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David Cay Johnston: Class War Is Being Waged by the Rich Against the Poor

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Republicans have accused President Obama of waging class warfare for using his State of the Union to push for an increase in taxes and closing loopholes that benefit the wealthiest 1 percent of Americans. Pulitzer Prize-winning tax reporter David Cay Johnston says there is indeed a class war going on in Washington — but by the rich against the poor. Johnston’s latest book is “Divided. The Perils of Our Growing Inequality.”

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

JUAN GONZÁLEZ: Let’s go back to President Obama last night speaking about the taxing of the rich.

PRESIDENT BARACK OBAMA: As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways that the super-rich don’t need, while denying a break to middle-class families who do.

This year, we have an opportunity to change that. Let’s close loopholes, so we stop rewarding companies that keep profits abroad, and reward those that invest here in America. Let’s use those savings to rebuild our infrastructure and to make it more attractive for companies to bring jobs home. Let’s simplify the system and let a small business owner file based on her actual bank statement, instead of the number of accountants she can afford. And let’s close the loopholes that lead to inequality by allowing the top 1 percent to avoid paying taxes on their accumulated wealth. We can use that money to help more families pay for child care and send their kids to college. We need a tax code that truly helps working Americans trying to get a leg up in the new economy, and we can achieve that together.

JUAN GONZÁLEZ: That was President Obama in last night’s State of the Union. David Cay Johnston, it seems to me that this was perhaps, at least on the domestic front, his most avowedly populist presentation in terms of on the spending front and at least on raising the issue of taxes. But what, in reality, given the fact that there’s a Republican majority, can he expect to happen in the coming year? And also, what about this tax debate that will be occurring this year in Congress?

DAVID CAY JOHNSTON: Well, I think Obama did something very savvy last night. He is trying to force the Republicans into a position where they either have to go with Main Street or with the plutocrats. And we’ve already seen from their responses that they are siding with the plutocrats. The idea that we shouldn’t adjust the tax rates for people at the top and doing so is somehow class warfare is absurd. And, of course, the Republicans are always talking about dynamic economic activity, and yet now they’re proposing a constant state, at least as it applies to the rich. The proposals that he put forth last night are pro-child, pro-family, pro-work, pro-savings. Many of them are things put forth by the Republicans, including tax simplification, and yet the Republicans rejected this out of hand. So what Obama was really doing, Juan, was setting up the 2016 election.

Now, this could be turned against him by the Republicans. My column in Al Jazeera America this morning is about how if the Republicans were savvy about this, they’d take the bill that will be introduced with these proposals by one of the Democrats, strip out the tax increases for those at the top, pass it, and then put the president in the position of having to veto a middle-class tax cut. But keep in mind, you’re seeing Republicans oppose the lower taxes and tax relief for middle-class Americans. So in that sense, politically, he’s been quite successful, I think, in the talk he gave last night.

AMY GOODMAN: And how would taxing the rich work, David Cay Johnston?

DAVID CAY JOHNSTON: Well, he’s proposing two key elements. One is to end what’s called “step-up in basis.” If you inherit stock that has never been taxed, it’s received by you at its current value; you can sell it and pay no taxes. And this is the single most important element by which the very wealthy perpetuate their wealth from generation to generation, so that it’s not merit and hard work, which the Republicans talk about all the time, that creates a lot of the wealth at the top. It’s: Who did you pick to be your parents?

The second thing the president is proposing is that for those people in the top one-half of 1 percent—and almost all the money would be paid by the top tenth of 1 percent, people who make over $2 million—that their capital gains tax rate be at the Ronald Reagan rate of 28 percent. And Republicans are saying that that’s outrageous. Well, I’m sorry, they’re always telling us Ronald Reagan is a saint. I think it’s ideologically difficult to make the argument that we shouldn’t have a 28 percent tax rate, particularly when surveys are showing two very important things about the disconnect between Republican congressional leaders and Republicans. More than half of Republicans in one poll and around 40 percent in others favor higher taxes on people with million-dollar-plus incomes. Fifty-three percent of Republicans, in one case, said the tax rate should be 50 percent on your income above a million dollars. And three out of four Republicans want to increase Social Security benefits, while congressional Republican leaders are focused on trying to dismantle those benefits.

JUAN GONZÁLEZ: On Tuesday, Senator Orrin Hatch, chair of the Finance Committee, said President Obama’s plan to raise taxes on wealthy Americans in order to help the middle class amounted to class warfare. In remarks prepared for a speech to the U.S. Chamber of Commerce, he wrote, quote, “This plan … appears to be more about redistribution, with added complexity, and class warfare, directed at job-creating small businesses, than about tax reform.” David Cay Johnston, your response?

DAVID CAY JOHNSTON: Well, I’m with Warren Buffett on this one. Warren Buffett, 15 years ago, when I was at The New York Times, told me, “We are engaged in class warfare. My side is winning. We’ve been engaged in class warfare for a long time.” The reason incomes at the top have gone up so much and others are stagnating is government rules that have been bought and paid for with campaign contributions, with companies providing jobs for politicians’ friends and family, and the politicians themselves when they leave office. So, we need to recognize that there is class warfare going on. It’s being waged by segment of the very wealthy—not all of them, a segment of them—who are systematically draining the pockets of people down below to increase their fortunes. Nothing Obama said, and nothing I’ve ever said, is opposed to the idea of people acquiring wealth because they made a better product or a better service, and they earned it in the marketplace. But what’s going on in our country is government rules, that I’ve written about in my trilogy on the American economy—in Free Lunch and The Fine Print and Perfectly Legal—that subtly reach into your pocket and take your money. I mean, we have 3,000 corporations now that keep the state income taxes they withhold from their workers’ paychecks, and the workers have no idea that they’re being taxed by their bosses. And there are thousands of policies like this. So, we do have class warfare going on: It’s being waged by a segment of the wealthy against the middle class and the poor.

JUAN GONZÁLEZ: Phyllis Bennis?

PHYLLIS BENNIS: Well, I think that one of the things that we didn’t hear from President Obama last night, Juan, that’s really important is the question of the poor. We heard some about the middle class, and that was important. But, you know, the fact is that in President Obama’s own city, in Washington, D.C., the new statistics indicate that 50 percent of the children in the city I live in are living in poverty. We didn’t hear enough. We heard a reference to inequality, but it was in the context of the economy is back. Yes, we still have to deal with inequality, but the reality is, inequality is the meat, it’s not the side dish. Inequality is the central reality of the economy that exists in our country and around the world.

And these new statistics that have come out, the new report from Oxfam, which President Obama, not surprisingly, did not reference, that says that right now the 80 wealthiest people in the world control as much wealth, own as much wealth, as 50 percent, the bottom 50 percent of the population of the world, it’s a staggering—

AMY GOODMAN: Which is more than seven billion people.

PHYLLIS BENNIS: It’s a staggering reality. You know, it’s just incomprehensible to think about that. So, when we talk about the rising middle class, the need to support the middle class, that’s important. The middle class is hurting. But the number of poor people, who are not anywhere close to the middle class in this country, is rising at exponential numbers.

AMY GOODMAN: On Tuesday night, President Obama called for an increase to the federal minimum wage.

PRESIDENT BARACK OBAMA: Of course, nothing helps families make ends meet like higher wages. That’s why this Congress still needs to pass a law that makes sure a woman is paid the same as a man for doing the same work. I mean, it’s 2015. It’s time. We still need to make sure employees get the overtime they’ve earned. And to everyone in this Congress who still refuses to raise the minimum wage, I say this: If you truly believe you could work full-time and support a family on less than $15,000 a year, try it; if not, vote to give millions of the hardest-working people in America a raise.

AMY GOODMAN: That was President Obama last night in his State of the Union address. Ralph Nader, the subtitle of Unstoppable, your new book, The Emerging Left-Right Alliance to Dismantle the Corporate State, can you weave this into it? Talking about increasing the minimum wage and taxing the rich, do you really see a left-right alliance here?

RALPH NADER: Oh, definitely. Obama simply isn’t credible on minimum wage. When he ran in 2008, he said $9.50 by 2011, never said anything or did anything for the first four years of his term. Then when he started talking about it, it wasn’t really serious. He spent a lot of days before the last election, last year, running around raising money from high—high wealthy salons and didn’t spend the time, as Senator Reid wanted him to, on pushing the minimum wage and nationalizing the issue and making it a cutting edge against the Republican.

It is a left-right issue, Amy. It comes in about 80 percent in the polls. That means a lot of conservative workers in Wal-Mart are for restoring the minimum wage, which, if you adjust it for inflation, would be $11 an hour now instead of the federal minimum wage of $7.25. Notice, President Obama didn’t put a figure. He didn’t say how much he wanted. It is a left-right issue, beautifully argued by people like Nick Hanauer, the billionaire in Seattle, Ron Unz, conservative in California. Mitt Romney has come out for it, Rick Santorum, Phyllis Schlafly, Bill O’Reilly. And still, he will not put a figure on it. And so, I—the speech reminded me of Shakespeare’s words: “Words, words, words.”

AMY GOODMAN: On foreign policy, before we go to break, Phyllis, the issue of Iran, not raised last night?

PHYLLIS BENNIS: Well, it was raised very, very briefly. But I think the problem is, we didn’t hear beyond a very good commitment from President Obama that he will veto any new sanctions resolution. That’s important, because right now those who are supporting new sanctions against Iran, or the threat of future new sanctions in Iran, are people who want war, because the alternative to a real negotiated solution with Iran is a war with Iran. It’s a very dangerous moment. We have deadlines coming up, March 1st and then in July, for a full agreement with Iran, and there is the possibility of it. It’s important that President Obama said he will veto any of the congressional efforts that we know are underway. AIPAC and the Israeli government are pushing for new sanctions, which would deliberately undermine any possibility of an agreement.

But the reality is that the situation in the region as a whole right now is so tense, and the role of Iran is so fundamental to that. We’re seeing the—we don’t know what the impact is going to be of the killing by Israel of an Iranian general in the Golan Heights yesterday. It’s a very dangerous moment. And the idea that some in Congress want to impose new sanctions, that would completely destroy the possibility of a negotiated settlement, means that those in Congress posing that want war. I wish we had heard from President Obama that notion, that those who don’t want an agreement, those who want new sanctions, are pushing for war. That kind of dramatic reality check would have been very important to say in front of the world. We didn’t hear that, but we did hear a commitment to veto, and that’s very important.

AMY GOODMAN: Phyllis Bennis is with the Institute for Policy Studies. Thanks so much for being with us. Ralph Nader is going to stay with us, a longtime consumer advocate, a number of times ran for president. In a moment, we’re going to go to Madison, Wisconsin, and we’ll be joined by Lisa Graves, as we talk about the Republican response. This is Democracy Now! We’ll be back in a minute.

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