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YOUR MONEY

No Compromise in Sight, The November Surprise; Getting over Grover; Here Comes the Taxman; Catastrophe or Not?; Keep on Trucking

Aired December 8, 2012 - 13:00   ET

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


ALI VELSHI, CNN ANCHOR: Congratulations, Washington. You achieved nothing this week.

I'm Ali Velshi. This is YOUR MONEY.

Last week President Obama's offer to avoid the fiscal cliff was laughed at by Republicans. This week the GOP countered. Their offer, extend the Bush era tax cuts to everyone including the rich. But $2.2 trillion in new money, revenue, cost savings, cutting, whatever you want to call it from vague areas such closing special interest loopholes and deductions, savings from health care and cuts in discretionary spending.

Other than that, no specifics. President Obama wasn't feeling it. He said the GOP must agree to one thing to get anywhere close to a deal.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We're going to have to see the rates on the top 2 percent go up. And we're not going to be able to get a deal without it.

(END VIDEO CLIP)

VELSHI: Speaker Boehner fired back.

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER (R), HOUSE SPEAKER: This week we made a good faith offer to avert the fiscal crisis. Now we need a response from the White House. We can't sit here and negotiate with ourselves.

(END VIDEO CLIP)

VELSHI: So here we are just over three weeks from going over the fiscal cliff. You're probably getting a lot of stuff done around the house this weekend and wondering what the heck is going on in these houses in Washington. This is the worst of American politics. They put themselves and their political gains first and put your future and prosperity second.

But, hey, you voted them into office. Remember what happened the last time Washington got into a budget battle like this? Lawmakers put a band-aid on the problem and the U.S. lost its AAA credit rating in the process. I've warned you over and over about the economic storm headed our way, partly because of Europe and partly because of this fiscal cliff. A storm of our own making. But I've also told you about an American economic renaissance that could be just ahead. Just beyond the storm clouds.

The fiscal cliff is fixable. But every day Washington fails to make a deal, more damage is being done.

John King is CNN's chief national correspondent, Harvard University professor Ken Rogoff is the former chief economist at the International Monetary Fund, and Diane Swonk is a chief economist at Mesirow Financial.

John, let's start with you because right now this is more politics than the economy. Some people are saying don't sweat it. The threat of going over the fiscal cliff is overblown. It will get done in an 11th hour deal.

John, as you read the politics at play, what do you see?

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: I see both sides digging in. You just played the president saying, I want that rate hike. The Republicans are saying, Mr. President, we'll give you the revenues but not through a rate hike. But the president believes he won the election and he's upped the ante. He says he wants twice as much in tax revenues than he wanted a year and a half ago when he was negotiating with Speaker Boehner. So the president believes he has the higher ground on this.

I don't think either party has high ground, Ali. I think maybe the Democrats have a deeper trench, if you will. They have public opinion on their side when it comes to raising rates. But if you talk to people in Washington there is still this sense that at the last minute reason will prevail. But there's not a lot of optimism and some people are not talking about coming back after Christmas -- you know this and my colleagues on this panel know this better than I do. More and more people are talking about the threat, not only that if you don't deal with this you'll send the United States back into recession but that the global economy is teetering on recession.

So the stakes, as you noted, they're in their political vaults and maybe they're blind to the enormous stakes.

VELSHI: Ken, let me share something with you and our viewers that struck me this week from PIMCO's Bill Gross. PIMCO is the world's largest bond investor. We have their folks on the show regularly. They make informed bets on economies.

Here's what Bill Gross has to say about what's going on right now in the U.S. He said, "These structural headwinds cannot just be wished away as we move forward. Whether it be to the right, the left or dead center. Those headwinds are things like growing debt, globalization, technology and our aging population."

Now that speaks to something, Ken, that I've warned about repeatedly on the show. The challenges to the U.S. economy are significant. They come from Europe and Asia, and old and failing infrastructure here in the United States, massive debt. Americans have a right to expect their leaders to tackle large problems.

As one of the world's leading authorities on financial crises, what do we do?

KEN ROGOFF, PROFESSOR, HARVARD UNIVERSITY: Well, I think this point that it's not just what happens this month, it's not just what happens this year. How are we going to move forward, how are we going to grow this economy, because this problem of debt comes from -- really from our aging population. From our having to compete with the rest of the world.

And, you know, you talk about this tax hike that we have. It's not enough to close the gap. I mean the idea that the middle class is going to get away from this without paying most of it, without entitlements being cut, that is nuts. I mean eventually that's going to happen. They're not going to admit it now. You want to do that in the middle of the recession. But we're just beginning. This is a skirmish in a longer war.

VELSHI: Diane, one of the arguments of those that say the fiscal cliff -- this whole discussion is overblown, is deployed at the resilience of the stock market. The S&P 500 is up about 12 percent for the year. It's a pretty good year. It's an OK year. Companies have a lot of cash they're holding on to.

Is too much being made of the negative effect of all of this uncertainty?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Actually I don't think so. I think that we've seen a lot of -- the corporate sector has shown a lot of uncertainty. And we also saw this week consumer sentiment fell among the highest income households. Almost entirely among the highest income households. Mostly because of fiscal cliff concerns and higher tax concerns.

That said, I agree with Ken. This is a much larger issue that nobody is really willing to talk about, the third rail of American politics, entitlements, along with taxes. We can't raise taxes enough to compensate for what we need in our demographic situation on entitlements. So these are real fundamental issues.

I also think it's really important to understand that not only have we seen investment decline and the composition of employment much more consumer oriented than corporate oriented, the manufacturing sector not showing big gains, the investment side of the equation not showing big gains.

That shows some delays in hiring and deferment by the fiscal cliff. And I think it's very real that the confidence, we are at a fork in the road. We can either choose to enhance our role in the global economy by taking the situation and making responsible decisions or by deliberately slitting our own economic throats, we'll lose what little credibility we have left. I think we are at that fork in the road now.

VELSHI: Let me take it back to John then for a second.

John, you know, instilling confidence would be a big role for Washington. But you know, there isn't a great deal of confidence in Washington. There is less in Congress. At this point are they -- are they sort of conscious of what could happen if they make the wrong decision or are they more interested in where they will lose their core support if they don't make decisions, and I'm talking about Democrats and Republicans that play to their bases?

KING: Well, it's one of the reasons the president thinks he has higher ground or at least leverage in public opinion because he just won an election and congressional approval ratings, even though the Republican kept the House, Democrats picked up a little bit in the Senate, congressional approval rate is still in the tanks.

So the president thinks he has the higher public opinion, the higher public leverage. But Ali, they created this cliff with their short- term band-aid before and the process they have created now makes it harder to get a solution.

As Ken and Diane talk about the need for a big solution, everybody knows they have to do something in the short term. Well, that's going to complicate the bigger issue. If the Republicans give ground on rates you've seen what their base is saying. Their base Steve Forbes sending a letter out today to Republicans, saying fight, fight, fight. Don't raise taxes at all. Pressure the president. Pressure the president.

And then you have Democrats, labor unions, the AARP, saying we don't need to cut Medicare. We don't need to talk Social Security. We don't need to cut Medicaid. We don't need to think about raising the retirement age.

So every time you have a short-term play the special interest on both sides dig in. Until they erase the trust deficit and go and try to do the big deal, every time they do it incrementally they make it harder to do the big stuff.

VELSHI: Ken Rogoff, notwithstanding the problems that we have outlined in this conversation and notwithstanding the problems coming from Washington, there is some economic renaissance that's brewing under the surface here. We've got an energy boom going on, we've got low energy prices. We've got manufacturing output increasing in this country. We've got this housing boom with low interest rates here to stay for probably a couple of years.

Is there enough that could happen in this economy that could just offset what's going on in Washington? In another words, can we sort of just ignore them and grow our way out of this?

ROGOFF: We can't ignore them. I wish I could say that. I mean, if they blow it, there is nothing we can do. But I do think the risks are becoming a little more balanced where things like the housing recovery, consumer debt coming down, are, you know, starting to offer the possibility where growth might be a little stronger, although on the other hand, the Europe and many things you've mentioned, Ali, all these uncertainties, also mean it could be lower.

But it's a little more balanced picture now. We're a little less vulnerable than we were. But, you know, they don't strike a deal. I think they will. They may go after January 1st so that the Republicans can say well, taxes went up, now we're cutting taxes, even though they give in on the tax cuts for the 2 percent.

VELSHI: John, thank you. Ken and Diane, stay where you are.

The unemployment rate is now at its lowest point since December of 2008. After the break we'll tell you why it's not as good as it looks.

(COMMERCIAL BREAK)

VELSHI: The headlines on Friday looked great. Unemployment rate drops to 7.7 percent, 146,000 Americans score new jobs but those headlines don't tell the whole story.

Christine Romans is here to show you the breakdown of that big report and some of the numbers that you need to know about -- Christine.

CHRISTINE ROMANS, HOST, CNN'S YOUR BOTTOM LINE: Well, Ali, let's go beyond the headlines and let's look deep inside these numbers at, say, the unemployment rate. The underemployment rate. 40.1 percent of people who are out of work, Ali, have been out of work for six months or longer. That starts to become a real big problem for the economy when those people are left behind.

Underemployment still stubbornly high, 14.4 percent. Some people call this the real unemployment rate. It is -- well, you know, it's almost double, double what that headline number is. Another big problem.

Let's look at the sectors that are hiring. Retail jobs, 53,000. All of those retailers are hiring up for the holiday season. But many of those jobs are temporary, Ali, and you know, as you know, it's kind of hard to send a kid to college on the job your -- you know, on -- many of these retail jobs. And there aren't always benefits for some of those.

Some place where there are benefits, though, if you look into these numbers further, you can see that business and professional services, if you can flip the screen, guys. Business and professional services, 43,000 of those.

The government going out of its way to point out that computer systems analysts and related fields have very strong demand and good pay there.

So let's also look at the trend because every month you're looking backward when we do these numbers. The trend is important. Two years now of jobs growth, Ali. But look at how difficult it has been to stay above 200,000 jobs per month. Do you see that? It has been -- it gets up there one month or two months, and then it can't quite stay up there. We need to see next year, we need to see some better jobs durability of this -- of this recovery is what we're looking for for next year, Ali.

VELSHI: OK. Diane, let's start with you. This report was supposed to be weak. Superstorm Sandy, a number of labor disputes and layoffs across the country, the fiscal cliff. We were expecting the unemployment number to go up from 7.9 to -- to 8 percent. It went down to 7.7. A number of economists thought we'd create 77,000. We created 146,000.

So before you opine on the report, how accurate and reliable do you feel this report was?

SWONK: Well, first of all, I think it's important to know that there were downward revisions to the previous two months which makes all of a sudden the trend not look quite as good. It's also important to note that anywhere within 150,000 to 200,000 which we think about 86,000 people who were people by this storm, is not considered statistically significant in this report. So, again, you're not necessarily capturing it because it just doesn't fall into a statistical significant range.

I'd also point out on the 7.7. percent. That survey was taken very early in the month. A week earlier than the actual establishment survey. The household survey was taken on November 5th, Monday, November 5th, the day before the election. A few days later we had the nor'easter which was the secondary storm that hit the northeast and caused insult to injury on many of the problems in the northeast and more people out of work cancelled a lot of flights.

And that wasn't captured in that unemployment survey. So I do think that, you know, although they say it didn't affect it, they also don't -- did have a major increase in the number of people who were affected by the --

VELSHI: Right.

SWONK: By weather storm conditions, 350,000 or so, something like 10 times the normal average couldn't get to work for some reason or another because of weather conditions.

VELSHI: All right. Ken, let's assume we get over these issues, avoid the cliff. We've figured out what effects Sandy had on this thing. We're still looking at growth in the 150,000 jobs a month range.

Do you see something stronger coming? Are we stuck in this slow and steady crawl for a while?

ROGOFF: I think it should get stronger at some point over the next couple of years. I mean, if it doesn't we're just going to stay up at this unemployment rate forever unless people just drop out of the labor force.

But I think -- you know, as Christine said, I mean, you kind of want to get up to 200,000, even 250,000 for a really long time to dig your way out of this. So I do think it will gradually get better. That doesn't mean it's going to go away in a year. It's still going to take several years to get back to normal. But, you know, barring shooting ourselves in the foot, barring something really bad happening out of Europe, yes, I do -- I do I think it will get better than we're seeing it now at some point next year.

ROMANS: Can we talk about these people who are dropping out of the labor force? And maybe, Diane, this is a question for you.

Why are seeing people drop out of the labor force? You said there are a lot -- more than normal couldn't get to work. But why are people dropping out? What are some of the factors causing them to drop out?

SWONK: Well, actually, we're seeing a couple of things happen. One is the natural demographic issues that we're seeing as people are aging but we're also seeing people take earlier Social Security than they would in the past. And that's actually a sign of weakness rather than a sign of strength. They've been on unemployment. The unemployment insurance benefits have run out. And at 62 they just don't think they'll be able to get a new job. So that's one of the issues as well. And I think that's very important.

Also, you know, there are some myths when you run out of employment insurance you may not look for a job right away so it looks like you've dropped out after a couple of months, and then you have to go back in again because you still have to pay your bills. So, you know, some of these maybe some timing issues as well. There's a lot of cross-currents out there, but none of them are really signs of economic strength, they tend to be more signs of economic weakness and demographic issues rather than the things we'd like to see going on out there.

VELSHI: Ken, there's some sense that if the government gets out of the way there are things going on in the market -- we discussed this -- that could actually create some sort of economic renaissance. What is we don't go over the fiscal cliff, government doesn't get out of the way but government actually play some role in encouraging economic activity in certain sectors, what would say would be the best thing for the government to put itself to in 2013 that would enhance job creation and economic growth?

ROGOFF: I think it's infrastructure investment. I mean that's the place where we need to do it. It's not going to kick in right away.

VELSHI: Sure.

ROGOFF: But this isn't going to go away right away. So getting to infrastructure investment, that's sort of the easy thing. There are possibly other things like -- which are trickier like trying to improve the education system. But the sort of these fundamental things, Ali, what we need to work on. So not just that we're growing a little faster in 2013 but for many years thereafter.

VELSHI: Christine, you make this point all the time actually that the -- first of all, education, the payback on this is very good. When you look at these numbers and you compare the average to those with college degree. ROMANS: Yes.

VELSHI: It's half. The unemployment rate is half.

ROMANS: It is. But I'm terrified about the kids who haven't had a chance to get in the labor market yet. So they've got a degree.

VELSHI: Right.

ROMANS: And that student debt, they're not in the labor market yet, so they haven't been able to get into that part of the group that has the unemployment of everybody else.

VELSHI: Right.

ROMANS: They're still kind of -- you know, the millennials are having a tough time here right now, and as we know, that first job you have, that first foot on the first rung.

VELSHI: The unemployment rate from millenials are those sort of up to the age of 30 is higher than the national average, about 11 percent almost.

ROMANS: Yes. Absolutely. Absolutely. And that first step, that first step on the ladder is so important to your lifetime earnings, your lifetime achievement.

VELSHI: Yes.

ROMANS: So, you know, we don't -- it's a country that's eating your young if you can't figure out how -- good education but then there's an opportunity for that education once you get into the labor market.

VELSHI: All right. Christine, Diane, Ken, thanks so much for joining us. Good conversation about the jobs report. Let's see what the future holds in terms of jobs.

All right. Does this man scare you? If you're a Republican in Congress the answer is probably yes. But in the last three weeks, more and more lawmakers have come out and said they are done with Grover Norquist and his so-called Taxpayer Protection Pledge. I'll introduce you to two of them right after this.

(COMMERCIAL BREAK)

VELSHI: Well, he might be the most powerful Republican in Washington. And he has not been elected to anything. Two hundred and thirty-eight members of the House and 41 senators in the outgoing 112th Congress signed have Grover Norquist's so-called Taxpayer Protection Pledge, which is a promise to never raise taxes.

At one point not signing the pledge would have been political suicide for Republicans. But now fears about the fiscal cliff and America's $16.3 trillion debt are pushing some, seen here, to renounce the pledge. I have been highlighting members of Congress who've recently said they are getting over Grover. One of those members is Representative Tom Cole of Oklahoma. He signed the pledge and now says he's not bound by it anymore.

Representative Cole, a month ago you wrote, "Allowing taxes to rise for just the top bracket may seem like an acceptable middle ground by comparison. But this path would be enormously damaging to the economy," which meant you weren't going to do it. Now you have been urging your fellow congressmen to agree to the president's plan to at least extend the Bush era tax cuts to those making less than $250,000 and then do battle over tax cuts for the wealthy later.

What has changed your mind?

REP. TOM COLE (R), OKLAHOMA: Well, first of all, nothing has changed my mind. And frankly you've mischaracterized my position. I'm not for raising tax rates on anybody. I don't think that's a good idea. Bad for the economy. It's going to slow down, going to hurt rates. So that's my position.

VELSHI: Right.

COLE: Not just because I signed a pledge but because that's what I believe. But what I have said is we agree with the president that taxes on 98 percent of the American people shouldn't go up. That's his position, that's our position. Why not just take that off the table right now, that's 80 percent of the Bush tax cut. We could make it permanent. We're still free to fight another day.

I actually think Speaker Boehner has put out a good position, which generates the revenue that he committed to, but doesn't raise rates. And I would certainly support that position that he's done. But I'm not for raising rates on anybody and I don't see what I proposed as a violation of the pledge. It's not a violation at all to take a temporary tax cut and make it permanent and still feel free to fight on the other.

(CROSSTALK)

VELSHI: But that kind of what -- but that's what this whole debate is about. The whole debate is about taking that temporary tax cut --

COLE: Ali, first of all, the whole debate is about a lot more than that.

VELSHI: Right.

COLE: It's about spending cuts and entitlements. And I actually think if we can resolve the revenue piece, particularly this piece that affects 98 percent of the American people, we can move on to where the debate should take.

VELSHI: Right.

COLE: Take place. But -- you know, again, I think if the two sides show on this area we agree, we can work together.

VELSHI: Fair enough but --

COLE: And let's take an offer.

(CROSSTALK)

VELSHI: But Representative Cole, but here's the issue. You did say let's get a deal done and the members of your party came down on you for that and said, no, no.

COLE: No.

VELSHI: That's not how we're going to do it. And that -- come on. We've got -- we've got --

COLE: Well, first of all --

VELSHI: Your colleagues who said that is not the way we're going to go.

COLE: Well, they are certainly free to have their opinions. I'm certainly free to have mine. But what I think people sometimes forgetting is if we don't act tax rates go up for everybody.

VELSHI: Right.

COLE: So, you know, the idea that, you know, I'm advocating raising taxes because I'm saying, look, let's take care of 98 percent right now before these rate hikes automatically go up. That's currently law, and then continue to fight on the others. You know, I just think that's number one the right thing to do. You don't punish the American people. You don't use them as hostages in a negotiation.

And number two, I actually think it's smart politics. It's good negotiating because it moves most of this debate over to the spending and entitlement reform side where it needs to be.

VELSHI: Congressman Cole, hang on there for a second.

COLE: Yes.

VELSHI: I want to bring in Congressman-elect Ted Yoho from Florida's 3rd District.

Mr. Yoho, 219 representatives and 39 senators in the incoming 113th Congress, which you'll be a part of, have signed the pledge. You are not one of them. And you say you are not going to sign.

Now when I ask you, is this a principle decision about Grover Norquist or the fact that you don't like pledges or are you not -- are you actually planning to support a tax hike on the top 2 percent?

TED YOHO (R), FLORIDA CONGRESSMAN-ELECT: No, I didn't sign that pledge because, number one, you know, the pledge I have made is I made a pledge to my country to -- you know I pledge allegiance to America. I made a pledge to my wife. Signing a pledge is not going to solve the problems. We've got a spending problem in this country. And I think there's better ways that we can deal with that.

VELSHI: I want to go back to Congressman Cole for a second. Let me just -- Congressman Cole, I like to take every opportunity I can to remind Americans about what this pledge is because we talk about it so much.

I've got the Norquist pledge here. It's the -- this is the congressional version. I, so and so, pledge to the taxpayers of blank district of the state of blank and to the American people that I will, one, oppose any and all efforts to increase the marginal income tax rate for individuals and/or businesses, and, two, oppose any net reduction or elimination of deductions and credits unless matched dollar for dollar by further reducing tax rates.

I want to hit on something you said earlier that it is current law if we do nothing the Bush tax cuts expire and rates go up. Is that fancy footwork to get out of the fact that you signed this pledge? Rate will go up and Grover Norquist --

COLE: No --

(CROSSTALK)

VELSHI: Grover Norquist doesn't share your compromising view on this.

COLE: Well, I actually -- you know, I'll let Grover speak for himself. But there's nothing in that pledge that says I -- you know, I can make a temporary tax cut permanent. I can't. It takes the agreement of a Democratic president and Democratic Senate to do that. I'm going to try and make as much of this tax cut permanent as I can, get as much spending cuts as I can. But, you know, I'm not voting to raise taxes. And I've never advocated that we should.

I think it's a mistake. It's a spending problem. It's an entitlement reform problem. And we're going to have revenue on the table whether we want it or not. I certainly don't think that -- if I allowed tax rates to go up on 90 percent of the American people or 98 percent of them, when I could stop it, you know, how would letting taxes go up be a violation or be keeping the pledge and taking most of them off the table and making those tax cuts permanent a violation?

That's just inconsistent.

VELSHI: Right.

COLE: One other item here, too, is there's the payroll tax.

VELSHI: Yes.

COLE: Nobody seems to be talking about that.

VELSHI: Yes.

COLE: If the -- if the pledge applies to one, it applies to the other because they're both temporary measures. We want to try and make as many of them permanent as we can.

VELSHI: It would be much easier, sir --

COLE: But we can't do them -- do them all.

VELSHI: It's be much easier if we didn't have all these temporary measures or pledges for that matter.

Mr. Yoho, have you ever spoken to Grover Norquist?

YOHO: Yes, I have. I've had the opportunity to speak to him. And I conveyed my feelings and he seemed to be OK with that. And again, I agree with Congressman Cole. We've got a spending problem in this country. We've got the revenue. And what we need to do is we need to get the economy growing to increase that revenue.

And, you know, I just want to remind you, too, I'm not a member of Congress yet.

VELSHI: That's right.

YOHO: I won't be sworn in until January 3rd and then after that point I'll get sworn at, I'm sure.

COLE: Ted, you're a lucky guy for the next 30 days. Enjoy it.

(LAUGHTER)

VELSHI: Enjoy it.

Gentlemen, thanks very much for joining us. We appreciate it.

Representative Tom Cole from Oklahoma and Congressman-elect Ted Yoho from Florida.

YOHO: Thank you, sir.

VELSHI: Coming up, low taxes have been an article of faith among Republicans for decades. But is the GOP willing to take us over the cliff just to avoid a small marginal increase for the top 2 percent? We'll delve into the philosophy and the math next.

(COMMERCIAL BREAK)

VELSHI: This changes so frequently but the last time I checked the Republican counterproposal in the fiscal cliff negotiations still includes Bush era tax cuts staying in place for everybody. President Obama has called that a nonstarter.

So what happens if we do actually raise taxes a little bit? Rates will still be much lower than what Americans paid just a generation ago. In 1980 the wealthiest Americans paid a marginal tax rate of 70 percent of their income to Uncle Sam. It's marginal, that's after a base level. Tax reform under President Reagan reduced that to 50 percent in 1981 and closer to current levels in 1986. Today President Obama wants to let the Bush era tax cuts expire for the wealthy Americans only kicking up their marginal federal tax rate from a 35 percent bracket to 39.6 percent. We're talking about a 4.6 percent uptick for households making more than $250,000 a year only on every dollar they make above $250,000. That's why it's called the marginal tax rate. It's only on the money you make on the margin.

Stephen Moore is an editorial writer at the "Wall Street Journal," he's ready to jump out of his skin after I just said what I said. He specializes in telling me why I'm wrong on taxes. David Cay Johnson is a Pulitzer Prize winning investigative journalist. His latest book is titled, "The Fine Print: How Big Companies Use Plain English to Rob You Blind."

Stephen, let me start with you. You are our resident anti-tax crusader. While I totally agree that every little penny counts when it comes to your own money, when you compare the taxes that most Americans paid out in past decades I don't get why Republicans are screaming bloody murder about this. What would be so bad with the wealthiest among us chipping in just a little bit more? I'm emphasizing just a little bit more.

STEPHEN MOORE, EDITORIAL WRITER, WALL STREET JOURNAL: Well, it's interesting when you -- showed that chart of the tax rates, Ali, and that was exactly accurate. We had 70 percent tax rates in the 1970s. By the way, that didn't turn out so well. And then we cut the rates pretty significantly. We went down to 50 percent and then 28 percent, and then -- you know, the rates went up a little bit to 35 percent.

But, you know, I would love to see you super impose on that chart --

VELSHI: Yes.

MOORE: -- the share of taxes paid by the rich because here's the interesting thing, Ali. If you put on that chart the share of taxes paid by the rich, as the tax rates came down, the share of taxes paid by the rich went substantially up from 20 percent in 1980 to almost 40 percent today. The problem I --

VELSHI: Doesn't that just mean there are more rich people?

MOORE: Yes. Definitely. That's what we want.

VELSHI: Or they make -- or the rich people make more money?

MOORE: Yes. And that's what we need. We need more rich people. Rich people pay a lot of the taxes. One of the reasons that the deficit went down in the 1990s was that you had a big increase in the number of people who are making money and they paid more tax.

There's nothing wrong with getting rich in this country. The problem we've had, by the way, in the last four years is the number of people who declare -- million-dollar tax filers on their tax forms has fallen by about a third. And so you're just not getting revenues.

And I guess my point is, I do not believe you're going to grow this economy by putting more taxes on people who create businesses and people who invest, and that's what most of those people in that higher income bracket do.

So I worry that it's going to suppress growth.

VELSHI: OK.

MOORE: Starting in the first quarter of next year.

VELSHI: So here's the distinction. I'm going to get David into this. Here's the distinction. Is it going to -- are we really going to grow the economy more by increasing those taxes? Are we going to suppress growth? Maybe not have as much growth? Or are we really going to hurt the economy? Because despite what Stephen is saying here, the rhetoric on Capitol Hill is you are going to hurt the economy if you raise marginal tax rates.

MOORE: I'm saying that. I'm saying that, too.

VELSHI: OK. Stephen is saying it, too. Fair enough.

(LAUGHTER)

MOORE: OK.

VELSHI: Stephen is there, too.

DAVID CAY JOHNSTON, AUTHOR, "PERFECTLY LEGAL": The empirical evidence isn't there. The average income of Americans has been falling since the Bush tax cuts. The bottom 90 percent of Americans' income has fallen back to the level of 1966, 1967. The top 1 percent of the top 1 percent, however, have seen their income go in today's dollars from $4 million a year to #22 million a year.

And the reason for this, I believe, is our tax system. It is redistributing upward. It is not investing in our economy. We are heading toward a third world state with our infrastructure, our roads are falling apart. Our bridges, our dams are putting lives in danger because we're not investing in the future.

All the other modern countries of the world -- are investing in education for young people. We're pulling back on education. Why? Because people like Steve believe earnestly and forthrightly that the real problem in America is we don't have enough rich people and they don't have enough money. I would argue the real problem is we're not investing enough in the future entrepreneurs, scientists and inventors.

VELSHI: So this is interesting, Stephen. Even though you may not think so, I actually listen to you from time to time. You said in last week's show that you think Republicans should be all about education.

MOORE: Mm-hmm.

VELSHI: But not spending on education. MOORE: Well, look. I want to challenge some of those numbers that David just mentioned.

VELSHI: Go ahead.

MOORE: I mean, if you look at what's happened to infrastructure spending in this country over the last 10 years it's gone through the roof. I mean, I live in Virginia. We're building this absurd rail project out to -- out to Dulles Airport, one of the most expensive projects in American history. Maybe the biggest boondoggle ever.

David, we're spending a lot on those programs you're talking about. Same thing with education.

(CROSSTALK)

MOORE: David, if you -- hold on.

JOHNSTON: We were spending 2.4 percent of our economy not 5 like the Europeans or 9 like the Chinese.

MOORE: David, explain to me this. How is it that in real dollars, we spent twice as much per student in the public schools today as we did in the 1960s and yet the test scores are falling? There is no relationship between how much we spend and the results we're getting.

JOHNSTON: I'm talking about higher education, Stephen. I wouldn't dispute with you as someone who teaches at Syracuse University Law School and Business School that we need to improve students performance tremendously. But more importantly, we're not investing in higher education. We're spending less than half as much as the Europeans on our infrastructure. They don't have roads falling apart and, by the way, not fixing our infrastructure is making our economy less efficient.

Today I had to spend $100 paying the pothole tax to get my car realigned once again because of potholes.

(CROSSTALK)

MOORE: But you know --

VELSHI: Go ahead.

MOORE: Let me just (INAUDIBLE) one quick.

VELSHI: Yes.

MOORE: I get so frustrated -- you know, week after week, you and others say we need more public infrastructure.

VELSHI: Right.

MOORE: And investment. What about private investment? If you look at the GDP numbers what's really fallen of a cliff --

VELSHI: Yes.

MOORE: -- has been business spending.

MOORE: Stephen -- we -- I am -- I've been talking about an infrastructure bank. Public-private stuff. Right? I mean, it does work in other countries. Would you object to the government having any role in an infrastructure build in this country?

MOORE: If you want more infrastructure, Ali and David, you can -- you think about 20 to 25 percent more roads and bridges and repairs. All we have to do is get something -- rid of something called Davis Bacon Act, which requires these union wages on all of these projects that inflate the cost. It's much more expensive to do a federal project than the private sector can do these things because of these workers.

JOHNSTON: So, Steve, you want the drive -- you want to drive down wages. I mean, that's what you wanted. Drive down wages.

MOORE: I want to get --

(CROSSTALK)

JOHNSTON: And that's what's been happening.

MOORE: David, I want taxpayers to get value for their money. I don't want -- look, what I'm saying is I don't want 5 to 10 percent of these infrastructure dollars going into the coffers of the labor bosses in America. And that's what's happening right now.

VELSHI: I -- really this is a -- it really is a very interesting, rich discussion. Doesn't answer the question I had in the beginning which said, will we -- will we really do a bad thing for the economy? As distasteful as it may seem to you, Stephen.

MOORE: All right. Ali --

VELSHI: Would we do a really bad thing to the economy if we went from 36 percent to 39.6?

MOORE: All right. I'm going to answer your -- Ali, I'm going to answer your question with a question for you, too.

VELSHI: Yes. OK.

MOORE: OK. Let's say that the Republicans, and I think in the end of the day they probably will give -- Barack Obama his tax increase on the rich. But you know what, then Ali and David, we go into 2013 with still a trillion-dollar deficit. And the question I ask you two, and President Obama, if he were on the show, what's act two? What do we do next? The president doesn't want to cut anything.

VELSHI: He's lumped us all in together. Let me ask you this, David, you do agree with Stephen on one thing and that is that there is some work to be done on curtailing inefficient spending?

JOHNSTON: There always will be. I mean that's shooting fish in a barrel. The best funded program we have, however, is Social Security. We shouldn't be talking about cutting it. Healthcare. For every dollar the other three modern countries in the world spend per capita in comparable dollars, purchasing parity dollars, we spend $2.64.

VELSHI: That's right.

JOHNSTON: And we still have 50 million people without insurance. If we could simply get France's health care system, widely regarded as the best in the world, we could functionally eliminate Social Security taxes or 80 percent of individual income taxes and we'd still have the same deficit.

And by the way, if you look at the federal budget numbers, the federal budget deficit is coming way down. The economy is improving. Higher taxes will allow us to create jobs where people are investing in things that make commerce work better. All private wealth is built on a foundation of common wealth. If we replace foundations of granite with foundations of sand, and that's where Steve's ideas lead to, then our super structures will have to collapse.

MOORE: Well, you know, David, what I'm hearing from you is three words. Tax and spend.

VELSHI: We're going to leave it at that because we're going to have a rematch here to continue this conversation. We're out of time and we don't want to not pay our bills, so I have to actually take a break.

What a great conversation.

MOORE: Thanks, Ali.

VELSHI: Thanks for of you both for bringing us -- my viewers some really great ideas.

Stephen Moore is an editorial writer with the "Wall Street Journal," David Cay Johnston is the author of "Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich and Cheat Everyone Else," among other books.

I have been warning you, by the way, about this fiscal cliff for months now. I call it the economic storm of our own making. But some of you think all the talk is overblown. Will a failure by Washington to avert the fiscal cliff really mean catastrophe for the U.S. economy?

I'm going to debate with Richard Quest up next.

(COMMERCIAL BREAK)

VELSHI: Time now for some Q&A. Just over three weeks left to make a deal and yet lawmakers in Washington continue to push America's economy toward a fiscal cliff. Both sides promising to cut trillions in government spending over the next decade but Republicans insist it could all be done without raising taxes on the rich.

President Obama insists it's a nonstarter. It is a mess. No one can argue that. But what actually happens if there is no deal? Are we, as some argue, making too much of the fiscal cliff deadline? Would it really be a catastrophe to hit it, go over it? Maybe for a little while.

Joining me now from London, Richard Quest, he is the host of "QUEST MEANS BUSINESS" on CNN International.

Richard, I've got 60 seconds to set you straight on this. I'll go first.

All right, Richard. It could be catastrophic if Congress doesn't get a deal by January 1st. The government will try to soften the blow of spending cuts and tax increases. They could delay the withholdings that people pay, even though tax rates are going up, or they could tell agencies to accelerate the spending at the new year to mitigate cuts that are coming.

But all o that assumes, Richard, that Congress will actually do something. Otherwise it could be catastrophic. I say don't count on it. If a deal can't be cut in the next three weeks -- three weeks why should we assume they'll cut one in January, especially when almost nothing gets done in the January of a new administration. This is a lame-duck Congress. They're waiting for a new Congress to be sworn in.

Think back to the debt ceiling, Richard, when nothing got done there. Think back before that to the discussions about TARP when nothing got done and the market had to force it. So the bottom line is I am not convinced that they will do the things to avoid the catastrophe. The fiscal cliff in it of itself is not catastrophic. Congress's inability to ever foresee the dangers and avoid them is.

Richard, you seem bored by my answer.

RICHARD QUEST, HOST, CNN'S QUEST MEANS BUSINESS: All right. So you want to play hardball.

You want to play hardball with international economics and see just what might happen. Of course nothing will happen on January 1st, the moment the fiscal cliff arrives. It's going to be a slow drip, drip, drip effect as people realize a slowing in spending, the taxes go up, consumers are worried.

It won't happen overnight. There's going to be no dramatic over the cliff we go. Instead, you will see an evaporation of confidence. You will see an evaporation of business decision-making. And that is where the tumor and the cancer will begin.

In the United Kingdom we've just had higher borrowing numbers and lower growth forecasts. Just last week the ECB came out with dreadful, dreadful numbers on how the euro zone is performing. Recession this year and possibly next.

And you want to play games with something as important as the U.S. budget? I'm going to finish here. The core worry is three weeks out.

VELSHI: Yes.

QUEST: And an inability to do a deal.

VELSHI: Right. So the catastrophe may not come January 1st or January 2nd or even January 30th. The catastrophe is long term because of the erosion of public confidence in the United States.

Richard, thank you, my friend.

QUEST: It's happening -- now.

VELSHI: Yes. It's happening now. Absolutely.

QUEST: It's happening now.

VELSHI: We see it in the jobs numbers.

QUEST: Now. As you and I are --

VELSHI: That's right.

QUEST: Whilst you and I are enjoying our weekend.

VELSHI: Yes.

QUEST: It is happening.

VELSHI: You are right. We are agreed on this one.

Richard Quest, the host of "QUEST MEANS BUSINESS" on CNN International. Make sure you catch him when you're on the road.

OK. Trucks like these transport everything from food to washing machines to the earmuffs that you ordered online today. With the cost of diesel rising America's trucking companies are looking elsewhere for their fuel. I'm going to tell you where they are looking right after this.

You're watching YOUR MONEY. This is CNN.

(COMMERCIAL BREAK)

VELSHI: America is in the middle of an energy boom. The U.S. has become the so-called Saudi Arabia of natural gas. Production has soared 26 percent in the last five years. That is pushing the price of natural gas down. It now costs less than half of what it did five years ago.

Now in 2011, natural gas, 99 percent of it, went to residential, commercial, and industrial use or was used to create electricity. Less than 1 percent is used as vehicle fuel, but U.S. trucking firms are looking to push that number higher. Why? Why does anyone do anything? Cost.

While we've seen strides in battery technology for transportation, 18- wheelers can't be run on electric power just yet. Diesel is costly. Prices have dropped -- well, they did drop down $2 a gallon -- down to $2 a gallon back in 2009, but they've doubled since then.

A gallon of diesel costs between $1.50 and $2 more than the equivalent in natural gas. That means the increased cost of a natural gas powered truck could be paid off in a couple of years.

CNN's Tory Dunnan has the story.

(BEGIN VIDEOTAPE)

TORY DUNNAN, CNN CORRESPONDENT (voice-over): Diesel is king here at the Flying J Truck Stop near Richmond, Virginia. With it, Nathaniel Keating has pushed his rig 3.5 million miles.

NATHANIEL KEATING, TRUCK DRIVER: You name it, I've hauled it.

DUNNAN: But truckers here don't have to look far to see the future. Along in the corner is a new new liquefied gas island. LNG, as it's called, is cheaper, cleaner, and supporters say, more plentiful than diesel. But there's a problem.

(On camera): Say you want to drive a truck like this coast to coast using only liquid natural gas. Here's what you'd be up against. These are the only open and public LNG fueling stops across the country and there are only actually 30 of them. A tank of LNG would take you about 700 miles, so going westward from Washington, D.C., unless you go completely out of your way, you'd run out of gas just outside Nashville.

(Voice-over): It's what the industry calls the chicken-and-egg dilemma. What comes first? New trucks or new pumps? The American Trucking Association's recently held a sold-out summit about just that.

T. BOONE PICKENS, BOARD MEMBER, CLEAN ENERGY: It's going to happen, I promise you. It's going to happen.

DUNNAN: Texas oilman turned natural gas crusader T. Boone Pickens says Henry Ford faced the same problem.

PICKENS: If someone said to him, Henry, have you thought about it? You don't have any filling stations. He said, oh, gosh, I never thought about that. Well, I'll forget this idea. That's not what he said. Don't worry about it. You'll get filling stations. If the car shows up, the filling stations will come.

DUNNAN: By spring, the number of LNG stops will sky rocket to about 150. But when they'll open is uncertain.

You'd think environmentalists would be thrilled at the prospect of replacing dirty diesel with clean natural gas. Not quite.

FRED KRUPP, ENVIRONMENTAL DEFENSE FUND: We think a rush to liquefied natural gas is a mistake.

DUNNAN: While natural gas may burn cleaner, problems arise when the gas leaks. KRUPP: The leakage of that gas itself is such a potent greenhouse gas, 70 times more potent than carbon dioxide. That undermines the greenhouse gas advantage.

DUNNAN: Bottom line, the industry says LNG is cheaper than diesel fuel.

KEATING: But I think it will work in the end.

DUNNAN (on camera): Just a matter of time?

KEATING: A matter of time.

DUNNAN (voice-over): Tory Dunnan, CNN, Washington.

(END VIDEOTAPE)

VELSHI: Don't be looking for liquefied natural gas powered cars anytime soon. Automakers are starting to develop cars that run on compressed natural gas, CNG, but with just 536 public CNG filling stations across the country, the U.S. is still years away from powering its cars using natural gas.

Well, natural gas is just one of the things that could make 2013 a great year for the U.S. economy. Is the doom and gloom surrounding the fiscal cliff actually obscuring an economic resurgence?

(COMMERCIAL BREAK)

VELSHI: A positive jobs report on Friday serves as another reminder that the fiscal cliff may be obscuring the fact that America is actually poised for an economic renaissance. Short-term indicators are looking good. Jobs are being created. Consumer debt is shrinking. Goldman Sachs said last week that despite a market rally this year, stocks can rise another 10 to 15 percent in 2013.

Forget silver linings, housing has been the golden lining around the economic cloud. With mortgage rates expected to stay low through 2014, home affordability is as good as it's been in generations. Now that's going to attract buyers who've been spending the last few years waiting for these prices to bottom out. With home prices rising, confidence will return.

Longer-term prospects also give me real hope. We're in the midst of a domestic energy boom that is going to fuel growth for years to come. But all of this only works if America plays its cards right and for that, we need a deal to avert the fiscal cliff.

Let me know what you think. You can find me on Facebook at Facebook.com/Alivelshi. Or tweet me, my handle is @alivelshi.

Thanks for joining the conversation this week on YOUR MONEY. We're here weekdays 3:30 p.m. Eastern and every Saturday at 1:00, Sundays at 3:00.

Have a great weekend. (END)