Deficits: The Battle Over Taxing The Rich

With Deficits Soaring, Washington State Is Considering A Special Income Tax For The Wealthiest Residents

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When Congress returns after the elections on Tuesday, it will face one of the most hotly debated issues in the campaign: raising taxes on the rich.

That's President Obama's position: to keep the Bush tax cuts in place, except for those on the wealthiest two percent as a way to reduce the dreaded deficit.

It's an idea already percolating among the governors: eight states have increased so-called "millionaire" income taxes so far, as a way of avoiding drastic budget cuts on health and education. And on Tuesday, voters could make Washington State the ninth.

But with our national debt in the trillions, budget experts will tell you that just taxing the rich isn't enough.

60 Minutes Overtime: Tax Hikes
Think your taxes are too high? David Stockman thinks they're not high enough. And he's a Republican who once helped engineer the largest tax cut in history. Ronald Reagan's former budget director tells Lesley Stahl why he's changed his tune on taxes.

Extra: Tough Spending Cuts Ahead?
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Extra: Bill Gates Sr. on Taxes & Innovation

One Republican brave enough to go public is David Stockman, President Reagan's budget director. He says all the Bush tax cuts should be eliminated - even those on the middle class.

And he says his own Republican Party has gone too far with its anti-tax religion.

"Tax cutting is a religion. What do you mean by that?" correspondent Lesley Stahl asked Stockman.

"Well it's become in a sense an absolute. Something that can't be questioned, something that's gospel, something that's sort of embedded into the catechism and so scratch the average Republican today and he'll say 'Tax cuts, tax cuts, tax cuts,'" he explained.

"It's rank demagoguery," he added. "We should call it for what it is. If these people were all put into a room on penalty of death to come up with how much they could cut, they couldn't come up with $50 billion, when the problem is $1.3 trillion. So, to stand before the public and rub raw this anti-tax sentiment, the Republican Party, as much as it pains me to say this, should be ashamed of themselves."

These frank words come from Ronald Reagan's old budget director. Stockman was the architect of the largest tax cut in American history.

But he doesn't let the Democrats off the hook. He says he cringes when he hears President Obama say things like this: "I believe we ought to make the tax cuts for the middle class permanent."

"We have now got both parties essentially telling a big lie," he told Stahl. "With a capital 'B' and a capital 'L' to the public: and that is that we can have all this government, 24 percent of GDP, this huge entitlement program, all of the bailouts. And yet, we don't have to tax ourselves and pay our bills. That is delusional."

"Why isn't this statement correct? We cannot really deal with the deficit until we get our recovery underway?" Stahl asked.

"The recovery has already happened. It is weak, it is tepid," Stockman said.

Asked how he can say the recovery has happened considering there is a ten percent unemployment rate, Stockman said, "The unemployment rate is not going to drop by any material amount any time soon. And we're going to be in a period of austerity. We've had a 30-year spree of really phony prosperity in this country."

Now our national debt is growing by $100 billion a month. For those who say cutting spending is the answer, Stockman says both parties have thrown in the towel on that.

"Even Republicans have said there's nothing significant we want to cut. They don't want to cut Social Security entitlements; they don't want to cut Medicare reimbursements to doctors; farm subsidies; education loans for middle class students. Certainly not defense!" he said.

Many of the states are in the same boat, facing huge deficits and few prospects for cutting, which is why Washington State is joining the movement across the country to tax the rich.