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How Do you Define Rich?; The Politics and Economics of Outsourcing

Aired July 14, 2012 - 09:30   ET


CHRISTINE ROMANS, HOST: The rich versus the rest.

Good morning, everyone. I'm Christine Romans.

Do the rich pay their fair share in taxes? Perhaps the fair question is to ask who's rich?



ROMANS: Iconic cartoons like "Richie Rich" and "Duck Tails" celebrated wealth, but now --


UNIDENTIFIED MALES AND FEMALES: We are for 99 percent --


ROMANS: -- the richest one percent of Americans control 36 percent of this country's wealth. And the rich are getting richer. Is that fair? And what does it take to be rich in America?



UNIDENTIFIED MALE: A million and up.


ROMANS: America has always been the best place to get rich. It's part of the American dream. And potential Republican vice presidential candidate Marco Rubio says wealth is on its way.


SEN. MARCO RUBIO, (R ), FLORIDA: We have never been a nation of haves and havenots. We are a nation of haves and soon to haves, of people who have made it and people who will make it, and that's who we need to remain.

(END VIDEO CLIP) ROMANS: Those soon to haves may beg to differ, according to a new report from the Pew Economic Mobility Project, the best way to make it to the top in America, be born at the top. 40 percent of those born into the top tier family wealth as children stayed there as adults. It's the same story for the poorest Americans with little evidence to show that they are moving -- moving on up in big numbers.

I'm joined by CNN contributor Will Cain, Marc Lamont Hill, associate professor at Columbia University and host of "Huffington Post " live. Will, what is rich and why does it matter?

WILL CAIN, CNN CONTRIBUTOR: I don't know. When we throw that turn around as though it's self-evident, what is rich? Is $250,000 rich? Is it -- if you have a family of four living on $250,000? Is that rich? How about a million, that sounds arbitrarily right, is that rich? I think in the end the definition of rich for most people is the other guy. The guy that makes more than me. I'm perfectly fine when we are talking about taxes, or something like that, if you take it from him. Because he's rich. And I'm not. And personally I've got to say I find the entire debate what is rich a little disgusting, the collectively.


CAIN: We need to define who has enough.

MARC LAMONT HILL, ASSOCIATE PROFESSOR, COLUMBIA UNIVERSITY: Well, I don't think we have to -- we don't define what rich is per se, we have to define who deserves to pay more, who needs to carry their fair share. And so we collectively say that's the rich, and then we try to decide who the rich is. I do think it depends on context, I mean what you -- $250,000 in New York City to me doesn't get you very far.

ROMANS: Look, at $250,000, to be fair that number what the president wants to raise taxes above there, that was like a made up number. It's even a number that's right in the middle of a tax bracket right now. It's just 250, a nice, round messaging number.

HILL: It's a perfect messaging number.

ROMANS: That sounds like most people --

HILL: But most people don't have it. That's why.

ROMANS: 97 percent of people don't have that number.

HILL: Because -- right, that -- oh sure. Tax the $250,000 people, because --

CAIN: So you need to agree with me that the definition of rich is someone else. So, it's whatever 97 percent of the people say is someone else.

HILL: Right. As a strategy, yes, you can say something else.

(CROSSTALK) HILL: I think there is a number that we could probably all agree upon or at least a set of conditions that we could all agree upon that will qualify one as rich. Being able to pay your bills, that being able to save every month, being able to enjoy leisure, being able to vacation, being able to send your children to school.

CAIN: I thought that was middle class, actually. Not rich. Like what you're describing, a lot of people think it's the middle class dream. You know, to be able to do a little better than your parents, and to not be drowning in debt and be able to move forward in the economy. But here is another point. Every minute we spend talking about who is rich and what is rich, we're not talking about the president's jobs record. Because people -- most people just want to make sure they have a job and job security. You know, getting rich is the American ideal, that they want to make sure that maybe their kids can in the future. But if you don't have a job right now, that's the most important thing. Brilliant White House strategy to keep talking about rich and fair and not about lost jobs?

HILL: I think it's both. I think it's a brilliant strategy, of course, you don't have to focus on your record, you can focus on the rich, right, the bogeyman in the hills. But it's also connected, right? It's a principled argument as well. Because the way you extend unemployment benefits, the way you find resources, the way you invest in the next big idea which creates jobs is through tax revenue. Which comes from who? The people who need to pay it. People like you, Will.

CAIN: I think I love Marc's honesty, it's why I like--



CAIN: It's about the bogeyman in the hills. The truth is you can't sell the economy as a whole, you can't address the nation as whole and how we're doing economically, because that argument is a loser. So, divide it up, and say the problems of one group of people is somehow connected to the successes of another group of people, that the rich are that bogeyman in the hill. I appreciate you saying that, because that is the underlying message.

HILL: But I mean it's true, though. That's a true thing. I said that, but I also said the second part, which is that it's also true.

CAIN: It's not true. That assumes that wealth is a zero sum game, and if one person makes more, then someone else has less. And that's not the way --

HILL: That's exactly it works.

CAIN: That's not how the economy works.

ROMANS: Isn't the byproduct of capitalism is that some people are rich, some people are middle, and some people are never going to be rich? HILL: Right, but the premise of capitalism is that everyone will have a level playing field and the opportunity to get rich. And many people -- people by (inaudible) -- you saw that in the Rubio clip, right -- he says America is filled with people who are wealthy and successful and people who are about to be. It's just not true, though, in real life.

CAIN: Every single aspect of our daily life disproves what Marc just said. From the shoes you wear to the coat you have --


HILL: You're wearing expensive cowboy boots. You know why? Because I was born at the bottom rung, and I'm going to stay in the bottom rung, Will.

ROMANS: OK, back to your corner, gentlemen, we got more class envy in round two, talking about fair, you might be surprised who is not paying taxes. And they are not rich.


ROMANS: The president wants rich people to pay more taxes. Conservatives say this White House has a bad case of class envy. Here is what's on the table, extending the Bush tax cuts only for families making $250,000 or less. Richer than that, your taxes rise back to Clinton era rate, with the top current rate of 35 percent, rising to 39.6 percent.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICCA: Any members of the other party believe that prosperity comes from that top down. So that if we spend trillions more on tax cuts for the wealthiest Americans, that that will somehow unleash jobs and economic growth. I disagree.

MITT ROMNEY, GOP PRESIDENTIAL CANDIDATE: The very idea of raising taxes on small business and job creators at the very time we need more jobs is the sort of thing only an extreme liberal can come up with.


ROMANS: All right, here is the other extreme, the Tea Party view that too many people are not paying taxes, and too many on social programs and expecting the government to subsidize their life.


REP. STEVE KING (R ), IOWA: It's almost a government guarantee of a middle income standard of living from all of these programs that we have. I like an America where people look around and they feel some guilt about that and they want to step up and help and carry their fair share of the work. We have too many Americans not contributing to the gross domestic product in the United States today.


ROMANS: Congressman King is not talking about rich Americans there at all. So, what is fair, Marc, 46 percent of Americans pay no federal income taxes, they pay other taxes, but no federal income taxes, the social safety net has never been bigger. And then you have got the very wealthy who have a smorgasbord of all kinds of tax shelters and tax loopholes that allow them to make money with their money. Both extremes. You could start to argue about fairness.

HILL: I don't see any unfairness on the first extreme. You know, as you mention, that they don't pay -- many people don't pay federal income tax, but they do pay payroll tax, which accounts for a lot of money, it means 40 percent of all tax -- federal tax.

ROMANS: If they are working, right.

HILL: Yeah, on tax revenue. So, people are paying what they can. And based on the current tax structure they are also paying what they owe. The problem is the wealthy don't pay what they can because of these favorable tax policies. And they don't pay what they owe because of loopholes. And so, if there's something unfortunate, something dishonest going on here, it's going on the wealthy side. Let's focus on them.

CAIN: No, I don't know -- the statistics just don't bear that out. The wealthy pay whatever we define as wealth. We've just been five minutes trying to figure that out.

ROMANS: Let's say the top one percent. Top one percent --

CAIN: Top one percent pay --

ROMANS: Wait, top one percent, these are people who earn $343,000 and more a year.

CAIN: Right.

ROMANS: To be in the top one percent, 343,000. Go ahead.

CAIN: And the top one percent pay about 39 percent of total federal tax revenues, the income tax revenues.

ROMANS: So you are saying that the rich --

CAIN: So what is it fair?

ROMANS: People at the top already are paying more dollars into the coffers, no question.

CAIN: Than wealth flowing their way. And I'm --


HILL: But they should. It becomes a question of fairness. They should, Will.

CAIN: What is fair?

HILL: Fair is being able to contribute to a democracy in ways that don't disrupt your lifestyle. Oprah Winfrey can afford to pay a larger chunk of her annual income than I can and than you can. It's not a matter of saying everyone should pay the same percentage of the income, because percentages matter differently based on how much you make.

ROMANS: Let me ask you something, about only 3.5 percent of small businesses filers would see higher taxes under the president's proposal, right? But conservatives are freaking out saying this is going to kill small businesses. Why can't they just admit that this is not going to hurt small business and job creation, to raise taxes on just three percent of people?

CAIN: Let me say this. The small business argument is my least favorite for those opposed to exempting the top earners in our society from the Bush tax cuts. It's my least favorite. Because I think the other one reveals so many other philosophical problems. That being said, when you diminish small business as saying that only three percent of small business will be affected, I think somehow because that number has three and a percentage mark next to it you have to say that oh, that's not very much, but when I tell you that's a million people, that's a million small businesses employing I don't know what from there, but I would assume some couple odd 5 million people, now you're talking about impact on 5 million Americans when you consider the unemployment in this country is in that same range.

HILL: But this the problem with America in general, right, is that everybody wants to go to heaven, and nobody wants to die, right? You know, it's like --


HILL: It's the honest truth there. You know, three percent is a very small number. Everybody wants sacrifice, but they don't want to make the sacrifice. Everybody wants America to grow, but they don't want to contribute to it. At some point somebody has got to pay. And we're so upset about making sacrifice, that even when the number is three percent, we're still upset.

ROMANS: Everyone wants the other person --

CAIN: No, no, no --

ROMANS: -- the other guy --


CAIN: -- from that three percent, what I'm saying, is that your ideas might be self-defeating. If you want to take money away from that three percent, which is a million people, you may just be adding to the unemployment rolls.

HILL: Somebody has got to pay somewhere and it has to be there. And I think what frustrates me the most, is the Republican the sky is falling argument that happens whenever there's an attempt to raise taxes even two cents. I mean there's never been a moment in history we've been tempted to raise taxes even for the most clearly necessary reason, Republicans don't say this is going to destroy the wealth.

ROMANS: Do you think -- do you think we should raise -- the Bush tax cut should be extending for everyone?

CAIN: I do think that.

ROMANS: What do you think about Bush tax cuts, just for the rich?

HILL: Just for the rich, and the uber-rich.

ROMANS: What if we get to some political moment, where it's all or nothing. What do we do?

HILL: All or nothing meaning that everyone has--

ROMANS: Yes. Yes.


HILL: If we have to do that, we have to do that. But I don't think that it will ever be necessary.

ROMANS: It happened (ph) the last time. We had to do it last time.

HILL: No, no, I'm talking about in the future, I think the necessary thing will be to raise it for the one percent. However, if we all want have to make a shared sacrifice, I think that's what part of being a democracy is about.

CAIN: One last point, the semantics of this entire conversation reveal how you feel about taxes. The president said we can't spend money on tax cuts, Mitt Romney said we shouldn't raise taxes, that shows fundamentally and philosophically how you feel about the concept of taxation.

ROMANS: One group thinks that it's the government's money, the other group thinks that our money that you are sending to the government. And that's a world view that there is no -- there is a very clear line between --

HILL: Some of us believe in collectivity and democracy.

ROMANS: All right. Marc Lamont Hill, Will Cain, they're gong to continue arguing about this in the break. Coming up next, what if I told you that until now, four months to an election, neither of the presidential candidates has been too concerned about your jobs going overseas. What both of them haven't done to slow outsourcing, next.


ROMANS: Are we outsourcing the middle class? Both Mitt Romney and President Obama accuse the other of sending your job overseas.


ROMNEY: If there's an outsourcer in chief, it's the president of the United States, not the guy who is running to replace him.


ROMANS: Not surprisingly, the president sees it differently.


UNIDENTIFIED MALE: Mitt Romney's companies were pioneers in outsourcing U.S. jobs to low-wage countries. He supports tax breaks for companies that ship jobs overseas. President Obama believes in insourcing. He fought to save the U.S. auto industry and favors tax cuts for companies that bring jobs home. Outsourcing versus insourcing. It matters.


ROMANS: In fact, really, there's very little difference in Romney and Obama's stance on outsourcing. In 2009 when asked when the outsourced jobs would come back to America, the president said, we don't need them.


OBAMA: Not all of these jobs are going to come back. And it probably wouldn't be good for our economy for a bunch of these jobs to come back, because, frankly, there's no way that people could be getting paid a living wage on some of these jobs. At least in order to be competitive in an international setting. So, what we have got to do is create new jobs that can't be outsourced.


ROMANS: What he's giving you there is the conventional wisdom from Wall Street and the corporate suite, and it's awfully close to what then Governor Romney said in a 2005 speech. He said, "I don't like losing any jobs, but we'll see new opportunities created selling products there, we'll have a net-net increase in economic activity, just as we did with free trade. It's tempting to want to protect our markets and stay closed. But at some point in all comes crashing down, and you're left hopelessly behind."

Of course, millions of American jobs did not come back, jobless Americans do feel left behind. And those better jobs the president was hoping for in 2009, they haven't come. What if I told you that until now, four months to an election, neither of these guys was too concerned about outsourcing.

Peter Morici is the professor of international business at the University of Maryland. Peter, since the end of the recession American companies have added more jobs overseas than they have added at home. They are sitting on record amounts of cash, almost $2 trillion. They are not hiring and they are not spending it here. Do either of these candidates really care about stopping outsourcing or are these campaign bumper stickers?

PROF. PETER MORICI, INTERNATIONAL BUSINESS, UNIVERISTY OF MARYLAND: Well, I think both candidates care about creating jobs in America, and that means exporting more, as Mr. Romney spoke about, but it also means importing a bit less. After all, we have a huge trade deficit. And when consumers spend their dollars abroad, but those dollars don't come back to buy our products, jobs lost on a net basis, very large.

ROMANS: Let me ask you about the Romney -- the team Romney big claim this week, the stimulus funds went to create jobs overseas. They launched a big Website saying this is the outsourcer in chief, this president, and that stimulus money went and created jobs overseas. Is that true?

MORICI: It is absolutely true. We did not limit stimulus money to, say, U.S. companies and our trading partners in Europe and North America, but rather we permitted the Chinese to sell us products with that stimulus money. I would point out the Chinese with their stimulus money limited the sales to their domestic sellers so on a net basis, we lost out.

ROMANS: Isn't it true that both of these candidates have basically bought the conventional wisdom from Wall Street and the corporate suite that we need to be free, free trade, free trade, free trade. These jobs are going to go, they're not going to come back, but something better is going to come our way down the road. They kind of both sing the same song.

MORICI: They both have gone through an evolution. When Mr. Obama was running for president in 2008 he said we have to do something about producing more domestic energy, so we import less. We have to do something about the terrible trade deficit with China. But then when he became president, he really walked away from those positions because of his political base, his supporters and so forth. Now we're seeing the same thing in Mr. Romney. Candidate Romney running for the nomination five months ago was tough on China, big on producing energy. Since that time he's imported a lot of Bush advisors. And frankly this is becoming like MasterCard and Visa. I can't tell one from the other.

ROMANS: (laughs). And that's a very interesting analogy. Peter Morici, thank you so much. It's nice to see you. Have a good weekend.

MORICI: Take care.

ROMANS: Coming up, in the era of outsourcing, is it possible to preserve the American middle class? We'll meet the man who has the solution. And it starts with paying you more.


ROMANS: Nearly half of all U.S. workers, 60 million Americans, work in service jobs. Everything from janitors to home health care aides to baristas. And while the total number of these jobs continues to grow, the pay remains low. According to the analysis of census data, worker in the service sector makes half of what a factory workers makes. And just about a third of what someone in a professional or a technical field makes. But Richard Florida says workers in service jobs should be hopeful about the future. Richard has just updated and re-released his book. "The Rise of the Creative Class." He's a good friend of the show. He's here with us today. Thank you for joining us.

RICHARD FLORIDA, AUTHOR: Great to be with you, Christine.

ROMANS: If you buy this sort of modern theory that America's not going to make all this stuff anymore, we're going to create it, have it made somewhere else, and we're going to sell it, we're going to be a service industry. The jobs that are -- those jobs are not the jobs that we lost.

FLORIDA: No. Three quick facts. Two of them troubling. About six percent of Americans now, can you believe it, make things? People --

ROMANS: Six percent of Americans?

FLORIDA: Six percent of Americans have the job like my dad had in Newark, New Jersey, in Victory Optical making eye glass frame, family supporting wage, put his two boys through Rutgers in New Jersey.

ROMANS: And here we are.

FLORIDA: Six percent of us now. And that's going to decline by another percent over the next decade. So, we're growing two kinds of jobs. The first are the good Apple jobs.

ROMANS: Right, right.

FLORIDA: The high tech professional and technical knowledge and creative jobs.

ROMANS: You invent it and you make a fortune doing great software engineering.

FLORIDA: We have about 35 million of those jobs. We're going to grow another 7 million. They pay on average 70 grand. Some people make 100 grand. Some people make more. The bad news is the biggest category of jobs we have are not the factory jobs, they're not the knowledge jobs, they are these service jobs. And when I say service jobs, I mean the low-skill, low-wage janitor jobs, barista jobs, retail trade, personal care assistant. We have 60 plus million of these jobs. And we're going to grow another 7 to 10 million. 20 to $30 K is a decent salary in those jobs. So one of the things we've got to do in this country, is we've got to make those jobs better jobs.

ROMANS: How do you make those jobs pay more? Because you can't just ask the CEO, you know, because this isn't a good paying factory job that somebody can raise a family on and get a couple of kids through college, can you just raise a bit wages?

FLORIDA: Well, first I have a story for you that my dad used to tell me back in the '60s and '70s. He'd say, Rich, in the '30s in New Jersey, I had to get a job at 13 in a factory. Your granddad, your grandma, nine of us combined our money, we made one family wage. He said I came back from World War II, my dad served in the Army infantry, stormed all the beaches in Normandy -- is it by magic now, it wasn't magic. Unions came into the picture, we had a new social compact, we had the new deal. My dad's job, a bad job was made into a good job.

We have to do the same thing for service jobs, but the same way. Our manufacturing workers use their hands and their brains to increase productivity. The best factories in the world, those Toyota factories, those great factories, they empower the worker to be part of innovation. The service companies that are most successful are doing that, too.

Great new study from the MIT Sloan School reported in the "Harvard Business Review", confirms this, if you empower service workers, engage them, have them involved in teams, contributing their ideas, the productivity and profits of the service company goes up as well. If, you know, it's interesting, one of the companies we've done a little work with is Zappos, founded by this young man named Tony Hsieh. Now, he's taking low-wage call center jobs, you start off about $30,000, $35,000.

ROMANS: Right.

FLORIDA: Not a great wage, but you work up through the internal corporate ladder. So, you get promoted, you work in a team, the work becomes secure. But what he's doing and what we've been helping him with, he's actually moving his headquarters from the suburbs where you'd have to have a car, own a house, he's moving it to the old city hall -- can you believe it? The old city hall in Las Vegas. And he's creating affordable shared housing for his workers. So working on both sides of the equation. But the real question is we've got to do better. In America we can't have 60 million people nearly half of our -- we can't accept this.

ROMANS: Right.

FLORIDA: Sixty million people, half of our work force, locked in crappy jobs. And, you know, most economists say that is the natural way it is. We've got to do something.

ROMANS: How many times have you heard we're going to be a service- oriented economy? But when you look at that, I mean most of those service jobs are not paying enough for someone to be middle class.

FLORIDA: We'll have a divided country, we'll have a country divided by class, a country that's fighting itself politically and economics of a war --

ROMANS: But then companies won't have customers.

FLORIDA: And the other thing we're going to have to do, we're going to have to bite the bullet. You and me and everybody else watching, you know, when we built those manufacturing jobs, we paid more. Not a lot more. We paid more for our car. We paid more for our washing machine. More for our television made in America so we could have a middle class.

You know, I always say what's more important to you? Really, at the end of the day, the person who makes your car, very important? The person who makes your washing machine, how about the person who takes care of your kids, when my mom was sick with Alzheimer's, the home health care aide that took care of my mom, we can pay a little more. We don't have to -- you know, we're not going to go broke. But if we pay a little more, if we upgrade services, we're going to create Henry Ford used to say if you want to build a strong economy, the worker has to be able to buy the darned car.

ROMANS: Exactly.

FLORIDA: So, we have to build the middle class. And we're going to only -- the way we're going to do that is we upgrade this 60 plus million service jobs. There is no other way around it.

ROMANS: Richard Florida. So nice to see you.

FLORIDA: Thanks for having me, it's a pleasure.

ROMANS: Good to see you.

We'll be back in a few hours joining Ali Velshi and "YOUR MONEY". Republicans claim the president's plan to let the Bush tax cuts expire for the wealthy will hurt job creating small businesses, but how many small businesses would really be affected? And how can they fix it? I'll have the answer at 1 p.m. Eastern.

And what do you consider rich? Do you believe America has become the place where only the rich get richer? Tell me what you think, you can find us on Facebook and Twitter. Our handle is CNNBottomLine, my handle is that Christine Romans.

Back now to "CNN SATURDAY" for the latest headlines. Have a great weekend.