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Does the American Economy Need a Tax Cut?Aired March 13, 2001 - 7:30 p.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BILL PRESS, CO-HOST: Tonight: Taking stock of the economy. With jitters on Wall Street and low retail sales, do we need an even bigger tax to keep the good times rolling?
ANNOUNCER: Live from Washington, CROSSFIRE. On the left, Bill Press. On the right, Robert Novak. In the CROSSFIRE: Democratic Congressman Sander Levin of Michigan, member of the Ways and Means Committee, and Republican Congressman Joe Scarborough of Florida.
PRESS: Good evening. Welcome to CROSSFIRE. Have you checked your 401(k) lately? Don't. Just fasten your seat belt and get ready for what looks like a wild ride. The stock market taking a deep dive yesterday, bouncing back but only mildly today. And some Wall Street gurus say we haven't seen the bottom yet.
But here in Washington on Pennsylvania Avenue, both Republicans and Democrats seized on the market drop as proof for or against President Bush's tax cut. Democrats saying it proves the tax cut is too big and won't come soon enough to help. Republicans arguing it proves we need an even bigger tax cut than Bush is proposing.
And so, once again, politics becomes all about the economy, stupid. Is the market slump a good reason for a tax cut? If the economy continues to fail, will it hurt George Bush politically -- Bob.
ROBERT NOVAK, CO-HOST: Congressman Levin, welcome.
REP. SANDER LEVIN (D), MICHIGAN: Glad to be here.
NOVAK: You know, I sometimes feel that the Democrats don't understand exactly what's happening in the economy. They seem to be saying crazy things like President Bush is talking down the economy.
So, we have collected, at some expense, an analysis by one of the really brilliant economic analysts I know. His name is Rick Santorum. He's a senator from Pennsylvania, used to serve with you in the House, I believe.
LEVIN: On the Ways and Means Committee.
NOVAK: On the Ways and Means Committee. I knew you knew him. Let's hear what he has to say.
(BEGIN VIDEO CLIP)
SEN. RICK SANTORUM (R), PENNSYLVANIA: What we're seeing out there is a real drop in consumer confidence. We're seeing a drop in corporate profits. We're seeing all the signs of an economic slowdown, and the impact of that psychologically on American, I think is -- can lead us even to further slowdowns in the economy because of consumer confidence. And as a result of that, I think the prescription right now is even more evident, and that is to reduce taxes and do it now.
(END VIDEO CLIP)
NOVAK: What can you disagree with that?
LEVIN: Well, because it isn't going to bring a stimulus.
NOVAK: Do you agree with the analysis?
LEVIN: No, no, it won't bring a stimulus.
NOVAK: I mean with the analysis of the economy.
LEVIN: Well, the economy is in trouble. I don't think it's in as deep trouble as some say, but it's in trouble. But this package won't stimulate the economy.
When the secretary of the treasury was in the confirmation hearing, he said he wasn't going to make a huge case that a tax cut would stimulate the economy. The tax cut proposed, and I'm for a responsible, not this irresponsible tax cut, what would be done the first year of this tax cut would be maybe five to six billion dollars for people in a $10 trillion economy. That's not going to stimulate the economy.
NOVAK: Congressman Levin, maybe you and I don't disagree as much as you think, because you know the idea of Jimmy Carter. He wanted to put $25 out to every American, as if that was going to do any good. What we really need, don't we, is more tax cuts in the upper brackets and more tax cuts on capital gains so that people who invest will have more money to stimulate the economy, not giving a few extra bucks to people to buy toasters.
LEVIN: No, I don't think either works. I don't think giving the very wealthy most of the tax cut, which is in this proposal will help. What passed the House just last week, 60 percent of the tax cut would go to the upper 10 percent. Not only isn't it fair, but it won't stimulate the economy.
NOVAK: You don't think they'd invest with that money?
LEVIN: No, I didn't think that they would necessarily give a tremendous boost to the economy. No, I think what we need is continued fiscal responsibility. That's what brought us to where we are before this downturn, and now we should not turn away from fiscal responsibility and that's what the Republicans are proposing.
PRESS: Congressman Scarborough, good evening. Good to see you here, too.
REP. JOE SCARBOROUGH (R), FLORIDA: Good to see you, too, Bill.
PRESS: I could agree with Senator Santorum. There's a drop in consumer confidence. The question is where does it come from, and I've been wondering about that because last spring, consumers had a lot of confidence in this market. Last summer they did. Last fall started to get shaky, but the economy was still pretty strong. What happened?
I think Senator Harry Reid from Nevada put his finger exactly on what happened to shake consumer confidence. Here is Harry Reid yesterday from the Senate gallery.
(BEGIN VIDEO CLIP)
SEN. HARRY REID (D), NEVADA: I think where all this started was during Bush's campaign or shortly thereafter when he kept bemoaning how bad the economy was. It was pretty good until he started talking.
(END VIDEO CLIP)
PRESS: Right. Pretty good, until he...
PRESS: ... wanted to talk down the economy to make a case for his tax cut and he's finally succeed, hasn't he, congressman?
SCARBOROUGH: Boy, I tell you what, this sets the record. We don't have to wait 12 years for Reaganomics or whatever. Like 12 weeks into it, we now have Bushanomics. I mean, this is unbelievable where Harry Reid could try to pin this on George Bush. That's like trying to pin earthquakes in India on George Bush.
The fact is the economy started to dip last year. Alan Greenspan recognized it. Alan Greenspan hasn't come to the Hill and talked about the need for reducing interest rates and reducing interest rates, and he's going to do it again, I'm sure, in the coming weeks, because of what George Bush is saying.
He's saying it because he's looking at the same numbers that George Bush is looking at, and we do have a big economic problem. The Nasdaq started turning down last year when Klein went after Microsoft, when the Federal government decided to bust up Microsoft and attacked them savagely for creating an economic boom.
LEVIN: What a far reach that is. What a far reach.
SCARBOROUGH: You actually need to talk to Lou Dobbs, who actually talked about that this morning, that you can start to trace Nasdaq's fall then. The economy has followed, and we've had some economic problems. PRESS: Now, you mentioned Alan Greenspan. One of the things that Alan Greenspan is not saying is that we need a tax cut or that a tax cut will stimulate the economy, and part of the reason is looking at the information that Congressman Levin mentioned, here's the outline of this tax bill from the Ways and Means Committee.
In the first year, there is six-tenths of the 1 percent of the $1.6 trillion that would be seen. In the first five years, there's only one-third of the tax cut. The most of it, Joe, is six to 10 years out there. It's never going to come in time to stimulate this economy. You have to admit that.
SCARBOROUGH: And let me tell you this: Just like Bob could agree with the congressman, I can agree with you. We need more tax cuts, and I think we should all hold hands here together, and pledge that we front-load them. I want to make it retroactive. Like the Senate, I want to put capital gains in there.
Listen, we've got to do a couple of things. We've got to push a tax cut through. I think that matters for consumer confidence. Everybody here knows consumer confident is down. It's been done for a while.
Secondly, Alan Greenspan needs to step forward. We need to get a half-percent or even a full percent cut on the interest rate, and it'll get the economy going again.
LEVIN: Here's trouble with that. This tax cut proposal already eats up 75 percent of the projected surplus, and that's just a projection. We used to say last week, that's absolutely right, Bob.
LEVIN: Let me finish. Let me just finish. Last week we said projected surpluses were like the weather reports. This week, we're saying those projected surpluses are like the stock market projections. They're built on sand, and look, after you take out Social Security and Medicare from the $5.6 trillion, you get down to about $2.5 trillion.
This tax cut would start off at $1.6. You add $400 billion for the increased interest costs, you get $2 trillion of the $2.5 trillion. Bob, you and I are old enough to remember our math, that's 75 percent of the projected surplus.
SCARBOROUGH: You talk about some fuzzy math.
NOVAK: That's fuzzy math.
SCARBOROUGH: Listen, I went to University of Alabama undergrad, but 75 percent of $5.6 trillion...
LEVIN: No, no, no, Don't include Social Security and Medicare.
SCARBOROUGH: And you guys are starting to play now with that $1.6 number. Pretty soon it's going to be three or four trillion.
NOVAK: Anyway, the $5.6 trillion is an underestimate, anyway, of what the surplus is going to be, and I guarantee it.
LEVIN: You guarantee it, Bob?
NOVAK: I do.
LEVIN: Take that to the bank.
NOVAK: Congressman Levin, I know what you fellows are doing. I've been around a long time, and you put out all these big numbers, you scare people with Social Security and Medicare, but I want to concentrate on some little numbers. And I want you to listen to what our president said when he went to Chicago the other day.
Let's listen to it.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: When we cut that top rate from 39.6 percent to 33 percent, we're sending a loud and clear message that the entrepreneurial spirit will be reinvigorated as we head in the 21st century. Small business is the backbone of the country.
(END VIDEO CLIP)
NOVAK: Now, congressman, back in 1986 when the tax bill went through the Ways and Means Committee, the great chairman Dan Rostenkowski (UNINTELLIGIBLE), do you remember what the top rate was? It wasn't 39. It wasn't 33. Do you remember what it was? It was 28 percent.
NOVAK: Twenty-eight percent. Don't you think 33 percent, putting that -- that is so much. Ordinary Americans can't conceive of the government taking 39 percent of their dollar. Don't you think that is just a modest cut?
LEVIN: Look, first of all, very few people pay 39 percent. That's the top rate after people pay a lower rate on other parts of their income. Very few taxpayers pay 39 percent, No. 1. No. 2, look, we've had a 39 percent rate, and I favor cutting the rate, but down to 33 percent -- what it does is tilt this tax proposal very much in favor of the very wealthy.
It is unassailable that under the Bush plan the upper 1 percent would get 43 percent of the tax cut. That isn't fair and it isn't economic...
(CROSSTALK) That's absolutely true.
SCARBOROUGH: Do you want to know the truth? And I mean, and I heard 10 percent gets 60 percent. Bottom line is the upper 1 percent -- who create jobs, economic opportunity -- forget all the class warfare arguments, they pay about 43 percent of the taxes. The top 10 percent...
LEVIN: Not of the taxes...
SCARBOROUGH: Income tax. The income tax, which...
LEVIN: The people -- but remember, we're talking about...
SCARBOROUGH: And then the top -- and then the top 10 percent are paying like 60 or 70 percent. These are the people that go out -- and I don't understand when it became un-American to go out, work hard, create jobs, economic opportunity and growth, only to get pounded on the floor of the United States Congress for being successful.
LEVIN: No one's pounding.
SCARBOROUGH: Yes. Oh my god, that's all you guys do...
LEVIN: No, no, no. Look...
SCARBOROUGH: ... talk about class warfare.
LEVIN: Nonsense, nonsense.
SCARBOROUGH: You have a campaign -- you have a campaign against this tax cut, and it's been based on class warfare and people that have worked hard and been successful.
LEVIN: It's not a stimulus, No. 1. No. 2, there's no budget, Joe. You voted for a tax cut without a budget. That's fiscally irresponsible.
SCARBOROUGH: I love being lectured by Democrats on fiscal responsibility.
LEVIN: Well, look, and we passed -- in 19...
SCARBOROUGH: It's about time.
LEVIN: I know it. And in 19 -- 19...
SCARBOROUGH: Say 1993.
LEVIN: Yes, 1993 and...
SCARBOROUGH: ... largest tax cut ever.
LEVIN: ... and before that... PRESS: One at a time, please.
NOVAK: Largest tax increase.
LEVIN: We voted...
SCARBOROUGH: See, that's how you guys do it. You do it by raising taxes.
PRESS: He was making a point. I think he has a right to finish.
LEVIN: Look, look...
LEVIN: A number of you made the argument in 1993, including Dick Armey, that it would be the end of world if we passed that. What we did was to put fiscal responsibility first. And what happened after 1993? We had this era of fiscal sanity and this era of prosperity, and now you're going to turn it on its head.
SCARBOROUGH: I've got to answer that.
NOVAK: One last word, quickly.
SCARBOROUGH: Democrats consider something fiscally responsible by raising taxes.
LEVIN: That's not true.
SCARBOROUGH: Yes, you did it -- you just bragged about it...
LEVIN: We had deficit reduction.
SCARBOROUGH: We do it by cutting spending. Democrats do it by taxes.
NOVAK: All right, we've got to take a break.
Congressman Levin will be in the chatroom right after the show. So make sure to join him by logging on to cnn.com/crossfire.
And when we come back after this break, we're going to find out if the Democrats are right that when the rich get a tax cut they run out and buy a Lexus.
NOVAK: Welcome back to CROSSFIRE.
As wealth is lost in the stock market, congressmen debate whether the Bush tax cuts will help. Democrats claim it will just enable the rich to ride around in a new Lexus. But is that just class warfare that doesn't have anything to do with restoring full prosperity?
We're asking Democratic Congressman Sander Levin of Michigan and Republican Congressman Joe Scarborough of Florida -- Bill Press.
PRESS: Congressman Scarborough, I think all this talk about the tax cuts we're missing maybe the real message here, you know, when -- which is the other part of President Bush's plank: privatization of Social Security. When he started talking about that last May, the Nasdaq was up about 4,000, the Dow almost 12,000. Everybody said this has got to be a great idea because the market's a sure thing.
Oops. I mean, what happened? Yesterday sure knocks the hell out of that argument, doesn't it?
SCARBOROUGH: Well, I don't think so. I mean, I think -- I don't think George Bush was ever saying that you need to invest in penny tech stocks or Yahoo! or anything like that. I mean, obviously, what he's saying is we have to have a bipartisan commission like Senator Breaux had back with Medicare. We have to understand that there's going to a crisis when senior citizens retire. Despite all the demagoguing in the campaign, despite all the Ed Asner phone calls trying to scare senior citizens in the state of Florida, we have a problem.
I mean, demographics is destiny. Baby boomers are retiring. And we can't simply allow them to get 2 percent return on their money. We can do better than that. And we can do it with wise, safe investments.
PRESS: But wait. You're telling me that you're going to tell me how I can invest my money? I can't invest my money the way I want. If I want to invest my money in the market a year ago, let me tell you something, Amazon looked like a damn good buy. It was 216. Today it's less than 16.
Pets.com looked like a good buy. It doesn't exist anymore.
SCARBOROUGH: Well, you see -- but you see, Bill...
PRESS: What if I had put my money in that? I would be wiped out and coming to you for a safety net.
SCARBOROUGH: The difference between you and me is that you're a liberal Democrat, so we're not going to allow you to invest...
PRESS: Oh, I buy tech stocks, I'm a liberal Democrat.
SCARBOROUGH: No. No, bottom line is really he never suggested that people be totally free...
NOVAK: That's a white elephant.
SCARBOROUGH: ... to invest in whatever they wanted to invest in. It has to be safe. He always said it had be safe. We have to a rational approach, he always said that. And it needs to be one step at a time.
LEVIN: He never said -- Joe -- Joe, he never said that you could you not invest in high-tech stocks.
NOVAK: Yes, he did. He said -- he said there was a limited number of...
LEVIN: A limited -- no, no. But he never said that you would exclude high-tech stocks.
NOVAK: No. He said no -- no...
LEVIN: And let's be frank about it. The dip in the stock market puts a big hole in the privatization of Social Security.
NOVAK: Well, you are -- you were against it when the market was going up, you're against it when it's going down.
Now, I want to get back, just one more time, the whole idea of my good friend, Senator Tom Daschle, the Senate Democratic leader, bringing out a Lexus -- he didn't bring out an American car -- saying that if the rich get a tax cut they'll buy a Lexus, if the poor get a tax cut they buy a muffler.
You know, that is so crazy. And I'm going to get some testimony from a multimillionaire, the secretary of the treasury, former CEO of Alcoa, Paul O'Neill.
Let's see how he referred to the Lexus gimmick.
(BEGIN VIDEO CLIP)
PAUL O'NEILL, TREASURY SECRETARY: What you saw with the Lexus analogy is so false. To me, it demonstrates a detachment of some of our political spokesmen from what people do in their real life. Higher-income people are going to reinvest the money in the economy. They don't need another car.
(END VIDEO CLIP)
NOVAK: That's exactly right. I mean, a guy like Paul O'Neill, I mean, he's got all the cars he wants.
LEVIN: But by the way, by the way...
NOVAK: That's so dumb. LEVIN: ... don't quote him when you like him and not when you don't. He said it was not -- he wasn't going to make a huge deal out of the argument that a tax cut would stimulate the economy.
But let me say a word, I'm not in favor of class warfare against high-income families. I'm not in favor of class warfare, though, against middle- and low-income families. We need a tax cut that's for...
NOVAK: I want you to respond to what Paul O'Neill said.
LEVIN: I will. The answer is we got to where we did through fiscal responsibility. We did, Bob...
NOVAK: You're not responding.
LEVIN: No, no, we are. I am. We went -- we got where we are today because we were careful, we had prudent tax cuts, we had prudent budgets, we did not pass tax cuts without a budget, and we do not pass tax cut based on speculative projections that threaten Social Security and Medicare. You talked about Social Security...
SCARBOROUGH: I hear you...
LEVIN: ... and it does that.
SCARBOROUGH: I hear you talking about fiscal responsibility, and all I remember back -- it was 1995 and 1996, when we were fighting hard to balance the budget.
You know, when I was sworn in, in 1995, we had $280 billion budget deficit. The Dow was at -- what -- four, 5,000 points. You know, we fought the president, he vetoed nine appropriation bills, he shut down the government. We were the ones who were fiscally responsible. Democrats said, and I quote: "This is going to cause the poor to be thrown out in the streets, it's going to wreck the economy." And once we sell real fiscal economy, the economy exploded.
NOVAK: We're almost out of time. I got to get -- one question: you used to be a big populist, for the ordinary people, what do you think of your chairman of the Federal Reserve Board? Isn't he responsible for much of this by tightening the economy, by pushing up interest rates? Don't you think that his failure to understand what is happening in the economy, and reduce interest rates faster is real reason for this economic turndown?
LEVIN: No, I think there are lots of reasons for this turndown.
NOVAK: You don't criticize Greenspan?
LEVIN: No. I think there are lots of reasons. We've reduced interest rates, and we'll probably reduce them further, but there are lots of other reasons -- we just went off, I think, on kind of a binge, buying stocks, thinking that this period would never end, and the answer to it is to maintain, Joe, fiscal responsibility...
LEVIN: You talk about keeping spending in hand? I say yes, let's pass a budget so we know what we are doing with the tax cut, and let's not go wild without a budget. Let's not go on projections, Joe, that everybody knows may be way off, like the stock market is. That's not fiscal responsibility.
SCARBOROGH: So, why do Democrats -- why are Democrats willing to look at projections when we're on the spending side, but never when we want to give Americans their tax dollars back?
PRESS: We will leave that question hanging out there, because we don't have time for an answer. Congressman Levin, thanks so much for being here, Congressman Scarborough.
SCARBOROGH: Bill, you are a nice guy.
PRESS: Good to have you back. I'm not a nice guy, don't tell me that. Bob Novak...
SCARBOROUGH: Just shake my hand!
PRESS: I will in a second, let me do my job!
We'll be back, Bob Novak and I, with closing comments. We will tell you just how big a tax cut you are going to get and who is going to get it.
PRESS: Don't miss your chance to chat with Congressman Sander Levin by jumping into our CNN CROSSFIRE chat room at cnn.com/crossfire, right after the show.
You know, Bob, I can make a cheap shot about the second Bush recession, but I won't. I just want to make a non-political statement. I remember the Dow when it was at 4,000, I see it now, I want it back to where it was, and the Bush tax cut ain't got nothing to do with it.
NOVAK: Well, I would like to change the Bush tax cut, maybe we can agree on something for once.
What we need is more money -- more tax cut in the upper brackets, we need more of -- we need a capital gains cut, certainly, and I agree with secretary of the Treasury O'Neill, we need a cut in the corporate income tax, and then you will really have money in the economy.
PRESS: Bob, there will never be enough tax cuts to keep you happy. What we need is a cut in the interest rate, and Alan Greenspan is going to deliver it, and he'll fix it.
NOVAK: Why is he so slow?
PRESS: He's got to wait until the meeting.
NOVAK: Oh, come on.
PRESS: From the left, I'm Bill Press...
NOVAK: Does he have to wait?
PRESS: Good night from CROSSFIRE. See you in the "THE SPIN ROOM" later tonight.
NOVAK: From the right, I'm Robert Novak. Join us again next time for another edition of "CROSSFIRE."
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