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GOP Shift; The $100 Billion Tax Break; Paying Off $92,000 of Debt

Aired December 1, 2012 - 09:30   ET


CHRISTINE ROMANS, HOST: All right. Thanks, Randi. See you at the top of the hour.

The economy is getting better, and that changes everything for the Republicans.

Good morning, everyone. I'm Christine Romans.

For four years, the GOP blasted the Obama economy. He made it worse, they said. His policies were ruinous.

The recovery wasn't too slow because of the severity of the financial crisis -- no, it was because of the man at the top.

Three reasons now why every day that argument by the GOP is harder to make. First, the economy is picking up speed. Gross domestic product, the broadest measure of the health of the U.S. economy, grew 2.7 percent in the third quarter, much better than the 2 percent originally report.

Next, housing is healing. Home prices jumped 3.6 percent in the third quarter, the biggest year-over-year increase in more than two years. This is according to the S&P/Case-Shiller index.

And energy is booming. New drilling methods are generating jobs and growth, 1.7 million jobs created. There are altogether 2.5 million jobs expected over the next three years. Added up, and Americans see better times ahead.

It's why consumer confidence is at a four-year high. I know, I know, I know. It's not strong enough, I agree. It's fragile, you're right.

Just this week, the organization for economic development downgraded its U.S. growth forecast, and we need to make sure Congress doesn't drive us off the fiscal cliff.

But the evidence is mounting. Now, is it time for the GOP to reposition itself to get in on a brightening economic picture?

I want to bring in two conservative CNN contributors, Republican strategist Ana Navarro is in Cambridge, Massachusetts. Our good friend Will Cain is here with me this morning.

Will, I want to start with you.

Republicans just lost their shot at the White House, losing with a campaign focused on what they termed as a failed Obama economy.

Is it time for them to change their message on the economy?

WILL CAIN, CNN CONTRIBUTOR: Well, look, I'm happy you're talking about the economy, because I think the lesson that too many Republicans and Democrats for that matter are taking from this election is it's all about demographics. The Republicans lost Latinos because of immigration, for example, or the youth for a variety of reasons. Those are all true, but focusing on that too narrowly denies that there is a problem with the Republicans economic message.

Here's my small criticism of you, Christine.

ROMANS: Make sure it's narrow.

CAIN: We can't focus too narrow just with the current economy. I think it's a larger macro view over elections.

Look, Republicans have lost five of the last six popular votes for president. I think the Republican economic message is having trouble resonating with the middle class. The middle class seeing how it makes their life better, when pitted against an opponent who says I can do things like address your student loan debt, I can address your health care issues by giving you specific programs.

ROMANS: You're talking about the whole gifts controversy.

CAIN: I think that gives credence to the gifts controversy that shows one party can give you specifics that says this is how I'm going to help your life. The other party is trying to present a broad economic message that's somewhat abstract.

ROMANS: So, how do Republicans change that message, because we're in the middle of fiscal cliff negotiations, and all you hear are about preserving tax cuts for the wealthiest Americans. That just feeds into this lack of connecting to the middle class that's been a problem.

CAIN: Here's your answer and it's difficult and it's nuanced. Traditionally, Republicans economic message that resonated with the middle class was our taxes will be lower on you. Well, Democrats have co-opted on that. They now promise taxes on the middle class but they do it simultaneously with giving high spending that.

That cannot last forever, so Republicans have to make people realize that is a utopia that doesn't exist. You can't have low taxes and high spending that Democrats are currently promising.

ROMANS: You know, we've had $520 billion spent on jobless benefits over the past five years, and I bet they are probably pretty evenly divided between Democrats and Republicans. So, that middle class message on the big government spending has also been a little distorted over the past five years, we've had a crazy recession.

I want to bring in Ana because the president sort of built that winning location that Will is talking about of African-Americans, Latinos and women. Critics have branded Republicans as a party primarily interested in protecting rich white man.

How the GOP handles fiscal cliff, Ana, critical. Why not just let the tax cuts expire for the top 2 percent of earners and then people in the middle can say, whoo, this party is not a party of white men who care about rich people?

ANA NAVARRO, CNN CONTRIBUTOR: Christine, I think it's to the benefit of both sides for the fiscal cliff to be solved. And I think both Barack Obama, President Obama and the Republican Congress, have to be into legacy-building. President Obama is into building a legacy and solving the problems, and also the Republican Congress now has to be about diversity and be part of the solution.

Part of the problem that we had in this campaign is that we were running -- we had a candidate that was running against Barack Obama, but that was not as good in articulating his own vision and showing what he stood for. We can't just be against something. We have to stand for something.

We have to have an optimistic vision for the future of America. And I think that's something that's going to appeal to all sorts of people.

ROMANS: You say you're watching also how the GOP handles immigration. I want to listen to Florida Senator Marco Rubio, of course, a possible presidential candidate, who knows, in, 2016. Listen.


SEN. MARCO RUBIO (R), FLORIDA: It's really hard to get people to listen to you on economic growth, on tax rates, on health care if they think you want to deport their grandmother.


ROMANS: How does, Ana, the GOP get past this to appeal to Latinos who want job growth, who have in many cases conservative social values, who could really be Republican in many, many ways?

NAVARRO: I think Marco Rubio is absolutely right, and I think Bobby Jindal says it exactly the right way also a few weeks ago. You know, voters want to vote for somebody that likes them. We need to have the right policy, but we also need to have the right tone, the right message and the right messenger.

The truth is we didn't have that in this election, but I think there are people like a Marco Rubio, like a Bobby Jindal, like a Jeb Bush who do understand, who are going to put effort and the long-term campaign outreach for Hispanic voters.

And I think the best thing we can do, Christine, is solve the immigration issue. Remove it as a wedge issue that is used by both sides. Right now, the immigration issue is a wedge issue that Democrats have effectively used as a political tool in campaigns to, you know, to divide Republicans from Latinos and to make it so that it becomes impossible for Republicans to talk about --

CAIN: You know --

NAVARRO: -- the rest of the agenda because Latinos feel that, you know, immigration is being spoken in a hostile antagonistic tone. That's got to change completely.

CAIN: You know, I agree with you, Ana, on the immigration issue, especially when you talk about the tone and the Republicans come off as having antipathy, you know, towards Latinos. That's got to be fixed.

However, we need to be careful of also assuming that Latinos are overly focused simply on immigration when back to my main message here, middle class economics. Many Latinos find themselves disproportionately in economically insecure situations. And, therefore, that Democratic message of "here's what I can do to help you out" versus that abstract philosophy of free markets is just as resonating.

And we have a challenge to say, here's how our economic message helps everyone, regardless of gender --

NAVARRO: You're absolutely right, Will. You're absolutely right. But Marco Rubio's point is absolutely correct.

ROMANS: Ana Navarro, Will Cain, really nice to see you guys this weekend. Have a nice weekend you two.

CAIN: Thank you.

NAVARRO: Thank you.

ROMANS: All right. Coming up next, one of the most popular deductions you claim on your taxes, well, it could be disappearing. We're going to give you the facts.

But first, in what year did the popular mortgage interest deduction first become a part of tax code? Was it 1913, 1934 or 1973? And no Googling.


ROMANS: America has a spending problem, and Washington is having a problem fixing it.

Republicans are OK with raising more revenue, but they don't want to raise taxes to do it. Democrats only want to raise taxes on the top 2 percent and extend the Bush tax cuts for everyone else.

What they might agree on: cutting deductions. The middle class' most cherished tax break could be in the crosshairs of the fiscal cliff negotiations.

We're talking about the mortgage interest deduction. It's been around for 99 years, but it's costing the government $80 billion this year. It will reach $100 billion by 2014, making it the third largest tax expenditure on the federal budget. That's according to the Congressional Research Service.

But who is it really helping? The most recent IRS tax data show 41 million people claim this deduction on their 2010 taxes.

But the Tax Policy Center points out it tends to benefit upper middle class families the most. For those with annual incomes of less than $40,000 a year, the average tax savings is just 91 bucks. For the people earning $250,000 a year, the annual tax savings runs about $5,500.

And critics say it's not really helping to boost homeownership. We're going to talk to one of them in a moment.

The homeownership rate in the U.S. is now about 65 percent. It was up near 70 percent during the housing boom in 2005 and 2006. Now, we're back to levels we last saw in the 1990s. Yes, the Great Recession is partly to blame, but the fact is we're stuck in this 64 percent to 69 percent homeownership range.

Robert Reich is a professor of public policy at the University of California-Berkeley and a former secretary of labor. He's also the author of "Beyond Outrage: What Has Gone Wrong in Our Economy and Our Democracy and How to Fix It".

Professor, should the mortgage interest deduction stay or go?

ROBERT REICH, FORMER SECRETARY OF LABOR: Well, it should be limited, I believe. You can't get rid of it. Politically, it's almost impossible but also economically, if you'd simply get rid of it altogether, the housing market would take a big hit. A lot of people, particularly lower middle class people would find that they had made investments assuming one kind of tax structure, and they now discover a very different kind of tax structure that's less advantageous to them.

But if you limit it to say $30,000 a year, that is, you couldn't take a mortgage interest deduction on more than interest payments of $30,000 a year, you would thereby save the government a lot of money. You would generate a lot of additional revenues, not put any impact or not put any imposition on the middle class, but it would mean for tax revenues from the wealthy.

ROMANS: No question that this is a tax goody. We call it the most cherished middle class tax cut; 41 million homeowners used it last year. But it predominantly benefits richer Americans.

REICH: Yes, it does, and that's why I would say a $25,000 or $30,000 cap would limit it to the middle class and lower middle class.

Remember, one-third of Americans or more don't even own their home. They don't even have a mortgage. They rent. They don't get any tax advantage at all out of renting.

So what you really want to do is limit the mortgage interest deduction to the middle class, the lower middle class to people who are homeowners or people who would like to own a home. ROMANS: Now, the U.S. housing industry, a lobbyist, warning Washington: keep your hands off the mortgage interest deduction. The CEO of the National Association of Homebuilders telling CNN Money, quote, "Getting rid of it would throw the housing sector into turmoil and chill the market just as it's trying to recover."

The government must be careful as you pointed out. Come from a very deep bottom. Recovery is very fragile. Would even tinkering around the edges, would even limiting it, would that hurt the housing market?

REICH: No, I don't think it would be. The upper end of the housing market, we're talking about, again, a limit of $25,000 to $30,000 a year is not going to deter very wealthy buyers and investors from getting into the housing market.

You know, if you got rid of the mortgage interest deduction all together, yes, you would have a negative impact on home buying, again imposing on the middle class, imposing on people who have seen their incomes actually decline in real terms, adjusted for inflation over the past 10, 15 years. But putting a limit on the upper income ability to deduct for McMansions, why not?

ROMANS: I want to look at what's actually on the table right now for fiscal cliff negotiations, deficit reduction. You know, we're not hearing specifically about mortgage interest deduction but you're hearing about closing the loopholes.

Now, Republicans say this is what's on the table from the White House: raising marginal tax rates on the very rich, extending both the Social Security payroll tax break and unemployment benefits for next year. The government wants to defer -- the White House wants to defer the sequester for a year and then launch this new multi-year stimulus package that would be at least $50 billion next year, infrastructure spending. Also --get this -- a permanent increase in the debt limit, and they would take the debt ceiling approval away from Congress.

Robert Reich, do you have any problems with all of these things?

REICH: Well, most of them are steps in the right direction.

I think that actually taking the debt ceiling approval away from Congress sounds radical but it really isn't. That's a technicality. You don't want the debt ceiling ever to be negated. You don't want Congress to ever say no because that's the full faith and credit of the United States. That's what we went through before.

A moderate stimulus in the range of $50 billion, at least until we get jobs back and until the economy gets back on track, that makes a lot of sense, and then you want to do serious deficit reduction.

ROMANS: All right. Robert Reich, so nice to see you. Thanks for joining us. Have a great weekend.

REICH: Thanks very much, you, too.

ROMANS: If you think our government's debt problem is overwhelming, wait until you hear about how much credit cards and debt this family racked up. Even more amazing, unlike the federal government, they were able to dig themselves out of it.


SUE BAILEY, GOT OUT OF DEBT: Christmas, that was my biggest downfall. I wanted something nice to buy for all of the kids, and I don't like saying no to my babies.


ROMANS: Their story when --


ROMANS: Marriage, a house, a couple cars, children -- all part of the American dream, right? Well, that's if you can afford all those things.

We found one family who managed to have it all, but they racked up nearly $100,000 in debt maintaining it. Now, they're back in the plus column. Here's how they did it.


ROMANS (voice-over): The Baileys are hard working and modest. Jerry is a minister. Sue, a registered nurse.

S. BAILEY: Count and get your coupons. Watch what you're buying. Planning your meals.

ROMANS: They married in 1992, each had children from a previous marriage, six all together, and with a big family, there were big bills.

JERRY BAILEY, GOT OUT OF DEBT: We had major repairs on the house and the cars, like a new transmission, those kinds of things. And just over a period of time, we amassed more and more credit cards.

ROMANS: Thirteen years later, the couple was overwhelmed by debt, $92,000 in the red spread over 17 credit cards with interest rates as high as 30 percent.

The Baileys' story is an extreme example, but more than 30 percent of U.S. families have four or more credit cards and the average American household carries nearly $16,000 on their cards.

In total, Americans owe $852 billion in credit card debt.

J. BAILEY: We felt like we were in jail. Just as if there had been real bars all around us.

ROMANS: Many in the baileys' situation would have considered bankruptcy. But for them, it wasn't an option.

J. BAILEY: The debt was mine. It wasn't everybody's out there. And when you bankrupt, it affects other people.


J. BAILEY: Innocent people. And so it was our responsibility and we knew we were the ones who had to do something with our debt.

ROMANS: They worked with a reputable non-profit credit counseling agency and entered a debt management program.

JOE HERNDON, GREENPATH DEBT SOLUTIONS: You look at what their bills are as far as paying their mortgage, utilities. And then we look at their debts, who they pay money to, what type of debt it is.

ROMANS: The agency contacted creditors who waived late fees and lowered interest rates. The Baileys had to cut up all their cards, use cash for essentials, and make a weekly payment of $665 toward the debt. They made sacrifices and both took on extra work.

Fast forward, five and a half years, and the couple is debt-free and just months away from paying off their mortgage.

J. BAILEY: It felt like the weight of the world had been taken of our shoulders, such a sense of freedom and exhilaration. It was -- it was a wonderful feeling to know that we had accomplished that.


ROMANS: Wow. Can you imagine paying off $92,000 in credit card debt? Home repairs and a new transmission, they may be necessary expenses, but many out there are swiping their credit cards for stuff they don't need.

Call me a Grinch, but all those great deals during the holiday shopping season bring out some of the worst consumer behavior. Over the Black Friday weekend, Americans spent an average of $423 shopping, that's up from last year and totals a whopping $59 billion. That's all according to the National Retail Federation.

On Cyber Monday, online sales increased 30 percent. Over 2011, the average you spent per order dropped to $185. That's according to IBM.

Yes, consumer spending is a big driver of the economy, but don't let all the hype ruin your personal economy. My point here is that saving and being smart about your money will make you rich and probably much happier than any holiday gift.

All right. Coming up, we're walking a financial tight rope. This calls for a serious balancing act and if Congress stumbles, oh, yes, we're the ones who fall down. I'll rant on that after the break.


ROMANS: It's the new Washington code word.



BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We should have a balanced approach.

SEN. HARRY REID (D-NV), MAJORITY LEADER: We want a balanced approach.


ROMANS: Translation -- we have to cut spending and raise taxes. That's what it takes within our means.

Balanced approach, like a balanced diet -- you know, where you're supposed to eat your broccoli, but it doesn't make it any easier to swallow, especially when both parties have been gorging on sweets for the past 20 years. Their balanced approach will be a real balancing act. At one side, you have lobbyist Grover Norquist, equating his anti-tax pledge to a marriage vow.


GROVER NORQUIST, PRESIDENT, AMERICANS FOR TAX REFORM: I hope his wife understands that commitments understand a little longer than two years or something.


ROMANS: On the other hand, you have entitlement sacred cows.


SEN. DICK DURBIN (D), ILLINOIS: The Social Security is a separate thing. It does not add a penny to the debt.


ROMANS: And balance -- well, balance will take adult supervision.

That's the sound of a baby crying. And most Americans think Congress is little better than a crying baby -- 2/3 of Americans surveyed think our lawmakers will act like spoiled children in the upcoming fiscal cliff negotiations, 67 percent expect cringe-worthy immaturity. They don't have much faith in you, Congress, the American people, and they're crying out for a balanced approach.

The same poll found 67 percent want a budget deal with a mix of spending cuts and tax increases, not just spending cuts alone.

All right. Back to that pledge, that pledge never to raise taxes. The words "Grover Norquist", they aren't in this pledge.


CHILDREN: I pledge allegiance to the flag of the United States of America.

(END VIDEO CLIP) ROMANS: And a few brave lawmakers are beginning to acknowledge that their constituents may want flexibility and solutions.


REP. DIANE BLACK (R), TENNESSEE: I answer to my constituents, not to a pledge. My constituents certainly don't want me to come to Washington to raise their taxes, but there are ways that we can balance this.


ROMANS: You hear that? You hear that? Washington, like the Karate Kid, could learn something from Mr. Miyagi.


KEISUKE MIYAGI: Balance -- balance is key.


ROMANS: Or from Olympian Gabby Douglas when she won gold in London, or from daredevil Nik Wallenda who walked the tightrope across Niagara Falls.

Congress, America's future hangs on a balance.

Let's keep the conversation going. Find us on Facebook or Twitter. Our handle is @CNNBottomLine. My handle is @Christine Romans.

"CNN SATURDAY" continues right now.