CNN – Are Tax Cuts for Everybody a Good Idea?

The rich are getting richer, the poor and middle class slipping. So are tax cuts for everybody a good idea?

We have one of the key architects of the original Bush tax cuts here. We're going to ask him whether tax cuts for all of you should be extended, next.

ROMANS: Let's take a look now at the growing income gap in America. The top earning 20 percent take home over half of the income generated in this country. That was in the year 2009, a year, don't forget, that the recession officially ended. The bottom earning 20 percent take home just 3.4 percent of income generated. That is a widening gap.

Glenn Hubbard joins us now. He's - he's dean of Columbia University Graduate School of Business. He's the author of a fascinating new book called "Seeds of Destruction: Why the Path of Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity." And he was chairman of the Council of Economic Advisers to President George W. Bush, helped design the Bush tax cuts.

Thanks for joining us.

You know, there's major political debate at the moment about extending those tax cuts for the wealthy and average Americans. Glenn, looking at that income gap, does it take away some of the argument for extending the tax cuts for the rich?

GLENN HUBBARD, DEAN, COLUMBIA UNIVERSITY GRADUATE SCHOOL OF BUSINESS: Well, I think there're really two points about extension. We should certainly extend the entire current tax code until we're ready to have a serious conversation about the size of government, and that's the second and bigger discussion.

If in 2012 we decide we want a government as large as that's in President Obama's budget, we can't afford the current tax system. The Bush tax cuts would all have to go. We need other tax increases. If we want a smaller government, it's a different story.

That's the real question - how big do we want government to be, not the Bush tax cuts.

ROMANS: So - so should we extend the Bush tax cuts with an expiration date? Should - should they all be extended?

HUBBARD: I think we should extend them until we're ready to have that conversation, and to me that's the 2012 presidential campaign. If the American people say, yes, we would like a government of 25 percent of GDP, which is an offer from the current administration, we have to repeal all of the Bush tax cuts, not just the ones for high income taxpayers. In fact, we need a whole new tax system, another discussion we should probably have.

ROMANS: Oh, and that's easy politically. They have - we can do that, right?

HUBBARD: Well then, we have to.

Unfortunately, this is not just economics, it's about math. We can't keep saying we want a government that's five percentage points of GDP higher than our present tax system could possibly even raise. One of those has to give.

And that's why, say, in the election, the American people need to speak. If - if we all collectively want a big government, we need to start talking honestly about how to pay for it.

ROMANS: OK. So talking about how to pay for it. I mean, we - we have to pay for things - the life we've already led still has to be paid for, essentially. So, politics aside, whether it's this year, down the road, or 2012, how do we deal with debt in a serious way without raising taxes?

HUBBARD: Well, I think the first step is to pick one of our big, long-term problems. As I argue in the book, "Seeds of Destruction," the entitlement problems are our largest fiscal problems.

Social security is the easiest one to make progress, and I think we can say to ourselves, we have a big, unfunded liability there. The burden of that should not be borne by lower income Americans. It should be borne by higher income Americans. And the way to fix that is to slow down benefit growth for higher income Americans.

If we did that, we would give ourselves a lot of fiscal room to move in the short run and the long run. I think there's a tendency in Washington to say let's fix everything all at once. We can start simply with social security and make big progress.

ROMANS: All right. Stick with us, because I want to bring back in Candy Crowley and Jim Ellis.

Candy, you know, listen to President Obama this week criticizing Republicans' efforts to extend the Bush tax cuts for the wealthy.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: They want to borrow $700 billion to provide tax cuts for the top two percent of Americans, people making more than $250,000 a year. It would mean an average of $100,000 check to millionaires and billionaires. That's $700 billion we don't have.


ROMANS: Candy, can Democrats score political points by turning the potential extension of those tax cuts into some kind of a class warfare debate?

CROWLEY: I don't - class warfare is something that comes up a lot in elections, particularly in presidential elections. I've never seen it actually take hold as something completely powerful, and I think part of the reason is that a lot of people aspire to make $250,000 or over every year that they don't see it as punitive.

I think the deficit question is probably a more powerful argument except that economists will tell you that the middle class tax cuts cost too much, too. So it - it does seem to sort of - it - the deficit, as I say, is an easier one, and it's hard for the Republicans to defend in as - politically, at least, your - your guest excepted.

But just on a purely political look at it, it is extremely difficult to support tax cuts for the rich while you're yelling about the deficit. And that's where I think the Democrats have made some inroads, not on the populist thing.

ROMANS: Now Glenn, in your book, you're - you're pretty clear that you think that this president is taking us down the wrong path. And, in fact, I want to read one section on page five that really caught my attention. "You see America is close to a destructive tipping point. We must change how we conduct our politics and economics and thereby rebuild and rebalance our economy, or we will inevitably go the way of all once great nations and suffer an irreversible decline."

You're talking about some very scary long-term stuff in a town that thinks in very short terms of two and four years, for example.

HUBBARD: Well, that's right, but it's still important. And it's not just about President Obama. Many of these fiscal mistakes were made by the Republican Party as well. It's not one or the other. It's as a nation, we have to decide what to do.

The issue isn't about really extending Bush tax cuts. The issue is about what kind of tax system is best for growth in our country. What can we do to bring down spending?

I agree the Republican Party also needs to be more forthcoming about where spending cuts could come from. I gave you an example with Social Security. It would be interesting very to hear those.

If we really want President Obama's government, then, yes, we are at that destructive tipping point.

ROMANS: And, you know, Jim, let me talk about more tax breaks. $12 million in tax breaks for small business is part of that $42 billion small business jobs that actually we were telling you about, extending the Bush tax cuts for the wealthy, supposed to, in theory, hire - is for hiring.

But, Jim, are business owners already getting their - their tax breaks? And how do we pay for that?

ELLIS: Well, actually there are a lot of tax breaks in the bill. And so therefore, for the vast majority of businesses, they - they're all being taken care of.

When you really look at the numbers, only about the - for extending the Bush tax cuts for the wealthy, only about three percent of businesses that are looked at by the Congressional Research Bureau would actually be affected by that. And small business will be affected by that.

So in a way, it's a very tiny percentage. But that tiny percentages are the most dynamic small businesses and that's the rub. The small businesses that have the potential to become large businesses are the ones that will be affected there. But most likely, they're not making their decisions based solely on tax policy.

ROMANS: All right. Jim Ellis, Assistant Managing Editor for Bloomberg Business Week, thanks so much. Also, Candy Crowley, our Chief Political Correspondent and Glen Hubbard, whose new book "Seeds of Destruction: Why the Path to Economic Ruin Runs through Washington and How to Reclaim American Prosperity."