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YOUR BOTTOM LINE
Still Good To Be Rich; Jobs Market Treading Water
Aired January 5, 2013 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, HOST: Thanks, Randi and Victor. See you at the top of the hour.
OK. For the first time in 20 years, higher taxes for America's richest taxpayers. Oh, but it's still very good to be rich in America.
Good morning, everyone. I'm Christine Romans.
The deal to avert the fiscal cliff redefines who's rich and who's not. And it sets the bar pretty high. Tax rates for individuals making more than $400,000 and couples making more than $450,000 will jump from 35 percent back to 39.6 percent.
Setting the bar at $400,000 instead of the $200,000 the president wanted, it means only 0.7 percent of tax filers will be hit with that rate increase. The top top earners, they came out pretty well after all. It's true, they also face higher taxes on their investments. The rate on dividends and capital gains rises from 15 percent to 20 percent.
But it could have been worse. The idea to tax investment income as ordinary income subject to a 39.6 percent rate, that was scrapped. That saved millionaires and billionaires billions.
And, yes, estate taxes are rising from 35 percent to 40 percent, but how about this sweetener for the wealthiest Americans? The first $5 million of an estate is exempt. It could have been $1 million. And that exemption will now be capped for inflation, adjusted for inflation.
So, yes, taxes are rising for the super rich. But they're not the only ones. Under the new law, three-quarters of Americans will pay more. Those in the middle making between $50,000 and $75,000 a year should expect to pay about $822 more.
The tax bite for the middle class comes at the end of that tax cut, a temporary tax goody that wasn't renewed as part of this deal. Workers will pay 6.2 percent in payroll taxes, up from the 4.2 percent they paid the past couple of years.
Greg Valliere is chief political strategist at the Potomac Research Group, former "New York Times" columnist Bob Herbert is a senior fellow at Demos; and Zanny Minton Beddoes is economics editor at "The Economist".
Welcome to all of you. Greg, President Obama ran an entire campaign promising the wealthy would be forced to pay what he termed their fair share. Did the rich get a good deal here?
GREG VALLIERE, CHIEF POLITICAL STRATEGIST, POTOMAC RESEARCH GROUP: I think they got off pretty easily, frankly. I think Obama had to compromise in order to get any kind of deal at all.
You know, my bottom line, Christine, is that the markets -- both the stock and bond markets -- are the arbitrage (ph) here. The markets have done very well in the last few days because the bottom line is that we avoided a recession.
ROMANS: Bob, the president promised to raise taxes on individuals making more than $200,000 -- $200,000 a year and couples making more than $250,000. Listen.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If we're serious about protecting middle class families and we're also going to have to ask the wealthiest Americans to pay higher tax rates. That's one principle I won't compromise on.
(END VIDEO CLIP)
ROMANS: A principle he didn't compromise on, but the number behind the principle, he did. That was December 8th. By so widely defining the middle class now, all the way up to $400,000.
BOB HERBERT, DEMOS: Right.
ROMANS: Doesn't that give a big pool of people that you're going to have to go after later and ask for more from?
HERBERT: If they're serious about debt reduction, they're going to have to do that.
But I don't think anybody seriously thinks that families with an income of $400,000 are not most people think of them as middle class. The truth is that I agree with you that I think the wealthy got off pretty easily here. There's a modest tax increase for the very wealthiest in society, very tiny percentage.
I, frankly, think that there are more tax coming and they're going to bite deeper into the middle class.
ROMANS: You know, but, Zanny, you can't just tax the rich to fix our problems, whether the rich is $200,000 or $400,000. Do you agree they got off easy here, first of all? Second of all, it can't be just about taxing the rich and taxing people to fix our problems.
ZANNY MINTON BEDDOES, ECONOMICS EDITOR, THE ECONOMIST: Absolutely. I think it's -- I mean, you can say that the rich got of lightly. But I will put it a different way, which is that we didn't really solve the problem. What this deal did was to put off the short-term calamity of these kind of huge tax increases and spending cuts, but we didn't really do anything to solve the U.S.'s median to long-term fiscal problem. And solving that is going to have to demand entitlement reform, which the left doesn't want to talk about, and it's going to demand more on taxes.
ROMANS: You know, Greg, one of the things I'm hearing from Republicans this week is I'm hearing -- look, we did what you all wanted on the left and what the president wanted. We -- OK, we raised taxes on the rich, even though rich is now $400,000 and above. We raised those taxes. Now come the spending cuts. Now, we have the leverage in the spending cut fight.
VALLIERE: I agree. And I think the battleground is now shifting. The Republicans will now get to their sweet spot. And that's to say we've got to do something about spending.
The polls support them. The Republicans are totally unified on this. While the Democrats, especially on the left, are not unified on any additional spending cuts.
This is going to be a very juicy battle for the next two or three months on spending.
ROMANS: But, you know, Zanny, when I talk to Republicans, I say, OK, I get that you want to go after spending cuts. What are you going to cut? Are you going to cut unemployment benefits for your constituents?
Are you going to -- do you think -- what specifically do you want to cut? Are you going to cut defense? What do you want to cut?
I don't get a lot of specifics quite yet.
BEDDOES: You're absolutely right. I don't think very many people do. Republicans are very good about talking about spending cuts in general. When you push for specifics, there don't seem to be very many specifics.
And I think what we're going to see over the next couple of months is yet again a whole load of fireworks, a whole load of brinkmanship, but probably another thing that looks a bit like this one, which is kicking the can down the road, because people don't want to deal with the tough questions of how do you reform entitlements. This country has to reform entitlements. I think it's impossible to think about the next 10, 15 years without doing that.
It's politically very tough, so it's easier to come up with these short-term solutions.
HERBERT: I agree with Zanny that, you know, I think that we have not dealt with our most serious problems. You know, this is -- we've not only kicked the can down the road, we haven't given any indication that down the road, we're going to engage these problems either.
We're not doing anything real about deficit reduction, debt reduction. We're not doing anything real about entitlements, including even talking about what makes sense in terms of cutting entitlements. And we haven't done anything serious about jobs, which is going to be the cornerstone of a long-term, healthy economy.
So I think that they're playing these, sort of, political brinkmanship games in Washington, but they're not really engaging the biggest issues facing the country.
ROMANS: I would say the public is equally polarized when you talk about this debt.
Greg, you know, when I -- when we say the word "entitlement" on this show, I get all this hate mail from people who say it's not entitlement. It is a benefit that I'm deserved. Why do you want to cut granny out of the equation?
You know, what I mean? It gets very -- is it going to calm down at all or are we in the midst of one budget war after another?
VALLIERE: It's probably the latter. It's very emotional as you say, and I'm afraid if we do keep kicking the can down the road, if we're unable to deal with this, the credit rating agencies will inject themselves into this narrative.
ROMANS: Right. No one moves, because we're going to talk more about this in two seconds, because we do have to pay bills here and we do have a budget. So, hold on, everybody.
Congress has set into stone as much as you can tax rates in America. They still have to come up with a plan to deal with those budget cuts. They also did come up with a plan to deal with the debt ceiling and the budget resolution -- yes. All of this and the fighting holding back America's growth. I'll tell you how to fix it right after this.
ROMANS: OK. So the American economy is adding jobs, but not really as robustly as you would want.
I mean, take a look. You've got an economy that sells 14.4 percent underemployment rate. You still have 4.8 million people who have been out of work for 27 weeks or longer. And 39 percent of the people who have been out of work are long-term unemployed. That's still a problem.
And over the last year, the economy adding on average about 153,000 jobs each month, well below the 200,000 to 250,000 you really want for a real and durable recovery.
Want to know why job growth remains so sluggish? Look no further than Washington, D.C.
I want to bring back Zanny Minton Beddoes, Bob Herbert, and Greg Valliere.
Zanny, Washington D.C.'s chief export these days apparently is uncertainty. We are the world leader in uncertainly. I would say we even top Europe in that. And that uncertainty is preventing businesses from planning ahead and hiring. Is this the new normal?
BEDDOES: I think it is. I hate to say it, but I think it is. I think we have to get used to the fact that Washington is in this environment where it's going to keep kicking the can down the road. You're right. It's becoming like Europe. I hate to say that.
But it's not going to go away. I just don't think -- I think the next two months, there are going to be more uncertainty. I suspect the American economy will -- American business will adapt, will deal with this continuing uncertainty but certainly the world would be much better off if we didn't have this export of uncertainty from D.C.
ROMANS: You know, Greg, I will tell you I'm so surprised that the S&P 500 is 13 percent last year and you did have 155,000 jobs created in December, right, despite all this craziness we've gone through.
ROMANS: What do we need to do? The president and the 113th Congress, what do we need to do to boost job growth? Or is it what they shouldn't do to mess it up?
VALLIERE: Well, I think we won't do what's need. We won't provide the certainty.
But I think the key theme here is going to be learning how to live with it.
And one of the things that impressed me the most in the last few days is what happened in the bond market? Treasury 10-year bond yields are moving higher. That's a sign in the markets that despite all of this Washington nonsense, the economy is healing. Slowly, but the economy is healing.
So I think rates may head even a little bit higher.
ROMANS: Oh, that's a very -- some people are talking about a bond, 40 percent of people surveyed by CNN Money said that they thought a bond bubble would burst within the next year. So, that means 60 percent don't, of course. But we've been looking for rates to rise for a long time.
Bob, let me talk about the long term unemployed. We've been talking about the jobs numbers this week, 39 percent of people who are out of work, have been out of work for six months or longer. This, to me, is the most critical part of the jobs market.
If you can't get those people engaged, back in the economy, those are families who have forever lost earnings ability and a foot on the ladder into the middle class.
HERBERT: Right. This is what I think is the new normal going forward, lower standards of living. You have these folks who have been out of work so long. It's very unlikely they're going to come back into the job market at jobs that pay the kind of jobs they had before they were unemployed.
But a quick stat, if you take college graduates from 2006 with a four- year degree up until now, only a little more than 50 percent have full-time jobs of any kind, and many of them have jobs that don't require a four-year degree.
This is not the kind of basis that you can build a strong economy on, going forward.
ROMANS: What do you tell young people about that? What do you tell them that their country and their economy are doing for them?
HERBERT: Well, the thing we need to be doing that we're not doing is making investments. We need investments in education. We need investments in infrastructure. We need to make higher education more affordable.
But you can't do that with the kind of deficits we're talking about, which is why I think we should have let the Bush tax cuts lapse all together for everyone.
ROMANS: You know, Zanny, you talk about investments and that sounds like spending in a world where overspending is the buzz word.
BEDDOES: Well, that's part of the problem right here. You know, on one side thinks all kind of spending is terrible. I agree that we need to have entitlement overhaul. I agree there are some spending that can be cut.
But I think you're absolutely right, this country needs investment in some areas, needs investment in infrastructure, needs investment in refocus, retraining programs and things like that. One lesson actually that could be learned from Europe, because the Europeans have messed a lot of this stuff up in the past. In the early 1980s, Europe had very high unemployment, very high long-term employment, and they didn't do very much about it.
It became a millstone around these economies, a scar on them. And I really worried that long-term unemployment and people who will never be able to get properly back into the job market will be a big problem for this country, if not more is done.
ROMANS: Greg, you were talking about interest before. You know, if you've got interest rates this low, heck, shouldn't we be borrowing money cheap and investing in building out for tomorrow?
VALLIERE: I've got to say this, Christine. I think the House wants vengeance. The House has been humiliated. I think there are a lot of conservatives in the House who would not want to spend one additional dime on new infrastructure, any kind of investment.
I think the focus now in the next two or three months is going to be on cutting spending.
ROMANS: Wow! And that's going to be a fight, you guys.
ROMANS: I mean, we agree, right? A big, big fight.
All three of you, have a great weekend. Thank you so much.
HERBERT: Good to see you, Christine.
ROMANS: Nice to see you.
BEDDOES: Thank you.
ROMANS: All right. Job creation and budget battles hardly the president's only challenges ahead. Remember the promise made in the days following the Connecticut school shooting?
(BEGIN VIDEO CLIP)
OBAMA: I will use all the powers of this office to help advance efforts aimed at preventing more tragedies like this.
(END VIDEO CLIP)
ROMANS: Coming up, are guns a threat to the public health? You might think police and law enforcement are your first line of defense against gun violence? Maybe it should be your doctor.
ROMANS: All right. What if I told you about a huge burst of economic activity? A part of the economy that is booming?
It's the run on guns. The mass murder at a Connecticut elementary school shook the nation and sent gun buyers rushing to the stores. FBI background checks, one proxy for sales, they set a record last month. The FBI conducted nearly 2.8 million checks in December, up 39 percent from November.
The gun industry says firearms and ammunition provide 200,000 jobs for Americans, and generate nearly $32 billion for the U.S. economy.
But there are also costs. More than 30,000 Americans were killed by guns in 2010. Here is something interesting: 11,000 were homicides. The rest were suicides. The CDC says those deaths cost society more than $42 billion a year, $10 billion more than the industry says it generates.
And gun deaths could soon outpace traffic fatalities. Let me show you this chart from "Bloomberg News". It projects nearly 33,000 gun deaths in 2015 versus 32,000 traffic deaths.
Two weeks ago, CNN International's Christiane Amanpour, she told me the Connecticut shooting, it should be a game changer.
(BEGIN VIDEO CLIP) CHRISTIANE AMANPOUR, HOST, CNNI'S AMANPOUR: This was a red line by anybody's account. These were babies. This was a biblical slaughter of the innocents. And I want to know well this is the kind of society that we are going to accept for ourselves.
(END VIDEO CLIP)
ROMANS: The medical community is now asking the same question.
Dr. Christine Laine is editor of the "Annals of Internal Medicine."
Dr. Laine, welcome to the program.
You co-authored an editorial calling on physicians to get involved in a debate over U.S. policy. You say, quote, "The relative science of the health professional on matters related to gun violence is disturbing."
Dr. Laine, what role can doctors play?
DR. CHRISTINE LAINE, EDITOR, ANNALS OF INTERNAL MEDICINE: Well, I think the basic role that doctors can play is to stop being silent on this issue and to start to speak up.
And there are three things that doctors should speak up about.
One is to end the moratorium on research about gun safety and gun violence so that we can come up with gun policies that are based on evidence rather than emotion and politics that keep the public safer.
The second thing is that doctors can talk to their patients. Gun ownership is not probably going to go away in this country. So that it's our imperative to keep our patients safer with respect to guns, just like it is with respect to tobacco and alcohol and motor vehicle accidents. So to have those conversations.
And the third thing that doctors can do as these discussions are going on is to be involved to -- because we need to figure out -- we need to learn more about the associations of mental illness and substance abuse with violence and come up with ways to mitigate the risks that people with these problems are going to hurt themselves or others.
ROMANS: Now, the number-two thing on your list is doctors talking to their patients about, you know, their gun habits, the gun ownership in their household. There's a little-known provision in Obamacare that's so interesting, it actually bars -- physicians say it bars doctors from asking patients about gun use. Some physicians say it's impossible to get federal funding for gun studies.
Tell me, is the gun lobby in your view thwarting the public health aspect of gun violence?
LAINE: I think that it is. I think that it's definitely a public health issue. The statistics that you mentioned in the introduction show that quite clearly. And that the laws that inhibit doctor/patient discussions about guns or about any other thing that threatens their health is really dangerous and really frightening. One of the most frightening things about all of the conversation that's going on on this topic right now.
ROMANS: When an industry's products hurt consumers, society regulates it. Doctors are often involved in discussion, think tobacco advertising, think air bags, seat belts, speed limits. In fact, traffic fatalities have fallen because the industry has embraced safety.
Do you think there is a lesson there for gunmakers?
LAINE: You know, cars can cause deaths and injuries. And the automobile industry has really stepped up to make cars safer. The medical profession was vocal in conversations about how to make cars safer, child restraints, seat belts and all of that.
And I think there are a lot of parallels. And the culture has really changed in the car industry now. Now, the car industry brags about how safe their cars are. It would be nice if the gun industry could brag about how safe their firearms are.
ROMANS: Dr. Laine, I should say that we reached out to representatives of the industry and the trade association for the gunmakers, and they did not return our calls, seeking comment or to participate in this -- in this broadcast.
We'll continue to try to get some response from the industry about how it can try to make its product safer for people who are, you know, who are harmed by it for sure.
Dr. Laine, nice to see you. Thank you so much.
LAINE: Thank you so much.
ROMANS: All right. Coming up, have you heard enough about the fiscal cliff?
(BEGIN VIDEO CLIP)
OBAMA: The fiscal cliff --
SEN. HARRY REID (D-NV), MAJORITY LEADER: The fiscal cliff --
UNIDENTIFIED MALE: Over the cliff.
UNIDENTIFIED MALE: So-called fiscal cliff.
(END VIDEO CLIP)
ROMANS: I'll rant on the metaphorpalooza and why it isn't over yet.
ROMANS: If there is one thing America is tired of, it's the fiscal cliff. And not just the cliff itself, I'm talking about the talking about the cliff. The more wonky and arcane the budget battle got, the more Washington reached to explain it.
ROMANS (voice-over): Just like the yodeler in the cliffhanger's game on "The Price is Right," we did fall off a cliff.
A metaphor cliff.
OBAMA: Fiscal cliff.
REID: The fiscal cliff.
UNIDENTIFIED MALE: Over the cliff.
UNIDENTIFIED MALE: So-called fiscal cliff.
ROMANS: Or maybe not.
Cue Julie Andrews in "The Sound of Music."
DANA BASH, CNN SENIOR CONGRESSIONAL CORRESPONDENT: It is more of a slope.
RICHARD QUEST, CNN INTERNATIONAL ANCHOR: It's not a cliff. It's a slope.
UNIDENTIFIED MALE: It's really kind of, of a slope.
ROMANS: Hill, cliff, slope -- be honest: it felt more like this --
UNIDENTIFIED MALE: This place is starting to have the feel of the movie "Groundhog Day."
UNIDENTIFIED MALE: This is pitiful.
ROMANS: At least the movie made you laugh, this was more like "The Hurt Locker."
JOHN AVLON, THE DAILY BEAST: Congress set this time bomb. Now, they're scrambling to defuse it.
ROMANS: In the end, the cliff, slope, bomb, Groundhog Day, call it what you will, it became a bill and a new metaphor.
UNIDENTIFIED MALE: Kick the can down the road.
UNIDENTIFIED FEMALE: Just kicking the can down the road --
UNIDENTIFIED MALE: Kicking the can.
UNIDENTIFIED MALE: Kicking the can.
UNIDENTIFIED FEMALE: We are done with kicking this can down the road. We grabbed that can. And that can is called spending cuts.
ROMANS: But, hey, we're not blameless. (on camera): That's congressional malpractice.
ALI VELSHI, CNN ANCHOR: Economic storm of our own making.
JOHN BERMAN, CNN ANCHOR: We are in detox from our fiscal cliff addiction.
ROMANS (voice-over): But the masters reside in the halls of Congress.
UNIDENTIFIED MALE: Like a bull in a China closet.
UNIDENTIFIED MALE: They're like salespeople who tell their customer they can have the $30,000 car.
UNIDENTIFIED MALE: We should look at those who have lit the candle.
UNIDENTIFIED MALE: Like an airplane, did we climb over it? No.
ROMANS: So now, can we please put the metaphors out to pasture?
REP. LLOYD DOGGETT (D), TEXAS: We soon face the Valentine's Day cliff and perhaps the April Fools' Day cliff.
JENNIFER PSAKI, OBAMA 2012 CAMPAIGN: What the president was saying was I'm not going to play chicken with the debt limit.
ROMANS: I guess not.
ROMANS: So, we're going to examine the mini cliffs ahead and torture some more metaphors coming up with my friend Ali Velshi at 1:00 p.m. Eastern. I promise you'll be smarter and madder about the fiscal cliff when we're done with you.
Find us on Facebook and Twitter. Our handle is @CNNbottomline. My handle is @ChristineRomans.
"CNN SATURDAY MORNING" begins with Randi Kaye, right now.