Fox News Channel "Your World" - Transcript

Interview

MR. CAVUTO: Fair and balanced, the other side. Barack Obama standing by his pledge to cut taxes on the middle class. My next guest says still the right move, Congressman Adam Smith, a Democrat from Washington and an Obama supporter.

I remember, Congressman, what Bill Clinton faced in 1992. He was talking about a big middle-class tax cut. After the election, he looked at the books, he looked at the building deficits and said, I can't do it, I'm not going to do it. Will your candidate be in the same pickle?

REP. SMITH: This is a different economic time. Of course, the first President Bush did the same thing, wound up raising taxes in the same situation. But what we have here is some underlying problems with the economy that need help. And right now, raising taxes is not going to help them. That's why Senator Obama is focused on the middle-class tax cut and focused on making investments in infrastructure to start getting some of the structural problems with our economy turned around.

MR. CAVUTO: Should he be less focused, sir, than on hiking taxes for the upper income, however, you might say, they're justified in a slowing economy or building deficits, maybe not a good time?

REP. SMITH: Well, I think the main focus is the middle-class tax cut, is getting money into the hands of consumers and also doing something to stop the cascade of foreclosures that's coming down. Because as people foreclose, that means they're not paying their mortgage to somebody. That somebody's not getting the money. And the way our mortgage system is set up right now, that somebody owes to somebody else, and that's what's causing this snowball effect that has all these financial institutions.

MR. CAVUTO: I understand that. To the upper income, would you advise the senator, shelve that hike because we're going into something potentially bad?

REP. SMITH: Well, it depends on what you're talking about. What the senator has talked about is for people making over $250,000 adjusted gross income that you go back to the tax rate that was before 2001, which is 39 percent from 35 percent and on cap gains 20 (percent) from 15 (percent). That I do not think is going to have any impact whatsoever on investment. I mean, keep in mind --

MR. CAVUTO: You don't think raising the capital gains tax at a time Wall Street seems to be having problem getting money --

REP. SMITH: By that small of an amount, no. And I think most economists would agree with me. I always remember the great tax cut that conservatives champion was John F. Kennedy's tax cut in 1960 and Ronald Reagan's. I mean, Ronald Reagan had the top tax rate at 80 percent that he took it down. And John F. Kennedy cut the capital gains rate to 50 percent -- five, zero. And that was considered a huge boost. So no, going from 15 (percent) to 20 (percent) I don't think gets you there.

And the point you were making with the previous guest on the need for some revenue to help out with some of these problems that have been created, I think, is a very real and legitimate point that Senator Obama's being honest about addressing.

MR. CAVUTO: Okay. Congressman, thank you.

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