Guest Host: Terence Smith

At the very last minute after months of high pitched debate and political wrangling, Congress managed to pass legislation to avert the so-called fiscal cliff. The legislation raises tax rates for high earners, blocks a middle class tax increase but doesn’t begin to address the country’s deficit. At best it’s a stop gap measure: decisions on major spending cuts were postponed for two months and the country’s borrowing limit still needs to be raised. In this hour we talk about the specific compromise provisions Congress came up with, what these may mean for tax payers and the economy, and the immense political and fiscal challenges ahead.

Guests

  • Norman Ornstein resident scholar at the American Enterprise Institute and co-author of "It's Even Worse Than It Looks."
  • Alice Rivlin senior fellow, Brookings Institution, vice chair, Board of Governors, Federal Reserve System (1996-99); director, White House Office of Management and Budget (1994-96); and founding director, Congressional Budget Office (1975-83).
  • James Thurber professor and director of the Center for Congressional and Presidential Studies at American University, and author of "Obama in Office: The First Two Years."

Transcript

  • 10:06:58

    MR. TERENCE SMITHThanks for joining us. I'm Terence Smith, former correspondent for PBS, CBS and The New York Times, sitting in for Diane Rehm. Diane is out with a cold. Late last night, the House passed a federal tax and spending deal that raises tax rates for the first time in almost two decades but does almost nothing to address federal government debt as a percentage of GDP. The compromise, as some are calling it, cast new doubts on prospects for the next round of political negotiation that must begin almost immediately.

  • 10:07:32

    MR. TERENCE SMITHJoining me to make sense of the most recent developments: Norman Ornstein of the American Enterprise Institute, Alice Rivlin of the Brookings Institution and James Thurber, professor and director of the Center for Congressional and Presidential Studies at American University. Welcome to all three of you. Alice, let me begin by asking you. This is the first tax hike in almost two decades. Tell us specifically what's in this bill, what's been accomplished and what has not.

  • 10:08:03

    MS. ALICE RIVLINWe have avoided an artificial barrier that the Congress and the president put up. The idea of this barrier was they were going to get a sensible bipartisan solution to the long-run debt problem. We didn't get that. What did happen was they avoided the so-called fiscal cliff. If we had not acted, then taxes on everyone, income taxes, would have gone up today and by a substantial amount.

  • 10:08:39

    MS. ALICE RIVLINThe Bush and Obama tax cuts would have lapsed. And spending would have been cut across the board in a rather mindless way, both defense and domestic. That would have been bad for the economy, probably thrown us into recession. So avoiding this fiscal cliff was a good thing.

  • 10:09:05

    SMITHNorm, not just high earners will be affected, but they are -- those above making more than $400,000 or $450,000 for a couple will see their tax rates go up.

  • 10:09:22

    MR. NORMAN ORNSTEINThey will see their tax rates go up from what has been 36 percent since George W. Bush enacted tax cuts in 2001 and 2003 to the Clinton-era high rate of 39.6 percent. There'll be another adjustment which will actually affect many people making a little bit less, which is the level which it will be $300,000. It's something that we had had previously where you begin to see a reduction in itemized deductions. So they'll be hit. But there's another reality here, Terry, which is that the combination of these plans will hit almost everybody else in a way as well.

  • 10:10:01

    MR. NORMAN ORNSTEINAnd that's particularly true because the payroll tax, which had been cut by 2 percent for the last two years as a stimulative measure, which, by every analyst that I have seen, has done quite a lot to inject spending into the economy and help people out, didn't have a lot of support anywhere. And that's cut away. So most of us are going to see a reduction in our paychecks coming forward from this day on because there'll a 2 percent hit with payroll taxes.

  • 10:10:32

    SMITHAnd once again Congress fixed the alternative minimum tax. But this time, the fix is permanent.

  • 10:10:38

    ORNSTEINWell, yeah. And it was interesting because the Congressional Budget Office scores these things in different ways, and you could argue that this is a huge additional cost to the Treasury. But CBO said, look, you've been fixing this every year. You know, we know this is just a fiction. So we're not going to count that against it. But, of course, it has been an artificial problem.

  • 10:11:01

    ORNSTEINThe alternative minimum tax which was supposed to be something to make sure that millionaires and billionaires paid something because it was an index to inflation meant that it was increasingly hitting middle class taxpayers, and 30 million or more families would have got an enormous hit. It's a good thing to finally take that off the books.

  • 10:11:21

    SMITHJim Thurber, give us your read on what did finally come out. As Alice says, it's not what was anticipated, not what was hoped for. It's something else.

  • 10:11:30

    PROF. JAMES THURBERWell, spending cuts and dealing with so-called entitlement programs were not part of the deal. The Republicans wanted that. There were other permanent changes in the tax code, and I want to emphasize that, that these tax cuts from the -- from not only Bush, but from Obama are now permanent. And so we are not going to have that as a major thing to debate in the future.

  • 10:11:56

    PROF. JAMES THURBERThere were extensions also for child tax credit, marriage penalty relief. But there was an increase in the estate tax from 35 to 40 percent. But there was an increase in the estate tax from 35 to 40 percent. Cap gains and dividend rates are going to rise from 15 percent to 20 percent. It...

  • 10:12:13

    ORNSTEINFor the rich.

  • 10:12:14

    THURBERFor the -- yeah, for the very wealthy. There's a...

  • 10:12:16

    SMITHAbove a certain threshold.

  • 10:12:18

    THURBERAbove $300,000. And then there's an extension of R&D, energy credits and other pieces in this package. But the main thing is they didn't deal with spending. And if you don't deal with spending as well as taxes, you're not going to do very much about the debt, and they didn't do very much about the debt.

  • 10:12:36

    SMITHThey did do a few other things. They averted a spike in milk prices. They blocked a congressional pay raise, which I must say wouldn't have gone down very well in the current atmosphere. They freezed the Medicare payments to doctors and avoided a cut there. So a few other things, Alice, we're done.

  • 10:12:57

    RIVLINYes. And, actually, some rather obscure things. They passed a whole lot of what are known as tax extenders. Those are special provisions in the tax code that are normally extended every year. Some of them aren't very good provisions, but they got extended anyway.

  • 10:13:16

    ORNSTEINTerry, you know, you mentioned the milk prices. This is another example -- call it exhibit A or exhibit B -- of the embarrassing dysfunction of this Congress. However, the Senate early last year, by a wide bipartisan margin, passed a farm bill. It, you know, may not have been a great farm bill, but it did a lot of things at the time when we had the worst drought since the Great Depression. Seventy-four votes for it, and the House did nothing all the way through the election. Livestock farmers among others were just hit enormously hard.

  • 10:13:51

    ORNSTEINAnd now, simply because without a fix, milk prices would have gone up immediately to $6 to $8 a gallon, they basically just patched it for nine months, but did it in a fashion that really hit small milk producers and benefits the large ones because that's what Mitch McConnell insisted on. You know, this is the worst possible way to make really bad policy. And while this -- nobody's paying much attention to this except in dairy states. It really is a classic example of how far away from decent policymaking we have come in the last few years. It's just embarrassing.

  • 10:14:29

    SMITHWell...

  • 10:14:30

    THURBERAnd, Terry...

  • 10:14:30

    SMITHYes, Jim.

  • 10:14:31

    THURBER...we should not forget the fact that 12 million people are unemployed in the United States, and part of this package was unemployment compensation for 2 million people to extend it for another year. And that's very important for the economy and for those individuals.

  • 10:14:46

    SMITHSo it's at least a partial stimulus in that sense.

  • 10:14:49

    THURBERIt's a stimulus, and it's something that the president wanted. And it's part of this package.

  • 10:14:54

    RIVLINIt's not taking a stimulus away is what it is.

  • 10:14:56

    SMITHExactly, exactly. Alice, what -- where does this leave Congress? It's standing with the public. Maybe it's standing with you. What impression does this sort of dysfunction that Norm is talking about create in the public's mind?

  • 10:15:18

    RIVLINThe public is disgusted with Congress and with Washington, as it's called, because of just this kind of thing, that we haven't been able to make policy in an orderly way. We haven't made much policy at all. For quite a long time, it's been deadlock, gridlock, whatever you want to call it. I'm encouraged by the fact that last night we had a show of bipartisan cooperation.

  • 10:15:43

    RIVLINI believe strongly that we can't get out of our current difficulties unless we have cooperation across the party lines. That's the way our system is set up. We did see an example of it last night for the first time in a long time. I hope that means we'll see more, but there's no guarantee.

  • 10:16:06

    SMITHYeah, Norm, it was bipartisan. But it was at the very last minute under the most -- the maximum pressure.

  • 10:16:14

    ORNSTEINWell, it wasn't at the very last minute. It was after the very last minute, after all.

  • 10:16:16

    SMITHWell, that's true.

  • 10:16:19

    ORNSTEINYou could not have a more cringe-worthy example of how you make policy. And, you know, in the larger point, Terry, as you know, Tom Mann and I wrote a book called "It's Even Worse Than It Looks," and I wrote a piece about a year and a half ago on foreign policy called "Worst. Congress. Ever." And I had some caveats when people would ask me about it, the period right before the Civil War, but I think we've got a new record here.

  • 10:16:45

    ORNSTEINAnd the way in which this was done, you know, I wouldn't want to spend a lot of time going back over history, but we have these negotiations between Speaker Boehner and the president. They fell apart. The speaker came up with his alternative plan, couldn't get Republicans to go for it, said, I'm out of this. I'll turn it over to the Senate. Then, at the very last minute, Vice President Biden and Sen. McConnell come up with a deal, and the House almost rejects it. It's a bait-and-switch kind of thing, in a way.

  • 10:17:15

    ORNSTEINI give Boehner credit in the end for being gutsy, bringing up something that violated the so-called Hastert rule where you need a majority of the majority. This bill that passed in the House got twice as many Democrats as Republicans, which is extraordinary. Boehner, the speaker-- the speaker rarely votes on the floor except to break ties -- went on the floor and voted for it even though his leadership team all voted against it.

  • 10:17:40

    ORNSTEINBut the examples of disarray, of an inability to act when right staring everybody in the faces do something on this and the economy could really take off. We've got $1.7 trillion in cash sitting in corporate coffers waiting to be spent if we show that we've got some function in the political process, and these idiots decide they're going to fritter most of it away. I wish I could be more cautious about this, but it's hard to be.

  • 10:18:09

    SMITHTell us what you really think, Norm.

  • 10:18:11

    THURBERYou know, behind all of this, as Norm well knows and he writes about it in his book and Alice knows, is the structure of the place doesn't have moderates anymore. The endangered species in Washington is a moderate, a moderate in the Republican Party especially. But in the Democratic Party, we've gone from 59 so-called Blue Dog Democrats to probably 10.

  • 10:18:34

    THURBERAnd they're not even identifying with them anymore. So there's nobody in the middle. When there's nobody in the middle because of the way we redistrict and because of sorting, then it's very hard to come together. So we're going to have three clips coming up, which we can talk about later. We're going to have the same problem again because of this structure.

  • 10:18:51

    SMITHOK. Coming up, more about congressional cliff dancing with our guests.

  • 10:20:06

    SMITHWelcome back. I'm Terence Smith, sitting in for Diane Rehm. And we're talking about congressional cliff dancing and the consequences of it with Norman Ornstein, who's the resident scholar at American Enterprise Institute and co-author of that book, "It's Even Worse Than It Looks," Alice Rivlin, who's the senior fellow at The Brookings Institution and a former vice chair of the Federal Reserve System Board of Governors, and James Thurber, professor and director of the Center for Congressional and Presidential Studies at American University and author of "Obama in Office: The First Two Years."

  • 10:20:43

    SMITHI want to read you three and get your reaction a quote from Congressman Louise Slaughter, a Democrat from New York, congresswoman, who said, "This legislation is far from perfect, and the process that led us here was a disgrace." Alice Rivlin, Norm Ornstein, a disgrace?

  • 10:21:06

    RIVLINYes, absolutely. But it did do the job that needed to be done, and I think we shouldn't denigrate it too much at the last minute after the last minute, as Norm pointed out. They did the right thing, and maybe we can get more right things in the years -- weeks to come.

  • 10:21:28

    ORNSTEINIt could've been worse, as one thing we can say, Terry. Imagine if the initial reaction of the House Republican Conference to this bill which was we're either going to reject it or we're going to amend it, which would've cost the Senate to say, forget about it. We're going nowhere. Today, the markets would've been tanking, and we would have been even more of an embarrassment in the eyes of the entire world as a political system that can't function.

  • 10:21:53

    ORNSTEINAnd frankly, that could have enormous repercussions in foreign policy terms as well. So it could've been worse. But the fact that it could've been worse doesn't mean that Louise isn't right when she says it was a disgrace. And, you know, Alice's initial point about the dysfunctional way in which we do these processes, dysfunctional politics lead to dysfunctional mechanisms to try and overcome those dysfunctional politics. It's not a good way to run business.

  • 10:22:18

    SMITHMm hmm. Jim Thurber, you were talking about Speaker Boehner there. What are his prospects now of being re-elected as speaker? I suppose that's...

  • 10:22:29

    THURBERTomorrow.

  • 10:22:29

    SMITH...first order of business tomorrow.

  • 10:22:30

    THURBERYeah. He's been hurt by his Plan B, which we won't go into. It's history. He's been hurt in his caucus, I think, after going for this deal and two-thirds of the caucus were against it, but I think he'll be re-elected. By all indications, Mr. Cantor, the next person in line, doesn't have enough votes. I think he's weakened. He's weakened significantly. He's nothing like speakers that we've had in the past, and I think this is going to be a problem.

  • 10:23:04

    THURBERBy the way, I agree with Louise Slaughter, and the American people agree with Louise Slaughter. And I think the American people realize that if you did this sort of thing in any organization, you'd be fired, if you're in the private sector. Now, this is not the private sector. This is a representative democracy. But still, they don't understand it, and they don't like it.

  • 10:23:24

    SMITHAll right. Alice Rivlin, to your point earlier that it could've been worse certainly, the market reacted very positively, was up initially 348 points earlier this morning. And so there is good news mixed in here.

  • 10:23:41

    RIVLINOh, I think so. And as Norm said, the prospects for the economy are actually pretty good right now. The housing is doing better, and companies and banks are sitting on piles of cash that they can invest, and our unemployment situation seems a little better. There are lots of reasons to think the economy could do, if not, marvelously, at least a good deal better than it did in the last year. And the key to that was avoiding the fiscal cliff. And we've done that at least for now, so I think the markets are absolutely right to say this is a victory for a better economy.

  • 10:24:21

    THURBERBut, you know, the prospects for the debt are lousy...

  • 10:24:25

    RIVLINIn the long run.

  • 10:24:26

    THURBER...in the long run. They're doing very little about that. Debt is 73 percent of GDP now, looks like it's going up to 78 percent. And also we're facing three cliffs, three self-imposed cliffs that are well-defined. One is, of course, the sequestered automatic cuts that have been extended for two months because...

  • 10:24:48

    SMITHSo we're going to have that battle all over again.

  • 10:24:49

    THURBERYeah, we're going to have that battle again. We have the debt ceiling battle again. Hopefully, it will not be like in August 2011, and we also have the budget. The budget is on continuing resolution, should've been passed Oct. 1, but it's been pushed out to March -- late March. That'll be another cliff. So they've just pushed all this stuff out for more crises in the future, in my opinion.

  • 10:25:11

    SMITHMm hmm. Norm Ornstein, President Obama, before he -- late last night before he flew off to Hawaii again, said he was not going to debate the debt ceiling issue anymore with this Congress. He was laying down a marker. I'm not sure how he enforces it.

  • 10:25:30

    ORNSTEINOne of the things that disappointed congressional Democrats, maybe more than anything else, was they believed that Obama had his maximum leverage coming into the end of the year to deal with the debt limit, to keep it from being what it was a year ago, which was a hostage-taking device for the first time ever. And remember, we ended up -- even though we did not breach the debt ceiling at the 11th hour and the 59th minute, we got downgraded by a major ratings agency.

  • 10:26:04

    ORNSTEINHaving that happen is a potential disaster. And now it is coming up again. Today, Secretary Geithner said we have technically reached our debt limit. There are mechanisms that will be used for a couple of months. But I think we have a real problem. Chuck Todd of NBC called it March madness, that at the beginning of March, all of these things, but in particular the debt limit and the sequester issue, will come to a head.

  • 10:26:35

    ORNSTEINAnd I'm going to be watching, frankly, the vote on the speakership tomorrow carefully because what's going to happen again is it's, you know, call it Groundhog Day or call it Friday the 13th Part VII, we're going to get into another set of negotiations with Speaker Boehner and the president over spending and taxes. The second thing the president said was, if you want to cut entitlement spending, if you want to go after seniors and the most vulnerable, it's going to have to be offset by more revenues.

  • 10:27:06

    ORNSTEINAnd if we end up with another situation like we had in 2011, then we're going to see other ratings agencies downgrade the U.S., and we could take an even bigger hit. They've put off a lot of the major problems, and the conservatives in the Republican Party in the House now have basically said, all right. We let this thing come to a vote and let it happen. But our big battle lies ahead. We are saving our powder, and that powder could blow all of us up.

  • 10:27:35

    SMITHMm hmm. And, Jim Thurber, I assume by more revenue, the president is talking about closing certain loopholes for certain taxpayers.

  • 10:27:44

    THURBERWell, he's also talking about saving money through Medicare, making sure that they were spending things -- for things that work. He's willing to put the entitlement reform on the table. I think that is a big change between August 2011 and now, and that is the election. The president has more power. He has more power in the negotiation not only because of the election but also because business was really disgusted with the August 2011 crisis, self-imposed crisis that we had.

  • 10:28:19

    THURBERAnd they -- they've had this campaign called Fix the Debt, very good effort on their part. They didn't get everything they wanted, but it's still there. And I think they're going to send a message to Republicans, don't screw around with this anymore. Don't use this as a way to get what you want.

  • 10:28:36

    SMITHAlice Rivlin, are there any prospects that this time in this next two-month period, we can go towards a bigger package, a grander bargain and not take it right up to the very last minute, the very last bit of time?

  • 10:28:53

    RIVLINI'm always an optimist, and I think there are real possibilities. And part of it is the business community weighing in as Jim has noted. And part of it is just the whole country is clearly in favor of getting something done. The reasons that the Republicans had to yield last night were that they just didn't want to be responsible for a debacle. I'm not sure they want to be responsible for default on the debt anymore, for appearing to be the ones that are daring the others to bring the country down. That's not a comfortable position to be in.

  • 10:29:37

    RIVLINSo my hope is that over the next two months, we have serious negotiations about fixing the debt as they say for the longer run. It won't all get done. But it's going to require some more revenues -- everybody knew that -- from a reform of the tax code in some dimensions, and it's going to involve some reductions in the growth of entitlement spending. It should not, in my opinion, involve more discretionary spending cuts. Remember, they did that in the Budget Control Act. They cut discretionary spending by $1 trillion. It's just not small change over 10 years.

  • 10:30:17

    SMITHMm hmm. Norm Ornstein?

  • 10:30:18

    ORNSTEINYeah, a couple of points, Terry. The first is I'd love to be optimistic as with Alice. I'm nervous as could be, and the reason is -- and, you know, as we watch this vote on Boehner tomorrow -- it's very likely whatever package they come up with, if they can come up with a package in two months, that once again it will require twice as many Democratic votes as Republican votes on the floor. And Eric Cantor and Kevin McCarthy, the next two leaders in line on the Republican side, voted against this package. Don't be surprised if they're poised to challenge Boehner if he has to do this a second time.

  • 10:30:59

    ORNSTEINAnd it's quite possible that he will. The second point that I would make is Republicans in Congress have talked a lot about cutting spending. But as we went through this earlier fandango, what Speaker Boehner said and what his colleagues said was, well, you come up with the cuts, Mr. President. We're not going to make any suggestions. And, of course, anytime he's come up with cuts -- for example, all of the changes in Medicare that are part of the Affordable Care Act, all of which were in Paul Ryan's budget -- they ripped apart.

  • 10:31:28

    ORNSTEINThis time, I think you're going to see President Obama take another strong stand, which is you want spending cuts. You tell me specifically what you want to do. Put those on the table, and then we'll negotiate. And if they don't put them on the table, he'll use his bully pulpit in a way that he hasn't before. And, of course, the problem that they have is almost all of the cuts that they'd like to make in Medicare, Social Security or Medicaid are not very popular ones.

  • 10:31:52

    THURBERAnd the -- yeah, sure.

  • 10:31:53

    SMITHAnd -- just a moment, Jim. I'm Terence Smith. You're listening to "The Diane Rehm Show." If you'd like to join us, call us, please, at 1-800-433-8850, or send an email to drshow@wamu.org. Find us on Facebook or send us a tweet. Jim Thurber, go ahead.

  • 10:32:12

    THURBERAnd behind what Norm is saying -- and I agree with him -- is the structural problem, again, of the real election in the House of Representatives is the primary election or caucuses in a few states. And that means that the very far right Tea Party people in the Republican Party worry about being challenged in a primary election.

  • 10:32:32

    THURBERThere were only 31 seats out of 435 that were competitive this last election. They're all thinking about being challenged in the primary, and that makes it very difficult for them to make the compromises that are necessary to come together for the public good, generally, in America. We have nobody in the middle anymore. That's a problem.

  • 10:32:52

    SMITHAlice Rivlin, Larry Sabato, the professor at the University of Virginia, has tweeted this morning, pointing to a big regional split in the Republicans. He points out that 88 percent of the -- of Southern Republicans voted no on this deal, and 86 percent of Northeast Republicans voted yes, so a regional split. Significant?

  • 10:33:21

    RIVLINOh, I think there is a definite regional split, and the difference between the coast and the center is another one. The problem for the -- for compromise is that many -- most of the Republicans who are in both chambers won their seats despite the fact of the Obama victory because they are in red states that didn't vote for Obama, and they don't have a lot of reason to compromise.

  • 10:34:06

    SMITHHelen has emailed us with a distinction that taxes will actually only go up on people or families who make more than 400 -- on the money above $400,000 or $450,000 a year.

  • 10:34:22

    ORNSTEINYes.

  • 10:34:22

    SMITHAnd, of course, that's significant.

  • 10:34:24

    RIVLINIt is.

  • 10:34:26

    ORNSTEINIt is. You know, this notion that there's a huge hit to people in the upper middle income brackets is simply false. You make, as an individual, $410,000. The tax hit on you is a very, very tiny one. Terry, one additional point on these splits, look at the quite interesting split between House and Senate Republicans. Eighty-nine senators voted for this package. Only eight voted against. Those who voted for it included Pat Toomey of Pennsylvania, who, before he came to the Senate, was the head of the Club for Growth. Jim Inhofe...

  • 10:35:04

    SMITHSuper conservative...

  • 10:35:05

    ORNSTEINSuper -- yes, and probably the leader of the anti-tax front, in many ways, Jim Inhofe of Oklahoma, very conservative, Tom Coburn, of course, Ron Johnson of Wisconsin.

  • 10:35:16

    SMITHSo what do you draw from that?

  • 10:35:18

    ORNSTEINAnd, you know, I think part of it is they trust Mitch McConnell, and it's clear that Mitch McConnell continues to have a very strong hold on his own members. There were a couple of others who didn't -- people like Mike Lee of Utah and Rand Paul, who voted against. But if you've got guys like these voting for it, and the House Republicans take a plan like that and vote against it 2-to-1, that tells you something about how the House is simply a different place now for a lot of the reasons that Jim suggested.

  • 10:35:50

    ORNSTEINYou've got 50 to 100 House seats that are simply homogeneous echo chambers, and they don't hear otherwise, and they're insulated from broader national public opinion. And that's where my unease about the optimism that Alice feels comes in. They're not going to be out there saying, oh, my gosh, we could have another default. That's not what they hear back home.

  • 10:36:13

    SMITHAll right. Let me try to get in a call -- we have a number of callers on the line -- before we have to take a brief break. David in Chesapeake, Va., you've been very patient on the phone. Go ahead, please. You're on the "The Diane Rehm Show."

  • 10:36:28

    DAVIDThanks for taking my call. I enjoy you being the moderator for this show, and that was a great panel today.

  • 10:36:37

    SMITHThank you.

  • 10:36:37

    DAVIDYeah. I really sympathize with all the panelists, and especially with the lack of optimism as well with Congress. And, you know, as I look at it, the past, say, four years, you know, the GOP side of Congress has just been so disruptive and, you know, with everything that either the president or, you know, Congress in general has tried to do.

  • 10:37:04

    DAVIDAnd I guess, you know, when you look at the grand scheme of it, both sides have been a little guilty of kind of, you know, the political side of things. But my question is, you know, in the whole grand scheme, who, you know, who do your panelists think is really the -- at the most fault? I mean…

  • 10:37:25

    SMITHThe most to blame?

  • 10:37:25

    DAVID...there's always one -- yeah. There's always one that's to blame more so than the other.

  • 10:37:30

    SMITHAll right, David. We're going to hold the answer to that very legitimate question until after this brief break. I'm Terence Smith, and you're listening to "The Diane Rehm Show."

  • 10:40:06

    SMITHWelcome back. I'm Terence Smith, sitting in for Diane Rehm. And I'm joined this morning by Norman Ornstein of the American Enterprise Institute, by Alice Rivlin from the Brookings Institution and by James Thurber from the American University. The caller just before we took a break there basically was asking who's the most to blame.

  • 10:40:32

    THURBERI would not say who but what. I think, the way, again, to this theme, the way we select people to run for public office creates people that are on the far left and far right in very safe echo chambers, as Norm said. They are beholding to their local constituencies in the House of Representatives. The Senate shows, in fact, the difference in representation. They got 89 votes. They're representing wider constituencies. They're willing to follow a leader in the House of Representatives.

  • 10:41:06

    THURBERThey are small, homogeneous constituencies. They're not willing to follow the leader if they're going to be challenged. That is the problem. The problem is that they weren't willing to follow the leader in the House of Representatives, and the House needs a strong leader and people who will go along in building coalitions. It doesn't exist.

  • 10:41:25

    SMITHAlice Rivlin.

  • 10:41:26

    RIVLINI agree with that. But I think the caller's question reflects something that has bothered me for quite a long time and certainly in the campaign. This recent political campaign and a lot of our politics is about who is to blame, each side pointing the finger at the other. A good example was what was said about Medicare in the campaign.

  • 10:41:50

    RIVLINEach side said those other guys will cut your Medicare. They will be to blame. This blame game has got to stop if we're going to get anything done. And as we've said, the Senate is a better place to stop it because there is more bipartisan leadership there. But we need to find some way to get more cooperation in the House.

  • 10:42:14

    SMITHNorman Ornstein, Kathleen sends us an email and asks a very interesting question. She said, "Did anyone happen to notice what happened after the fiscal cliff vote last night? Speaker Boehner refused to allow a vote on the $60 billion relief package for the victims of Hurricane Sandy, a package already approved in the Senate, and members on both sides of the aisle were up in arms about that. Do you know why he refused this vote or whether he intends to allow a vote today?"

  • 10:42:48

    ORNSTEINWe don't know. And it's a little bizarre, frankly, because the House under Eric Cantor had worked out a deal here. House Republicans didn't want to go anywhere near a $60 billion package. Instead, they were going to put forward a $27 billion rescue package but allow an amendment on the floor for the full $60 billion, and that was something done at the request of Republicans from the Northeast region hit hard by this.

  • 10:43:16

    ORNSTEINNot to allow a vote -- and if now that the House basically doesn't take this up for a while -- could affect millions of people who have claims pending. And our disaster relief fund is almost tapped out. So this is a pretty stunning development. And you put that together with the milk debacle, and, once again, it suggests that you've got a group of people who are simply not attuned to a larger set of needs.

  • 10:43:48

    ORNSTEINAnd one of the things that disturbs me about this, Terry -- and it gets back to a proposal that Cantor had made a year-plus ago that we start to offset disaster relief -- a part of what you have with a nation when you come together is if people get hit by things that are beyond their control -- forces of nature, natural disasters -- we come together as a country, and we say, we'll help take care of you.

  • 10:44:12

    ORNSTEINIf you have people in Congress who don't want to go along with that, it really does suggest a bigger problem in terms of the common good. And I suspect we'll resolve this at one point or another, or Chris Christie will come down and knock some heads together. But it's not a very positive sign.

  • 10:44:32

    SMITHOK. Let's take another call. Ron in Tallahassee, Fla. Ron, you're on "The Diane Rehm Show."

  • 10:44:40

    RONThank you very much. My main concern is that our leaders don't seem to understand our own monetary system. They keep comparing the U.S. government to an individual household, saying that we have to balance our budget like a household, and that's simply not the case. We don't need to fear the deficit. What we need to fear is the unemployment and the excess capacity that we have to produce. Both Alan Greenspan and Ben Bernanke understand that the U.S. isn't like Greece or Italy. Those are -- Greece and Italy are like individual states of the U.S.

  • 10:45:17

    SMITHAll right. Well, let's -- we've got Alice Rivlin here, a former governor on the Federal Reserve. Alice, what's your reaction?

  • 10:45:26

    RIVLINWell, I partially agree with the caller. I think the example of family budgets is not always applicable to the national budget. Right now, we do need to run a deficit just because our economy is not growing as fast as it could and because, if we went back to a balanced budget quickly, we would throw the economy into total disarray.

  • 10:45:52

    RIVLINWe'd have a deep recession. But over the longer run, we do need to pay for the government services that the public demands. We can't keep running up a debt more and more every year, growing faster than our economy can grow. That's a recipe for disaster, and we're seeing that playing out in Europe.

  • 10:46:15

    SMITHAnd when you say long run, define long run.

  • 10:46:19

    RIVLINWell, I think that we ought to get back on a track so that our deficit is smaller than our economic growth, which is another way of saying our debt isn't rising faster than the economy can grow within the next five or six years if we can do that without derailing the recovery, and I think we can. It's important to the recovery for -- to know -- for people to know, investors to know that eventually we're getting back on a stable track.

  • 10:46:53

    RIVLINWe need to fix the debt over the next 10 years or so, so that it's stable, not growing faster than the economy. And we need to do that in a way that will allow the economy to grow in the near term. And I think that's possible.

  • 10:47:08

    SMITHAnd this would have an impact, Norm Ornstein, on global concerns of the United States and lithe impression of the United States abroad. You referred to that earlier.

  • 10:47:20

    ORNSTEINYeah. And, you know, one of the frustrating things that I felt over the last few weeks is that if we had come up with sensible package -- and, you know, Alice has been integrally involved with a couple of efforts, the Simpson-Bowles plan, but also the Rivlin-Domenici plan from the Bipartisan Policy Center, which was, I believe, a stronger way, a more balanced way of dealing with this.

  • 10:47:42

    ORNSTEINThe rest of the world -- Europe, Japan, for example -- have really struggled with this and have done much poorer than we have because they didn't listen to what Alice was saying, and they clamped down too hard and kept their economies from growing. Britain is a great case in point. We have really been in position to be the global leaders in economic terms, to grow faster than others and to provide a little bit of an engine for growth.

  • 10:48:10

    ORNSTEINAnd with China slowing down, it has been an enormous opportunity. One of the things I would say, Terry, that the -- when Biden went to speak to Democrats in the House and Senate to defend this package and was...

  • 10:48:24

    SMITHJust in the last few days.

  • 10:48:25

    ORNSTEINIn the last few days. There was a lot of skepticism and unhappiness. But he made the point that in this package, several of the things that were in the stimulus in -- from 2009, tax provisions to provide additional stimulus were extended for five years. This was not a great package to continue the stimulus partly because the payroll tax cut going away. But they were sold on the idea that we are going to be able to stimulate a little bit more in the short run.

  • 10:48:58

    ORNSTEINIt's not enough. And we may have another bite at this apple with infrastructure a little bit down the road. But as Alice said, the tricky part here is you've got to add to the deficits in the short run while you come up with a credible plan to reduce the growth rate over the long run. That's not easy if your political system is operating on all cylinders. And right now, we are not even operating on two.

  • 10:49:23

    SMITHOK. Ron in Tallahassee, Fla. has been very patient with us. Did you get the answer you were looking for, Ron?

  • 10:49:36

    RONYes. That's excellent.

  • 10:49:38

    SMITHOK.

  • 10:49:39

    RONThank you so much.

  • 10:49:40

    SMITHThank you very much. Let's go to Peter in Pittsburgh who has a question. Peter, you're on "The Diane Rehm Show."

  • 10:49:51

    PETERHi. Thank you for taking my call.

  • 10:49:53

    SMITHHappy to do it.

  • 10:49:54

    PETERCertainly in agreement that, at best, this is a short-term fix that kicks a lot of cans down the road. And even in my own financial planning, it really doesn't...

  • 10:50:07

    SMITHI'm sorry. We lost you there. And that may well have been my fault. But short-term, long-term, Jim Thurber?

  • 10:50:16

    THURBERWell, the members certainly have short-term views in the House of Representatives. It's like they're constantly campaigning every two years. And even people like McConnell are worried about the next election in Kentucky being challenged by so-called Tea Party movement people. And sometimes that, of course, in a democracy fundamentally influences the way people behave. And one of the problems of, again, coming together is people worrying about being challenged in these primaries.

  • 10:50:47

    THURBERIt's similar to short-term views by corporations that want to jack up the level of stock in a short period of time rather than investment in a long period of time. What's left out is what Norm said, and that is the public interest. Narrow ideological interests do not solve problems, and it undermines the public interest generally.

  • 10:51:11

    SMITHHere we have an email from a college student, who asks a question, Alice Rivlin, perhaps you can answer. He says, "What can we do as ordinary Americans to help spur Congress to get deals done for the future in regard to the future fiscal cliffs that are coming up?" Ordinary Americans, what can they do?

  • 10:51:35

    RIVLINI think they can weigh in and praise the members of Congress who are willing to work with other party. That's extremely important. And we did have a good instance of it last night. They can write to their representative and say, we want a solution to these problems, and we want you to work with the other party. They can join various organizations. Fix The Debt is one. No Labels is another organization working hard to get across the point that we shouldn't have so much partisanship. We should be working together to solve problems.

  • 10:52:18

    SMITHI'm Terence Smith. You're listening to "The Diane Rehm Show." If you'd like to join us, call us at 1-800-433-8850, or send an email to drshow@wamu.org. Find us on Facebook or send us a tweet. You have a prescription, Norm Ornstein, for getting some of that done?

  • 10:52:42

    ORNSTEINIt's going to be very hard because, you know, ordinary Americans are often left out of this process, given partly the focus on primaries. You know, a small group of ideologues have had an overweening role here. But another thing, adding to what Alice said, is we need to get more people engaged in trying to find ways to alleviate the dysfunction in the system. I would love to see a larger national dialogue.

  • 10:53:11

    ORNSTEINThe money system and politics in the post-Citizens United world with the Federal Election Commission that is feckless and out of control is a disaster for us. And a part of the problem we had in this area was you had organizations threatening to spend millions of dollars against anybody who lifted ahead out of the foxhole to vote for a package that would deal with this. We've got a problem with redistricting that we need to deal with.

  • 10:53:36

    ORNSTEINWe have a problem making sure that we enlarge our electorate. Try and change the primary system so it's not dominated so much by ideologues. I'd love to have a larger public focus on this and get people more engaged. It's not going to be solved by structural changes. It's a cultural problem as well. But we can make some difference here.

  • 10:53:55

    SMITHJim Thurber, what are the prospects of that sort of change in this new Congress?

  • 10:53:58

    THURBERWell, I don't think it's going to change rapidly. But, you know, what citizens can do today? When somebody comes back to your district and has a town meeting and they go back to the district, you know, on Thursday night, they come back on Monday night, the so-called Tuesday-to-Thursday Club, ask them, what are you doing back here?

  • 10:54:17

    THURBERWe elected you to go back to Washington to law make, to do better oversight, to legislate. What are you doing here? That's something you can do immediately. The other thing -- it's long term, tough. You can push for citizen commission redistricting. California had one or two districts for 20 years that were competitive. This time they had 11 districts. Competition is good in the democracy because it brings people to the middle ideologically.

  • 10:54:44

    THURBERSo you could push that in your states. And the League of Women Voters has been doing these for years along with campaign finance. This flood of money that -- that's coming in, we have to do something about that. Now, citizens, though, immediately can say, why did you vote this way, and why are you back in the District? There's a lot of work to be done in Washington.

  • 10:55:04

    SMITHMm hmm. What would you be looking for, Alice Rivlin, in the very first days of the new Congress given these problems?

  • 10:55:12

    RIVLINWell, I guess it's what I would be hoping for. I hope they do focus on the things they need to do together, and I think that includes the -- crafting a longer-run deficit reduction plan or debt control plan along the lines of Simpson-Bowles or Domenici-Rivlin or the Gang of Six. We've got lots of examples, something that can stabilize our debt in the long run while allowing us to grow more quickly in the short run. There are lots of blueprints for that. They need to rally around them.

  • 10:55:48

    SMITHNorm Ornstein, what are you going to look for after this? This has been a hugely traumatic experience for the country, for the Congress, for everybody. We're going to start with a new Congress tomorrow.

  • 10:56:00

    ORNSTEINYou know, there are some areas where we can find substantial common ground now. Immigration, obviously in the aftermath of this election, is one. We could begin to work together, as former FCC chair Reed Hundt and Blair Levin, have in a very interesting new book, come together on a plan for a public-private partnership to deal with the knowledge network, expanding high-speed Internet, which is the future, and on the power grid and the power network on energy.

  • 10:56:30

    ORNSTEINWe've got an enormous opportunity here to provide a jumpstart in a very different world. If you put those things together, even beyond the fiscal cliff kinds of issues, we could make some serious progress towards a better society and economic growth.

  • 10:56:46

    SMITHAll right. Norm Ornstein, Alice Rivlin, Jim Thurber, thank you...

  • 10:56:49

    THURBERThank you.

  • 10:56:50

    SMITH...all of three of you, for your thoughts.

  • 10:56:51

    ORNSTEINThank you, Terry.

  • 10:56:52

    THURBERThank you, Terry.

  • 10:56:52

    SMITHI'm Terence Smith, sitting in for Diane Rehm. Thanks for listening.

  • 10:56:56

    ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Denise Couture, Susan Nabors, Rebecca Kaufman, Lisa Dunn and Jill Colgan. The engineer is Erin Stamper. Natalie Yuravlivker answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is drshow@wamu.org, and we're on Facebook and Twitter. This program comes to you from American University in Washington, D.C. This is NPR.

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