When President Obama unveiled his proposed spending cuts last week, it included four hundred billion from national security over the next twelve years. The president has ordered a high level review to determine where specifically cost savings can come from. When Defense Secretary Robert Gates ordered cuts of his own back in January, he said he opposed further reductions in spending. The defense department has acknowledged that the budget cuts would require some scaling back of the military. A look at balancing security needs with budget realities
- Mara Liasson national political correspondent for National Public Radio and a contributor at Fox News Channel
- Congressman Phil Gingrey Republican, 11th District, Georgia.
- John Irons research and policy director, Economic Policy Institute.
- Rep. Chris Van Hollen Democrat of Maryland, Chairman of the Democratic Congressional Campaign Committee
- Dan Mitchell senior fellow at the Cato Institute
MS. DIANE REHM(Technical) ...announced his plan to reduce the debt in a speech at George Washington University yesterday. It includes long-term deficit reductions with cuts to some programs, increasing taxes for the wealthy and curbs on health care spending. But it did not make big changes to the entitlement programs. The president was also quite critical of the Republican plan for debt reduction. Joining me in the studio to talk about the president's plan, John Irons of the Economic Policy Institute, Mara Liasson of NPR and Dan Mitchell of the Cato Institute. I do welcome your calls. Little later on, we'll hear from two members of Congress very much involved in this process. Good morning to all of you.
MS. MARA LIASSONGood morning, Diane.
MR. DAN MITCHELLGood morning.
MR. JOHN IRONSGood morning.
REHMMara Liasson, give us a brief outline of what the president proposed.
LIASSONWhat the president proposed -- and, I guess, the most significant thing is that he proposed it at all 'cause he's been hanging back in this debate, waiting for the Republicans to go first. But now that they have, he has a counteroffer. He wants to get $4 trillion out of the deficit over 12 years. He wants approximately $2 in spending cuts for every $1 in tax hikes. And he proposes to get the money out of almost every part of the budget -- domestic spending, military spending, Medicare, Medicaid. And he wants to let the Bush tax cuts expire for the wealthiest Americans.
LIASSONAnd he, also, is throwing his support behind the -- his own Fiscal Commission's plan to revamp the tax code, which is broadening the base and lowering rates, bringing income tax rates down, but getting rid of loopholes and other -- to do it. I think he -- what he doesn't do is change the structure of Medicare and Medicaid. He basically builds on the cost savings that he says he's going to get from his own health reform plan, doubles down on that, wants to get a little bit more. He also has something called a failsafe trigger, that if the deficit is not at a certain percentage of GDP by 2015, there would be some kind of trigger. And automatic cuts would happen on both the tax side and the spending side.
LIASSONThe interesting thing about the trigger, however, it exempts Social Security and Medicare and Medicaid. So you -- that would mean very deep cuts in domestic spending at that point. People who've looked at the plan -- and, of course, we don't have a lot of numbers yet -- say that his plan probably wouldn't get to the target. In other words, the trigger would have to be triggered under his numbers. But the president did lay out the plan. The debate is now joined, which is a big, big deal. You've got the Ryan plan on the right, you've got the president's plan, you could say, on the left, and then you have Bowles-Simpson, which is the president's Fiscal Commission somewhere in the middle. And you'll have other plans from conservative Republicans and liberal Democrats in the coming days.
REHMDan Mitchell, did the president come out more strongly than you expected?
MITCHELLWhat he gave yesterday was a campaign speech. It's not a budget. It's just a set of talking points. We don't have any specific proposals. I think this is simply setting up for 2012. And I think it's very important for your listeners to understand a couple of things. Number one, there aren't spending cuts unless you use the phony Washington definition of saying you're cutting spending simply because you're not increasing it as much as you previously planned. Under Obama's regional budget -- and this presumably will come in a little bit below that -- government spending was going to grow, on average, 4.6, 4.7 percent a year.
MITCHELLOn the whole issue of taxes, it's remarkable how hard left he went in terms of class warfare. At least the Fiscal Commission, even though they were raising taxes, they were doing it in a way that would get rid of deductions and credits and lower tax rates. So they did the wrong thing in a good way, I guess, is the way I would phrase it. And then the one thing that, I think, is really offensive about this plan is this tax increase trigger, where, in effect, if politicians overspend, the American people automatically get a tax increase and the politicians don't even have to vote on it. That is something that should outrage everyone who just believes in good government.
REHMHow do you see it, John Irons?
IRONSWell, I think Dan and I probably disagree on our overall perspective on a lot of these issues. I think the president's speech was, I think, a very forceful contrast with the Paul Ryan and the Republican approach. I think in two particular areas -- I think on Medicare, in particular, it is focusing on cost containment, which is where the focus really needs to be, not -- and turn this into a voucher privatized system. So I think that is a very noticeable -- a very notable difference between the two approaches. And the second that Dan identified is the approach to taxes.
IRONSI think the president rolls back the Bush-era tax cuts for the wealthy, which we know are very unpopular with the American people in our big giveaway to people who need it the least. And, at the same time, he does talk in a very comprehensive way about the need to reform the tax code, to limit tax expenditures, to eliminate the deductions and credits in the tax code, all while doing this in the context of an overall plan, which reduces the deficit, puts us on a sustainable trajectory without gutting key protections we have for low-income Americans and for the middle class.
LIASSONYou know, one other thing the president did do yesterday, which I think is significant, is he put forward his plan, and some people thought the speech was awfully partisan. And, I think, it was a rallying cry to his base and a kind of set up for 2012. However, he did invite the bipartisan, bicameral leadership to the White House, and he said he wants them to form a kind of gang of 16 -- a negotiating team -- where each one of them would find four members. They work with Vice President Biden, starting in May, and he wants them by the end of June to come up with some kind of a plan or a framework or a process for bringing down the deficit.
LIASSONNow, that happens to be right about the time of the drop-dead deadline for the debt ceiling increase. Republicans have said they won't vote to increase the debt ceiling unless there is a plan for the deficit. And even though they were infuriated yesterday by the president's speech, they haven't yet said -- I haven't heard it, at least -- that they will not negotiate with him. So a process has begun. A big, grand debate about the size and role of government has begun, and now we'll see where they get.
REHMI'm interested, John Irons, that the president says there has to be $2 in spending cuts for every $1 in tax increase. Can he do that with the plan as outlined?
IRONSWell, that's a very good question. I think there's two aspects of that question, is -- one is the economics of the plan. Can you do that without achieved balance? And the answer is yes. I think you can achieve a balanced approach to deficit reduction. I would prefer to see a greater percentage on the tax side than the spending side, but I can understand where the president is coming from on this. But then there's the politics of this. And I think you've seen the Republicans come out and say they're not interested in anything that's going to have a dollar raise in revenue, be it come from tax deduction or corporate taxes or individuals or the very super wealthy.
IRONSAnd it's very hard to see how you negotiate a plan when you have one side taking off what is a main contributor to the deficit, which is the Bush-era tax cuts. If that's completely off the table, it's hard to know how you have a serious conversation.
MITCHELLFirst, there are no spending cuts in Obama's proposal. We shouldn't let him get away with this dishonest Washington definition of saying he's cutting spending simply because it goes up by 4.8 percent instead of 5.2 percent. But, secondly, why do we have a deficit? We have a deficit because government spending is increased by nearly $2 trillion during the Bush-Obama spending binge. That's why we're in trouble. That's our long-term problem, is growing spending, a rising burden of government. In effect, we're on a trajectory to become a bankrupt welfare state, like Greece. And the idea of raising taxes and sort of how a -- like a dog chasing its tail, is just going to put us on the same path that got the European welfare states in trouble.
MITCHELLWe dramatically need to reduce the burden of government. Paul Ryan took a modest step in that direction. That's where we should be going, a budget summit. Of course, Obama invited Republicans into a budget summit. Every time that's happened, like in 1990, Republicans get their head handed to them because they're just not very good negotiators. So I think they should say no to this and simply do what the American people elected them to do, control the burden of government spending.
LIASSONWell, they just did pretty good in the last negotiation on the CR. Why do you say that?
MITCHELLWell, they got $352 million spending reductions for fiscal 2011, according to CBO. That was about as phony of a deal as you could possibly imagine. Now, I'm glad, after our $2 trillion of spending increases, we got $352 million of spending cuts. But it's a tiny, tiny step in the right direction.
IRONSWell, I think we need to tone down the rhetoric just a little bit here. I think Obama has put a very reasonable proposal on the table. In terms of the current deficit, let's remember where this comes from. It comes from the fact that we had a surplus back in 2000, and we had tax cuts that led to trillions of dollars of deficits. And then we had a recession, which led to lower tax revenues because you have people who didn't have jobs. And, I think, when you look at how we would get ourselves back in the more sound fiscal footing is a combination of the policies that have been talked about already. But also getting the economy going again, and that's going to be the number one thing we have to do in order to reduce our deficit in the future.
REHMDan Mitchell, Congressman Ryan is due to speak at 10:30 this morning. What do you expect from him?
MITCHELLI expect him to counter a little bit of the class warfare demagoguery that Obama used yesterday. I actually agree with John, that we need more economic growth. But raising tax rates on entrepreneurs, investors, small business owners and other so-called rich people is a mistake. If it was a good policy, then France would be booming and Hong Kong would be stagnant. But it's just the other way around.
REHMWhat about the corporations and the high-income earners? Put aside small business for a moment.
MITCHELLWell, a lot of the so-called tax rates on the rich are taxes on investors, entrepreneurs and small business owners. Now, people like Warren Buffet say they can pay more taxes. Well, I invite him to. Instead of being a hypocrite and wanting to raise taxes in other people, he should write out a big check to the government himself.
IRONSLet me address the small business notion. My brother is about to start a small business. He's starting a small gym up in Bethesda. If anyone is interested in getting back in shape, let me know. I'll get you in touch with a very good personal trainer. He's starting a small business. What is he worried about? He's not worried about if he becomes a millionaire, what his taxes will be. He's worried about customers. He's worried about having people come in the door so that his business will survive.
IRONSAnd so he needs to know that the economy is going to be in good shape, that unemployment is going to be down, that people have jobs. And that's his number one concern -- customers, the demand in the overall economy, not some future tax rate if he happens to win the lottery.
REHMJohn Irons, he is at Economic Policy Institute. Mara Liasson is national political correspondent for NPR. She's also a contributor at Fox News Channel. Dan Mitchell, he's senior fellow at the Cato Institute. When we come back, we'll hear from two members of Congress.
REHMAnd welcome back. Joining us now by phone from his Washington office is Republican Congressman Phil Gingrey. He represents Georgia's 11th District. Good morning, sir. Thanks for joining us.
REP. PHIL GINGREYGood morning, Diane. Thank you for having me.
REHMGive me your assessment of the president's plan.
GINGREYWell, the president's plan, his was a (word?) to me. Certainly, the first seven to 10 minutes was a great opening political speech for the 2012 campaign season. He took great pains to lambaste, of course, the House Budget Committee, particularly Rep. Paul Ryan and what was recommended by the Republican majority. And, honestly, I felt that the president offered a redo of the budget that he submitted to the Congress two months ago and tried to say that we'll have some more fiscal responsibility here, and this idea of having it a 12-year budget.
GINGREYWell, I've never heard of that before. But in any regard, I guess, it sort of protects him through the 2012 election. And so, overall, I would say I was very, very disappointed in the speech. I think it was mostly political, and it does not put us on a track to reduce our deficit and debt. Our problem, of course, is not a revenue problem. We don't tax too little. We spend too much.
REHMI understand that Congressman Paul Ryan is speaking at 10:30 or so. We hear that not all Republicans are very happy with Congressman Ryan's plan, particularly with Medicare. Where are you on that?
GINGREYAnd I'm so glad you asked me that question because I practiced medicine for 31 years before being elected to the Congress in the 108th Congress. I'm in my ninth year, my fifth term. And I feel that I have a good deal of expertise in regard to health care and what's best for our -- not only our constituents, but, of course, our patients. And I think that the Medicare plan that is proffered by -- in Paul Ryan's budget is a very, very good plan. We're talking about premium support, such that our seniors who are low-income would get more premium support than our seniors who, like maybe members of Congress who are at a higher income level, would get less premium support.
GINGREYBut this premium support would go directly to the health insurance company of their choice, whether it's CIGNA or Blue Cross Blue Shield or WellPoint or whatever. It wouldn't go directly to the senior. And then they could pick and choose, and they may have a little skin in the game. But I think on the long term, this is a way to go on Medicare.
REHMAll right. Let...
GINGREYAnd, obviously, it holds harmless anyone that's 55 years of age. So, obviously, that would include all of the people currently on Medicare. They would have Medicare as we know it.
REHMBut, let me ask you, what if the service offered costs far more than the individual senior can afford? What does he or she do then?
GINGREYWell, of course, under the current Medicare, as we know it -- and I'm very familiar with that -- there is a fairly significant deductible and co-pay. And, obviously, in hospitalization, there comes a point where seniors are paying $450 a day after their -- most of their Medicare allowance has expired at any term of hospitalization. So that's why seniors have to pay $130 to $150 a month buying this supplemental policy. So I think it's very important for people to understand that they will always have to have some skin in the game.
GINGREYBut under the Ryan proposal, as I say, the premium support for the lower income seniors would be significantly higher than it would for the higher income seniors, the Bill Gateses of the world, if you will. So I think it's a very fair, equitable approach.
REHMAll right. And I also wanted to ask you, since so much has been talked about in terms of deficit reduction and reduction of spending, how did or does the rider banning Planned Parenthood -- how does that fit into the whole question about job growth and economic comprehensive outlook?
GINGREYWell, you know, that's a good question, and I don't consider it a curveball. I will say to you, though, that that rider may be more about policy than it is about deficit reduction and a very strong feeling from the -- most of the Republican majority that the sanctity of life is a very precious thing. And as far as deficit reduction, maybe it is just a minimal amount of taxpayer funding of elective abortion. But we feel very strongly that even one dollar of taxpayer money spent on destroying human life is not appropriate.
GINGREYBut if we go on and look at other riders, like reining in EPA and some of their regulatory authority in regard to greenhouse gases, we're talking about a tremendous amount of savings from the tax increases and the increase on energy cost to the typical American family of over $1,500 a year. So some of these riders have very significant fiscal impact.
REHMI know that you do want to attend that statement by Congressman Paul Ryan. Congressman Phil Gingrey of Georgia's 11th District, thank you so much for joining us.
REHMAnd joining us now by phone from his D.C. office is Democratic Congressman Chris Van Hollen. He's with Maryland's 8th District. Good morning to you, sir.
REP. CHRIS VAN HOLLENGood morning, Diane.
REHMGive me a sense of your reaction to the president's plan.
HOLLENWell, I thought the president did a very good job yesterday of making the point that the question is not whether we come up with a plan to reduce our deficit in a steady and a predictable manner. We have to do that. But how you do it is very important, and you don't want to do it in a way that hurts the fragile economic recovery. And you don't want to do it in the lopsided way that the Republican budget does, which is to provide additional tax breaks for the very wealthy millionaires, to provide tax breaks to special interests like the oil companies while cutting our investment in kids and ending the Medicare guarantee and slashing Medicaid, which will harm seniors in nursing homes and poor kids.
REHMDo you think...
HOLLENThose are not the choices we should be making as we reduce the deficit. We can do it in a better way. And the president laid that out.
REHMDo you think there are any good parts of Congressman Paul Ryan's plan?
HOLLENWell, unfortunately, I do not think there are any good parts. I would point out that they saved some of the Medicare reform savings that were done as part of the Affordable Care Act, which they demagogued last fall. In other words, when we passed the Affordable Care Act, we actually made some changes in Medicare. For example, we eliminated the overpayment, the over subsidies to some of the Medicare-managed plans. The Republicans fiercely criticized us for that reform. Now, they have included that in their budget.
HOLLENSo, I guess, to the extent that they took something we did, that we thought was a sensible reform, that's a positive thing. Unfortunately, although they took the savings, they then ended our efforts to close the so-called prescription drug doughnut hole. In other words, we used some of the savings for Medicare reform to close the doughnut hole so that seniors don't, you know, have to choose between paying their rent and prescription drugs. Unfortunately, the Republicans immediately reopened that doughnut hole.
REHMNow, let me ask you, as I did with Congressman Gingrey, about the riders, both for Planned Parenthood and the EPA. How is that discussion going to go?
HOLLENWell, those are major policy issues, and they should be debated in the normal course of things, not rammed through in a budget under threat of government shutdown. And that was what was so extraordinary of what they tried to do. I mean, they said, unless you cut off funds to certain women health centers, like Planned Parenthood, we're going to shut down the government. And, by the way, just for the record, not one penny of federal taxpayer dollars goes to abortions anywhere, any time. Let's just make that clear.
REHMBut can you respond to the point that all moneys are fungible, and that money given to Planned Parenthood for other items would offset some of the moneys used for abortions?
HOLLENIf you take that to its logical conclusion, anytime any individual or company gets a tax break or tax credit or whatever it may be, you have to examine all the other functions of that entity, that group or the lifestyle of that individual to decide whether or not that individual is making appropriate choices because they got a tax credit or a tax deduction. I mean, that -- it's just -- it's absurd when taken to its logical conclusion. We should judge these things on the merits.
HOLLENAnd, again, the federal money that goes to women health centers, like Planned Parenthood, goes for things like cervical cancer screening and other health functions. But the larger point here is they shouldn't be using the -- this continuing resolution and threatening to shut down the government in order to impose a particular right-wing policy agenda.
HOLLENThe appropriate place for that debate is through the normal course of legislative action.
REHMAnd, finally, let me ask you about raising the debt ceiling. How difficult a procedure do you think that's going to be to get through?
HOLLENWell, it's very important that the federal government make good on the full faith and credit of the United States. The chairman of the Federal Reserve has been unambiguous about this, that it would be economically catastrophic if the United States were not to make good on its debts. And so for anyone to play a game of political chicken, with the economy in its fragile state, is being reckless, and it is a huge mistake. And I hope people will pay close attention to this. We have to pay our bills.
REHMDo you think it will go through?
HOLLENI think it has to go through. I mean, this is like playing Russian roulette with a fully loaded revolver. There's no way you win by playing a game of chicken with the full faith and credit of the United States. And I would point out that the Republican budget in the House, if it were enacted, it would still require us to raise the debt limit for years and years to come. So it's just an indication that we do need to come together on a bipartisan basis to come up with a plan to reduce our deficit. But it is -- it seems to me, trying to have it both ways, in a very crass manner to say, we're going to put a budget on the floor that will require you to raise the debt limit in the future, at the same time play games of political chicken with the current debt limit.
REHMDemocratic Congressman Chris Van Hollen of Maryland's 8th District, thank you so much for joining us.
HOLLENThank you, Diane.
REHMAnd you're listening to "The Diane Rehm Show." John Irons, do you want to comment?
IRONSYes. Let me make a couple points. Let me address what, I think, the congressman from Georgia called premium supports for Medicare. In my mind, this is less premium support than a premium trap door because what's really happening is the value of these vouchers that are going straight to your insurance company would fall over time. And so seniors would be asked to pay a higher and a higher share of their health care cost at the time they're getting older and older.
REHMIs that how you see it, Dan Mitchell?
MITCHELLNo. The premium support would go up faster than GDP, faster than inflation. And you're fundamentally improving the health care system by putting consumers more in charge. In effect, this gives senior citizens the same ability to pick their health plan that members of Congress and congressional staff and federal employees have. That should be a winner. As a matter of fact, if I was 65, I'd be really angry at Paul Ryan for not letting me in on the system and only making it available for people under 55.
REHMNow, you see here...
LIASSONBut this is a system that's only going to be made up of the oldest and sickest. Now, the reason why insurance works, is because it spreads risk among people who are healthy and people who are sick. But Medicare is made up of the oldest, sickest people. So you're saying that's -- Ryan, I guess, believes that there will be a commercial market that will spring up of for-profit insurance companies who think they can make money by selling insurance or health care to the oldest, sickest people?
MITCHELLThere already is that market.
LIASSONAnd they're going to give them something -- the theory is that for $8,000 instead of $14-, which is what Medicare costs now, right, that including the profits that these companies have to make that they will be able to provide the same services for $8,000.
MITCHELLThat there already is a market out there. We heard the congressman talking about the Medigap plans that many seniors buy because Medicare is a very inefficient system. If you really think government is better running everything, show me one country anywhere in the world where government runs things and it works well.
IRONSIt's surprising to me to hear anyone really defend the health insurance market. I think we've known for a long time that this market just simply does not work well. Medicare is more efficient than the private market in health insurance, and we do know that if you were to create this kind of a system, that you'd see your seniors facing higher and higher cost, year after year after year. And I think the approach that's the right approach here was the one that President Obama laid out.
IRONSIt's really controlled cost growth. That's what's driving up premiums. It's the economy-wide growth of health care cost. And so the proposals that he has to build off health reform package really work to address the root cause of our problems, not just simply plaster over the symptom of what's really going on, which is the rise in health care cost.
MITCHELLBut what you're saying is that, in 15 years, when I'm eligible for Medicare, that you want some government bureaucrat to have the power to determine whether I get health care. And I just think that's outrageous. And, of course, we'll have a system when government has that power where, you better believe it, the politically connected people will get all the health care they want. There'll never be any question of Bill Gates getting his surgery. But the average American, watch out under that system.
REHMAnd, Mara, one last question for you. The president himself has received lots of criticism from progressives who don't believe he's gone far enough. How much farther would he have to have gone?
LIASSONWell, I actually think that what the president did yesterday was really calm the fears of progressives. I haven't seen the beginnings of a progressive revolt after the speech. I saw some inklings of it before, but I think he tamped that down.
REHMMara Liasson, NPR and national -- and contributor at Fox News Channel. When we come back, we'll open the phones.
REHMAnd welcome back. It's time to open the phones, read your email, your tweets. We've had several tweets to this effect. David in Fort Worth, Texas says, "Somebody, please call Dan Mitchell on the phrase, class warfare. Ryan's budget is warfare on the middle and lower classes." This idea of class warfare keeps coming up over and over and over again in different context. I'd like to leave it out of the rest of our discussion if possible. And there's another which says, "After eight years of Bush tax cuts, why are there no jobs?" Dan Mitchell.
MITCHELLThe problem we had under George Bush, he took office -- government spending was $1.8 trillion. When he left office, government spending was$ 3.5 trillion. Whether you're looking at the corrupt farm bills, the pork-filled transportation bills, the no-bureaucrat-left-behind education bills, the TARP bailout -- you name it -- prescription drug entitlement, Bush was a big spender. Obama promised hope and change. But he grabbed the baton, and he continued to race in the same direction with the failed stimulus and the government-run health care. That is what has caused our economy trouble.
MITCHELLWe are diverting too many resources from the productive sector of the economy, transferring them through taxes and borrowing, the politicians, who basically use them to try to buy their reelection -- and that doesn't work in France. It doesn't work in Italy. It doesn't work in Greece. Why would we think it works here?
REHMSo you don't believe that the Bush tax cuts played any role in the extraordinary situation we now find ourselves in?
MITCHELLIf you look at Obama's own budget, and once we, theoretically, fully get out of the -- fully recover and make up for the recession, tax revenues are going to -- supposed to be about 19 percent of GDP, even with the Bush tax cuts fully extended. That's above the long-run average. The entire 100 percent reason we have red ink today is because the government is too big. Government is the problem, and deficits are simply the symptom.
IRONSWell, I think, the emailer, the tweeter -- whomever he was -- kind of captures some of the points here. I think when you look at the performance of economy during the 10 years following the Bush tax cuts, you know, the Bush-era policy was really defined by his tax policy. And when you look at GDP growth, consumption, job growth, any number of factors that the Congress look at, the recovery from the end of the last recession in 2001 to before the start of the current recession, it was the weakest recovery on record. So I think the record is fairly clear on whether or not these tax cuts work to create jobs. The answer is no and that it set up the stage for the worst recession since the Great Depression.
IRONSAnd so, I think, we need to learn from our policy mistakes, learn that the tax cuts that are focused on the wealthiest individuals in this country are simply not working for average, middle class, low-income families.
REHMAll right. To Boerne, Texas. Good morning, Donald.
DONALDGood morning. Wonderful show. I will try to avoid your admonition about the warfare analogy.
DONALDMost of my questions are directed toward Mr. Mitchell, as I'm sure many of your audience would concur. Sir, you keep bringing up France. Germany has the most productive economy of any economy in the last couple of years in Europe or North America. And the reason principally given is that they've engaged in public investment and technology, education and job training. Two more quick points and I'll take my answer off the air. Our corporate taxes, as a contribution to total tax revenue, is at its lowest since the depression -- the Great Depression. Our tax revenues, as a percent of GDP -- I would question your figure -- is at lowest since 1931. That is one statistic that I think is fairly viable.
REHMAll right. Thanks for calling.
MITCHELLI actually agree with the caller. There's a lot to admire about Germany. Their education, they get much more bang for the buck. They have a school choice system, and I think that really helps. As to Sweden, as to the Netherlands, a lot of European countries have...
REHMHigh tax rates.
MITCHELLWell, they have some high tax rates, but they just lowered their corporate tax rate a couple of years ago from 39 percent to 30 percent and, I think, that's helped their economy as well. They also, by and large, even though government spending is a lot bigger than I would like, they didn't really do any sort of Keynesian program, and I think that stood them well. Because the idea that you take money out of the economy's left pocket and put it in the right pocket and think you're somehow richer, that Keynesian idea didn't work for Hoover and Roosevelt. It didn't work for Bush in 2008. It didn't work for Obama in 2009. It didn't work for Japan in the 1990s. So let's learn the right lessons from Germany, not the wrong ones.
IRONSWell, I think what we learned from Germany and other countries, too -- is what the caller said -- was that they made substantial investments in education. They made substantial investments in their economy through transportation, through innovation. And those are the kinds of things that we need to do here in this country. Also, we can create jobs in the short run. We have unemployment still at -- in around 9 percent. But also so we can set the stage for future economic growth. And if we simply do nothing, if we neglect education, if we neglect investments in transportation, in broadband access, in scientific research, then we're putting ourselves on a very poor footing for the future.
REHMMara Liasson, what about defense spending? Where does that fit in to this overall picture?
LIASSONWell, I think it fits in. It's definitely part of it. Bob Gates has suggested cuts. I think that defense spending is going to have to be part of the mix. Obviously, I think the president is willing to do, actually, a little less than Bowles-Simpson, more than Paul Ryan. But that's going to be -- have to be part of the debate. When I look at this as a political reporter, what I'm trying to think of is how could these two sides, at this point, bridge any of these differences? They seem so huge. Republicans are not going to vote for anything with tax increases in it. And I can't see Democrats really cutting entitlements unless there are revenues on the table.
LIASSONAnd what I think -- and I'm wondering what my two panelists here think about this -- is the tax reform something that eliminates or shrinks loopholes in exchange for lowering rates across the board? What you do with the increased revenue that you get from that is part of the debate. But isn't that a way to kind of vault over the stale debate about what we do? Well, I don't know about the stale debate -- the intractable debate about what we do about the high-end Bush-era tax cuts.
MITCHELLI want to give Mara a big hug because I'm a big fan of ripping up the entire internal revenue code, going with a simple and fair flat tax, get rid of all the corruption, the sleaze, the special interest that turn our tax code into a 72,000-page monstrosity. And if that winds up giving us faster growth, as has happened in the 30-plus countries with flat taxes in the world today, then, yes, I'm willing to give the politicians more revenue as a reward for putting in place good tax policy.
REHMAre we likely to see real tax reform?
IRONSWell, that depends on your definition of tax reform. I think Dan and I would have very different definitions of what constitutes a good tax reform. But listen, you know, I did my taxes the other night. I'm sure many other people -- many of your other listeners did the same thing. And when you're going through -- I use Turbo Tax, and I go through and check off all the boxes. No, I'm not blind. No, I didn't invest in farm equipment or some sort last year. But I think people realize that the code is too complicated. It's too complex. It has too many of these deductions and credits and that we can improve the code by reducing the value of these deductions, eliminating them when their inefficient and using perhaps some of that revenue to lower rates.
IRONSBut I don't think we can approach this from the perspective that you have to use every last dollar to lower rates, and I think that's a perspective that many on the conservative side had. If you are talking about deficit reduction, you have to look at using a reform of the tax code to also raise revenue, not just do it for the sake of keeping everyone's taxes the same.
REHMSo considering the fact that we're not likely to have a flat tax, what kind of tax reform might be out there?
LIASSONOh, the Bowles-Simpson, the president's deficit commission, did recommend a flatter system, not a flat one single rate.
LIASSONThey also presented a kind of menu of options. So if you're willing to get rid of the home mortgage deduction, if you're willing to get rid of the deduction from employer-provided health benefits, you know, there's a whole -- you can get lower rates the more you're willing to close loopholes. Every one of these loopholes, of course, has an army of lobbyists behind it. And the question for me, for Republicans, is, you know, how -- and Democrats is, are they willing to do that? That's the key to a lot of this. I think that's one of the biggest contributions that Bowles-Simpson made to this whole debate.
IRONSBut, I think, we have to remember the context here as well. We know that the top income earners in this country are earning more and more income. Their income is growing much faster than the rest of the population. And so when we look at tax reform -- there was a style tax reform back during Ronald Reagan, which was to keep revenues the same and to keep the distribution the same. I think we're in a very different environment today. We're in an environment where we need to see revenues increase so we can reduce the deficit. And we need to, in my view, see more a progressive tax cut to reverse some of the Bush-era tax cuts that went to the wealthy and to make the tax code more progressive.
REHMConsidering what Mara has said, that Democrats, Republicans so far apart, what might we be likely to see in the way of an attempt to move forward on this?
IRONSWell, that's a good question. And you're asking economists to talk politics, which is always a dangerous thing to do. But, I think, there is enough appetite from the left and the right to engage in these discussions, to talk about tax reform in a meaningful way, to talk about -- I think the Department of Defense spending is an area where left and right have come together and said this needs to be an area that needs to be addressed. So I think there is enough area for commonality so that if we start with the things people agree on, that puts us on the road to having a very comprehensive solution. And I'm hopeful that that discussion is now really going to happen. I'm a little fearful that it goes in a bad direction, but it's a good conversation we need to have.
REHMCongressman Ryan says that President Obama's speeches today -- he saw it as a re-election campaign speech and says speeches are not plans. What about tax reform, putting aside possibility of a real flat tax? Dan Mitchell.
MITCHELLIf you took the Simpson-Bowles plan and used all the money from getting rid of loopholes to lower rates, I think you could have an agreement. It wouldn't be a one-rate system, but you'd have a much more efficient, less destructive, less corrupt tax system. But, unfortunately, people on the left want to hold that hostage to take more revenue out of the productive sector of the economy to finance bigger government. The only thing I think we really have a chance of getting, because the two sides are so far apart -- we're not going to get a budget plan this year, but we may get budget process reform.
MITCHELLSen. Corker has some bipartisan legislation in the Senate to put in place, in effect, a modernized, an updated version of Gramm-Rudman to sort of cap government spending as a share at GDP. That kind of budget process reform politicians might be more likely to vote for because they don't actually, at that time, have to vote for specifically how they meet that spending cap. So it's a way of putting in a system, but not actually committing to how you get there, and that's probably as far as we'll get them this year.
LIASSONAnd that's also what the Gang of Six has been looking at, too, ways to legislate some of the recommendations of the Bowles-Simpson commission with the process, with caps, what happens if you don't meet the caps. I think the president is also talking about this trigger. I mean, those process reforms are in the air, and I think that's probably all you can hope for from these Gang of 16 negotiations if, in fact, they do get...
REHMAll right. To, let's see, Little Rock, Ark. Good morning, David.
DAVIDGood morning, Diane. Hi. I've been saying for years on this show that the -- some time, a long time ago, people realized that having lobbyists represent their case in front of dedicated public service was a very inefficient process. And they learned that they could put -- if they could figure out they could put a lobbyist in the office, then they would always get their way -- there would always be welfare presented in their interest. And the trick is to get somebody into office who won't represent the real interest of people who were needed to vote him in. So you hire a hired gun, a marketer like Larry Lunt, to do the dirty work for you and get him into office. And then...
REHMDavid, thank you for your call. You're listening to "The Diane Rehm Show." How huge a role are lobbyists playing, Mara, in this whole debate?
LIASSONWell, huge. I mean, you know, lobbyists play a huge role. They -- there hasn't -- I don't see anything happening today that would change that. That's just a permanent fact. But more important than that is, I think, the public conversation has shifted. People now understand why deficits are a threat to our economy. That's why, in large part, the Republicans did so well in the 2010 elections. You have the president saying yesterday that we can't go on like this. Doing nothing is not an option. He's telling his own party that if we believe in a vision of progressive government, we have to actually pay for it. So I think that's the big shift.
LIASSONAnd I don't know if any kind of agreement can happen. But the deficit and what to do about it and the proper size of government is now squarely on the table, and it's not going to go away.
REHMWhat do we see next, John?
IRONSWell, I think we see more negotiations, for better or for worse. I mean, we've already seen a lot of budget negotiations that were quite messy over the last several weeks. And the problem I see is that we have a debt ceiling increase coming up, and this is something that has to be done. I would like to see Congress take that off the table. Pass it, stand up, increase in the debt ceiling, so that we're negotiating not under threat of some kind of government shutdown or worse.
REHMIs he a dreamer?
LIASSONIt's not going to happen.
IRONSI know I'm a dreamer here. Absolutely.
LIASSONAnd the president, yesterday, acknowledged that it wasn't going to happen. That's why he's saying that he put out a timeline by the end of June. He's --the Republicans say they need some kind of process for bringing down the deficit to vote for the debt ceiling, and he's saying, okay, we're going to negotiate.
IRONSI understand the political realities here, but I just don't think it's good economics. It's not good to have this kind of pressure on you. And this, this is really damaging. I mean, if we don't do anything about the debt ceiling, it means the U.S. is going to be forced to default on some or all of our government debt. And that would mean an immense crisis that'll make the crisis last a couple of years look small in comparison.
REHMAll right. Dan Mitchell, what if we don't raise the debt ceiling?
MITCHELLWell, I agree, as a matter of prediction, that it will go up because the politicians eventually will be browbeaten into doing it. But let's get one thing clear. If we don't raise the debt limit, it does not mean default. The government has a $210 billion interest bill every year. We're going to collect this year more than $2 trillion. So unless Geithner, the treasury secretary, actually wants to default, he has 10 times as much money coming in the door as needed to pay the interest on the debt. It's obviously a sloppy, unfortunate thing that we're in this situation.
MITCHELLAnd as I said, the debt limit will go up, but it's not going to go up because we're going to default, unless Geithner and Bernanke want to come out and lie to the American people, which of course, they've already done. So that's probably...
REHMHow did they lie to the...
MITCHELLBecause they've said that if we don't increase the debt limit, there's going to be a default. Honest economists on the left and the right have already written plenty of times that we have 10 times as much revenue coming in as needed to pay interest on the debt.
REHMLast word, John.
IRONSWell, I think, again, these are hugely important issues. And I think we have to enter into these discussions, these debates being very serious, talking about the options. And, I think, you know, people have called the Obama speech a campaign speech, and they use that in a derisive way to (unintelligible) parts and politics. But, I think, the reality is this is a debate about the role of government in people's lives, the role -- government's ability to provide security and opportunity for the middle class, low-income Americans and about efficiency in government growth. And we need to take this seriously and have a valid debate.
REHMJohn Irons, Economic Policy Institute, Mara Liasson, NPR and Fox News Channel, Dan Mitchell at the Cato Institute. We shall see what happens next. Thank you all so much.
LIASSONThank you, Diane.
REHMThanks for listening. I'm Diane Rehm.
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