updated 12/3/2012 10:14:18 AM ET 2012-12-03T15:14:18

UP WITH CHRIS HAYES
December 2, 2012

Guests: Dedrick Muhammad, Dannel Malloy, Elizabeth Pearson, Veronique De Rugy, Maya Wiley, Bruce Bartlett, Tony Dokoupil, Kevin Sabet

CHRIS HAYES, HOST: Good morning from New York. I`m Chris Hayes. The
Associated Press is reporting Egypt`s top court has just delayed a session
where it was expected to rule on the new constitution after thousands of
Morsi supporters showed up to protest outside the court. And Taliban
suicide bombers attacked an American base in the Afghan city of Jalalabad
overnight, killing three Afghan soldiers and two civilians. Right now, I
want to start with my story of the week. The tax man cometh.

The main theme of this week`s coverage of negotiations between President
Obama and Congress over what we call the fiscal curb is the unraveling of
the Norquist consensus. Grover Norquist, of course, is the lifetime
right-wing political activist, organizer, lobbyist, pal of Jack Abramoff
whose group Americans for Tax Reform has managed to get just about every
single Republican running to office from school boards up to president,
signing a pledge that reads, "I pledge to taxpayers to one, oppose any and
all efforts to increase the marginal income tax rates for individuals and
or businesses and two, oppose any net reduction or elimination of
deductions in credits unless matched dollar for dollar by further reducing
tax rates. Norquist pledge has been useful to the Republican Party for a
number of reasons.

First, it has led the Republican Party to push tax policies that move
hundreds of billions of dollars from the U.S. Treasury into the bank
accounts of wealthy people. Said wealthy people being an extremely potent
political force, and source of donations. And it`s also given the central
right coalition a single, simple policy objective to always pursue, no
matter what. A kind of North Star for modern conservatism. But now,
Republican members of Congress seem to be losing their way.

(BEGIN VIDEO CLIP)

REP. ERIC CANTOR (R-VA), HOUSE MAJORITY LEADER: There`s a lot that has
been said about this pledge. And I will tell you, when I go to the
constituents that have elected - reelected me, it is not about that
pledge.

SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: I agree with Grover we shouldn`t
raise rates, but I think Grover is wrong when it comes to we can`t cap
deductions and buy down debt. But I will violate the pledge, long story
short, for the good of the country only if Democrats will do entitlement
reform.

SEN. BOB CORKER (R), TENNESSEE: I`m not obligated on the pledge. I made
Tennesseans aware, I was just elected, that the only thing I`m honoring is
the oath that I take when I serve -- when I`m sworn in this January.

REP. PETER KING (R), NEW YORK: A pledge you signed 20 years ago, 18 years
ago is for that Congress. For instance, if I were in Congress in 1941, I
would have supported a declaration of war against Japan. I`m not going to
attack Japan today.

(END VIDEO CLIP)

HAYES: That`s a good one. Given how implacable and comprehensive
Republican opposition to increasing taxes has been over the last decade,
the question you have to ask is why now? The most obvious reason has to do
with the election results. Tax rates for the wealthiest filers was one of
the top three issues that was debated in the campaign, litigated, ad
nauseam. And one side, the raise taxes side won. And the other side, the
cut taxes for wealthy people side lost. In the case you don`t believe the
actual votes cast, look at the polling. A strong majority of Americans
support raising taxes on the highest incomes.

But the deeper reason we are seeing a shift on the politics of taxes is
that the actual facts of the matter have changed. When the great tax
revolt started in the 1970s, Americans were, relative to now, paying a lot
of taxes. Conservatives very shrewdly stoked this backlash and channeled
it into the passage of Prop 13 in California, which capped property taxes
and required a two-thirds majority for the legislator to impose new taxes.
Two years later, they channeled the tax revolt through the campaign of
Ronald Reagan, who won office promising to cut taxes, especially for those
at the top.

Now, 30 years later, Americans are paying less in taxes than at anytime in
recent memory. A recent "New York Times" analysis of total tax burden,
federal, state and local found that a household making $350,000 in 2010,
which is roughly the cut-off for the top one percent, on average paid 42
percent of its income in taxes, down from 49 percent back in 1980. A
household making around median income has seen its total tax burden decline
from 30.5 percent in 1980 to 27.7 percent now.

So, it`s not surprising that as the tax burden has fallen, American public
opinion about taxes has changed. In 1980, over 60 percent of Americans
said they paid too much in taxes, but only 30 percent said they paid about
the right amount. By this year, amazingly, a plurality of people said they
pay about the right amount of taxes, 47 percent, while 46 percent said they
pay too much.

So to recap. Conservatives waged a long campaign to lower taxes. When
they got in power, they lowered taxes, and in lowering taxes took away the
political force of the promise to lower taxes, which is why we are poised
on the brink of the first successful increase of marginal income tax rates
since the first Clinton budget way back in 1993.

But while raising taxes on the wealthy is justified and necessary, it`s
really just the first step in a long journey toward the more equitable
future. One that will ultimately require that not just the wealthy pay
more in taxes. Here are two strange facts about the U.S. tax system in
comparison to other industrialized democracies. One, we are very lightly
taxed, ranking 30th out of 34 countries in the OECD in the ranking of taxes
as a share of GDP. And we also have, at least on the books, one of the
most progressive tax codes in the OECD in terms of the distance between the
official rates those at the top and the bottom pay.

But, of course, what this system has produced is some of the worst
inequality in the world. And under-funding of both our social
infrastructure and investment in our physical infrastructure. The solution
of this problem in the long run and the solution to an aging population, in
which inevitably health care will consume a greater share of the economy,
is for everyone to pay more in taxes and put the state to guarantee a
fuller set of basic public goods in the form of healthcare, education,
retirement security and child care.

The most successfully egalitarian democracies are places where the social
contract is structured around universal benefits, where everyone pays in
and everyone makes use of what the state provides. As of now, basically,
no leaders in the Democratic Party are making that argument. And in the
short run, they are right not to. Getting rid of, say, the entirety of the
Bush tax cuts for all brackets would hurt the recovery. But once we are
actually in recovery, we`re going to have to do at least that and more.

The question is, does the death of the Norquist consensus mean American
voters are ready to hear that? And how will this president or the next go
about making the case? Joining me today are the governor of Connecticut,
Democrat Dannel Malloy; Veronique De Rugy, a senior research fellow at the
Mercatus Center at George Mason University; Dedrick Muhammad, senior
economic director at the NAACP; and Elizabeth Pearson, a fellow at the
Roosevelt Institute. It`s great to have you all here. All right.

I like -- when I did these little spiels, I like to, you know, listen to
withering criticism from the panel. So, what do you think of the thesis,
at least about the politics of the sort of undoing of the Norquist
consensus, Veronique?

VERONIQUE DE RUGY, GEORGE MASON UNIV.: I actually think this focus on
Grover is -- just it`s wrong. I mean Grover is just one guy advocating for
a position that I actually think pretty sound. I mean, like, you know, we
know that high level of taxes are wrong for the economy. But the problem
right now is not about Grover. The problem right now is about this debate.
With it actually focusing on the treat (ph), like whether we are going to
raise taxes on the top one percent or two percent, how we`re going to do
it. Whether we are -- I`m not going to do it. And we are not focusing on
the fourth, which is this gigantic crisis in entitlement spending that is
coming.

HAYES: There`s not a gigantic crisis in entitlement spending.

DE RUGY: Oh, really? If you look at the number going forward ...

HAYES: Well, no, what I hear -- here is what I looked at. And I want to
stay on taxes for a second. But the just -- just to be clear. The
projections right now about the Medicare trust fund, for instance, which is
solvency for the next 13 years, is above what the average has been for the
projection for the life of the program. Right? For the life of the
program, the average of projections forward for solvency has been 11 years.
And in fact, the Affordable Care Act added five years to that.

So, let`s table for a second the entitlement question, because I want to
talk on the tax side. I do think you are right that the obsession with, as
you call him, Grover, I call him Mr. Norquist is a little bit misplaced.
Because, obviously, it`s not just him as a person, right? I mean there`s a
-- constituents who don`t want to pay more taxes and then also interests
who don`t want to pay more taxes. Governor.

GOV. DANNEL MALLOY (D), CONNECTICUT: Well, I think a couple of things.
That, number one, Grover and the Tea Party in this discussion are one in
the same. It`s -- who holds what over Republicans in the primary. That`s
what the whole discussion is about.

HAYES: That`s interesting.

MALLOY: And whether Republicans in a primary feel that being in office is
more important than doing the right thing. And that`s really what the
question is. And we have seen a lot of Tea Party candidates win primaries.
It cost them some Senate seats this year. But that`s the discussion. So,
whether it`s the Tea Party or whether it`s Grover or whether it`s both,
that`s the discussion. The one thing I will take you to task about --

HAYES: Please.

MALLOY: ... in your opening is that you left out the whole military
spending side.

HAYES: Right.

MALLOY: And the role that two wars unpaid for have played in the run up as
well as a drug benefit that was granted in the Bush administration without
any plan to pay for it, either. So this idea ...

HAYES: The deciding vote for which, I just have to say this every time it
comes up, because it`s sort of delicious -- the deciding vote for which was
cast by none other than Paul Ryan, right? That passed by one vote in the
House. Paul Ryan, voting for it.

MALLOY: So, he -- so he ...

(CROSSTALK)

MALLOY: So, he owns -- he owns a system that has cost us dearly. Rightly
or wrongly, dearly, because there was no way to pay for it.

HAYES: Right.

MALLOY: And this whole idea that`s grown up really since the `70s that you
can have just what you had before and not have to pay for it unless a
Democrat happens to be president, in which case you have to pay for that
and everything before it.

HAYES: But here is my question. And Elizabeth, you -- one of the reasons
I wanted to have you here today is you are doing really interesting work
that I heard you talk about at an event, in which you are doing research on
the history of the politics of taxes, more or less. And one thing that I
think is really interesting is that we tend to think about it is like each
side has a direction they want taxes to go, right?

But that -- maybe there`s just some actual equilibrium where taxes should
be. And that if you overshoot on one end the other, you essentially face a
whiplash? Right? It`s like -- if taxes are too high, they are past this
equilibrium. People are angry, and they come down. If taxes are too low
and you can`t fund the government, then that creates its own political
backlash and they go up. And I wonder if there`s a sort of - if that`s how
you think about it or that`s how the history of this has played out.

ELIZABETH PEARSON, ROOSEVELT INSTITUTE: Well, when you think about the
history of this, what always impresses me is that Americans have
historically been a little more open to revenue raising and to tax
increases than we give them credit for. I mean the period I study is the
post war period in the United States, between the `40s and `70s. That was
the time when states in particular were the ones facing these fiscal
pressures most acutely. So they raised taxes. This is Republican
governors and lawmakers, Democratic governors and lawmakers. And they
found that individuals, you know, the voters, the taxpayers were actually
quite willing to retain those taxes when they were put on the ballot by
anti-tax groups.

So while I think there`s an equilibrium, obviously, you know, you can go
too far in either direction. But we have to think about the fact that
Americans are actually quite happy with using revenue to solve these budget
impasses when the case can be made. And I think we`ve just gotten out of
practice, politicians in particular of making the case.

DE RUGY: Can I add something? I think I mean it`s an interesting point,
but then there`s the economic reality, right? And first, at the federal
level, what`s really fascinating is it really doesn`t matter how high top
marginal race has been in the last 50 years or 60 years. The ability of
the federal government, and again, it`s just for the federal government ...

HAYES: Right.

DE RUGY: ... to actually collect more revenue as a share of GDP has been
really fairly constant. And then there`s -- so there`s this question of
that, the political willingness to -- is this -- are we in this in the
federal government like 18, you know, percent or something, is this like a
political equilibrium? Or is it an economic ...

HAYES: Economic. Fluctuates around between 17 to 22 percent of GDP.

DE RUGY: Yeah. Yeah. Yeah, yeah, yeah, but I mean it`s been very -- when
you look at (INAUDIBLE) very high.

HAYES: I want to talk to someone who was there at the kind of incarnation
of the supply side, tax revolt revolution and who now says that that
revolution needs to be put out of its misery for lack of a better term. A
former Reagan adviser, who says we should raise taxes, next.

(COMMERCIAL BREAK)

HAYES: So, whether Grover Norquist is or is not the actual issue, or just
essentially a kind of a convenient symbol for a larger set of forces, I
think that`s more the case. Obviously, he`s a damn good organizer. I`ve
got to say. As the son of an organizer, I`m always impressed.

DEDRICK MUHAMMAD, NAACP: Just real quick, and I think, really, that is the
symbolism of the Norquist pledge. I mean, I think that is a big shifting
point. Because I mean you couldn`t even really discuss the idea of really
raising tax rates. I guess the last time it really happened was under
Clinton, `93. So, I think, you know, this really does make a formative
change. And I think it`s creating a lot of opportunity. We`re going to
see how this plays out. Because, I mean it`s a mixture of economic reality
with hopefully some type of political momentum. And now you can see, and,
you know, one thing that wasn`t also in your little monologue was looking
at ...

HAYES: Just go at it. It was terrible.

MUHAMMAD: No, it was a great monologue. You can only do so much in three
or four minutes. But economic inequality is well, how does that fit into
the fiscal crisis?

HAYES: Right.

MUHAMMAD: You know, because you can`t have strong economy when wealth is
more and more concentrated at the high ends and they are getting taxed less
and less at the high ends. You need a strong, broad based economy.

HAYES: One of the things Norquist and I talking about this, the debt
ceiling leverage, right? Because when we have seen this used as leverage
before. Here he is talking to Politico`s Mike Allen about how he sees the
strategy of this playing out.

(BEGIN VIDEO CLIP)

MIKE ALLEN, POLITICO.COM: This president is not going to extend. He knows
that he loses his leverage that way.

GROVER NORQUIST, PRES., AMERICANS FOR TAX REFORM: Well, the Republicans
also have other leverage, to continue resolutions on spending. And the
debt ceiling increase. They can give him debt ceiling increases once a
month, they can have them on a rather short leash, on a small -- you know,
here`s your allowance, come back next month if you have behaved.

ALLEN: OK, OK, wait. You are proposing that the debt ceiling be increased
monthly.

NORQUIST: Monthly. Monthly. Monthly, if he`s good. Weekly, if he`s not.

(END VIDEO CLIP)

(LAUGHTER)

HAYES: So, what -- it`s note -- once you note that in the opening offer,
that Tim Geithner gave to Republicans that getting rid of essentially this
debt ceiling procedure was part of that. And I think probably because of
precisely that.

I want to bring in Bruce Bartlett, author of the "Benefit and the Burden",
former policy analyst in both the Reagan and George H.W. Bush
administration, a contributor to "New York Times" economics. Bruce, you
were sort of there at the beginning of the supply side revolution, the tax
revolt. And I guess, what is your sense of how it`s evolved and what the
poll -- how the politics have changed over that period of time?

BRUCE BARTLETT, AUTHOR, "THE BENEFIT AND THE BURDEN": Well, first of all,
the -- in the late 1970s, early 1980s, the big -- taxes were, in fact, at a
historical high. But more importantly, they were rising very rapidly
because we had inflation, the tax system was not indexed for inflation.

HAYES: Right. Right.

BARTLETT: People were getting pushed into higher tax brackets. We needed
a big tax cut just to keep the tax burden from rising. And if you check
the record, you`ll see the taxes as a shared GDP in the decade of the 1980s
were about the same as they were in the 1970s. So, there was less of a tax
cut than people imagined. And part of the reason for that is that Ronald
Reagan raised taxes 11 different times after 1981, and this whole history
of Ronald Reagan the tax increaser has been sort of whitewashed out of
right wing history.

But it`s -- but by 1988, he took back about half of the 1981 tax cut with
subsequent tax increases. And now, I think, today, our economic problems,
our fiscal problems are vastly different than they were in 1981. We need
different solutions. The idea that we`re just going to have some cookie
cutter policy, where yeah, let`s just cut taxes, taxes, taxes, you know,
all the time. That`s the only policy. It`s just ludicrous.

HAYES: Governor, let`s say the taxes have to go up. And I think they do.
But let`s -- let`s just stipulate that for a second. How do you make the
case? And that you actually had this experience. You had -- you had a big
budget short fall when you came to office, you raised taxes, how do you
make the case to raise taxes?

MALLOY: Two things. And on the national side, we had an election about
it. And that`s -- and that`s going to take care of the issue. And it is
appropriate to put it in the context that the President has put it in. And
that is we are going to continue a lower rate for a whole bunch of people
and we have to look at revenue from somebody.

On the state side, listen, when I got elected, I had a $3.65 billion
projected deficit. It was the worst in the nation. And I quickly realized
that it was too large to tax your way out of and too large to cut your way
out of it, it had to be some combination of the both. With some
expectation of real economic growth. That portion hasn`t happened, at
least to the extent that we had presumed it would.

So, even this year, we have to trim our expenditures by about $365 million,
more than we otherwise would have. But, the grand bargain with the public
is, to maintain a level of services that they have a comfort level with.
To not overdo it on the service side, not overextend oneself. But also not
cut to far back or too deeply.

HAYES: But how did you -- when you go to voters and you say, look, we are
going to raise -- we`re going to raise taxes, what is the pitch? I mean
....

MALLOY: I did 14 town hall meetings around, or no, 17 town hall meetings
around this issue and got yelled at, at every single one of them. But we
had a conversation with the public about what are the options. And if you
are talking about cutting a budget by 17 percent because that`s what the
revenue shortfall was, then they pretty quickly understood, you can`t cut a
budget by 17 percent in a single year and sustain a level of services that
will allow their children to be educated, will allow their mother or father
remain in a nursing home or to receive the benefits that they`d otherwise
have them deal (ph), and to see bridges and roads constructed or replaced.

HAYES: I want to talk about the history of how this argument has been
made. Because it has been made in the past. We have some amazing FDR
sound making exactly this case. And Bruce, hang out with us, if you would.
We`ll be back after this break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

FRANKLIN D. ROOSEVELT, FMR. U.S. PRESIDENT: In 1776, the fight was for
democracy and taxation. In 1936, that is still a fight. Mister Justice
Oliver Wendell Holmes once said "Taxes are the prices we pay for our
civilized society." One sure way to determine the social conscience of a
government is to examine the way taxes are collected and how they are
spent. And one sure way to determine the social conscience of an
individual is to get his tax reaction. Taxes are for all of the dues that
we pay for the privilege of membership in an organized society. And as
society becomes more civilized, government, national and state and local is
called on to assume more obligations to its citizens.

(END VIDEO CLIP)

HAYES: That`s FDR in October, 1936. He`s running for re-election when he
says that, all right? That is not like some sort of lame duck -- you know.
And that is about a forthright a case (INAUDIBLE). It sounds like another
planet given the way our tax politics are. Is that -- in the history that
you have been studying, is that an outlier or is that -- is that close to
what the argument has been?

PEARSON: I think, you know, lawmakers have made the argument in two ways.
You either really clearly try to link the revenue raising that you want to
do to the specific social investments that it`s going to underwrite.

HAYES: Right.

PEARSON: And absolute ...

HAYES: The Malloy approach.

PEARSON: Exactly. And the other way you can do it is by training people`s
attention on the austerity that is going to result if you don`t bite the
bullet. And, you know, look at California. We`ve been talking about, you
know, the property tax revolt. It was the vanguard of that movement. And
just in this past election, facing a fiscal cliff of its own, the prospect
of trigger cuts, if they didn`t adopt Proposition 30, which raised taxes on
everyone as well as high income earners particularly. They decided to go
for the tax increases, and that`s because they saw what that austerity
could mean. So you are there -- and you really have to do both. You talk
about the investments and then you also talk about the costs.

MALLOY: Can I say?

HAYES: Please.

DE RUGY: And I was going to say, that at the federal level, and one of the
things that we saw in 2000, and I know you want to keep taxes and spending
separate, but actually I think we really shouldn`t. What we have seen with
the Republicans is this great pitch to reduce taxes, which, again, I`m all
in favor of actually saying that the route to great economic growth. That
being said, that is not true, even with the best tax cuts when you spend
like a drunken sailor, which happened under the Republicans.

HAYES: Right.

DE RUGY: And because like if you cut taxes and increase spending, that`s
the equivalent of raising taxes in the future. So I think it is really key
to keep those together.

HAYES: Bruce, how -- do you think there`s a case to be made to fellow
conservatives about raising taxes here?

BARTLETT: Well, yes. First of all, the -- one of the problems with the
Norquist pledge is that if you never raise taxes, there`s never any cost to
raising spending.

HAYES: Right.

BARTLETT: So Veronique is essentially incorrect. She`s assuming the taxes
will rise to pay for spending. But Norquist will not allow that to happen.
It used to be the main constraint on increasing spending was the fear that
it would lead to higher taxes. So, but if taxes never rise, then you could
have your cake and eat it, too. We`ve reduced the tax cost of spending.
Secondly, if you look at the CBO`s long term budget forecast, one of the
main drivers, in fact the main driver of long term spending is interest on
the debt. So, if we don`t raise taxes, we are automatically leading --
causing an increase in spending. So, we need higher revenues, both to
restrain spending and to change the dynamics of the fiscal process.

DE RUGY: I don`t agree with you, Bruce because actually I think I`m
proving ...

BARLETT: Big surprise, huh?

(LAUGHTER)

DE RUGY: Because actually, I`m, you know, we`re having this conversation
about increasing taxes because while you are right, that taxes don`t go up
immediately, what happens is that you end up with large deficits. You end
up with a lot of debt. And then as a result, because people don`t like
debt and deficit, then that opens the door to rather than cut spending,
increase taxes. So I actually think there is a real connection.

BARTLETT: But if you raise the taxes first, then you wouldn`t have the
deficits.

DE RUGY: Well, I mean ...

BARTLETT: Your idea is so goddamn dogmatic, it`s just -- you are living in
a fantasy world where we`re going to balance the budget by abolishing
Medicare and other ludicrous ideas.

DE RUGY: Doing, doing, I mean we -- there won`t be enough tax revenue to
pay for the large spending increases ....

BARTLETT: That`s not true. That`s not true. That`s a factually incorrect
statement. And let me point out something very important. Federal
revenues today right now are about 15.8 percent of the GDP. That is way,
way below the historical average. In the post -war ...

(CROSSTALK)

BARTLETT: ... with 18.5 percent of GDP.

HAYES: Yes.

BARTLETT: If we could just get up to the postwar average.

DE RUGY: If we could just get up ...

BARTLETT: We can knock $500 billion a year off the deficit.

HAYES: And this -- and this gets to sort of the key role that economic
growth plays in all this. And governor, I know you want to respond. And
(INAUDIBLE), but I want to take a quick break and we`ll come back.

(COMMERCIAL BREAK)

HAYES: Governor Malloy.

MALLOY: Yeah. What -- this is the problem, right? That there are no
rules in Washington. And when there are rules, they get changed to comport
to whatever argument you want to make. Anybody can hire an economist to
say anything. That`s what`s going on.

HAYES: They are the worst.

MALLOY: And then assuming you have an economist with a politician
together, you have 40 percent of the vote. And then all you are doing is
arguing over the 20 percent that`s in the middle.

HAYES: Right.

MALLOY: And that`s ...

HAYES: But this is an amazing vision of politics. One politician, one
economist, 40 percent of -- basically, and it`s true. That`s absolutely
true.

MALLOY: I`m sorry.

HAYES: Any argument, you could basically get a politician, economist and
40 percent of the people.

MALLOY: Correct. Well, as long as you have a party label.

HAYES: Right. As long as you have a party going to -- exactly.

MALLOY: Democrats can do it, Republicans can do it, and then -- and then
it enters, once you get to 40 and 40, it enters this round where it`s
being debated as if reality is being debated. That`s not what has been
debated in this country for a long period of time. There are no hard and
fast rules that apply anymore in Washington. It is the political argument
that wins the day, one way or the other.

HAYES: Yeah, but this is -- taxes are political, right?

MUHAMMAD: And I just want to follow up on what the governor was saying. I
think the governor has just given example and always -- highlighted before
Reagan was an example. It`s -- we have been talking about fiction, about
well, OK, if we just -- if we just cut taxes, the economy gets better. And
then the counter fake argument was, if you spend, spend, spend the economy
gets better. When in reality, as we are seeing it now, it`s a mixture of
both. You have to do smart investments, which means bringing in revenue
and you have to also be smart in how you cut your spending.

HAYES: Right.

MUHAMMAD: And I think the excitement about this particular political time
is we are really discussing about this on a popular level and people are
seeing, whether it`s in California with the initiative of Jerry Brown or
what the governor is doing, or what. Even President Obama is discussing
more and more about the need to raise taxes. I mean it`s crazy that it`s
radical to talk about raising taxes on those who`ve most profited over the
last 20 to 30 years. And they have the most money in the country. And so
I think we are at an opportune moment to really start getting into
realities of the challenges of dealing with the real economic issues.

MALLOY: Then, you get - then you get a defense budget come out of
Washington, almost raised, which has in it programs that the Pentagon is
saying we don`t want.

HAYES: Making subs in Connecticut.

MALLOY: Actually, they want subs. Right. They want subs.

(LAUGHTER)

MALLOY: But, there is a certain reality that - let`s just look at the
defense and what happened this week. It was going to be raised. It didn`t
get, you know, raised and all of the rest of it. But in that package were
defense projects that the Pentagon is saying they don`t want funded. And
conservatives Republicans are arguing have to be included in the defense
budget.

DE RUGY: No, I mean, I agree with you. And to go back to the tax thing, I
think we have to be careful with two things that are very much overlooked,
even though you mentioned some of it. The American federal system of taxes
is progressive, very progressive.

HAYES: On the books it is. Not necessarily in the actual rates people
pay. We should make that distinction.

DE RUGY: But I mean, it is very progressive, and it`s way more progressive
than actually countries like the European countries ...

HAYES: Yes.

DE RUGY: ... that have less income inequality. So, the idea that just
making it more progressive will address the income inequality is actually -
- I mean it`s a real stretch. The other thing is we have to be very
careful, you guys. Because that`s not what I want. But to be very careful
about what we wish for. I mean, it is a very well known fact that the
economists, even though I agree, pretend some (INAUDIBLE). Yeah, again --
that the people who write the check are not necessarily the one who
actually support the burden of the tax.

So, when, you know, you have the President who is arguing about imposing
more taxes on high income people, he, effectively is pretty much saying
that, you know, there is a chance that this will fall on much lower income
earners. And I think we have to be very careful.

HAYES: I think that tax incidence argument, which you see made in
different ways, I don`t know on the top marginal rate income how that
incident really cascades down.

DE RUGY: Well , there is -- there is -- I mean there are different ways,
but I think like, for instance, we know economists have been wrong
extremely often. So, for instance, look at the corporate income tax,
right?

HAYES: Right.

DE RUGY: That`s something that affects high income people. The corporate
income tax was known for a long time to only be paid by capital. And now,
economists have said, well, you know what, we made a mistake. A lot of
the corporate income tax is actually paid by labor.

HAYES: Some of it, yes.

DE RUGY: And I think, you know, and I think the question is, how much?

HAYES: And to me, the untenable thing, and Bruce, I want you to respond to
this. I mean the untenable thing to me about the position both the
Republican Party and the conservative movement is just that whatever taxes
are now, they should be lower, which is just not -- it`s not a defensible
intellectual argument. It cannot be the case that it is always true of
the current tax rate that it is too high. And that, to me, is genuinely the
argument that is being made. And that cannot comport to reality,
particularly when you succeed in cutting taxes. Bruce.

BARTLETT: Well, the one of the things about the people like Veronique
always do is they always try to shift the debate over on to corporations,
you know, and the real problem, frankly is not that we have a top marginal
rate that is too low, it`s the structure of the rate structure. The big
problem we have right at the moment, I think, has to do with the taxation
of dividends, which was justified on the grounds that this would help raise
capital formation.

HAYES: Right.

BARTLETT: But there`s zero evidence, zero evidence that the 2003 cut in
the dividend rate ...

HAYES: Right.

BARTLETT: ... which reduced the top rate from 39.6 down to 15 had any
meaningful economic effect at all. And there`s absolutely no reason
whatsoever to think that if we went back to 39.6 it would have any negative
effect. It has to be symmetrical. If there`s no positive effect, there
cannot be a negative effect if you go back. And all during the entire
post-war era, we had -- dividends were taxed as ordinary income and we did
perfectly fine.

HAYES: Yeah, and I think -- I think this gets to a deeper point, which is
the political economy of this. Because -- it`s not just that people are
sitting there and saying what are the studies about, you know, this. I
mean people who have a lot of money and may have a lot of money in
dividends don`t want that money be taxed. And they mobilize in ways that
have been very effective and making sure that it doesn`t happen.

Bruce Bartlett, author of "The Benefit and the Burden." Thanks for being
here.

While Washington battles over budget projections for 30 years from now,
states are suffering through a brutal austerity squeeze as we speak. What
that means and who that hurts. Next.

(COMMERCIAL BREAK)

HAYES: Perhaps the oddest thing about all the jumping up and down in
Washington over too much debt or not doing enough to control the deficit is
that in the near term, at least, it`s all kind of a ghost dance. That`s
because the federal government can borrow money, almost for free to pay its
bills and also has a strange and unique ability to print more money if need
be. Individual states, of course, have neither of those options, which is
why the most intense fiscal debates have been happening not in Washington,
but in state houses across the country.

According to the Center for American Progress, at least 21 states have
responded to budget deficits by cutting spending. And the states that have
chosen austerity have experienced the following outcomes. They`ve seen
unemployment rates rise more than four percentage points, higher than pre-
recession levels. They have six percent fewer private sector jobs than
before the recession.

States that chose to expand spending experienced unemployment at around 3.5
percent higher than before the recession. Keeping in mind that federal and
state finances are closely intertwined, some governors fear that cuts in
federal aid to avoid falling off the fiscal curb will lead to severe state
cuts. To give you an idea what kind of impact federal cuts could have on a
state, take a look at this chart. This represents the percentage of
revenue these states would lose if the federal grants subject to sequester,
do indeed, get cut. The sequester, of course, the thing keyed up by the
debt ceiling agreement.

You have the top five states, South Dakota at the top that just over ten
percent loss in revenue, and you see the national average at a little more
than 6.5 percent, and there are bottom five states, with Delaware suffering
the least, but still with almost a five percent loss in revenue. In other
words, for many states that had to resort to truly deep cuts and blunt
instruments to balance their budget over the last several years, it may be
about to get worse.

I think this is, in some ways, the untold story at the national level of
the great recession, is what it has done to state budgets. Walk us through
how you, when you sat down, the day after you were sworn in and you looked
to the books, what is the conversation that happens about a $3.5 billion
budget shortfall?

MALLOY: You know, I got elected. I only won by 6,500 votes. And I
refused to take a pledge not to raise taxes, because I wasn`t going to put
myself in that corner, because it didn`t make sense to lie to people. It
never makes sense.

HAYES: And we all know you love raising taxes.

MALLOY: You are right. You are right. Everybody wants to raise taxes.

(LAUGHTER)

(CROSSTALK)

MALLOY: And in fact, let me say ...

HAYES: I can`t wait until I get in that state house ...

MALLOY: No, no, I would like to lower taxes, that would be far better.
But when you are talking about 17 percent of revenue, that`s -- you can`t
cut 17 percent out of a state budget which spends $5 billion on Medicaid
alone.

HAYES: Right.

MALLOY: You can`t do it. Because we have no power to cut that Medicaid
program. In fact, just prior to my becoming governor, they passed a law
that extended additional -- under a Republican governor, additional
Medicaid benefits, which actually are causing a $95 million hole in my
budget right now.

HAYES: Right.

MALLOY: So, this actually was taken before I become governor. I have a
$95 million hole because of that action taken. So, you know, we are just -
- we are honest. And it`s about time people, you know, feel free to have
an honest discussion. But we also trimmed very substantially that same
services expenditure level. So, it was a combination of cuts. We also
went back to our state employees and said, listen, you`ve got to have some
skin in this game. We have saved tens of billions of dollars by re-
negotiating our interaction, our relationship with our state employees.
Now, you don`t get credit for it because it doesn`t show up in a single
budget. It will play itself out over 20 years. But $21.5 billion is a lot
of money. It`s a billion dollars a year on average.

HAYES: There are basically -- as far as I can see, there are kind of three
places which are sitting in the governor`s office or at the state house and
you are thinking about these budget shortfalls, there is taxes and
revenues, right, there are service spending and then there is, you know,
labor, basically, the employees you pay for. And we have seen different
emphasis in different states, often ideologicalized. I mean obviously,
it`s very famous what happened in Wisconsin and Ohio where there`s a real
conservative effort to go after the public employees. How do you think
about balancing those different groups? Because it`s -- I mean someone --
everyone`s got to take -- it`s going to hurt. I mean there`s no way around
it when you actually have to balance a budget.

MALLOY: And it does hurt. I mean, not to be able to increase
substantially spending on education in a place like New Haven, Bridgeport
...

HAYES: You are proposing education cuts right now.

MALLOY: Actually, we are. Most of it is in higher ed, not -- where you
can offset.

HAYES: Right.

HAYES: And a lot of it has to do with the ability of those institutions to
carry forward on a year-to-year basis. So, you know, I have an explanation
if you want it. But the reality is this, what was built in that -- on top
of that $2.65 billion projected deficit was a cut in spending for municipal
education efforts, Bridgeport, Hartford, New Haven of $270 million. That
would have put easily 10,000 teachers and other support personnel at risk
in systems that aren`t graduating 40 percent of the kids to begin with,
which then makes my state less competitive.

HAYES: There is an (INAUDIBLE). Dedrick, I feel like that one of the
things it fears that when you start to add pressure to political situation,
austerity, it`s like -- it starts to come down. And it`s the political
constituencies that have the least power that get snapped.

MUHAMMAD: It`s -- and oftentimes it`s the groups that have been hurt most
in the recession or haven`t been seeing their income grow over the last 20
or 30 years. Again, I keep harping on this one, but I think it`s important
is that, you know, I think here comes the realization that one solution of
just cutting taxes blindly, clearly I mean to help moving economy forward,
you have to think through what is going to help the economy. And the idea
of austerity, budgeting, we use -- make people lose jobs. And somehow
that`s going to help the economy? Are you going to cut investments into
education, is that in the long run going to be positive for your state?

Governors see it more -- much more quickly and are dealing with that, I
think, more effectively. And I`m hoping that that becomes more of the
talking point across the country. Is that when you are dealing with a
deficit or you are dealing with looking at issues of raising revenue, what
you are trying to do is what will help move the economy forward. And when
you understand the cost of different measures, you see, yes, this wouldn`t
be helpful for the economy to have -- to make cuts that would hurt a whole
bunch of people at their jobs or with their -- or even basic unemployment.

HAYES: There needs to be a pro-austerity argument, though. Right after we
take a break.

(LAUGHTER)

(COMMERCIAL BREAK)

HAYES: All right. Joining us now at the table is Maya Wiley, founder and
president of Center for Social Inclusion, a non-profit organization
tackling economic and social inequity. We are talking about the kind of --
I think the really under-emphasized, untold story of the great recession,
particularly from the perspective of the budgets and fiscal battles which
tend to focus on Washington, which is in the state houses and where states
all but I believe Vermont, essentially constitutionally have to balance
their budgets. They can`t -- they can`t run deficits. So the things that
are essentially theoretical at the federal level, at least in the near
term, are not theoretical. You just have to do it. And it`s caused a lot
of pain and also it`s been a kind of interesting laboratory, because
there`s been very different approaches taken by different parties that have
been in power and different governor in terms of where the emphasis of this
austerity.

Shall I -- Veronique -- there is something that you said you wanted to say
right before we went to break.

DE RUGY: Oh, I was just going to say, I think we need to be careful when
we are talking about austerity, because it`s -- it is true that states have
cut their general revenue, but when you look at overall spending in most
states, it`s actually gone up. And it`s been able to go up because of
massive injection of federal money. I mean like I was going to say you
know, your experiment at the state level is awesome except that now,
roughly 30 percent, if not more of state`s budget is actually fed by the
federal government. And then you can kind of like, wonder, do we still
have a federal system?

HAYES: Well, I`m glad you brought that up, because I actually think
there`s too little of it. Right, too much of it is on the states. Because
it seems to me like there`s an argument in favor of the following. Federal
government can run deficits. And so, when you have these incredible
recessions, right, you want to do counter --cyclical policy as opposed to,
you know, cutting when things are bad and growing when things are good,
which is what states end up doing. And so, maybe the federal government
should be handling more of this. We should have more things like the
revenue sharing that was part of the Recovery Act.

MAYA WILEY, CENTER FOR SOCIAL INCLUSION: Yeah, and I think you are making
an important point. That when we talk about what`s going to happen now
with this fiscal fiasco, that people are wrongly calling a cliff ...

HAYES: Right.

WILEY: Because it`s really a political construction. The 18 percent of
federal grants to states are at risk. You know, so when we hear from
Governor Malloy, what that means for a state like Connecticut, it`s
devastating. One of the things that that means, though, is that we have to
look at what it means to think about federal support. States are actually
the distribution vehicles for important programs to support people to feed
their families.

HAYES: Right.

WILEY: And if you just take something like the woman and infant
supplemental nutrition program, which is one of the programs that we are
looking at being slashed, you are talking about people who actually are
just trying to feed their families and get to the end of the month working
12 hours a day.

HAYES: Right.

WILEY: States are actually the distribution sources for that. And a lot
of those funds do currently come from the federal government. When we cut
them, we put states like Connecticut in the position that they are
currently in.

MALLOY: You do. And even in ARA -- there was a trick play. Because ARA,
the stimulus came in and said we are going to ...

HAYES: ARA meaning the stimulus, the Recovery Act, right?

MALLOY: The Recovery Act . So, they said in that package, we are going to
increase your Medicaid reimbursement rate.

HAYES: Yes.

MALLOY: So no one made any of the changes that they might otherwise have
made because they were going to get a 60 percent increase -- or they were
going to get a large increase representing 60 percent of the total cost.
But that ran out. And by the way, that was supported by a whole bunch of
people to do that. And now, in effect, in my state, my predecessor and a
legislature said, hey, we are going to offer a whole new plan, which now
has 89,000 enrollees in my state, costing me an additional $95 billion --
$95 million this year in expenditures. So, there are also these unintended
consequences of let`s insert some money, and then, by the way, we`ll take
it out over time.

HAYES: This is an argument against more federal involvement.

PEARSON: Well, this is a conversation that`s been going on for a long
time, about how much the federal government should be helping out. And,
you know, states don`t want to give up responsibility for these programs,
but they do want, I think, more support from the federal government. And
if you think about a normal economic times, the state can cut a little
spending, it can raise taxes a little bit, it can rely on its savings. But
these are not normal economic times.

MALLOY: But over the course -- over the course of this very long, slow
period in our economy, the federal government is actually playing a smaller
role in helping states than it has in any other recession since the Second
World War. That`s the reality. That`s why 31 states are having an income
problem right now.

WILEY: I think we have to distinguish between whether it`s an argument
against federal -- we are not arguing against federal involvement, we are
actually saying it has to increase, which is what I hear Governor Malloy
saying. If we are going to make sure people can see a doctor when they are
sick ...

HAYES: Right.

WILEY: We can`t put all that on the states, we have to think about how we
nationally meet the needs of people.

HAYES: I want to talk about one of this -- the sort of strange unintended
consequences also of the inability to make an argument actually, for taxes,
which is also the bizarre revenue schemes that we see at state level.
Right after this.

(COMMERCIAL BREAK)

HAYES: Hello from New York. I`m Chris Hayes, here with Connecticut
Democratic Governor Dannel Malloy, Veronique De Rugy from George Mason
University, Maya Wiley from the Center for Social Inclusion and Elizabeth
Pearson from the Roosevelt Institute. And we are talking about the fiscal
crunch that states have been going through.

And I think one of the things also about this fiscal crunch that made it so
intense is that it`s not just one year, or two years, or three. We are now
getting into four years. I mean that`s a long time. I mean you cut the
first time around, and then you come back and you cut again. And you cut
again. At a certain point, you are really starting to get to the bone.

And one of the things I saw, remember when I was covering politics in
Illinois was the effects of the fact that people didn`t want to explicitly
make an argument for raising taxes. What it meant was you needed revenue.
This idea, though, and this word that we hear all the time, I would use
taxes even though Democrats have clearly -- have some focus group. You
know, data that has to say revenue, and not taxes. It`s taxes. Taxes.
It`s OK. You can say taxes. When you separate taxes from revenue, you
say, we are going to raise revenue, we can`t raise taxes, you start getting
lot of strange financing things.

And there`s been all sorts of privatization that we`ve seen. You know,
take our highway, and we are going to sell our highway to you. And then
lease it back and we can get a one-time payment from that. This is
something that`s happening right now in Baltimore that I think is pretty
fascinating. Take a look.

(BEGIN VIDEOTAPE)

RICK HOFFMAN: I thought it was idiotic. Why do we want to look like
Nascar? Look like a bus going down the street. But after the shock wore
off, this shows how far that we have to go to think outside of the box.

UNIDENTIFIED MALE: Chicago has sold ad space on some of its iconic bridges
to Bank of America. Philadelphia has rented out a transit station to AT&T.
And a small town of Brazil, Indiana let KFC advertise its fiery chicken
wing on its fire hydrants.

(END VIDEOTAPE)

HAYES: Baltimore, just in case that wasn`t there, Baltimore is selling ad
space on their fire trucks.

Were you tempted? Did you -- was there anything that you were thinking
about putting up the auction block or ...

MALLOY: You know, we are not purists. I mean, you know ...

(LAUGHTER)

HAYES: You want to (INAUDIBLE) a little.

MALLOY: There is a lot -- there is lot -- well, you know, you do see
things get named from time to time. But, you know, those are extremes.
But those are extremes that represent the pressure that local government
and state governments are under. You know, it`s not very sexy, but we have
something called generally accepted accounting principles. My state
exempted itself from GAAP requirements. I know this is, you know, boring,
and so ...

HAYES: No, no, it`s ....

MALLOY: But as a result, my predecessors had built up a $1.3 billion
deficit that wasn`t reported as part of the 3.65 deficit that I had to deal
with. Now, I ...

HAYES: The predecessor is like he is really -- the bus is running over and
over and over.

(LAUGHTER)

MALLOY: No, no, no, it wasn`t -- you know, it was a series, I mean it was
-- this all happened over about a 20-year period of time.

HAYES: Right.

MALLOY: So, you don`t report under GAAP. You extend the fiscal year for
income out, but you shorten it for payments or income in, payments out.

HAYES: Right.

MALLOY: You do all kinds of crazy things. You have to renew a 20-year
transaction with your state employees that guarantees benefits, you know,
really tying the hands of future administrations. Lots of crazy things
happen when there are no rules.

HAYES: Right.

MALLOY: And for a long time, in state government, and particularly in my
state government, there were no rules.

DE RUGY: I mean not to mention, and it`s like you use a credit discount
rate for a pension, liabilities. That I mean I will say, though, it`s like
first states have cut spending, but they will have to cut way more
according to GAO, they are going to have to cut at least almost 13 percent
every year. But the reason is, one of the things we should not forget is
one of the things we should do when times are good is actually save money.

HAYES: Yes.

DE RUGY: But that`s not what states have done.

MALLOY: No.

DE RUGY: They`ve actually -- when time was good, they were like spending,
spending and spending and spending. In fact, states, when private GDP`s
growing by five percent, the state spending is actually -- was double that.
And states get their revenue from people. So they better, well, make sure
as people are able to pay the bill.

WILEY: Aren`t there two aspects to this? So, because there`s -- there`s -
- what we save, but it`s also what we invest in. Because we also have to
invest in people. And as the governor said, if you are looking at
literally over $644 million in cuts to education, title one, students who
need support, who have learning disabilities and physical disabilities, all
those are being cut. And that actually then falls on states. It`s a kind
of makeup the programs, that serve those kids, and that`s an investment in
the economic future of the state.

HAYES: Sure.

WILEY: And what does it have to do -- the one question I have for you,
Governor Malloy.

MALLOY: Sure.

WILEY: I think this was a "New York Times" piece that actually was, you
know, quite informative about the amount of tax giveaways to corporations,
right?

MALLOY: Right.

WILEY: It`s not just about raising taxes, it`s also about what we allow as
giveaways. And I think it`s 80 million a year that states are giving away
in localities or giving away to corporations. Do you see that as something
that you might do in the state of Connecticut, as look at cutting off some
of those -- some corporate giveaways?

MALLOY: And we are looking at everything. I mean I`ll answer that. But
one of the things that also happened, and I want to make this point. A lot
of these -- a lot of states actually did draw out money in the bank. They
put it in rainy day accounts. On my due, in my state, they call something
a rainy day account even though they had a GAP finance problem of $1.3
billion, but -- but they also had -- they also had a fund of $1.3 billion
that quickly became exhausted as the economy went down. I don`t have that
to call on. With respect to how we treat corporations, a lot of this is
about competition between states.

WILEY: Right.

MALLOY: And so I think every state will cut back, if it can. But you
know, in our state, you know, we have some fees that are higher, some fees
that are lower. You try to buy yourself into retaining the jobs you have,
attracting jobs that you might get from out of country, from out of state.
It is -- it is a competition among 50 states.

HAYES: And this is totally -- it`s competition, and it`s completely
perverse. I mean even from a sort of market, a sort of free market
conservative perspective, the kind of -- the sort of distortions that are
introduced, essentially, with this sort of state level giveaways, private
deals with, you know, I remember in Illinois, when they were trying to get
Boeing to come to Illinois, which was successful. I think I`m correct that
basically Boeing identified six floors of the building they wanted their
headquarters in. And there was a tenant in the sixth floor. Five of them
were open. They went back to Boeing and said, well, only five are open.
Boeing said, well, we want all six. And so they went out and they just
bought out the tenant, right? And it`s like -- that`s not what the
government should be doing, right?

WILEY: Ypsilanti is suing General Motors now because they give him a bunch
of giveaways, and then General Motors closed the plant.

HAYES: This competition problem, I think highlights something about where
we put the emphasis between the state and the federal government.

PEARSON: Well, I think it does. I think it also points to the fact that
it`s a zero sum gain. If you think of this in terms of the federal
picture. So, what do states gain by taking jobs from one state and, you
know, adding it to theirs. It doesn`t reduce our overall unemployment
rate.

And I also think that if you start closing some of the loopholes, it
actually can bring in a lot more revenue than some of these pretty crazy
schemes that people come up with because they don`t like saying the word
tax, and which overall don`t really patch the state budget in a sustainable
way. But there are big economic development, you know, tax code reforms
you could make that would cut down on the zero sum gain and help the
federal economy.

MALLOY: But before you get too pure about this, understand ...

(LAUGHTER)

HAYES: Says the governor.

MALLOY: No, but each one of these states has its own tax policy.

HAYES: Yes.

MALLOY: They have their own energy costs, they have their own property
taxes, which is a local issue as opposed to a state issue that they have to
account for. So, listen, I think if we could stop competition, we should
do it. But in the absence of stopping -- on a state to state basis, but we
don`t have those things. It is not an even playing field.

And let me give you another example. My Republican governor colleagues all
want to see Medicaid blockgranted. And almost all of my Democratic
colleagues don`t want to see it done. Because most of the Democrats
represent states that will not enter into a race to the bottom when it
comes to medical benefits.

HAYES: Right.

MALLOY: Connecticut is never going to act as one legislature did in a
state to deny a kidney transplant to somebody whose life will be saved by
it. But if you blockgrant this power to a whole bunch of states, all of a
sudden you have a whole bunch of states that we are not going to do this,
we are not going to do this, we are not going to do this. So there are
states that are trapped, because their population wouldn`t tolerate you
putting someone to death over a bad kidney. And states that will. This is
a very serious argument. And so, it`s -- we can all talk about what -- you
know, how we compare ourselves. But understand, underlying all of that is
we are not comparable.

DE RUGY: I actually think you are making a really, you are giving me a
great opening to actually tell you why actually there`s problem with
gigantic intervention in states policy. And in Medicaid, for instance,
your kidney transplant is one, I mean it`s very sad. It`s very sad that
some states say they will resort to not paying for a transplant. But you
know what the counterpart of this is, when a lot of states asked the
federal government for the permission to cut non-emergency and non-life
threatening items from Medicaid payment, like ambulance, like taxi bills
and stuff like that, the federal government said no. So, the problem with
the federal government is like it comes with string attached, is often a
one size fit all and it`s also, often basically ties the hands and it`s
around priorities that are just like very hard to understand.

MALLOY: With all due respect to that argument, this administration and
specifically Secretary Sebelius has given more leeway to states than prior
administrations combined. I mean, you know, those things are happening and
they need to happen. They need to happen, but we have to have a basic
safety net. We don`t put people to death because their kidney stopped
working.

WILEY: I think we have to separate two things here. It`s one thing to say
that there are particular types of decisions government - federal
government may need to change. That`s different from saying that it`s a
problem that federal governments are creating minimum standards for states
to make sure that all citizens are getting--

(CROSSTALK)

HAYES: Particularly, we should say there`s history here, right? Is, you
know, there is a huge difference, there is a spectrum about this safety net
stuff, because there are different political constituencies and a very
long, tortured history, and one of the things that federalizing it does is
it does ensure this sort of basic kind of guarantee of a safety net and
distribution.

Dan Malloy, Democratic governor from the great state of Connecticut, such a
pleasure to have you. Thank you.

MALLOY: Thank you very much.

HAYES: Please come back.

The world`s most liberal marijuana regime is about to begin right here in
the United States. The world`s most liberal. That`s next.

(COMMERCIAL BREAK)

HAYES: A little Pharcyde bumping (INAUDIBLE) on this Sunday morning. On
Thursday, this country will begin an incredible new social experiment that
I don`t think has adequately received the amount of attention it deserves.
When the citizens of Washington state will be able to buy and sell
marijuana legally under a regulated system that is more liberal than that
of anywhere else in the entire world. Unlike the 18 states and the
District of Columbia that allowed the sale and consumption of marijuana for
medicinal use, on election day, Washington, along with Colorado, whose own
law goes into effect next month, became the first states to legalize the
drug completely. Just like they can with alcohol, residents of these two
states will be able to buy, sell, consume and carry marijuana as long as
they are over 12 and don`t drive under the influence. We`re talking about
full legalization of the recreational use of weed.

So now, the conversation switches from what this law would look like in the
abstract to how to actually manage it. In Washington, the law establishes
a one-year period to develop rules and a licensing system for marijuana
production and sale. The state`s Liquor Control Board, which will regulate
the sale of marijuana, says it has little insight into what to do.

Things aren`t as complicated in Colorado, where a tightly regulated
commercial medical marijuana market is already in place. The Department of
Revenue, which will oversee the sale of marijuana in that state, will
likely build on the already existing medicinal model. Not only will
marijuana be regulated in these states, it will also be taxed. Indeed, the
promise of this new source of revenue was a major selling point to voters.
In Washington, the state will tax marijuana at the massive rate of 25
percent three different times in the chain, from production to consumer,
which is estimated to generate a whopping $600 million a year. Revenue
projections in Colorado are just a tenth of that. Of course, since none of
this has been done before, no one knows how accurate the estimates are, but
we`re all about to find out.

Joining me at the table are Tony Dokoupil, senior writer at "Newsweek" and
the "Daily Beast", and the author of the recent "Newsweek" cover story,
"The New Pot Barons." Kevin Sabet, former senior adviser for the Obama
Office of National Drug Policy and now an assistant professor at the
University of Florida`s Drug Policy Institute. And back at the table is
Dedrick Muhammad from the NAACP.

All right. Kevin, I guess I want to start with you on this, because the
big question, before we get to how this is all going to go, is what is the
federal government going to do about it? It is clearly the case that
marijuana is still an illegal drug, according to federal law. Selling it,
trafficking it, doing all sorts of things are illegal under federal law,
and so now this huge question arises. And having worked in the White House
on this issue, what is the Obama administration going to do about this?

KEVIN SABET, FORMERLY OF OFFICE OF NATIONAL DRUG POLICY: Well, I think the
administration has been very clear and the President has been clear that
he`s against legalization and --on public health grounds. We know that
with legalization, we are going to have a cheaper drug, more people are
going to use it. It`s going to be just more socially acceptable. And
according to NIH, that`s a problem for one in six kids. It is not a
problem for everybody, but it can be a problem on the roads and for IQ and
learning et cetera. So the administration has been very clear that they`re
going to be against it.

What the Justice Department does with the very tricky legal questions,
because each of these initiatives have like ten different legal things that
they are trying to do, I think is the more interesting question.

You know, federal is federal law. I can`t imagine the administration is
going to say it`s going to be OK with retail sales. You may be able to
have people grow their own. And really, with the resources out there,
there`s nothing you can do about it, even if it`s against federal law. But
I think Hickenlooper, the governor of Colorado, was right when he said not
to break out the Cheetos just yet. Because there`s a lot that needs to be
ironed out here.

HAYES: I`m glad you brought that up. First of all, I want to - the NIH
studies and the sort of negative consequences. I think there`s a lot of
interesting data on this. There`s been some data that find essentially no
effect. There`s been some data that finds some negative effects
developmentally, depending on when kids smoke marijuana. But also, it all
has to be compared to alcohol. Right, because I mean, in some ways, that
becomes a big issue. Even if there are negative effects, there`s lots of
negative effects of alcohol. We know that.

SABET: Alcohol is legal because it has a cultural history. Widespread
accepted use. I mean, marijuana --

HAYES: It`s also legal because we tried to ban it, and it was the biggest
policy disaster, arguably for slavery, in U.S. history.

(CROSSTALK)

SABET: -- when it was prohibited. Actually, alcohol prohibition -- it was
actually decriminalized. You could actually possess it. You just couldn`t
buy it. There are some parallels with prohibition. Actually, cirrhosis of
the liver went down during prohibition. There were some public health
gains. I`m not saying that -- the issue is current policy is not perfect.
I think that`s the bottom line with marijuana. The issue, though, that the
war on drugs is a failure and current policy isn`t perfect, so then we
should legalize?

I think that`s been the narrative in the media, this sort of false
dichotomy, is what I would call it. We can do a lot of other things, like
not target Hispanics and blacks when it comes to arrests. Not saddle
people with records so they can`t get a college loan. Let`s change those
things. The idea that we want to treat this like alcohol and tobacco, have
an industry that sells to kids, have an industry that this is
commercialized, I don`t see why we have to go so far.

TONY DOKOUPIL, THEDAILYBEAST.COM: The case for marijuana needs to be made
on its own. Not by saying it`s better than alcohol. I mean, that`s the
case against alcohol, it`s not a case for marijuana.

You look like you want to jump in.

WILEY: You know, this notion of health effects, Chris made the point, it`s
also cigarettes. So cigarettes are legal. But we are not allowed to sell
them to kids. We regulate them in ways -- government actually recovers 66
percent of the profits on a pack of cigarettes, and we regulate. I don`t
want my kids smoking cigarettes, and we have made it illegal. So I think
you are right. I think the way it`s going to happen is that states are
going to start innovating as they are, and eventually it`s going to put
pressure.

SABET: For every dollar in cigarette, for every dollar we get in cigarette
and alcohol taxes, we spend $10 in social costs. I`m not equating
marijuana with cigarettes in those ways, but we have to look at that.

WILEY: Yes. But actually, what we have done by making it harder to smoke
in public places and by increasing the cost of cigarettes through taxation
is that we`ve actually a great reduction in the take-up of cigarettes by
young people.

(CROSSTALK)

WILEY: So we`ve actually impacted attitudes and behaviors.

HAYES: The idea of the industry is fascinating, because right now the big
open question is A, what is the federal government going to do? But also,
what does a marijuana industry look like? And I`m glad you raised that and
you also had the Doritos line. Because I think one of the things that has
kind of made this a difficult conversation is that people joke about it.
Right? It`s like marijuana is funny.

When we come back, President Obama at a town hall when he is making his
argument not in favor of legalizing marijuana in 2009. We are going to see
that clip, and you are going to talk about what the marijuana industry
looks like and what its future is after this break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: I have to say that there was one question that was voted on that
ranked fairly high, and that was whether legalizing marijuana would improve
the economy and job creation. And -- I don`t know what this says about the
online audience, but I just want -- I don`t want people to think -- this
was a fairly popular question. We wanted to make sure it was answered.
The answer is no, I don`t think that is a good strategy to grow our
economy.

(END VIDEO CLIP)

HAYES: President Barack Obama, formerly of the choom gang, joking about
legalizing marijuana. Tony, one of the things that`s great about your
reporting, which I just want to plug for everyone, has been phenomenal on
this, and everyone should read it. They should also read the reporting
from Ryan Grim and his great book. Is that it`s not -- we are in the
process now of migrating from the let`s say the choom gang and Doritos era
to the sort of industrialized era, the professional era. What does that
look like on the ground in these states?

DOKOUPIL: Well, OK, so Colorado, which is where I focus most of my
reporting, has the only for-profit marijuana market in the world currently,
from wholesale straight through to the stores with a retail model. You
need a doctor`s recommendation, it`s easy to get. So it`s basically what
Washington state is going to set up only now. And it`s Big Brother. The
regulations are incredibly tight, 280 pages of notes. Cameras in every
room. Badges for every employee. Little tags on every single plant.

So you have to account for everything. Every leaf, every stem. There`s no
diversion. And I think if you did a cut and paste of the Colorado model
and put it into play in Washington state, you`d have a pretty - a really
good basis for what many people think will be the future of marijuana
legalization.

But to your point, there`s an interesting clash of cultures, because these
big businesses that are now profiting in Colorado, all the talent is de
facto talent developed under prohibition. Right? So the morning commute
is guys in suits walking to buildings, and right behind them are guys in
sweatpants and spiderweb patterned caps and you know, Dorito dust under
their fingers. It`s stoners and investors side by side. And that will
change eventually, but not for the near term.

SABET: And what we`ve seen actually as recently as the `70s, when we were
sort of going on the path to decriminalization at that time as well, the
tobacco companies - we had evidence that they were actually interested in
getting into this issue. There is a consultant report for Brown &
Williamson in mid-`70s which said, you know, we have the fields to grow it,
we have the tractors to roll it. You know, we are ready to go. We have
trademarks of marijuana that we can easily transfer to be legal trademarks
if we have legalized marijuana.

So I think -- I mean, there are a lot of scary things that have been said
about marijuana, some of it is unjustified. And I`m not here to justify
all the things that have been said. But some of them I think are
justified, and one of them, one of these issues is the issue of big
industry. The idea that we`re not going to have a tobacco industry
targeting to kids that systematically lied for 80 years to kids, and by the
way said that cigarettes are medicine and had doctors in their ads, which
is a very interesting problem, or the alcohol industry - it might work in
Washington. The alcohol industry is huge. They fight every tax increase
tooth and nail. And so, and -- beer ads are good because they are meant to
hook kids. The idea that we`re not going to have this for a marijuana
business.

WILEY: I just think that, I totally agree with you. And I think your
earlier point about decriminalization is extremely important here, because
there`s a huge economic impact to criminalization in terms of the number of
people who are incarcerated, the impact of their ability to get a job
afterward. So I don`t want to diminish that point. And it is a very tough
issue. But I think if we look at it on the other side, there`s so much
social science data that shows that one of the best ways to control
behavior is to find ways to limit it out in the open. I mean, this is my
point about cigarette smoking and its impact of reducing young people`s
taking up cigarettes. It`s like - we need to look at that too.

HAYES: Dedrick?

MUHAMMAD: I just want to pick up on what Maya had mentioned. My concern I
have is the whole question of legalization of marijuana can overshadow the
kind of subissues we are talking about. I think there are a lot of
important issues about the overcriminalization of drug use and the effects
it has.

HAYES: Disproportionate effects it has on black and Latino young men here
in New York City.

(CROSSTALK)

MUHAMMAD: Absolutely. And dealing with, you know, the actual health
issues. Sometimes I think the debate is like, well, legalization, it`s
kind of like we were talking about earlier. It`s like cutting taxes will
solve our problems, legalization could solve our problems, instead of
really looking at it.

(CROSSTALK)

SABET: We want to create this like a health issue. But we have cancer,
like a health issue. Would we say if somebody has early stage cancer, oh,
we`re just going to give them $100 fine and forget about it? No, we`d do
an assessment, we`d look at whether they actually have a health issue.

HAYES: But the thing that is key here, right, is like, we are running the
experiment now. Now I think -- we have been having this debate in the
abstract. I mean, we`re going to run this experiment, and one of the
things here - I think two things. One is, what I find fascinating about
the Colorado thing is that it`s as much a test of setting up a new
regulatory regime as it is a test of legalizing marijuana and prohibition.
Right? The question is, is there going to be a huge black market that is
going to emerge? Are you going to have -- is this going to spiral out of
control?

DOKOUPIL: I actually think there will be. And the tax projections in
Washington state are really rosy, are really--

HAYES: I have to say, I did not like do a hard study, but $600 million a
year sounds really high.

DOKOUPIL: 25 percent at the retail end. I mean, if you are talking, right
now ounces are going for $250, $300, that is going to come down, but even
if it`s a $100 ounce at the store, a $25 tax? Canada had to repeal a
cigarette tax that was $5 a pack in the `90S.

HAYES: Because of evasion.

DOKOUPIL: Because of evasion, right? And marijuana is something that
people know how to use on the black market. There`s already a black
market, market. So evasion is going to be widespread. I don`t think it`s
going to be a (INAUDIBLE) winner.

HAYES: So how are they attacking that problem? In Colorado, it sounds like
that`s why you call it a big brother regime, because they are precisely
afraid of that eventuality.

DOKOUPIL: Yes. I mean, they are attacking it by there`s zero room to
operate outside the purvey of the - of law enforcement. But it`s important
to note that none of the projections for the medical market in Colorado
have been met, the revenue projections. The Office of Enforcement in charge
of regulating industry is underfunded. They had to ask for extra funds
from the state to pay for it.

HAYES: So their tax revenue projections when they were making the argument
over medical marijuana--

DOKOUPIL: The idea was we are going to have x number of customers, x
number of stores, and these are going to be the fees, and we`re going to
pay for all these, all these cars and everything, and it didn`t work out.

HAYES: One of the things that`s interesting is that one of the
predictions, that medical marijuana of course was always seen as the
camel`s nose under the tent. Right? This was the first way of getting to
it. This is Barry McCaffrey in 1996 after California and Arizona legalized
medical marijuana. "We`re now going to see this come up all over the
country. This is not paranoia on my part. This is a national legalization
of drug strategy. In other words, I see this not as two medical
initiatives dealing with the terminally ill, I see this as part of a
national effort to legalize drugs, starting with marijuana, all over the
United States."

UNIDENTIFIED MALE: He`s exactly right.

HAYES: He was exactly right. Now the question becomes, there is the
question of the effect in terms of regulatory perspective and the taxes,
but I want to talk about what the social effect is going to be. And what
does this look like and what the consumption of the drug is going to look
like, what normalizing it might look like, right after we take this break.

(COMMERCIAL BREAK)

HAYES: Are we about to enter a week that we will remember as the beginning
of the end of the war on drugs? I think in some ways, that`s the question.
And I think it`s worthwhile going back to the genesis, the creation myth of
the war on drugs, much of it really started by Richard Nixon as part of a
kind of culture war politics tool box. We have got some great tape of
Richard Nixon talking about the issue from the Nixon tapes. Which, can I
just say about the Nixon tapes, you think you know the best parts, but
there`s just always better stuff in there. This is Nixon in 1971 talking
to Bob Haldeman about marijuana. Take a listen.

(BEGIN AUDIO CLIP)

RICHARD NIXON, FMR. U.S. PRESIDENT: Now, there`s one thing I want. I want
a (EXPLETIVE DELETED) strong statement on marijuana. Can I get that out of
this (EXPLETIVE DELETED), uh, Domestic Council?

HARRY REID HALDEMAN, NIXON`S WHITE HOUSE CHIEF OF STAFF: Sure.

NIXON: I mean, one on marijuana that jut tears the (EXPLETIVE DELETED) out
of them. I see another thing in the news summary this morning about it.
By God, w are going to hit the marijuana thing. And I want to hit it right
square in the puss, I want to find a way of putting more on that. More
(INAUDIBLE) somebody else (INAUDIBLE).

HALDEMAN: Mm hmm, yes.

NIXON: I want to hit it, against legalizing and all that sort of thing.

(END AUDIO CLIP)

HAYES: I want to hit it square in the puss. I want to hit against
legalizing and all that sort of thing. We have edited out the part in
which he speculates in an anti-Semitic fashion about the relationship
between Jewish lawmakers and support for legalization.

(CROSSTALK)

HAYES: We have edited that out. But that`s the place where this is coming
from. And I think some of the skepticism against the war on drugs is born
of the fact that it was sold in this incredibly cynical way.

SABET: You`re right. There`s a lot of cultural baggage with this. And so
obviously mistakes were made in the past.

HAYES: That`s a Nixon phrase.

(LAUGHTER)

SABET: So instead of figuring out all this cultural stuff, let`s just look
at today, let`s look at the health, let`s look at the data and not make --
I know a lot of people have baggage from Vietnam, anti-Nixon, pro-Nixon,
pro-marijuana, hippie, this and that. It`s a lot of baggage that people
come with, but I think it`s time - I think Americans have grown up and need
to have a real conversation about it.

HAYES: All right, so the real conversation is now, right? So one of the
things is, is consumption going to increase? I mean, are we going to see
more people smoking marijuana in these states?

DOKOUPIL: OK, first of all, the United States already smokes three times
the amount of marijuana the rest of the world does.

HAYES: Is that true?

DOKOUPIL: It`s true.

HAYES: Total or per capita?

DOKOUPIL: Per capita.

HAYES: Really?

DOKOUPIL: The percentage of Americans that smoke marijuana is three times
the global average. Three times the global average.

HAYES: Why do we smoke so much weed?

DOKOUPIL: We do a lot of things at three times the-

(LAUGHTER)

WILEY: Can we just say one thing on that? Black and Latinos do not smoke
at the same rate as whites. There are also racial differences in
consumption.

HAYES: What were you going to say?

DOKOUPIL: So flood gates, I believe, will open when legalization is here
in these states, and then as it expands, you are going to see at least a
doubling and likely more. That`s not only my opinion. That`s based on --
economists believe the same thing to be true. How could it not be true?
When I asked myself, would I smoke marijuana if it were available at the
corner store? Yes. If I were having a party and it was available, and I
could pick it up, yes, I would buy it. And that decision will be
replicated out millions of times around the country.

SABET: It`s advertising, access and availability. Again, it does not mean
that there are not things that we can do about current policy to make it
better, to improve the health issue. You know, we treat cancer like
health, we intervene early, let`s do the same with drugs.

HAYES: So, if this consumption increases, I think this gets to an
interesting part of the public opinion around this, which is that one of
the arguments I think progressives make about decriminalization or
legalization has to do with the way in which the war on drugs is waged,
right? And particularly the disparate impact it has, particularly on black
and Latino citizens. But public opinion on legalization in particular
African-American communities, my understanding, is quite different than
what it is in among whites. In fact, it`s lower. And I`m curious, as
someone from the NAACP, whether you have seen this up close? Is this
something the organization has been talking about?

MUHAMMAD: There`s a lot of discussion around the issue. I think clearly
there`s a separation. Right? And you can talk about the war on drugs, but
there is different types of wars you can have. The war on drugs is mass
incarceration, our community has suffered so much from that, I think our
community stands very strong about the negative effects of criminalization
of the war on drugs and the mass incarceration. But then there`s the issue
of should you have a war on drugs, which our community is also very much
for as a public health issue, as something that is hurting your community,
that is tearing apart.

So we have incarceration tearing us apart, with the official war on drugs,
and then we have drugs tearing apart our community. And so you can have a
more nuanced conversation about it and be adamant about it. I think that`s
why you see in public opinion polls African-Americans don`t just flock to
legalization, because we know drugs have a very negative effect as well.

WILEY: I think it`s really important. Public opinion is formed by
people`s experiences. And if your experience is you get slammed by a cop -
- my daughter and her friends can`t stand out on the street in front of
their apartment building because the cops are going to come and harass
them. Just for standing outside their own apartment building. Plus, you
have the fact that there are very serious drugs in communities of color
that are ravaging, not just the health but the fabric of families. So of
course opinion is going to run on any drug in the black and I think Latino
communities as well, on any drug.

But the consumption is much, much lower. The consumption will probably go
up. One of the things that will be very interesting to see is how does
consumption change in Colorado. Which -- Denver does have black folk and
it does have Latinos.

(LAUGHTER)

WILEY: And they have got four, five and up to 13 times the incarceration
rates, even when they have lower usage. So what happens? I think your
point of this experiment is it`s going to be important to look at race in
this experiment.

HAYES: Hold that thought, quick break, we`ll be right back.

(COMMERCIAL BREAK)

HAYES: We are talking about marijuana legalization, particularly in the
context of this kind of progressive I think absolutely substantively
correct critique of the way the war on drugs has been waged. Here is just
marijuana arrests by administration from Nixon to Obama. This is one of
the things about the war on drugs, it goes up and up and up. Although
through 2010, it`s down quite a bit in the Obama administration, that`s at
the federal level, of course. But if you look at data at the local level,
it goes up and up and up. And I think one of the questions is, are we
going to see this, if this is the solution to the kind of disparate impacts
that we have seen in the war on drugs, are we going to see in Colorado and
Washington this be the solution to that?

DOKOUPIL: I`m not convinced. I think there are two important points to
make about the arrests. The first is yes, 750,000 a year are arrested on
marijuana possession charges, but very few of those people actually end up
in prison. They are not sentenced. So fewer than 400 people are in state
or federal prison right now for marijuana possession alone. Now, you could
argue that`s too many, it should be zero, but it`s not the prison clearing
solution.

HAYES: Let me make one point about that, because I think this is an
important thing to think about, and it comes out of the some of the work I
was just talking to a friend of mine, who is actually doing graduate work
on this. Misdemeanor arrests and (INAUDIBLE) arrests are a way of marking,
particularly young African-American and Latino people. And that, right, so
even if they don`t end up in prison, right, you bear the mark of the
criminal justice system.

DOKOUPIL: So point two is --

HAYES: I`m just taking your same point. Sorry.

DOKOUPIL: So will black and Latino young people no longer bear this mark
under legalization? Not evident to me that they will avoid arrest or avoid
hassle by the police, because it`s still illegal if you are under 21. Most
people smoke marijuana well before 21. And secondly, it`s illegal to smoke
outdoors both in Colorado and Washington state. It will be. And we know
that consumption patterns in African American communities are different
from the white communities. It`s not the basement smoke session. It`s the
stoop or it`s the park.

WILEY: We don`t have a basement.

MUHAMMAD: And as Maya was pointing out, I mean, if you already have
African-Americans smoking less marijuana, you know, relative to population
size, and we are still getting incarcerated, the point here is it`s not
going to end the problem of over-incarceration of African-Americans. Even
if you legalize all drugs, because we get arrested for misdemeanor charges
for standing outside our own, you know, apartments and these types of
things.

DOKOUPIL: The other big driver of marijuana arrests, when legalization is
here, is going to be the enforcement bust. So you get pulled over, a cop
wants to hassle you, finds marijuana in the car, gives you a sobriety test,
you go to jail anyway. Or you are at a concert, you are outside, you`re
carrying slightly too much. I mean, cops are still in the process of
enforcing legalization could have a lot of discretion of who to bust.

HAYES: And let`s remember, institutional memory and institutional reflexes
here are incredibly important in any institution. If you are a police
officer, a 42-year-old police officer, you have spent 15, 20 years busting
people for marijuana. It`s going to be a very weird thing to turn on a
dime.

MUHAMMAD: Extremely weird.

WIELY: Are we pretending that cops don`t smoke?

HAYES: No. No. We should not pretend that.

SABET: I think alcohol and marijuana are different. They are instructive
insofar that marijuana advocates have said, let`s set up a system like
alcohol.

HAYES: That was one of the explicit arguments.

SABET: Right. So when you look at that, alcohol is responsible for a
million more arrests a year than all drugs combined. 2.6 million arrests a
year. So this idea that it`s going to be no longer an issue doesn`t make
sense. Also, we have seen again how the alcohol industry have relentlessly
targeted the inner city. Look at liquor outlet density in the inner city
and in black and Hispanic communities versus white communities, there`s no
comparison. That`s why you have these community action groups where their
number one drug issue is alcohol. Which is legal. So it`s not going to
solve our problems. Let`s focus on health issues rather than legal issues.

HAYES: Tony, you were saying about the way the police are preparing for
this.

DOKOUPIL: Was I?

HAYES: How are the police preparing for this?

DOKOUPIL: Well, in Washington, the police are trying to figure out what
their policy will be on things such as members of the force smoking, and
they are waiting along with the legislators in Washington to find out what
the market is going to look like. I love that the Liquor Control Board in
Washington state is allocating funds to hire a marijuana expert to come in
and tell them, like, what is marijuana, where do people currently buy it.
It`s going to be an entertaining process. In Colorado, when they had
something similar to set up their market, you had drum circles outside and
sort of business people in suits like the sharks in the water are coming
in. And the drum circle people were spitting on the business people. The
social clashes that will develop in the process of legalizing are going to
be entertaining.

HAYES: Tony Dokoupil from "Newsweek" and the "Daily Beast" and Kevin
Sabet, former senior adviser for the Obama Office of National Drug Control
Policy. That was a really, really enlightening conversation. Thank you.
Thanks for being here. What you should know for the news week ahead coming
up next.

(COMMERCIAL BREAK)

HAYES: So what should you know for the week coming up? You should know
that in July, after he announced his retirement, Democratic Congressman
Heath Shuler of North Carolina was asked what he would do after his session
of Congress ends. Specifically, "Republic Report" blogger Lee Fang, a
colleague of mine at "The Nation" magazine asked Shuler, quote, "Are you
planning to become a lobbyist?" No, Shuler said.

So you should know that as of January 4th, Shuler is going to be a
lobbyist, the chief lobbyist for the biggest electric utility in the
country, Duke Energy of North Carolina. Duke`s announcement said that
Shuler`s next job will not affect votes in his current job. But you should
know that it also said one of Shuler`s top priorities will include tax
policy on corporate dividends, and that Shuler right now, as we speak, is
leading curb negotiations on where and how to raise taxes and where not to.

You should know that a federal bankruptcy judge Thursday paved the way for
Hostess, maker of Ding-Dongs and Ho-Hos to pay out bonus totaling as much
as $1.8 million to the company`s top executives. Judge Robert Drain made
the point that these executives did not run the company into bankruptcy,
but should be rewarded if they do a good job winding down the business.
You should know that Hostess went into bankruptcy after cutting off
contributions to its workers` pension plans and after its bakers union
refused to take a pay cut. You should know we`ll be watching to see how
workers are treated by whomever ultimately buys the Hostess brand.

And finally, you should know that Cambridge University is launching a new
Center for the Study of Existential Risk, to study the potential dangers of
climate change, biotechnology, and artificial intelligence. Researchers
there insist they`re not claiming robots will someday turn on humanity, but
they expect intelligence to transcend biology by some time in the next
century, and that even if intelligent machines wish people no ill, their
interests may conflict with ours. You should know the biggest reason it`s
unlikely robots will some day wipe humanity off the planet is the chance we
will beat them to it.

I want to find out what my guests think you should know for the news week
coming up. That was morbid, Elizabeth?

PEARSON: I want to stick with the fiscal issues and just say that as a
historian, it can really help lower your blood pressure a little bit to
take a long view on this. People are going to come to the table, they`re
going to throw up their hands, they are going to walk away from the table,
they`re going to make an end run around the table, and try all sorts of
things. In the end, we`re going to settle this. And I don`t think we need
to worry about some of the rhetoric that is going around about how dire all
of this situation is. Because we`re going to figure it out, and that`s
just what see when we look back at how these battles have gone.

HAYES: So that`s interesting. You`re just saying like chill about the
whole fiscal curb thing. It`s going to be OK.

PEARSON: Just take a breath, and maybe soon come back to the table, but
with your blood pressure a little lower.

HAYES: You do not work in cable news. I will note for the record.

(LAUGHTER)

DE RUGY: So Reuters is coming with this three-part story on income
inequality. What`s really interesting about it is that they`re looking at
geographical income inequality. And one of the things that I think we
should actually really get worried about is one of the things that it shows
is that there is this gigantic concentration of wealth around Washington,
D.C. And like I think it`s seven out of the ten wealthiest counties are
around D.C., and that is because of the incredible unhealthy marriage
between the private sector and the government, and I think should worry
libertarians. Obviously we`re very concerned about this. But also
liberals, and people who care about -- at Mercatus, we have a big project
looking at --

HAYES: Mercatus, which is inside the Beltway itself.

DE RUGY: Absolutely. Where we look at cronyism and what it means for
people. So I think this is a story that we should look at and try to kind
of understand. This unhealthy relationship between the private sector and
the government.

HAYES: I think -- I agree. I think it cuts across many ideological lines.
Tom Frank in "Pity the Billionaire" writes a lot about this. About the way
that this growth has happened, and Tim Carney, who has been on the show,
who is a great reporter, a conservative, just announced as a fellow at AEI,
but he also has been writing a lot about this sort of cronyism, and when
you`re in Washington, I mean, the kind of lobbying industrial complex is
incredibly apparent to you. Maya.

WILEY: Naja Wiley Mandel (ph) turns 12 and Kye Wiley Mandel (ph) turned 9.
So that`s the most important thing for everyone to now.

(LAUGHTER)

WILEY: My two biggest successes. Happy birthday, babies.

But I -- at the Center for Social Inclusion, we just released a report
calling falling off the fiscal cliff, which will very much make you not
chill about what`s going to be happening to real people in this country.
Particularly blacks and Latinos, who are going to take a huge percentage of
the hit on the cuts to public programs.

HAYES: This is a really important point, because I think on the left,
progressives have said go over the curb, go over the curb, which I agree,
but the sequester cuts are going to cut really deeply. Dedrick Muhammad.

MUHAMMAD: I just want people to know is that we`re about to give out NAACP
opportunity diversity report card. And I think the importance of this is
we really are trying to look at the private sector as to how diversity and
inclusion has been implemented and hasn`t been implemented. To me, one the
greatest challenges to the American economy is racial economic inequality.
You can`t have a strong middle class when blacks and Latinos have 1/20th of
the wealth of white Americans, making 60 cents to 70 cents on the dollar.
So I hope we`re going to be doing serious advocacy on this.

HAYES: This one looks at the hotel and resort industry.

MUHAMMAD: Hotel and resort industry.

HAYES: We`ll put that up on our Facebook page, our blog and our Tumblr. I
want to thank my guests today, Elizabeth Pearson from the Roosevelt
Institute, Veronique de Rugy from George Mason University. Maya Wiley from
the Center for Social Inclusion and Dedrick Muhammad from the NAACCP.
Thank you all.

Thank you for joining us. We`ll be back next week on Saturday and Sunday
at 8:00 Eastern time. Our guests will include, I am very excited about
this, author Dan Savage will have a hard look at the battle to bring our
energy production into the 21st century.

Coming up next is "MELISSA HARRIS-PERRY." On today`s "MHP," Tuesday marks
the day when those looking to lead the GOP in 2016 start to make their
case. Is it a new day for Republicans or is the party`s roster of stars
all about doubling down on failed and rejected policies of the past? That
and a lot more on "MELISSA HARRIS-PERRY" coming up next.

We`ll see you next week here on UP.


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