Up | December 02, 2012
>>> governor malloy.
>> this is the problem, right? there are no rules in washington . when there are rules, they get changed to any argument you like. you can hire an economist to say what you like.
>> they are the worst.
>> all you are doing is arguing over the 20% in the middle.
>> this is an amazing vision of politi politics. one politician, one economist, it's true. it's absolutely true. any argument, you can get a politician, economist and 40 people.
>>> as long as you have a party label.
>> then it enters, once you get to 40 and 40, it enters a round where it's debated as if reality is debated. it's not what has been debated in this country for a long time. there are no hard and fast rules that apply. it is the political argument that wins the day, one way or the other.
>> taxes are political, right?
>> i want to follow up on what the governor was saying. he was given an example and highlighted. we have been talking about fiction, about well, okay, if we cut taxes, the economy gets better. then the fake argument is spend, spend, spend. in reality, as we are seeing it out, it's a mixture of both. we have to do smart investments, bringing in revenue and be smart in cutting spending. the excitement about this political time is we are discussing on a popular level and people are seeing in california what the initiative is with jerry brown and what the governor is doing. president obama is discussing more and more about the need to raise taxes. it's radical to talk about raising taxes on those who most profitted over the last 20 to 30 years. we are at an opportune moment to get into realities of the challenges of dealing with economic issues.
>> then you get a defense budget come out of washington which has in it programs the pentagon is saying we don't want.
>> making subs in connecticut.
>> they want subs. but, there is a certain reality that -- look at the fence and what happened this week. it was going to be raised. didn't get raised. in that package were defense budgets the pentagon says they don't want funded. they have to be included in the defense budget .
>> i agree. to go back to the tax thing, you have to be careful with two thing that is are overlooked. the american federal system of taxes is progressive, very progressive.
>> on the books it is. we should make that distinction.
>> it is very progressive and way more progressive than countries like the european countries that have less income and equality. the idea that making it more progressive will address it is actually a real stretch. the other thing is we have to be very careful, you guys. it's not what i want. to be careful about what we wish for. it is a very well known fact of the economists and i agree, that the people who write the check are not necessarily the one who support the burden of the tax. when, you know, you have the president who is arguing about imposing more taxes on high income people, he, effectively is pretty much saying, you know, there is a chance that this will fall on much lower income earners. i think we have to be very careful. i think that incidence argument you see, i don't know on the top marginal rate how it cascades down.
>> there are different ways, but i think for instance, we know economists have been wrong often. so look at the corporate income tax . that's something that affects high income people. it was known for a long time to only be paid by capital. now, economists said we made a mistake. a lot of the corporate income tax is paid by labor.
>> some of it, yes.
>> the question is, how much?
>> to me, the thing, bruce, i want you to respond to this. whatever taxes are now, they should be lower. it cannot be the case that it is always true of the current tax rate that it is too high. to me, it is genuinely the argument that is being made. it cannot comport to reality when you succeed in cutting taxes. bruce.
>> one of the things about the people that they do is try to shift the debate over on to corporations. the real problem, frankly is not that we have a top marginal rate that is too low, it's the structure of the rate structure. the big problem we have at the moment has to do with the taxation of dividends which was justified on the grounds this would help raise capital formation . there's zero evidence, zero evidence that the 2003 cut in the dividend rate that reduced it from 39.5 6 down to 15 had any meaningful economic debate at all. there's no reason to think if we went back to 39.6 there would be no negative effect. if there's no positive effect, there cannot be a negative effect. during the post-war era, dividends were taxed as normal income and we did fine.
>> the political economy of this. it's not just that people are saying what are the studies about this. people who have a lot of money and have a lot of money in dividends don't want the money taxed. they mobilize in ways that have been effective. bruce bartlett , thanks for being here.
>>> while washington battles over budget projections 30 years from now, states are struggling through a brutal austerity squeeze. who it