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Special Report

'Special Report' Panel on Tax Cuts, the Pope's Visit to the U.S. and U.S.-Vatican Relations

This is a rush transcript of "Special Report With Brit Hume" from April 15, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

REP. RAHM EMANUEL, (D) ILLINOIS: President Bush's tax cuts, primarily the first one, but in addition to that, the second one, was focused on the very well off in this country, and wasn't an engine towards economic growth.

SEN. JOHN MCCAIN, (R) PRESIDENTIAL CANDIDATE: By allowing many of the current low tax rates to expire, they would impose overnight the largest single tax increase since the Second World War.

(END VIDEO CLIP)

BRIT HUME, HOST: So there you see the framing of a debate on tax day, the Democratic position represented by Rahm Emanuel -- the rich pay too little and should pay more and the Bush tax cuts were skewed in their direction, and John McCain insisting that, well, if you don't do something, you are going to impose the biggest tax increase on everybody that has been seen in a long time.

Some thoughts on this now from Fred Barnes, Executive Editor of The Weekly Standard, Mort Kondracke, Executive Editor of Roll Call, and the syndicated columnist Charles Krauthammer, FOX News contributors all.

To give you an idea of the sentiment in which all of this is playing out, the Gallup organization asked the question about who pays too little. And if you look at it, 63 percent of the people think that the upper income people pay too little; 73 percent think corporations pay too little; and nobody thinks of any number that lower and middle income taxpayers pay too little.

So where are the facts, and how does this argument play out -- Fred?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: The argument, and I think Democrats and the media have won the argument with the public. They think corporations don't pay enough and wealthy people don't pay enough. And we know just the opposite. The fact is --

HUME: In fact, we have a graphic on that very point. Look right up there on the screen. The top 1 percent of the country pays nearly 40 percent. The top 20 pays 86, and the top 40 paid all but 6/10 of a percent, and everyone else pays less than 1 percent. So that's how the tax burden is shared now.

BARNES: When the Bush tax cuts came along, I think the first one, it actually threw a lot of people in the lower 60 percent there now off the tax rolls entirely and created a new lower tax rate for people who had been at the 15 percent rate -- they were soon paying 10 percent.

Corporations pay 35 percent, that's the corporate tax rate. John McCain wants to reduce it to 25 percent. Why does he want to do that, because John McCain is not a big pal of corporations? He was attacking Wall Street greed and the high salaries of CEOs for corporations -- because it will make the U.S. more competitive.

When you get down to 25 percent -- I think 24 percent is the world average for industrial democracies or industrial countries, their average corporate rate. When the U.S. is indeed at 35 percent, it makes American companies less competitive.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: That is true. We've got the second highest corporate tax rate in the world. And even Charlie Rangel, the Chairman of the House Ways and Means Committee, wants to bring down the corporate tax rate.

So the public is definitely wrong on that. And McCain also wants to close corporate goodies, corporate subsidies and loopholes, in the process of doing that.

But your figures there refer to federal income taxes, but if you look at all federal taxes, including payroll taxes, it's quite a different situation. People over a million dollars a year pay 18 percent of the total federal tax bill. Those between $200,000 and $1 million pay 23 percent -- much more -- and those between $100,000 and $200,000 those are the ones who really pay it -- they pay 25 percent of the total tax.

HUME: But the taxes that are being discussed here to be raised are the federal income taxes. That's what McCain is talking about.

KONDRACKE: McCain's talking about it. He's also talking about corporate taxes, and AMT. But the burden -- conservatives love to point to the fact that rich people are paying all the income taxes. They are paying a large share, but the payroll tax hits middle income people the hardest.

BARNES: And they get something back for it. They get Social Security and Medicare.

KRAUTHAMMER: But Mort is right. The payroll tax is incredibly regressive and it is a huge drain on people who are not rich. So it does equalize the tax burden.

But I think these arguments about tax rates are a little bit I think overemphasized. After all, we had a 90 percent income tax rate in the '50's, and because of the Reagan revolution -- the big argument is now about three percent in the middle 30's. Reagan lowered it. Clinton raised it a bit. Bush lowered it a bit. And if you abolish the Bush cuts you get an increase of a few percent at the highest rate.

The real issue, I think, if you want to talk about the competitiveness, is the incredible inefficiencies of having this 60,000, I think you said, page code.

HUME: 67,000 plus.

KRAUTHAMMER: In 1986 we had a political miracle, which was Bill Bradley on the left, Reagan on the right, agreed on a compromise, which is an amazing achievement, a lowering of the tax rates and at the same time taking out all kinds of breaks and loopholes.

In the 20 years since, the irresistible urge for any politician to increase a break of any kind, even for good behavior, ethanol or fuel efficient cars or attending community college, the way to influence behavior is no longer a government program, which everybody attacks as big government. You hide it as a tax loophole.

What we really ought to have a commission like Bradley and Reagan had to agree on a lowering of rates in return for elimination of a lot of these breaks as a way to clean up that code and get competitiveness and efficiency into the code, because every time you give a break, it introduces that inefficiency in behavior.

It is a way of saying that something that people rationally would not do you want to influence with a break and have them do it otherwise. That creates inefficiencies and hurts the overall economy. I'd rather see a debate on a grand compromise than a debate only on tax rates.

BARNES: I think you're wrong about the rates. I think the differences are greater than you think. And the top rate for individual income, it was 39.6 under Clinton down to 39.6 under Clinton down to 35 percent.

But even bigger on capital gains and on dividends -- dividends went down from 39.6 to 15 percent. This obviously helped the economy and the market and individuals -- cap gains from 28 percent to 15 percent.

But I agree with your basic argument -- this is what happened in 1986 with tax reform. And then we came in with the Clinton tax increase of 1993 which changed all that.

And, look, what you want is a tax system with a broad base and lower rates rather than a narrow base and higher rates, which I'm afraid we're stuck with.

HUME: I often wondered whether Republicans would come to rue the day when they eliminated by the legislation that passed tax cuts for a lot of people millions of people off the tax rolls entirely.

What they have basically gotten in exchange for that is the claim that when further tax cuts are passed, it's unfair to those people because they don't pay any taxes and therefore don't get benefits.

KONDRACKE: But they do pay taxes.

HUME: They don't pay income taxes.

KONDRACKE: They don't pay income tax, but the idea that they're getting a free ride and not paying for anything is wrong. They pay sales taxes, they pay income taxes.

HUME: I understand that, Mort.

BARNES: Who screams when proposals to curt the payroll tax rate are made? Mainly by conservatives. It's liberals who scream, people like you who scream --

KONDRACKE: They're worried about the solvency of the Social Security system.

BARNES: There you go.

HUME: When we return with our panel, they will weigh in on the Pope's visit and the relationship between the U.S and the Vatican.

(COMMERCIAL BREAK)

HUME: Pope Benedict XVI arrived at Andrews Air Force Base this afternoon around 4:00 here in Washington time, and was met at the bottom of the ramp, as you will see in a moment, by the president himself, and the first lady as well.

That is the first on the president has ever met a foreign dignitary of any kind and gone out to the airport to do it.

On his way over on the plane talking to reporters, the Pope had something to say about the pedophile priests a scandal that has rocked to the Catholic Church in America.

(BEGIN VIDEO CLIP)

POPE BENEDICT XVI: We are deeply ashamed and will do what is possible that this cannot happen in the future. We will absolutely exclude pedophiles from the sacred ministry. This is absolutely incompatible, and who is really guilty to be a pedophile cannot be a priest.

(END VIDEO CLIP)

HUME: Strong words. Many felt they were overdue and much needed, but, nonetheless, they had been said as the Pope begins his visit to the United States.

Fred, your thoughts on the importance of this visit, the meaning of it?

BARNES: He said the right thing in the beginning, no question about that. And maybe it was overdue, but he said it extremely strongly. This is a very brave guy. I think he and the president are going to hit it off.

And one of the things that I particularly admire about him is he has been willing as Pope not only to create a dialogue with Muslim leaders, but to attack, or to urge them publicly and loudly to make sure that Islamic extremists abandon violence as a way of spreading the faith. So what happens when he says that is it produces violent riots, and so on.

But the best thing he did was on Easter -- to punctuate that exact point, he personally baptized a former Muslim-Italian journalist who had been a strong critic of the violence. So he is a very brave guy, this Pope.

KONDRACKE: I think he has got a lot of work to do to try to repair the American Catholic Church. It is losing parishes. It is losing schools in inner cities, which is used to be a staple of. It is losing population.

It's only holding level as the largest single denomination because of immigrants, and, to the Pope's credit, he is a defender of respect for people who are immigrants, including illegal immigrants. So there is a lot of work to do here.

KRAUTHAMMER: I like the way he used the word "absolutely" twice in 30 seconds. He is a man who represents a Church that actually believes in something and stands for something.

If you compare it with the Archbishop of Canterbury who said a few weeks ago that Britain ought to consider incorporating Sharia law, you have to thank god for a religion and a Church actually has belief that it will stand by in this secular and relativistic age.

HUME: And we will continue to keep an eye on the Pope throughout his visit here.

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