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(BEGIN VIDEO CLIP)
WARREN BUFFETT, CHAIRMAN AND CEO OF BERKSHIRE HATHAWAY: I'll call you at 1:00 tonight and I'll tell you, Jon, I've got the best idea I've ever had. I'm going to put every penny I've got in it. If you want to come along and will you say, how much tax do I have to pay when I make a fortune?
JON STEWART, HOST, "THE DAILY SHOW WITH JON STEWART": I think the first thing I would say is, why are you calling me at 1:00 a.m.?
(LAUGHTER)
(END VIDEO CLIP)
MORGAN: That's Warren Buffett on the "Daily Show" talking taxes and why he and other rich Americans should be paying more of them. Can he get Republicans to agree, though?
Joining me for "Battleground America," two economic experts. Steven Rattner, a financier and led the auto bailout task force under President Obama, and Emil Henry, President Bush's former assistant treasury secretary who's also a senior adviser to the Romney campaign.
Welcome to you both. Let me start with you, Emil Henry. When Warren Buffett, I've been seeing him a lot this week. One of the richest men in the history of planet earth is demanding to be taxed more, give me a logical reason why he shouldn't be granted that wish.
EMIL HENRY, FORMER ASSISTANT TREASURY SECRETARY: Well, I'll tell you what, I'm sure that makes him feel good when he says that. Two issues, one is that that tax scheme that he is talking about would do precious little, call it a drop in the pond, to fix our fiscal condition. And it may well be a part of a -- of a solution. But it is -- it is so far from being the solution.
And the second reason is, you know, some things people stand on principle on, and there is a reason that over the years the tax code has had lower taxes on investment and savings and dividends because we like to encourage investment savings. We don't like to tax two or three times which dividends or other taxes might be taxed. So two small, and there is a principle involved.
MORGAN: Steven Rattner, is there a principle or is it just bloody minded news now by Republicans led by Grover Norquist, we shall not pay anymore taxes ever?
STEVEN RATTNER, CHAIRMAN OF WILLETT ADVISERS: At some point, of course, there is such a thing as too much tax. Everybody would agree with that. I would agree with that. But we're a long way from that. Let's just look at earned income tax which you pay on your actual wages. They're lower now than they were under President Clinton, thanks to tax cuts that were put in place 10 years ago.
And all President Obama is doing is saying let's go from 35 percent for the top earners to 39.6 percent, the same as it was under President Clinton. The economy did very well and we would help address our trillion-dollar deficit. It's more than just a drop in the bucket. Just raising rates on people making over $250,000 would be $1 trillion less deficit over the next 10 years.
MORGAN: Right. I mean, you know, Henry, $1 trillion is not to be sniffed at. And already some Republicans -- Tom Cole today -- broke with the leadership and urged his party to extend the Bush era tax cuts for households earning less than $250,000 to ensure most of the taxes don't go up in January. He's got a point, hasn't he? I mean who cares? This will (INAUDIBLE) every rich guy anyway.
(CROSSTALK)
HENRY: Sure, I mean, there is -- sure there's a point in there. I might -- I might dispute the numbers. I would argue, as the members of my party, I would argue that we have a spending problem as opposed to a revenue problem. To my friend Steve's remark about the Clinton tax rates that sounds great to go back to 39 percent. And yes, that was a time of balanced budgets. But, actually, those balanced budgets bear little resemblance to the tax rates.
Remember, in the Clinton years, we were -- in the latter Clinton years, one we were roughly at peace time, and two, there actually had been a capital gains tax cut as part of the 1996 package. And let's not forget the most important thing, there happened to be a little small thing at that time called a technology boom so much so that it led to a bubble of great excess and of course there were tax revenues there. So it's pointing to one marginal tax rat rate at one point in time as the panacea --
(CROSSTALK)
MORGAN: Right. Let me bring in Steven.
RATTNER: There is no one panacea or fixer. There is no silver bullet. We have a big problem. We have $1 trillion a year deficit. We have to address it. It has to be addressed in an y number of ways. The math is pretty simple. You need something like $4 trillion of deficit reduction over the next 10 years just to keep our ratio of debt to the size of our economy from growing.
And everybody agrees that most of that is going to come from holding down spending. But there's got to be a tax element as well. You've got to have more tax revenue. We could not afford the tax cuts that we had in the early part of the 2000 so we need to restore at least a piece of them.
I have not been on Wall Street as long as Warren Buffett. I'm certainly not anywhere near as rich as Warren Buffett, but I agree with his observation. I was on Wall Street for 30 years. I was there when high tax rates, I was there with low tax rates. It didn't change my work ethic. It didn't change your work ethic and we all -- when we worked together. I think people are driven by other things and within the margin we're talking about, 35 percent to 39 percent, this is not going to change the work ethic. It's going to raise revenue that we sorely need as part of a package including spending to get the budget deficit down.
MORGAN: Let me play you both a clip from Lloyd Blankfein from Goldman Sachs which was today, talking to Wolf Blitzer.
(BEGIN VIDEO CLIP)
LLOYD BLANKFEIN, CEO AND CHAIRMAN OF GOLDMAN SACHS: At the end of the day, I don't want to quibble -- you know, you quibble about the tax rate, but the more important thing is to increase the size of the wealth pie. And the idea of keeping rates low and then you pay a low marginal rate of a shrinking pie because the economy is impaired, I think that's crazy. I'd rather get the country on the proper footing as the most important objective.
(END VIDEO CLIP)
MORGAN: I mean, it's a really interesting debate, I think, about how you achieve what Lloyd Blankfein has said. How do you get America back on a sound economic footing? Putting your pragmatic hats on, if you were in that negotiating room, Emil Henry, what would the deal be?
HENRY: Broadly speaking, here's where I think this has to end up. One, recognize what we are facing is a spending problem. The -- you know, we -- my friend Steve talks about spending in the -- or the balance budgets of the Clinton years. The spending since the Clinton years has increased 50 percent. It's really out-of-control. That's why we have trillion-dollar budgets.
And the reason it's out-of-control is because of entitlements. When you look at the budget, the budget is, of all the government's expenditures, it's roughly 60 percent entitlement. So if you're going to get at spending, you have to go to entitlements. So big picture, there has to be a solution around entitlements on revenues again.
What I would like to see is -- I'd like to see the Bush tax rates continue as they are. However, give the process, give the country, north of $1 trillion but do it by getting rid of all the deductions and loopholes that -- that comprise 70,000 pages of the tax code. And you can do it. You can do $1 trillion to $2 trillion. These are the kinds of plans that are being offered and that's the sense of all --
MORGAN: OK.
HENRY: To create revenues and not -- and less impaired growth.
MORGAN: OK. Steven Rattner, if you were in that room and that was on the table what would you say?
RATTNER: I would say you need to have a compromise that's more in the middle. You need to have a package -- spending is not the only problem. Spending is a problem, I would agree with that. But as I said before, we had two rounds of tax cuts in the early part of the 21st century that we simply could not afford. You need to roll back a piece of them. So it has to come from both sides.
As far as where it comes from on the revenue side, I believe it should come from the wealthy. From the top 2 percent of Americans. There -- that's the group and I'm happy I'm a part of it, Emil is a part of it, I'm sure you're a part of it, Piers, that has benefited the most over the last few years. The average American is further behind. I don't think you take this money from the average American. I think you take it from those earning over $250,000.
Secondly, you also take it from people like Mr. Buffett who make most of their income from capital gains and have a very, very low tax rate. They should be paying a minimum of 30 percent as Buffett himself has proposed.
I'm all in favor of closing deductions and loopholes. But frankly when Lloyd Blankfein talks about the pie shrinking, the biggest risk we have right now is doing nothing, and go -- going over this so-called fiscal cliff at the end of the year, and then the economy will shrink and the pie will shrink. So we need to have a compromise. Both sides have to meet in the middle. And so far there has really not been a lot of progress in getting there.
MORGAN: Well, it's a fascinating debate. We'll carry on raging for the next 30 odd days.
Emil Henry and Steven Rattner, thank you both very much.
RATTNER: Thank you.
HENRY: Thank you, Piers.