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YOUR MONEY

How Shall U.S. Trade with China?; Will Obama Manufacturing Proposals Work?; Is U.S. Tax Code Working?

Aired February 19, 2012 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


ALI VELSHI, CNN ANCHOR: The list is long. Jobs, China, debt, the housing crisis, all of these are threats to the U.S. economy and we've got to figure out what to do about them.

I'm Ali Velshi. Welcome to YOUR MONEY.

Let us start with China. Why? Because the man expected to become China's next president, Xi Jinping met with U.S. leaders this week.

Vice President Joe Biden made it clear to his Chinese counterpart the United States is ready for the challenge.

(BEGIN VIDEO CLIP)

JOE BIDEN, VICE PRESIDENT OF THE UNITED STATES: As we've discussed, the United States and China will continue to compete. And as Americans, we welcome competition, it's part of our DNA and it propels our citizens to rise to the challenge. But cooperation, as you and I have spoken about, can only be mutually beneficial if the game is fair.

(END VIDEO CLIP)

VELSHI: Perhaps we welcome competition, but are we ready for it? Business Professor Peter Navarro is the author of the book "Death by China."

Peter, Vice President Biden says the U.S. welcomes competition. You say China is using in your word, quote, "weapons of job destruction against America." What is that and what needs to happen for the U.S. to at least compete fairly with China?

PETER NAVARRO, AUTHOR, "DEATH BY CHINA": We've had 10 years now, since China joined the World Trade Organization, of unfair trade. The weapons of job destruction are pretty clear. There's five of them. You start with currency manipulation. The undervalued currency acts as a huge subsidy for Chinese goods coming in and a huge tariff on our products to China.

You have illegal export subsidies which are flat out banned by the WTO. IP theft, intellectual property, counterfeiting and piracy is absolutely rampant. If an automobile or pharmaceutical company basically has its IP stolen, that's basically a cost disadvantage. And the last two, environmental pollution and worker abuses. You have 16-hour days, seven days a week at the iPod factory. And you've got the horrific pollution in China that acts as a huge cost advantage for Chinese producers.

It's unfair competition. We don't welcome that, Mr. Biden. We don't welcome that at all. What we welcome is fair trade.

VELSHI: Let me ask you this, though. If you addressed all of those five issues, if, would China not still have a wage advantage over America?

NAVARRO: Wage advantage is really irrelevant because it's such a small part of the product. That's something that's really misunderstood. The fact of the matter is, the numbers are clear. We've lost over 50,000 factories to China, over 6 million jobs, and over 15 million jobs total because of their unfair trade practice.

People in America understand that we can compete with anybody in the world, we can compete with low wage countries because we're much higher productivity. We have the technology and the equipment basically to compete fairly.

This is the single greatest problem facing America right now. The White House and Congress has misdiagnosed our economic problems and what we should be doing is trying to balance our trade and getting China to play fair.

VELSHI: All right. Mohamed El-Erian is the CEO of PIMCO, a good friend of our show.

Mohamed, we have talked constantly about the rise of China, and here is a look at exactly what we're talking about. Growth and projections of growth, according to the International Monetary Fund, show China growing rapidly, much faster than the U.S. economy, even though you see the Chinese growth slowing down between now and 2013, and you see U.S. growth actually increasing.

The bottom line is look at the difference. In terms of size of economy, however, the U.S. is still number one, China is number two, depending on how you measure the European Union. Mohamed, you say that the U.S. has got to establish sustainable economic growth.

What is this China effect on U.S. growth?

MOHAMED EL-ERIAN, CEO, PIMCO: Ali, what you've just shown and what Peter spoke about, we're going to be talking about this for a long time. And there's a simple reason. For the first time ever, ever, the world has to accommodate a systemically important country that is a low-income country.

We haven't had this before. Normally when you become systemically important, when you start influencing what happens elsewhere, you tend to be a high-income country. Not this time.

Because China is so large, it's getting there very early on and, therefore, there's a fundamental conflict between its domestic objectives and its global responsibilities. And until that gets resolved, China will have problems accommodating the global economy and we're all going to be talking about this for a quite a long time.

VELSHI: Diane Swonk is the chief economist at Mesereau Financial.

Diane, the U.S. lost 8.7 million jobs as a result of the recession. And with the jobs recovery picking up steam we've regained 3.1 million jobs since the low point, but we've got a long way to go, 5.5 million Americans have been out of work for six months or longer.

And this persistently high unemployment is a threat to the American way of life, and that goes from everyone from high school dropouts to college graduates. This problem, what's the connection between our jobs, our manufacturing, our recovery, and this issue of China?

DIANE SWONK, CHIEF ECONOMIST, MESEREAU FINANCIAL: It's interesting. I think Mohamed makes some of the most important points of China being a big country but a very poor country. Even as they become the size of the United States in economic output, they'll still have one-fifth per capita income. And that's very important because we've not had that sort of duality.

What we're also seeing in the U.S. is a major shift related to what Peter talked to, intellectual property. The wages don't matter as much. Many companies I'm seeing come back into the United States now, and a lot of companies from Germany setting up in the United States now, in the manufacturing sector, particularly the auto sector, saying, listen, we lost our intellectual property, if we've got an advantage and all of a sudden they set up a plant next door to us and steal that advantage overnight, we want to come back.

And the cost of that loss of intellectual property are causing on-shoring now, people coming back to the United States. But the volume of jobs are not there. As Peter accurately pointed out, very high productivity growth jobs, and they're jobs that we've not trained people for.

This gets into the issues of community colleges working with the automakers to accelerate three-year apprenticeship programs in Germany and actually bring them to the United States. But the last issue I think is most important and you alluded to it in your comments to me, Ali, because you know what I'm working on now, and that's the cumulative effects of what we've gone through in this great recession.

By having so many people out for so long, the damages we're seeing to earnings potential not only of those people who lost their jobs, but to their children, and even college grads who get jobs in this economic environment is lower today than the earnings potential just a few years ago.

VELSHI: This is important, which means --

SWONK: And that's generational. VELSHI: Right. So this means that a whole lot of people, even if things were to start going better for them right now, will end up over the course of their lifetime, and the course of the economy that they live in, putting less, earning less money, saving less money, investing less money, putting less money into the economy, which means we need structural shifts.

And that brings me back to you, Peter, because while you articulate the issues very clearly, I have heard those issues enunciated by the president, by corporate leaders, by all sorts of people, the issues specifically that you talk about.

What is the solution? What is preventing us from dealing with those five problems with China that would make it a fairer place to business with?

NAVARRO: Ali, let's start with the corporations, the multinational corporations, GE, Apple, Caterpillar. These are the companies that are making money hand over fist in China. They're the very same companies that provide the campaign contributions to the White House, to the Congress.

And so we get the rhetoric of change from our politicians but don't get any action. For example, the currency manipulation bill the House passed, but Boehner and the Senate said no. These are the kinds of things that are going on.

Now, I think it's time right now for consumers in this country and citizens to take control of this situation because the politicians have refused. What we need to do is stop buying "made in China." I'm not saying stop buying foreign goods. I'm saying stop buying "made in China" until they play fair.

(CROSSTALK)

VELSHI: But what do you mean when you say that, though, Peter? Because I would be standing here stark naked with no electronics if I were to do that.

NAVARRO: That's a scary thought, Ali.

SWONK: It is a scary thought, as much as we all love you, Ali.

NAVARRO: But here is what I think has to happen, when we walk into a Walmart or a Target or whatever store we do, we need to -- we need to look at the label first. When we see that it's made in China, we have to first of all think about our job. Because they're not playing fair. They're costing us our job.

We also have to think about product safety because a high percentage of the products that are bad are from China. And the third thing we really haven't talked about, Ali, which is really important, is that the money that we are paying at Walmart right now is going to finance -- is financing one of the most rapid military buildups we've seen in a long time, by a totalitarian country. So, consumers, I know it will be hard, but consumers have to take control of this. The White House, if it's sincere, needs to brand China a currency manipulator.

VELSHI: Yes, it's --

NAVARRO: Obama promised to do that on the campaign trail in '08.

VELSHI: It's a good conversation, Peter. And we will have it. We'll have to have it separately. Because consumers also like the fact that Walmart has given them some of the cheapest goods that they have had in decades.

But let's continue this conversation. I want to talk about that other conversation you were having a little later. Diane, Mohamed, Peter, stay where you are, because there is -- despite this conversation about China, there is a true rise in optimism in the United States. Is it justified? I actually think it is.

But we'll take a closer look and discuss it with this great panel next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: From economists to voters the message to Washington is clear, don't mess up the recovery. We've seen markets and jobs in particular on the rise. The number of Americans who think things are going well in this country has steadily risen as well, from 25 percent in November, look at that, to 40 percent today.

That's a big deal. Mohamed, I know you are worried about a return to what you call, quote, "harmful and dysfunctional congressional economic debates," the kind we saw last summer. I think we are all with you on this. That was a low point for all of us.

We saw the harmful effect of that debate on America's standing with credit rating agencies. But in a contentious election year how important is it, Mohamed, for the recovery that politicians do not further erode the public's growing sense of optimism?

EL-ERIAN: It's very important, Ali. So the good news is that we have momentum. You see it in the labor market, in the housing market, in the manufacturing number, in the confidence number. So we must not do anything that slows this momentum.

What could slow this momentum? First, more political dysfunctionality. So please, Congress, don't do it again. Second, problems in Syria and Iran that continue to put pressure on oil prices. Third and most importantly, we need this policy handoff.

So what we are talking about earlier, it's not just about China, our housing market isn't functioning properly. As Diane said, our labor market isn't functioning properly, our credit markets aren't functioning properly. These are all steps that we can take today to fix. It's not an enduring problem.

So we need this momentum to continue to build and we need to reduce the headwinds that are coming from outside, including the headwinds that's created in Washington, D.C.

VELSHI: Yes. I think we're all -- we'd almost --

SWONK: We all know there's a lot of hot air in Washington, D.C.

VELSHI: Yes, there is. And your oil comment is well taken because we saw -- while we've seen markets do particularly well in the last weekend for several weeks, we've seen oil prices start to sustain above $100 a barrel, which major oil producers have said they they'd rather keep it at $100 or lower.

America's debt is another concern, it's on the rise, so is Americans' interest in tackling the year to year deficits that add to that debt. A recent Pew Research Center survey found that the economy remains the public's top priority. That's been the case for some years now, 69 percent of Americans specifically citing the deficit as a top concern.

That is the red line that you're looking at. You can see that the other line, the yellow line, is terrorism, but the economy in general is the most important thing. The big rise in the deficit as a top policy concern has coincided with that big drop in those focusing on terrorism, the yellow line, as you can see, is headed down a little bit.

Diane, I know you say deficit reduction is a great long-term solution. You think though short term, the focus should be on more stimulus. Tell me what you mean.

SWONK: Well, it's sort of something I'm borrowing a tag from Peter Orszag, who I was on the Congressional Budget Office advisory committee when he was at the Congressional Budget Office. And his use is that he's really into long term covered deficit reduction, but near term, you don't want naked stimulus.

You don't want to just put out stimulus without thinking about how we're going to pay for things down the road. I think that's very important. There's an opportunity and a severe challenge at the end of the year: the trifecta of the tax cuts expiring from the Bush-era tax cuts, the payroll tax cuts that they just barely were able to agree upon to extend, and the sequestration coming through.

And then on the other side of it we could likely hit another debt limit which if we don't deal with these things in tandem during the lame duck Congress, we could get downgraded again in our nation's country and in our credit rating, which brings up this political instability that Mohamed refers to that can be the thread that unravels much of the progress we've made at weaving a more sustainable recovery going forward.

VELSHI: Yes, and you know, Peter, I have to say, I'm glad that Americans are concerned about debt. Public debt is one issue. Household debt is another issue. Politics allowed that to become so central to the discussion that it really waylaid us last summer.

The public says cutting the deficit is a top priority, but can we address this now without taking the legs out from under this recovery, Peter?

NAVARRO: Ali, I think it's really important to understand that this decade, for 10 years we've grown at a rate of 1.6 percent annually. In the five decades prior to that we grew at a rate of 3.5 percent. We've lost 2 percent of GDP growth a year for 10 years. That's 20 million jobs.

The best way to solve our deficit problem is not to raise taxes or cut spending. It's to have those 2 percentage GDP growth back. And to do that, what we really need to do is solve our structural problems.

Forgive me, but I think Diane is dead wrong. We do not need more fiscal stimulus. That's Keynesian solutions to cyclical problems. We have a structural problem. What we need to do is raise the investment segment of our GDP equation and reduce our trade deficit.

If we do that, we don't have to worry about the deficit.

VELSHI: Diane?

SWONK: In terms of fiscal stimulus, I'm thinking more in terms of what Ali is talking about fixing the problems in housing. We need to fundamentally deal with our foreclosure laws in housing. We need to change some laws in housing to make it easier for the market to clear. We now have got a market that's overshooting in the housing market.

I do not support -- I do support changes to the tax laws that make them simpler and eliminate many of the high-end deductions for second homes and things like that. That's just not productive for our economy.

I think it's very important to understand part of the reason that we had slower growth is because we had rising deficits which were crowding out investment in our future among a lot of other structural problems.

I think our structural problems with China are really a mere reflection of our own structural problems at home. We let the consumer try to dominate on debt when they no longer could, and did not invest enough in our own future through the private sector and export.

So I think we overlap in our agreement, but our solutions on getting there, getting the deficit under control over the long haul is a much easier process than having what Europe is going through now and having financial markets determine how they make those decisions and when they make those decisions much more painful.

And a sharp tax hike along with a sharp decline in spending, which is what we're set up for right now at the beginning of 2013, is not the solution for a sustainable recovery.

VELSHI: And what a fantastic discussion. I would like to continue this with the three of you when you are next available. What a smart and helpful conversation for our viewers.

Diane Swonk is the chief economist at Mesereau Financial. Mohamed El-Erian is the CEO of PIMCO. And Peter Navarro is the author of "Death by China," and a professor at U.C. Irvine. Thanks very much to all of you.

President Obama wants to manufacture a recovery by bringing back manufacturing jobs to America. But is that really the way to solve the unemployment crisis? Let's talk about that next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: American manufacturers are hiring again but the role of manufacturing plays and will play in America's future is in question. Since 1990 the U.S. shed a third of its manufacturing jobs. In the last two years, however, American manufacturers have added 400,000 jobs.

But look at that steep dropoff. You first see it in 2001. You see it again right around when we had the economic crisis. President Obama made manufacturing a key point in the State of the Union Address. This week he took his "made in America" message to Milwaukee.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We've got to seize this moment of opportunity. We can't let it slip away. We've got an opportunity to create new American jobs and American manufacturing, put that back where it needs to be.

(END VIDEO CLIP)

VELSHI: Will Cain is my good friend and a CNN contributor, and he's a conservative. And I want to ask him why, why you wouldn't agree with what the president wants to do, bring back manufacturing jobs to America.

WILL CAIN, CNN CONTRIBUTOR: Perfect. Bring it back. So here's the deal. In the big picture, in the long run, my argument is when we talk about bringing back manufacturing, we're insinuating we're bringing it back from China, or Vietnam, or Mexico.

And what I'm suggesting is you're trying to bring it back from the dead. I would ask the viewer this one little quiz. Do you think we made more steel, the United States, put out more steel in 1970 or 2007?

In 1970, we put out 91 million tons of steel a year and it took 531,000 workers to do that. In 2007, we put out 106 million tons of steel and it only took 150,000 workers to do that. We're making things in the United States, we're just not making manufacturing jobs. VELSHI: All right. Scott Paul is the executive directors of the Alliance for American Manufacturing. Scott, what Will did, and we've got other charts to show it, is make the argument for an increase in productivity.

So there are two reasons why we've lost jobs in America. One of them what is Will says. We make more stuff with less -- with fewer people because we use more machines. And the second one is that we have outsourced jobs to places where either rules or wages make it cheaper to make goods like in China. What's your take?

SCOTT PAUL, EXECUTIVE DIRECTOR, ALLIANCE FOR AMERICAN MANUFACTURING: Well, a couple of things. We've always had productivity, technology increases. It has only been in the last decade that we've seen the steep dropoff in jobs as you showed, Ali.

And the reason for that is not technology. It's China. We had a record $295 billion trade deficit with China. And I will say this, it's not because China can do it any better. There are massive state subsidies. There is currency manipulation, as Peter Navarro mentioned, and it's not a level playing field.

Booz Allen Hamilton, a respected consulting firm, did a study that found 94 percent of American manufacturing is globally cost competitive. It's just that our policies have looked towards outsourcing. Other countries fight for these jobs and they fight it for a reason, because it adds in a lot of value to the economy.

VELSHI: I just want to slow you down for a second, because you guys are making very interesting points, but I want to make sure the viewer understands exactly what you're talking about.

Because the general thinking is that if you take technology and productivity gains out of the equation, the reason we send jobs to places like China, we'll use China as the poster child for this, is because workers earn substantially less money per hour or per day than American workers do.

Peter Navarro started making this point and you're making it again, that is substantially more than that. Do you think, if we addressed all the other things, the human rights concerns, the pollution concerns, all of the industrial and the intellectual patent concerns, do you think we would not be exporting jobs to China or that we would get all these jobs back?

PAUL: Well, of course there would be global trade, Ali. And we would have imports, we would have exports. That's the way it's supposed to work. You want to have balance. That's what economics suggest that you get to. My point is that labor is less than 10 percent of most types of manufacturing. That's not the issue.

The issue is leveling the playing field on currency. It's having smarter tax policies. It's training workers. It's an investing in innovation that will be made here in the United States.

And frankly, it's for valuing manufacturing. That's why I'm glad the president is talking about it. Rick Santorum talks about it. Mitt Romney talks about it. We haven't had this national discussion for a long time. It's been like, oh, we can do financial services, the housing industry is going to take care of it, the tech bubble is going to take care of us. None of it has worked.

Let's get back to what we do well, which is making stuff. We are great at making stuff. We're the only nation in the world that actually wants to give it away. Germany doesn't want to give it away. China doesn't want it given away. We can fight for it and we can compete. We can grow jobs and we will grow output faster than we'll grow jobs. Will is right about that. But we can grow jobs too.

VELSHI: Will, should we be doing this then? Should we be working hard to level that playing field and seeing where we go? Will we create more jobs or -- manufacturing jobs, or are we where we're going to be?

CAIN: We almost have two separate conversations going, one about productivity and globalization, and also one about long term versus short term. Scott is right that over the last 10 years there has been a steep decrease in manufacturing jobs. What I suggest to you is in the very, very short term, manufacturing jobs are coming back to the United States.

Rising fuel prices have put jobs back here. When we talk about bringing them back, China has no hold on these jobs. In fact, manufacturing stalled somewhat in China. It is being pushed to places like Vietnam.

Manufacturing in the short term will always seek out the lowest wage provider. And in the long term, look, productivity is killing manufacturing, killing it dead. We -- in the United States, from 1950 to 1980, productivity doubled and manufacturing as a share of jobs went from 30 percent to 20 percent.

(CROSSTALK)

VELSHI: Well, let me ask Scott then.

Scott, and I'm not asking you whether you agree with Will, but if you take that argument at face value, why should we go through all this effort to try and get manufacturing jobs back, if, as Will says, technology productivity is still going to kill this as an industry?

CAIN: In the long run.

PAUL: Yes, well, I will say we're not going to grow back Henry Ford's factories. There's no question about that. But Apple sure as heck can figure out how to make an iPad here. It would employ less than 200,000 workers. They wouldn't have to wake them up and give them biscuits and tea. They would be highly trained engineers.

And there would be far fewer of them, but they can do it. We just haven't had that ecosystem of public policy, of private investment, or even MBAs with the attitude that we should make stuff in the United States. I think that's changing. I think that's a good thing for our country. There is no multiplier effect like manufacturing has. Let me give you an example, if you locate a Walmart in a community, it doesn't mean that you're going to attract other jobs. But if you locate a factory in that community, it means you're going get a Walmart, a McDonald's. This means you're going to get a more robust tax base. You're going to get workers that are going to spend money --

VELSHI: I mean, I hear your argument. I'm not sure I agree with that.

PAUL: -- at the hardware stores. Look, you could be a TV host. You can change bedpans. You can flip burgers. None of those are making goods that allow the United States to become more wealthy. That's what manufacturing does and it provides for national security. We can't live without it.

VELSHI: Let me ask you this, because my father would like me to ask you this, and Peter Navarro said it. He said if we all just stopped buying Chinese stuff, and I don't know if you heard me, you probably did, because you listened to Peter's interview, I said I would be naked and have no technology in my hands.

Is this a wise thing? Should we be buying local, should we be thinking not only of our country but our communities? Does that have any longer term economic effect, Will?

CAIN: No, only if you don't like progress. Look, if we adopt these attitudes that we don't want to deal with anyone outside of our world, we don't want to trade, and we don't want to -- we want to keep all our jobs locally, we're essentially taking the tack of let's protect the big buggy-whip-makers of yesterday.

Tomorrow is coming, it will be better. We'll just have different jobs.

VELSHI: Scott?

PAUL: Well, I would just say this, first of all, you wouldn't be naked. There are plenty of clothes you can find in the United States, Ali, if you look for them, in fact, made in the garment center just a few blocks from where you are right now.

VELSHI: Right.

PAUL: But on the other issue, I think it's a bigger one. And, no, I don't think we should be absolutists about trade. I don't think we should put walls up around the United States.

What I'm saying is that we shouldn't give up on manufacturing. It's smart to invest in it. It's smart for our economic future. It's smart for people who don't have four-year college degrees which is still the majority of Americans to provide good job opportunities. It's smart for our national defense. VELSHI: And, Scott, that's not a solution. The solution to that is to get everybody better education, not building industries around people who don't have a proper education

PAUL: Not everyone needs or wants a four-year college degree. And people who want to work with their hands --

VELSHI: The economy determines that.

PAUL: The people who want to work with their hands as well as their minds haven't had that opportunity in the United States because we've set that aside. We can compete and win.

VELSHI: Look, you know as well as I do, a welder coming out there earns better than $100,000. Now a plumber does too, an oil worker, a natural gas worker. So we haven't done away with blue collar work in this country. If you can't outsource it, you still have to do it here in America.

But I guess, what, that is a great other conversation for us to have about education and about blue collar education, college education versus university education. What a fantastic discussion this has been. I hope you both talk to us a lot more about this because it's an important one we should be having.

Scott Paul is the executive director of the Alliance for American Manufacturing. Will Cain, our good friend, is a CNN contributor.

I want to show you this. Take a look at this, because we've mentioned this in the last few segments. That is the tax code, 25 binders, 72,608 pages to be exact, or as CNNMoney's Jeanne Sahadi calls it, weekend reading.

There has got to be a better way than 72,000 pages, right? We're going to take a close look at the tax code and what can be done with it. Don't worry. Don't change the channel. We're not going to take too close a look, but a close look when we come back on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: Look at it. All 72,000 pages of the current tax code are over there in 25 binders. Jeanne Sahadi, senior writer at CNNMoney, this is part of her beat and I was joking with her that the day they gave out beats at CNNMoney, she must have been away that day because they gave her these fun complicated things like budgets and taxes.

Jeanne, give us an idea of what tax reform would look like if President Obama got his way, particularly when it comes to individuals?

JEANNE SAHADI, SENIOR WRITER, CNNMONEY.COM: Well, he has sort of proposed a two tier approach. He has put in very specific proposals in his budget to reform the current system, primarily by raising taxes on the rich and corporations in a variety of ways. But then he said, you know what, I really would rather not do that, I would rather reform the whole thing. So if Congress does that, let's make sure we obey the so-called Buffett rule, which he named back in September, which would ensure that people who make more than $1 million pay a minimum of 30 percent of their income in federal taxes.

So he says, oh, I don't want the Buffett rule to go into effect now, but we're going to get closer to the Buffett rule if you do these specific measures I took that I've...

(CROSSTALK)

VELSHI: So the idea that people will pay more in tax but over time, we don't want to affect the recovery, is that the point?

SAHADI: No. He just -- well, the White House is kind of having it both ways. They are saying the Buffett rule is a principle for tax reform, but guess what, Congress isn't doing tax reform. So what he has done is proposed tens of new measures that would raise taxes on the rich, by raising the top two income tax rates, by limiting their itemized deductions, and a whole host of other things.

He says that will get us closer to observing the Buffett rule.

VELSHI: Stephen Moore is an editorial writer for The Wall Street Journal, also a good friend of the show. He also was a founder of the Club for Growth, so we kind of know where he comes from on taxes.

If you think the current tax system is unfair, or not pro-growth, how do you fix it so that it promotes growth?

STEPHEN MOORE, COLUMNIST, THE WALL STREET JOURNAL: Well, let's start with the basic principle of a good tax system that I think almost everyone would agree with, and that is, Ali, what you want with a good, sound, fair system that is also pro-growth is to have a broad tax base so you're taxing everything, but as low rates as possible so you're not distorting economic behavior.

That's what we did back in 1986, Ali, as you recall. We got rid of a lot of loopholes for investing in bull sperm and windmills and things like that. We lowered the rates and I think everybody agrees that was a good thing to do.

I would love to see us do something like that again. I think it hearkens back to the conversation you just had on manufacturing. Look, if we have the highest tax rates in the world, it does put American manufacturers and other businesses at a disadvantage.

And this is why I would take exception with something that Jeanne was saying, when you're describing what the president wants to do as, quote, "tax reform," that's not tax reform, that's tax deform. It's raising tax rates, making the tax system more uncompetitive.

If we're going to have a tax reform, we want to get the rates lower, not higher. The president would actually raise the capital gains tax from 15 percent to 30 percent. And in his proposal he would raise the dividend tax, Ali, from 15 to almost 45 percent. How is that going to make America more competitive?

SAHADI: Can I just jump in?

VELSHI: Go ahead.

SAHADI: Tax experts have said his current day proposals are more like tax deform than tax reform, but in terms of talking about real tax reform, he, too, says he would like to lower rates, broaden the base, and get rid of tax breaks.

VELSHI: Right. Let me bring somebody else into this conversation. David Cay Johnston is a columnist at Thomson Reuters and he is an author. He won the Pulitzer Prize in 2001 for enterprise reporting that uncovered loopholes and inequality -- inequities in the U.S. tax code.

So, David, you recently wrote that our individual income tax system is, quote, "as out of touch with our era as digital music is with the hand-cranked Victrola of music players of 1912."

Now if the current tax code is unfair, and again, I don't want to get caught up in language whether unfair or not pro-growth, what would you do to change it?

DAVID CAY JOHNSTON, COLUMNIST, THOMSON REUTERS: Well, fundamentally I think we need to recognize we have a tax system that is allowing companies to earn profits in America and then siphon those profits out of the country as tax deductible expenses and hold the money offshore untaxed.

That's what that 1.4 trillion offshore is. Although, by the way, it's invested here in the U.S., it's just owned offshore. Companies shouldn't be able to take money out of their American pockets that's profits and put it into a Lichtenstein or Cayman Islands pocket and pay no taxes on it.

We need to have a system that encourages investment and that encourages especially investment in manufacturing and creating things. And there's something we can do outside the tax system that would be far more powerful than taxes, and that would be lowering the value of the dollar relative to other currencies which would lead to more exporting and less importing, and would have a dramatically positive effect on our economy.

VELSHI: Although that doesn't seem to be something -- God knows we've done everything possible to derail a recovery in this economy, and it still hasn't hurt the U.S. dollar.

Jeanne, Stephen, and David, stick around. Exactly what should be in President Obama's corporate tax code plan which will be released soon? We'll get some solutions next on YOUR MONEY.

(COMMERCIAL BREAK) VELSHI: President Obama's big announcement coming out in the next few weeks will be guidelines for reforming the corporate tax code. The U.S. has a top federal tax corporate rate of 35 percent. That is one of the highest in the world, and many feel that this discourages companies from doing business in the United States even though most businesses actually pay a much lower percentage because of the way they can handle their accounting, partly because of all the tax breaks and loopholes that fill these 25 binders of the tax code that we have on the set with us.

Now, Jeanne, the Obama administration is expected to suggest lowering the top corporate rate and also cutting some corporate tax breaks. Tell me what you think the president's guidelines are going to look like.

SAHADI: Well, you know, I wish I knew. They've been promising this for about a year. They're not going to be putting out legislative language so they're not going to have too many specifics. They may pick a rate to go down to, a lot of Republicans want to go down to 25 percent.

But if the president can provide any service with his guidelines, it would be to inject a little reality into the discussion, which is in order to get below 30 percent, to get the top rate down to below 30 percent, you have to cut almost all the corporate tax breaks altogether.

It is a very expensive proposition just to make it revenue neutral. And so people tend to talk about tax reform like it's great, it will create economic growth, we'll all be happy afterwards.

It will be a lot of hard decisions. And corporations which I know David has written about this a lot, pay a very low rate effectively. They don't pay the 35 percent. So with all the breaks they get, they tend to pay -- you know, they can make between 10 percent and 15 percent even. So to tell them they're going to 30 --

VELSHI: Right. And that is something -- it's a bit of a canard we hear all the time. Even Stephen is nodding his head. The number is not actually the case. But I think we all agree there's a relative unfairness to this whole thing.

Stephen, the president is, obviously, watching the show right now, I'm sure that that's what he does on weekends. So he has still got time to change the plan. What's the key problem with corporate taxes in this country and how would you solve it?

MOORE: Well, you just mentioned it. We have very high tax rates, but David is also right and Jeanne are also right that we're not raising much revenue from the tax. So I would argue, Ali, that's the worst tax system of all, a tax system that imposes, you know, real high burdens on corporations but doesn't raise a lot of money.

There was a congressional hearing a couple of years ago where General Motors brought in their corporate tax forms and it was like five stacks of the Manhattan phone book. And they didn't even pay that much corporate tax.

You have got companies like General Electric that have virtually a zero corporate tax burden last year even though they had to fill out all these forms. So I bet we could put the four of us in a room and we could come out with a more sensible corporate tax system in an hour or two.

It has to be done. It is really hurting corporations. Paul Volcker, who headed up President Obama's own tax reform commission, said, look, this is a disgrace that we have a system that is putting American companies at a disadvantage.

VELSHI: David, how about the three of you sit in a room, I'll get pizza and come back and bring it to you.

(LAUGHTER)

VELSHI: What do you think, David? What would you do to fix the corporate side of the tax equation?

JOHNSTON: Well, it's important to recognize that 99.9 percent of corporations pay almost the 35 percent rate. It's the 14,000 corporate giants who are paying very low rates generally, not all of them but most of them. And that's where the issues are. We have rules for these large corporations that are unlike the rules for everybody else.

So we disadvantage family-owned businesses, purely domestic businesses, and manufacturing companies. And we favor certain other businesses. We actually have a system now that allows companies that are rate-regulated monopolies to force you to give them money to pay corporate income taxes that they pocket and that increase their rates, and nothing is being done to correct this.

So here's the principle we should follow, government shouldn't care what kind of chip you make, whether it's potato chips or microchips, we should tax you the same. We shouldn't let corporate jets have a write-off faster than other jets.

And by the way, the president is proposing something very important that makes him the most pro-business president in American history. He wants to continue 100 percent expensing, that is immediate write-off of all new capital investment.

George Bush never proposed that. Ronald Reagan never proposed that. Richard Nixon never proposed that. This is what Obama is proposing. And we had, during most of his administration, 50 or 100 percent write-off.

So there is movement in the direction of making a system that will be more effective to get more jobs and more investment in this country.

VELSHI: I have a sense that if I did leave you guys in a room for three hours, two hours, and brought pizza, you might actually solve some of these problems. What a great conversation from all of you. Thanks so much, Jeanne Sahadi, as always, writer with CNNMoney, who got the short straw and has to cover this stuff; Stephen Moore, editorial writer with The Wall Street Journal; and David Cay Johnston, columnist with Thomson Reuters.

One GOP candidate says income inequality is a good thing for this country. Yes, you heard me right. We'll tell you more next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: OK. The issue of fairness and income inequality is at the heart of the economic debate in this country, and the presidential candidates have all addressed it in one way or another.

But perhaps none were as bold as GOP presidential hopeful Rick Santorum this week.

(BEGIN VIDEO CLIP)

RICK SANTORUM (R), PRESIDENTIAL CANDIDATE: There is income inequality in America. There always has been and hopefully, and I do say that, there always will be. Why? Because people rise to different levels of success based on what they contribute to society and to the marketplace, and that's as it should be.

(END VIDEO CLIP)

VELSHI: Well, is income inequality, or inequality in general simply a by-product of capitalism and something that we should embrace, as Rick Santorum says? Well, Benjamin Barber is a distinguished senior fellow at Demos, and the author of "Jihad Versus McWorld." Will Cain is a CNN contributor. Will, recently on this program, you quoted Plato.

This week Ben went back just 300 years, he sent us this quote from the Swiss philosopher Rousseau. "The first source of evil is inequality."

Ben, I take it you're siding with him over Santorum on this one. So let's ask this, is capitalism the problem or is the way we've been practicing capitalism the problem when it comes to inequality?

BENJAMIN BARBER, DISTINGUISHED SENIOR FELLOW, DEMOS: Capitalism is the problem when you have only capitalism and no balance with democratic institutions. What Rousseau was arguing was not that you were going to eliminate private property, though he might have liked to do that, but that you needed political institutions that balanced the deficiencies of capitalism.

The fundamental deficiency of capitalism -- well, its virtue is that it's productive, it's innovative, it's entrepreneurial. Its deficiency is it produces inequalities out of scale to what it requires. Of course, some inequality is in the system. There are difference in talents.

The question is, is the difference of 400 to 1 in salaries between CEOs and the workers who work for those CEOs adequate? You quoted Plato a couple of weeks ago. I want to quote Aristotle. Aristotle said that a strong middle class is necessary to stability.

You need a bell-shaped curve that looks like this, a lot of people in the middle, a few rich, maybe there will be a few who are poor. If you invert that curve, and have a diminishing middle class, some very rich and a lot of people who are poor, what you get is instability and the possibilities of revolution.

You can be complacent about inequality but when it gets very, very large and when democratic institutions no longer play a role in containing inequality through redistribution, through a tax policy, then you get something that's not just bad for democracy and bad for capitalism, but bad for stability. You get the possibility of revolution.

CAIN: You baited him with the Aristotle. Will, if I understand you correctly, you wouldn't do a thing about it income inequality. But Ben just made a reference to something I want to talk about.

In 2010, CEOs of some of the largest companies in the United States earned an average of 343 times more than the typical American worker. These numbers are according to the AFL-CIO. But we've seen it before. In 1980 CEO pay was 42 times the average blue collar worker. Is that capitalism at its best?

CAIN: I'm going to answer that second. First I want to say this. Ben invokes the concept that inequality leads to social revolution and social instability.

VELSHI: Well, let's be sure, I think he meant this vast gulf leads to it, not any inequality.

CAIN: Fine. A vast gulf of inequality leads to social instability and potential revolution. History might support him on that, but what I would say is history has never seen an economy based upon a meritocracy, which the United States is. And we have therefore never seen a meritocracy subject itself to social revolution.

What I would argue is, inequality has nothing to do with that as long as you maintain your system as a meritocracy, you won't have that revolution.

What is the appropriate amount of inequality to have? Is it 400 to 1? Is CEO pay supposed to be 40 to 1, 10 to 1? I don't know the answer to that. And I would not like to entrust the answer to that to the greater minds among us who think they might know the answer to that.

VELSHI: Ben, what's the answer to it? What is the right amount of inequality?

BARBER: Well, there's a greater mind among us --

(LAUGHTER)

BARBER: It's too much right now. I agree with you, you can't do --

CAIN: But when is it not? This is the point.

BARBER: But 400 to 1 is -- I mean, most psychologists and economists agree that somewhere between 20 and 50 times range between a worker and a CEO is needed to motivate, to animate. I'll take 100 times even, 400 times.

And also you talk about meritocracy. Rewarding bank CEOs who created a global financial failure, for those failures rather than closing down the banks, which is what capitalism would've done, is to me a sign that capitalism has gone astray.

VELSHI: I'd like to convince CNN that we should just have the Will and Ben hour. This is actually a really good and instructive conversation.

(CROSSTALK)

VELSHI: It's a great conversation. I think I'm going to bring you guys back to have more of it, because it's basic conversation that we have to all become better versed in. So thanks very much.

Benjamin Barber is a distinguished fellow -- senior fellow at Demos, and he's the author of "Jihad Versus McWorld"; Will Cain, our good friend and CNN contributor, back again, we'll continue this conversation, guys.

Well, coming up next, a way to make yourself smarter about YOUR MONEY this very weekend.

(COMMERCIAL BREAK)

VELSHI: Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday, 1 p.m. Eastern, and Sunday at 3 p.m. You can stay connected to us 24-7 on Twitter. My handle is @AliVelshi, the show's handle, @CNNYourMoney. When you're not watching us or tweeting us, make yourself smarter by reading "How to Speak Money," which I co-wrote with my good friend Christine Romans. It's a step-by-step guide to understanding the language of money.

"CNN NEWSROOM" is next. Have a great weekend.