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The Rachel Maddow Show, Transcript 07/24/12

Guests: Bob Greenstein, Nicole Austin-Hillery, Ilya Shapiro, Lawrence Lessig

EZRA KLEIN, GUEST HOST: Thank you very much. And thank you to you at home for sticking around for the next hour. Rachel has the night off. But we have a packed show tonight that includes an amazing admission by one state Republican Party about voter fraud, a full sensory exhibit of what climate change will look like, and exactly the best new thing that the world could use on this day and on this week. It`s very uplifting. But we begin tonight in Congress where Senator Orrin hatch, the top Republican on the Senate Finance Committee, which means he`s a top Senate Republican when it comes to taxes, is not all that happy about President Obama`s proposal to extend the Bush tax cuts for everyone but the rich. (BEGIN VIDEO CLIP) SEN. ORRIN HATCH (R), UTAH: Just the other day, the treasury secretary blamed Europe and rising oil prices for our economic slow down, yet he did not discuss the pall -- the pale, excuse me -- pall of uncertainty that Democratic politicians, including his boss, are putting over the economy with their refusal to extend the 2001 and 2003 tax relief unless they get their way on tax increases for small businesses. (END VIDEO CLIP) KLEIN: But Hatch, to his credit, is not just complaining here. He`s not just carping. He`s proposed an actual alternative, the Tax Hike Prevention Act of 2012. Hatch`s plan would extend all of the Bush tax cuts for another year. It would keep the alternative minimum tax from biting most minimum taxpayers. It would direct the Senate Finance Committee to begin working on tax reform. But you know what it wouldn`t do? The goal it wouldn`t achieve? It would not prevent a tax hike from occurring in 2013. That`s why you got to read to the bottom of these things. It`s right there in his press release, second paragraph form the end. It says, and I quote, "There is no extension of the payroll tax cut in the amendment. In addition, the increase spending through the tax code from the partisan 2009 stimulus law is not included in the amendment." So right there in the press release for the Tax Hike Prevention Act of 2012, it says there are tax hikes that are not being prevented by the Tax Hike Prevention Act 2012. You got to love Congress, man. If you have been paying attention to this or even to just American politics in general in the last 20 years, you know one thing for sure. Democrats want to raise your taxes and Republicans want to cut them. Democrats, tax hikers. Republicans, tax cutters. Democrats, taxes up. Republicans, taxes down. So right, that`s what we know, right? Wrong. Republicans do want to cut taxes on rich people. That much is fully true. And Democrats want to raise taxes on rich people. That is at least mostly true, and I say mostly for reasons I`ll explain in a moment. But when we`re talking about poor people, the positions reverse. Democrats want to cut taxes on poor people. And Republicans at the moment want to raise them. And even the rich people thing isn`t so simple because you could argue that Democrats and Republicans both want to cut taxes on rich people, at least when it comes to their specific plans for how to deal with the Bush tax cuts. Now, before we get into this, I got to be honest with you. It`s going to get a little weird. You know how in physics, light can be both a particle and a wave? See, we have a cool little physics illustration. Well, in Washington, a particularly tax policy change can be both a tax hike and a tax cut, at the same time. Crazy, right? The reason for this is a little complicated, but it`s not too complicated. And it`s important that you know it because the fact that politicians know these numbers, it lets them play a trick on you. They`re able to confuse you about what is actually going on with your taxes. So bear with me on this for a second. We`re going to get a little bit into the weeds but I promise we`ll get right back out of them. All right. So, tax policy right now is weird. And it`s weird because huge portions of our tax code are expiring all at once. The Bush tax cuts which are worth about $5 trillion over the next decade are set to disappear at the end of the year. But they`re not the only tax cuts set to expire. They`re also the tax cuts that President Obama passed in the stimulus and renewed in the 2010 tax deal. Things like the expanded child tax credit or the payroll tax cut. And importantly, these are tax cuts that mostly help lower income Americans. They`re progressive tax cuts. Now, here`s a problem this creates. Let`s say we extend all of the Bush tax cuts, every single one of them. What did we just do that? Did we just cut taxes by $5 trillion because we hadn`t done it? There would have been a $5 billion tax increase? Or did we not cut taxes at all, not cut them by a dime because we simply extended rates people are paying now? You can make a reasonable argument for either way of looking at it. That is to say you can legitimately argue that a $5 trillion change to the tax code is either the largest tax cut in history or no tax cut at all. That`s how weird our tax code is right now. But the trick politicians play is they switch back and forth between both ways of looking at it without telling you. Republicans say that letting even a dollar of the Bush tax cuts expire is a tax increase. Their reasoning is simple. If households are paying more than they are now, whatever the reason, taxes have been increased on them. It`s clear. They have been consistent on this when it comes to the Bush tax cuts. What they haven`t done is been consistent when it comes to letting the Obama tax cuts expire. Is that a tax increase? It gets a little tough to say. Yet, if that happens, poor households will be paying more than they are now. Or they`ll be getting less from the tax code than they are now. Citizens for Tax Justice looked at just two of these expiring Obama provisions. The expiration of the expanded earned income tax credit and the expiration of the expanded child tax credit. And when you put them together, 13.1 million families or 29.7 million children will face a tax increase on average of more than $800 per family -- $800 per family. So how come that`s not a tax increase? How come that isn`t breaking the Republican pledge to not raise taxes? The answer seems to be that if Barack Obama passed it into law, it is not a tax cut. It is a stimulus. Jonathan Weisman of the "New York Times" got a couple Republicans to go on the record about this today. Kevin McCarthy, the number three House Republican, said, quote, "The president said if you pass a stimulus, unemployment would never go above 8 percent. We had a 41-month experience that that is not true and hasn`t been effective. One thing Republicans said they want a form of accountability." That`s just a string of non sequiturs right there. It has nothing to do with the question. Whatever you want to say about the stimulus and I think the evidence is clear that it worked and the 8 percent thing really has more to do with how bad the recession was and how bad the stimulus was, the fact is you cannot argue for these tax cuts because they worked so well. That`s not the grounds you can use. We spent the 2000s living under the Bush tax cuts and it was one of the worst economic expansions this country has ever had. The 1990s with our higher taxes, higher taxes Democrats partly want to go back to, were inarguably better. As this graph shows, the very best periods of growth we had in this country have been under high marginal tax rates, as high as 80 or 90 percent. I am not saying we should go back to those, but that`s what McCarthy`s argument would suggest. The fact he`s not saying we should go back to them suggests he doesn`t believe it. Over on the Senate side, Antonia Ferrier, a spokeswoman for Orrin Hatch on the Senate Finance Committee, asks what happened to the failed stimulus being targeted, timely, and temporary? Now, there`s something to that argument. Democrats did say the stimulus was meant to be temporary. That`s why these provisions are set to expire. But you know what is funny about that? The extension of the Bush tax cuts was also temporary. That`s why it`s expiring too. The reason it all got extended in 2010 was the argument the economy was incredibly weak and we couldn`t possibly raise taxes on anyone. If the economy remains too weak to raise taxes right now, you can`t raise them on the poor who under any accounting need more help that the wealthy, and if the economy is not too weak and so, it`s time for the extraordinary help we`re offering to end, you can also raise taxes on the rich who under any accounting can bear tax increases better than the poor. Now, Republicans are having a little bit of trouble here because they want to somehow explain why letting the Bush tax cuts expire is a tax increase while letting the Obama tax cuts expire isn`t. But they don`t need these gymnastics. They could say that extending the Bush tax cuts is a brand new tax cut of $5 trillion and it`s awesome and you should thank the Republicans for being so great and letting the stimulus tax cuts expire isn`t a tax increase at all. The problem with that, however, is that then Republicans can no longer say Democrats want to raise taxes on the rich at all because the Democratic plan which is to keep the Bush tax cuts up to $250,000 of income from expiring means that the rich get a tax cut, too. If you`re making a million dollars a year, you get a big tax cut on that first $250,000 on the first quarter of your income. So, in that world, Republicans and Democrats both want to cut taxes on the rich. Republicans just want to cut them on the rich by much more. Now, in the world we live in, the real world, not the Washington world, not budget world, here`s what we can say with confidence: Republicans are very committed to lowering taxes on the rich. But they`re willing to let all kinds of tax benefits expire for the poor. And those seem like frankly strange priorities in an economy like the one we`re in, where the rich are doing very, very well and have recovered quite nicely and the poor are having a very tough time of it. Joining us now is Bob Greenstein, president of the Center on Budget and Policy Priorities, a man who knows these numbers better than just about anyone. Thank you for being here, Bob. ROBERT GREENSTEIN, CENTER ON BUDGET AND POLICY PRIORITIES: Thanks for having me. KLEIN: So, one argument Republicans make on some of these tax credits and benefits, and it doesn`t work for all of them, doesn`t work to say the payroll tax cut, but some of them, is that they go to people who aren`t paying federal income taxes at all, people who due to the deductions in the code and they`re very low incomes, they`re actually just getting a rebate from the government. If you take that away from them, that is not a tax increase, it`s a reduction in a kind of spending. Do they have a point there? GREENSTEIN: Well, but we need to understand -- excuse me -- that these tax credits are in part to offset the payroll tax. It doesn`t work administratively, physically, to do the relief within the payroll tax itself, so we use these credits in the income tax to offset the payroll tax, excise tax, in addition -- KLEIN: Wait. And just we should quickly say, so the federal income tax is one that a lot of folks don`t pay because their incomes aren`t high enough. But pretty much everybody with a job pays a payroll tax. GREENSTEIN: Everybody with a job pays payroll tax. KLEIN: And that`s not included in these numbers like 50 percent of people don`t pay income taxes. GREENSTEIN: The 50 percent, and in a normal year like 40 percent, are people who don`t pay income tax, but only about 15 percent in a normal economic year don`t pay income or payroll tax, and they`re not people who get these credits, either. They`re like -- you only get these credits if you`re working. And they help offset your payroll tax, often gasoline, excise taxes. But there`s another function they have -- we in this country have let the minimum wage and wages in general for people at the bottom of the income scale erode badly. The minimum wage is 20 percent lower in purchasing power today than in the late `60s. The deal policymakers basically made is they let the minimum wage erode, but they said we`ll make up for part of that by supplementing wages through the earned income tax credit. That`s part of what it does. Some of the very Republicans who were saying let this expire, attacking it now, in past years, when there was a big move to raise the minimum wage, all of a sudden, they opposed the minimum wage and they wanted increases in the earned income credit as a way to beat the minimum income increase. So, now, we let wages erode, and we`re talking about pulling the rug out on the credits as well. KLEIN: So, let me ask you a broad question about this whole debate. I see where the rich are being asked to sacrifice, because we talked a lot about shared sacrifice. So, I see what the Democrats, where the rich are being asked to contribute. I see in both the Democratic and Republican plans, although more so on the Republican plans, where the poor are being asked to sacrifice in terms of programs they rely on like Medicaid and food stamps being deeply cut. One thing I actually don`t see is the people in the vast middle, the upper middle class or middle class really having much of a role in this budget conversation. And because you have spent so much time on this, I want to ask you if I`m wrong, if I`m missing something. It seems that shared sacrifices come to mean the very poor and very rich, and sort of the broad middle gets held blameless. GREENSTEIN: Well, that`s certainly the way the tax proposals are laid out. But, you know, if you look at the people in the top, the point you made, Ezra, is exactly right. People who are millionaires under the Obama proposal, they still get large tax cuts because they get all of the Bush tax cuts on the first $250,000 of their income. So, for example, for people who make between half a million and a million dollars a year, their average tax cut under Obama is $10,500 a year. Under the Republican proposals, it`s eventually over $100,000 a year. Meanwhile, we got a mother working full time at the minimum wage, raising two kids. And under the Republican proposal, she would lose $1,500 of her child credit. It would be cut from about $1,700 to just $250. So you know, the idea that the Obama proposal is upside down because it lets her keep the $1,500 and the people at the top keep $10,000 instead of $100,000, it`s not exactly soaking the rich. KLEIN: Not exactly. Bob Greenstein, president of the Center on Budget and Policy Priorities -- thank you for your time tonight. GREENSTEIN: My pleasure. KLEIN: What if the phrase, voter fraud, is itself a fraud? Actually, it apparently is according to the perpetrators of the "voter fraud" fraud. That`s next. And tonight`s best new thing in the world will come as a sight for extremely sore eyes to anyone who`s watching news in the last week or so. Stay tuned. (COMMERCIAL BREAK) KLEIN: If your Google alert for the phrase "voter ID law" and you do have a Google alert for the "phrase voter ID law," right? Has been set for the last couple years, you would think state legislators consistently and constantly make it more difficult to vote. It`s something that happens every year like clockwork. But if your Google alert is more than two or three years old, you know what`s been going on since the 2010 election is historically unprecedented. Since 2011, at least 180 bills making it more difficult to vote has been introduced in 41 states. That`s a new trend. It`s not normal in America in recent years. Before the 2006 election in fact, no state, not even one, required you to have a government issued photo ID in order to vote. Not one state. That particularly strict regulation is a totally new thing. Then the 2008 election happened with its unprecedented turnout among minorities and the young and in the 2010 election happened and Republicans took over control from Democrats in 11 state legislatures, and almost immediately there after, voter ID bills became really, really popular. Sixteen 16 states have now passed restrictive voter ID laws. Every single one had a Republican-controlled state legislature, everyone except for Rhode Island. So, then these laws went to the governors and generally speaking the Democratic governors vetoed them and the Republican governors signed them. So, that was phase one, state legislatures, and then phase two, governors. Now, we`re in phase three, the courts and the Justice Department. Last year, South Carolina made it more difficult to vote. Republican Governor Nikki Haley said it was one of his signature accomplishments, things she`s proudest of, even though the Justice Department struck it down saying it might keep thousands of people from voting. The state objected, it sued the government, and now the case goes to court. Earlier this month, the judges hearing the case`s scheduled oral arguments for the end of the summer, the state objected saying it didn`t give people enough time to prepare for the restrictive requirements before the November election. Quote, "Voters not possessing a voter ID would have a reasonable impediment to obtaining such ID in order to vote." The case went forward anyway and despite the dire warning from the state`s own lawyers that there wouldn`t be enough time to implement the law if the case went forward, if the judges rule in the favor, the state is going to proceed with the voting law anyway. Reasonable impediment, schmeasonable schimpediment. Schimpediment by the way is very fun to say. The Justice Department has to sign off on changes to South Carolina`s voting laws because of the state`s less than stellar history with voting rights. This is true for South Carolina and a number of other states including Texas, which hey, also made voting more difficult and also, hey, was rebuffed by the Justice Department, which is also now in court waiting for a judge`s ruling. According to the DOJ, there are a million and a half voters in Texas who don`t have the kind of ID the state now requires for voting, a million and a half. So far, two states who have seen their voter ID laws rejected by the Justice Department in the last year alone. Now, two doesn`t seem like a big number until you realize before Texas and South Carolina made voting more difficult, the justice department hadn`t rejecting a state voting law in 20 years. Nothing for 20 years, then in just one year, the department has to do it twice. Now, most of the states under the Department of Justice`s jurisdiction on these things are in the south and it`s all thanks to the 1965 Voting Rights Act. But there`s an asterisk there. Ten communities in New Hampshire violated the Voting Rights Act in the late 1960s, and therefore, they, too, have to get Department of Justice approval. So, in New Hampshire`s Republican legislature made it more difficult to vote and the Democratic governor vetoed the law and the legislature overrode that veto, changing the legislation only slightly, these states went to the Justice Department for approval. It`s now pending. Pennsylvania has one of the most restrictive voter ID laws in the country. That new law which was again passed by Republican legislature is being fought on two fronts. Yesterday, we learned the Justice Department is investigating whether or not the law disenfranchises voters. If the answer is yes, the department would have to sue the state. Pennsylvania is not covered by the Voting Rights Act or the special provisions leading to heightened scrutiny. Fighting on the second front begins tomorrow. The ACLU is suing the state on behalf of a 93-year-old voter. She`s a great, great grandmother who for variety of all too common reasons simply doesn`t have the requisite ID. As part of the case, we learned today, the state admits and I`m quoting them here, there have been no investigations or prosecutions of in- person voter fraud in Pennsylvania and the parties do not have direct personal knowledge of any such investigations or prosecutions in other states. Think about that. The whole point of voter ID laws is to prevent in- person voter fraud. That is the idea. That is the reason they exist. So when the state says there`s no evidence at all ever of in-person voter fraud, doesn`t that mean the law keeping the 93-year-old great, great grandmother is maybe about something else? Maybe not about preventing fraud? Maybe? Think Progress interviewed a Republican Wisconsin state legislature yesterday who is a big advocate for his state`s restrictive new voter ID law. That law is now before the courts. And Think Progress asked what the outcome of it would be, what effect would it have on the presidential election. (BEGIN AUDIO CLIP) THINK PROGRESS: If it were upheld and in place in time for the November election, do you think the polls have shown a pretty razor thin margin, do you think it would help Romney`s campaign here in the state? STATE REP.L GLENN ROTHMAN (R), WISCONSIN: Yes, right. I think we both know that in so far as there is inappropriate things going on, people voting inappropriately, are more likely to vote Democrat. PROGRESS: So, if these protections are in place, the voter ID, that might not ultimately help him in a close race? ROTHMAN: Right. I think if people cheat, we believe the people who cheat are more likely to vote against us. (END AUDIO CLIP) KLEIN: The only catch there, there is no good evidence that people are cheating. But there is good evidence that people who aren`t cheating like that 93-year-old great, great grandmother are going to have a much harder time voting for whoever they want to vote for and may not even be able to vote when they show at the polls in November. Joining us now is Nicole Austin-Hillery, counsel for the Brennan Center for Justice and director of their D.C. offices. And the Brennan Center is involved in the legal challenge to Florida`s efforts to restrict third party voters. Nicole, thank you so much for being here. NICOLE AUSTIN-HILLERY, BRENNAN CENTER FOR JUSTICE: Thank you, Ezra. KLEIN: What does it mean in Pennsylvania that they have admitted they don`t have any known cases of voter fraud? What does it say about the underlying drive and motivation of the law? AUSTIN-HILLERY: Well, Ezra, it actually means there`s no there there. When you go to court, we all know you have to have evidence that supports you claims. In Pennsylvania, the court is going to want to know what is the evidence that the state has that there is indeed a problem with in- person voter fraud. By way of the stipulation, the state is basically saying to the court, we have no such evidence. So that will greatly benefit the plaintiffs in this case. We don`t know what the outcome will be, but this certainly will be a great benefit to the plaintiffs. KLEIN: Now, we`ve not seen many cases of this type, because of 20 years, we haven`t had laws like this one that need to be challenged in court. But is there an understood bar which states have to clear in order to clear the Voting Rights Act hurdles? I mean, we do have any sense what the court will be looking at here? AUSTIN-HILLERY: Well, as you mentioned earlier, there are certain states that are covered by section five of the voting rights act. Those states have a different set of parameters they have to meet. Pennsylvania is not one of those states, but Pennsylvania is covered under section two of the Voting Rights Act. In fact, the entire country is. So the Department of Justice has the ability to look at those states and to insure that they are indeed meeting all of the laws and that they are not discriminating in any way against any individuals with respect to voting. So given that, Pennsylvania does indeed have to meet those requirements under section two and they have to insure there`s no disparate impact that`s impacting any of the voters in those states and that all voters are being treated equally. KLEIN: Now, when it comes to disparate impact, do you -- because you at the Brennan Center studied this extensively. Do you think there is a case to be made that these laws would over time or this election or any other disproportionately affect minority voters or other particular groups? AUSTIN-HILLERY: Well, the Brennan has done a couple reports that I think you`re probably familiar with. One that we did in the fall that outlined all of the various voter law changes throughout the country. And what our report showed was that the individuals, the groups that were going to be gravely impacted by the changes included members of minority groups, students, the elderly, the poor. So we do think that there is a great deal of documentation out there that would show that there will be a disproportionately negative impact on those groups of individuals. KLEIN: And so, what would you tell voters who are worried whether or not they have the right ID or are hoping they won`t even come to this and they won`t need to worry about it on Election Day? How should every day voters be preparing for this world in which these are these very, very stringent new requirements on who gets to actually vote? AUSTIN-HILLERY: Voters should actually be finding out exactly what the requirements are in their individual states. And as you stated, it varies from state to state. That`s part of the confusion. You know, I was on a panel recently with a secretary of state in West Virginia who said she had voters in her state calling to say, what are the ID requirements in my state? Well, West Virginia, the state that doesn`t have those requirements. So, that just shows how confusing it is to voters. But what voters need to do is to find out exactly what the requirements are in their particular state and try to do what they can to insure that they`re meeting the requirements, because what we want is to insure that all voters have the right to vote, that they can exercise that right because that`s what`s most important, regardless of whom they vote for, we want to insure every voter has the opportunity to exercise that right. So, find out what the requirements are and do what you can to meet them. KLEIN: Nicole Austin-Hillery, counsel for the Brennan Center for Justice -- thank you very much for being here. AUSTIN-HILLERY: Thank you, Ezra. KLEIN: Make no mistake: being on live television has a certain intrinsic level of risk to it. I mean, what if you forget how to read in the middle of a segment or you get a sneezing fit? Once again tonight, we`re going to push the risk to its intellectual limits to try to explain the nearly unexplainable, explicate, deseemingly inexplicable on live national television, in a way that makes sense and please God, doesn`t take a lot of time. The Ezra Klein challenge round three is next. (COMMERCIAL BREAK) KLEIN: It is a sad but true fact of American political life that not all scandals are created equal. Some scandals get the benefit of a really awesome name. An awesome name like Watergate. Watergate, man, that was a scandal scandal, right? It had a great name. It had a sitting U.S. president, there were burglars, a break-in, hush money, wire taps. As far as scandals go, Watergate pretty much had it all. It was such a good scandal that we append the word "gate" to any scandal that happens, like the time the pen exploded in my pocket, getting ink all over my pants, calling it pants-gate. All scandal should be so lucky. But they are not. And sometimes, it is that scandals with the really boring names that are the most important -- which brings us to LIBOR, a genuine scandal, a scandal scandal. A big deal, really bad behavior by really powerful people with real effect on not just the world but perhaps even on you, but also a really dull name. So you`ve heard of LIBOR, right? It`s a scandal that you skip past when you see it in the news because you`re not interested in going to bed at that very moment. But LIBOR is important, and it`s actually kind of interesting. Once I explain to you what this thing was and how it worked, you`re going to be shocked we ever permitted the financial system to function in this way. So on tonight`s edition of the Ezra Klein Challenge, I`m going to try to explain to you in three minutes or less why you should care about LIBOR -- in fact, what LIBOR is, even though it`s been cursed with about the worst name in the history of scandals. Now, I know what you`re thinking here. Isn`t the challenge usually two minutes? It is, but I begged for three minutes tonight because, look, the thing is called LIBOR. All right. Do we have the clock? We do have the clock. All right, ready, set, go. OK. What is LIBOR? It is the London Interbank Offered Rate. The London Interbank Offered Rate. And even though that sounds complicated, it`s actually super simple. It is pretty much the rate that banks in London charge each other to borrow money. Now, banks are pretty safe. The thing about them, almost the defining feature of them is they have a lot of money so they can pay you back. So, when they`re paying high rates to lend to one another or charging high rates to lend to one another, it`s really bad. It means things have gone so nuts in the financial system that even banks aren`t a safe bet to pay back anymore. If the LIBOR rate isn`t really low, as it normally is, it means everything is fine, situation normal, banks are confident about getting their money back from one another, as they should be. The rate the banks charge each other in London doesn`t sound like it has anything to do with you, but it actually has everything to do with you. Every day, when banks in the U.S. are decided how much money to charge you for, say, a mortgage, they use LIBOR as the floor on that rate. They said to themselves, OK, LIBOR is the going rate for a loan with pretty much no risk. So, that`s where they begin. And then they add your risk on top of LIBOR. They build your rate on top of LIBOR. So if LIBOR is really high, you`re going to end paying more for your mortgage than you would if it was low. That`s why the scandal that is still breaking is important. If banks were intentionally manipulating LIBOR, then the rate being charged for mortgages in the U.S. wasn`t what it should have been. And whether it was too high and you were getting ripped off or too low and the financial system was riskier than people realized, it`s bad. But there`s always a second reason you should care about this. You might recall the period in the financial crisis when regulators were trying to figure out if the banks were strong enough to survive. And one of the things they were looking to figure that out was LIBOR. If LIBOR got too high, it meant the system was on the brink and regulators had to jump in. What the banks were alleging doing back then was manipulating the LIBOR rate, possibly with the cooperation of certain regulators to make it often lower than it should have been. Now, why would they do that? So they wouldn`t get regulated as hard. If the banking system is in trouble, it needs to be more heavily regulated, maybe even nationalized. So the solution is lie to the regulators, make them think you`re more stable than you are. Here is, though, the crazy thing about LIBOR. It was totally up to the banks. We just trusted whatever they said. And they were lying. And it seems that a lot of them were lying, that it was an open secret among them that you lied about LIBOR. So, LIBOR is in the end a reminder of something that by this point, we should really know -- you cannot trust the banks. You cannot trust self- regulation. It isn`t going to work. All right, I have 20 seconds left. So not too bad. So, under three minutes for LIBOR. Now the next time you see LIBOR in the news, you don`t have to fall asleep on the spot. LIBOR, it is about what you`re paying, how safe we thought the banking system was, and the upshot is don`t trust these guys. Also, you`re going to be the life of your next cocktail party, I promise. (COMMERCIAL BREAK) KLEIN: I`ve got something kind of amazing for you now. Prepare to have your mind blown by numbers, really tiny small little numbers. These are the numbers on who exactly is funding our elections these days. Arguably, these are the numbers on the people who are responsible, at least in large part, for who gets elected in this country. And I`m telling you, you won`t believe how small the numbers are. We`re not talking about the top 1 percent of Americans who control 40 percent of the country`s wealth. When it comes to campaign spending, we`re talking about small fractions of 1 percent. This chart shows about 68 percent of all individual donations to federal candidates, PACs, and political parties. This amount of the total money in campaigns comes from 0.26 percent of the country. So fewer than two thirds of 1 percent of Americans were responsible for more than two thirds of all the money spent in the 2010 election. How about this? Here`s about 25 percent of the money contributed to federal campaigns in 2010. About a quarter of the money came from 0.01 percent of Americans. One percent of 1 percent of the country gave 25 percent of all the money spent in the last election cycle. As for this year`s election in what`s becoming the year of seemingly limitless spending, about 80 percent of the money raised by super PACs has come from 0.000063 percent of Americans. There are four zeros after that decimal point. So democracy is being fueled by a teeny tiny fraction of the country, but there is a very real debate going on right now about whether the infamous Citizens United decision is even the problem here, whether or not this is something new or something that was always true in the law. That debate came to Capitol Hill today when Harvard law professor Lawrence Lessig and Cato Institute senior fellow Ilya Shapiro appeared before the Senate Judiciary Committee`s subcommittee on the Constitution, civil rights, and human rights to talk about super PACs. Now, this is something that actually kind of bugs me in Washington. All day long on Capitol Hill, brilliant people are testifying before congressional committees on the key issues of the day, and there`s really no good way for ordinary citizens who don`t happen to be watching C-Span at that right moment to hear what they have said. Tonight, we`ve asked Professors Lessig and Shapiro to join us and help get to the bottom of the shockingly tiny numbers. So, joining us now: Lawrence Lessig, Harvard law professor and author of what I think is the best book on campaign finance reform, "Republic, Lost: How Money Corrupts Congress and the Plan to Stop It," and Ilya Shapiro, senior fellow in constitutional studies at the Cato Institute, editor-in-chief of the "Cato Supreme Court Review". Thank you both very much for being here. UNIDENTIFIED MALE: Good to be here. KLEIN: So, let me begin with you here, you argue that even if you`re much more concerned about the money of being spent by super PACs and other entities than I think you are, that Citizens United is not the villain you should be looking at. It is not the right court case to be focusing your attention on. Can you explain that a bit? ILYA SHAPIRO, CATO INSTITUTE: Sure. All Citizens United did was let corporations, unions, any group of people spend money on independent political speech. Not donate to parties or candidates or campaigns but independently speak politically. You know who is taking advantage of that? Unions, advocacy groups, not big corporations. Corporations are staying out because they don`t want to piss off half of their consumers. KLEIN: And, Professor Lessig, first, is that right? Second, if it is right, how did we get to this point where such a small fraction of the population is accountable for such a large amount of the actual money funding our elections? LAWRENCE LESSIG, "REPUBLIC, LOST" AUTHOR: Well, it is right that the most significant growth is coming from individuals who are participating, but it`s not right to say that`s not tied to Citizens United. Citizens United started a cascade of decisions in the lower courts and then the FEC to change the structure of what is now called the super PAC. The super PAC has become this super weapon for gathering large contributions and deploying them in political context. And whenever you can get large contributions and don`t have to go after smaller contributions, what campaign managers recognize is that it`s more efficient to go after the bigger contributions. What that means is an ever shrinking percentage of Americans who are going to be responsible for funding campaigns and that the gap between the people and the funders only grows even greater. KLEIN: So this is actually an interesting issue in what we`re talking ability on a day to day basis is the constitutional architecture of how we fund elections. So, Professor Lessig, one of the arguments you make is that it is clear in the Constitution and in the history around the Constitution that the framers intended the politicians, our legislatures to be dependent on the people, not to be dependent on this other class of folks called funders. And so the current situation is clearly unconstitutional or clearly at odds with framers` intent. And, Ilya, I was curious to hear your reaction to that -- whether you think that`s not the situation or whether or not there`s a broader interpretation that we should be taking? SHAPIRO: No, the problem is you have this ungainly system because of a 1976 Supreme Court case, not Citizens United, it`s called Buckley versus Valeo, Congress has allowed to cap contributions to candidates but not candidate spending. And so, it`s an unbalanced system and that`s what forces campaigns to fund raise all the time and that`s why we have this free speech on the independent side, but candidates and campaigns are hampered. , And so, there`s this instability in the system that creates all sort of perverse incentives. KLEIN: So, I think that`s a huge point, right, because we talk all the time about Citizens United. We don`t intend to talk that much about Buckley v. Valeo, though that really was I think the fundamental architecture of what we can and can do in campaign finance reform. The big idea floating around Congress right now is the DISCLOSE Act which wouldn`t put limits on the amount of money anybody can spend in elections, but would force a much more aggressive form of transparency and disclosure. And, Professor Lessig, you made an argument today that I hadn`t heard before and I thought was really persuasive, which is that within that context, DISCLOSE wouldn`t work because some of what we`re worried about isn`t just money that gets spent but money people threaten to spend. Can you explain that? LESSIG: Yes. This is both an argument that`s being made in the academic literature, Chamon and Kaplan have a nice paper called "The Iceberg Theory of Campaign Contributions," that points out that the contribution is hiding a much more larger threatened contribution to have its effect. But actually, Evan Bayh made the point very compellingly -- KLEIN: Former senator from Indiana. LESSIG: Former senator. Where he said, look, what everybody is worried about in Washington right now, all the incumbents, is that 30 days before an election, some super PAC is going to come in and drop a million dollars on the other side. So, what do you do to protect yourself? Well, you need to buy some super PAC insurance. How do you buy super PAC insurance? Basically the assurance if somebody drops a bomb against you, you`ll have somebody on your side willing to drop an equal or larger bomb to support you, you have to pay your premium in advance? And how do you pay your super PAC premium in advance? You begin to behave today in a way that will encourage or cement the support you need from the super PAC on your side to back you up when it comes time for you to be supported because the attack has come from the other side. So, this is the economics of a protection racket, right? And the point is, all of the effect is happening long before anybody spends $1 and perfect disclosure of that effect, perfect disclosure could never begin to capture that because you could never disclose that. KLEIN: And so, Ilya, do you worry about that? You`re right that corporations haven`t radically increased their spending in this election, at least to my knowledge from the numbers I`ve seen, but I do hear in my reporting about lobbyists essentially making exactly this threat, particularly on smaller things that the public isn`t watching, amendments and the like. So, do you worry about that power being exercised? SHAPIRO: First of all, campaign spending has been rising pretty steadily for decades. Regardless of any particularly Supreme Court decisions or changes in the rules. Money -- as government grows and there`s more things that people want to affect, they`re going to spend money on it. But I`m not concerned about that. I`m not concerned about super PACs. I mean, they sound scary, but it`s really people getting together to pool their money. Something like a George Soros or the Koch brothers or Sheldon Adelson spending a lot of money. They`ve always been able to do that. And unless politicians really want to say, incumbents, we want to protect our seats so much that we`re going to stop independent individuals either to look, or just independent billionaires from spending their money on political speech, if that`s what they want to do, I mean, that`s scary to me in terms of protecting the First Amendment. KLEIN: Lawrence Lessig, Harvard law professor, and Ilya Shapiro, senior fellow in constitutional studies at the Cato Institute -- thank you both so much for being here tonight. SHAPIRO: Thank you. LESSIG: Thanks. KLEIN: The best new thing in the world today is totally worth the wait. And it is coming up. (COMMERCIAL BREAK) KLEIN: Breaking and really good news for the Obama for president campaign tonight. According to Mr. Obama`s opponent in the upcoming election, the job creation for which a president should be held responsible is somewhere between pretty damned good and just about spectacular. Here`s Mitt Romney being interviewed by Larry Kudlow last night on CNBC. (BEGIN VIDEO CLIP) MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: We ought to give whichever president is going to be elected at least six months or a year to get those policies in place. (END VIDEO CLIP) KLEIN: OK. So according to Mitt Romney, a president implementing pro-growth, pro-jobs policies in the face of economic difficulty should be given six months or a year before those policies are judged. That seems perfectly sensible, actually. And it`s an important frame of reference, right? Now, Governor Romney has been arguing a different standard for quite some time about President Obama. The president, Mr. Romney says, has presided over net job losses in his term, which Mr. Romney has said, should be judged from February 2009. Not to state the obvious, but the whole world was pretty much falling apart in February of 2009, and yes that included the job market. We lost around 700,000 jobs that month alone. But there is good news for President Obama. Using Romney`s new measure, this is what the jobs record looks like since Mr. Obama`s inauguration. This one does not include Romney`s new measure it`s not that good. The lighter blue bar shows the negative numbers for the course of his presidency. However, thanks to Romney`s most recently declared standard of judgment, the one where he says it takes six months to a year to see the effect of policies, Mr. Obama looks much, much better. See what happens if you give him a six-month grace period, voila -- nearly 3 million jobs created since then and more than 3 million in the private sector. So take Mr. Romney up on his the "or year" part of six months or a year, and the president`s case for re-election looks pretty sturdy actually. Now it`s more than 4 million private sector jobs created, which is not bad at all, in fact, it`s close to spectacular, fairly rare job growth. In a fact-based world, both presidential campaigns would agree that during the period when President Obama -- when the president`s policies were in effect, there was significant job growth. Maybe you want it faster or slower, but it was there. And there would be more arguments about what could be done to make those numbers even better, and then the American people would vote on the choice before them. I recommend that you stay tuned for more claims the stimulus the didn`t work, that President Obama`s been a job destroyer, and various other arguments based in -- well, let`s be polite and say, not based in the evidentiary facts and standards now explicitly agreed upon by both sides. (COMMERCIAL BREAK) KLEIN: The past four days of news out of Colorado has been really awful. It has been, unbelievably sad. But today, we got just a small taste of relief from the sadness, a small sweet taste. An uplifting reminder that even in the wake of national tragedies, people really do get better sometimes and the nation, however slowly, can find a way to heal. This is former Congresswoman Gabrielle Giffords with her arms around her husband, astronaut Mark Kelly. They`re definitely not in Tucson, not wearing all of that snow gear, because today, more than 18 months after she was shot in the head by a gunman outside a supermarket in her Arizona district, today Ms. Giffords was standing on top of a mountain in the French Alps, which is amazing. Even if she still uses a wheelchair much of the time and had to ride a cable car to get there, she made it, to the Alps. Captain Kelly told reporters, quote, "Gabby is really enjoying this visit. This is a great day for us." They were there with other astronauts to visit a mountain research station and to install a plaque commemorating the final space shuttle mission. The perfect occasion for Giffords` first trip outside the U.S. since the Tucson incident, in which six people were killed and the perfect photos to lift our hearts after yet another horrible mass shooting -- the best new thing in the world today. That does it for us tonight. Now it is time for "THE LAST WORD" with Lawrence O`Donnell. THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. END