Golub Says Not So Fast to Taxing the Rich
Former American Express CEO not willing to finance Obama's jobs plan, even if Warren Buffet is
This is a rush transcript from "Journal Editorial Report," September 17, 2011. This copy may not be in its final form and may be updated.
PAUL GIGOT, HOST: This week on the "Journal Editorial Report," President Obama takes his Jobs Act on the road, calling once again on wealthy Americans to pay more. Warren Buffett may want to do that, but one former CEO says no way. He's here to tell you why.
And new census numbers paint a grim picture of the economic recovery. Why Democratic efforts to spread the wealth are falling short.
And Michele Bachmann takes on Rick Perry over a controversial cancer vaccine. Who is right? We'll have a debate.
(BEGIN VIDEO CLIP)
PRESIDENT BARACK OBAMA: Right now, Warren Buffett pays a lower tax rate than his secretary, an outrage he has asked us to fix. We need a tax code where everyone gets a fair shake --
(APPLAUSE)
OBAMA: -- and where everybody pays their fair share.
(APPLAUSE)
(END VIDEO CLIP)
GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.
That was President Obama last week, unveiling his $450 billion Americans Jobs Act, calling on the wealthy to pay more in taxes to finance it. And while Warren Buffett may be willing to do so, at least one former CEO is not. In a resent op-ed in the Wall Street Journal, Harvey Golub had this message for President Obama, "Before you ask for more money from me and others, raise the $2.2 trillion you already collect each year more fairly and spend it more wisely, then you'll need less of my money."
Harvey Golub joins me now. He's the retired CEO of American Express and a member executive committee of the American Enterprise Institute and also chairman of Miller Buckfire.
Welcome to the program.
HARVEY GOLUB, RETIRED CEO, AMERICAN EXPRESS & EXECUTIVE COMMITTEE MEMBER, AMERICAN ENTERPRISE INSTITUTE & CHAIRMAN, MILLER BUCKFIRE: Thank you, Paul.
GIGOT: So, take us through your arguments, your beef with Warren Buffett?
HARVEY GOLUB: I don't really have a beef with Warren Buffett. If he thinks that he's paying unfairly low taxes, largely because he takes advantage of capital gains, and then puts his money into a foundation so he doesn't pay taxes on the capital gains and gets a he deduction on the money that he contributes to this foundation, I think that would be entirely appropriate that he pay those taxes.
GIGOT: So, what is your -- what about you? You don't -- you say -- you wrote the piece, very interesting, that 80, 90 percent of your income this year would go for taxes of one kind or another. How do you get to that size?
GOLUB: Yes. It's an actually slightly lower number. But I get to it because of not only the current year's state and federal income tax burden and FICA taxes and the like, but also at age 72, my life expectancy is not great, so I would expect to pay estate taxes soon. And the sum of those, too, ends up to be a very high number.
GIGOT: Here is one of the points that Buffet makes, I think. He says capital gains taxes, which he acknowledges he pays a lot of, and taxes on dividends. Those are taxed at a lower rate, 15 percent now, than on income from wage earners, which is taxed at the highest rate of 35 percent. He seems to be saying, look, that's unfair, unfair to salary workers. What's your response?
GOLUB: My response is that the personal income tax code ought to be completely redone. And I would advocate essentially eliminating every single deduction, every deduction, except for savings and investments. But I would also count in income every source of cash. Now, currently, a lot of people in the middle class pay taxes, get a great benefit from tax exempt income in the form of health care and retirement. I would advocate a code that has everybody paying based on cash and non-cash income.
GIGOT: Right.
GOLUB: Subtract from it investment, and pay a progressive rate on the remainder. But have that progressive rate start for everybody at a very low rate for everybody.
GIGOT: So, everybody at least pays something in income?
GOLUB: Everybody ought to pay something.
GIGOT: But should there be a lower rate for capital income like capital gains.
GOLUB: No.
GIGOT: What that means is something you invest in a company. You get a -- you sell the company and you get a big pay day, you think that should be taxed at regular income?
GOLUB: I think that should be taxed at regular income, but at a much lower rate. The regular income ought to be at a much lower rate and we ought to eliminate all of the tax deductions and all tax preferences.
GIGOT: So if the top marginal tax rate were 25 percent, then you wouldn't mind -- then you wouldn't need a differential on capital income or on dividends?
GOLUB: No, wouldn't need a differential at all.
GIGOT: All right. Interesting.
Now let's talk about the president's jobs plan, which he says -- where he's given certain tax breaks, an extension of the payroll tax break for employees and now he's added it for employers, and as well as some tax credits for small business, but those all expire at the end of 2012. What is -- what goes through the mind of an employer, a CEO, when he says, OK, I'm going to get a tax break now to hire somebody but it's going to vanish in 16 months?
GOLUB: It is completely discounted.
GIGOT: Really?
GOLUB: It -- yes. It has no relevance to making a decision. The view that that people are hired because a company has cash to hire them, reflects an ignorance about how businesses and people are actually motivated and work that is -- that is astounding. People, businesses hire people when they have more business and they need the people to conduct that business. If they don't have the business to conduct, they're not going to hire the people.
GIGOT: Would it matter at all if the tax incentives were permanent?
GOLUB: It wouldn't matter if the tax incentives would permanent because then you would build it into the tax base.
GIGOT: And you would calculate your costs over a period of time and say, you know what, I'm not going to have to lay that person off in 16 months or I know now, I have a better sense of what my cost basis is?
GOLUB: Absolutely. The cost of hiring somebody is not just the out- of-pocket costs. There's a cost of training and development and getting people ready. And if you think a benefit is going to last for 16 months, you don't count it.
GIGOT: OK. Interesting.
So, what should Washington do? I mean, what are the two or three things do you think that they could do right now to avoid falling into a second recession?
GOLUB: In the short-term -- we put aside the long-term. In the short-term, I think it would be useful for the president to address what I think is one of the major problems in the jobs picture in the United States, and that's the unemployment rate among teenagers, teenagers and young people.
GIGOT: How do you do that?
GOLUB: I'll give you a suggestion in a moment. But people should understand the rates for -- I think the average teenager now, of kids that want to work is about 25 percent.
GIGOT: Right.
GOLUB: It's about 35 for Hispanics and it's about 50 for black kids.
GIGOT: Right.
GOLUB: If the president tomorrow announced a plan that said, all -- all people up to the age of 21 or full-time college students can work up to 30 hours a week and have no deductions for taxes, for FICA, Social Security, and no cost to the company, then businesses would arrange affairs so they could hire kids and work part-time, which many of them want to do.
GIGOT: Right.
GOLUB: And they would get the full benefit of that income.
GIGOT: All right, that's a very interesting idea. And I hope the president is paying attention.
Harvey Golub, thanks for being here.
GOLUB: Thank you.
GIGOT: When we come back, newly release census data show more Americans living in poverty than at any time since 1993. What the numbers say about the Obama administration's efforts to spread the wealth, next.
(COMMERCIAL BREAK)
GIGOT: New census data out this week shows the nation's poverty rate rose in 2010 to 15.1 percent, the highest level in nearly 20 years. The data also show that the income of a typical American family dropped for the third year in a row, to its lowest levels since 1996. These grim numbers beg the question, will the Obama administration's efforts to spread the wealth really working?
Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; assistant editorial page editor, James Freeman; and columnist, Mary Anastasia O'Grady.
So, Mary, let's stipulate, the president inherited a recession and in a recession, poverty always goes up, particularly -- even after a recession, before the recovery takes over. But these are really pretty awful numbers. How do you interpret them?
MARY ANASTASIA O'GRADY, COLUMNIST: Well, I think the main thing that you have to look at here is we're in a big recession. Why? Because of the housing crisis.
GIGOT: But we're in a recovery.
O'GRADY: No.
(LAUGHTER)
GIGOT: Technically.
O'GRADY: OK, OK.
(LAUGHTER)
O'GRADY: I grant you that. Things are looking pretty grim.
(LAUGHTER)
And they have been for several years now. Why are we in this circumstance? Because of the housing crisis. And what was the housing bubble about? It was about trying it put people, who couldn't afford homes, into homes that he they couldn't afford.
(LAUGHTER)
And that created a lot of leverage. And, of course, this is the crash from that. So the lesson should be that when you try to force equality, more people into the middle class, beyond what the rules of economics say, you create more poverty, not less.
GIGOT: So when you worry about income inequality, more than you worry about growth, you end up with more inequality?
O'GRADY: Yes, and I would also say that what the policymakers should be focused on is mobility, more than inequality. What we should care about is whether people can move from the lowest percentile to the third -- you know, could move up the ladder or whether they're just stuck, which is what happens in a lot of the developing countries. But in the United States, that used to not be the case.
GIGOT: Dan?
DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: One of the most disturbing things about people moving is the number of people age 25 to 34, according to the census, who have moved in with their parents. The numbers--
(CROSSTALK)
GIGOT: Every parent's dream.
(LAUGHTER)
HENNINGER: Yes, every parent's dream.
(LAUGHTER)
Between 25 to 34, I mean, you're talking about college graduates. You're talking about Joey, who is hanging out at the bar.
(LAUGHTER)
It's 14.2 percent in spring of 2011, were living with their parents. That's a -- this is what Harvey was referring to, the problem of youth unemployment in the United States is becoming severe. It's becoming very much like Europe. And the problem with that sort of unemployment is it becomes more or less permanent. People live at home and they just stay there. They stop looking for jobs.
And to Mary's point, you're going to need a significant amount of economic activity and growth to start pulling those people back into the work force.
JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: Well, just add that, as bad as the economy is right now, the poverty stats aren't quite as bad as they seem, because they generally don't count a lot of the income that - -
(CROSSTALK)
Mr. Sunshine.
FREEMAN: So it's not that bad. But I think that the basic point is that when you focus on, you know, changing inequality of wealth, what you don't do is create wealth and you discourage people who could create wealth. And you see that right now. What the Obama policies are doing is scaring businesses and they're not investing.
GIGOT: It's really interesting, because the president came in saying he's worried about inequality. And he came in and they focused -- they had the stimulus, but the stimulus was an awful lot of transfer payments. And then he focused for a year on the health care bill. And when it passed, remember all the columns by our friends on the left, saying this is wonderful for -- for wealth redistribution and it's going to really alleviate a lot of this injustice. It may be that the fact that he focused on that, instead of economic growth is his undoing.
O'GRADY: Countries that focus on that, they're called socialist countries. They --
(LAUGHTER)
They basically want everybody to be more or less equal. There can't be any rich people. They grow slower. That's a fact -- that's a fact.
GIGOT: James, quickly, the president's jobs bill, what's been the reception this week. Because now he says he's focusing on growth, so is this going to pass?
FREEMAN: I think we can say they're not going to pass it right away.
(LAUGHTER)
In fact, they probably won't pass it at all. And I think what's been amazing is that if this was some political strategy, to show Republicans as obstructionist, it completely failed, because the headlines between were all about Democrats saying, not in this form, not in this way, not now. And Harry Reid at a press conference basically listing everything in the world he was going to work on before this. And you were waiting for him to say, we need to name some post offices, too. And then we'll get to that.
GIGOT: That's the Senate majority leader.
FREEMAN: That's right.
HENNINGER: I think the Democrats in Congress are beginning to realize they are on their own, that this president is separating himself from them. He's going to tee up this bill, say the Republicans won't pass it, they're the obstructionists. But the Senate Democrats understand they're going to have to run their own campaigns, because the president is now in campaign mode. This happened before. George Bush abandoned his party in the second term.
GIGOT: It always happens.
HENNINGER: It always happens.
GIGOT: Run from the fall.
(LAUGHTER)
HENNINGER: It's happening now.
GIGOT: All right, when we come back, a controversial cancer vaccine takes center stage at the Republican presidential debate. So who is right and who is wrong when it comes to Rick Perry's Gardasil mandate. We'll have our own debate next.
(COMMERCIAL BREAK)
GIGOT: Well, Texas Governor Rick Perry was a target of most of the attacks in Monday night's GOP presidential debate, most notably, over the controversial Gardasil vaccine. In 2007, Perry issued an executive order, ordering requiring sixth grade girls to be vaccinated against human papilloma virus, or HPV. It's the leading cause of cervical cancer, but also a sexually transmitted disease. Although Perry said he regretted the decision, his opponents, including Minnesota Congresswoman Michele Bachmann, pounced.
(BEGIN VIDEO CLIP)
REP. MICHELE BACHMANN, R- MINN. & PRESIDENTIAL CANDIDATE: I'm a mom, a mom of three children. And to have innocent little 12-year-old girls be forced to have a government injection through an executive order is just flat-out wrong.
(APPLAUSE)
BACHMANN: That should never be done.
(END VIDEO CLIP)
GIGOT: We're back with Dan Henninger and Mary O'Grady. And also joining us, Wall Street Journal editorial board member, Joe Rago.
Joe, who do you think got the better of that date?
JOE RAGO, EDITORIAL BOARD MEMBER: I think Rick Perry does. HPV is the only cause -- only known cause of cervical cancer. These vaccines make it almost entirely preventable. And he was basically changing the default option from an opt-in to an opt-out. There's a very liberal --
GIGOT: What do you mean when you say that?
RAGO: Right now, you can choose to get the vaccine. He says, let's - -
(CROSSTALK)
GIGOT: Parents can basically choose?
RAGO: Parents can choose. And you have to get the vaccine before sexual activity begins or else it isn't effective. That's why, you know, the little girls getting the government injection, as Michele Bachmann invoked, you know, it's just a medical reality.
GIGOT: So, Mary, public health priority?
O'GRADY: Yes, well, I think it's unfortunate that Michele Bachmann sort of ginned up this concern about whether the vaccine was safe or not. I think Rick Perry is running on -- in a race that's all about limited government and letting individuals make choices that are their own. And you know, I think that he -- on that count, he has a black mark on this, no matter how you try to spin it. I mean, basically, there was resistance to this, he saw the resistance, and then he pushed the thing through an executive order because he didn't think it would pass the legislature.
And you know, if he's arguing that he did it because he can save lives, well, for heaven's sakes, I mean, you can save lives by passing out condoms to teenagers. You can save lives by giving free needles to heroin addicts. And there's a lot of government intervention that, you know, statistically, according to pointy headed experts, can save lives.
(LAUGHTER)
But the people who are trying to decide on a candidate for the Republicans are looking for someone who respects individual and family choices and will not, you know, order something like this.
And the opt out, by the way, is ridiculous, because anybody who has worked with school systems or had children in school systems, will tell you that the authorities will give you tremendous amounts of pressure.
GIGOT: All right, but, Joe -- Joe, the point -- state coercion, that seems to be Mary's objection, overrides the public health concerns.
RAGO: Look, this is a classic public health issue. This is not just you. It is not just about the individual. It is not like a motorcycle helmet law, for instance. It's about presenting this disease from spreading to others. It's the most commonly spread sexually transmitted disease. 50 percent of sexually active people have it today. So what this is about is preventing you from harming others through the course of normal behavior.
O'GRADY: You know, I hope I don't have to explain here how, you know, something like small pox, and the way that you contract small pox is entirely different from the way you contract this disease. This has to do with behavior. And people make choices. And when you start to say that people -- the choices people make, they can't be held responsible for, that the state has to intervene and start, you know, protecting their health because they might make bad choices, that's fine. That's what the Democrats like. That's what the kind of interventionist policy a lot of people believe in, but it's not the kind of thing that most people who believe in limited government would embrace.
RAGO: I mean, I'm a little flabbergasted here. People who have sex deserve to have cancer? I mean --
(CROSSTALK)
O'GRADY: No, they deserve to make their own choices.
RAGO: That's indecent.
O'GRADY: No, they deserve -- no they serve to make their own choices. They know what their behavior is going to be, and then they can sign up and take the vaccine. But everybody doesn't have that same behavior. Those are choices, Joe. Choices are made by individuals.
HENNINGER: It's a terrific vaccine, but let's agree that if you have to vaccinate junior high school girls in Texas, then there's kind of a state of social and moral collapse taking place among high school students. I mean, this is done because they assume, they have thrown in the towel on the fact that there's all of this sexual activity taking place among seventh, eighth and ninth graders.
RAGO: No, it isn't. Because the vaccine lasts for 10 to 15 years.
HENNINGER: Maybe.
RAGO: But you have to get it before sexual activity begins or else it's totally --
(CROSSTALK)
O'GRADY: Right, so that's at age of 11? Is that your judgment?
RAGO: You put it in early so you get everyone and stop the disease from spreading.
O'GRADY: You're going to control everything.
GIGOT: All right -- all right, this is -- this is not decided here.
(LAUGHTER)
We have to take one more break. When we come back, our "Hits and Misses" of the week.
(COMMERCIAL BREAK)
GIGOT: Time now for "Hits and Misses" of the week -- Dan?
HENNINGER: Paul, a miss to the Securities and Exchange Commission for trying to prevent five million beer lovers from buying the company Pabst Blue Ribbon Beer. Now, let me explain. If you grew up in the Midwest, you know that Pabst Blue Ribbon dates back to the 19th century. An iconic beer there. Two investors using an Internet funding technique, called Crowd Funding, asked -- got five million people to send in an average of $40 to buy Pabst. The SEC said, stop. The beer lovers started figuratively throwing their beer mugs at SEC --
(LAUGHTER)
-- and now the SEC, incredibly, is going to reconsider.
GIGOT: That's good.
James?
FREEMAN: Well, as a Pabst drinker, I can't really compete with that.
(LAUGHTER)
That's the most brilliant thing every said on this program.
(LAUGHTER)
But I would like to give a hit to the vigilant Americans who responded to a call from the president's reelection campaign this report to report on fellow citizens who were criticizing the president. So they got a lot of response. It wasn't necessarily what the Obama campaign expected. Among the comments were, quote, "I saw six ATMs in an alley killing a job. It looked like a hate crime."
(LAUGHTER)
And another one said, quote, "The GOP won seats in New York and Nevada. I suspect interference by sane people. Check that out people."
GIGOT: All right.
FREEMAN: Vigilant Americans.
RAGO: Paul, this is a back-handed hit to the solar company Solyndra for proving that there is at least one green boondoggle that liberals won't support.
(LAUGHTER)
Democrats are running away from this company, only after it went bankrupt and defaulted on a half billion dollar government loan. But you have to take progress where you can get it.
(LAUGHTER)
GIGOT: All right, thanks, Joe.
That's it for this week's edition of the "Journal Report." Thanks to my panel and to all.
I'm Paul Gigot. Hope to see you right here next week.
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