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YOUR MONEY

Economists Survey American Economy; Corporate Tax Rates Examined; Interview with Warren Buffett

Aired June 15, 2013 - 14:00   ET

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


CHRISTINE ROMANS, CNN ANCHOR: Another week of volatility in the markets. The reason? Global unrest and uncertainty about the Fed's role in propping up the economy. I am Christine Romans. This is "YOUR MONEY."

(BEGIN VIDEO CLIP)

From space, earth appears peaceful. But take a closer look. While science points to a U.S. economy that is ready to take off, the rest of the world is struggling to take flight. Riots in Turkey, slow growth in China, unrest over harsh cuts in Greece. From extreme greed to extreme fear, concerns over a global recession already creating volatility for investors. This week saw the biggest single day decline in the Dow this year.

UNIDENTIFIED MALE: I would give our economy a B to a B-plus.

UNIDENTIFIED MALE: The other guy is dragging us down.

ROMANS: So why might you be feeling optimistic? Housing prices on the rise, consumer confidence at a five-year high, fewer Americans filing for unemployment. But will America's comeback continue, or will the U.S. be dragged down by a world economy in turmoil?

(END VIDEO CLIP)

ROMANS: I want to bring in Keith McCullough and Michelle Meyer. Keith is the CEO of Hedgeye Risk Management, and Michelle Meyer is secretary economist at Bank of America. Nice to see both of you this weekend. Keith, let's start with you. You say the economy gets a B- minus but we could get an A. What makes you so optimistic? How do we get that A?

KEITH MCCULLOUGH, CEO, HEDGEYE RISK MANAGEMENT: I think if we did more of the same, it would be awesome, Christine. I'd actually say B- plus could be an A because an A actually is what it is relative to the rest of the world already. To get a stronger dollar would be easily my number one choice. So perversely to have a strong dollar we need to get Ben Bernanke out of the way. So for me, the thing that scares me the most is actually him not getting out of the way. I think if you get him out of the way. and the market is trying to get him out of the way at this point, what ends up happening is the dollar strengthens, commodity prices come down, job growth has been very good, I think. And at the same time you start to get some consumption growth in the economy as well, which is just really how this economy works.

ROMANS: Household balance sheets have been improving. Keith, when you say get Ben Bernanke out of the way, you mean is strong enough on its own that he doesn't need to be pumping $85 billion a month into the economy?

MCCULLOUGH: Yes, I just want the guy out of the way. Again, he has to stop with the bond buying.

ROMANS: Take off the training wheels and let's let it go. Michelle, what's your rating on the U.S. economy?

MICHELLE MEYER, SENIOR U.S. ECONOMIST, BANK OF AMERICA: I don't know. I would be a little bit more careful than Keith and say let's move all the policies and remove Ben Bernanke's presence in the economy. The Fed has done an extremely important role in the past several years of lessening the impact of this recession. It was a real meltdown we were experiencing in '08. And what we are seeing now is an economy that's still healing from this deep recession.

So, yes, things are working better in the economy. The housing market is looking better, auto production sales are picking up. Some of the most cyclical parts of the economy are healing and showing strength, strength that ultimately generates a more sustainable, healthy recovery in the U.S. And I think we are on the beginning, in the beginning stages of that.

But what would worry me is that if you take away this Fed policy too easily and you create a big spike in interest rates, borrowing costs go up. And two of the sectors that are performing the best, housing and auto, could start to suffer. So I think you have to be very, very careful when you are this I go about policy prescriptions for the economy.

ROMANS: What you are both illustrating to me was the word of the week, taper. It is not a candle. It's what everyone thinks the Fed is going to do with its bond-buying program. The economy improves, and just a hint of that has pushed the volatility index, the fear index, up 27 percent higher over the next month. Keith, what would actually happen when the Fed actually pulls back? Assuming you get your wish and Ben Bernanke steps out of the way, how do markets respond?

MCCULLOUGH: And to be clear, I don't want the guy to jump off the cliff. I just want him to get out of the way at a measured pace. So again, jobless claims continue to surprise on the downside. Housing continues to get better and consumption is good. The guy should get out of the way.

So what I would suspect is not this freak out of interest rates going higher. As a country, people are really, really scared where they should be much more progressive in their thinking. If you go back to 1982 or 1992, interest rates were up and the world didn't end the last I checked. So, again, interest rates going up is a pro-growth signal. I think Americans are tough enough to handle it. And I think people are tired of the whole fear-mongering about what might happen if a central planner doesn't hold our hand.

ROMANS: Speaking of fear-mongering, maybe this is fear-mongering or maybe this is just a really smart forecast. According to Pimco, the world's largest bond investor, we are likely to see another global recession in the next few years. U.S. economy growing by 2.4 percent each years, but Europe's economy continues to struggle, even China's growth has been slowing. Michelle, what effect would another global recession have on this U.S. recovery?

MEYER: It would be pretty poor timing. If growth in China is slower than we're all expected, if Europe starts to weaken significantly again, of course it will impact global trade. It will impact the U.S. recovery as well.

You are already seeing some signs of. In the U.S., our manufacturing industry has been slow to recover. We have seen some weak survey data recently, some weak output data outside of auto production here in the U.S. We are a global open economy, and what happens in China, what happens in Europe will certainly matter for our outlook as well.

ROMANS: Michelle, for most the people who are watching us, it is maybe their house or their job is how they are going to create wealth. It is not going to be a big investment portfolio. So talk to me a little bit about both of those two things. For someone watching who says, I have no control over China or Ben Bernanke. How can regular people make money or protect their money. What do you tell people?

MEYER: That's a great question, a very fair question to ask. I think housing has a big part of that. We are seeing real signs of life in the housing market. It is quite encouraging. Last year home prices are up about 7.5 percent nationally. This year I think we can see eight to 10 percent appreciation on the year. Granted, we are coming off a very low level, so there are still a lot of homeowners underwater on their mortgage, a lot of homeowners that would have to realize a loss if they were to sell.

But we are seeing momentum start to build in the market. So the outlook should be much more positive in terms of future home prices. And that's one of the biggest assets for household balance sheets. So starting to see the appreciation is very powerful in terms of building back household wealth and fueling consumer spending and helping to support overall confidence.

ROMANS: Do you agree with this, Keith?

MCCULLOUGH: Big time. It is the first time since 2005, 2006 that your home and stock market portfolio are up double digits at the same time year to date. I think that is one of the most misunderstood and positive things that's driving positive consumer confidence. You get a lot of people that are getting very regressive, whereas Americans are kind of fed up with that. They are getting on with their life. The things they own are actually going up in price. Housing prices we think could be up 12-15 percent year over year, Christine, which I think would just be phenomenal.

ROMANS: I hope that is in my zip code. All real estate is local. Keith, Michelle, both of you have a great weekend.

MEYER: You as well

ROMANS: Double Irish with a Dutch sandwich. It is not the latest lunch craze. It's a corporate tax gimmick and exactly the next kind of loophole that has my next guest crying out for business tax reform.

(COMMERCIAL BREAK)

ROMANS: The double Irish with a Dutch sandwich. I mentioned it before the break. It's a strategy that lets companies like Apple route their profits around the world so they can pay less in taxes. It is perfectly legal. Why do companies go to these lengths and extremes? Because at least on paper, the U.S. has the highest corporate tax rate in the world. The U.S. tax rate is 39.1 percent. That takes in account federal and local taxes, too. The average for the developed world is 25.5 percent.

But let's be clear, most companies do not pay that top rate. Thanks to loopholes and special treatment for certain types of businesses, S&P 500 companies pay closer to about 29 percent. Some sectors like utility companies pay an average of just 12 percent while big energy companies pay more. It is a system that encourages companies to employ armies of accountants and tax attorneys to lower their tax burdens. Who is at fault? Just ask Senator Rand Paul.

(BEGIN VIDEO CLIP)

SEN. RAND PAUL, (R) KENTUCKY: I think that the Congress should be on trial for creating a bizarre and Byzantine tax code that runs into the tens of thousands of pages, for creating a tax code that simply doesn't compete with the rest of the world.

(END VIDEO CLIP)

ROMANS: Senator Rand Paul makes a very good point. Congress of course writes these laws and is the owner of those volumes of books that are the tax code full of loopholes. Some of those tax codes and loopholes written by the industries that benefit from them.

I want to bring in Laura Tyson. She was the chair of President Clinton National Economic Council. Today she is an economic adviser to the Alliance for Competitive Taxation. OK, Laura, you say that reforming the corporate tax system could unleash economic growth. Tell me how.

LAURA TYSON, ECONOMIC ADVISER, ALLIANCE FOR COMPETITIVE TAXATION: Well, basically, we're starting with the notion of really bringing the corporate tax rate down. Study after study has shown, as the OECD recently said, corporate taxation is the most inefficient form of taxation. It discourages investment. It encourages companies when they can be mobile to look for lower tax environments to place economic activity.

If we want to create investment incentives here for U.S. companies and for foreign companies and for jobs here, we have to start with a competitive corporate tax rate. So that's the first step, bringing the rate down.

The second step is paying for that by getting rid of the kind of loopholes, preferences, credit subsidies that have been added to the code over the past 30 years that really distorts the code. So economists worry a lot about the distortions. Why do you prefer one sector to another sector, one firm to another firm? This is really inefficient and it distorts the allocation of capital. That discourages growth. So we can get growth growing by a much lower rate and by getting rid of it, paying for that lower rate through base broadening.

ROMANS: To get reform done, Republicans and Democrats need to give something up. And corporate tax revenues as a share of GDP is historically low. You can see companies like Apple, for example, under our current tax system. They pay U.S. tax rates on the profits they earn overseas but only when they bring those profits back to the U.S. Apple keeps something like $100 billion in cash offshore. You say we need a territorial tax system. Explain in layman's terms for our audience, how would that work?

TYSON: What we need is a system which is more similar to the systems of the other advanced industrial countries that are homes to companies that compete with our companies. So what is the rest of the world doing here? The rest of the world is basically saying to a company, look, if you earn income outside of your headquarter country because you are running real economic activity there, you are basically selling into that market, that's how you compete around the world, then that income when you bring it back, you may pay some tax on some portion of that, but a lot will come back without any additional domestic tax. That's what the rest of the world does.

Then the rest of the world has a variety of different ways of trying to handle the fact that there is some money abroad that is shifting from one location to another location not because of real economic activity but because of tax haven, low tax debts.

So countries have said, we can figure out a way to handle this movement of income. And when money comes back from our companies, we'll subject it to some tax, but nothing like the tax rate that Apple would confront if it brought its income back to the United States.

So we have a system now where essentially there is a very strong incentive for a company that's selling abroad, competing abroad, earning income abroad, paying taxes abroad, not to bring that money back. That hurts the U.S. economy. We want that money back. We need that money back for creating jobs here, for creating investments in our community here.

ROMANS: We will see if tax reform is something that can happen in the foreseeable future. Laura Tyson.

TYSON: I am optimistic.

ROMANS: The politics and economics of it are two different things. Laura Tyson, thank you so much.

Coming up, Warren Buffett has some ideas for driving the recovery.

(BEGIN VIDEO CLIP)

WARREN BUFFETT, CEO, BERKSHIRE HATHAWAY: Well, look at what we've accomplished using 50 percent of our salaries. Just imagine what we could accomplish with 100 percent

(END VIDEO CLIP)

ROMANS: And then we'll tell you why you might need to borrow some of Buffett's billions if you ever get him into a birthday party. Could Washington's gridlock actually hold a solution? That's next.

(COMMERCIAL BREAK)

ROMANS: You may not know it, but you could owe thousands of dollars from all the birthday parties you have performed. The rights to publicly perform the 120-year-old song "Happy Birthday" are actually owned by Warner Chapel Music Group. A class-action lawsuit filed this week could return it to the public domain. Until then President Obama could be on the hook for his rendition.

(BEGIN VIDEO CLIP)

BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES: Happy birthday to you, happy birthday to you --

(END VIDEO CLIP)

ROMANS: Did you know that was a copyright on the "Happy Birthday" song?

With gridlock in Washington so bad, it is no surprise John Boehner and the Republicans have a different take on the birthday song.

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER, (R) HOUSE SPEAKER: This is your birthday song. It doesn't last too long.

(END VIDEO CLIP)

(LAUGHTER)

ROMANS: I am not sure Speaker Boehner needs to be worry about being sued for copyright infringement on that version any time soon.

All right, from birthdays to Buffett. When legendary Warren Buffett speaks, investors listen. CNN's Poppy Harlow sat down with Buffett this week. Poppy, Buffett had some big ideas about speeding up the American recovery. What did he have to say?

POPPY HARLOW, CNN MONEY CORRESPONDENT: Hey, there, Christine. Warren Buffett has a message for corporate America -- you are underutilizing much of the talent in this country, women. The legendary investor sat down with us for an exclusive interview focusing on women, work, and the American future.

Buffett began by telling how through his lifetime he has watched women from his sisters to his friends to his peers often treated as second class citizens, told they couldn't do as well in business as men. Even in 2013 Buffett does not think that women in the workplace always get a fair shake.

(BEGIN VIDEOTAPE)

BUFFETT: The message my sisters heard, they didn't hear it verbally. They just heard it through all kinds of actions of people, but they didn't have the same future I had.

HARLOW: So it is interesting. You saw this play out in your own family. You had two sisters who you say that your floor was their ceiling. Was that parenting? Was that society?

BUFFETT: It was society. But it came through parenting. It came through their teachers. In every way, they were told sort of the best thing was if they marry well. I was told that everything in the world was available to me. I was born in 1930. If I had exactly the same wiring but I had been a female, my life would have been entirely different, you know.

HARLOW: So I wonder if your message is more for women or more for men.

BUFFETT: It is for both. Men should realize if they had male workers and those workers could accomplish more if they had more education or whatever it might be, they would jump on that in a second. And to take half the people and not recognize that they have just as much potential as the others and use them is a big mistake.

HARLOW: So as you've been more outspoken about women and the workforce, there are some that have come back at you and said, what about Berkshire Hathaway? You have 70 plus companies and five female CEOs and only three of your 13 board members are women. Should change be happening at Berkshire?

BUFFETT: Change is happening at Berkshire. The last five directors that have been appointed, three are women. In terms of CEOs, I've probably only appointed six or seven CEOs, because they come with the businesses and they stay.

HARLOW: When there is a new CEO needed or a new board member, do you look specifically more at women to see if there is a woman of equal caliber to take that job to have that diversity?

BUFFETT: I am going to pick the best person in the end. If there are two that are nine on the scale of 10 and one is a woman, she is probably going to get the job.

HARLOW: I think one really important part of this discussion is there have been some that say the rise of women means the downfall of men. BUFFETT: That's crazy. That's like saying if you educate more people it hurts the ones that are already educated, or something of the sort. It is just crazy to let any human operate below their potential when just by changing the rules a little, you could give them a better chance to meet their potential.

(END VIDEOTAPE)

HARLOW: Our thanks to Warren Buffett for that. Now, Christine, as for why Buffett is speaking out about this now, he told me he has been talking about this to student groups who come visit him for years. But after he read Cheryl Sandberg's book, "Lean In" he decided this is a message he wants put out there more broadly. The way he puts it, look at how much America has accomplished not even using 100 percent of our talent. He says there is much more we can do. If you would like to read Buffett's essay on women and work, just go to fortune.com. Christine?

ROMANS: Thanks, Poppy. For more on the empowerment of women don't miss CNN's "Girl Rising." The film tells the story of girls around the world and the power of education.

For working women, nothing says power like a pair of stilettoes. Why digging your heels in at the office may come at a painful cost.

(COMMERCIAL BREAK)

ROMANS: And $2.4 billion is how much women spent in this country on high heel shoes last year. In fact women spent more on shoes with three inch heels or higher than any other shoe. Head hunters say what you wear on your feet projects power in the office. But are sky-high heels worth the pain?

(BEGIN VIDEOTAPE)

(MUSIC)

ROMANS: J. Lo's are expensive and designer. Kellie Pickler seeks revenge in hers. When it comes to women in heels, most say the higher the better. But not all boots are made for walking.

(MUSIC)

ROMANS: A new survey conducted by New England's college of podiatry finds the average woman begins to feel pain after one hour and six minutes of strutting around in her stilettos. Despite the agony, 43 percent of women say they have continued to wear uncomfortable shoes.

UNIDENTIFIED FEMALE: I am 32, I'm bunion free and I have been wearing heels my whole life. So I am going to still rock them.

ROMANS: And 36 percent of women say they would wear shoes that didn't fit in the nation of fashion.

UNIDENTIFIED FEMALE: You can't go to a party without heels. That makes your outfit, the shoes. DR. JACQUELINE SUTERA, PODIATRIC MEDICINE AND SURGERY: High heels can cause stress fractures, tendinitis, all types of bone spurs, and also encourage bunion and hammer toe formation.

ROMANS: New York City podiatrist Jacqueline Sutera says women should know that a sexy pair of shoes may be causing some not so sexy problems for your feet.

SUTERA: They do develop over times. But even younger girls are having problems with their feet due to high heel use.

UNIDENTIFIED FEMALE: I thought these were an urban shoe miss.

ROMANS: Fancy footwear has even taken a toll on shoe connoisseur Sarah Jessica Parker, whose glamorized shoes on "Sex and the City." She recently said that all the time in stilettos ruined her feet.

(END VIDEOTAPE)

Still, most women can't give up their shoe lust, so maybe the best solution is to pack a pair of flats.

(END VIDEOTAPE)

ROMANS: For the record, I'm wearing flats right now.

Thanks for joining the conversation this weekend on YOUR MONEY. We are here every Saturday at 2:00 p.m. eastern, Sunday at 3:00. Until then, you can find me on Facebook and on Twitter, my handle is @ChristineRomans.