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“The Worse Off You Are, Your Taxes Increase”: Journalist David Cay Johnston Slams Obama-GOP Tax Deal

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The U.S. Senate is on the verge of approving President Obama’s controversial tax deal with Republicans. Under the deal, Obama agreed to extend the Bush-era tax cut for the wealthiest Americans and reduce the estate tax in return for a 13-month extension of jobless benefits and a handful of tax credits for low- and moderate-income Americans. We speak to Pulitzer Prize-winning investigative journalist David Cay Johnston, author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). [includes rush transcript]

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: The Senate voted overwhelmingly Monday to move President Obama’s controversial tax deal with Republicans to a final vote today. The bill passed by a vote of 83 to 15.

Last week, Obama agreed to extend the Bush-era tax cut for the wealthiest Americans and reduce the estate tax in return for a 13-month extension of jobless benefits and a handful of tax credits for low- and moderate-income Americans. According to the New York Times, at least a quarter of the tax savings under the deal will go to the wealthiest one percent of the population. The only group that will see its taxes increase are the nation’s lowest-paid workers.

The Senate will vote on final passage of the legislation today. On Monday, President Obama spoke to reporters at the White House and praised the bipartisan support of the bill.

PRESIDENT BARACK OBAMA: I am pleased to announce at this hour the United States Senate is moving forward on a package of tax cuts that has strong bipartisan support. And this proves that both parties can in fact work together to grow our economy and look out for the American people. I recognize that folks on both sides of the political spectrum are unhappy with certain parts of the package, and I understand those concerns. I share some of them. But that’s the nature of compromise: sacrificing something that each of us cares about to move forward on what matters to all of us. Right now that’s growing the economy and creating jobs. And nearly every economist agrees that that is what this package will do.

AMY GOODMAN: House Democratic leaders hope to take up the Senate bill later this week and allow an amendment that would rewrite the estate tax language to increase the rate from 35 to 45 percent and lower the amount of wealth exempted from $5 million to $3.5 million.

For more, we’re joined by the Pulitzer Prize-winning investigative journalist David Cay Johnston. He’s a columnist for Tax Analysts, a professor at Syracuse University, former reporter for the New York Times. His most recent book is called Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill).

We welcome you to Democracy Now! Sorry you couldn’t be in a TV studio in Rochester, but I understand it’s so cold they couldn’t move the satellite. So thanks for joining us.

DAVID CAY JOHNSTON: Frozen gears on the satellite dish.

AMY GOODMAN: Well, David Cay Johnston, talk about the legislation that the Senate is poised to pass today.

DAVID CAY JOHNSTON: Well, you certainly cannot accuse the Republicans of leaving any money on the table. They got an extraordinarily good deal, that raises, I think, basic questions about the negotiating skills of the President. The bottom roughly 45 million families in America or households in America — and there are a little over 100 million households — they’re going to actually see their taxes go up. And that’s because President Obama’s Making Work Pay credit — $400 per person, $200 for a couple, and you got it even if you were retired or disabled — is going to go away. And it’s going to be replaced by this temporary two percent reduction in the payroll tax, the Social Security tax. Well, for about 45 million households who make less than $20,000 a year, this is a tax increase of $150 to $200 each. So, it certainly seems to me it’s reasonable going forward, given how the Republicans have emphasized they will never raise taxes on anyone and they are the party of tax cuts, that the Republicans have now become the party of tax increases on the poor.

At the top end, if you’re a two-income couple and you make a little over $100,000 each, so you pay the most Social Security tax, you didn’t get Obama’s Making Work Pay credit. You were regarded as too well off. But that Social Security payroll tax decrease is going to mean about a $4,200 tax cut for you. So, clearly, we could see the scheme of this is: the better off you are, the more help you get from the government; the worse off you are, your taxes go up.

AMY GOODMAN: You wrote a piece saying that President Obama should call their bluff. What do you think of what President Obama has done?

DAVID CAY JOHNSTON: Well, he certainly didn’t call their bluff. Remember that the Republicans are the minority party even in January. They cannot pass any legislation unless the Democrats go along with them. And there is an important issue to the plutocrats at the very top of the Republican Party who have been financing a lot of these policies through the people they donate to and put in office, and that’s the estate tax. If nothing was done, the estate tax was going to go back to a $1 million exemption and a 55 percent rate. That’s far more troubling to you if you’re a billionaire or a centimillionaire than a marginal change in your tax rate. So, I think what the President should have done was hung tough, said to the Republicans he would veto anything that didn’t meet his standards. If he had adjusted the increase — the area where taxes would go up on income to $1 million from a quarter of a million, that wouldn’t have been a big deal. And by the way, a very important point the news media keeps missing: that $250,000 was not income; it was taxable income, which is much smaller than total income.

AMY GOODMAN: We’re talking to David Cay Johnston, Pulitzer Prize-winning investigative journalist. David, you’ve also written about how the media covers this issue. Explain what isn’t explained.

DAVID CAY JOHNSTON: Well, it’s covered mostly through talking points. In fact, I have a piece in Nieman Reports from Harvard University out today about how much that I’m reading of economic news that is just nonsense. I mean, it accurately quotes what politicians are saying, but it’s economic nonsense, because the reporters writing about it — our very best papers, at the Washington Post, at the New York Times, at the Wall Street Journal — often do not know what it is that they’re writing about. And this I find to be one of the most troubling aspects of this, because, after all, as the great conservative commentator Edmund Burke wrote in 1793, the revenue of the state is the state. Taxes are the system by which we distribute the burden of being able to live in a free society. And to not understand how they work, it results in all sorts of manipulations by people who make ridiculous claims about the tax system.

AMY GOODMAN: I want to play some of what Congressmember Paul Ryan had to say about tax cuts. He is a Wisconsin Republican and the incoming chair of the House Budget Committee. He was speaking on Fox News Sunday. He said the only tax reform he would pursue, if the current bill doesn’t pass, is across-the-board lower rates.

REP. PAUL RYAN: What we’re going to do is what the Democrats didn’t do: we’re going to cut spending. I mean, I find it sort of interesting that after this massive spending spree that took place over the last two years, the creation of two new healthcare entitlements, now there’s concern about deficits when they have a chance of raising taxes. We are not interested in raising taxes. Five hundred and forty-four billion dollars of that package you’re talking about are simply keeping taxes where they are. The other $313 billion of this package is some of the spending stuff that you’re talking about. So, we don’t want to see spending. We’re going to come out of the gates going after spending, Chris — spending cuts, spending controls, reforms of the structural spending. And if we get to the point of doing tax reform, which I think is an important way to go, we should go with broader-based lower rates for economic growth. Erskine Bowles, Alice Rivlin, centrist Democrats, agree with that premise. And I would love to see the chance of getting a compromise, so we can have good pro-growth tax reform, which is not tax increases but lowering tax rates so we can have economic growth in America.

AMY GOODMAN: That’s Wisconsin Republican Congress member Paul Ryan. David Cay Johnston, your response?

DAVID CAY JOHNSTON: Well, here’s the fundamental problem with what he’s saying. What matters is what you spend the taxes on. I have shown that you can raise taxes and actually have more money in your pocket, if the government can buy something for you more efficiently. You want to get rid of the deficits. And, by the way, President Obama’s first budget had a smaller deficit than George Bush’s last budget. If you want to get rid of the deficit and have a balanced budget, the number one way to do that is universal healthcare, that gets the business of healthcare off the backs of small business owners, so they’re not diverted from running their businesses, and brings down costs. The Republicans are insistent that healthcare should be a profit-making business, not a public service. It is the equivalent, in their view, of requiring kindergarten teachers to do cost accounting when they hand out crayons to the children. That’s inefficient and very expensive.

The issue is not rates. It is, what do we spend the money on, and what do we subsidize? There’s something called the Shelf Project, done by a number of professors who have dug into the tax code very deeply, and they’ve shown that without raising rates, government could bring in a trillion dollars a year — that’s as much as the income tax brought in in 2008 — a trillion dollars, by simply taking away loopholes for corporations.

AMY GOODMAN: How do the Republicans — well, and the Democrats who are supporting this, overwhelming support now in the Senate — explain the deficit? I mean, when you’re talking about — how much money are we talking about this will increase the deficit by, $826 billion over the next decade?

DAVID CAY JOHNSTON: Well, I think it will be very interesting, Amy, to watch Fox News. I have a number of times in my column pointed out polls they commissioned but then did not talk about on the air, because they didn’t fit the ideology that Fox News is promoting. I suspect you’ll hear a lot less about the deficit. And if you do, it will now be Obama’s deficit, not the deficit of George Bush, George H.W. Bush and Ronald Reagan, who ran up three-quarters of our federal debt, but Obama’s deficit. And what the President has given away is a trend line that would have been a shrinking federal deficit going into the future. How this will play out in two years will be very interesting to watch.

AMY GOODMAN: David Cay Johnston, when we’re watching television, tell us what are the bullet points to watch for of the misrepresentations or outright lies that the journalists continually reiterate when talking about this.

DAVID CAY JOHNSTON: Well, failing to report that this is a tax increase on the bottom roughly 45 million households in America, close to 150 million people, that’s number one. This is a tax increase for those people. Secondly, that the more money you make, the bigger your tax cut under the Republican plan. Thirdly, that the estate tax reductions to 35 percent and a $5 million, or for a married couple $10 million, exemption involve money, in many cases, that has never been taxed. When very wealthy people die, the reason they’re wealthy is they’ve reported, legally, less income than they made on an economic basis, so they have lots of money that was never taxed. And now it will never be taxed, up to $5 or $10 million, because of these changes. And those are key things that I would watch for.

The other one is, we’re going to cut spending. Well, there are only four big areas of federal government spending: interest, which is low right now because interest rates are low, that will go back up; the military, the Republicans are not exactly known for wanting to restrain military spending; Medicare, Medicaid, that is, government-provided healthcare for the elderly, the disabled and the poor; and then Social Security, which people paid into and expect to collect in their old age. So what are they going to cut? Are they going to cut food safety inspection, which is a tiny, tiny fraction of a penny, and worsen a situation in which food-borne illness occurs in this country at something like — I think it’s 20 times the rate in France and seven times the rate in England? Are we going to further take away education from poor children? Are we going to raise the cost of a higher education, which reduces the value of the most valuable asset we have — young minds, that we should be training and developing so we have a prosperous future?

AMY GOODMAN: David Cay Johnston, you wrote recently, newly released government income data shows average wages and total wages declined for all income brackets last year except at the very top, where they leaped dramatically. And you say that the average American income in the highest income bracket, those earning more than $50 million a year, increased fivefold to an average —

DAVID CAY JOHNSTON: No, that — Amy, let me stop you. That comes from Social Security from payroll data. It was erroneous data. Two people trying to mess up the government’s records filed false statements. And I hope the government is going to go prosecute them for this. The government has revised the numbers. The fact is, there were 74 workers who made over $50 million. And the important measures are this: in 2009 —- I’m sorry, of everybody who had a job in 2008, one in 34 went all of 2009 without earning a dollar. The median wage in 2009 was smaller than it was in the year 2000, and the average wage, compared to 2000, was only up less than one percent. And that’s only because of the growth at the top, all of the people who are making six—, seven-, eight-, nine-figure salaries from their work. And remember, people like hedge fund managers aren’t counted in that, because they get to live tax-free currently under our law. You can make a billion dollars a year as a hedge fund manager and legally pay no income taxes, thanks to Congress.

AMY GOODMAN: I want to play for you a clip of what one billionaire had to say about this: Warren Buffett.

WARREN BUFFETT: I think that people at the high end, people like myself, should be paying a lot more in taxes. We have it better than we’ve ever had it.

CHRISTIANE AMANPOUR: They say you have to keep those tax cuts, even on the very wealthy, because that is what energizes business and capitalism.

WARREN BUFFETT: The rich are always going to say that, you know, just give us more money, and we’ll go out and spend more, and then it will all trickle down to the rest of you. But that has not worked the last 10 years. And I hope the American public is catching on.

AMY GOODMAN: That’s Warren Buffett being interviewed by ABC’s Christiane Amanpour. David Cay Johnston, how many billionaires are lobbying for what has happened? Or how many billionaires agree with what Warren Buffett has to say?

DAVID CAY JOHNSTON: Well, there’s actually a substantial number of very wealthy people in America who do not agree with these policies, who believe that they should be paying higher taxes, and who have said so. Buffett is probably at the far end of that, and I’m somebody who’s been very, very critical of Buffett for the huge advantages he takes of the tax system and his efforts to pocket taxes that people are forced to pay to some of his companies because they’re monopolies.

But there is significant disagreement among the wealthiest in this country. What you have is a small segment of people — the Koch brothers, the Mars family, the family that owns Coors Beer or used to own Coors Beer, that group of people — who have been funding their ideological belief. And basically, they want the benefits of being in America without sharing the burdens and without following the ancient conservative principle, 2,500 years old — and remember that most of them who oppose these policies say they’re conservatives — that the greater the gain you manage to achieve, the greater the share of your income you should pay so that your society will continue.

AMY GOODMAN: Finally, David Cay Johnston, can you talk about the significance of the long-term capital gains and dividend tax rates being — remaining at 15 percent next year?

DAVID CAY JOHNSTON: Well, in theory, the theory is that these low rates encourage investment. The problem is two things. One, a great deal of this investment is going overseas, because you can hire people in China for a week for what they would cost you in America for an hour, which is driving down the wages of Americans in many occupations, not just those that are going overseas. But secondly — and here’s the problem that’s getting no public debate, Amy — if you lower the tax rate and allow people to withdraw capital from their businesses through dividends to 15 percent, there are a lot of people who are going to say, “Hmm, it would be nice to have a third mansion or a second jet” — if they’re further up the feeding chain — “or a $100 million oil painting.” And when you withdraw from the business, you’re destroying jobs. We used to have high taxes on business, and businesses complained about it, but the business owners were forced by that to reinvest in the business and create jobs. Low taxes encourage withdrawal from business, which means destroying jobs and putting money into unproductive uses, like buying nice art to hang in your home.

AMY GOODMAN: Your response to the Illinois Democratic Senator Dick Durbin, one of the most powerful in the Senate, who said he understands opposition to the bill from liberal Democrats outraged over the substantial relief given the wealthy in estate tax provisions. He said, “In the spirit of the season, it does say, 'God bless Tiny Tim and Donald Trump.'”

DAVID CAY JOHNSTON: Yes, well, I think Tiny Tim probably is going to go hungry Christmas Eve under this bill compared to Mr. Trump, who will be able to continue flying around in his personal Boeing 727 jet.

AMY GOODMAN: David Cay Johnston, I want to thank you very much for being with us, Pulitzer Prize-winning investigation journalist, columnist for Tax Analysts, professor at Syracuse University. His most recent book called Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). He’s a former reporter for the New York Times. David, stay warm up there.

DAVID CAY JOHNSTON: Thank you, Amy. I will.

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