Sen. Mike Braun on income and wealth inequality in the U.S.

Sen. Mike Braun, (R) Indiana joins Yahoo Finance's Jessica Smith and the Yahoo Finance Live panel to discuss the hearing on wealth inequality and wages.

Video Transcript

AKIKO FUJITA: Well, Amazon's union fight is taking center stage in Washington today. The Senate Budget Committee holding a hearing on wealth and income inequality today. And we are expecting one Amazon employee to testify as workers look to gain some momentum to unionize over at the fulfillment center in Alabama. Let's bring in a member of the committee, Senator Michael Brown of Indiana.

And Senator, I know you're taking a break from that hearing, so we appreciate your time tonight. And our Jessica Smith joining in on the conversation, too. I know this hearing is much more about much more than just Amazon, but I wonder if we can start on that issue because this has kind of brought together some unusual-- an unusual alliance. Democrats and Republicans really raising concerns about the growing power and influence of Amazon, as it relates to this hearing. What specifically are you looking to get answered on the issue of wages for Amazon employees, as well as the treatment of their workers?

MICHAEL BRAUN: It's such a broad, sprawling topic. And to give you the context, I come from the world of small business. My business was 15 employees for nearly 20 years. It was a hardscrabble existence, and there's so much difference between the dynamics within a small business, a medium-sized non-public business, and then the huge corporations. I want to kind of set that out there as a general background for discussion.

So, an income inequality, in my mind, has gotten way out of control. And when you look at what has happened through COVID, when you see the net worths of some individuals going up even into the stratosphere, that doesn't feel good on Main Street as well. It also though, has to be tempered against where the solution is coming from. And that's a place that currently runs a trillion dollar structural deficit mostly related to a lot of what Chairman Sanders will talk about is health care costs, retirement costs. And the sad thing is, I don't think more government is a solution in the sense that we don't knock it out of the park currently.

So when it comes to Amazon-- and we've had some other hearings-- you know, to me, the fact that they are bragging about paying a $15 wage, it doesn't resonate very well with someone like me, where I know we pay a whole lot more than that as an level wage on a Main Street business that now is a national company, but is still run not like most public corporate companies are, and where you'd never imagine CEO pays being multiples of 50 to 100 times what the average worker makes.

So, Bernie Sanders is going to want to try to solve it through government. Look at the extrapolation of that in places like Venezuela, Cuba, the grand, you know, attempt to do it. And the Soviet Union, China tried it. That does not work either. So it's going to be an interesting way to craft a solution.

And I think there's a lot of merit in the discussion of a minimum wage, as long as it does not exceed regional cost differences to where it doesn't eliminate jobs, or it doesn't take out the tipped wage for restaurants, which are the number one business in terms of number of them, employ more people than any other entities, and have been so disproportionately hurt by COVID, they want to keep that in place.

So there's so much that if you get government involved, you're going to throw the baby out with the bathwater. But clearly, we've got issues in this country that don't resonate well with a guy like me that comes from Main Street, not the corporate world.

JESSICA SMITH: Senator, you mentioned some of the solutions that Senator Sanders is proposing. One of those today is his new bill that would raise the corporate tax rate on companies whose CEOs make more than 50 times that of their median worker. What do you think about that idea in particular? And do you think that could gain some Republican support along the way?

MICHAEL BRAUN: So here is where you got, I think, senators like Senator Sanders that maybe looks too broadly and then, of course, aims at where there's high CEO pay. That doesn't surprise me. But let's look at the corporate rate when it was 35% nominally. The effective rate was 18% because it's not the tax rate that's as important as how many loopholes you've got in statute and especially IRS code.

So when they went from a 35 to a 21 nominal rate, and the effective rate was 18% before, it's loaded with breaks in the tax code that small businesses do not have and most privately held, mid-sized companies don't either. We don't have legions of lawyers that lobby in DC. So he may not even fix the issue by going from 21 to 28. We ought to look at eliminating all the breaks that most businesses don't have in the first place.

I'm going to be different from many Republicans in that case, but everybody comes with their big hat in hand from the corporate level for more investment tax credits for more of this kind of break or that. If we got rid of them, a 28% rate is probably going to be what most people could afford to pay anyway. But even at a 21% rate, if you got rid of all the tax breaks associated with it, it'd be a different dynamic. It's more complicated than what it sounds.

ZACK GUZMAN: Yeah, well, senator, and simplify it for me. Because what are some of those examples you might point to in eliminating those breaks? Because we keep hearing a lot of that whole government isn't the solution, get out of the way piece of this. So give me some.

MICHAEL BRAUN: Take four to five decades of-- let's take the oil and gas industry. When it comes to special investment tax credits, write-offs that they're able to do that are different from, I think, my distribution and transportation business. Well, most small companies are organized as LLCs and sub-S's, proprietorships, or partnerships. And you get your effective tax rate from your accountant, and it's very close to the nominal rate, which pre-Tax Cut and Jobs Act was 39.6% with hardly any deductions available. That was taken down to 29.6, and that's probably a good sweet spot.

And I think that was a big driver of the economy. I don't know the particulars. I just know they were littered throughout the tax code. And I know that the effective tax rate is not 35, it was 18 due to that. And that is where we need to focus. And almost every large sector of the economy that has got-- is run by larger corporations, not as competitive as what, say, transportation, maybe farming, would be at the farming-- farmer level of it, where you don't have that. So I'd be happy to get those to you. It's there, and it shows up in what the actual effective tax rate is.

AKIKO FUJITA: Senator, the minimum wage hike discussion sort of sidelined for now, but I want to get back to what you said earlier, which is that you are supportive of a hike that doesn't exceed regional cost differences. The $15, the Republicans have made it clear they're not on board with a $15 federal minimum wage. What's the number you'd be comfortable with at a federal level?

MICHAEL BRAUN: I would start at the federal poverty level, which is somewhere, I think, between 8.50 and 9 bucks an hour. And it needs to be there or above for sure. You start running into displacing jobs when you get around the 11 bucks an hour range, and that's give or take. Places like New York City, San Francisco, huge cost of living differentials. Within cities, probably need a minimum wage closer to 20 bucks an hour. And if you try to homogenize that across the country, it doesn't make sense.

And one other place you'd want to be careful with is the difference between a full-time wage and a part-time wage and a training wage or a career wage. That is how you'd really get into the weeds and do this correctly to where you'd raise it across the board to where you're not bumping into eliminating jobs where costs of living are truly lower. You've got some sweet spots of the country like Indiana, where we're blessed with an extremely low cost of living and decent income levels.

And I think each state, then, would be able to promote itself accordingly. I think that's why you see people exiting New York, California, the two highest state income tax rates that affect businesses and individuals. And you should not be straitjacketed, one size fits all, in something like this. It needs to be expressed with the comparative advantage of what you got within different states.

JESSICA SMITH: Senator, I wanted to ask about a new bill that you have that would reverse a provision in the relief bill that was just signed into law. That provision keeps states from enacting tax cuts if they've received federal money. Why do you think this is necessary? And I guess, what do you say to the argument that Democrats have made that there need to be guardrails to make sure people are using this money for things related to the virus or to make up for revenues lost because of the virus?

MICHAEL BRAUN: I think when you actually take time to do what we've done just with the start of it, and that's one we caught. The Wall Street Journal pointed it out as well. Let's focus on that, and I'll throw a few other doozies out there as well. So this was a Joe Manchin Amendment, which disappointed me, because I think he is in a state that currently, the governor is looking at lowering some tax rates. So there, again, typical federal government kind of telling you how you run your business.

You should not be penalized. Number one, you were penalized if you had low unemployment rates because the $350 billion that not, I think, one Republican was really for, the way it was delivered, went to states that had budgets that were actually doing OK. Rewarded them if they had a high unemployment rate. You know why they had a high unemployment rate? Because they had one size fits all, extreme lockdowns that they started early and lifted late. You've got a state like Florida. Governor DeSantis catches a lot of flack, but arguably had the most vulnerable population. Was-- managed to do two things at once.

When you look at who ended up benefiting, 8 out of the 10 states, when you threw high unemployment rates and along with pro rata population, New York, California, New Jersey were the three biggest beneficiaries when you changed the formula away from population only. You had checks going to some undocumented immigrants. You had felons getting them. You had a trillion dollars worth of money that was spent prior to the RESCUE Act that was not obligated or spent.

So there were a lot of things that we'll find as we dig into it further. But this clearly is something that you're taking away flexibility from states. You're rewarding the states that handled not only the disease itself poorly, in my mind, but shut the economies down and now are wanting the government at the federal level to bail them out.

ZACK GUZMAN: Yeah, we'll see how voters continue to react to all of these moves that have been passed, but appreciate you coming on here to chat with us. Senator Michael Braun, senator from Indiana, thanks again for your time, alongside Yahoo Finance's Jessica Smith as well.