Congress And The Fiscal Cliff

MS. DIANE REHM

10:06:55
Thanks for joining us. I'm Diane Rehm. After the election, the lame duck Congress will have one especially important task on its agenda: coming up with a plan to avert the so-called fiscal cliff. Congress could do nothing in the face of potentially crippling tax increases and spending cuts. But the plan of action will vary considerably based on the outcome of the presidential election.

MS. DIANE REHM

10:07:24
Joining me to talk about prospects for congressional action on tax and spending: Ruth Marcus of The Washington Post, David Wessel of The Wall Street Journal and Alice Rivlin of The Brookings Institution. Do join us, 800-433-8850. Send us your email to drshow@wamu.org. Follow us on Facebook or Twitter. Good morning, everybody, and thank you for being here on this extraordinarily rainy, windy day.

MR. DAVID WESSEL

10:07:59
Good morning.

MS. RUTH MARCUS

10:07:59
Good morning.

MS. ALICE RIVLIN

10:07:59
Good morning.

REHM

10:08:00
And, Ruth Marcus, you with your pink and white...

MARCUS

10:08:03
I have pink and...

REHM

10:08:04
...polka dot boots.

MARCUS

10:08:05
I do. I have pink and white polka dot boots which...

REHM

10:08:07
I love it.

WESSEL

10:08:07
Does your daughter know you stole her boots?

MARCUS

10:08:08
That was about what I was going to confess. In the unlikely event that my teenage daughters are listening to "The Diane Rehm Show..."

MARCUS

10:08:17
...because they're obsessed with the fiscal cliff, guys, I stole your boots.

REHM

10:08:21
OK. Thank you all, really, for being here. Congress has to do something. But will it, Ruth Marcus?

MARCUS

10:08:32
Well, I wrote a column last week that took the optimistic perspective because in some ways, contemplating the opposite is so dreadful. I think there are scenarios that you can imagine in which -- and, by the way, I think in honor of the weather, we might want to rename the fiscal cliff fiscal Frankenstorm because it could about as damaging and it could be about as long lasting. If president -- if Gov. Romney is elected president, I don't imagine that anything will happen during the lame duck to avert the fiscal cliff.

MARCUS

10:09:10
There may or may not be a decision to grant him some extension of some months so he can put in his solution as president or at least propose it. If President Obama is reelected, I think there is some -- a significantly better prospect and a prospect for action with the Congress that is actually really frustrated with itself and its inability to get anything done. And as we all know, Congress doesn't do anything unless it absolutely has to, sometimes not even then. But this is such an absolutely has to in terms of its impact on the economy that I have some hope.

REHM

10:09:51
David, how do you see it?

WESSEL

10:09:53
I think it's likely that they will avoid the fiscal cliff. But it's not a sure thing because Congress has been so dysfunctional, and it will require some cooperation by Republicans and Democrats to avert it. I think the one question is, if they steer away from the fiscal cliff, do they do it with some kind of phony Band-Aid deal, the famous kicking the can down the road? Or do they do something that really makes a dent in the deficit, at least a framework agreement? My guess, unfortunately, is that they'll go for the fudge, that we'll avoid the cliff, but we won't solve the problem.

REHM

10:10:29
Alice.

RIVLIN

10:10:31
I'm an optimist. I think there is a good chance -- I don't know how big a chance -- that Congress will act not only to avert the fiscal cliff but also to put in place a framework for the next Congress that will give them a good chance of bringing back the grand bargain, the solution to the long-run deficit problem in a few months into the next Congress.

REHM

10:11:04
And before we get to the make-up of what that grand bargain could be, David, explain the tax increases set to kick in and who would be the hardest hit.

WESSEL

10:11:19
Well, if nothing happens on Dec. 31, there will be across-the-board spending cuts to hit much of the defense and domestic spending. And pretty much all the tax cuts that were initiated by George Bush and extended by Barack Obama and the additional tax cuts that Barack Obama pushed during the recession will all expire all at once. Income taxes will go up for almost every tax payer.

WESSEL

10:11:45
People who pay the alternative minimum tax, that kind of pesky complexity in the tax code, will be particularly hard hit because that will apply to their income for this year, 2012. The payroll tax holiday, the 2 percentage point payroll tax holiday will expire, and a number of provisions of the tax code that were intended to encourage businesses to keep investing will also expire.

REHM

10:12:08
Alice.

RIVLIN

10:12:09
And, remember, there are a couple of other bad things that happen. One is the so-called doc fix. It doesn't get fixed, meaning that doctors who serve Medicare patients will be paid very significantly less, something like 27 percent less. And also, remember that the spending cuts are really mindless and stupid. They are across-the-board equal percentages program by program. Now, even if you favor spending cuts, you would never do it that way.

REHM

10:12:47
And, Ruth Marcus, what about unemployment benefits?

MARCUS

10:12:51
I think those are also part of the package that's about to expire. I think in some ways, the fiscal cliff -- I know I've already tried to rename it once -- it's a little bit misleading in the sense that not all of -- not -- the entire bulk of this does not hit in one fell swoop. They -- for example, the tax cuts expire, but there are ways for the government to sort of fudge around with that, to not change withholding tables, to change things back retroactively. It would be silly, it would be dumb, but the immediate shock does not happen all at the same time.

REHM

10:13:29
Alice, what happens to the economy as a whole if all of these spending cuts come into effect?

RIVLIN

10:13:41
Well, Ruth is right. It doesn't all happen at once. It can happen gradually. It probably could be called the fiscal slope rather than the fiscal cliff. But it's not good news. Raising taxes and cutting spending quite drastically in a weak economy is bad news. And the Congressional Budget Office, among others, have said it's likely to throw us back into recession. But it isn't just the macro-economic impact. It's -- the big uncertainty is, what do the markets do?

RIVLIN

10:14:17
It shows that the United States is not in control of its destiny, that it's just letting something really bad happen that was structured to be really bad, and nobody can stop it. Now, that's not a good advertisement for the greatest democracy for the world as we like to call it.

REHM

10:14:33
David.

WESSEL

10:14:34
Yeah, I agree completely. In fact, my guess is what happens is that if Mitt Romney is elected, they do give him a few months to straighten things out and come up with his own budget. But if Barack Obama is reelected, there will be an attempt to negotiate something.

WESSEL

10:14:48
If it looks to the markets and outsiders like these talks are going nowhere, if people are storming out of the room or refusing to return phone calls, or the leaks out of the talks are discouraging, my guess -- and I want to underscore guess -- is that the markets react negatively and that that is one thing that could get Congress off their collective butt.

REHM

10:15:08
Here's what I want to know about. There's a group out there called the divers. Who are they, and what would happen if the divers took control? David.

WESSEL

10:15:21
Well, divers refers to people who are refusing to take Ruth's attempt to change the metaphor and Alice's attempt to change the metaphor, people who believe that they would get some tactical advantage if we went over the cliff. Many of them -- I think it's a very small band of people, and I don't think they're serious. I think what they are is saying, we will have an easier time negotiating with the other side if the other side believes we're crazy enough to drive the economy off the cliff.

REHM

10:15:50
Ruth.

MARCUS

10:15:51
And this goes back to our old friend, who we've talked about on this show in various times, various incarnations, Grover Norquist and the pledge. So the theory is this: All the Republican -- nearly all the Republican members of Congress have signed Grover Norquist's pledge not to raise taxes. If the tax cuts expire, going on from there, allowing them to stay in place will not "be raising taxes" and therefore -- so this argument goes.

WESSEL

10:16:23
The Republican members of Congress will have more political flexibility to be reasonable. I think that assumes a stupidity on the part of American voters, that they would hold these same -- very same members of Congress responsible for one level of taxes if it was allowed to expire but not hold them responsible if it wasn't allowed to expire, a little bit silly.

REHM

10:16:46
Alice.

RIVLIN

10:16:47
I don't think it's so silly. I don't agree with these people. But the argument is, if we allow all these things to happen, taxes are going up, but they go back to the rates in the 1990s which weren't so terrible. And then you can argue about how much do we want to cut them, which is what Congress likes to do. And spending gets cut. It gets cut in a mindless way. Then you can argue about how much we want to increase it, which is another thing Congress likes to do.

REHM

10:17:19
But you would not see that happening, that is, allowing them to go over the cliff if President Obama is reelected.

RIVLIN

10:17:30
I don't know. I think he has indicated his strong willingness recently to cut -- to go back to the table to try to cut the grand bargain, and there would be no time like the present to start right after the election if he's reelected.

REHM

10:17:48
Ruth, you wrote that a bipartisan group is at work.

MARCUS

10:17:53
Right. Two quick points. One is the risk of cliff diving is, if you jump off a cliff and you don't have a parachute on and you can't pull the ripcord, you're going to crash. And so maybe we jump off the cliff, and that would get everybody moving to create a grand bargain or some kind of deal. But maybe we'd just crash, and that would be bad.

MARCUS

10:18:12
The second thing that people should know is there has been -- while everybody else has been talking about the election, including me, and while the political -- the two presidential candidates have said next to nothing about the fiscal cliff and have shamefully not been asked about it, there's been an extraordinary amount of bipartisan work going on both in the Senate, in the House and also from the administration, which has been developing a program that it plans to unveil after the election.

REHM

10:18:39
And we'll talk more about that after a short break. Do join us, 800-433-8850.

REHM

10:20:03
And we're talking about the prospects or, indeed, the possibility of the U.S. government taking its spending over the cliff. Here with me in the studio: Alice Rivlin, she's senior fellow at the Brookings Institution, vice chair of the Board of Governors of the Federal Reserve System from 1996 to '99, David Wessel, economics editor for The Wall Street Journal and author of "In Fed We Trust," Ruth Marcus is columnist and editorial writer for The Washington Post.

REHM

10:20:51
Just before the break, we -- Ruth, you were talking about that bipartisan group of senators who's been working to craft a deal. I gather it's along the lines of Simpson-Bowles.

MARCUS

10:21:06
Right. It's along the lines of Simpson-Bowles, and Simpson-Bowles -- everybody talks about Simpson-Bowles, and nobody...

WESSEL

10:21:12
Knows what's in it.

MARCUS

10:21:12
...knows -- nobody tends to sort of go back and say, yes.

REHM

10:21:14
Alice does.

WESSEL

10:21:15
Well, Alice is Domenici-Rivlin.

REHM

10:21:17
Yeah. Right.

WESSEL

10:21:19
Alice is Domenici-Rivlin. That's true. That's true.

REHM

10:21:19
Yeah.

MARCUS

10:21:19
But people will say, oh, I -- this is along the lines of Simpson-Bowles. For example, Gov. Romney says his tax plan is along the lines of Simpson-Bowles. Here's what I think Simpson-Bowles means and should mean. It fundamentally means two things. We should deal with our tax system by getting rid of the enormous amount of inefficient, ridiculous underbrush in the tax code so that we can both eliminate a lot of deductions and loopholes and credits and everything else, broaden the base, lower the rates.

MARCUS

10:21:53
But -- and this is the really essential second point -- to do that in a way that doesn't simply stay revenue neutral, which is what Gov. Romney says, but allows us to raise revenue so that we can begin to tackle the debt. And the, I guess, third point of Simpson-Bowles is that needs to be done, but it also needs to be done in conjunction with spending cuts that include serious entitlement reform.

REHM

10:22:22
All right. So, Alice, since you were a member of Simpson-Bowles, what are the major elements thereof?

RIVLIN

10:22:30
Well, Ruth has mentioned them. Every bipartisan group that's looked at this problem has come to the same conclusion, basically, that we need to slow the growth of the entitlements, especially Medicare and Medicaid, because our older population is a tsunami. It is going to nearly double in the next few years, and health care costs are rising rapidly.

RIVLIN

10:22:57
So if we don't do something, Medicare, Medicaid, and to a lesser extent Social Security, are going to drive federal spending up faster than revenues can possibly grow. Then we have to do, as Ruth said, a thorough reform of our tax code so that it's a simpler and more pro-growth code -- and we can do that -- and it raises more revenues. So it's a double whammy.

REHM

10:23:20
All right. So you had Simpson-Bowles' ideas, proposals presented to President Obama. Why'd he walk away?

RIVLIN

10:23:33
Well, that's a mystery to a lot of people. What he said was that if he had accepted Simpson-Bowles, the Republicans would simply have trashed it, and he had a lot of evidence to support that point of view. I think he wasn't ready, nor were the Republicans to go against the desires of their base. In the Republican case, it was raising revenues. In the Democratic case, it was taking on Social Security and Medicare.

RIVLIN

10:24:07
But I think now things have changed, especially after the election. And one of the reasons, arguably, that Simpson-Bowles didn't move forward is that it didn't use the regular order, the regular committees of Congress. It was an extra legal or an outside the regular process idea, so was the super committee, if you remember, the super committee.

RIVLIN

10:24:38
The idea now being talked about by this bipartisan group is to use the regular order of the Congress for the lame duck session to pass a bill similar to a reconciliation bill in the budget process that would instruct the regular committees to come back with a package in the next Congress by date, certainly like June 30 or something, that would do these things we've been talking about that would change the tax code and that would reform the entitlements in order to accomplish a stable budget, a stable debt.

REHM

10:25:22
So wouldn't that just be kicking the can down the road for six months, David?

WESSEL

10:25:27
No. If they did what Alice said, they would kind of have to agree in advance on some targets, how much do we want to raise taxes? How much do we want to save over the next decade from heath care? And they would probably have to put in something: If we don't succeed, something we can live with this time. I talked to a Democratic senator, who said, I'm not sure what I was thinking when we said that if we can't succeed, we'll get something horrible. He said, a much better strategy in going forward would be if we can't succeed, we'll get something, well, it would be OK.

WESSEL

10:25:58
But I think it's important to think about what would have to be the dynamics for this scenario to come true? So if President Obama is reelected and Congress looks much as it is today, we know that there are a significant number of senators of both parties who are trying to get something going. It's not at all clear that the leadership of the Senate, either Harry Reid or Mitch McConnell, is with them.

WESSEL

10:26:21
But assume for the moment that they actually can come up with some plan that Simpson-Bowles-like or Domenici-Rivlin-like, and the president maybe doesn't endorse it because for the reasons Alice said, every time he endorses something, 15 percent of the Republicans have to vote against it on principle or maybe 75 percent of the Republicans. And then it's going to -- the questions going to come down to the House. And the only we get somewhere is if the Republican leadership in the House is willing to tolerate a split in their ranks.

WESSEL

10:26:50
Some people will vote against it and some will vote for. The Democrats will have to do much the same thing. It's not at all clear that that can happen, and it's very hard right now to know what the climate will be after the election. Is it one of these really tight elections where neither candidate really can claim a mandate? Do a few more Tea Party people get knocked off in the House than are expected?

WESSEL

10:27:14
Does Paul Ryan, if he loses as vice president, comes back as a bridge builder, or is he running for president in 2016? So it's very hard, even for people like us, who generally have a lot of confidence in our ability to pretend that we know what's going to happen in two weeks, to know because there are so many variables.

REHM

10:27:32
You bet.

WESSEL

10:27:32
A few of which will be resolved on Tuesday.

REHM

10:27:34
Ruth.

MARCUS

10:27:34
Two quick points. In David's very good synopsis, one question he left out is, is House Speaker John Boehner willing to risk his speakership...

WESSEL

10:27:44
Correct.

MARCUS

10:27:44
...to take the -- he really would like to see a grand bargain. Will he risk his speakership to bring enough of the caucus, but not necessarily a majority of the caucus along to do that? I think the answer to that question is maybe. The other thing -- just in case people didn't have enough to worry about -- they wanted to point out is in addition to the fiscal cliff, we have a looming question about the debt ceiling.

MARCUS

10:28:07
We're going to be starting to scrounge for the change in the couch cushions and the debt ceiling, which, as we all recall, the Republicans were willing to allow us to risk default in order to extract concessions on the debt ceiling. That's also about to be hit again.

REHM

10:28:23
Alice.

RIVLIN

10:28:24
Yes, the debt ceiling would have to be part of any deal that was struck. Let me come back to the possibility of a Romney win. If he were to find himself president-elect, he might want to get this behind him and actually work with the lame duck session to get the debt ceiling raised, which would be absolutely necessary and something like a grand bargain in place.

REHM

10:28:56
But, you know, it's interesting, Gov. Romney has already said that everybody knows you've got to do something about the tax rates. You've got to do something about entitlements. And he has said, it would take him eight to 10 years in order to fix this system. But does anybody have any idea what his plans would include? Ruth.

MARCUS

10:29:28
Well, no, is the short answer. The longer answer is he has -- well, one thing on what happens during the lame duck, he has said he would not like the solution to be during the lame duck. I actually think it might be good politics for him to get it out of the way, but he said he wants his time to come in there.

MARCUS

10:29:44
And the one piece of the solution that he has resolutely resisted is the notion that we need to raise revenue, not simply by the hope of economic growth and cross our fingers and hope even if we lower tax rates, that will somehow make up for it by hugely quicker growth. He has not recognized the need to raise revenue in that way to reduce the debt.

REHM

10:30:11
All right. So if you had, for example, home mortgage deductions, a cut in capital gains, an elimination of a tax deduction for charitable giving, what are or what is the combination of things that would help prevent this country from going over a cliff, Alice?

RIVLIN

10:30:48
Well, you mentioned all the difficult parts of tax reform that have made it difficult in the past. I think the hope now is that they might take everything out, start with a kind of clean slate. We did this in the Domenici-Rivlin task force and also in Simpson-Bowles and said, suppose you taxed all income at the same rate. Then you could get the rates down.

RIVLIN

10:31:15
Now, you'd have to put some things back. Home mortgage deduction is not a great idea because deductions are much more favorable to people with high income. But a home mortgage credit, which was -- would be much better for middle-income people and would not be so...

REHM

10:31:32
How would that work, Alice?

RIVLIN

10:31:34
Well, credit means that you -- we had, in our plan, we had two rates: 15 and 28. And we said you'd have a credit for your mortgage interest -- that is, 15 percent up to a limit-- and you take that off your tax, not off your income. So it would be equally valuable no matter what your income was, and that means that a lot of people would get this credit who don't even itemize now. Now, for upper-income people with very large mortgages, it would not be good.

RIVLIN

10:32:08
You'd have to grandfather the houses that they're already in so it would phase in slowly. You could do the same thing for charitable deduction. You would need a child credit, and you would need an earnings credit. But you could live without the other things, and that would make it possible to have lower rates and to tax capital income at the same rate as other income, which is really important, without raising the rate so much.

REHM

10:32:37
Alice Rivlin, senior fellow at The Brookings Institution. And you're listening to "The Diane Rehm Show." Going to open the phones now, 800-433-8850, first to Covington, Ky. Good morning, Kim.

KIM

10:33:00
Good morning. Thanks for taking my call.

REHM

10:33:01
Sure.

KIM

10:33:03
I am curious as to why not necessarily on this specific program, but most of the political commentary assigns all of the blame for the looming fiscal cliff to Congress, even to the extent that President Obama gets away with making it sound like it was Paul Ryan's idea when my understanding is that the idea came from the White House, and we're not really seeing any public presidential leadership on this.

REHM

10:33:27
David.

WESSEL

10:33:28
Well, the caller is correct that this plan has two parents, and one of them is in the Capitol, and one is at -- in the White House. This was a compromise that was designed to get us out of a bad situation in Aug. 2011. The details of the spending cuts of the fiscal cliff were modeled on ones in the past, and the White House was intimately involved with them. I think the president would say, I've been trying. I've been trying. They won't listen to me. After the election, I'll fix it all. But the caller is right that this was not just Congress. This was a joint venture.

REHM

10:34:03
All right. To Dayton, Ohio. Good morning, Mike.

MIKE

10:34:07
Good morning. Thank you for taking my call.

REHM

10:34:10
Sure.

MIKE

10:34:11
I just want to point -- say that I'm kind of disgusted. Maybe that's a strong word, but that's how I feel. I'm kind of disgusted by the effort of some people in the Republican Party and people I've heard to try to blame this fiscal cliff mess on the president. I feel like really both sides failed to compromise on this issue. This was, like the panel just said, this was an idea to try to get us out of a situation, and both sides failed to compromise on this situation.

MIKE

10:34:41
And -- but, honestly, I put a lot of the weight, the situation, more towards the Republican Party, and the reason is is because Mitch McConnell as much has said that it is our number one goal to see that President Obama is a one-term president. And that's how the Republican Party has acted for the last four years. They stood in front of everything that he's tried to do to accomplish anything, to make things better. And as soon as they -- he comes up with an idea, it's instantly toxic to them.

REHM

10:35:11
Ruth.

MARCUS

10:35:12
Well, David is completely right that Republicans and Democrats and the White House and Congress together built the fiscal cliff. But I do think that the caller is right in the sense that the reason we are approaching the fiscal cliff, the reason we haven't figured out a way to screech ourselves to a halt and avoid jumping off is that congressional Republicans have been unwilling to acknowledge the need to raise revenues along with cutting entitlements and dealing with other spending issues.

REHM

10:35:41
To Pittsburgh, Pa. Hi there, Bob.

BOB

10:35:45
Hi, Diane. Our show -- or your show has just recently been picked up in the Pittsburgh area, so I have the opportunity to hear you for just over the past couple of months.

REHM

10:35:55
I'm so glad.

BOB

10:35:56
Yes. The point I'm going to make is completely diametrically opposed to what most of the nation is worried about -- going over this fiscal cliff. I'm about as liberal as you can get, but I still think that you ought to just allow the thing to happen. We have not been trying to do anything about our national debt for years and years and years. When Bush was first elected, those were good times. He didn't try to attack the problem then. Now that we have bad times, no one's really trying to attack the problem now. They are just kicking the can down the road.

BOB

10:36:25
And consider this: We may be in a new steady state economy. This may be the new normal, what we're in right now. So rather than saying, oh, we'll wait until our national economy recovers and gets better, then we'll address it. Well, there may be no then. It may be right now. And I would say the best economic minds, of which I certainly include Alice Rivlin among them, you ought to pull out your laptops and figure out how to go from here, given that this is all going to happen, and figuring out how to attack the problems...

REHM

10:36:54
Alice.

RIVLIN

10:36:55
Well, I'm not for kicking the can down the road, and I am for doing any combination of slowing the growth of entitlements and raising more revenue that can help us solve this problem. But I don't think that letting the fiscal cliff happen is smart at all. We're -- our economy is growing slowly. We risk going back into recession. Then it's much harder to get any kind of a deal on anything.

REHM

10:37:25
Alice Rivlin of The Brookings Institution. Short break here. More of your calls, your email when we come back.

REHM

10:40:03
And just before the break, David Wessel, author of "Red Ink," you wanted to mention something in regard to our caller's point about going over the given, Alice.

WESSEL

10:40:17
I think Alice, I'm sure, would agree with me. The point is not to raise taxes and cut spending right away when the economy is weak. The point is to make decisions today to do things that will take effect over the next decade when we hope the economy will be getting stronger, so that five, seven, 10 years from now, we find ourselves in a better position.

WESSEL

10:40:38
Congress has a very hard time making policy today that takes effect in the future, but that's what they have to do now. That's what they did when they did the fix of Social Security in the '80s. That was the nature of previous budget deals. And it's hard for people to understand that we actually don't need for the government to save more now to spend less right away, what we need them to do is right away put in place plans that restrains spending over time.

REHM

10:41:07
Alice, let me ask you whether we learned anything from how Europe has dealt with its own fiscal crisis.

RIVLIN

10:41:19
Yes, I think we have. We've learned what not to do. Don't put it off. David's absolutely right. What we need to do now is make the decisions that will slow spending and raise revenues in the future. Europe didn't do that, and they have been driven to really counterproductive policy. They are doing austerity now which is the worst thing you do in a weak economy. And, unfortunately, the Greeks and others are just in a disaster situation for that reason.

REHM

10:41:49
But could we be headed for the same kind of disaster?

MARCUS

10:41:54
Well, maybe but probably not because of the inability to get agreement. The difference between a parliamentary system and our system is that in the parliamentary system, if your side is elected, you can get it done. You know, we saw that in Britain. We have checks and balances for better or for worse, and there may be times when gridlock may be better than a parliamentary system. The thing about Europe that's so interesting is they're our best friend and worst enemy.

MARCUS

10:42:23
They are our worst enemy in the sense that their economic problems have a huge ripple effect over here, but at the same time, and this goes to a point that David was making way earlier in the program, the threat of the markets looking at our inability to get anything done and taking a dive because of that, it may be that investors decide there is no place else that is functioning any better and that we've been sort of waiting for that market reaction to our gridlock for a long time, and we haven't really seen it.

REHM

10:42:54
Alice.

RIVLIN

10:42:54
Well, I just wanted to dispel the notion that gridlock is a good thing.

MARCUS

10:42:58
Well...

RIVLIN

10:42:59
It's a bad thing for a problem which gets worse if you do nothing.

WESSEL

10:43:03
Right.

RIVLIN

10:43:03
And that's the characteristic of this problem. If we do nothing, our debt rises faster than our economy can grow, and that's not sustainable.

REHM

10:43:12
All right.

MARCUS

10:43:12
And I'm -- I never disagree with Alice as a general matter, and I'm not disagreeing with her on that.

REHM

10:43:16
OK. To Little Rock, Ark. Tom is on the air. Good morning.

TOM

10:43:22
Yes, Diane. I love the show. I have a question regarding some definitions that I've noticed have been shifting. Social Security and Medicare used to not be entitlements, but now they're called entitlements. I'm paying into both of those for over 40 years. And now a millionaire is not somebody that simply has a million dollars, but it's somebody that makes million dollars a year.

RIVLIN

10:43:41
Oh, by entitlement, I think most people mean a spending commitment which is there because you've paid into it and because you are entitled to the benefits as a matter of being of a certain age or having certain characteristics. It's not something that the Congress appropriates every year. That's all that's meant by entitlement.

REHM

10:44:08
OK.

WESSEL

10:44:09
It's -- also, it's not true that people have, through their Medicare payroll tax, put in enough money on the system to pay for what they get at the other end. There's a substantial amount of general tax payer money that goes into Medicare.

RIVLIN

10:44:20
Most of it.

REHM

10:44:21
Andrew in Cleveland, Ohio, has a question about Grover Norquist. Go right ahead.

ANDREW

10:44:29
Yes. Good morning. That is my least favorite name in our current government's situation. I find it really abhorrent that that many of our elected officials has handed their legislative power over to one individual that the people in their state or their district may never have met, then they certainly didn't elect him or do they want him dictating policy to their government officials.

ANDREW

10:44:55
And I would hope, and I'm wondering if the panel has heard anything of this, that there is something that is being done about his pledge. I feel that it ties our hands down and that they have no power to do their jobs.

REHM

10:45:13
Alice.

RIVLIN

10:45:14
I agree with the caller, and some members of Congress have said, maybe we should take a pledge to take no pledges, and that would be...

REHM

10:45:22
That would be a good idea.

RIVLIN

10:45:23
...that would be a good idea. But I think the power of Mr. Norquist is fading. And the reason I think that is that many Republicans, including Gov. Romney, now talk about spending through the tax code and tax expenditures, and they're beginning to realize that we spend on both sides of the budget, and that the spending through the tax code is keeping our tax base very narrow. So that's progress.

REHM

10:45:56
Here's an interesting email from Lisa, who says, "Why is the child tax credit still viable? This was implemented after World Ward II because of the laws of youth to work the family farms. There is no longer a need to have any sort of financial incentive for more children in this country. I don't understand why people should be rewarded for having children. You want to cut my mortgage deduction. Then cut their children's deduction."

WESSEL

10:46:38
I don't know about this World War II history, but I think that -- I don't think -- unlike some countries, we're not trying to create an incentive for people to have children. Some countries have tried that with mixed results. I think we're trying to say that families with children in the lower and middle class deserve some help in order to raise their children because we all benefit when their children grow up strong and smart.

REHM

10:47:04
And we create the next generation, Alice.

WESSEL

10:47:06
Right.

RIVLIN

10:47:07
Yes, I think that's the point. And our tax code is imperfectly modeled on the idea of ability to pay. And if you have several children, you are -- with the same income as a couple that has no children, you have less ability to pay.

REHM

10:47:26
All right. You want to add to that, Ruth?

MARCUS

10:47:29
No, I think we can move on. Thank you.

REHM

10:47:30
OK. Let's go to Drawer (sp?) in Potomac, Md.

DRAWER

10:47:36
Yes. Good morning, Diane.

REHM

10:47:37
Hi.

DRAWER

10:47:37
Thank you for taking the call.

REHM

10:47:38
Sure.

DRAWER

10:47:38
I'm a Ph.D. student at the University of Maryland, and my research focuses on lame duck sessions of Congress.

MARCUS

10:47:44
Wow. Leave us your number.

DRAWER

10:47:48
My statistical model suggests that any change in control of the House or Senate at the moment would lower the chances of passing significant legislation during the lame duck session. I was wondering if the panelists could talk a little about the strategic and political choices that the majority and minority leaders in Congress will face after the election results are in both in relation to the fiscal cliff and more generally to lame duck legislation.

REHM

10:48:12
Ruth.

MARCUS

10:48:13
Wow. Well...

REHM

10:48:14
Now, you're going to rush.

MARCUS

10:48:14
...never answer questions from a Ph.D. student with a model. I should've gone on, taken the child tax credit opportunity. I do think that what the -- Drawer found in his model is also intuitively make sense to me. When you have a lame duck -- it's not, as general matter, a great idea to have a bunch of people who may or may not be continuing in office, making significant critical policy decisions that would bind the next Congress.

MARCUS

10:48:44
And so that's especially true when you have a change in one House or another. A bunch of basically lame ducks, crippled, thrown out of office, a bunch of them are going to be passing legislation. We don't want that. But I think that the state that we will probably find ourselves in is...

REHM

10:49:07
Jan. 1.

MARCUS

10:49:07
...in Jan. 1 is a continuing narrow majority in the Senate, certainly no party with 60 votes to stop the filibuster. I think very, very likely Democratic control and very, very, very likely Republican control of the House. So in that situation, there is a political incentive, as we were talking about before, for a lame duck to get some of the unpleasant business out of the way.

MARCUS

10:49:36
And that would be particularly true if you had a status quo presidency as well. Not status quo in the way that Gov. Romney has been arguing that we'll just have status quo if the president is there, but if you don't have a new president that's going to come in and want to put his own stamp on things.

REHM

10:49:51
Alice.

RIVLIN

10:49:52
I think the main point is, is this an emergency? Do we -- do the members of the lame duck session and the incoming president, whoever it is, collectively feel that going over the cliff is so bad that they better pull all their forces together and do something to avoid it?

REHM

10:50:10
David, how do you feel about going over the cliff? Does it have some merit?

WESSEL

10:50:19
I think it has very little merit and mostly for the reasons that Alice said earlier in the show. You can do all the diagrams about what it means to taxes and spending, and the Treasury had some flexibility on the withholding tables, and the White House budget office can soften the blow, and maybe there is this bizarre thing that you can make Grover Norquist happy by raising taxes and lowering them and all that.

WESSEL

10:50:40
But I think unappreciated by the economic models is the point that Alice made, the notion that both consumers, businesses and the markets will have, that the U.S. government is unable to function, that the political system has created a collision for itself and can't manage to deal with it. And I think that would far outweigh a lot of this kind of easier-to-model economic affairs.

REHM

10:51:04
Ruth.

MARCUS

10:51:04
And there's one thing that happened last week that we haven't mentioned that really bears mentioning, which is a group of, I think, it was 80 chief executive officers, Republicans and Democrats, came out with a statement that called on Congress to deal with this emergency -- and I agree with Alice on that -- and called on Congress to deal with it in, yes, a balanced way, and this statement from corporate chieftains explicitly acknowledged the need for increased tax revenue. And so...

WESSEL

10:51:32
Right. And I talked to some of those people and there are two concerns they have. One is we thought that, in the end, Congress always manages to muddle through, and the debt ceiling crisis frightened us 'cause we didn't realize how close to the edge they were willing to go. And secondly, although they disagree on this, some of them think it's already hurting their business, that businessmen are reluctant to order because of their fears of what's going to happen.

REHM

10:51:56
All right. To Syracuse, N.Y. Good morning, Jeff. Jeff, are you there?

JEFF

10:52:05
Yes.

REHM

10:52:05
Go right ahead, sir.

JEFF

10:52:07
Yes. Hello. Thanks for taking my call. Basically, since it's human nature to buy things and to produce things, I'm just wondering what you guys thought of the basic idea of government departing from the economy gradually, you know, 'cause too many people who suffer all at once, such as -- in such areas as health care, education, just areas where they're spending and they ought not to be in the first place, and then letting the free market basically say, hey, look where there's money to be made.

JEFF

10:52:38
Well, there's education. Now, we can get into health care, and competition will drive down the price eventually. And I wondered what you thought of it since people aren't just going to stay there stagnant after the government would depart.

REHM

10:52:51
Alice.

RIVLIN

10:52:52
I think there is plenty of room for government to finance things. And we need the government to do that even in a strong free market society, which we really are. And health care is a good example. Doctors and hospitals are not part of the government, but we do need the government financing health care for people who can't do it themselves in order to -- for there to be health care delivery for those people.

REHM

10:53:24
And you're listening to "The Diane Rehm Show." Do you want to add to that? All right. To Alpharetta, Ga. Hi, John.

JOHN

10:53:34
Yeah. Hi. I just like to mention that it is the Republicans that started this by refusing to extend the debt limit. And they're 100 percent responsible for the fiscal cliff.

REHM

10:53:47
David.

WESSEL

10:53:49
Well, look, we elected a president of the United States and we have a system, a Constitution that requires the president to do business with Congress. President Obama would have you believe that he did everything humanly possible, and it was only because the Republicans refused to cooperate that we have a problem. I don't actually read it that way. I think that there were places along the way from the very start where the president just was not successful, skillful, tried enough to cut deals to divide the Republican Party to see if he could do better. I...

REHM

10:54:22
Do you think he could have? Do you really think he could have given the statements coming from the Republican leadership?

WESSEL

10:54:33
I think that -- I would predict he would have succeeded. But I would be shocked if President Obama, in his heart, thinks he did everything right. Let me give you just one example. Shortly after the Republicans took over Congress, I was at a dinner with Dave Camp, the Republican who became chairman of the House Ways and Means Committee. And he told us that he had met Tim Geithner, the Treasury secretary, for the first time that day.

WESSEL

10:54:55
That is -- the president did not do what some presidents do, which is to kind of buddy up to all the Republicans so they feel like he listens to them. I don't think the president had the same Lyndon Johnson-esque skills as to get people to do things that they thought was in their interest but that were really in his interest.

REHM

10:55:13
Has anyone had the LBJ-esque skills?

WESSEL

10:55:19
Bill Clinton was pretty darn...

REHM

10:55:21
Pretty good.

WESSEL

10:55:21
...deaf at turning Newt Gingrich around from time to time.

REHM

10:55:24
All right. Alice.

RIVLIN

10:55:25
I think we have to get past this whose-fault-it-was discussion. The blame game doesn't get you anywhere. We are in a very bad situation. We need to get our debt on a more stable course so it isn't rising faster than the economy is growing. The fact that we are in this situation is everybody's fault or nobody's fault. But the point is both parties have got to come together and work on the solution.

REHM

10:55:51
Ruth.

MARCUS

10:55:52
Of course, Alice is right. But as David's been noting, whispering to me here, what would we do as journalists if we couldn't play the blame game...

MARCUS

10:56:01
...that there -- I have been talking about this all along. The Republican Congress has been incredibly intransigent, so now I am going to pick on the president a little bit and just pile on David's piling. I think there were two particular inflection points at which the president might have been able to make a difference. The first was, after Simpson-Bowles came out or even as it was getting itself together, there was a lot of energy to get something done. He could have taken the plunge and really gone for it.

MARCUS

10:56:25
The second was when he was crafting the grand bargain with Speaker Boehner. He came back and raised the question of whether the speaker would be up for more tax revenue. That may have given the speaker an opportunity or an excuse to blow up the grand bargain. Would it have succeeded if he had seized those moments or played them more? Deftly, I don't know. But if you don't try, you're not going to get it.

REHM

10:56:49
All right. Last quick question for each of you: Do you believe we will go over the cliff, yes or no? Alice.

RIVLIN

10:57:01
I hope not, and I don't think we will. I think better -- cooler heads will prevail.

REHM

10:57:06
David.

WESSEL

10:57:06
No.

REHM

10:57:08
Ruth.

MARCUS

10:57:08
You know, I think of the fiscal cliff like what was said about marriage as the triumph of hope over experience. So I'm going for hope.

REHM

10:57:17
Does that mean...

MARCUS

10:57:18
We will not.

REHM

10:57:18
...we will not go...

MARCUS

10:57:19
Yes.

REHM

10:57:20
All right.

MARCUS

10:57:20
Yeah. Sorry.

REHM

10:57:21
Ruth Marcus, columnist and editorial writer for The Washington Post. David Wessel, economics editor for The Wall Street Journal. He's got a new book out titled "Red Ink." And Alice Rivlin, senior fellow of the Brookings Institution, thank you all so much.

RIVLIN

10:57:43
Thank you.

REHM

10:57:44
And stay dry, stay safe. Thanks for listening, all. I'm Diane Rehm.
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