Earl Ofari Hutchinson's take on the politics of the day
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In an exclusive interview on The Hutchinson Report Newsmaker Hour with host Earl Ofari Hutchinson on KTYM 1460 AM Los Angeles on December 10, Peter Schiff, President, Euro Capital Investment Firm. The following are Key excerpts from the interview.
EOH: Who gained and who lost the most as the deal stands right now?
PS: I think the American economy is the looser. I am in favor of reducing taxes, Americans pay too much in taxes right now, but unfortunately we don’t pay enough taxes given how much government we have. We have to make a choice between a large expensive government and pay a lot of taxes to sustain it with a weaker economy, because the bigger the government the government has to take resources out of the economy to sustain itself. If we want lower taxes we need smaller government. This plan does not deliver smaller government; it delivers bigger governments and bigger deficits. It’s disingenuous to pretend that taxes are being cut because the cost of government is measured by what it spends, not taxes. If we are you have big government we are going to pay for it one way or another; bigger deficits and higher inflation. The cost of living for American consumers is going to rise by more than the value of the tax cuts and we will be worse off, not better off.
EOH: How do we cut spending?
PS: Cutting the deficit is easy to do. Families figure out what they have to cut out and they stop spending money. The problem is our politicians don’t have the guts to do it because they think they might not get re-elected. Some Democrats want big government but they don’t want big middle class tax increases to pay for it. They want to pretend they can pay for big government by taxing the rich. There are not enough rich people. If you want big government taxes have to fall on the middle class, but the Democrats don’t want to tell the middle class voters, if you want all these programs you’re going to have to pay for it. Republicans want to say we want lower taxes, but they’re not willing to cut any spending to make it possible.
EOH: How do you satisfy the needs of the voters who want more, not less?
PS: They can’t have more if it doesn’t exist. What the government should do is give the voters more freedom to try to solve their own problem. The government doesn’t have any money, it has to take money out of the private sector and redistribute it. They are saying how do we tell the voters the bad news. They just have to suck it up and tell them. We are in bad shape because of bad monetary and fiscal policy that has gone on for years in Washington. Extended unemployment benefits prevents Americans from taking a lot of the lower paying jobs that are out there but not as lucrative as collecting unemployment. Because we have debased our currency and loaded up our industries with regulations and taxes and destroyed or savings, Americans have to work for lower wages. But the government has taken that option off the table because nobody is going to take a $5 or $10 an hour job when they get more in unemployment benefits. We have to stop paying people not to work.
Unemployment is like 17% to 18% when you count people who are working part time. A lot of jobs are leaving the country because the U.S. Government is making it uncompetitive for businesses here. We have the highest corporate tax rates in the world, a lot of regulations that other countries don’t impose on their businesses. It’s a lot easier for a business to expand and higher people overseas because you don’t have the red tape. These jobs need to come back but we need to remove all the regulations and taxes that forced them out in the first place.
EOH: Was it the correct thing to do to extend the tax cut to the wealthy across the board, and doesn’t this add about another $700 billion dollars to the deficit?
PS: The mistake was not is preserving the tax cuts for everyone, it was not cutting government spending. I don’t want higher taxes and I don’t want the government to single out people. If we want benefits from the government everybody should be asked to pay for it. You can have a couple I New York, both working, and they just barely can keep their head above water at $250,000 a year. My income is above that and I am already paying 45% of my income in taxes, not counting Soc. Security, property taxes, sales taxes. If the Bush tax cuts had expired I would be paying over 50% of my income. The other problem, as you are wealthier, you have a tendency not to spend what you earn, but to save. We need savings, because it is where capital comes from, production and jobs come from. It grows the economy. If you take away savings, you destroy economic growth. The upper income people use that money to invest in creating jobs and growing the economy.
EOH: Your response to the notion that the rich take the money and hoard it, no investments, not creating jobs.
PS: Rich people don’t take their dollar bills and bury them. They put their money in a bank, savings, buy bonds, invested in stock, used to grow the economy, provide the capital to expand. Spending does not grow the economy. Production and jobs first. All flows from under consumption, savings. The more savings generated, the faster the growth. Economy is not growing because we are not saving. Interest rates are too low, taxes punishes savings and encourages debt. Higher taxes means that business men will cut back on business investments, less growth. Tax people when they spend their money, not when they earn it.
EOH: Sitting with President Obama, what would you recommend about overhauling the tax system in this country?
PS: The best thing we could do would be to abolish the payroll taxes and all other taxes, and just have a National Sales Tax. That would be the best way to go. The next best thing would be to establish a flat tax, everybody pay the same rate. Get rid of all the deductions and make the tax code a lot simpler and a lot fairer. All income, capital gains, dividends, should be taxed at the same rate. Definitely eliminate the corporate taxes. When corporations are not paying out taxes they invest and expand their businesses. Offshore expansion is more economical for companies to expand out of the country and the losers are the American workers who don’t get job.