don't account for the -- they would make the tax system much more aggressive than a retail system couldn't even be administered in any sensible way. you can write to me as bob.carroll at -- [laughter] okay. but basically economists have long liked the idea of a consumption tax on efficiency models because we don't think we should have a tax penalty to savings. but there is this issue of fairness and the fact that most of the savings is done by high income people, and the ex tax which bob and alan write about takes very seriously the fairness concerns.

the issue about the economic costs of taxation and i guess more generally the issue of growth versus fairness is it is a trade-off. sometimes it sounds like when democrats talk about tax policy, all they care about is fairness. and when republicans talk about tax policy, all they care about is economic growth. and i think most people who are not drinking water out of the potomac would say that there is something of a trade-off. that if all the economic growth goes to a tiny, tiny sliver of the population, that's not a particularly good thing. and, of course, if you achieve fairness by bringing everybody down, that's not a really good thing either. the best way, the best way to do this, as bob mentioned, is by broadening the base. and i should point out that, you know, when you talk about the economic costs of taxation, one conclusion -- this is in a paper by emanuel saez and peter

diamond -- is that if you broaden the base, you actually lower the economic costs of tax rates themselves and that the logic is that at a high tax rate if there are lots of loopholes in the tax code, you have a huge incentive to take advantage of those loopholes. if you get rid of a lot of the loopholes and preferences, then high tax rates actually entail smaller economic costs because it's harder for people to avoid them. at this point bob and i are in complete agreement. what i say next might actually provoke a response from him. the biggest loophole in the tax code is a lower tax rate on capital gains. and that's actually, you know, if you look back to the 1986 tax reform act, if you look at the bowles-simpson plan and the bipartisan policy center plan, one way they were able to achieve a high level of progressivity with lower rates was by taxing capital gains the same as other income. and the problem right now the capital gains tax rate, the top

capital gains tax rate is 15%, top ordinary income tax rate is 35%. if you can figure out way to turn your ordinary income into capital gains, you save 20 cents on the dollar. and this has produced this whole industry of advisers and consultants whose job it is to come up with ways to make, you know, generate deductions that shelter your ordinary income from tax and be, ultimately, pay you back in the form of capital gains. this is a huge waste. first of all, a lot of the investments that produce these deductions are not, they don't make any sense from an economic perspective. they only make sense when you consider the tax consequences. second, there are a lot of really smart people working on these tax shelters who actually could be doing socially useful work -- [laughter] under other circumstances. remember, write bob.carroll -- [laughter] now, we can't, you probably can't tax rates at a 35% rate. that would be scored as raising

less revenue than, say, taxing at a 20% rate. but if we can tax capital gains at the same rate, that's a reasonable trade-off. ronald reagan agreed with it even though he didn't particularly want to tax capital gains more because it produced, you know, a tax system with radically, radically lower rates. the thing that saved tax reform in 1986 was when bob packwood came up with the idea of what he called the 27% solution that ended up at 28. the thing that made it work was taxing capital gains, and it reduced a lot -- it eliminated a lot of opportunities for tax sheltering. >> so there's one thing that len and i will agree on, that the second or third thing he said would elicit response. [laughter] so i wanted to make two points, first, to focus on capital gains and then make a broader point where, in any case, on capital gains i really do take issue

with what len said. i think if one's looking at capital gains and dividends, i think one needs to really think about, um, the entire income tax system in its totality. i would tend to think len would agree with this perspective. you're looking at investment made through corporate solution. you really need to take into account both layers of tax imposed on those investments and those returns that flow to investors. and and you have to take into account the corporate income tax as well as the investor level taxes on gains and dividends. when you do that, the current integrated tax rate on capital gains depending on how you do the math, how you count the corporate income tax and how you account for deferral of capital gains taxes at the individual level basically, but generally you would calculate that top integrated tax rate on capital gains to be in probably the mid 40s including state income

taxes. not the 15% federal rate on investor-level capital gains. and so in that sense when you're thinking about tax reform, i think most, many economists would agree that, um, with a comprehensive income tax you would tax -- if you believe that, you should have a comprehensive income tax which, i think, is probably where len would be where i might lean much more heavily towards a consumption tax which would exclude the return to saving and investment altogether on an important portion of the return to those lows. but in any case, if you wanted to tax all income, you would still tax income once. no more than once. and so with respect to capital gains and dividends where a corporation can choose to retain corporate income, increases the value of the firm, it's then realized by shareholders when they sell their shares, or if

they choose to pay out those corporate earnings as dividends to shareholders, it's taxed a second time. the integrated tax rates for gains are probably in the mid 40s, the integrate tax rates for dividends are around 50%. in 2013 the integrated tax rates on capital gains will rise to probably around 50% if not higher because the federal capital gains rate is scheduled to rise from 15% to 20% under the individual income tax and then to rise another 3.8% under the medicare tax that you undere health care legislation, the capital gains -- the medicare tax will apply to earned income for the first time in the u.s. the dividends tax rate will rise to somewhere upwards of 68 percent from its wasn't level of, you know, substantially lower than that, around 50% on an integrated basis. so, again, i think it really --

at least for investment made in corporate solution, you really need to think about the double tax and think about, um, the income tax in an integrated basis. and so that's, i think, a very important issue. as len indicated, just looking at capital gains tax rates through the individual income tax, both joint committee cbo and treasury would tend to view the revenue maximizing rate on capital gains in the neighborhood of 26-28%. that's generally what they've assumed for the last 15 or 20 years. it's my understanding that's what they would still assume. um x then the other point -- um, and then the other point i would make is i think when you look at the income tax system or the tax system generally, think it's a -- you really need to be careful, i think, to not fall into the trap that it's the

cause of income inequality. i think it's an important tool to address income equality perhaps, but i think it's also really important when one's talking about these issues is to focus on what do we think is the source of the increase in incominequality, measured income inequality over the last 15 or 25 years. and it seems to me that that's a very important discussion to have because then that might lead us down a different path in terms of how to address the rising income inequality. so if we think the stagnation of wages for those in the middle is perhaps due to globalization and perhaps due to lower skilled labor in the u.s. having to compete with low skilled labor in emerging market countries in southeast asia and south america and be other places, and when

u.s. low skilled labor is competing on a more global market, it puts downward pressure on those wages. then i think in the high skilled labor is getting a fairly substantial return to their human capital. it kind of leads you down a different path. it would tend to point you to the most important thing we could do to address that income inequality is something that's a long-term investment in education and trying to raise the skill levels of the bottom two or three quintiles of the u.s. population is probably a very, very important thing that we ought to be focusing on and focus on the tax system is important. you know, i think most people in the room would agree that we need to have a progressive tax system. but i think that's an important part of the discussion. >> len, you want 30 be seconds to respond? >> yeah. i could go on for hours, but i want to point -- i actually agree with bob that we should just tax capital income once. the lower tax rate on capital

gains and dividends is a terrible way to do it. and there's actually an article in tax notes 2003, i wrote it in 2003 i think called tightening income once. and basically what it says is i like bob carroll's -- i think were you the dif when the capital gains -- >> i was over at the council of economic advisers. >> so i liked your first proposal better than the one that was actually enacted, which was the lower rates. [laughter] >> i don't disagree. [laughter] >> he's hid a chord. okay. this gentleman here and then, scott, i'll go to you. >> i want to go back to -- >> name. >> steve hankin. i was a, i used to be an attorney with the irs. i'm retired now. um, i want to go back to the statement made about fairness and how, you know, that's the major concern. you seem to have accepted the

notion that everybody agrees that this income tax system and particularly with the progressive rates is fair. i would like to submit to you that taxing the rich is essentially taxing a person based on his status. it would be, to me, it's not much different than taxing a person based on his religion or his ethnic group. a big difference, of course, is that the it gets the amount of revenue in that if you tax people who are wealthy, that's a big source of income. but the fact remains that it is, essentially, you're taxing somebody based on their status, their wealthy status. and our country never wanted to have these distinctions based on status. so what i submit to you is to say ha -- to say that that's

fair, to tax somebody on the basis of their status, i don't think that's fair at all. i don't think that -- you're just assuming that that's fair. you're starting off from a point of saying that must be fair when it's not fair. >> i think you're probably, you're probably talking about me because i said that the fairness was always so central. and so i'm going to retreat into what the historians always say. you cannot like what i say, but that's the way it was. [laughter] and i think that really is my answer. i mean, your position, it's find and, in fact, fully consistent with what my point is which is that people are going to argue about what's fair. and there are plenty of reasonable arguments to be made that the income tax is not fair, the progressive rates are not fair. but the fact does remain that historically americans have found be them to be pretty fair. assuming that you accept poll data as relevant or election results as real evidence. americans have embraced it.

if nothing else, the income tax has been with us for 100 years next year. if people don't think it's fair, and it's always had progressive rates in that time, if people don't think it's fair, it's remarkable that it lasted so long. >> if i could respond to that. i mean, people are always going to want to tax the rich, and they're going to say, oh, that's fair because, you know, 98% of the people aren't rich, so they're going to say, yeah, it's fair. >> no -- >> you know, that word "fairness "is just loaded with all kinds of -- >> it's certainly true that there's not universal agreement. there are a lot of people -- i write a blog on "forbes," and i hear from these people all the time how you're punishing the job creators, and it's unfair. you know, one question is -- so, first of all, that it's a value judgment. so so to say that just as a matter of fact more progressive tax is fair, you're right, that that's a value judgment which, i think, is shared -- and joe's

pointed this out -- shared with most americans but certainly not all of them. the question is, i mean, do you decide what the fairer distribution of tax burdens is based on what your economic status is, or would you, is the right way to decide say based on not knowing where you'd come out? this is the whole notion behind john rawls' theory of justice which is that when you decide distributional issues, it's not knowing whether you're going to come out rich or poor. i can say from my own experience i grew up pretty poor, and now i'm doing reasonably well. and i think, you know, from my perspective having people like my parents pay little or no taxes and having me pay a substantial amount of taxes makes perfect sense. but, you know, i'm probably not going to change your mind or a lot of other people's. it's also just a lot easier for me to pay a substantial tax bill than for my parents who, you know, at times my mother wasn't eating because she didn't have enough food to put on the table

and saying she should pay more tax when, you know, my decision is about whether to take a second vacation or not, from my perspective it seems pretty easy. >> let me jump in here for a quick second because the theme of the conference is what the rich should pay and why. and whether it's fair to tax the rich. so i'm certainly not assuming that it's fair to tax the rich. i'm not assuming anything. that's what we're here to discuss. i want to go to david -- >> [inaudible] >> that's to your point, exactly. >> i know you had scott up, but i just wanted to ask a follow up on that question, i wanted to ask joe something. i sort of agree with you, by the way. and i wanted to ask joe, you said that people -- i think you said that people have long -- david bernard, by the way, tax analyst. [laughter] people have long supported the idea of progressive taxation as being fair, i think you said, but isn't it true that people support the idea of progressive

taxation at income levels above what they make? that it's like, oh, sure, progressive taxation as long as it's kicking in at more than what i make. and whether i make $10,000 or $100,000 or a million dollars with the exception of len who, apparently, does not mind paying higher taxes right now. but most people would say, yeah, progressive taxation is great as long as it's not me. which then doesn't it turn it into a big redistribution mechanism? >> [inaudible] >> exactly. >> man behind the tree. >> so you may be all for taxes as long as it's not me. >> the nasty way to put that is it's all about ending and you're going after these guys in a punitive way. the less nasty interpretation is that everybody has a self-interest bias. and so, sure, on balance i'd like to keep my money -- [laughter] >> but you'd rather keep your money in your pocket. >> yeah.

>> and if we need money to fund whatever it is we're paying for, let's tax those guys over there. >> although increasingly what you also see is an interest in raising tax burdens for people beneath your own economic status as well. >> that's a separate question. >> so it's really everybody, every tree. >> i mean, there's a significant group of millionaires who have been arguing for more progressive taxation. so it's not purely, it's not purely selfish. >> and i love those guys, but really they are outliers. >> let me get to scott here just to -- i'm the moderator, so i'm supposed to be moderate. so you're not alone, len, i'm in the len camp, you know? i started out not doing well, and i'm a great believer in progressive taxes. i'll now go back to being moderator. scott? >> one more. >> quickly, please, a lot of people want to talk. >> in terms of fairness if you go to the store and you buy a product and they said to you, um, we have one price for rich

and another price for poor, everybody in this room would say that's ridiculous. that's not -- but yet when the government taxes you, what are they taxing you? the major purpose of a tax is to raise revenue for paying for government services. and so why should one person have to pay more for government services because they're rich than another person who's poor? and that's, essentially, what an income tax and particularly a progressive income tax does. >> scott, you want to jump in here? i've kept you waiting too long. >> scott hodge with the tax foundation. seems like we haven't really had enough sort of baseline discussion about the progressivity of the current system. and according to an oecd report, the u.s. has the most progressive personal income tax system of any industrialized country. we rely more heavily on the top 10% than any other industrialized country. our poor people have the lowest income tax burden of any industrialized country. in fact, last year we had a

record, record number of americans who paid no income taxes since 1940. and yet at the same time the top 1%, 2% pays roughly 51% of all the income taxes. so i'd like to ask the panel what do we consider to be least fair or unjust; the fact that we have roughly half of all americans who pay no income taxes, or the fact that we have the top 1 or 2% that pay the 51 percent of all the income taxes. >> let me point out scott brought along some handouts from the tax foundation, and you should all have them, and if you don't, we'll figure out how to get you some. thank you. >> so i'm really, i'm really happy that scott made the point about the comparison to the european economies and, you know, the oecd study has been

pretty popularized to some extent that the u.s. has the most progressive tax system. and it's really kind of interesting. and the way i kind of think about that and the way i kind of explain that is that, um, the europeans don't need to have as progressive a tax system, to have as progressive footprint of their government sectors because they have much bigger government sectors, and they do a lot more distribution on the spending side. so that's why i think it's so important when we have the discussion on, you know, the income inequality and how the government should address that or not address that, so important to not only focus on the tax side. it's critically important that we also focus on spending side. the european economies have pretty exclusively public health care programs. ours is split where we have a public program for the elderly and primarily a private system for everyone except, everyone else except for poor children. you know, we, they tend to have

much more extensive public retirement plans than we do. they run a lot more of their economies through the government sector than the way we do. on the spending side, they have a lot more redistribution than we do. so it's really no -- probably shouldn't come as that much of a surprise that we have a more progressive tax code, and they have a less progressive tax code because they're just doing more of the heavy lifting on redistribution on the spending side. and so that's at least the way i can kind of reconcile the oecd study. but then i think one of the things you can draw from that is that where's the discussion on, that we are having on the distribution spending programs? you know, and how does that effect how we view the driewtional foot print? >> i agree with what bob said. there are a couple charts in my

handout showing that the distribution of overall taxes -- and the income tax is very progressive -- that we actually run the large cash assistance for working age americans is the earned income tax credit. it's bigger than food stamps now. but the biggest tax that most americans pay isn't the income tax, it's the payroll tax. and that's, actually, pretty regressive. it's a flat percentage of earnings, and it's capped at about $110,000. people find out that, well, the benefits paid on social security are progressive, gets back to bob's point that you should look at benefits as well as taxes, but americans do pay a substantial amount of taxes. i reproduced a chart based on data from citizens for tax justice where they looked at not just federal taxes, but also state and local taxes. and when you look at the overall system, the tax system is

somewhat progressive, but the top two quintiles, you know, from basically from the 60th percentile up to the top, basically, have a flat tax system. there's actually a decline in the overall effective tax rate at the very top primarily because of capital gains. bob's absolutely right that, you know, we, we run a lot of our social welfare system through the income tax. much more than european countries do. and actually it would be -- i've argued, i argued in one paper that actually putting in place a value-added tax which is a regressive tax dedicated to paying for health care would be a progressive, a progressive trade-off overall. and that wouldn't show up in the distribution tables because we only look at the tax part. but the fact is we don't do very much on the spending side compared with european countries -- >> income tax is a primary tax to fund the basic functions of government like national defense and so forth. and so one could say when you've

got half of all americans with no skin in the game, they really have no stake in the basic functions of government. and that, that's a real serious question facing america, is do we want people to be, essentially, um, disconnected from the basic costs of government? they have no sense of what government costs to them. and so you get the fiscal illusion problem which can lead to greater growth in government because these people bear none of the costs. and they're more than happy to tax millionaires to pay for it. ..

we could have a tax system where, for example, if we had a value-added tax bill is dedicated for thing for federal health care expenses and people, that is the fastest growing component of spending. that's the one if we don't get it under control, bankrupt this overtime, that if there was this high-end between a broad-based tax and back in the west bank and people would see, they might be more interested in doing sensible things to slow down entitlement spending. >> we see these charts at the top 1% and their income shared but we never see a comparable chart showing the amount of income taxes as a percentage of

income taxes that that 1% pace. that's been growing considerably over the years but it's actually double their share. so they earn, say, roughly 20% of income taxes but they 40%, or they earn 20% of the income but pay 40% -- >> but tax as a share of income has been going down. >> it's been going down for everyone as you know. >> what's interesting about some of len's charts, just in just, as we're sitting down, take us just like you which shows the top income inequality since a early part of the last century through today, then you look at the highest income tax bracket which is actually, if you know the data, the top income tax bracket is going to be similar to the share of taxes paid by the top 1%. and if you are too over ladies to you would see a high negative

correlation -- if you were to overlay these you would see a high negative correlation. drawn it too strongly is that as you have a high income paying a much larger share, the tax rates on high-end go well. they purported incomes go down. this kind goes to the issue that erased earlier that there's a very large behavioral response at the high end to these data are measured as reported incomes, and incomes of high income people are rather sensitive to the tax rates that they pay when we have tax rates upwards of over 90% in the '50s, and early '60s, those are high income taxpayers had very strong incentives not to earn an extra dollar, not to report an extra dollar. so that's, again, going back to what are the economic policy of high tax rates, i think that's a

very important part of the discussion. france, i understand, is proposing to raise its top individual tax rates 75%. and i just kind of wanted if we live in an economy where we have, just as we did in the '50s, if we had a top tax 75% how would people behave if they only got to keep 25 cents on the dollar when they were deciding to work. when they retire earlier, would they take jobs that pay them less, that didn't offer as much? would it affect the professions that they entered into? how would that affect investment decisions? there's a whole range of decisions that would be effective with such high tax rates. >> i have three people waiting at it will forget you. but i think joe wanted to respond. >> i just want to go back to the non-payer issue. which i think is although i just -- talk about poor people, it is relevant to the debate about

taxing the rich. i'm not particularly concerned about the free rider issue because i do think that, you know, whether about social security taxes, what their status is is up for some debate. whether their contributions to program the page back or whether they're just taxes. i do think you have a good point, and i think liberals have missed this point. that the issue of nonpayers is dangerous. because the income tax, this is important for the politics of the subject as opposed to the economics, it's more than just a way to raise money. it's really about a connection to the government, to the -- it has a symbolic role in american government that i think is lost. it's silly, we all think april 15, this big holiday, we all hate it and we all tried rushing in our taxes. but that's a shared experiences for america. and not to be a part of that is a problem. i don't think the we need to expect the nonpayers to pay

much. most of them can't afford to pay much. but i think the idea of including people in a tax that is almost, if we think of as universal, it's important. that's the real cost. i think liberals miss the boat. if you want to protect income tax you need to make it feel like it's a shared burden. this is not make it feel that way. it's a republican plot. now they are loved by liberals. and i think that's really shortsighted for the left to just respond, these people pay lots of other tax. i think that misses the point. >> just on bob's point about the relationship between tax rates and income inequality. i think he was deliberately overstating the point. if you look at the data, over 30 years the share of income going to the top is about top 1% is about 8%. during that period the middle class was doing very well, that

they were getting basically their incomes were growing, going with the economy. and think something change. tac rates are probably a small part of the story, but the big thing is a decline in the power of labor unions, increasing, increasing internationalization. the fact that a lot of workers now have competitors in bangalore, the financial innovations, which helped sink the economy the last decade, and the financial innovations produce enormous income gains to the very, very top. increase technology, and this whole idea of a winner take all society where the earnings at the very, very top, the top performers get humongous payouts compared to people who are almost as good. i think when you look at the date on labor supply, you look at the labor on -- data on -- appears to be very modest.

lebron james would not decide to sit out the final pick is next best option will not be all that much. corporate ceos want to be people earning the very, very top incomes. they will not decide to work on little less because their marginal tax rate goes up. so i was making a valid point but i think properly deliberately overstating it. i think the rising inequality, present inequality is really an issue that is all of income gains are going for very no -- narrow sliver of the population. i think that his political unsustainable and i think it's also problematic. you need to pay for government, and income gains aren't widely shared. it's hard to argue that people are struggling to get by would have to pay more in taxes. >> so from where i stood i think, so you have this rising income inequality, and what should we be doing from a public

policy perspective? if you think that that's related to the bottom two or three quintiles, or lower skilled labor compete on a global labor market where people make a lot less money in other countries, in an emerging market countries, then the issue is really skill level. so we should be having a continuing discussion on that issue. i think the tax code, or should see the federal government spending and taxes are a lover, but it's serving of the problem. it's not going to address our long-term issue of income inequality. i think you have to think more fundamental, fundamentally about what is the cause of income inequality. actually a very important part of the discussion. >> i agree. it's a hard issue. that's more in education. even as problematic but there's much more to it.

some people, some people are just not going to be able to get college degrees, and people have, you know, some of us are lucky that are able to really take advantage of higher education to get big payoffs, and other people aren't. a used to be their good factory jobs that pay those people very, very will. we have to figure out a new kind of economy where people who have limited skills can still support their families. i should say the earned income tax credit, which is a significant component of that 50% of americans who don't pay income taxes, i think it's a really good thing because as opposed to raising minimum wages substantially which would entail an economic cost, this subsidizes the wages for people are working and makes it possible for somebody working full time at, more than minimum wage actually to be able to

support her family at a level above poverty, and if you don't want to do it to the earned income tax credit you got to think about some other way to make sure that people who are working hard and actually survived. >> i'm with the concord coalition. so, the topic of this event is taxes on the rich, right? and i want to just make the point that obviously there are economic costs associate with raising taxes on the rich. the panel has talked about wide base broadening would be a lower costs way of raising taxes on the rich but there was to be economic costs. and i think that this is an issue of where the budget process and our budget constraints can really help tax policy move along. because if you give people the

choice of raising tax burdens versus not raising tax burdens, they will always choose to not raise tax burdens. so you're not going to force tasked reform or any action on tax policy unless you have a binding budget constraint, and it's something different from the budget constraint we have been following pics i think we have an opportunity and that there is need for deficit reduction, there's a need for a lot of deficit reduction. and the budget process can help inform the tax reform debate by setting a budget constraint, not necessarily on separate on the revenue side versus the spending side, but set an overall budget in straight of how much deficit reduction has to happen. and then it forces us as policy experts and policymakers to weigh costs against benefits on different types of tax policies or spending policies. so one thing i repeatedly pointed out is that the current law baseline is a really good baseline in terms of achieving

economically sustainable budget deficits. if we were to stick to the current law baseline, that doesn't mean going over the fiscal cliff or running into the fiscal cliff, or however you want use that metaphor. it can be sticking to pay as you go on the expiring tax cuts over a ten-year budget window. and then think a lot of people have a tendency to look at the fiscal cliff and look at the expiration of tax cuts as an all or nothing do. okay, we've got to either run into the cliff are run off a cliff or just stop short of it and don't do anything about it. and i think that's a mistake. so i'm hoping, i'm still hopeful, i am naïvely hopeful that the budget constraints, the fiscal outlook, the budget constraint, the fiscal cliff coming up, that it's an all passionate it's all an opportunity to let budget, the budget outlook and budget process help make better tax policy. >> do me a favor for the tv audience asked them what you can buy the current baseline. >> the current law baseline

assumes that current tax law actually happens. current, currently, it's so silly. so, so currently the bush tax cuts are scheduled to expire at the end of this calendar year. they were previously scheduled to expire at the end of 2010, but were extended. so we are nearing the end, at the end of this year they are all supposed to go away. alternative minimum tax relief as another tax provisions that is going to expire, and the payroll tax cut is going to expire. so those are just attacks portions of the fiscal cliff which, when you throw in some sequestration possibility on the spending side, make for a rather steep cliff in terms of the one year timing. current law is literally that the tax cuts would expire at the end of the year, but sticking to paygo on the current law baseline, just requires that the

revenue be made up over 10 years. that's what the differences between current law and a current law baseline is. >> thank you. over here. >> good morning, victor. any good ideas here, let me add one more. so let's suppose a decision is made to lower rates, broaden the base, probably lower the tax rates. i'm skeptical that this is going to satisfy the current baseline. people, with the revenue we need, or do distribution. so about a year ago i wrote an article in tax notes describing the progressive expenditure taxes. so this would be a supplemental expenditure tax, a little different from what is suggested in bob carroll's book, which i haven't read yet, i look forward to. and i think would be great if, we can do here but in the subsequent event to look into these alternatives and see, you know, how can we actually do it

if we decided that we wanted to? >> did i see summary raise their hand in the back, by the way? okay. >> i am rebecca with citizens for tax justice. i think we need to embrace taxes again, or tax mcgibbon -- tax mcgibbon. it's really an opportunity for us to position the budget recessed button. and let the bush tax cuts expire and then do some sensible reforms, come back in january and decide what targeted tax cuts really need to be made and everybody, like lin said, -- like and what it will have to pay higher tax rates because the budget product i find for strength for us to focus as scott get on just the federal income tax, when you look at the

target len so kylie copied from my report in april, the taxes that people pay, people at the low income range pay huge amounts of state and local taxes. all of us in this room, the federal income taxes is the biggest tax with a so that's what we tend to focus on. but there's a washington on the other coast where the bottom 20% pay 17% of their income in state and local taxes. and the top 1% pays less than 3% of income in state and local taxes. now, when you go to the store to buy your school -- to buy your kids school supplies and you're in the low income ranging know you can't put $20 worth of stuff in your basket. you been all but 17 or $18 worth of stuff in your basket because when you get to the checkout counter they will add another 10% or 12% of sales taxes. so as robertson or when you to look at the tax system as a whole and where people pay

taxes. and that's including the corporate income tax. in november we updated our corporate taxpayer and corporate tax budget report. we looked at the fortune 500. we include only the companies that have been profitable over the three-year period we looked at. we found an average corporate tax rate of only 18.5%, which is almost half the statutory rate of 35%. there were 78 companies in our study who pay zero income tax, in at least one year. and there were 30 countries that have a zero or lower tax rate and all three years. so to say that that corporate income is taxed and then taxed again that the investor level is really not what reality is. and also a look at the tax system as a whole, you've got to look at the problem that the capital gains rate causes. not only all those smart people wasting their time figuring out ways to convert your income to

capital gain, i think it contributed in a great way to all of the financial innovations that happened at almost, almost brought down the world economy. look at how much they contributed in equality. few to people making, let's say a nice honor, $250,000. and one of them, all their income is from salaries and wages. and the other one all their income is from capital gains and ordinary income. the guy who works for living is going to pay about $57,000 in federal income tax. but the persons living off his wealth is only going to pay $38,000 in federal income tax. a $20,000 difference. so at the end of the is $20,000 more to invest. here's somebody who already have substantial assets and we're just giving them $20,000 more. so at the end of the year he is going to continue to increase the amount of assets that he has. so, i think we really have to

look at the system as a whole and see what makes sense. attacks, the wealthy can pay more tax, and the threshold should be a lot lower than $250,000. and also i wanted to give joe a shadow. i never heard april 15 talked about as a holiday before. >> i misspoke. spent keep housley i've got to in about what to go to in the second, and then over here, and then over here. david wanted to jump in for second. >> respond one thing that rebecca said. she mentioned the state of washington having a very regressive tax system. but i wanted to remind her that the citizens in washington i think it was two years ago rejected adoption of an income tax, overwhelmingly. and it wasn't income tax that was going to fall on the top 1%

of the population or something. income over $400,000. like nobody was going to be. and it was rejected 70-30. >> we can explain why people are voting against their self-interest. >> interesting point. would include state level taxes, the 50 states and d.c., the citizens in the states are making choices in terms of what they want their state systems to look like. and you know, i saw your chart when i was looking through len's handout, and it's really a very interesting chart, but then it can lead you down the road of whether the folks in washington should attempt to undo distributional effects of state level policies through the federal tax code. and i think that's kind of the right problematic have to go to. >> but it harder for states have progressive tax systems because actually it's easier for high income people to avoid estate taxes. they can move from, where again

washington, where as if we decide collectively that we want to provide public goods, want to provide support for lower income people, it's much is your to do at the federal level. [inaudible] >> les snyder, i'm a former treasury official but i guess i would like to challenge this emerging consensus to conventional wisdom that the way to reform the tax laws is by eliminating or reducing tax expenditures and lowering the tax rates. i think people have a selective memory loss, because we tried that in 1986. we lowered the rate to 20%. most people don't realize it but when you look at the distribution table, that tax law change was a tax increase, not a tax cut. the greatest increase according to the distribution table where to incomes at the topic but i would say that within three months after the night went of that statute more liberal politicians already were screaming that the raid on

wealthy people was too low, and they wanted to increase it. and i think that you bought off on this myth that you will trade tax expenditures for a lower rate, you end up with no tax expenditures and a higher rate in the end. now, maybe that's what people want but i think on one side of the aisle that's not what the welcome but that's what they're going to end up. in the long run. >> most of the base broadening in 86 as i said on the corporate side and actually a lot of the changes survive. rates when the. also right after tax reform was enacted there was, i'll call a lower capital gains tax rate, one of which eventually happen. it certainly is, for people or think about taxes on, i think the biggest challenge is figure out how to make it stick. certainly, and the other thing is we talk about $1.1 trillion in tax expenditures but most would be extremely difficult to click to get rid of. when you talk about raising, one of the things that happened in

86 was corporate ceos came to washington and said we kind of like this thing, even though we are really raising taxes on corporations they like the idea of their own personal tax rates have gone down to 20%. talking about trimming the mortgage interest deduction, limiting the tax break or health insurance and things like that. both of those i think would be a good idea as a matter of policy but politically it's not impossible extreme it difficult. >> to your point, there's another incident in the task of we have a about yet and that's the incentive of a politicians to keep it so they can keep picking winners and losers. that's the one i worry about. did we have somebody else in the back? no? dave. >> i'd like to narrow the discussion maybe a little bit for a minute or two. one of the issues it seems to me that muddies the debate on how much the rich should pay our what the rate should be, is something that bob mentioned,

which is a large percentage of business income flows through and is taxed at individual rates. and whenever there's a discussion about raising the rates, then it's described as a tax on job creation. i wonder if the panelists have any thoughts about separating the taxation of business income from individual income? in other words, are the existing form 1040, you have two schedules, one where you have a number for so proprietorship income, on with s. corporation a partnership income. what if the system were to take those two numbers, subject them to a business rate schedule, the same rate as a corporate rate schedule and deal with individual -- i understand that doesn't deal with integration. tax business income under one system, and individual income

under another system. >> i mean, the idea of taxing flow-through business income at a different rate is, i haven't heard that suggested before, i think it will be problematic, and the reason is that first there's a question about whether yoyou would actually want to do it. and i would say as progressive tax system actually is good for most businesses. most businesses are owned by people that actually don't have, they are not in the top brackets. it is true that most of the income or -- income earned by people in top tax brackets, large businesses with many, many employees, and that basically business investment is risky, and effectually progressive taxation provides the kind of safety net. and if you don't do very well your tax at a much very lower rate. ..

>> they are paid for thaish activities doing that on schedule c. actually, the treasury department has a very nice study through the nelson and several other people, looking very, very closely at business income reports on individual income tax

returns, and a very large percentage of that are people you wouldn't actually think of, small business people, people hiring other people, creating jobs. the more fundmental problem is if you said business income is taxed at a lower rate than other incomes, a lot of people would be looking for ways to make their business income -- to make wages and salaries look like business income, and that would be economically inefficient, and it would also raise fairness issues. >> just a couple points. first time i heard this was in 1993 as a staff economist at the treasury department shortly after president clinton was collected and his interest in raising the top tax rates, you know, the millionaire surtax morphing into the 39.6% rate and $250,000 at the time, and in any cases, there was a hotly

contested debate in congress, and another idea approached was having a separate rate schedule for certain types of flow through or business income, and it was considered, and then not -- it was considered on the hill. it was considered internally for a very short while before it was rejected. i think one of the problems with this issue is the corporate income tax is really a tax on investment returns, on equity, finance investment returns primarily, and corporations tend to pay everyone who works for the corporation wages, and those wages are subject to the individual income tax. with flow throws, it works a couple different ways. s corporations are required to pay the owners some reasonable compensation, but partners, partnerships are not, sole

proprietors, there's no wage income from return investment in capital and return enterprise. if onemented something parallel to the -- one wanted something parallel to the corporate income taxes, you have to separate the returns from the capital investment and labor. it's kind of related to a point that lynn was making. some of the nor kick -- nordic countries attempted to do this and tried to have separate systems and particularly in the partnership form, and it turns out to be extraordinarily complicated, and so that's kind of one of the issues. if you did it just for the net income of the flow throughs, then you may be providing that more favorable rate treatment to, in a sense, the return to labor that's accruing to the owners of the flow throughs which would, you know, create the kind of friction that lynn was describing. that said, going back to a point

that lynn made, you know, a lot of flow through income is subject to the top two rates. the numbers i've run myself and have seen others run tends to be in the 40%-50% range of the flow through income subject to the top two rates so from an economic perspective, that's kind of what you focus on. it is true that most of the people, most of the business owners, if you counted them up, when you count up the business owners, because -- well maybe not because it's including people like lynn, he may be further up the income distribution, but a lot of business owners may well be in the lower tax brackets. that's the dichotomy of counting people and income which is very similar to the capital gains debate in the early 1990s where, you know, one side was counting people, and the other side was counting income, and, you know, i think he tries to count the income is my impression. the focus on the income because that's where the economic x

would accrue from. >> i think they are both important, but they are different questions. >> right. >> i'm going to echo the gentleman who asked the question from the audience a little bit because i think the panelists have been generous in one regard, and that's what is in the way of tax reform? you know -- you know, we can come up with all the wonderful tax plans that we can design, achieve productivity, the simpson plan, and there was a group who hated it a lot. and it was not grover norquist and his act visions. all they care about is the top rate. the bowles-simpson plan, it was called the cat food commission, and my job takes me around the country, and during the occupy period, i went to talk to the

protesters, and they don't care about this. the progressivity and structures, that doesn't matter. all that matters is top rate, and what they said about the commission is it cut taxes on the rich. we don't know it does that, but that's all they care about is the rate. this is why we have every congressional bill from that side of the aisle preparing new spending programs and pay for it by new taxes on the rich. the proposed tax proposals, it's not as rebeck is a conceded here that everyone needs higher taxes, no, no, no, just one group of people to pay higher taxes. now, luckily, the american people, including the good citizens of washington, not the reddest state in the country, they generally don't go in for that. they are very critical of some rich people, the crony capitalists, the beneficiaries, bailouts, beneficiaries of government, but for those people that rolled up their sleeves and worked hard, they want nothing but success for them.

i don't know how people here watch the "west wing," that's one of my favorite shows no longer on the air, and there was a liberal ideolog character there, and very sensible in many ways, and one of the themes he's arguing with one of the people on his side of the aisle talking about how the rich need to pay their fair share. he says, i used to be a lawyer making $400,000 a year and paid 27 times the national average of income tax. i paid my fair share of me and 26 other people. i'm happy to. that's the way it works and it's important people go to school and have roads to drive on. i don't get 27 votes on election day. the fire department doesn't come to my house 27 times faster or water 27 times hotter out of the faucet. the top 1% of wage earners pay 22% of the country, not calling them names while we do is is what i'm saying. >> another one back here. >> david -- [inaudible]

listening to this, it seems like the -- >> your name? >> david brozel. i work for a large government agency. [laughter] this discussion is really heavily depends on the framing of the questions ands discussion i'm hearing. there's everybody assuming income measures are the appropriate measure by which we should measure, but we could use consumption, i think, on very good arguments. another way, i think glenn mentioned you could -- we need to tradeoff efficiency and equity for fairness. that sounds good, but first efficiency, we have theories about what we know with

efficiency, and on the other hand, we have no idea what that means, no one one can agree. there's different motives for arguing one way or another. it doesn't rise to the level of pore pornography where at least that you know it when you see it. here, i don't think we can identify a state of affairs where everyone could agree that is fair or most people say it's fair. you asked those in favor of raising rates on the -- on higher income folks that ask them, well, how high do we have to go to be fair, and usually, you don't get an answer for that because there is no answer for that. i wanted to go back, i think, it was 1934 when fdr said no one should be making more money than $3,000 or should be able to keep that. i think he moved away from that very quickly, but i think he didn't want babe ruth earning more than he did probably.

the point is, we cannot define this, and there's different motives behind arguments for one rate. we can't even define fairness here whether we're talking about the people at the low end or upper end. the conference was on whether we're supposed to raise taxes on rich people, but, you know, to there, it's just envy or whatever other motives might come into play it seems to be. my question is this, is fairness art or pornography, i guess? >> is fairness -- >> art or pornography? can you identify it? >> so, david raises a good point in there's huge measurement issues and disagreements as so what srb how we define -- how we define the base conceptually. if we measure income, and the measure on income tax returns is not closely related to what economists call income. you know, the fact is that their

measurement problems both in terms of defining fairness, progressivity, measurement problems in efficiency as well. our measures of efficiency come out of a highly stylized economic model, and the fact that we can't measure it perfectly doesn't mean it's not an issue, but fundamentally, it's an issue that's the political process that joe pointed out should be working out, and not something that economists or even people in this room ought to be deciding that the tax system ideally should reflect, you know, the best we can, you know, what is consistent with our values, and i think almost everybody would agree that some notion of fairness is related to taxation. it might be everybody should be paying the same thing, horizontal equity, but even for that, you need a measure of income that we agreed was consistent, but the fact that we can't measure perfectly doesn't

mean we shouldn't consider it. >> we cannot address this analytically in a sense because nobody can agree how to, as you say, "measure fairness," but there's a lot of articles that try. there's tax literature, and the measures are just as stylized with the measures of the economy to generate the official -- efficiently conclusion. >> this goes to joe's point. that's what people should do is embrace the arbitrary nature of it. i don't think we should tie ourselves in knots trying to come up with theories of fairness when it's really an intuitive political decision, and we may not like that. government makes all sorts of intuitive political decisions all the time addressing fairness issues in realms far removed from tax. as earlier was pointed out, peoplement to tax the rich, and

that's true, and maybe that's sorted and terrible, and if so, that's just a problem with democracy. i mean, it's just not avoidable. there's no way, and there's no owners manual for government, no one tells you how much is enough. you can learn how much gas to put in the tank, but you don't know how to tax the rich. to me, that's the beginning of an argument, not the end of one. that's what the issue is really about so i'm interested in all of the questions of efficiency and add min -- administration and the other thing, and the effect of my views with this, but ultimately, they are second level issues, and honestly, even in the large development of tax policy, i think they are often second tier issues too. for all of the complaints that economists offer about, say, taxing income rather than consumption for decades now, you still see a lot. you know, the voters embrace the idea of taxing income.

right or wrong. >> that's important questions we can ask to better frame the debate. we can provide some measures of progressivity of the tax code. you know, that's something we can offer up. there's good charts in the handout. average tax rates by income class, and gives us some sense for at least where we are by some standard, and you can produce other standards that would give you a somewhat different result, but that's very important. i think joe's point that this really narrow focus on the race, i think, is really problematic because the rates that really contribute significantly to the economic costs of the tax code, and the notion that progressivity is defined by how high the rates are, i think, one, it's not accurate, and, two, it's very counterproductive leading us down the wrong path, the wrong discussion.

i think that's our problem. i'll leave it there. >> i tend to agree with that. just to retreat to history for a moment is what's striking is how powerful the rates have always been. the high end rates, even when they were, in many ways, meaningless, and one of the great studies of fdr's tax policy is called the limits of tax reform. >> i think the rates are easy to understand. >> uh-huh. >> i think people with, you know, can easily under equate progressivity with the rates, and i think it's really something that important public service can all provide i hope is provided with this forum and others is that, you know, that's really just a piece of the puzzle. >> i mean, the stigma in many ways, and we have not talked about this here today, but this is a more meaningful issue. the question of brackets. where they start. where they end, how many we have. because, you know, 90% rates on very small numbers of people are

really truly meaningless. they were made in 1935 that applied to one person because the bracket was so small. the question, i think it is a relevant question. i'm not endorsing idea, but the idea that we don't have enough brackets, and the difference between someone making $350,000 a year and $350 million a year is meaningful. that's a reasonable argument to have. the fact that we have relatively few brackets in historical terms right now is unusual and not necessarily permanent i don't think. >> yeah, but then again, the focus on the brackets is a focus on the rates and not the progressivity of the tax system or federal government's foot print. another point mentioned on optimal tax theory, and the road that leads you down 1 those income -- is those income sources that are, you know, have the highest elasticity, the most responsive, most mobile, things like capital

income, in the international setting or across time, optimal tax theory ultimately leads you down the road of if you follow the system, you tax capital income a lot less. that's one of the rationales for the system and crossing boundaries or across time is much more responsive to changes in its tax treatment, the rate at which it's taxed relative to labor income. if onemented to use that -- one wanted to use that standard, you know, that's kind of a way to try to introduce the notion of what is the progressivity of what cost, and, you know, how progressive should the tax code be? my own sense is that most people view their view is that we also have a progressive tax code, and then the question is, well, if you made it more progressive, is that where you stop or owls pressure to make it more

progressive? that's the reason there is so reluctance to add additional progressivity because it's not the end point. >> my blind side here, i apologize. i didn't see the hand here, then over there. >> i'm a lawyer and have quite a bit of public experience. i was wondering, do tax exempt owners of capital accounts taxed as rich? syracuse rich? >> typically, we think of businesses and notary public-profits as -- nonprofitted as the -- actually, it's actually an interesting question. you know, we allocate the income of corporations to the shareholders. non-profits are kind of in this other world that is mostly ignored. i mean, the fact is that if, you could very well argue that universities and art institutions and other things are to some extent basically

providing services for high income people who also tend to be the major donors. syracuse, for the record, it not rich. if you want to make a contribution, that would be awesome. [laughter] >> yes? >> a lot of the -- mightily lobell. >> go ahead. sorry. >> we focus on the trees, not the forrest. picking up on the initial comments, the income maldistribution in the united states right now is reaching a crisis proportion which is why we're focusing on tax reform. we only really reform the tax code when there's a crisis because by and large, and i worked on the hill for a few years. the only ones with a vows are those who can pay for it by hiring lobbyists or making campaign contributions. the public is focused in on

rates paid forly the rich and the large corporations who, you know, a lot of people are getting really unhappy about the tax subsidied provided to the multinationals putting them over a greater advantage over domestic companies. there's not been a word with respect to tax rates. who are the beneficiaries of the tax subsidies? usually, very, very wealthy people who are you, i think, in the public's mind, using their money to influence public policies for their benefit. on the right, there's the coch brothers, and on the left, you have george sorros. you have a situation where the public is, i think, acutely aware of the massive shift of income from the middle class to the very, very wealthy. we focus on the top 1% or 2%. no, no, focus on the top tenth of 1% because there's a difference of the lawyer earning a million dollars as a partner

in a major firm and someone like john paulson who got $3 billion in a year and didn't pay taxes because it's earned in the cayman islands and just pays taxes on it it when it comes back to the united states. the public looks as these examples and says, wait a minute, this is a democracy. we're entitled to have some relief. that's a democracy, providing some relief in tensionings before reaching explosive stages. they are asking questions -- i was at a recent meeting, and they asked why are u.s. ceos making ten times what british ceos make? i don't have an answer. i don't know, but the people are becoming more and more aware of it because they are hurting economically. this last moment down has acutely raised awareness in the public, and unless congress as pointed out, takes some action

to alleviate the tax inequities and, i think we all agree that the tax code is far too complicated in this riddled tax subsidies and needs to be cleaned up, but until the public reaches that explosive stage, it may be this year or because of tax armageddon, 2014, we're in the going to have the relief we want. i got to tell you, we got the best congress money can buy. >> under the theory of don't tax you, don't tax me, tax the person behind the tree, i'm all for cutting tax rates for lawyers. [laughter] >> i'm going to go over here, and then over here, and then i'll let the panelists with the last word. if i cut anybody out, i apologize. i am trying to end a little bit before 1 # 1. one, two, and quickly make a final statement, is that okay? okay.

>> from irp. i have a couple questions. first of all, talking about fairness. there's also an issue of self-interest and look at the situation in europe today or central america for example. may be perfectly reasonable for individuals who want to pay more taxes today, given the fact that if you don't pay today as a society, you'll face one of those, you know, undesirable options so it may be perfectly reasonable if i have the capacity and possibility to buy insurance today by making higher tax payments and prevent any of the crisis, you know 20 years from now. some sort of professional thing, and others have short term goals. others have long term goals. what's wrong with that? other point i wanted to make about this no payment of taxes and involvement and the government, which i really can never understand, but it's 1941,

and income taxes are 2% of people, financed, and some went to war; right? another example, person receives $3,000 and earned income tax paid, and how is the person who pays $10 in income tax? i just don't see the point of -- you know, what's the evidence behind the assertion made? >> well, one more here. reverse order with you guys. >> retired from international monetary fund. joe started out with an important point this morning that we really have difficulty defining what we mean by fairness, and his question of taxing the risk comes in the question in part of fairness, but a lot of this discussion today morphed into the other issue of should we tax income or should we tax consumption?

the economists make a strong efficiency argument for taxing consumption. sometimes also makes a fairness argument you tax what people take out of the pot, not what they contribute to the pot through producing goods and services. we also get the fairness argument that if i have high income, i pay taxes for 27 other people, i only get one vote. i also have a lot more influence in the election by being able to give unlimited amounts to the campaign as we've seen this year. we're going to tax consumption, remember a lot of what economists think of consumption may not represent may total power that i have if i have high income because i get on the

symphony board, i can give $20 million if i find a man i want to run for president. there's a lot that comes with having high income that may not be taxed under the consumption tax. i think the charts we have today are very helpful because i think when you think about fairness, maybe we can't define it, but look over time what happened. we can look across countries to see what happened. there are clearly countries where our sense of fairness and wanting a progressive tax is not given quite the same weight as it seems to be given in the united states. they will adopt a flat rate income tax even with no exempt or 0 bracket amount. some countries have done that. they said it was not important. thatthe first dollar should be taxed. when you look at what's happening in our own country, at

least the last chart prepared by tax justice, shows that it almost goes back to what we used to call at the brookings institution, the whale diagram because when you show the distribution of income and average effective tax rate, the diagram begins to look like a whale with a blunt front end, and as the -- because at the very highest level, it was no longer progress. it was actually regressive. the highest percentile pays a lower effective tax rate than the group right below that. you can say, well, now is that reasonable? well, i think we don't know what -- how progressive the tax should be, and if we should be informed by what is happening over time and across other countries. i think here, the economists have a lot to take in contribution to the debate recognizing that ultimately the discussion of how progressive the tax should be and how we should get there to broadening

the base or changing rates is primarily a political decision, hopefully informed by good analysis and some economic judgment. thank you. >> thank you. i want to give everybody a quick last word. reverse order from where we started. >> again, thank you very much to tax analyst and chris for putting this together. i think it's a very -- obviously, a very important subject, important to tax reform and tax policy generally. the only point, i'm not going to take much time in the closing remarks, but the only point i'll make is the couple points already made. i have no idea what the right distribution of the tax burped is. i don't claim to have the hand of god has not come down to tell me exactly what that is. i think what is important part of the debate is to, you know, really understand that the tradeoff between progressivity and the cost of progressivity in terms of economic terms, terms of efficiency lost, and the other point made i think it's

very important to distinguish the schedule and tax broadening. >> just taking, again, thanking chris for the great forum. i would have paid -- well, i shouldn't say that -- >> be careful. be careful. [laughter] >> one point i want to make which i think some people have made the point in comments is it's not just the rich. we're not going to solve budget problems by raising taxes on the rich people or raising tax rates. the idea you have have people with incomes over a quarter million dollars is to make -- it's completely antisensible to tax reform. there's no reform that applies to people just at the very, very top. you know, i leave you with that thought. >> thank you. joe? >> i think i echo that. the comments of both my co-panelists up here. you know, we've talked so much

about taxes on the rich and what the guys are paying, and the real issue going forward is really a question of just enough, and i think, again, to offer advice to the progressives in the room, i think little to lose sight to that, and there's reasons why thaif, why they are have been fix sated on the upper end, the high rates, the upper brackets, and there's a reason why we're here and why we still talk that way, and it's historical because we started down this road 75 years ago, but ultimately, that kind of over fixuation on progressive taxation i think actually got in the way of progressive government, and that it forces us, again, to try to look at the whole picture. it's a much more meaningful picture. in europe and most of the rest of the world has done this. really, to end the discussion on that, on the taxing the rich, should be about the vast, which is the elephant that's not in the room. you know, that is really the question. every other country uses it, and in the larger debate of what

constitutes progressive government. i think that's where we are going. >> of course, let me thank the excellent panel. you were fantastic. let me also note that these conferences require a lot of work by the staff of tax analyst, and not me, so let me thank the staff of tax analyst who did a great jobment finally, let me thank you all for being here. i hope this was as educational and fun for you as it was for me. please, give yourself a round of applause. [applause] >> nice job. [inaudible conversations]

[inaudible conversations] senate republican leader, mitch mcconnell will be at the american enterprise institution today to talk about threats to free speech and takes audience questions. his remarks live starting at 11:30 eastern here on c-span2. following that, highlights from this week's british investigation into the relationship between the press and politicians. there's inquiries yesterday from david cameron. also having testimony from a number of previous prime ministers, and that'll start at 12:15 eastern.

>> politics have been distorted from the last century or so, and the idea that the further you move away from the left, the closer you get to bad things, and what we use for bad things is fascist, racist, sexist, and so in some ways, the best working definition of a fascist in american life is a conservative who is winning an argument. >> sunday night at 9 on booktv this weekend. >> senate minority leader mitch mcconnell talking about

threats 20 free speech at the american enterprise association. until then, a discussion about a new federal reserve report that shows a notable loss in u.s. household wealth from today's "washington journal." >> host: here to discuss numbers from the federal reserve, looking at the american family and what it's worth, joseph from the peterson institute for international economics, their senior fellow. good morning. >> guest: good morning. >> host: most of the people saw the headlines showing american families, we saw it in the 1990s. did you break out from the headline, what's relevant for folks at home following these issues? >> guest: sure. i think the biggest reason for this decline in home -- in family net worth is the decline of house values in america by far, but also, of course, target is down where it is in 2007 so that's the two biggest reasons. >> host: as far as home values

are worth, did that affect all incomes equally? >> guest: well, of course, it affected it in dollar terms, affects richer people more because they have more, bigger homes, more stocks, but proportionally, it affected the middle class worse because they rely more on their home value, and home values fell more. >> host: and so you said the one portion was housing. the other portion was stocks. now, stock as far as buying stock in a company, mutual funds. what's the gamut in what's effected? >> several ways. some hold stock directly for various reasons and hold stocks in mutual funds and through the retirement funds like 401(k) and pension funds. all three reasons they declined because they are based on the target. >> host: as far as seeing the actual numbers, what do you gleam from the actual condition of the american family how they do day-to-day because of the reduction in the numbers?

>> guest: well, it was already the case we knew american families didn't save enough for retirement, and this only makes it worse, so it's not good news, that's for sure. >> host: talking with joseph of the peterson institute about the federal reserve taking a look at how american families are doing when it comes to their worth. i want to ask some questions. we provided the lines differently today. normally they are divided politically, but this is by economic classification. if you make under $50,000, the number to call is 202-737-0001. if you make between $50,000 and $100,000, call 202-737-0002, and if you find ourself over $100,000, and you want to call, 202-628-0205. you can e-mail as well, journal@

cspan.org, and you can facebook or twitter us as well. why does the federal reserve look at the numbers? >> they have done this for a long time. they studied the economy in many ways, and this is just part of trying to understand how the economy works, understand how people behave. one of chairman bernanke's interests is in economic education, public, 10 it help -- so it helps for them to understand what are some of the areas where it looks like people could use, could learn more, the fed could educate people more about economics and family planning. >> host: when it comes to this information, when was the snapshot compiled? what time period are we talking? >> guest: surveys are every three years, and they are typically -- they occur over several months because people are called to do interviews, and if they can't do it then, they call back. there's thousands of interviews and it takes time. between may and december of 2010. >> host: if that takes us up

202010, factor in what happened, not only in terms of how -- not only in terms of stocks or how much people are making, but factored from 2010 to the present day. >> guest: right. so there's good news. modestly good news. the stock market came back, fell 23%, and now it's back 18%. come more than halfway back from where it was in 2007 at the peak. that's moderately good news; although, it's fallen in the past few weeks as we know, almost back to where it was, but it dipped back again. on the other hand, housing has not come back, and it's basically flat or down a tiny bit since 2007. >> host: depending, and from what you said about people's net worth tied to the housing,s have not improved at all. >> especially if the middle class. if you are more well off, you do

better because it would affect you more. >> host: as far as the next snapshot, as far as when does that get compiled, and when do we see results? thee years from now? >> guest: a survey a year from now, and it takes them quite a while, as you can see, by two years, a year and a half basically to go over all of them. >> host: as far as the information, who uses it, and, i guess, who uses it the most, and how does it affect policymaking? >> guest: you know, i think, to me, one of the biggest areas where it matters is op tax policy because you want to see, you know, how well households are doing and how -- is there a lot of inequality, and would you want to -- main way to deal with that is through the tax system i guess. certainly one reason. >> host: one of the figures from that in 2007, the median u.s. family income about $49,600.

in 2010, that figure drops to $45,800 reflecting a 7.7% decrease. give context to the numbers. >> guest: median is the level at which half the people have more income than you and half the people have less income than you. people became unemployed is what happened, and so a will the of people dropped to very low numbers, and so that pulled the median down, and these are also adjusted for inflation, and so it is not the case if they were low on dollars probably, but there's a modern amount of inflation. those are the two factors probably going on. >> host: calls for our guest, lined up, first is from jeremy in new york city. for those who identified himself as making between $50,000-$1 # 00 thorks. jeremy, good morning, go ahead. >> caller: good morning. i'm wondering, you mentioned

adjusting taxation might be an appropriate way of dealing with the problems with falling wealth, and it seems that nobody -- everybody -- the general feeling is based on something called the curve that if you increase taxation, you're going to decrease production, and i'm wondering if the curve is still legitimate as an economic theory in the current world because clearly, the people who are earning, you know, the $400 million a year are not spending it, just reinvesting, but the reinvesting is not do anything towards helping hiring people because nobody wants to build the economy and so on, and i wonder whether the curve, shouldn't it be here in the coming year? >> guest: well, i think

there's actually been a study of the lapper curve recently, and in the last two years, there's a number of studies out, and they find evidence for such a curve, but i think what -- i think what he would not like is where the curve is and what these results suggest is that taxes would have to be much higher than they are now to affect production. there's much more scope to raise taxes without hurting the economy than people thought. that's the latest research people have been coming out with. i sort of agree with you, caller, in the sense that i don't think the laffer curve should be a reason not to raise taxes, based somewhat where we are now, and some people think that the point at which taxes would really hurt the economy is if the tax rate was 70% or so, which is much, much higher than nip's talking about. >> host: david from florida, those who make under $50,000,

good morning. >> caller: hi. i'm an an thesologist nurse. i used to make $47,500. under the republican plan, draining all the money out of my 401(k), and raising taxes for me, i'll be making about $42,500 which means my son won't be able to go to medical school. my home is worth much less than it was before, and we'll probably be forced into bankruptcy and lose our house at a much less price than it was before, and it seems like the value of my family certainly is going down and my neighbors that i talked to are experiencing the same thing, and i don't see anything positive happening if the republicans are legislated.

>> host: caller, as far as your situation, how does that affect day-to-day decisions you make, especially economic ones? >> caller: well, it means i can't put away money for my son's college, my son's medical college. i have to cut down on food, shut down a fuel use, and i have to plan on cutting a much larger portion of my income to the mortgage which i eventually won't be able to afford, and i'll lose my house. >> host: mr. gagnon. >> guest: sorry to hear all the bad news, and i'm persuade -- afraid a lot of people are in the same position as you. i don't know what to say. i'm not here to talk about the two parties' competing platforms. i would say there's obviously been gridlock in washington.

one thing the administration's trying to do, i wish they would do more and i wish congress would help more, republicans have not been that supportive, but i don't think the administration pushed as hard as it could, make it easier to refinance into super low interest rates, because i don't know if you have been able to re-finance in the past few year, but rates came down from 6% to around 3% or a little over 3% lately which would save you a lot of money if you could refinance, and there's a program to enable people to do that, even if you own -- even if you owe more money than what your house is wort. there's the program the administration proposed to help you do that, but the banks, and the fannie and freddy have been -- freddie have been dragging their feet in implementing the program. it deserves more attention. >> host: he was from florida. the survey say anything about areas of the countries affected more or less when it comes to how families do as a whole economically?

>> guest: well, it definitely showed if your state -- if you come from florida or the states most hard hit when the housing crash, you are more affected. that's the feign thank. the stock market affects everybody. florida and nevada are probably the worst. >> host: the atlanta journal constitution is their headline is georgia leading the u.s. on fore closed homes. the housing market, other views from the local papers saying that reports are showing slow gains in the area as far as connecticut regaining lost jobs. talk about the recovery aspects. >> guest: well, this has been the huge disappointment to the economists including me. i have long argued that there should have been more action, much more stimulus actually because what we know now is that the -- the president got -- it

was split over many years, and actually only offset cutting going on at the state level so there was actually, if you add federal and state together, there was almost no net stimulus an we really needed the stimulus, and the federal reserve, which has been very aggressive, could have done more. i was pushing it to do more, but the recovery's been weaker than anyone, even the administration or the fed, expected, and that, i think, we are learning more about that. we think it has to do with the fact that the financial crisis have longer lasting effects than other types of recessions so they make for slower recoveries, and therefore, you need more policies, and that, i think, was not well known before the crisis. >> host: you served in the federal reserve? >> guest: yes. >> host: what did you do? >> guest: i used to work in the international area, but the last couple years i was there, i was actually managing the first

qe-1. it was not called that back then, but large scale purchases of long term treasuries and mortgage backed securities. >> host: so as far as what you see, what's the possibility of the fed going that route again? >> guest: oh, i think quite likely they'll do a little bit of it. they are meeting next week, and i think quite likely they'll add more to the program, and there's a chance, although i don'tty it's the most likely thing they'll do in a big way, but it's likely they'll do it in a smaller way, which is -- they are already doing the modern amount of purchases every month, and that program is supposed to end this month, and i suspect they'll extend it two or three more months, at least. >> host: to what figure of money being injected? >> guest: well, what they are doing now is called twist, which is when they sell the shorter term treasures they hold buying longer term with the idea that the short term interest rates are at 0. they want the longer term rates down lower. they are running out of short

term assets to sell. i think they could be doing this for another two to throe months, another $200 billion worth, after they just did $400 billion in the past six months. then they run out of the short term assets and go back to the quantitative assets and print money to buy more, which they might, although it's not in the main forecast. i wish they would, but i would have them buy more mortgages and help the housing market more. >> host: guest with us for another 25 minutes or so. here's woodbridge, virginia, charles for those who make over $100,000. hello. >> caller: hi, how are you? >> host: fine, thank you. >> caller: two comments to make, one on the last comment about the stimulus. i think when he says we think we should have more stimulus, one of the problems was the stimulus. i think the government should have kept out of it more and allowed more institutions to fail. as they fail, you would have new

companies start up and take up the debts, and you wouldn't have those bail and have five major corporations. this is allowing them to fail, and in 15-20 smaller corporations popping up to fill their shoes, expanding, and hiring more people than those original corporations are trying to do rather than just go with open heard surgery and do the whole thing. the second thing is savings of americans, i think, one of the major problems is social security. i think a lot of people have come to just going to the middle class and below middle class see social security as the retirement fund. they rely 100% on social security. therefore, they don't save. there's no incentive to save whatsoever when you know that's there, and, of course, by the time you get there, the net has massive holes in it and do you want hold the water you need.

>> host: what work do you do? >> caller: we are a contractor. >> host: because of your, the way you identified yourself, tell us about your family situation, compared to five years ago as far as your personal wealth of the family that you have. >> caller: same thing. we're, by no means, i wouldn't say we're upper class, but slightly above middle class, and our house dropped nearly $180,000, and it was only a house valued at $500,000, so now it's back down to $350,000, putting us at 2002 levels climbing $4,000 a year, and at the same time, we have a 401(k), and that, too, took a major hit so, you know, having said that, you know, we don't -- we're not selling the house or our 401(k) so cashing in so

just the grindstone, keep saving, and, you know, try to, you know, those two have got to be, in my opinion, one of the most -- the best bets that you can invest in. >> host: thank you, caller. >> guest: i think the caller's, you know, advice for the personal situation is correct. i think that you're doing exactly the right thing. i think in terms of your first point, which was, if we let more companies, banks, and auto companies fail, then that makes up more room for new startups. there's two problems with that. one is that we tried that. that was hoover's philosophy for four years after the stock market crashed in 1929, and things got worse and worse and worse. the problem is that can work if the economy is growing strongly when the companies fail because then there's plenty of other

demand for workers. if the companies failed in a time of weakness, then there's already excess workers. there's no constraint on new companies started in thatceps, but there's nobody who has money to spend, and so that's why we need the government to do pump priming. that -- that -- there's no sense right now, in which there's, you know, not plenty of workers out there to be hiredded for a new -- hired for a new company to start up and hire, but there's no demand. they can't sell the product. that's the problem. we need more spending going on in the economy, and then -- then these startups can take root, and then gradually, the government can get back out. you know, i don't think the government should have a high role in the economy all the time, but they need to have a high role in a recession. >> host: judy from treasure island, florida for those who make under $150,000. go ahead, please. >> caller: yes, my concern is why can't we bring the jobs back here by giving the corporations

a decent percentage rate compared to the other countries? i think most of the companies in the u.s. would love to be back manufacturing at home. why can't we give them like a 0% rate? we're paying more than any other in the world, and i don't understand why everybody has this hate for companies. they employee people. people are so much better off with they have a job. they can spend money then. it's not like it's -- they're taking it out of our pockets. they will be giving it back. heavens, back when i lived in ohio, we had 20 fortune 500 companies. somebody was mad because they

didn't pay their fair share, and then the companies left, and now they don't have jobs. when you are worked, your money is taxed and going in, and 10 -- so is theirs, and then they were giving benefits for free, and now every company charges you a percentage. i -- i don't understand this flight to other countries other than to get away from the high tax rate that we have. >> guest: okay, yeah, i was wondering what rate she meant, but then she said the tax rate. thank you, caller, now i get the question. we do have a higher corporate tax rate, although, it's not much higher than germany and japan, and other countries have lower rates, that's true. ours is near the high end, but i don't know anyone who thinks that that's the main issue. i think more effective approach to your same problem, because i do worry about it.

i actually think that i would like to see more jobs in the u.s. in the sense that we have a big trade deficit which precisely in recession, you want that to go away to bring the jobs back on shore where we need them, and other countries are not letting that happen. actually, according to the international monetary fund, countries around the world are spending about $1.5 trillion a year basically trying to push up -- push down their currencies against the dollar so that they can export more to the u.s.. in other words, they have a choice. if they are going to export to us, we buy their exports. they can buy our exports in return, which is trade, or they can lend the money to us, and they've been determined by the governments to lend the money to us so they don't have to buy our exports, which, of course, is bad for jobs in america. i'm not a protectionist, but i do think that this kind of

recantist policy hurts america. china increasingly is a small piece of this. it's actually many, many countries. it's very widespread. one of the topics i'm working on. >> host: brooklyn, new york. 24 -- this is paul for those who make $50,000-$150,000 a year. >> caller: hi, i like what your guest 1 -- is saying. i'm proud to be middle class with significant investments, and i have a hard time investing because there's stupid money chasing stupid money, bubble after bubble. why can't anyone tie that intoed idea, the tax rate is simply too low on capital gains and the rich and that there really are no good investments because they had to find new ways of investing in like mortgages in order to spend all this

phenomenal cash in investments, and if you raise the tax rate on the upper class and capital gains, even in the stair step method so that, you know, capital gains for the little guy, you know, was not soaked as much as the higher brackets, you could actually, the government could then pour that into parts of the economy where people will instantly turn around and spend it, and that will promote consumer spending because right now we've just gone from bubble to bubble creating new investment vehicles to park all of this investment money they have to invest, and it's just not doing us any good. why don't we hear about that, and what do you think about that idea? >> host: before you go, caller, how much of your net worth is based on investment? >> caller: how much is my net worth based on investments? i'm currently 50% in stocks, 25% in cash, and 25% in bonds. quite a bit of it.

>> host: thank you, caller. > guest: well, i think, one point i think i'm agreeing with you is i don't believe the reason for having different tax rates for different incomes are very strong, and the reasons not to do it, i think, are quite a bit stronger. it just makes for a complicated tax code to charge lower rates on capital gains than other types of income, and that leads to armies of accountants and lawyers to try to figure out ways to concert certain types of income into other types of income. they just do sort of legal accounting, set up accounting structures that do that that cost money and it's wasteful because it doesn't help anybody live better. it's just a way of sheltering money from the irs which is wasteful, so if we just have the same tax rate on all income, that makes a lot of sense to me. how high that should be, you know, i don't know of any

studies that say that point to the claims you mentioned about a higher tax rate that might actually make people be more productive, and one of the earlier callers said, people think it maybe goes the other way. .. >> and there's good in is because the american people have now seen the importance of their

constitution and how seriously it is taken. but there are also some bad parts about it, or some troubling parts of. and that is that the administration does not seem to be getting a lot of weight to constitutional issues. three recent cases, one on religious freedom, another on civil liberties and a third on property rights. the administration lost nine to zero in the supreme court. other cases are also on the way to the court, and also look like sure losses for the administration. the recess appointments of richard cordray as director of the consumer financial protection bureau, and three members of the national labor relations board are almost certain to be struck down. the appointments the president made in these cases simply cannot be squared with the language of the constitution on recess appointments. the dodd-frank act, another obama administration initiative,

gives a sector of the treasury the power to seize any financial firms, bank, finance company, hedge funds, insurance company. if he thinks it will fail and turned over to the fbi for -- the fdic for liquidation. if the country disagrees the secretary can go to court and compel compliance by the court has one day to make that decision. one day. and if it doesn't decide in that time, the company is turned over for liquidation to the fdic by operation of law. stays and injunctions are not allowed under the law, and it's a felony for anyone to disclose that the secretary asked for courts order. all these elements seem to violate the fifth amendment's prohibition on taking property without due process, and the first amendment's guarantee of free speech. the free speech issue in

particular brings us to the record of our speaker, this morning, senator mitch mcconnell, republican from kentucky, and the senate minority leader. in article this past january in the atlantic magazine, not intended of course to be complementary to senator mcconnell, noted that quote, for most of his time in the senate, mcconnell has been notable chiefly for maintaining staunch opposition to campaign finance reform. and he has, and why not? what could the founders have had in mind when added to the constitution the words congress shall make no law abridging freedom of speech. of course, they were thinking about politics, and specifically elections. where the freedom to speak and communicate is the very underpinning of democracy. so it is especially ironic that the greatest threats to freedom of speech have, in the elections

in the guise of campaign finance reform. throughout his career in public life, long before he was elevated to the position he holds today, mitch mcconnell has been true to the founders intentions. this is not earned in gratitude. in fact, it has earned him a great deal of opposition and disparagement. so much so that former senator phil gramm was moved to say on the senate floor in 2002 just before the historic vote on mccain-feingold, quote, it is for difficult to defend ideas that are unpopular. to be attacked every day in immediate because of the position you take. there are not many people who are tough enough to do that. there are probably three or four, maybe five people in the senate, and i am being generous. i have watched and i have read those editorials vilifying the senator from kentucky. i will never forget the fight he

has made on this bill. i thank them. the constitution does not work by itself. it requires a few good men. the senator from kentucky is one of those good men. it's my honor to introduce that good men, senator mitch mcconnell. [applause] >> thank you very much, peter. i understand that the president spoke for 55 minutes yesterday. i want you to know i'll try to do better than that but i have a lot to say this morning. it's going to be hard to say that briefly. one of the things that has always distinguished americans as a people is the eagerness with which they've organized around issues and causes. they believe in. as alexis local put it more than

a century and a half ago, and no country in the world has to principle of association been more successfully used or applied to a greater multitude of objects. than in america. and yet today, the principal faces a grave external threat. the danger comes from a political movement that is uncomfortable with the idea of groups it doesn't like, speaking freely. and from administration officials and alarming willingness itself to use the powers of government to silence these groups. this dangerous alliance threatens the character of america, and that's why it's critically important for all conservatives, and, indeed, all americans, to stand up and unite in defense of the freedom to organize around the causes we believe in. and against any effort that would constrain our ability to

do so. the bulwark of this freedom is of course the first amendment. and defending it is what i would like to talk about today. it's hard to imagine a more broadly accepted proposition than the fact that americans are free, above all else, to speak their minds openly and freely without fear of punishment or reprisal from government authorities. human nature being what it is, however, i think we would all have to admit that there will always be a temptation, particularly among those in power, to muffle one's critics. but for politicians in our country, it is a temptation always to be resisted. because any inclination to do so would demonstrate a deeply misguided notion of our proper place in a government that was established as the preamble to the constitution makes clear by

the people. for the framers, the highest form of speech, a form of speech most people of absolute protection, is political speech. particularly at those moments of national decision we call elections. in other places, at other times, those in authority may have asserted a right to limit speech. but not here. not in our country. the government simply does not have the authority. this point was so obvious to the founders that the primary author of a federalist papers could suggest that the bill of rights was not only unnecessary, not only unnecessary but dangers. since by didn't find the things that government can't do, it might lead some to think that whatever wasn't listed was fair

game. and, of course, hamilton was dead on to fear that future governments would attempt to assume powers they were never intended to have. and it's precisely for this reason that we should all be glad he lost this particular debate and that the bill of rights survived. without it we would have far less to point you in the principles of our founding. and over the past few years, americans have needed all the help they can get. now, for many of us in this room the constitution, constitutional debates we've been engaged in over the past few years have been deeply encouraging. they have revealed a broader appreciation of our founding principles and the capacity for civic engagement that some had feared was actually in decline. for me personally they also provide a strong validation of a -- for nearly three decades against those within government who would micromanage political speech.

at times this fight was, you know, it's compelled me to take positions that weren't exactly popular. for example, opposing a constitutional amendment to ban flagburning was not a particularly popular position in kentucky, and i suspect would nothing anywhere else either. my views on so-called campaign finance reform were far from universal, even within my own party. and with very rare exceptions, the media, as peter indicated, have been merciless. but as with the years have gone by many of the early critics have begun to come around. and it's my firm conviction that in the years ahead, i'll prevail. since mcconnell versus fec i felt six amicus briefs and subsequent court battles with the seventh in the works now. but all i really need to win is all i've ever need in this fight, and that's the 45 word of

the first amendment. and the determination to see their true meaning indicated. it's the same approach that millions of other citizens have taken in battling this administration's attempt to assume powers that simply does not have under the constitution. and i'm confident that they will be vindicated, too. everyone of these fights is winnable, as long as we keep at it. but i think the precisely because we been fighting on so many fronts it's easy to overlook the growing severity of certain individual threats, including the threat to speech. we see instances of it here and there, but engaged as we are in so many other battles, we risk losing sight of the size and scope of this one. so if you'll allow me i would like to spend a few moments just running through some of what we have seen, and then i will ay out mistakes as i see them.

the attacks on speech are legion. wraps the most prominent is the so-called disclosed act. this is the democrats legislative response to citizens united in which the supreme court correctly ruled that congress may not ban political speech based on the identity of the speaker. the disclosed act aims to get around this by ruling, this ruling by compelling certain targeted groups to disclose the names of their donors while excluding others, such as unions. from doing the same. now, to most people the idea of disclosure sounds perfectly reasonable. and throughout mike were i, too, have consistently called for full and timely disclosure for all contributions to candidates and parties. candidates and two parties. but what we're talking about here is entirely different. what this bill calls for is

government compel disclosure of contributions to all grassroots groups, which is far more dangerous than its proponents are willing to admit. because disclosure is forced upon some but not all, it's not an act of good government. it's a political weapon. and that's precisely what those who are pushing this legislation have in mind. this is nothing less than ever by the government itself to expose its critics to harassment and intimidation, either by government authorities or through third party allies, and that should concern every one of us. those pushing the disclosed act have a simple view, if the supreme court is a longer willing to limit the speech of those who oppose their agenda, we will find other ways to do it. you've all heard about the idaho businessman who has become a personal target of the president for speaking out on behalf of candidates and causes the president opposes.

shortly after being publicly singled out by the president's campaign, people were digging through his divorce records, cable television host were going after him on the air, and bloggers were harassing his kids. charles and david coke have become household names, not for the tens of thousands of people they employ, not for their generosity to charity, and not for building up one of the most successful private corporations on the planet, but because of their forceful and unapologetic promotion in defense of capitalism. in return for their decades of work, one of the president's top aides expose them to public scrutiny by insinuating that they had done something shady on their taxes. and earlier this your the presidents own campaign manager sent a nasty note to the campaign supporters notifying them of a koch back event,

presume but to incite just the kind of mob that, in fact, showed up. the results have been predictable. the koch brothers along with coke employees have had their lives threatened, receive hundreds of obscenity laced hate messages, and had been harassed by left wing groups. one e-mail to a typical message. it read, choose your expiration date. if the president of the united states opposed these kind of tactics all he had to do was to condemn them, to condemn them. instead he has joined them. president obama's public accused the koch sipping part of a quote corporate takeover of our democracy. whatever that means. and not only did his campaign published a list of eight private citizens it regards as enemies, and actual old school enemies list, it recently double down on the effort when some began to call these thuggish tactics into question. now, none of this should be surprising for a former

community organizer told a radio audience shortly before the 2010 midterm election that latino voters should vote with the idea of punishing their enemies and rewarding their friends. that's the president of the united states. but all of it should be surprising to a former community organizer who happens to be president. what's more, the tactics i'm describing extend well beyond that campaign headquarters in chicago. to an extent not seen since the nixon administration, they extend deep into the administration itself. news reports suggest that top white house officials have long participated in a weekly conference call with left wing, with a left wing organization in washington whose stated purpose is to track conservative media voices, see some potential offensive content, and then user to mount corporate intimidation campaigns aimed at driving these voices clear out of the public square.

earlier this year, dozens of tea party affiliated groups across the country learned what it was like to draw the attention of the speech police when they received a lengthy questionnaire from the irs demanding, listen to this, demanding list, beating transcripts, and donor information. one of the group's leaders described situation this way. that groups like ours either drown in unnecessary paperwork, or if you survive and give them everything they want, only to be hung. the head of one national advocacy group has released documents which showed that his group's confidential irs information that is what into the hands of a staunch critic on the left who also happens to be a co-chairman of the presidents reelection committee. the only way this information could have been made public is if someone leaked it from inside the irs. and just last week we learned of an irs decision revoking the

tax-exempt status of small political nonprofit groups that undoubtedly foreshadows an effort to do the same to bigger groups on the right at the administration regards as a threat. to its campaign. those who have the resources and the will to fight these things should be commended. those who don't should be able to count on our support. but let's be very clear. no individual or group in this country should have to face harassment or intimidation or incur crippling expenses defending themselves against their own government simply because that government doesn't like the message that they are advocating. one person to grasp this issue better than most is justice clarence thomas, and if you haven't read justice thomas partial dissent and citizens united, i highly recommend it. his opinion reminds us that the court found that the chilling effect of harassment and intimidation of free speech can actually run afoul of the first

amendment. this is why the sec has exempted, and that not many of you know this, the fcc has exempted the socialist workers party from any public disclosure since 1979. they have been exempt. as long as they're able to show that disclosure has led to harassment, the fec has been happy to accept them on first amendment grounds. as the court put it in buckley, the evidence offered need show only a reasonable probability that the compelled disclosure of the parties contributions names will subject them to threats, harassment or reprisals from either government officials, gore, or private parties. the court used similar reasoning when it told the state of alabama back in 1958 that it couldn't compelled the naacp to reveal the names and addresses of its members.

in naacp versus alabama the court found the compelled disclosure of affiliation with groups that are engaged in advocacy and infringe upon the freedom of people to associate with whatever group they like, and violated their first amendment writes. all of this explains why justice thomas thought the majority opinion and citizens united actually didn't go far enough. citing recent accounts of people of been blackmailed, threatened and targeted for retaliation for speaking out on various political issues over the past couple of years, he said the court failed to acknowledge their constitutional significance. among other examples, justice thomas cites the case of a los angeles woman who was forced to resign from a job she held for 26 years, managing a family owned restaurant, because protesters kept showing up at the restaurant shouting shame on you, at customers. according to press reports that

police had to show up in riot gear one night just to quell the mob. the women's supposed crime? riding $100 check in support of california's prop eight. justice thomas goes on to note that the advent of the internet has made these tactics even easier to pull off, and thus increases the likelihood that the public will be discouraged from participating in the political process. it's a point that is underscored by recent news reports of a tactic known as squatting. squandered something andrew breitbart raise the alarm about in one of his final interviews. here's how it works. somebody who knows how to hack into phones calls 9/11. ostensibly from your phone, and tells the police they just killed somebody. within minutes of local swat team shows up after house, guns drawn, helicopter soaring over.

and while this tactic is going to criminal, and should be prosecuted aggressively, the goal is equally reprehensible. namely, to scare people who dare to speak right or otherwise support a cause that the squatters don't like. justice thomas pretty well sums up my own sentiment on tactics like this in the closing paragraph of his opinion in citizens united. here's what justice thomas had to say. i cannot endorse a view of the first amendment come april, the subjects citizens of this nation to death threats, ruined careers, damage or deface property or printed and threatening warning letters. as prices for engaging in core political speech. the primary object of first amendment protection. now, what justice thomas is describing here, the harassment and intimidation by private citizens of those who choose to participate in the clinical

process is of course deplorable. but i think we would all have to admit that it's a different order of magnitude from the government itself, the government itself facilitating or encouraging these things, or the government using its own powers to harass or intimidate those who participate in the political process. and that's precisely what we have seen. fortunately republicans have been alerted to these dangers. one of the most important things we did in the past two years was to block passage of disclosed. but the assaults keep coming. democrats and the house and senate recently proposed the so-called people's rights amendment. which basically repeals first amendment. and just this week citing he said he did not, the president's top political budget, this is not some backbench member of the house of representatives,

president's top political visor david axelrod told an audience in manhattan that quote, when we win, we will use whatever tools are out there, including a constitutional amendment to turn it back. this, my friend, is all you need to know about this administration's view of free speech. the courts have been that congress doesn't have the authority to muzzle political speech. so the president himself will see to go around it by attempting to change the first amendment. amending the first amendment for the first time in history is an act of radicalism. an act of radicalism. and yet these are not the only ways the administration is aiming to restrict speech. in a standard tactic of the left

what they have been able to achieve through the courts or congress, you are already attempting to achieve through regulations. over at the fec, the democratic commissioners are pushing a rule to compel third party groups to reveal their donors. they are deadlocked at the moment with all three republican commissioners standing strong but the separate isn't limited to the fec. that fcc just finalized a rule requiring broadcasters to list the names of any groups that pay for our want to pay for television ads online. the national association of broadcasters is fighting back right now in court. last year, the acc proposed a were requiring shareholder approval, or disclosure, of political activities. and under pressure from left wing groups, many companies have started including the question on their proxy statements.

during the health care debate, i remember this one very well, the department of health and human services issued a gag order on shamanic a health insurance company in my hometown, and other private health insurers saying they couldn't inform seniors about the impact of obamnicare on their health care. they ordered him not to inform their own customers of the impact of a painting piece of legislation. passionate a painting piece of legislation. however, more recently hhs is spending $20 million of our tax money to promote obamnicare. suit their stifling speeches group of ability than when they

tell taxpayers we got to foot the bill or the administration's own efforts to promote it. and it's not just the agency's. over at the white house, the president's lawyers recently circulated a draft executive order that would've required anyone bidding for a government contract to disclose political donations, including those of affiliates and subsidiaries. and their officers and directors. in excess of $5000. now, the message of the order was clear. pretty clear. you don't have to be a rocket scientist to figure this out. if you've got a government contract, you better support our cause. or at least keep her mouth shut when it comes to causes we oppose. it's the same message the administration official said last week when asked about new

york mayor cory booker's relationship with the administration. after he had the nerve to speak his mind about the presence attack on private equity. here's what they said of him. quote, he's dead to us, end quote. my own view has always been that if you can't convince people of the wisdom of your policies, then you should come up with some better arguments. you can't convince people of the wisdom of their policy, you better come up with some better arguments. but for all of its dollars, the political left has consisted demonstrated a militant, a militant intolerance for dissent. sadly, a growing number of people on the left a note in the government itself appeared to have concluded that they can't win on the merits, so they've resorted to bullying and

intimidation instead. and the potential consequences, my friends, our grave. which brings me to another point. it should go without saying that the political left is always facing an uphill climb in our country. because you see, there are two self-identified conservatives for every self-identified liberal. america is not western europe. in order to succeed in this environment liberals have generally resorted to one of three tactics. obscuring their true intent, pursuing through regulation in the courts what they can't through legislation, or if all else fails, simply muzzling their critics. but there's another element to these efforts tha