it is only a rumor that i'm getting a commission on this. [laughter] having said all that, joe, would you set -- start us off? >> i have to confess that i have promised that book at so many events and it is still of coming. but it really is soon, i know. chris, is that we will clear some stuff up. i do not know if i'm going to clear anything up. i am just going to confuse the matter and embrace that. but i will make a few points that are largely historical. given my historical background, that makes sense. the first is obvious. when it comes to the tax policies, fairness really matters. you can see that on cnn and c- span this year. i have an article from cnn today. taxes are always the hot issue, at least among voters. what is less obvious and also

just as true is that tax fairness is really important to tax policy, not just about? but the actual making of tax law. every major vote -- not just politics, but the actual making of tax law. every major vote has been shaved over what is fair. -- shaped over what is fair. it used to be just in their attacks on the rich, and they changed it to a tax for all middle-class americans paid. there was an implicit bargain, and to some degree and explicit bargain, underlying this change. that was, we will ask middle class people to be a lot of money. you've never paid this tax before and we will ask you to pay it now. we'll ask you to increase the

payroll tax. and exchange we will tell you that the rich people will pay a lot, too. progressive taxation lies at the heart of what our current tax system is. opinion polls since world war ii have shown strong and consistent support for the general notion of progressive taxation. but who knows what that might actually mean? the thing about progressive taxes and the thing that 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 reasonable. but you cannot win broad agreement on what that looks like or wear the brackets should fall or anything like that. conservatives often per -- often object to propose tax increases by saying that the hikes are arbitrary. and there is a famous quotation from lago -- the moment you

abandon the cardinal principle of taxing individuals consistently, you join a sea of folly. existing rate structure, if we are complaining about a tax increase, i rise from where we are, the existing rate structure is just as arbitrary. even a flat-rate structure would be just as arbitrary. there is no disinterested starting point to talk about rates. every system is a matter of opinion. and even the overall system you use, and income tax, excise tax, some sort of broad based value- added tax, those are also completely arbitrary. economists can talk about which work better or which are more efficient, on the issue of fairness, there is no way to sort it out. the starting point has to be an

admission, which is essentially that we are just making this up. we are shooting from the hip. we can develop sophisticated theories, and lord knows, but economists and philosophers have done so about marginal utility, sacrifice, you name it. no one has ever come up with a really convincing theoretical justification for any particular definition of what is fair in tax policy. tax fairness is a social construction and the only thing that matters is how people feel about it. let me finish with a quick discussion of tax fairness in american history. i think it is fair to say that historically, americans have felt pretty good about taxing the rich. they have tried to do it in a variety of ways in which people do it voluntarily. they did in the civil war, an

effort to make the tax system more fair. then it goes away and comes back in world war i. every time it is to try to make the system more fair. it is not in general about redistributing wealth. this is the mistake that a lot of progress of voices make. american history does not lend a lot of support to the idea that we should take money from rich people because they just have too damn much. what it does lend support for is that they should pay their fair ser. it is very powerful in a political sense. the issue here is not to simply say, you cannot talk about fairness that does not help us at all. embley -- but it also is the only thing that matters.

the issue of fairness will move the debate. it will be the key element that will move the debate. how much is enough? how much do we tax them? what is the right number? >> the question is, should taxes go up on the rich? the answer is a no-brainer. taxes are going to have to go up on everybody. federal taxes are at their lowest since the 1950's. and that was before medicare and other programs that rely on. we have promised to take care of senior citizens, social security, medicare, and medicaid, which pays for half of nursing home care.

and a population is aging. the demands on the federal government are going to be unprecedented in coming years. the real question is whether or not we should have a more less progressive tax system. economics does not tell us what the right level of progressivity is. we can write down these models were you maximize social welfare and then it becomes a trade-off between and efficiency, you know, the economic cost of taxation, and progressivity. but the thing that is left out is the social welfare function. how do you value the well-being of the people of the top compared to those at the middle or the bottom? that is essentially a value judgment. as joe pointed out, but polls show that most people favor the idea of a progressive tax

system. and recent polls suggested that that most people think the higher income people should pay a larger share. in terms of the right level of progressivity, as joe pointed out, it is not about punishing the rich. i like rich people. they are successful. we would not have much of an economy without rich people. they are very generous. they support very -- various kinds of non-profit activity. but the question is how you determine at what income level people continue contributing to the government. in a free market system, a progressive tax system can help mitigate the inequities, the achilles' heel of a free enterprise system. it is not class warfare that the rich should pay a larger share. in fact, i would argue the opposite. if we cannot figure are away --

figured out a way to mitigate the inequities of our capital system where a very large and growing share of income goes into two people at the very top of, that system is not really sustainable. economists think that the system is rigged. hawke economists know that higher tax rates are costly for two issues. higher rates are not necessarily the way we want to raise more income from higher income people -- more revenue from higher income people. the other thing we might do to mitigate the quality from outside the system is much higher costs. we could put a lot of constraints on the system for

certain level wages. as far as whether the wealthy are overtaxed, the congressional budget office has compiled statistics since 1979 through 2007. the share of income going to the top 1% more than doubled from 10% to 21.3%. the average tax rate in excise taxes and payroll taxes fell by more than 20% from 37% to less than 30%. during the same time frame, the share of income going through the middle 60% fell by a similar amount. basically, it was a shift in income from the middle to the top. and the tax burden also fell, but by much less, from an average of 18% to 50%. capital gains taxes have -- from 18% to 15%. capital gains taxes are at their

lowest level since the great depression. one question is, why are there such a large income disparities? sell and apply it is a matter of effort, that the rich work really hard, and lower income people do not, that they are slackers. clearly, that is not the case. there are some people who are poor because they do not work very hard, but there are people who work full-time at jobs close to minimum wage or not much above, and their incomes have stagnated. if you look at the set of charts that were handed out at the beginning, one of the slides shows the median earnings going back to 1974. the median earnings for full- time workers adjusted for inflation have been basically

flat. the economic gains that have produced huge income growth at the top, the first chart shows the share of income going to the top 1%. those are at near-record highs. they declined a little bit in the recession, but are much higher than they have been through the 1960's, 1970's, and early 1980's. at the same time the income at the very top has exploded, in comes at the middle have basically flat line. the question is, what do you do? there is often a question of how much access people at different income levels have to the high incomes at the top. it has suggested economic mobility in the united states is lower than it has been historically. children average parents are much more likely to grow of a rich then -- to grow up rich

than those who brought in lower income families. they have connections to better schools and better connections to help them succeed. progressive taxation is not the sole solution for extreme inequality in the united states, but it can mitigate its effects. we should also invest more in education, but progressive taxation helps. education takes a long time to play out. we should also care about extreme inequality even if we did not have compassion for lower-income families. inequality provokes demands for regulation, trade sanctions, and other provisions that are inimical to economic growth. or it may be that workers in less successful societies -- less equal societies are less successful because they feel alienated. what is the cost in terms of economic growth and higher taxes? people often say the experience

of president clinton, who raised taxes when he took office and the economy did very well in the 1990's. president bush cut taxes and the economy did not do very well in the last decade. ronald reagan, and promised tax cuts when he took office, was convinced to raise taxes in 1982 and 1984. it was because he was concerned of the deficit -- concern about the deficits that resulted in 1981. if we cannot figure are enough ways to raise revenue for the government, the cost will be much harder by raising interest rates, making it harder for people to buy homes, making it harder to invest. finally, the issue is not necessarily whether we should raise tax rates on higher-income people. the issue is whether we should make the tax system more progressive. the best way to do that, and i think most economists would agree, is to broaden the tax

base, eliminate the majority of the preference items, most of which are very skewed, and they are very skewed with higher incomes, to eliminate as many preferences as possible. then it is possible to lower the marginal tax rates as much as possible. the simpson bowles bipartisan commission was exactly such a plan. the bipartisan effort i was a part of also proposed such a plan. you can raise revenue and reduce the deficit, which is a big threat to the economy. and without, i will send it off to bob. >> i appreciate the opportunity to participate in the discussion. it is really nice that we have been able to have these events and have these discussions on important issues.

another thing i have to say is -- nothing i say should be construed to represent ernst and young, the organization i work for. it is interesting, when i wrote my notes for the stock, i was going to end with this particular point, the same point that glenn ended with. i think the discussion of whether we should have a more progressive tax system, whether we should tax the rich more, and the focus on tax rates is where i take issue with that discussion. the focus on tax rates is really problematic come out of the because tax rates themselves, the graduated tax rates contributes to the progress of the of the tax system and the tax burden, but it is not as major a contributing factor, as the president's commission showed.

you can simultaneously lower tax rates very substantially and broaden the tax base varies substantially and replicate the current distribution of the tax burden. i think the discussion, as we proceed through tax reform and carefully weigh what we want the tax burden to be, we have to be very deliberate and understanding of what economic costs come with what higher tax rates on high-income taxpayers. from my own perspective from my own -- i really have no idea what the right distribution of the tax burden is, what it ought to be. that is not something economists are very good at. it is something that in my own view is left up to those who are elected to office, to politicians. i think everyone has a different view on how progress of the tax system ought to be. one thing i will say is that i do know that the current tax

system is progressive. in some of the charts that he included, high-income people -- the top 1% pay about 36% of individual income taxes. if you look more broadly at all and federal taxes, you do not have that level of progress city, but you still have a substantial level of progress city. you do have a progressive tax system. that is something that should be a starting point for the discussion. in a sense, the discussion on whether we should tax the rich more, you really get to the court of some of the conflict in the tax reform debate. usually when we talk about tax reform, we are talking about a set of objectives, policy objectives, i system that is more fair, whatever that might mean, and a system that is more

progressive. today, there are more issues added to that debate, having a more competitive system that enables us -- us to compete in a global marketplace and have a system that is more stable, where we do not have roughly 25% of the tax code expiring every couple of years to provide taxpayers with certainty. going back to those court taxpayer objections, the objections of fairness and pro- growth, they are often at odds. it is important to -- when we talk about fairness, it is important to recognize that some of the remedies and policies do come with economic costs. higher individual tax rates come at economic cost. there is welfare laws, efficiency loss associated with

the higher tax rates. as the tax rates get higher than the drag on the economy gets much larger, not in proportion to the tax rate -- tax rate, but relative to the square of the tax rates. to put this into perspective, i have a long career working at the treasury department. i was very involved in analyzing the changes in individual tax rates and later i was there as a political appointee. when you raise tax rates on high-income tax rates, one way to look at it is what goes to the government. treasury estimates in raising the top two rates, they estimate that the revenue at relative to the static gain of the top two rates relative to the pickup would be lost due to the

behavioral responses. others would be much larger, is something like 40% of the revenue loss. that does give you a sense from the government's perspective, the cost associated with higher rates. it also gives you a sense from the taxpayers perspective, the policy makers perspective. it is much greater for higher- income people than lower-income people. there are a number of papers that illustrate that point. high tax rates carry large economic cross. another aspect of tax rates are what they are taxing. are they taxing a return to labor or to capitol? one would have a consumption tax that would not tax most of the return to capital or savings at all. i have a new book, but i did not get to mention the title of my book. just in the interest of fairness

-- [laughter] "progressive consumption taxation." it is just released on june 4, available through amazon.com. [laughter] in any case, taxing capital income, one of the arguments for doing so is that there is a perception that the returns are disproportionately received by higher-income taxpayers. you want a more progressive system, then you ought to include a return to capital in the tax base to achieve that objective. however, taxing capital income does come with economic prosperity is a drag on economic growth. some estimates by a paper by about -- by about a decade ago

suggest going to have flat rate consumption tax. i would not argue that, but if he were to do so, you would lower gdp by the rate -- you would have a larger gdp growth by 6% to 9%. if you were to have a consumption tax, the estimates are smaller. and when i say progressive consumption tax, that replicates the current distribution of the tax burden, something that is just as progressive as the current tax system at a high level, for the top 1%, the top 5%, the top 10%. those groups would pay roughly the same amount in taxes as they pay today based on treasury estimates from work related to the 2005 tax reform panel. growth would be in the 2% to 4% range. in the long run, the economy

would be that much larger. another aspect to our tax system is that at lot of flow through is funneled through the individual income taxes, subject to the individual tax rate. that is one of the reasons there is a lot of resistance to raising the tops -- top rates. depending on the estimates for the 50% of lower-income, it is generally thought to be subject to those tax rates. that is the consideration in terms of evaluating the economic costs to the economy of raising the top rates, how that will affect onta brawner version of, how that will affect -- how that will affect entrepreneurship, how that will affect the decisions of entrepreneurs, how that will affect the growth rate for small businesses. all of those things are considerations and factors that enter into this discussion.

i think you really need to think about at what cost. i will go back to the point that i started with. in terms of thinking about the distribution of the tax burden, i think that is a much more relevant -- i think a much more relevant question is the distribution of the government. len has a paper where he makes the case that a lot of the tax expenditures, the $1.1 trillion that is running through the tax code should be thought of more as spending as opposed to part of the tax spent -- a tax system and should be about a weighted along the lines of spending programs. those provisions have profound effects on distribution of the tax burden, just as the graduated tax schedule does. they are currently factored into by distribution tables produced by treasury, or cdo.

they will be tax expenditures. we ought to also -- we should think very carefully about how the spending programs also affect the distribution, or the distributional footprint of the government. as we get into tax reform, it is interesting because reasons to do tax reform, there are really good reasons. but one good reason is that there is a strong focus on tax reform today because there is the perception that in order to do entitlement reform, will have to do tax reform also to get it onto the table. and from a distributional perspective, there are a lot of state -- there is a lot at stake for retirement reform, and a lot at stake for the nation in terms of addressing the fiscal imbalance. it is probably a bigger issue for the nation and tax reform, attack -- addressing the long-

term tax reform -- the long term fiscal imbalance. at the same time that we are talking about the distribution of the tax system we ought to be talking about the distribution of the entitlement programs. i think the current state of what economists note is broglie still a bridge -- is probably still a bridge too far, but it would be interesting to see what is factored into both sides of the equation on spending and taxes. >> i will open this up to anyone who wants to comment. please, raise your hand. remember to state your name, especially those who know me and i know you, because that is harder for you. >> i want to respond to a couple of things that bob said. first, i want to say that people should get bob's book.

people talk about the national retail sales tax from a flat tax for a long time. those are ridiculous proposals from my perspective, because they would make the tax system much more aggressive. the national retail sales tax, something called the fair tax, could not even be administered in any sense of a fair way. you can write to me at bob.carroll [laughter] ] -- [laughter] there is this issue of fairness. in fact, most of the savings is done by the wealthy. we take very seriously the fairness concerns. the issue of economic process of taxation, and more generally the issue of growth verses fairness, it is a trade-off. sometimes it sounds like all

democrats care about its fairness. and republicans only care about economic growth. i think most people are not drinking water of -- out of the potomac -- most people who are not drinking water out of the potomac would say there's something of a trade-off. if all of the economic growth was from a tiny sliver of the population, that is not a particularly good thing. you achieve fairness by bringing everybody down, and that is not a good thing either. the best way to do this, as bob mentioned, is by broadening the base. when you talk about the economic cost of taxation, one conclusion -- this is in a paper -- is if you broaden the base, you're actually lower the cost of tax rates themselves. the logic is that 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 all lot of the loopholes and preferences, then the high tax rate at this point i think we are in complete agreement. what i say next my promoter a response from him. the biggest loophole is a lower tax rate on capital gains. if you look back to 1986 tax reform act, if you look at the bowles simpson plan, the rebel to achieve a high level of productivity by taxing capital gains the same as other incomes. the problem with a lower tax rate on capital gains, the top capital gains rate is 15%. if you can figure out a way to turn your ordinary income into capital gains use save 20 cents on the dollar.

this has produced a industry whose job it is to come up with ways to generate deductions to shelter your income from tax and pay you back for capital gains. this is a huge waste. a lot of investments that produce deductions, they do not make sense from an economic perspective. there are a lot of smart people working on these tax shelters who could be doing socially useful work. you probably cannot tax capital gains at the full rate. raising less money than capital gains that a 28% rate. if you can lower tax rates and tax capital gains at the same rate, that is a reasonable trade-off.

ronald reagan agreed to it. it produced a tax system with radically lower rates. with tax reform in 1986 was when bobbitt packwood came up with the idea that he called the 27% solution that ended up at 28%. it eliminated a lot of opportunities for tax shelter. >> there is one thing we will agree on. the second or third thing he said would elicit a response. i wanted to make two. . first to focus on capital gains and make a broader point where on capital gains, i really do take issue with what glenn said. if one is looking at capital gains and dividends, i think one needs to really think about the

entire income tax system in its totality. i would think he would agree with this assessment. you really need to take into account both layers of tax that are imposed on investments and those returns. you have to take into account the corporate income tax as well as the investor bubble taxes on gains and dividends. when you do that, the current integrated tax rate depending on how you do the math and depending on how you tax corporate income tax and how you -- if you were looking at the top integrated tax review but calculate that on capital gains to be a in the mid 40's including state income taxes, not the 15% federal rate on investor level capital gains. in that sense, when you are thinking about tax reform, i thinks many economists would

agree that with a comprehensive income tax -- if you believe that you should have a comprehensive income tax which i think is probably where he would be which is where i might lean heavily towards more a consumption tax that would exclude returns altogether on the really important -- important portion for those. in any case, if you wanted to tax all income you would still tax and come in. with respect to capital gains and dividends where corporations can choose to retain a corporate income, increases the value of the firm and realized by shareholders when they share their sale at -- shares, it is taxed a second time. the gains are probably in the mid 40's.

for dividends they are around 50%. in 2013, the integrated tax rates on capital gains will rise to probably around 50% if not higher because the 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. the medicare tax will apply to unearned income for the first time in the u.s. \ it will rise an average to 68% from its current level from substantially lower than that around 50% on an integrated basis. again i think the really -- at least four investment made in corporate solution, you need to think about the double tax and think about the income tax and

an integrated basis. i think that is a very important issue. as glenn indicated, just looking at a capital gains tax rate that the individual income-tax, but the cbo and the treasury would tend to view the rate on capital gains in the neighborhood of 26% to 28%. that is what they have assumed for the last 15 or 20 years. that is what they would still assumed. the other. that would make is -- the other point i would make is, when you look at the income tax system, the really need to be careful, i think, not to fall into the trap that it is the cause of income inequality. i think it is an important policy tool to address and income inequality. i think it is really also important when somebody is

talking about these issues to focus on, what do we think is the source of the increase in income inequality, measured income inequality over the last 25 years. it seems to me that that is a very important discussion to have because that will lead us down a different path in terms of how to address the rise in income and inequality. if we think the stagnation of wages for those in the metal is perhaps due to globalization and perhaps due to lower skilled labor in the united states having to compete with low- skilled labor and emerging market countries in southeast asia and south america and other places. when you s low-skilled labor is competing in a global market it puts downward pressure on those wages. i think the high skilled labor is getting fairly substantial

returns to their human capital. lead to down a different path that went into. you to the most important thing we can do to address that income inequality, something that the long-term investment in education and trying to raise the skill level of the bottom two or three of the population is probably an important thing we ought to be focusing on. focus on the tax system is important. i think most people in the room would agree that we need to have a progressive tax system. i think that is an important part of the discussion. >> i could go on for hours. i actually agree with bob -- lower income on text of dance is a terrible way to do it. there is an article in a publication in 2003 -- tax and

capital income one. basically what it says is that -- i like your first proposal than the one that was enacted which was lower rates. >> i do not disagree. >> ok. this gentleman here. >> i want to go back -- steve, i used to be an attorney at the irs. i am retired now. i want to go back to the statement made about fairness and how that is the major concern. you seem to have accepted the notion that everybody agrees that this income tax system and particularly with the progressive rate is fair. i would like to submit to you

that taxing the rich is the essentially attacks -- taxing a person based on his status. to me it is not much different than taxing a person based on his religion or his ethnic group. the big difference is that it gets the amount of revenue in that if you tax people who are wealthy, that is a big source of income. the fact remains that it is essentially, you are taxing somebody based on their status. our country never wanted to have these distinctions. what i submit to you is to say that is fair, to attack somebody on the basis of their status, i do not think that is fair at all. you are just assuming, that must

be fair when it is not fair. >> i think are probably talking about me because it sets fairness was always so central. i will retreat into what historians always said. you can not like what i said, but that is the way it was. i think that really is my answer. your position is fine. is fully consistent with what my point is. people are going to argue with what is fair. there are plenty of reasonable arguments to me made that the progressive rates are not there. the fact it does remain at historically, americans have found them to be pretty fair. assuming you find full day to be relevant or election results as real evidence. the income tax has been with us for 100 years next year. if people did not think it is fair, and it has always had progressive rates, it is remarkable it has lasted so

long. >> if i could respond to that. people are always going to want to tax the rich. dibble said, that is fair because 98% of people are not rich. dibble said, yes. tax the rich. >> i read a blog on the forbes and i hear from these people all the time. more progressive tax is fine. that is a value judgment which i think it shared with most americans. not all of them. the question is, do you decide what the fair distribution of tax burden is based on what your

economics that this is? is the right way to decide based on not knowing where you come out, this is the notion behind john rawls theory of justice which is, when you decide issues, it should behind -- not knowing whether you will come out richer pour. from my own experience i grew up pretty poor and now i am doing reasonably well. from my perspective having people like my parents paid little or no taxes and having me pay a substantial amount of taxes makes perfect sense. i am probably not going to change your mind. it is also -- it is a lot easier for me to pay a substantial tax bill them for my parents -- my mother -- she did not have enough food to put on the table. to say she should pay more tax when my decision was about whether to take a second location or not, from my perspective is seems pretty

easy. >> let me jump in for a quick second. the theme of the conferences, what the rich should pay and why and whether it is fair to tax the rich. i am not assuming it is fair to tax the rich. that is what we are here to discuss. i want to go to david. to your point, exactly. >> i want to follow up on that. i sort of agree with you, by the way. i want to ask joe, i think he said that people have long supported the idea of a progressive taxation as being fair. is it not true that people support the idea of progressive taxation as income levels above what they make. it is like, a progressive taxation as long as it is

kicking in at more than what i made. whether i make $10,000 or $100,000 or $1 million, with the exception of -- most people would say progressive taxation is great as long as it is not me. does it not turn into a big redistribution mechanism? >> you may be all for taxes as long as it is not me. >> the nasty way to put that is it is all about -- you are going after these guys in a punitive way. the last as the interpretation is that, everybody has a self- interest by up. sure, i would like to keep my money. >> you would rather keep your money in the pocket. if we need money to fund whatever it is we are paying for, let's tax those guys over there. >> increasingly ec tax burdens for people beneath your own

status as well. >> there is a significant group of millionaires who have been arguing for more progressive taxation. it is not surely it purely selfish. >> i love those guys, but really they are outliers. >> i and the moderator so i should be moderate. i am in the atlantic camp. when i started out not doing well, i am a great believer in progressive taxes. >> in terms of fairness, if you go to the store and you buy a product and they said to you, we have one price for the rich and another price for the poor, everybody in the room but said that is ridiculous. but when the government taxes you, what are the taxing you?

the major purpose is to raise revenue for paying for government services. why should one person have to pay more for government services because they are rich than another person who is poor? that is essentially what an income tax and particularly a progressive income tax is. >> it seems like we have not really had enough discussion about the current system. according to a report, the united states has the most progressive 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 country of any country. last year we had a record number of americans to pay no income taxes since 1940. at the same time, the top 2%

pays roughly 51% of all the income taxes. i would like to ask the panel, what do we consider to be at least fair or unjust -- the fact we have half of all americans to pay no income taxes or the fact we have the top 1% or top 2% that pays no income taxes? >> let me point out the scott brought along handouts. should all have them. if not, we will figure out how to get you some. >> i am really happy he made the comparisons to the european economy. the united states has the most progressive tax system. it is really kind of interesting. the way i think about that -- the way i explained that is that

the europeans do not need to have as progress of a tax system to have a progressive footprint of their government sectors because they have much bigger government sectors and they do a lot more distribution on the spending side. that is why i think it is so important romney have the discussion on income inequality and how the government should address that or not address that, is also important to not only focus on the tax side. is also important we focus on the spending side. european economies have pretty exclusively public health care programs. ours is pretty split. they had time to have much more extensive retirement plans than we do. they have a lot more

redistribution that we do. it really is -- is an outcome that much as a surprise that we have a more progressive tax code. they have a lesser tax code. they are doing more of the heavy lifting and redistribution on the spending side. that is the way i can offend style the steady. i think one of the things you been drawn from that we are hammon on the distribution footprint of federal government activity? >> i agree with you. on the issue of productivity as a tax system, there are a couple of charts showing that the distribution of overall taxes and the income tax is very progressive. we actually run the largest cash assistance for working age americans.

and is bigger than 10 the biggest pay text -- the biggest tax payroll. it is capped at around $110,000. people point out that the benefits under social security are progressive, americans do pay substantial amount of taxes. there is every producing chart based on data consideration for tax justice or the look and not just federal taxes but state and local taxes. when you look at the overall system that -- from the 68% to

the top, there is a flat tax system. there is a decline at the very top because of capital gains. bob is absolutely right. we ran a lot of our social welfare systems to the income tax, much more than european countries do. i have argued and won paper adding a regressive tax. paying health care would be a progressive trade off over all. that would not show up in the distribution tables because we only look at the tax policies. we did not do very much in european countries. >> primary tax to fund the basic funds of government like national defense and so forth. many have a half of all americans with no skin in the game, they have no stake in the basic functions of government. that is a real serious question

facing americans. do you want people to be disconnected from the basic cost of government? they have no sense of what government costs to them purity of the fiscal illusion problem that could lead to greater growth in government because they bear no cost. they are more than happy that the millionaires pay for it. >> if you look at what happened over the last dozen years, nobody has been in the game. we have two wars, the largest expansion of medicare in history. we are cutting income taxes. on the margins it probably looks like we can get more government taxes. i agree with the basic point that the government is free for significant populations is problematic. that does not necessarily mean we want to have taxes --

burton's cover-up over all on low and middle income people. we set out a tax system where for example if we have a value added tax dedicated to -- that is the fastest growing component of spending. if we do not get it under control it will bankrupt us over time. there was a tie in from a broad based tax in that component of spending. people will see there might be more interested in doing sensible things to slow down entitlement spending. >> we see these startup the top 1% of their income share. we never see a come parable chart showing the amount of income taxes the that 1% pace. that has been growing considerably over the years. it has actually doubled their share. they have earned 20% of income- tax is an pay 40%.

>> it actually tightens a share of their income. it has been going down were at the top. >> if you look at slide it two that shows the trend in income inequality since the early part of the last century through today, you look at the highest income tax bracket. if he were to overlay these two he would see a high negative correlation. one conclusion some have drawn although there is some difficulty with and drying it too strongly is that as you have the high-income taxpayers paying

a much larger share, this kind of goes to the issue that i raised earlier, there is a large behavioral response that is reported. the incomes of high income people for the tax rates they pay. we have been over 90% in the 1960's,and the early those high-income taxpayers had a very strong incentives not to earn an extra dollar or not to report an extra dollar. again, that is going back to one of the economic costs of high tax rates. that is an important part of the discussion. france is proposing to raise its top income tax rate to 75%. i wonder if we lived in an economy like we did in the

1950's if we had a top tax rate of 75%, how would people behave if they only got to keep 20 cents on the dollar when they were deciding to work. when they retire earlier? would they take jobs that paid them less rigid that did not offer as much rewards? would it affect the professions they enter into? how would that affect investment decisions? there are a whole range of decisions. >> three people waiting and i will not forget you. >> i just wanted to go back to that not pares issue. >> whether or not social security issues count.

liberals have missed this point. the issue of not pares is dangerous because the income tax. it is important to the politics of the subject. it is more than just the way to raise money. is about the connection to the government. it has a sop -- symbolic role to the government that i think is lost. we all think april 15, it is a big holiday. we all try to russian get our taxes in. that is a shared experience for americans perry cannot be a part of the experience is a problem. i do not think you need to expected the not payers to pay much. most of them cannot afford to pay much. including people in a tax -- we think of it as universal, it is important here that is the real cost.

if you want to protect the income tax you need to make it feel like it is a shared burden. this does that make us feel that way. most of these things are republican ideas originally but now they are by liberals. i think that is shortsighted for the left to just respond rigid people pay lots of other taxes. i think that misses the point. >> the point about the tax relation between income inequality. i think it is overstating the. . if you look at the data. for 30 years, it was about 8%. during that period, the middle class was doing very well. their incomes were growing with the economy. i think something changed. the tax base was probably a small part of the story. the big thing is the decline in

the power of labor unions, increasing the in nationalization, the fact a lot of workers now have competitors and -- the financial innovations, which help the economy in the last decade. this enormous income gains in the very top increased technology. this whole idea of a winner- take-all society where the earnings at the very, very top. the top performers get him on this page -- people who are almost as good. when you looked at the data on savings and how the response to texas. the real response to taxes appear to be very modest. lebron james would not set up the finals if we raise the marginal tax rate. the next option will not pay him all that much.

they will not decide to work a little bit less because the marginal tax rates go up. he was making a valid point. i think he is overstating that the rise in inequality is really an issue. if all of the income gains are going to a narrow sliver of the population, i think that is politically unsustainable. it is also problematic. if you need to pay the -- it is hard, you would have to pay more in taxes. >> from where i stood, what should we be doing that from a public policy perspective. if the thing that is related to the bottom two or three quintiles or lower skilled competing on a labor market with

people who make a lot less money in other countries and emerging market countries, then the issue is for the skill level. we should be having the a continuing discussion on that issue. i think the tax code or government -- it is not the problem. is not going to address our long-term issue of income inequality. i think you have to think more fundamentally about what is the cause of income inequality. i think that is a part of the discussion. >> when you say invest more in education, that is problematic. there are some people that will not be able to get college degrees. some of us are lucky that people

take advantage of higher education. other people who do not. they used to be good factory jobs to pay those people very well. 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 that is a significant component of the 51% of americans that do not pay income taxes. i think it is a really good thing. as opposed to raising minimum wages, this subsidizes wages for people who are working and makes it possible for somebody working full-time at more than minimum wage to actually be able to support their family at a level above poverty. if you do not want to do it for the income earned tax credit you have to think about some other way to make sure that people who are working hard can actually

survive. >> thank you. >> the topic of this event is taxes on the rich, right? i wanted to make a point that obviously there are economic costs associated with raising taxes on the rich. the panelists have talked about why base broadening would be a to way of raising taxes on the rich. there would still be economic costs. i think that this is a issue of where the budget process and our budget constraints can really help policy move along. if you give people the option of not raising tax burdens, they would choose to not raise tax burdens. you will not force tax reformer any action on tax policy unless

you have a binding constraint and is something different from the constraint we have been following. i think we have an opportunity in that there is a need for deficit reduction. the budget process can help inform the tax reform debate by setting a budget constraint, not necessarily on the revenue side versus the spending side, but how much deficit reduction has to happen. it forces policy makers to look at different types of tax policies for spending policies. 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 base line, that does not mean going over the fiscal cliff or however you want to use the metaphor. it can mean sticking to pay as

you go on the expiring tax cuts over a 10-year budget window. i think a lot of people have a tendency to look at the expiration of tax cuts as an all or nothing deal. we have to run into the cliff or run off the cliff for stop short of it and not do anything about it. i think that is a mistake. i am a naively hopeful that the budget constraint, the fiscal cliff coming up, it is an opportunity to actually let the budget outlook and the budget process help make better tax policy. >> to me a favor to explain what you mean by the current base line. >> it assumes that current tax law actually happened. currently the bush tax cuts are

scheduled to expire at the end of the calendar year. there were previously to expire at the end of 2010 but were extended. we are nearing the end -- are all supposed to go away. the alternative minimum tax relief is another provision that will expire. the payroll tax cut will expire. this are the tax portions of the fiscal clef. new fare in some sequestration makes for a rather steep cliff and the one-year timing. current law is the tax cuts would expire at the end of the year. that is what the differences between current law and a current law baseline. >> ok. thank you. >> let me add one more.

let's suppose a decision is made and tax reform's lower rate, broaden the rate, i am skeptical that this is going to satisfy the current base line. come up with the revenues we need or do enough of distribution. about one year ago i wrote an article describing the progress of expenditures, this will be a supplemental tax rate that is a little different from what is suggested in bob carroll's book. i think it would be great -- we cannot do it here. but to look into these alternatives and to see how can we actually do it if we decided we wanted to? thank you. >> ok. i see somebody raised their hand in the back?

>> rebecca waltons. i think we need to embrace -- it is really an opportunity for us to push to the reset button. do some sensible reforms, come back in january and decide what targeted tax cut really needs to be made. everybody will have to pay higher tax rates to address the budget problem. i find it really frustrating for us to focus on and just the federal income tax. when you look at -- copy that from my report in april. the taxes that people pay, people at the low income range pay huge amounts of state and

local taxes. for all of us the income tax is the biggest we pay. there is a washington on the other coast where the bottom 20% pay 17% of their income in state and local taxes. the top 1% pays less than 3%. when you go to the store to buy your kids school supplies into have a $20 bill, you cannot put $20 worth of stuff in your basket. it can only put $17 worth of stuff because they will add another 10% or 12% of the sales tax. we do need to look at the tax system as a whole and where people pay taxes. that is including the corporate income tax. we updated our corporate tax payer report. we looked at the fortune 500.

we included only companies that have been profitable over the three-year. we looked at. we found an average tax rate of 18.5% which is almost half of the statutory rate. there were 78 companies that passed a zero income-tax and at least one year and 30 companies that had a zero or lower tax rate in all three years. to say that income is taxed and taxed again is just reallnot what reality is. also looking at the tax system as a whole you have to look at the problem the capital gains lower rate causes. all of those smart people wasting time figuring out ways to confirm -- convert your income, i think it contributed to all the financial innovation that happened that almost brought down the world economy.

look at how much a -- it contributes to inequality. if one person's income is from salary and wages and the other person of their incumbents from capital gains, the guy who works for a living will pay about $57,000 in federal income tax. the person living off of his wealth will only pay $38,000 in federal income tax. a $20,000 difference. at the end of the year he has $20,000 more. here is somebody who has substantial assets. we have given him $20,000 more so he will continue to increase the amount of assets that he has. i think we really have to look at the system as a whole and see what makes sense. the wealthy can pay more tax and the threshold should be a lot

lower than $250,000. i also wanted to give joe a shout out. i never heard april 15 talk about as a holiday before. squawks i miss spoke. >> i have two in the back double the two in a second. david wanted to jump in for a second. >> she mentioned the state of washington having a very regressive tax system i wanted to remind her that the citizens of washington, i think it was two years ago, rejected adoption of an income tax overwhelmingly. it was an income tax that would fall on the top 1% of the population. incomes over $400,000 like nobody would pay. it was rejected 70-30 or something like that.

>> when you include state level taxes, the 50 states in d.c., the citizens are making choices in terms of what they want their state assistance to look like. i saw your chart when i was looking for the hand out. it is really an interesting chart. then it leads you down a road of whether the folks in washington should attempt to undo the distributional effects of state level policies through the federal tax code. i think that is a problematic path. >> it is harder for states to have a progressive tax system because it is actually easier for high-income people to avoid. they can move a from washington if they do not want to pay income taxes. they decide collectively we want to provide lower income people, it is much easier at the federal level.

>> i am a former treasury official. i would like to challenge this emerging consensus that the conventional wisdom that the way to reform the tax losses by eliminating or reducing tax expenditures and lowering the top rate. at the people have selective memory loss because we tried that in 1986. we lowered the rate to 28% and most people do not realize when you look at the distribution tables, that would change with a tax increase, not a tax cut. the greatest increase according to the distribution tables were to incomes at the top. i will set within three months, more liberal politicians were already screaming that the rate on wealthy people was too low and they wanted to increase it. i think that if you buy off the you would trade tax expenditures for a lower rate you can end up with new tax expenditures and a

higher rate in the end it. maybe that is what people want. on one side of the aisle that is not what people want but that is what they will end up with in the long run. >> most of the base broadening on 1986 was on the corporate side. is true rates went up. also right after tax reform was enacted there was a call to lowered capital gains tax rate, one that eventually happen. for people thinking about tax reform i think the biggest challenge -- we talk about 1.1 trillion dollars in tax expenditures. most of the -- you are talking about what happened in 1986. corporate ceos came and said, we kind of like this thing. even though we are raising taxes on corporations they liked it their own personal tax rates are going down to 28%. talking about trimming the

mortgage interest reduction, limiting the texture for health insurance and things like that. both of those would be a good idea. politically it is not impossible. is extremely difficult. cox there is another incentive and the tax code we have not talked about yet. that is the incentive to keep as a they can keep picking winners and losers. do we have somebody else in the back? >> i would like to narrow the discussion it little bit. one of the issues it seems to me that muddies the debate on how much the rich should pay or what the race should be is something that bob mentioned which is, a large percentage of business and come goes through individual rates. whenever there is a discussion about raising the individual

rights it is 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, you have two schedules, one where you have a number for seoul proprietorship income, a partnership income. with the system were to take those two members of the rest of the individual returns, subject them to a business trip scheduled the same way that a corporate scheduled. and then deal with -- tax business and come under one system and individual income under another system. >> the idea of taxing both for business and come at a different rate, i have not heard that

suggested before. i think it would be problematic. the reason is, first is a question of whether you would actually want to do it. the progressive tax system actually is good for most businesses. most businesses are owned by people who are not in the top brackets. most of the income is earned by people in the top brackets. they are the ones with large businesses with many employees. basically, business investment is risky and effectively progressive taxation provides a safety net that if you do not do very well you are tested a lower rate than if you turn out to be very successful. the issue of trying to separate so proprietorships from other incomes is problematic. it would be hard to draw that line. according to income tax returns, i am a small business.

i filed a schedule see. i did not get it an ira for this. i sometimes get -- that is tax- free. i the huge benefits from that. a lot of people who look like -- there are people who do consulting on the side. they are fairly wealthy people on corporate boards to get paid for their activities doing that on schedule c. the treasury department has a nice steady. it is a large percentage of that our people he would not actually think of as small business people. people who are creating jobs.

if business income was taxed at a lower rate, a lot of people would be looking for ways to make their business income -- to make their wages and salaries like business income. that would be economically inefficient. it would raise fairness issues. >> a couple of points. the first time i heard of this idea was 1993. i was a staff economist at the treasury department shortly after president clinton was elected. the millionaire surtax into the 39.6% rate kicking in at the time. in any case there was a contested debate in the congress. one of the things -- an idea approached was having a separate schedule for certain types of business income. it was considered -- it was

considered for a short while before it was rejected. i think one of the problems with this issue is that the corporate income tax is really a tax on investment returns. corporations tend to pay everybody that works for the corporation wages and those wages are subject to the individual income tax. it works a couple of different ways. corporations are required to pay the owners a reasonable compensation. partnerships are non, sole proprietors, there is no distinction between a wage income and return capital. if one wanted to have something that was parallel to the corporate income tax, some thought might need to be given

to how to separate the returns from the capital investments. is related to a point that leonard was making. some of the nordic companies attempted to do this. they tried to have separate systems for some of their -- it turns up to be extraordinarily complicated. that is one of the issues. if you did it just for the net income of the flow through, you may be providing that more favorable rate treatment as a return to label that -- labor. it would create the fiction -- the correction that leonard was describing. going back to a point that leonard made it, a lot is subject to the top two rates. it tends to be in the 40% to 50%

range and is subject to the top two rates. from an economic perspective that is what you would focus on. it is true that most of the people -- most of the business owners, when it counted the business owners -- he may be further up the income entered -- distribution but someone he said earlier. a lot maybe in the lower tax bracket. that between counting people and in come a similar to the capital gains debate from the early 1990's where one side was counting people and the other side was counting income. i think he used the trust account the income. -- i think he is used to counting the income. that is where it would accrue from. >> i think they are both important but they are different questions. >> i will echo the gentleman who

asked the question -- the panelists have been very generous in one regard. what is in the way of tax reform? we can come up with all the wonderful tax plans that we can design that achieve productivity, somebody mentioned the bowles simpson plan that i view favorably and positively. there is a group out there that he did it a lot. it was some progressive activists because of the carry about is the rate -- the top rate. the bowles simpson plan, i know what they called it. my job takes me all around the country. i took time out of my day to talk to occupy protesters. they did not care about any of this. none of it matters. all that matters is the top rate. what they said about the bowles simpsno commision is that a cut

taxes on the rich. we know it did not do that. this is what we have every congressional bill from the side of the aisle proposing new state programs. the pay for it by new taxes on the rich. it is not as rebecca conceded here that everybody pays higher taxes. there is one group of people they think should be paying higher taxes. luckily the american people including the citizens of washington, which is that the rest stay in the country, they do not generally go for that year they are very critical of some rich people, the chronic capitalists, the beneficiaries of bailout. for people that roll up their sleeves and work hard, they not -- they have nothing there respect for them. i do know who watched the west wing. they had a character on there, a very liberal ideologue. he was very sensible in many

ways. in one scene he is arguing with people on his side of the aisle who keeps talking about the rich need to pay their fair share. he said, i used to be a lawyer. i paid 27 times the national average of income tax. i paid my fair share and the share of 26 other people. i am happy to because that is the way it works. i do not get 27 votes on election day. the fire department does not come to my time -- my house 27 times faster. the top 1% of wage earners pay for 22% of this country, let's not call them names while we do it. that is what i am saying. >> the gentleman back here. >> it seems like -- >> can you give us your name please. >> david. i work for a large government agency.

the discussion heavily depends on the framing of the question and the discussion. everybody seems to be assuming that in come measures are the appropriate measure by which one it should measure -- we could also use consumption on very good arguments. in another way i think the mentioned you could -- we need to trade off efficiency and equity or fairness. and that sounds good. the efficiency we have good economic theories about what we need. on the other side we have no idea what that means. nobody can agree. everybody has different motives for arguing one way or another.

at least with pornography you know it when you see it. hear, i do not think we can identify that everybody can agree that is fair. you asked those in favor of raising rates on higher income people. how high do we have to go? usually you do not get an answer for that because there is no answer for that. you go back to 1934 when fdr said nobody should be making more money than -- or should be able to keep that. i think he moved away from that very quickly. i think he did not want baby ruth -- the point is, we cannot define this. there are different motives behind arguments for one-way -- rate.

whether we're talking about the people at the low end or the upper end. the conference was on whether we are supposed to raise taxes on rich people. from there it is just envy or what other other motives might come into play it seems to be. my question is, is fairness art or pornography? can you identify it? >> david raises a good point, which is that there are huge disagreements as to how we would even define the base conceptually. if we decided is then come, how you manage income? it is not closely with the closely related to what economists call income. their problems in terms of defining paris -- fairness and

progressivity. the fact that we cannot measure perfectly does not mean it is not an issue, but fundamentally it is an issue that the political process should be working it out, and not something that economists and this people in this room not to be deciding. the tax system ideally should reflect the best we can what is consistent with our values. almost everybody would agree that some notion of fairness is related to taxation. it might be that everybody ought to pay the same thing. but even for that, you would have to have a measure of income that we agreed was consistent. the fact that cannot measure it perfectly does not mean we should not consider it. >> we cannot address this

analytically. no one can agree how to measure fairness. >> but there are whole bunch of economic articles that do try to do that. the measures of fairness are just as stylized as the measures of the economy and the efficiency conclusions. >> that is what i really think people should do, just embraced the arbitrary nature of it. i don't think we should tie ourselves in nonce trying to come up with theories of fairness when it is really an intuitive political decision. we may not like that, but government makes all sorts of into two political decisions all the time that address fairness issues in realms far removed from tax. as was pointed out earlier, -- it is just a problem with democracy. it is just not avoidable.

there is no way to conduct this argument and replace it with something that is nice and scientific and clean. there is no owner's manual for government. no one set you how much is enough. that is the beginning of an argument, not the end of one. that is what the issue is really about. so i am interested at all the questions of deficiency which the efficiency and other such things, and they affect my views of this, but ultimately they are second level issues. even in the large development of tax policy, i think they pair off in second-tier issues, too. for all the complaints economists have been offering about taxing income rather than consumption, the voters still seem to embrace the idea of taxing income, right or wrong. >> some very important questions we can ask to better frame the

debate. we can provide some measures of progressivity of the tax code. that is something we can offer up. there are some very good charts and handout. it gives us some sense for least where we are by some standard. you could produce other standards that would give you a somewhat different results, but that is very important. i think joe's point that this narrow focus on the rates is really problematic because it is the rates that really contribute significantly to the economic cost of the tax code and the notion that progressivity is defined by how high the rates are. i think one is not accurate, and is already counterproductive. it leads us down the wrong path and the wrong discussion. i think that is a problem. >> i agree with that.

just to retreat to the history for minute, what is striking is how powerful those rates have always been, that those-in rates, even when they were meaningless, and one of the great studies of fdr's tax policy is called the limits of symbolic reform. >> the rates a very easy to understand. people can easily equate progressivity with the rates, and is really something, an important public service we cannot provide. that is really just a piece of the puzzle. >> we have not really talked about this in here today, but this is a more meaningful issue, the question of brackets and where they start and where they end, and how many we have. 90% of raids on small numbers of people are truly meaningless. the rate in 1935 that applied to one person because the bracket

was so small. i think it is a relevant question. i am not endorsing the idea, but the idea that we do not have an of brackets. the difference between $350,000 a year and $350 million a year is meaningful. the fact that we have relatively few brackets in historical terms right now is an unusual and not necessarily permanent. >> but they have been the focus on the bracket, the focus on the rates and not the progressivity of the tax system or the federal government's footprint. another point on optimal tax theory, the road it would lead you down is those income sources that have the highest elasticity, the most responsive, the most mobile. things like capital in come in the international setting or across time.

optimal tax theory would generally lead you down the road, if you want to fallen optimal tax system, you would tax capital income lot less. capital income across international boundaries responsive to much predict more responsive to changes in its tax treatment of the rate at which is taxed relative to labor income. if one wanted to use that standard, that is a way of trying to introduce this notion of what -- progressivity at what cost, and how progress and should the tax code be? my own sense is that most people do is that we ought to have a progressive tax code. then the question is, it be made it a little more progressive, is that where you would stop, or whether always be pressure to make it more progressive? that is why i think there is reluctance to add additional progressivity because it is not

the end point. >> i did not see this hand here, and then we will go over here. >> i am a tax lawyer with some private and public firms. i was wondering, did tax exempt owners of capital account as rich? >> typically we think of businesses and nonprofit -- this is an interesting question. we allocate the income of corporations to the shareholders. nonprofits are in this other world that is mostly ignored. if the fact is that you could very well argue that universities and arts institutions and other things are to some extent basically providing services for high- income people who tend to be the major donors.

syracuse, for the record, is not rich. if you would like to make a contribution, that would be just awesome. [laughter] >> we have been focusing on the trees, not the forest. picking up on len's initial comments, the income maldistribution in the united states right now is reaching crisis proportions, which is why we are focusing on tax reform. we only really reform the tax code when there is a crisis because by and large, and i worked on the hill for a few years, the only ones to get a voice or those who can afford to pay for it, either by hiring lobbyists or rum making campaign contributions. the public is focused 10 on the rates paid by the very rich and by the large corporations. a lot of people are getting really unhappy about the tax

subsidies provided to the multinationals, which puts them in a great advantage over domestic companies. we have not had a word about that in terms of tax rates. who are the beneficiaries of these tax subsidies? usually very well the people who are now in the mind of the public using their money to influence public policies for their benefit. on the right you have the koch brothers and on left to have george soros. you had the situation with the public right now where the public is acutely aware of the massive shift of income from the middle class to the very wealthy. we focused on the top 1% or 2%. no, we have to focus on the top one-tenth of 1%. there is a big difference between a lawyer that may be burning a million dollars as a partner in a major firm and someone like john paulson who earned $3 billion in one year.

and did not pay taxes on it, by the way, because it is all earned in the cayman islands and he only pays taxes on and becomes back to the united states. the public looks at these examples and says wait a minute, this is a democracy. we are entitled to have some relief. that is the benefit of a democracy, it provides a method of relieving tensions in the public before it reaches explosive stages. i was a recent meeting and someone said, why are american ceo's making 10 times what british ceo's make? i did not 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 meltdown has acutely raised awareness in the public, and unless congress takes some action to alleviate the tax inequities, and i think we all

agree that the tax code is far too complicated and is riddled with the tax subsidies and needs to be cleaned up, but until the public reaches that explosive stage, and it may be this year because of tax armageddon, or it may be in 2014, we are really not going to have the kind of relief we want because we have the best congress money can buy. >> under the theory of tax the person behind the tree, i am all for cutting tax rates for lawyers. i am going to go over here and then let the panelists have the last word. if i cut anybody out, i apologize, but i will ask each of you to make a final statement. is that ok? >> i just have a couple of questions. we are talking about fairness, first of all. there is also question of self-

interest. if you look at europe or central america today, and maybe personal -- perfectly reasonable for a person to pay more taxes today, given the fact that if you don't pay today as a society, efface one of those undesirable options. it may be perfectly reasonable if i have the capacity and flexibility to buy insurance today by making high tax payments and prevents a crisis 20 years from now. i don't see that as an irrational thing. some people have short term goals and some have long-term goals. what is wrong with that? another point i wanted to make about the connection between nonpayment of taxes and the government, which are really could never understand. let's take 1941. income-tax applied to 10% of

people. the government was financed by terps yet we went to war next month. a person receives $3,000 and earned income tax credits [unintelligible] -- just don't see this point what is behind this assertion, basically? >> i will go in reverse order with you guys. >> i retired from the international monetary fund. joe started out with an important point this morning, that we really have difficulty defining what we mean by fairness. the question of taxing the rich more comes in the part of fairness, but a lot of this discussion today wharf into the other issue of should we tax income or should would tax consumption? economists often make a strong efficiency argument for taxing

consumption. sometimes also make the fairness argument, your taxing 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 and i only get one vote. i also have a lot more influence in the election by being able to give unlimited amounts to campaigns, as we have seen this year. so we have to tax consumption. a lot of what economists think of consumption may not represent my total power that i have if i have high income, because i am on the symphony board, i get to have buildings named after me at syracuse university, i can give $20 million if i find a man i would like to run for president. there is 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. when you think about fairness, maybe we cannot define it, but we can look over time. we can look across countries to see what happens. there are clearly countries where our sense of fairness and one in 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 zero bracket amount. a few countries have done that and they said it was not important. the first dollar should be taxed. then we looked at what is happening in this country. the last chart prepared by tax justice shows that it is almost

goes back to what we used to call the job packman well by gramm. when you show the distribution of -- joe packman whale diagram. it has a blunt front-end. at the highest level, it was no longer progressive, it was actually regressive. the highest percentile pays a lower average effective tax rate than the group right below that. so you say it does that seem reasonable? though we do not know how progressive it is, we should be informed by what is happening over time and across other countries. here the economists have a lot that can contribute to the debate, recognizing that ultimately the decision of how progressive tax should be and how we should get there are broadening the base or changing rates is primarily a political decision. hopefully informed by good

analysis and some economic judgment. >> i want to give everybody a quick last word and go in reverse order. >> thank you very much for putting this together. obviously it is a very important subject, very important to tax reform and tax policy generally. i will not take much time in my closing remarks. the point i will make, a couple of points i have already made. i have no idea what the right distribution of the tax burden is. i don't claim to have the hand of god coming down and telling me exactly what that is. i do think an important part of the debate is to really understand the trade off between progressivity in the cost of progressivity in terms of economic terms, in terms of efficiency loss. the other point i would make, it is important to distinguish between the graduated tax rates and a base broadening.

>> i think this is a great forum. one point i want to make, which i think some people made this point in commons, it is not just the rich. we will not solve our budget problems just by raising taxes on rich people. the idea that you can just hit people up to a quarter million dollars, it is completely antithetical to tax reform. there's no sensible tax reform that only applies to people at the very top. >> i would echo that, and the comments of both might panel --, panelists up here. we have talked so much about race on the ridge and the very narrow issues about what these guys are paying. the real issue going forward is

really a question of just enough. to offer a nice to the progressives in the room, i think the liberals lose sight of that. there are historical reasons why they have been fixated on the upper end, on the high rates, the upper brackets. there is a reason why we are here and why we still talk that way and it is historical. we started down this road 75 years ago. that kind of over fixation on progressive taxation has gotten in the way of progress of government. it forces us to try to look at the whole picture. it is a much more meaningful picture. europe and much of the rest of the world has done that. it should really be about the vat, which is the elephant that is not in the room. every other country uses it in this larger debate over what constitutes progress of government, and i think that is where we are going. >> let me thank this excellent

panel. you were fantastic. let me note that these conferences require a lot of work by the staff of tax analyst, not me. so let me thank the staff of tax analyst. and 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 or round of applause. [applause] >> nice job. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> j.p. morgan chase ceo jamie diamond testifies tuesday before the house financial services committee about his companies $2 billion trading loss. live coverage begins at 10:00 a.m. eastern on c-span3 and c- span radio. >> in his weekly radio address, president obama talks about creating more jobs for the middle class. he called on republicans to cooperate with his administration and passed all the provisions in the jobs bill. wisconsin governor scott walker gives this week's republican response. he criticizes the obama administration for exercising too much control in enacting economic policies. >> over the last few weeks, i've been talking a lot about america's economic future. i've told you how i believe we should go about creating strong, sustained growth, how we should pay down our long-term debt in a balanced way, and most of all, what we should do right now to create good, middle-class

jobs, so people who work hard can get ahead. this isn't some abstract debate or trivial argument. i've said that this is the defining issue of our time, and i mean it. i've said that this is a make- or-break moment for the middle class, and i believe it. the decisions we make over the next few years will have an enormous impact on the country we live in, and the one we pass on to our children. right now, we're still fighting our way back from the worst economic crisis since the great depression. the economy is growing again, but it's not growing fast enough. our businesses have created 4.3 million new jobs over the last 27 months, but we're not creating them fast enough. and we're facing some pretty serious headwinds from the effects of the recent spike in gas prices, to the financial crisis in europe. but here's the thing. we have the answers to these problems. we have plenty of big ideas and technical solutions from both sides of the aisle. that's not what's holding us back.

what's holding us back is a stalemate in washington. last september, i sent congress a jobs bill full of the kinds of bipartisan ideas that could have put over a million americans back to work and helped bolster our economy against outside shocks. i sent them a plan that would have reduced our deficit by $4 trillion in a balanced way that pays for the investments we need by cutting unnecessary spending and asking the wealthiest americans to pay a little bit more in taxes. since then, congress has passed a few parts of that jobs bill, like a tax cut that's allowing working americans to keep more of your paycheck every week. but on most of the ideas that would create jobs and grow our economy, republicans in congress haven't lifted a finger. they'd rather wait until after the election in november. just this past week, one of them said, "why not wait for the reinforcements?" that's a quote. and you can bet plenty of his colleagues are thinking the same thing. i think that's wrong. this isn't about who wins or loses in washington.

this is about your jobs, your paychecks, your children's future. there's no excuse for congress to stand by and do nothing while so many families are struggling. none. right now, congress should pass a bill to help states put thousands of teachers, firefighters and police officers back on the job. they should have passed a bill a long time ago to put thousands of construction workers back to work rebuilding our roads and bridges and runways. and instead of just talking about job creators, they should give small-business owners a tax break for hiring more workers and paying them higher wages. right now, congress should give every responsible homeowner the opportunity to save an average of $3,000 a year by refinancing their mortgage. they should extend tax credits for clean energy manufacturers so we don't walk away from 40,000 good jobs. and instead of giving tax breaks to companies who ship jobs overseas, congress should take that money and use it to

cover moving expenses for companies that are bringing jobs back to america. there's no reason to wait. every problem we face is within our power to solve. what's lacking is our politics. remind your members of congress why you sent them to washington in the first place. tell them to stop worrying about the next election and start worrying about the next generation. i'm ready to work with anyone republican, democrat, or independent who is serious about moving this country forward. and i hope members of congress will join me. thanks, and have a great weekend. >> hi, i'm scott walker. on tuesday, we had a great -- as a kid i love history, almost like super heroes. looking at the desks and chairs where they sat was pretty amazing. standing there, it dawned on me, those who had assembled in these

chambers were ordinary citizens who did something quite extraordinary. they risked their lives and the freedoms we hold dear today. it reminded me that what has made america great, what has made as exceptional for than two months' interest, what has made the united states arguably the greatest country in history of the world is that in moments of crisis, be they economic or fiscal, military or spiritual, have been more about the future of our children and grandchildren than their own political best in. selig, the president and many of his allies seem to measure success by how many people are dependent on government programs. those policies have failed. in contrast, many other republicans define success in just the opposite way, by how many people we can free from government dependence by growing

the private sector. that does not mean we want to throw folks of unemployment. instead, we want people no longer dependent on government because they have a job. the more our fellow citizens that work in the private sector, there will be more freedom and prosperity in our country. that is a good thing, a very good thing. in wisconsin, we face one of the biggest budget deficits ever when i first took office last year. during the three years prior to my tenure, my state lost more than 100,000 jobs and the unemployment rate was above 9%. today wisconsin has a budget surplus could for the first time in history, we are able to put money and our stage rainy day fund for two years in a row. wisconsin has gained more than 41,000 private-sector jobs and the unemployment rate is below 7% for the first time since 2008. i state used to be ranked in the bottom 10 in the best and worst states to do business in. now we are in the top 20 and

climbing. in wisconsin, we made the tough decisions to tackle our economic and fiscal crises. now, it is time to do the same for america. we can do it because we have done it before. 30 years ago, the national uncommon rate was 10.8%. once president ronald reagan's reforms went into effect, we saw one of the greatest economic boom in u.s. history. we need that kind of bold leadership again today to get our fiscal house on track and to get our economy back in order. more big government is not the answer, as the president contends. instead, we need to confront the powerful special interest in washington and put the hard- working taxpayers back in charge of our government. we need to think more about the next generation that about the next election. that kind of courage may be rare in politics, but i see it every day in the moms and dads i meet at factories a