President Obama wants a wholesale reform of the tax code. Republican House Ways and Means Chair Dave camp does too and so does just about every other key figure in Congress. A system that hands out an estimated $1 trillion in tax preferences would seem ripe for reform, but defenders of the status quo are well financed and ready to fight. For most politicians tax reform is an unrewarding task. The last time the U.S. tax code was radically reshaped was in 1986. Then as now, odds were slim. but that experience offers a sliver of hope. Please join us to discuss the tax reform and prospects for compromise.

Guests

  • Rachel Smolkin deputy managing editor, Politico.
  • Matthew Cooper editor, National Journal Daily.
  • Jonathan Weisman congressional reporter, The New York Times.

Transcript

  • 10:06:55

    MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Just about everyone in Congress agrees the tax code needs to be simpler, more efficient and more fair, but Republicans and Democrats have very different strategies for reaching those goals. Joining me in the studio to talk about prospects for compromise on tax code reform: Jonathan Weisman of The New York Times, Matthew Cooper of National Journal Daily, and Rachel Smolkin of Politico.

  • 10:07:29

    MS. DIANE REHMI hope you'll join us, give us your questions, your comments, send us your email, 800-433-8850, drshow@wamu.org. Or follow us on Facebook or Twitter. Good morning to all of you.

  • 10:07:47

    MS. RACHEL SMOLKINGood morning.

  • 10:07:47

    MR. JONATHAN WEISMANGood morning.

  • 10:07:48

    MR. MATTHEW COOPERGood morning.

  • 10:07:49

    REHMLet me start with you, Jonathan Weisman. Congress has to come up with a budget deal first. Isn't that right?

  • 10:07:58

    WEISMANThat's right. The House will, today, pass Paul Ryan's third budget. This one calls for, again, major tax reform to reduce the top tax rate to 25 percent, the other tax rates all down to 10 percent and do this while raising the same amount of revenue that we get now. It's what they call, you know, revenue neutral. The Senate will pass a budget probably this week that also calls for tax reform, but it fast tracks tax reform that raises nearly $1 trillion in revenue. And there's the rub.

  • 10:08:32

    WEISMANI mean, you have a ways and means chairman in Dave Camp from Michigan who really wants to do this. He's got H.R. 1, the first bill of the -- first official bill of the House that's supposed to be tax reform. But he doesn't want to raise any revenue. And the Senate is approaching it in a very different way. They see tax reform as the avenue to get revenues back into the picture on the deficit reduction front.

  • 10:09:00

    REHMSo, Matthew Cooper, with these extraordinarily divergent perspectives, how does anybody hope to get anything through?

  • 10:09:14

    COOPERWell, I think it's going to be very tough, Diane. Those are fundamental differences. If one side wants to raise revenue and the other doesn't, I think what's more likely to happen is there are some areas of agreement where they're pretty close. For instance, corporate taxes, both sides agree that the current system is not good for economic growth, and they both want to lower rates and do some other things. And on that, they're pretty close, but I think, as far as the really big deal on tax reform, that is hard to get.

  • 10:09:48

    REHMSo, Rachel, on these corporate taxes, what would the coming together actually mean?

  • 10:09:57

    SMOLKINSure. Well, it could be some changes in structure in rates, as Matthew was just saying. The interesting thing about the tax reform debate is there are a number of fiscal debates going on in Capitol Hill right now. It's a little bit hard to keep them all separate. They bleed into each other. There is a process on tax reform. And, again, corporate tax reform is one area where maybe the parties are close enough to reach some agreement.

  • 10:10:25

    SMOLKINBut all of these other fiscal debates taking place on the budget -- the continuing resolution, the debt ceiling debate that's looming, the entitlement debate that's looming -- these could all collide. It's very hard to keep them separate as you move through the process. And it's not quite clear at this point how those are all going to play out and what the connections will be.

  • 10:10:48

    REHMWhat about loopholes, Jonathan Weisman? Are there any that people agree on?

  • 10:10:56

    WEISMANWell, you know, everybody loves to point to these little things. John Boehner likes to say, hey, I'll give the president his corporate jets loophole. That's no money. You know, these are -- the big four -- nobody would even call them loopholes. The big four tax expenditures are the mortgage interest deduction, the deduction for charitable giving, the deduction that businesses get to take for providing their employees with health care and the state and local tax deductions. Those are the ones where the real money is.

  • 10:11:28

    WEISMANWhen you talk about $1 trillion in tax expenditures, most of that comes in ways that everybody likes. And armies of lobbyists are already descending on Washington to protect those things, especially the deduction for charitable giving. I'm amazed, just the breadth of lobbying already going on and the fear tactics that this is about to be taken away.

  • 10:11:53

    WEISMANThe mortgage interest deduction, you know, if you talk to economist, right and left, they all will tell you that the mortgage interest deduction is basically a subsidy for higher income Americans to buy houses. And it distorts the housing market. But you know what, that's not going anywhere. And so if you start taking -- if you start looking at those big four and taking those off the table, suddenly you're not talking about a whole lot of money to play with.

  • 10:12:21

    REHMMatt.

  • 10:12:22

    COOPERWell, I think that's right. Still, with what's left in terms of oil and gas deductions and other things that people feel are, you know, distorting the markets, there is some room for doing some things there. And that's not an insignificant amount of money. So, you know, I think you'll see some interest there. The House Ways and Means Chairman Dave Camp has set up a number of working groups as has the Senate Finance chair, Max Baucus.

  • 10:12:50

    COOPERThose are the main guys on this topic. And they have groups looking at all these things. And I think there are probably some, you know, some deductions that might get plucked out and sealed. Nobody says they want to do it that way, but I think a little bit of finger in the dike instead of fixing the whole levee, to use a bad metaphor, is more likely than not.

  • 10:13:13

    REHMBut now, what about the natural gas boom? And how does that affect the oil industry tax credits, Rachel?

  • 10:13:25

    SMOLKINWell, we've been talking about the oil and gas credit, you know, maybe these are loopholes that could be closed. We've talked about how the parties are far apart on these issues. But even within the parties, there is not perfect agreement. Democrats on energy, for example, the oil and tax loopholes, there are Democrats from red states or red-leaning states, and they're going to have a tough time on some of these issues.

  • 10:13:51

    SMOLKINTheir president and their party wants to raise revenues, wants to get rid of loopholes and deductions on some of these issues. That's not necessarily smart politics for them. And several of them are facing re-election next year.

  • 10:14:04

    REHMRachel Smolkin, she's deputy managing editor for Politico. Do join us, 800-433-8850. Jonathan, you mentioned all these lobbyists lined up. Give us some specifics on that.

  • 10:14:24

    WEISMANWell, I'll just tell you, my mother, who is coming up to Washington with a Jewish group from Atlanta, she was given four things to lobby on. And one of them was protecting the deduction for charitable giving. I asked the group, I said, what do you think is going on here? And they said, well, we understand that that's under threat. Well, really, the only threat to the charitable deduction has come from Barack Obama who, from his very, very first budget, proposed that deductions like the charitable deduction be capped at 28 percent.

  • 10:14:59

    WEISMANThe argument was, look, if you're a higher income person and you get -- you pay a 35 percent or now it's a 39.6 percent tax rate, why should you be able to deduct your contributions at 39.6 while a middle class person who's in the 28 percent bracket can only deduct at 28 percent? Why don't we cap it at 28 percent? It seemed like a fairly reasonable argument.

  • 10:15:21

    WEISMANBut it's gone absolutely nowhere because the big universities, the big nonprofits, the big philanthropies have mobilized against this. And you're going to see the realtors, the homeowners' organizations all mobilizing on everything else. And, you know, the big deduction for health care, which is, I think, the largest deduction there is, that's so wrapped up in the Affordable Care Act that nobody wants to touch it because nobody wants to reopen that argument.

  • 10:15:55

    REHMMatt.

  • 10:15:56

    COOPERWell, Jon makes a great point about the health care. And likewise with the mortgage interest deduction, you know, we've just been through a financial crisis and depression in housing prices. Nobody wants to mess with mortgage interest at a time like that, so that's another one that's probably off the table.

  • 10:16:12

    REHMWhat's going on at the grassroots level among Democrats and Republicans, Matt?

  • 10:16:20

    COOPERWell, I'm not sure there is a huge push for tax reform from the grassroots. I think there's resistance, as we've heard with Jon's mom, you know, to some of these changes that are getting talked about. But I don't think that the country is up in arms demanding this. I mean, that said, you know, we're in tax season and nobody likes doing their taxes and it's a pain and it's complicated. And in an abstract way, people kind of want it to be simpler. But I don't get the sense grassroots groups are really pushing for this.

  • 10:16:49

    WEISMANYou know, there is an issue that a lot of us don't realize, but a huge majority of Americans who pay taxes pay off the 1040EZ form. They're not taking deductions. They're not -- they don't have a hard time. You know, folks of other socioeconomic brackets may pull their hair out when they do the taxes, but most people don't. And it's hard to mobilize the grassroots when they are just filling out a one-page form.

  • 10:17:15

    REHMSo when President Obama went to Capitol Hill and talked with all these Democrats and Republicans, was he specifically, Rachel, talking about tax reform? Or was he talking about this so called grand bargain?

  • 10:17:35

    SMOLKINHe was talking about the grand bargain and these larger fiscal issues that we've been discussing, which is, again, why even though there is a committee process that focuses on tax reform, it's a little hard to keep the issues separate. That was a very interesting moment when the president went to the Hill, a lot of talk about the so-called charm offensive. And after four years in office, he's finally reaching out to the Republicans.

  • 10:17:56

    SMOLKINAnd there were some nice things said on both sides about the outreach and the conversation at least restarting on the grand bargain. But it was not a particularly substantive week as far as anything concrete coming out of it? Now, I think the White House would say that wasn't the goal. It was just to begin discussions.

  • 10:18:14

    SMOLKINBut it was striking to me, when the president met with Democrats on this issue, he did not go in and say, you know, we really need to change the way we think about these issues. We really need to start to move on entitlements. He didn't say those things. He said, we've asked Republicans to give us more revenue and they need to start to move. And I'm not Charlie Brown with a football. I'm not going to sell you guys out on these issues.

  • 10:18:38

    REHMRachel Smolkin, Matthew Cooper, Jonathan Weisman, they're all here with me to answer your questions, comments. Short break. We'll be right back.

  • 10:20:04

    REHMAnd our first email goes to the heart of the issue. It's from Fitz, who says, "The Democrats and Republicans don't have different ways of achieving tax fairness that oversimplifies the problem which is that they have different legitimate definitions of fairness." Do you believe that?

  • 10:20:33

    WEISMANI absolutely do believe that. I mean, the Republican view of fairness is that basically, most people should have largely pay the same tax, if not, the same tax rate, at least within the same realm of taxes, right? You know, it's not necessarily a flat tax. The -- a vision that Paul Ryan has put forward is two different tax rates but maintain the progressivity, but, perhaps, squeeze it a little bit. Democrats' idea of tax fairness is completely different. It's that those, you know, those in the upper income should be paying considerably more than those down below.

  • 10:21:08

    REHMRachel.

  • 10:21:09

    SMOLKINThat's a great point about fairness, and that's not the only word that's being used differently. It's been very interesting over the past week or two to see the word balance used so differently by the two parties. Republicans are talking about a balanced budget. You don't hear that from Democrats, but they have co-opted the language of balance to describe a balanced approach to the budget. And balanced approach means bringing in more revenue, as well as cutting some of it.

  • 10:21:34

    REHMSoon they've got the wordsmiths out there really picking and choosing, Matt.

  • 10:21:40

    COOPERNo. Exactly right. And you know, a third word that they have a legitimate debate over is austerity. Democrats say, look, if you cut these programs, if you take on entitlements in such a severe way, if you balance the budget so quickly, if the Ryan budget does, that's imposing kind of austerity that can choke off economic growth. And the Republican argument is, look, we're trying to save economic growth. That, you know, if we don't do this, it'll be worse later.

  • 10:22:09

    REHMHere's an interesting email from Judy in Reston, who says, "Currently, I have no income, but I have been able to stay current on my mortgage through years of savings. However, I do not get the benefit of the mortgage deduction because I have no income to deduct it against. Is there discussion of making this available to people or, at a minimum, allowing people to carry the mortgage expenses forward to use once they start earning again?" Jonathan.

  • 10:22:52

    WEISMANThat's an interesting question because obviously Democrats have championed what they called refundable tax credits, that if you don't have the income to claim the credit off of, you just get a check from the IRS. And the IRS is actually one of the biggest providers of income to the working poor in the United States that we have. But I don't think anybody has talked about expanding the mortgage interest deduction.

  • 10:23:18

    WEISMANAll of the talk is not about refundability. It's about curtailing it and mostly curtailing it on second homes, third homes, vacation homes. It's pretty amazing, actually, that after all of these years, you still can take a fairly hefty mortgage deduction off of your vacation home in Deer Valley or wherever you are.

  • 10:23:37

    REHMMatt, what are some of the specific entitlement reforms that, at least, some Democrats are willing to consider?

  • 10:23:48

    COOPERWell, you know, there's a few. I mean, there's raising the age of retirement. That's probably among the least popular with Democrats, but it's not totally off the table. And the other is this idea of changing the pricing formula. It's called chain CPI and consumer price and things...

  • 10:24:08

    REHMWhat would that do actually?

  • 10:24:09

    COOPERWell, basically, it's a different way of measuring inflation, and you would get less money if you were a beneficiary. So it's not a happy situation, but it's one the president has said he's open to. He's been a little opaque about it. It's sort of been a more, let's discuss it, rather than, I'm for it, but it's on the table.

  • 10:24:31

    REHMRachel.

  • 10:24:32

    SMOLKINAnd President Obama's approach on chain CPI had been very interesting. It was something that came up during the grand bargain talks where we got so close between the president and House Speaker John Boehner. It came up again during the fiscal cliff talks. So it is something that the president has brought up in those negotiations with some regularity but really not something that he's discussed very much publicly.

  • 10:24:55

    SMOLKINIn his second inaugural address, he had a fairly vague reference to entitlement reform and saying we're going to have to make some modest adjustments while protecting all of these programs. But he has not sold that to the public which has been one of the frustrations that Republicans have. They feel like they've really given some on revenues, that that was what the fiscal cliff negotiations were all about. So they feel like they've moved, but the president has not moved his own party at all on this issue of entitlement.

  • 10:25:26

    REHMIs he going to be able to at all, Jonathan?

  • 10:25:30

    WEISMANThat's what Republicans want. You know, the president, when he put chain CPI on the table, now he could sell that to Democrats because it doesn't -- it curtails the growth of, you know, Social Security benefits and such. But it also actually does raise revenue because your income tax brackets don't rise as fast as your income, so you get pushed into higher tax brackets. You could sell that to Democrats by saying, hey, look, this is part of the revenue picture.

  • 10:25:57

    WEISMANBut the Republicans say, look, it's not that we don't believe that the president has put some of these things on the table, we just don't see him selling it. If the president of the United States, who has the trust of the Democratic base, went out and actually made a full-throated case for reforming Medicare, reforming Social Security, making these changes, then we believe him. But if he's just going to go in closed-door meetings with us and say, hey, I'm with you, that's not going to do it. That's still believing them with the political baggage.

  • 10:26:28

    SMOLKINAnd that was one of the issues that got some attention when the president had the dinner with about a dozen Republican senators. There was some discussion about maybe he would start to go out and make some of these speeches and make that case to the public about why this is important. We haven't heard that yet.

  • 10:26:44

    SMOLKINOf course, the president is in Israel this week, so there's a little bit of a lull in some of these discussions. But it would be very interesting moving forward whether he really does begin to press that case publicly or he continues to just use the public rhetoric to focus on Republicans and the need for them to move further on revenue.

  • 10:27:03

    REHMWhy hasn't he, Matthew?

  • 10:27:06

    COOPERWell, I think, strategically, it's -- they -- you know, the White House sees it as kind of a unilateral disarmament to start, you know, conceding this point saying, I'm for changing the inflation formula. I'm for these entitlement cuts until they start to see more movement of the Republicans. Now, the Republicans, for their part, feel like they gave at the office. We had a...

  • 10:27:27

    REHMWell, exactly, so...

  • 10:27:28

    COOPERWe had a tax hike earlier this year.

  • 10:27:29

    REHM...what is he waiting for specifically?

  • 10:27:33

    COOPERWell, I think he wants -- and I don't think he's going to get it, but I think he wants more openness to tax hikes, either in the form of rates, which is really unlikely, or closing some of these loopholes, and that brings us to tax reform.

  • 10:27:46

    WEISMANRight. I mean, remember, when -- in the last offer that John Boehner made President Obama, John Boehner said, I'll give you $1 trillion in tax hikes, and you give me $1 trillion in cuts. We got about $620 billion in revenue hikes with that fiscal cliff deal. So the White House is saying, look, you still have $400 billion on the table. I want -- we want to hear you say that.

  • 10:28:11

    WEISMANWe haven't heard that from John Boehner or any Republican leader. They're saying, absolutely not. We're done. We are done with revenue. And if they keep saying, we are done with revenue, period, in that actually emphatic tone, I don't think the president has any reason to say, well, I'll open my end of the bargain now.

  • 10:28:31

    COOPERAnd I think leaving aside politics, I don't think they, you know, the White House and the other top economic officials really believe that deficit reduction is the most important thing right now. I think they are sort of buy into the Paul Curtman argument and the argument of other liberal economists that the problem is jobs. This is not the time for big entitlement cuts that we can worry about that later.

  • 10:28:55

    SMOLKINI think that's absolutely true. But moving back to Jonathan's point about getting Republicans to move on revenue, that's something that seems, in retrospect, to be -- have been a miscalculation by the White House during the fiscal cliff negotiations. They thought that they could move a little bit off of President Obama's campaign promise but still get their partway, still get some new revenue in.

  • 10:29:17

    SMOLKINAnd that would set this precedent where raising revenue would be a part of any of these discussions that would continue into the future. Republicans said, absolutely not. We gave you this money, and now we are done.

  • 10:29:29

    REHMJonathan, take us back to the negotiations of 1986 and whether they were like this.

  • 10:29:41

    WEISMANWell, remember, the 1986 tax reforms involved a base bill that actually came from the Democrats. It was Dick Gephardt and Bill Bradley who put together the framework. So it started off as a bipartisan movement. This was the Reagan Treasury Department put down two different treasury, one treasury, two different, very detailed visions for tax reform coming out of the Reagan administration based on a Democratic model from Dick Gephardt and Bill Bradley.

  • 10:30:11

    WEISMANIt began in a much more sanguine tone. You know, there was a great book, "Showdown at Gucci Gulch," which was all about how pessimistic everybody was. There's no way the lobbyists would take it and tear it to pieces. But it was the lobbyists versus the political class. And the political classes were much more unified at that point. Here, the lobbyists have a much easier job because they just have to, you know, pick and choose who their targets are because they've got targets that are -- the political targets are very divided.

  • 10:30:41

    REHMSo then Sen. Bill Bradley, Jerry Seib wrote about yesterday in The Wall Street Journal, as one of the heroes who pushed that through. Are there, in your views, similarities between then and now, or is it now all the lobbyists?

  • 10:31:07

    WEISMANI just think that we live in a much more polarized atmosphere. And, you know, you don't see a Bradley or a Gephardt out there. And...

  • 10:31:17

    REHMRisking his or her neck.

  • 10:31:19

    WEISMANExactly. I mean, you had -- once had a great partnership on the finance committee between Max Baucus and Chuck Grassley who they switched on and off on -- as chair and ranking member. They had a great relationship. They worked really well together. You don't really see that with Orrin Hatch, who's the new ranking Republican, and Max Baucus, you know, as buddy-buddy. You don't feel like there's a lot of political juice, a lot of muscle behind anything going on in the Senate right now.

  • 10:31:52

    REHMMatt.

  • 10:31:53

    COOPERWell, the -- another big difference between 1986 and now is back then, chairman had a lot of power. They had more power than they do now. The parties were more coherent overall, and the individual chairman had more juice. So that Dan Rostenkowski, then the ways and means chairman in the House, could really get his people in line. Bob Packwood, the Senate finance chair from Oregon, could get his people in line once he was sold on the idea. Today, I don't think they have that kind of clout, and that's a huge difference.

  • 10:32:26

    SMOLKINThe intensity of the 24/7 media cycle now has also changed things. You have not just cable all the time but also Twitter, which is watching everything. You have groups on -- both the left and the right in the conservative and liberal media who are watching every move. It's much harder to have that space to go off behind closed doors and really work through some of these issues.

  • 10:32:49

    REHMAnd you're listening to "The Diane Rehm Show." We're going to open the phones now, 800-433-8850. First to New Bedford, Mass. Good morning, Chuck.

  • 10:33:06

    CHUCKGood morning, Diane, and thank you for discussion of this important topic. Sometime ago, you had on your program Prof. Edward Kleinbard of USC Gould School of Law. And he spoke at some lengths about fundamental tax reform, unifying the tax treatment of capital flows and eliminating the distinction between entities.

  • 10:33:36

    CHUCKWe have -- the great source of complexity in our tax code is the differences between corporations, Subchapter S corporations, publicly traded partnerships, ordinary partnerships, the different treatments of different kinds of investments and how they're depreciated and recaptured.

  • 10:33:52

    REHMSure.

  • 10:33:55

    CHUCKIt's not simple to unify these treatments or to eliminate entity-level taxation, but I'd like your panelist's view on whether there's any discussion at all going on about the sort of fundamental issues.

  • 10:34:11

    REHMMatt.

  • 10:34:12

    COOPERProbably not as much as there should be. You know, the idea of tax reform aside from just a blessed simplicity that people have for is that it will not distort economic decisions that, you know, if you want to invest in an oil well or invest in a painting or something else that you won't be distorted by different tax treatments. And I don't see the kind of wholesale reconsideration of things that the caller is talking about.

  • 10:34:39

    COOPERThe only one that I think sort of is different this time is the question of carried interest that affects hedge funds, private equity and a range of businesses. You know, this has the whole question of the Buffet Rule, named after Warren Buffet who has asked why he should pay a lower tax rate than his secretary. And that's about the only kind of category, I think, that's getting some rethinking.

  • 10:35:07

    WEISMANThis goes back to the issue of definitions and fairness. Republicans look at the tax code and say, we shouldn't tax what we want to encourage. And therefore, we don't want doing tax investment and savings. And that's why they push for lower tax rates on dividends, capital gains, interests, things like that.

  • 10:35:29

    WEISMANDemocrats look at it and say, what's the difference between earnings from, you know, from my job at Starbucks and earnings from my investment? Why aren't they all treated as income? And these are diametrically different visions for the tax code, and it creates just an ideological riff even before the discussion begins.

  • 10:35:51

    REHMAll right. To Arlene in Clearwater, Fla. Good morning. You're on the air.

  • 10:35:59

    ARLENEGood morning, Diane.

  • 10:36:00

    REHMHi.

  • 10:36:01

    ARLENEI am turning 62 in April and have filed for my Social Security tax -- excuse me, my Social Security benefits. I have been a professional most of my career. And the past 20 some years, I've paid in the maximum to Social Security every year. Three years ago, Diane, I lost my job, and I've been unable to get a job since then. And so I've decided to file for Social Security.

  • 10:36:37

    ARLENEMuch to my dismay, I learned that because your benefits are not calculated on the gross amount to contribute but what you've contributed over the last few years, I am not getting my maximum. Now, I'm not looking for a solution from you, but I think that this is something that needs to be looked at. I'm feeling that it's a bit unfair, especially since I lost a lot of my 401 (k) and my retirement savings because I had invested in the bank that I was working for.

  • 10:37:16

    REHMArlene, that sounds like a really tough situation. We've got to take a short break here. But when we come back, I think Jonathan and Rachel and perhaps Matt as well all want to respond. So stay with us.

  • 10:40:04

    REHMAnd back to our caller in Florida who lost her job three years ago. She is now 62 years of age and wondering why she is forced to take her Social Security based on, she said, the last three years. But actually, she meant the last -- she, I think, gets Social Security based on her three highest years of income.

  • 10:40:39

    WEISMANBut she does have a point because you -- because she's out of work...

  • 10:40:43

    REHMRight.

  • 10:40:43

    WEISMAN...she is going to be taking Social Security at the earliest...

  • 10:40:47

    REHMAt 62, right.

  • 10:40:47

    WEISMAN...possible moment. And you are penalized for that. And this points to a big problem in the debate on entitlements. Those who are focused on raising retirement ages, raising eligibility ages for Medicare and Social Security say, rightly, look, we are healthier. We work longer. We live longer. Why should we be still, you know, retiring at 65 or 67 for Social Security later?

  • 10:41:12

    WEISMANBut then the problem is that the structure of our workforce -- I don't know -- kicks us out of the workforce at that -- at those ages. So, yes, we might be healthier, we might be living longer, but we might not be able to find work in those key ages between, let's say, 58 and 65. So, you know, are you looking at long term -- are you looking at longevity? Are you looking at actual income flow?

  • 10:41:39

    SMOLKINI think the caller's situation also highlights why people get so frustrated with Washington.

  • 10:41:43

    REHMOf course.

  • 10:41:44

    SMOLKINYou know, here is someone who has been trying to work, trying to find a job. As we all know, the economy has been very difficult over the past number of years, and they look at Washington and say these things are so obviously not fair. Why can't you all just work out something that's fairer? And it shows just why people get so frustrated with the politicians on both sides of the aisle.

  • 10:42:07

    REHMHere's an email from Dale, who says, "Please discuss the taxes corporations such as Citicorp. and GE and big banks are not paying, which I see is an obvious source of revenue. The mortgage deduction helps drive the housing market.

  • 10:42:28

    REHM"An example, six banks -- Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley -- together, paid income tax in an approximate rate of 11 percent of their pre-tax U.S. earning in 2009 and '10. And they paid -- had they paid 35 percent, what they are legally mandated to pay, the federal government would've received an additional 13 billion in tax revenue."

  • 10:43:08

    WEISMANWell, actually, this is a very hot debate, because when you hear advocates for corporate tax or former, especially for lowering the top tax rate, they always point to the 35 percent corporate income tax rate in the United States and say, this is so out of whack with the rest of the world. They're -- basically, we have -- perhaps I think it is the highest actual corporate tax rate in the Western world. The problem is that the effective tax rate is much, much lower, and it's so maldistributed.

  • 10:43:41

    WEISMANThere are companies -- there are certain corporations that are prone to paying virtually no taxes in the financial sector, in the high-tech sector. But then there are other corporations in the domestic manufacturing that don't get a lot of these deductions. So you have tax rates -- effective tax rates that are just all over the books. And it really is not fair that one company pays a -- may pay a 33 percent effective tax rate and another pays zero.

  • 10:44:10

    REHMAll right. To Durham, N.C. Good morning, Oscar.

  • 10:44:15

    OSCARGood morning, Diane. Thank you for having me on the show.

  • 10:44:17

    REHMSurely.

  • 10:44:18

    OSCARHey, you guys just touched on the subject I was going to call about, and that was increasing the retirement age in order to relieve the stress of certain entitlement programs. And I wanted to know -- to the speaker who brought it up, I wanted to know if he thought that it was -- whether it was fair to increase the working life of a bricklayer in the same as increasing the working life of a white-collar worker.

  • 10:44:40

    OSCARI mean, it has been statistically shown that the wealthier you are, the longer you live. So basically, you're forcing those bricklayers, those masons, those plumbers, electricians, those people who really have backbreaking jobs to work longer. That -- no sense to me, especially when the white-collar workers are usually going to be the ones who live longer.

  • 10:45:01

    REHMI think that really hits a very good point, Matt.

  • 10:45:05

    COOPERYeah. No, I think it's a very serious point. How you overcome it in a tax code, in public policy, I don't know. I mean, can you? There's really no way to give different ages based on different jobs. So you're kind of stuck with the imperfect system of coming up with a retirement age. And what that should be, you know, is obviously going to be subject for debate.

  • 10:45:27

    COOPERBut I think this whole discussion raises, you know, the question of kind of retirement security. There was a report out of Congress this week about the number of Americans who have had to go into their 401 (k) s and really rate them, didn't make ends meet over the last few years. People don't have the kind of savings they need. And we've had health care reform.

  • 10:45:47

    COOPERBut things like long-term care are still not covered by Medicare, and that is about to bankrupt people and send them into Medicaid, which does cover it. So, you know, we still have a very serious set of problems about how to handle retirement. And yet, retirement is still better system than, you know, child poverty. You know, we have a fifth, a quarter of kids being born into poverty in the country. There is not the same kind of income support there.

  • 10:46:14

    WEISMANYou know, this is the complexity versus fairness debate. You could -- actually, President Obama, when he talked about changing the way we calculate inflation rates, chained CPI, he actually said, well, what we'd like to do is we would like to exempt the most vulnerable from the lower increases. So maybe, you know, people on SSI, the most disabled Americans, would not -- that they would not be affected. But when...

  • 10:46:45

    REHMBut that doesn't help a bricklayer...

  • 10:46:47

    WEISMANOr...

  • 10:46:47

    REHM...who has used his body all of his life to reach that age.

  • 10:46:53

    WEISMANAnd I think the president has mentioned this same point. The president has said, maybe we could have some kind of system that creates a different retirement age for those who have toiled with their bodies all their lives. But then you're adding much, much more complexity in the pursuit of fairness.

  • 10:47:08

    REHMComplexity.

  • 10:47:10

    SMOLKINAnd we've touched on this earlier, but I do think it's important to come back to the point that raising the retirement age would be a very difficult fight...

  • 10:47:17

    REHMDifficult.

  • 10:47:17

    SMOLKIN...among Democrats. Senate Majority Leader Harry Reid and Nancy Pelosi on the health side have made it very clear that they do not even want to have this discussion, much less move in that direction, which is why we keep coming back to these sort of jargony terms, like chained CPI, because that's something where there might be a little bit more room to maneuver.

  • 10:47:37

    REHMHere's an email from Jonathan in Washington, who says, "Why not specify which loopholes the president thinks should be cut? Wouldn't that force Republicans to defend ridiculous giveaways at U.S. taxpayer expense?" Matt.

  • 10:48:00

    COOPERWell, I think it would certainly make sense. You know, as Jonathan noted earlier, the president keeps coming back to this private jet loophole that doesn't raise much money. But...

  • 10:48:09

    REHMOr the Republicans say that they'll be happy to give him that.

  • 10:48:15

    COOPERRight.

  • 10:48:16

    REHMAnd that's the only one that has been...

  • 10:48:19

    WEISMANWell, there's the oil -- I mean, the president's budget -- nobody likes to talk about the president's budget. I don't know why. But the president's budget has enormous details. I mean, if you look at what's called the Treasury blue book, which actually outlines their proposals on taxes, it has pages and dozens and dozens of pages of changes to the tax code that they prefer.

  • 10:48:38

    WEISMANThey are -- they're not going after the big ones, but there are all sorts of runs on interest -- on tax deferrals, on income from overseas, corporate profits, on oil and gas exploration tax credits. They go on and on and on. Actually, we don't have time to go over the details that are in that -- in the president's budget.

  • 10:49:03

    REHMAll right. Now, let me ask you about Bill Bradley's proposal, which, again, was in Gary Seib's -- Jerry Seib's column yesterday. He proposes we adopt the plan that eliminates loopholes Republicans and Democrats can agree on and use that revenue to reduce the deficit then have tax rates go down when per capita income goes up. Is there any support for a plan like that, Jonathan?

  • 10:49:41

    WEISMANWell, the Republican leadership has said that they will not use any tax revenues to lower the deficit. That all tax revenues raised through closing loopholes are going to be used to lower income tax rates -- corporate and individual income tax rates -- now. And they have made that an absolute bottom line.

  • 10:50:00

    SMOLKINAnd that's right. I mean, we've been focusing here on the differences between the parties and raising revenue whether to do it at all. But it's important to remember that even if there is some way for them to find agreement on bringing in more revenue, there is no agreement about where to use the revenue for.

  • 10:50:15

    REHMYou know, I mean, it is so ridiculous that we cannot have a Congress that works together to achieve what everybody in this nation understands is needed, revision in this tax code to make it simpler, to make it more fair. And the two sides seemed to have reached this wall that says, I ain't going any further. How can we get anything done? Jonathan, will we get anything done?

  • 10:51:02

    WEISMANI don't think so. I mean, my opinion, President Obama's charm offensive for the last few weeks has been aimed at Republican senators and not Republican leadership in the Senate but rank-and-file Republican senators with the idea that perhaps if you could build momentum from the bottom up in the Senate, you'll put enormous pressure on the Republican leadership first in the Senate, then in the House.

  • 10:51:28

    WEISMANHow could the House refuse a grand bargain that has huge bipartisan support in the Senate? That's the argument. But the senators themselves -- although they have express an openness to the president's charm offensive -- have also said, we take our orders from the leadership, and if the leadership is not with us, I don't know how far this can get.

  • 10:51:51

    REHMMatt.

  • 10:51:52

    COOPERWell, I think that's right. And I think also, you know, you've got a deeply troubled Congress, as you said. And now they're starting to get a real traffic jam, you know? They've got this debt ceiling looming. They've got the sequester. I don't know if they have the mental space at the moment, they should. But I don't think they have the mental space at the moment to take on tax reform.

  • 10:52:13

    REHMYou don't?

  • 10:52:14

    COOPERI don't see it. I mean, I don't think it's impossible, but I think the kind of comprehensive tax reform that's been talked about, I think, is very tough even in the best of circumstances, you know, but more limited things maybe.

  • 10:52:28

    REHMThey are about to take another break for Easter. What are they likely to hear from their constituents?

  • 10:52:38

    SMOLKINThat's going to be one very interesting question as how much pressure do they get on them. Again, the sequester, which Matt mentioned, is just beginning to take effect, these furlough notices starting to go out. How much pressure will there be to go back and really take that on? It seems like the sequester is here to stay with us for a while. Tax reform doesn't seem like it would be right at the top of the agenda, but maybe they'll hear more of that from voters.

  • 10:53:06

    SMOLKINWe've been talking about fiscal issues on the agenda, but there are other huge domestic issues. Gun control, which the president wants to get done, not clear if anything will. And immigration, another issue where -- actually, it does seem like there is potential agreement between the parties, so maybe they'll be able to work that out, but all of these things take time and attention.

  • 10:53:26

    REHMAnd you're listening to "The Diane Rehm Show." Let's go now to Hot Springs, Ark. Hi, Barbara.

  • 10:53:35

    BARBARAHi, Diane. I'm so glad you took my call. Jonathan touched on a topic that is my really number one archenemy. And that's the deferral of offshore corporate profits. I don't remember which administration put it in. But why would we reward a corporation for taking the jobs out of America and putting them overseas at near-slave labor wages for U.S. purposes and then say, they don't have to pay taxes on those corporate profits on the jobs that were removed from America, where we used to pay taxes when those jobs were here.

  • 10:54:13

    BARBARAThey don't do that anymore. Why would any nation reward a company for -- you know, I think the American people would be very, very upset if we just had more publicity on this issue. Anyway, that's my question.

  • 10:54:27

    REHMOK. Jonathan.

  • 10:54:29

    WEISMANThe Democrats have made this a talking point now for six years and have tried to get to raise this issue. The problem is that the Republicans have an answer. The Republicans want what's called a territorial tax system, which says, look, the only taxes that a corporation pays are the taxes on earnings in the territory of the United States. Whatever is overseas is overseas. And, you know, a company that has an operation in China does pay taxes on that operation. They pay Chinese taxes.

  • 10:54:59

    WEISMANDemocrats obviously have a very different idea. In fact, I think that this issue about deferral of overseas taxes is why even the corporate tax effort is in big, big trouble because although everyone agrees that they want to lower corporate tax rates and simplify the tax code, the Democrats and the Republicans are diametrically on opposite sides about the question of what to do with overseas taxes.

  • 10:55:24

    REHMMatt.

  • 10:55:25

    COOPERRight. Well, I think that's, you know, that is a big problem. Still, I think, on the question of rates, they're pretty close. I think there are some ways you could modify other parts of corporate taxation, so, you know, I agree that it's a tough haul, but it's at least easier than taking on the whole code.

  • 10:55:45

    REHMSo then, ultimately, it comes down to a question of, if the tax code is reformed, how much could that, would that help the economy?

  • 10:55:59

    SMOLKINWell, I'll just make one point about that. We've all been pretty pessimistic about the chances of any of this happening, and I think we all feel pretty pessimistic. There is one way in which this could get done. President Obama and House Speaker John Boehner, I think, still really do want to reach a grand bargain, a deal that would address some of these issues. They're both interested in questions of legacy.

  • 10:56:21

    SMOLKINAnd while President Obama originally wanted a grand bargain because it was good for him politically, good from him philosophically, now it looks like the only route through which he'll be able to get to his goal if he can sit down and negotiate. Now, for that to ever happen, there will have to be some movement from both sides.

  • 10:56:36

    SMOLKINRight now, we're not seeing any of that. But we know the reasons why they would like to make that happen. And suddenly, after several weeks, months, where grand bargain talks seemed to be completely off the table, it's now at least back on the table. We're hearing the term tossed around again.

  • 10:56:53

    REHMRachel Smolkin of Politico, Matthew Cooper of National Journal Daily, Jonathan Weisman of The New York Times. Obviously, the issue will be continued. Thank you all so much. And thanks for listening. I'm Diane Rehm.

  • 10:57:14

    ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Susan Nabors, Rebecca Kaufman and Lisa Dunn. The engineer is Erin Stamper. Natalie Yuravlivker answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is drshow@wamu.org, and we're on Facebook and Twitter. This program comes to you from American University in Washington, D.C. This is NPR.

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