The 2013 House Budget Proposal

MS. DIANE REHM

10:06:56
Thanks for joining us. I'm Diane Rehm. Congressman Paul Ryan rolls out the House 2013 budget plan today. It may lead to discontent not only among Democrats but with the risk that some Republicans will reject it as well. Joining me to talk about likely key elements in his proposal and the budget battles ahead: Jared Bernstein of the Center on Budget and Policy Priorities, Vin Weber, Republican consultant, former member of Congress, and Alice Rivlin of the Brookings Institution. She's founding director of the Congressional Budget Office.

MS. DIANE REHM

10:07:40
I hope you'll join us, 800-433-8850. Send us your email to drshow@wamu.org. Join us on Facebook or send us a tweet. Good morning to all of you.

MS. ALICE RIVLIN

10:07:56
Good morning, Diane.

MR. JARED BERNSTEIN

10:07:57
Good morning, Diane.

REHM

10:07:57
And before we begin our conversation here in the studio, we're joined by Congressman Chris Van Hollen. He's Democrat of Maryland. Good morning to you, sir.

REP. CHRIS VAN HOLLEN

10:08:10
Good morning, Diane.

REHM

10:08:11
Talk about what we know is going to be in Congressman Ryan's budget plan this morning.

HOLLEN

10:08:20
Well, they only released it about five minutes ago. But the preliminary reports show that, unfortunately, it's essentially a rerun of the Republican budget from last year, meaning that it will provide another round of windfall tax breaks to the wealthiest Americans at the expense of middle income taxpayers, seniors and important investments in our economy. And that's unfortunate.

HOLLEN

10:08:48
It does not take the balanced approach we saw from Simpson-Bowles and Rivlin-Domenici that says we've got to tackle our deficit through a combination of cuts but also revenues by asking folks at the very top to share more responsibility. Instead, it deals with the budget simply by these very deep cuts to programs that are unfortunately going to harm seniors, hurt the middle class. And that is not the approach that we should be taking, in our view, and we'll have an alternative that takes a more balanced approach.

REHM

10:09:23
How does it compare to the deal that the two parties worked out last summer?

HOLLEN

10:09:30
Well, as you know, the two parties got close to a deal reportedly. But they couldn't get there, and one of the major reasons they couldn't get there in the end was the fact that you've got 98 percent of House Republicans who have signed this pledge to Grover Norquist that says they will not close one single loophole, not one penny, for the purpose of deficit reduction. And that takes off the table immediately any balanced approach that says we need to -- take a combination of cuts, but also revenue, as a path to getting to a deficit reduction.

HOLLEN

10:10:08
So the argument is not whether or not to reduce the long term deficit. We have to do that. The question is how. And, again, this is a lopsided approach, and it's just going to hurt most Americans. It will be a plan that Mitt Romney loves because it's going to provide another round of tax cuts for the very wealthy. In fact, on average, millionaires will get a $150,000 tax cut into this plan.

REHM

10:10:29
Congressman Van Hollen, I hear about all the disagreements. But do you find any agreement with what you have read so far?

HOLLEN

10:10:43
Well, we did strike an agreement last year as part of the Budget Control Act to cut spending by over $1 trillion. Unfortunately, as part of this budget, reportedly, they're going to renege on that agreement. We haven't been informed of the details of that change as of right now. But it does make it difficult when you enter into an agreement, you know, eight months ago, and they're already tearing up that agreement. So we were able to reach agreement. It's just they've now decided to reverse themselves from some of those points.

REHM

And what about the Defense Department? That's slated for major cuts. What do you see?

HOLLEN

10:11:31
Well, the president's proposal would reduce the defense budget by about $450 billion over 10 years, which is only about half of the cuts in defense that were proposed by Simpson-Bowles. Simpson-Bowles recommended on the order of a trillion. Rivlin-Domenici also recommended more cuts in defense than the president's proposed. The reality is -- as the former head of the Joint Chiefs of Staff said, we've got to obviously address the deficit as part of our national security.

HOLLEN

10:12:09
And the defense department, which is the one agency in the federal government that has not been able to pass an audit, can't find savings without in any way, harming our national security. And that's what the president's budget does.

REHM

10:12:22
All right. And, finally, what about...

HOLLEN

10:12:23
And the president's budget protects national security while making efficient savings.

REHM

10:12:29
Finally, what about Medicare, Congressman?

HOLLEN

10:12:33
Well, Medicare plan -- and, again, we haven't seen any detail on this. But it looks like more of the same, a different species of the earlier version, meaning that it will save the Medicare system money by transferring more costs onto senior citizens as opposed to the approach that we think we should take, which is to reduce cost throughout the healthcare system.

HOLLEN

10:13:04
If you look at the system historically, the cost per beneficiary of Medicare have risen no more than the cost for other people in the system. In fact, they've done a little better. So it doesn't do us any good to simply transfer those rising costs on to seniors. We need to focus on reforming the Medicare plan in a way that puts greater focus on the value of care and the quality of care and not the quantity of care.

HOLLEN

10:13:33
So that's the approach we should take, not simply transferring and off-loading those costs on to seniors when seniors on Medicare -- their median income is under $23,000.

REHM

10:13:44
All right.

HOLLEN

10:13:44
So why we would hit them while we're providing another round of tax cuts to folks who earn $1 million a year, I think, it's beyond me, and I think most Americans will say that's just not -- does not reflect our priorities.

REHM

10:13:58
Congressman Chris Van Hollen, he was elected by his colleagues in 2010 to serve as the top Democrat on the House Budget Committee. Thank you so much for joining us.

HOLLEN

10:14:15
Thank you. Thank you.

REHM

10:14:16
And, Alice Rivlin, turning to you, what do you see coming out of this whole -- you know, we went back, and we thought we had some agreement. Now, we have, as Chris Van Hollen says, a totally different animal.

RIVLIN

10:14:35
Well, I'm very frustrated with the whole budget situation as, I think, most people are. This budget from Congressman Ryan, which I have not seen, but I think it should be viewed as an opening offer, a Republican offer on the table in what one would hope would be a negotiation. Now, unfortunately, I don't think there's going to be a negotiation. There's going to be a kind of stalemate in the Congress until after the election. This is a budget resolution, and that should be what starts the budget process in the Congress.

RIVLIN

10:15:24
But the budget process is totally broken. And even if the House passes this budget resolution, which they probably will, the Senate is not going to make a budget resolution. Now, that doesn't mean nothing happens. The appropriations bills, which are what funds the agencies year by year, those will proceed. So there won't be any drastic, immediate consequences, but we should all be ashamed that the process isn't working better.

REHM

10:15:51
Vin Weber, should we be ashamed about this process?

MR. VIN WEBER

10:15:56
Absolutely. I'm going to make point that I was going to make sort of at the end of the program, but since Alice Rivlin sort of moved into it -- I listened this morning, before I came in here, to Paul Ryan and John Heilemann from the New York magazine, who was interviewing him, talked about this, and they both were saying, this is going to be a great seminal moment, a clarifying debate this fall, and, as Alice Rivlin just said, we'll solve the problem after the election. There's no guarantee that we'll solve this problem after the election. To decide we're going to do nothing on this this year is a huge, huge failure.

REHM

10:16:28
And how do you see it, Jared Bernstein?

BERNSTEIN

10:16:32
Well, I kind of like the way -- I don't disagree with my colleagues here. I think they've laid out the frustrations and the dysfunction in the system, but I do kind of like the way Chris Van Hollen articulated the larger challenge here.

BERNSTEIN

10:16:46
If you think about -- a good way to start talking about budgets, in my view, is to think about the role of government at a time like this or anytime, to provide a safety net for people who fall out of a tough economy -- that's been very important in recent years -- to provide retirements and health care security for our seniors, to invest in our infrastructure, education and training, the quality of our workforce and, of course, defense.

BERNSTEIN

10:17:09
When I look at this budget, what I see is not nearly enough attention to -- oh, by the way -- and, of course, you have to raise the funds to pay for all the...

REHM

10:17:20
You bet.

BERNSTEIN

10:17:21
When I look at this budget, I don't see nearly enough attention to those critical roles of government. I see a safety net that gets essentially gutted by block-granting a bunch of stuff to the states. I see a health care security for seniors particularly hurt by this premium support idea I'm sure will get into. Once you start cutting to the levels that they're cutting, the investment agenda goes out the window. I actually do think they strengthen defense. But, again, I think that's a pressure point that needs more cuts a la the president.

REHM

10:17:50
Alice.

RIVLIN

10:17:51
Well, I agree with as much as what Jared is saying, but I think the most important thing is the revenue side. There are no new revenues in this budget. And as I understand it, the idea is to hold revenues at 18 percent of the gross domestic product. Now, that's been about the historical average, but we're not in a historical situation. We're in a situation in which we have huge numbers of seniors becoming eligible for Medicare and Medicaid, rising health costs. We have to accommodate that. We can't do it at 18 percent of GDP.

BERNSTEIN

10:18:27
Absolutely. Great point.

REHM

10:18:28
Alice Rivlin, she is senior fellow at the Brookings Institution, former vice chair of the Board of Governors of the Federal Reserve System and founding director of the Congressional Budget Office. Short break. We'll be right back.

REHM

10:20:04
And in this hour, we're talking about Congressman Paul Ryan's plan to roll out the House 2013 budget plan today. You've heard Congressman Chris Van Hollen on his thoughts. He decried the loss of revenue for health care for seniors. He also talked about declining tax rates for those who are in the wealthiest brackets. Here in the studio: Jared Bernstein, Vin Weber and Alice Rivlin. Let's talk about those tax rates, Vin Weber.

WEBER

10:20:51
Sure.

REHM

10:20:51
As I understand it, it's to 10 percent and 25 percent.

WEBER

10:20:57
And 25 percent. Although, it's not specified, as Jared pointed to me before we went on air, what the threshold levels are, in other words, exactly who will pay 10 percent and who will pay 25 percent. I think that that's actually a good thing because I agree with what Alice said before. This is an opening offer, and it gets some opportunity for discussion. I want to clarify one thing, though. Congressman Van Hollen, who I think very highly of, said that, basically, this -- the tax breaks for the wealthy were not paid for.

WEBER

10:21:24
The Ryan budget calls for paying for these through closing loopholes. Granted, it does not specify which loopholes, but it does call for closing them. And Paul Ryan has said how he wants to do it personally, which is by limiting all the deductions, mortgage interest, charitable and everything else, to upper income people. So you basically would means test the deductions. That's one conceptual approach to take to it. Again, I look upon this as an opening offer, but it's not accurate to say that Paul Ryan does not envision paying for this.

REHM

10:21:52
All right. Alice.

RIVLIN

10:21:54
I like the general form of his proposal for tax reform. We do need to broaden the base and lower the rates. The plan that Sen. Domenici and I worked out had a similar form. It had two rates. They were higher, to 15 and 28, but in order to do that and not to lose revenue -- and I think we need to gain revenue -- you have to take on all the popular deductions, exemptions, home mortgage, you name it. Everything that people hold dear has to be on the chopping block to get to those rates.

REHM

10:22:32
And we're joined now by Republican Congressman Michael Burgess. He represents the 36th District of Texas. Good morning to you, sir.

CONGRESSMAN MICHAEL BURGESS

10:22:45
Good morning, Diane. Good to be with you.

REHM

10:22:46
How far apart do you think Republicans in Congress are on the issue of spending cuts?

BURGESS

10:22:54
Well, of course, I'm grateful to Paul Ryan -- Chairman Ryan for his leadership on this. I mean, he has been an outspoken leader on this for years when it was nowhere near as popular as it is now. I don't like to think of tax policy as being paid for. I like to think of it in terms of being revenue neutral. And, certainly, I have been someone who's advocated a flat tax for a long time. Two rates, sure, I could live with that. And I believe Ms. Rivlin is right that the -- reducing the number of deductions only makes sense.

BURGESS

10:23:27
And I think people would welcome a simpler time. Well, here we are just up to April 17 again in a few weeks. I think people would welcome the simplicity of the type of tax plan that Congressman Ryan is discussing. I've always thought it should be optional because we've encouraged people to make decisions based upon the current IRS code, so we ought to allow people a time -- some time to transition into new tax rates.

BURGESS

10:23:54
That might not be possible under the plan that Congressman Ryan is talking about. I haven't had a chance to discuss that with him, but I like the general concept. And, like some of the other people have said, I welcome the fact that he's opened the door for the conversation.

REHM

10:24:08
OK. How worried are you that spending cuts of the magnitude some people in Congress are talking about could actually stall whatever recovery is currently under way?

BURGESS

10:24:26
Well, I think you have to look at why the recovery is under way. And, by and large, it is not because United States House of Representatives or the United States Senate or even the president of the United States. It's because the resiliency of the American people. We've seen it before. This recovery has been slower and started later than any of us would have wanted. Perhaps, that's because of government policy.

BURGESS

10:24:47
But ultimately, the people are responsible for the recovery, and it is happening. So, as far as the reduction in government spending slowing the recovery, I would submit that there is no greater threat to our sovereign health than our growing problem with debt. And I think any signal that it is being brought under control is something that ultimately will accrue to the benefit of the economy, not the detriment.

REHM

10:25:13
Now, Congressman Burgess, I know you've been in meetings on health care. What happens if the Supreme Court rules against affordable health care, the Act? Is there an alternative strategy, in your mind, for reducing the rate on the increase in health care costs?

BURGESS

10:25:37
Well, and -- yes is the short answer to that question, and I'd written about this in a book. I have a website dedicated to health policy called healthcaucus.org, which has had a number of my prescriptions on how I think we could have done things differently to hold down costs. But, look, the big challenge of the health care reform that President Obama undertook in 2009 was people wanted to not disrupt the current system, and, if you're going to do anything at all, please, help us with cost.

BURGESS

10:26:05
Well, the recent Congressional Budget Office's figures that have been released show that we've done anything but help with cost. The only thing we've done to the cost curve is bend it straight up. So this is something that has to be brought -- really, whether the Supreme Court does it or whether the Congress does it or the president in the next presidential term, be it Republican or Democrat, someone is going to have to tackle this.

BURGESS

10:26:26
Before we get to the end of this year, we're likely to have to face another debt limit discussion without all the good feelings that we had last August. And I would submit...

REHM

10:26:35
Those were good feelings, yeah.

BURGESS

10:26:39
Well, I would just submit that it is the unaccounted expenditures that are going to happen in 2014 under the Affordable Care Act, which will be one of the few places left to look for savings that would be necessary to pass the debt limit extension again. This is going to be a terrible sight at the end of this year. But if you're not willing to look at the new expenditures, the expansion of federal spending under the subsidies and the exchanges in the expansion of Medicaid, basically, you're not really being serious about controlling your debt.

REHM

10:27:07
Republican Congressman Michael Burgess, thank you so much for joining us.

BURGESS

10:27:14
Yes.

REHM

10:27:15
Vin Weber, does Medicare have to be totally revamped?

WEBER

10:27:21
Well, I think it does. I think -- as a long-term proposition, I believe that it does. And I think that what Paul Ryan proposes in the form of a premium support program is consistent with really bipartisan approaches to this, going back to Breaux-Frist, including Domenici-Rivlin, which we've talked about, and Bowles-Simpson. The Democrats have a different approach, which basically is to try to take costs out of the system from the top down, I would argue, and we should talk about how that would work.

WEBER

10:27:49
But it amounts -- Jared won't like this. It amounts to government-mandated rationing of health care. And maybe you can do that sensibly, but those of us that have a little suspicion of government doubt it. I think premium support, a la Domenici-Rivlin -- I'm going to lean on Alice here...

REHM

10:28:04
Yeah.

WEBER

10:28:05
...is closer to what I'd like to see and would actually solve the problem long-term.

REHM

10:28:09
Tell me how premium support would work, Alice.

RIVLIN

10:28:13
In the version that Sen. Domenici and I put together, which is very close to what Congressman Ryan and Sen. Wyden, a Democrat, put forward a few months ago, it would work like this: All seniors could keep Medicare, keep fee-for-service Medicare, traditional Medicare if they wanted to. They would have an option of going on an exchange, a marketplace, where they could choose among plans that would offer the same benefits as Medicare and choose one of those.

RIVLIN

10:28:49
Now, they can do that already under Medicare Advantage, but this would be a better organized exchange with actual competitive bidding. And the government's contribution to Medicare would be set at the second lowest bid under our plan in the area.

REHM

10:29:06
Interesting.

RIVLIN

10:29:09
And so if you wanted the lower bid, you'd get some money back. If you wanted to -- a more expensive plan, you'd have to pay more. And fee-for-service Medicare would be among the bidders.

REHM

10:29:24
Jared Bernstein, what do you think of that?

BERNSTEIN

10:29:27
Well, here, I depart from my friends over here to my left, actually.

BERNSTEIN

10:29:31
They're sitting on my left. First of all, I don't like the use of the word rationing, and I'll tell you why. I think it's misrepresentative to call the kinds of programs in the Affordable Care Act rationing without at least acknowledging that the current system has very deep and very unjust rationing in it. And if you don't believe that, talk to one of the 50 million uninsured people in this nation. It's called price rationing. And if you can't afford health care -- and a lot of middle- and low-income, increasingly middle-income people can't -- they are effectively rationed out of the system.

BERNSTEIN

10:30:07
What the president tried to do with the Affordable Care Act is to do what every other advanced economy in the world -- who, by the way, spends a half to two-third of their economy on health care -- covers virtually everyone with comparable, if not better, outcomes and, again, does it for a half to two-thirds. So there's a lot of waste. And the Affordable Care Act goes after that waste from the perspective of the system.

BERNSTEIN

10:30:31
The problem I have with premium support, whether it's Alice's plan or, in many ways, the more -- I think the kind of tougher approach here in the Ryan budget because it's actually even less premium support, is that all it does is shift the cost burden onto the recipients themselves. Now, they are now responsible for paying -- for purchasing health care insurance with this voucher.

BERNSTEIN

10:30:58
Now, the voucher increases at the rate of GDP plus 1 percent in Alice's plan, GDP plus half a percent in the Ryan plan. That increase in the voucher is well below the increase in health care costs, and that's the cost shift. You're shifting the burden of Medicare affordability onto the beneficiaries. The Affordable Care Act doesn't do that. It tries to take those savings out of the system itself.

REHM

10:31:23
Alice.

RIVLIN

10:31:24
Let me make one thing clear. I support the Affordable Care Act, and, in Domenici-Rivlin, we made that very clear. The Affordable Care Act approach is, I think, not rationing, as Jared said. It is trying to find more efficient ways to deliver health care.

BERNSTEIN

10:31:40
Right.

RIVLIN

10:31:41
And there are numerous ways to do that that are built into the Affordable Care Act, including the changing of payment rates. But if that doesn't work, we have kept it, but we also have an alternative, which is to rely on competition among plans.

REHM

10:32:02
And, of course, the Supreme Court is going to be debating, or hearing, arguments in favor and against the Affordable Care Act.

BERNSTEIN

10:32:13
Can I make one tiny point?

REHM

10:32:14
Go ahead quickly.

BERNSTEIN

10:32:16
The idea that Medicare is going bankrupt has been very much overblown. According to the trustees' reports, it's going to be able to pay 100 percent of its obligated cost through 2024. After that, it will be able to pay 90 percent of the hospital insurance costs for many years out. Now, that doesn't mean we don't have to fix it. We do. But the idea that it's somehow going to crash and burn tomorrow is completely wrong. And there's been some fearmongering here that, I think, doesn't serve the debate well.

REHM

10:32:44
Jared Bernstein of the Center on Budget and Policy Priorities. And you're listening to "The Diane Rehm Show." Vin Weber, you want to comment on that?

WEBER

10:32:57
Well, no. I think this is a great discussion. I enjoy -- to Jared's point, this question of rationing is kind of an interesting one 'cause I use the word particularly to inflame him a bit, but...

BERNSTEIN

10:33:11
You've succeeded.

WEBER

10:33:12
But, you know, what we're really talking about is who is going to do the rationing? Just quickly, my dad died in 1984 three months after being diagnosed with cancer. My mom and my father decided not to have any extraordinary care. They decided to ration health care. The questions -- many of the questions we face in the society as we -- long term, as we age particularly, are not about rationing or non-rationing.

WEBER

10:33:34
It's about who's going to make the decisions. Is it the patients that's going to make it, the doctors going to make it, the insurance companies that are going to make it or the governments that going to make it?

REHM

10:33:42
Here's the thing I want to know. How far apart are Republicans and Democrats going to be on the issue of spending cuts on the Ryan plan versus the plan that Democrats believe ought to be right there?

BERNSTEIN

10:34:02
Well, the president's budget is a good example of that, and I think Alice hit this absolutely correctly a few minutes ago. It's not that Democrats are against spending cuts. In fact, they've agreed to $2 trillion in spending cuts so far. It's that Democrats in general -- certainly, the president's budget reflects this -- believe that we can't have the government we need to meet the challenges we face, whether it's demographic challenges, climate challenges, global economic challenges, investment. We can't have the government we need on spending cuts alone. There must be new revenues in there.

REHM

10:34:35
And, of course, that's what you've been talking about, Alice.

RIVLIN

10:34:38
Right. And that gives us the opportunity, since we need more revenues, to have a better tax code. And we need to do that, but it's not an easy thing to do. We have to change our tax code which has all of the so-called loopholes, but they are loopholes that people hold dear, like the home mortgage deduction. If we were to change the form of those, we could lower the rates and raise more revenue.

REHM

10:35:02
But if you lower the rates, if you eliminated those deductions for high-income people only, how far would that go to solving this...

WEBER

10:35:15
Well, it depends on how -- what you define as high-income people you have to bring in.

REHM

10:35:18
Yeah.

WEBER

10:35:19
It's a negotiation. We would go through a process of negotiating what -- where those rates kick in and how -- where you -- for whom you eliminate the deductions.

REHM

10:35:29
But is anybody willing to negotiate?

WEBER

10:35:32
Well, they haven't proven so yet, but I remain an optimist.

REHM

10:35:35
Exactly. Well...

BERNSTEIN

10:35:36
Vin is -- let me say Vin is right about that. But here's the thing -- and I think Alice will back me up as a CBO whiz that she is -- to get to 25 percent and 10 percent, which is where Paul Ryan wants to get...

REHM

10:35:47
Right. Right.

BERNSTEIN

10:35:48
...and be anywhere near revenue neutrality -- and, by the way, that's actually a very -- too low a bar. We need to do better than that. You would have to go way down on the income scale in terms of cutting off those loopholes.

REHM

10:36:00
What do you mean?

BERNSTEIN

10:36:01
I mean that you can't raise the revenue you need to achieve this enough -- to achieve revenue neutrality. If you're going to cut the rates as far as he's proposing -- 25 percent and 10 percent -- and just cut loopholes at the top, you're going to have to go lower.

REHM

10:36:15
Alice.

WEBER

10:36:15
It means you'd have to take away the mortgage deduction not just for millionaires...

BERNSTEIN

10:36:17
Middle class.

WEBER

10:36:18
...but for middle class people.

BERNSTEIN

10:36:19
Right?

WEBER

10:36:19
I agree with that.

REHM

10:36:20
Alice.

RIVLIN

10:36:20
That's absolutely right, and that's why this is only an opening offer.

WEBER

10:36:24
Right.

RIVLIN

10:36:24
It will never end up being voted by a majority of Congress because it wouldn't be satisfactory to a majority of the public. We'll end up somewhere in the middle.

REHM

10:36:34
But what if you simply have that level at $1 million?

WEBER

10:36:42
You couldn't reduce rates nearly to the extent that Paul Ryan is talking about.

REHM

10:36:44
Exactly. Exactly. So when he talks about upper income...

WEBER

10:36:50
Well, keep in mind that some people over the years -- let's remember, some people over the years have argued for the complete elimination of the mortgage interest deduction...

REHM

10:36:55
I know. Yeah.

WEBER

10:36:56
...with a fairly sound economic rationale behind it, so Paul Ryan is not completely out of the -- out of his league when he talks about reducing it fairly dramatically. I agree with Alice. At the end of the day, the political dynamics in this country won't allow you to reduce it far enough probably to get those rates down to 25 percent.

REHM

10:37:14
And, therefore, you're going to have talk, but no real negotiation.

RIVLIN

10:37:20
That depends. I've sat in two negotiations for much of the last two years where actual Republicans and Democrats could agree on a compromise.

REHM

10:37:31
And talk to each other.

RIVLIN

10:37:33
Right.

REHM

10:37:33
That would be wonderful. Alice Rivlin. We'll be back and take your calls in just a moment.

REHM

10:40:05
And let's open the phones, welcome our listeners to be part of the discussion. And first to Dallas, Texas. Good morning, Scott. You're on the air.

SCOTT

10:40:19
Thank you. I don't think Alice and most people understand how taxes work, and I don't know if it's because they're doing a macro perspective from the CBO. But when you raise tax rates, if you don't get those rates, it draws money into deductible avenues. Those deductible avenues are the things Republicans say you'll kill with higher tax rates. But the opposite's true. Employee benefits, hiring, research and development, advertising, expansion are all incurred by high tax rates.

SCOTT

10:40:51
Capital investment is incurred and doubling incurred. The higher the tax rates, the more you get the depreciation benefit. Low taxes give us financialization, lobbyist professionalism and executive complicacy.

REHM

10:41:06
Alice, it's all yours.

RIVLIN

10:41:09
Well, I don't actually agree with that. I think lower marginal rates, the amount you pay on the additional income you earn or invest are important, but you can only get those if you have a much simpler tax system. So I am in favor of the broader base, lower rates for what I think are good reasons.

REHM

10:41:29
All right. To Vie (sp?) in Ann Arbor, Mich., good morning. You're on the air.

VIE

10:41:36
Good morning. Because of this intense gridlock and the hold that Norquist has over the Republicans' approach to raising taxes, my question is who is controlling that attitude?

REHM

10:41:53
Grover Norquist. Go ahead, Jared.

BERNSTEIN

10:41:56
Yeah. Unfortunately, you have this, you know, unelected lobbyist guy who has a bunch of -- what did Van Hollen...

REHM

10:42:03
Ninety-eight percent.

BERNSTEIN

10:42:05
Ninety-eight percent of House Republicans have signed a pledge saying they won't raise taxes. Now, if you think about that in the context of our discussion this morning, I think maybe all three of us, as far as I can tell, and we don't all come from the same place, agree -- the president's budget certainly gets there -- agree that in order to achieve fiscal sustainability, yes, we have to cut some spending, but we also have to raise some new revenues.

BERNSTEIN

10:42:31
So if you're telling me that the system has embedded in it hundreds of people who don't understand that basic compromise, then, of course, it's dysfunctional.

REHM

10:42:39
Vin Weber.

WEBER

10:42:40
Well, first of all, I'm confessed to being a Rivlinite (sp?) on the tax issue...

REHM

10:42:44
OK.

WEBER

10:42:45
...to the consternation of many in my party.

REHM

10:42:47
All right.

WEBER

10:42:47
But let me defend my friend Grover Norquist who is misunderstood. People, all the time, are attacking Grover as if he's some magician in his cave, casting a spell to the Republican Party.

REHM

10:42:55
Oh, I've had him here in the studio many times.

WEBER

10:42:57
Grover -- the reason Grover has the influence he does is because he has spent 20 years building a huge grassroots movement. It's all those people in every congressional district and state to whom these people are pledging. Now, maybe they shouldn't be doing it. Maybe we have to figure out a way to get out of it. But it's because he is engaged in grassroots politics that he has the influence he does.

REHM

10:43:16
Alice.

RIVLIN

10:43:17
I think that's true. There are a lot of people who believe that taxes are too high and we should never raise them. But they don't think through what that means. Do you want airplanes falling out of the sky because we don't have air traffic control? Do you want to close the national parks? Do you want seniors not to have health care? What do you want in order not to have to raise taxes?

BERNSTEIN

10:43:40
Yeah. I've got a great anecdote about that if I might just share it. Yesterday, the front page of The Washington Post had an article about how the water is rising in Louisiana. The sea levels are rising as part of climate change. And so the state of Louisiana is telling the federal government, we need your help to keep our highways open. This is -- and I'm not picking on Gov. Jindal. I mean, he's just one among many who has aggressively cut taxes. Now, the waster level is rising. You scream, federal government, come help us. But of course, if you're slashing away at the Feds, where's the help?

REHM

10:44:09
And here's a tweet: "Why isn't cutting the mortgage interest deduction a tax increase that violates the Norquist pledge?"

WEBER

10:44:20
It is. If it we're done in isolation, it is. I think, if I understand the Norquist pledge properly, what he would say is, as long as you reduce rates sufficient to offset the gains from eliminating the mortgage interest deduction that doesn't violate "the pledge," then, absolutely, closing a loophole constitutes an increase in taxes.

REHM

10:44:37
All right. To Elkhart, Ind., good morning, Randy.

RANDY

10:44:42
Good morning. If the president were to start vetoing everything to say it costs too much and if he can't get 67 senators to agree on it, it's not good enough. But if he'd let the Bush tax cuts expire at the end of the year and says, give me a Congress that will help me, I will work on the lower taxes for the lower income next year.

REHM

10:45:07
Alice, what do you think?

RIVLIN

10:45:09
Well, I think that's a good political tactic that the president may have to use. Letting all the things expire that expire at the end of the year, though, the Bush tax cuts of those….

REHM

10:45:22
The alternative minimum tax.

RIVLIN

10:45:26
The alternative minimum tax, the so-called doc fix and several other things, if we -- and letting the sequester come into effect, would, I think, be quite a disaster from -- for the economy. We couldn't do it all that fast, so that has to be -- the prospect of that has to be used cleverly by the president...

REHM

10:45:49
What do you mean we couldn't…

RIVLIN

10:45:50
...as a bargaining tool.

REHM

10:45:52
It would be a disaster. What do you see?

RIVLIN

10:45:53
I think it -- what I see is a fairly fragile recovery albeit strengthening, which would be undercut by widespread tax increases and spending cuts at the same time. It's what's happening in Europe. It's what's happening in England and poor, old Greece.

REHM

10:46:11
And Greece, especially, yeah.

RIVLIN

10:46:15
They're doing it out of necessity. The British are doing it intentionally, but it is slowing their economic growth.

REHM

10:46:21
Jared.

BERNSTEIN

10:46:22
Well, yes, exactly right. I mean, if you -- if all of this stuff happens at once, the spending cuts, the full expiration, you'd be extracting something on the nature of 3 percent of GDP, which is about $450 billion next year. And an economy that's just beginning to get a little more there in terms of other recovery, it could easily throw us back into recession.

REHM

10:46:45
And, Vin.

WEBER

10:46:46
Well, I actually agree with Democratic friends on the short term. I think we need to talk about short versus long-term problems. I'm very nervous about cutting spending a lot in the short run or raising taxes a lot in the short run. But part of the reason we're in this horrible position of debating that is precisely because we won't deal with the long-term drivers of the deficit, whether it be taxes or Medicare, the two main ones. Even Social Security, you could throw in.

WEBER

10:47:10
If we could actually come to some kind of agreement about long-term deficits, and the debt-to-GDP ratio as it's measured as the best long-term indicator, I think you take a lot of political pressure off the Congress to do things in the short run that might well be counterproductive economically.

REHM

10:47:25
How does the public frustration play into all of this? We've seen these debates go on and on. We've seen people get angry. Congress is waiting. It's at its lowest point. Does the public figure into this, Alice?

RIVLIN

10:47:43
Oh, absolutely. And, actually, I think the public is absolutely right to be frustrated, and that's one of the reasons we may see a deal. Not clear when, maybe right after the election but even maybe before. Congress is very worried about its own rating.

REHM

10:48:03
Interesting. All right. To Bethany Beach, Del., hi, Ray.

RAY

10:48:09
Hi, Ms. Rehm. Love your show.

REHM

10:48:11
Thanks.

RAY

10:48:11
I just -- you just spoke to exactly what I'm calling about, which is the public frustration. I'm a small business person in the purest sense of the word. I'm in the construction industry, and I am seeing a repeat of last year where we came into the spring with a lot of enthusiasm. I'm seeing it in my business. I'm seeing it with larger builders in the area. And we're talking about the budget again.

RAY

10:48:33
And what happened last year was all the turmoil with the budget threw everything into craziness toward the end of the year, and it stalled the recovery. And I'm wondering why the people in Washington don't understand this. If they'd just leave us alone and let us get going and do what they're supposed to do, we can make this economy turn around.

REHM

10:48:53
Alice.

RIVLIN

10:48:54
Oh, I agree. I think if we had a long-run budget agreement, it would make an enormous difference, and it's what small businessmen and all of us ought to want, that we would show that our government is actually functioning, and we are on top of this rising debt problem. We're not doing it too fast, but we are getting to a sustainable budget.

REHM

10:49:16
Here is an email from Alice, who says, "The earlier Ryan budget plan decimated funding for scientific research. What do you we know about the new budget? Will funding for scientific research into alternative energy and other areas be slashed?"

BERNSTEIN

10:49:38
I'm afraid it will. And here's an interesting point about my understanding of the budget, which just came out this morning, one of the things that Republicans have been very concerned about is the automatic cuts to defense. This is part of this Budget Control Act. It's called sequestration, which is a Washington word for automatic cuts. And the way the White House set it up, which I thought was smart, was that, in order to force these guys to a compromise, they said, look, the cuts are really going to bite.

BERNSTEIN

10:50:04
They're going to be equally on defense and on non-defense on the -- what's called the discretionary side of the budget, the part that's not entitlement. Well, what I see in this budget is that they really don't want those defense cuts to take hold, but they still want to get the same amount of deficit reduction, in fact, they want to get more. So that means more cuts on the non-defense...

REHM

10:50:24
Non-defense.

BERNSTEIN

10:50:25
...discretionary side of the budget, which is exactly where the caller's programs reside.

REHM

10:50:30
You heard me sigh a huge sigh, Vin Weber.

WEBER

10:50:35
Well, I agree with you and, you know, I was inappropriate when I was Congress. That's kind of a dirty word these days. But these discretionary funds we're talking about, scientific research and things like that, used to be the things that we all agreed on. There wasn't any disagreement that the federal government should play the role of funding basic research. And now, we're finding ourselves -- going back to my point before -- because we're not solving the long-term problem, we've got this intense pressure on short-term expenditures.

WEBER

10:50:58
And people are doing things that they would never otherwise do, both on the domestic discretionary side, and I would argue, too, on the defense side. I think we're going to have a big debate over defense before this is over.

REHM

10:51:04
All right, to Lillian, Ala. Good morning, Mark. You're on the air.

MARK

10:51:12
Good morning. Thank you so much. Listen, everybody remembers Christina Romer, and she was the author of the money -- the stimulus bill that the president put in effect. And when it didn't work, the press asked her, well, why didn't it work? And she said, I don't know, and she went back to Berkeley to teach more schemes in economics, which didn't work for Roosevelt, and it doesn't work now. You can't spend your way out of debt.

REHM

10:51:38
Alice.

RIVLIN

10:51:39
I totally disagree with that. In the first place, Christy Romer was not the author. She lost. She was for a bigger stimulus. I believe that the stimulus that we got did work. And that if the government spends money and gives money to the states and puts money into pockets of people who need it, they spend it, and that's what the economy needed. We were in such a hole that we couldn't -- was a stimulus that would pass the Congress, get out of it, but the economy turned around and jobs are growing.

REHM

10:52:14
All right, to Dallas, Texas. Hi, Karen.

KAREN

10:52:19
Good morning. My -- and then my concern is -- my husband and I both have run small businesses for decades. We paid into Medicare -- well, the choice of ours. We didn't have other options. And now, as they make these drastic changes in Medicare, for those of us who paid into it for decades, what will be our options?

WEBER

10:52:40
Well, the proposals that have been put forward are to -- I don't know the age of the caller, but to give them the option of maintaining the current Medicare program. That's what Alice, in her proposal...

REHM

10:52:51
Outlined earlier.

WEBER

10:52:52
...outlined earlier. So -- but now, at some point, of course, you have to cut that off and say that's not going to be the case for younger people.

REHM

10:52:58
So -- and she sounds -- Karen, how old are you?

KAREN

10:53:03
Well, I'm in my early 60s.

REHM

10:53:04
OK.

WEBER

10:53:05
She's OK.

REHM

10:53:07
Go ahead, Alice.

RIVLIN

10:53:07
She's -- she is OK, and she won't have cuts under these -- the current plans. But Medicare recipients -- and I am one -- have got to remember that we didn't pay the full cost of Medicare. A lot of what we are enjoying comes out of general revenues.

REHM

10:53:26
Alice Rivlin. And you're listening to "The Diane Rehm Show." She is 62. Who should be worried? What age?

BERNSTEIN

10:53:38
Well, I'm 56, so I'm not going to be in this group. If you're less than 55, some of the plans that are being discussed right now, including, I believe, certainly, the Ryan-Wyden plan, which is part of this budget that was released today, this premium support idea that I was criticizing earlier as a cost-shifter where you provide people with a voucher to go out and buy a health insurance, including -- you can opt-in to the Medicare program -- if that voucher is insufficient, as I said it was, then that's a cost shift onto 55 and younger.

REHM

10:54:10
Go ahead.

RIVLIN

10:54:11
Well, I just wanted to say we should be all be worried if we don't fix this problem, and that's the choice.

REHM

10:54:18
Well, that's the point. I mean, we can talk about whether one is 62 or 50 or whatever, but somebody is going to have to pay for this.

RIVLIN

10:54:30
Right, and it's going to have to be a combination, and we do have to slow the rate of growth of Medicare.

REHM

10:54:36
Is Medicare, as you all see it, the biggest problem in this budget, or is it taxes?

BERNSTEIN

10:54:43
It's the biggest problem in terms of the long-term budget problems, the out-year stuff that Vin was talking about, but just to be clear, this is not a public sector problem exclusively. This is not just Medicare. This is health care. It's actually worse than the private sector because costs are rising more quickly per capita in the private sector than -- the public sector already, actually, does a better job of controlling cost. So the way to solve this is not to shift more cost onto the beneficiaries.

BERNSTEIN

10:55:11
You know, the average Medicare recipient has, like, 25,000 bucks. You know, how much more can you ring out of them? The -- we have to go after the systemic wastes that every single, other advanced economy has solved. It's not really rocket science.

REHM

10:55:26
Alice.

RIVLIN

10:55:27
It is making the system more efficient.

WEBER

10:55:29
Right.

RIVLIN

10:55:30
And I think there's a lot of demographic -- democratic hyperbole about how this would shift cost on to low-income people. It would not, and the well-designed premium support plans, protect low-income people and probably would not involve cost-shifting to beneficiaries in the end.

REHM

10:55:52
Let Vin Weber comment.

WEBER

10:55:54
I agree with Alice. All I would add to this is the sooner we do it, the easier the decisions we have to make. The longer we wait, the bigger the problem gets, and the more drastic our solutions would have to be.

REHM

10:56:04
Are you optimistic that anything is going to happen before the election?

WEBER

10:56:10
Yes. But I was optimistic that the super committee was going to succeed, and I was wrong about that. And I'm probably wrong of others, too.

REHM

10:56:16
Alice?

RIVLIN

10:56:17
I'm an optimist, too, and I've been an optimist for a long time and continually disappointed. Before the election, no...

WEBER

10:56:23
(unintelligible)

RIVLIN

10:56:23
...but I think right after the election, there is a very good chance that we will have a bipartisan compromise that will...

REHM

10:56:32
Because? Why?

RIVLIN

10:56:33
Because they have to do something. They have all of these things that are expiring.

REHM

10:56:38
But they know that now, so why are they doing it again?

RIVLIN

10:56:40
Well -- but they're out getting themselves re-elected. After the election, I think, there is a good chance -- no certainty -- that they will see that they have to do something and something big.

REHM

10:56:53
And since Alice Rivlin has seniority here, I'm giving her the last word as founding director of the Congressional Budget Office. Vin Weber is a Republican consultant, former member of Congress representing Minnesota's 2nd district. And Jared Bernstein, he's former economic policy for Vice President Biden. He's now at the Center for Budget and Policy Priorities. Thank you all so much.

BERNSTEIN

10:57:28
Thank you, Diane.

WEBER

10:57:29
Thank you.

REHM

10:57:29
And thanks for listening. I'm Diane Rehm.
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