"Renaissance Thinking About the Issues of Our Day"
Thom Hartmann: So how do we build an economy and a country that works for all? That respects the classic American values of caring and fairness and loyalty and sanctity and authority and liberty. Yesterday the president called out trickle-down economics. And first let me welcome my guest, Stephen Moore. Stephen Moore is an economist and editorial board member and senior economics writer for the Wall Street Journal. And Stephen, welcome back to the program.
Stephen Moore: Hey Thom, great to be with you.
Thom Hartmann: Thank you for joining us. Yesterday the president called out trickle-down economics, by name, and something that, or Reaganomics or by various names, that you know I think you consider yourself one of the fathers or godfathers of. Here’s what he had to say. This is just a very, very short clip, a 14 second clip, here’s a piece of what he had to say about it.
Barack Obama: It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible post-war booms of the ‘50s and ‘60s, and it didn’t work when we tried it during the last decade.
Thom Hartmann: So since 1980 the income for the top 1/10th of 1% has gone up, since Reagan came into office, has gone up 400%. The income for the bottom 50% has dropped 33%. The tax rate collections on the top 1% have, of income, were 42% in 1960, in other words 42% of the income of the top 1% went to taxes, today it’s 17.6. Tell me that trickle-down economics isn’t a disaster.
Stephen Moore: Well thank you for calling me one of the godfathers of supply-side economics, I wrote a book on this. Look, I have a total different interpretation of these numbers. I think if you look at the, three of the biggest boom periods of the last century there was clearly the 1920s and the 1960s and the 1980s, Kennedy, who President Obama talked about, was a supply-sider. He was the one, remember Thom, who proposed a 30% across the board tax rate reduction which was enacted after his death.
Thom Hartmann: Actually if I may correct you, Stephen, because I just, I have to, every time a conservative comes on and quotes Jack Kennedy, I just have to point out that’s not what Jack Kennedy said. Jack Kennedy, in that debate with Richard Nixon, and this was, and he was consistent in saying this and I defy you to find any clips or any legislation that says the opposite, says that he wanted to see tax changes that would result in increased revenue. That he was in that class that was in the 91% tax bracket and nobody he knew was paying that and he wanted to close the loopholes, reduce that level down to 74%, but he didn’t think that more tax was going to come in because he was lowering taxes. He was actually raising taxes on the rich. And he went on to talk about how he would spend that extra money.
Stephen Moore: That’s right. You and I totally agree, what Kennedy said is, I remembered the exact quote from his speech in a New York’s Economics Club a few weeks before he was assassinated. He said, “It is a paradoxical truth that tax rates are too high in America today and tax revenues are too low. And the best way to increase the tax revenues is to cut the rates now.” That was true in the 1960s, it proved to be true, it was true when Reagan…
Thom Hartmann: Okay, here’s, here is his…
Stephen Moore: We’re not going to get any more revenues by trying to raises taxes on the rich. It’s just not going to work.
Thom Hartmann: NO, here is his quote, here is Kennedy in his own words, right here.
Jack Kennedy: Yes I have stated in both the debates and state again that I believe in a balanced budget and have supported that concept during my 14 years in the congress. The only two times when an unbalanced budget is warranted would be during a serious recession, and we had that in ’58 and an unbalanced budget of 12 billion dollars, or a national emergency where there should be large expenditures for national defense, which we had in World War II and during part of the Korean War.
Thom Hartmann: And then he says:
Jack Kennedy: Third I think it’s possible to gain 700 million to a billion dollars through tax changes, which I believe would close up loopholes. On dividend withholding, on expensive accounts.
Thom Hartmann: And then he talks about how he’s going to spend that money, that billion dollars.
Jack Kennedy: So in my judgment, we would spend more money in this administration on aid to education, we’d spend more money on housing, we’d spend more money and I hope more wisely on defense than this administration has done. I believe that the next administration should work for a balanced budget and that would be by intention. This to mix in the states might think it’s constantly which of course is right. But the fact of the matter is where is where I stand and I just want to have it on the public record.
Thom Hartmann: He wanted to balance the budget by raising tax revenue.
Stephen Moore: True. But if you look at what he did, there’s no question, he cut the top income tax rate from 91% to 70%.
Thom Hartmann: By closing the loopholes, as I pointed out. You have the top…
Stephen Moore: I’m in favor of that.
Thom Hartmann: So you want to go back to when the top 1% were paying 42% of their income in taxes?
Stephen Moore: In 1986 we did exactly that under Reagan. We got rid of all the loopholes, not all of them, but a lot of the loopholes in the tax code, and we cut the top tax rate to 28%. And by the way that passed like 97 to 3 in the United States senate.
Thom Hartmann: I know, a lot of people were drinking that Kool-aid. And the consequence of that was that you tripled the national debt.
Stephen Moore: But Thom. Tax reform…
Thom Hartmann: That is not what Kennedy was talking about.
Stephen Moore: All my liberal friends like you, Thom, say we’ve got to reform the tax system. I am all in favor of it. Tax reform means lowering the tax rates and getting rid of the loopholes, not raising the tax rates. That only makes tax loopholes all the more valuable.
Thom Hartmann: You know, Stephen, if our tax rate right now was 91% as it was when Jack Kennedy said those words, I would agree with you. Let’s take it down to 74%. But the top tax rate right now, that is paid by capitalists, the capitalist gains tax, which 50% of all the capitalist gains income taxes paid in the United States, are paid by the top 1/10th of 1% of Americans. And that top tax rate, the TOP tax rate is 15% right now, as you well know.
Stephen Moore: Yeah but what you’re missing Thom, what you’re missing is that that is all the money that gets invested in the economy.
Thom Hartmann: No it’s not.
Stephen Moore: What I don’t understand about liberals…
Thom Hartmann: That’s the money that those people use to put in their Swiss bank accounts.
Stephen Moore: No it’s not. They don’t put it in Swiss bank accounts. Some of them do and if that’s the case it should be taxed. But I’m talking about if you want to suffocate businesses, you’re going to raise the capital gains and dividend tax rate. That’s going to be…
Thom Hartmann: So you are saying that Ronald Reagan, who proposed, Stephen in ’86 Reagan proposed that the capital gains tax, the capitalist gains tax, should be identical to the wage income tax, the same way it was. You realize, the first president who carved out a separate and lower tax rate for capitalists was Harding in 1921. Prior to that the two tax rates were the same. And Reagan said they should be the same and made them the same for one year in 1986. Are you suggesting we go back to that? That we raise that capitalist gains tax from 15% up to the 35% of the regular wage?
Stephen Moore: No. If we could get, the deal was, we raised the capitalist gains tax, which I think was a mistake in exchange for lower rates on personal income. If we can get the top tax rate down to 25% or so, yeah.
Thom Hartmann: If it was a mistake why was Reagan in favor of it?
Stephen Moore: Because here’s the thing that you’ve missed about this, Thom. The capital gains tax is a double tax. Just like the dividend tax. The dividend tax…
Thom Hartmann: All taxes are double taxed Stephen.
Stephen Moore: The corporate income is already taxed at the corporate level, then you tax it when it’s passed onto the shareholder so…
Thom Hartmann: Do you think that the paycheck that my employees get is coming, has, that that money has not been taxed before they get it?
Stephen Moore: Well I’m not sure what you mean. I mean there’s so many multiple…
Thom Hartmann: Corporations pay taxes. I mean there’s no such thing as, this double taxation thing is a canard and you know it.
Stephen Moore: No but Thom, you know this too, that corporations can deduct their payroll, so they’re not paying a double tax. Corporations can’t deduct their divident payments.
Thom Hartmann: And it’s a fine thing that…
Stephen Moore: But they do deduct their wages and salaries we pay. So it’s not a fair comparison. But my only point is, look, I think you and I, Thom. We care about the middle class, we care about growing this economy, we care about growing jobs. And what I disagree with, about the president and your model, is somehow that by raising taxes on the people who do the investing, who start the businesses, who are the ones who are the risk takers, that somehow that’s going to make our economy healthier. I just don’t see how that adds up.
Thom Hartmann: That their labor is more valuable than the people who are actually doing the work.
Stephen Moore: I think, I think they’re both valuable.
Thom Hartmann: What could anybody do that could possibly justify a salary of a million dollars a day?
Stephen Moore: If you’re talking about somebody like Fred Smith who owns and operates a company that has hundreds of thousands of workers, yeah I don’t have a problem with paying that guy a million dollars or ten million dollars or a hundred million dollars. But you know what I do disagree with. Paying members of congress 150,000 dollars and they don’t do squat.
Thom Hartmann: But a person who is saving people’s lives. But a physician, a person who is saving peoples’ lives, they shouldn’t make 100 million dollars.
Stephen Moore: I don’t know if they should or shouldn’t but I don’t think you should make that decision or me, that should be made by the free market system.
Thom Hartmann: Okay well now we’ve started a whole new argument about what’s a free market. Which we’ll have to save for another time. Stephen Moore, it’s always interesting and enjoyable talking with you. Thank you for dropping by.
Stephen Moore: Thank you Thom, talk to you soon. Topics.WSJ.com.