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Budget Watchdogs Warn of Worsening Deficit, Explore Strategies to Cut

November 17, 2010 at 4:50 PM EST
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Following on the heels of the bipartisan deficit commission chairmen's recommendation of drastic cuts, former Republican Sen. Pete Domenici and former White House Budget Director Alice Rivlin presented a new take on how to reduce the deficit and warned of a "death spiral" if the debt was not corrected with austerity measures.
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JIM LEHRER: Now: the continuing debate over deficits and the debt. Judy Woodruff backgrounds the story and then hears from two more leading voices.

JUDY WOODRUFF: For the second time in as many weeks, a pair of leading budget watchdogs warned, the U.S. is heading down a death spiral if drastic changes are not made to the country’s finances.

Today, the recommendations came from the Bipartisan Policy Center and were led by two people with vast budget experience. Former Senator Pete Domenici, a Republican, and Alice Rivlin, a Democrat who once served as White House budget director and head of the Congressional Budget Office.

Their recommendations call for a mix of changes in taxes and spending over the next several years, including a Social Security payroll tax holiday next year, cutting and simplifying individual and corporate tax rates, creating a new 6.5 percent national sales tax, and big cuts in spending, including a four-year freeze on domestic programs, a five-year freeze on defense.

Last week, the co-chairs of a presidential commission put out their blueprint. And, last night, former Senator Alan Simpson and former White House Chief of Staff Erskine Bowles discussed the magnitude of the problem with PBS’ Charlie Rose.

ERSKINE BOWLES, co-chairman, National Commission on Fiscal Responsibility And Reform: We fought two wars. We put in a new prescription drug benefit in. So we’ve got a lot of things that have created this.

Plus, we had this horrendous economic recession. And we’ve had to spend some money to get out of there. So, it’s easy to see how we got here. What we have to talk about is, how can we end it? How can we get out of it?

ALAN SIMPSON, co-chairman, National Commission on Fiscal Responsibility And Reform: And if you tell people every dollar that’s spent by this country, we’re borrowing plus 41 cents — I think it’s 39 now, but whatever — I mean, that’s something any American can understand.

They understand that at the bar stool in Buffalo, Wyoming. You cannot — every buck we spend, we’re borrowing 40 — 40 cents. This is madness.

ERSKINE BOWLES: We can’t tax our way out of it. You know, we — people who want to do just taxes, you’d have to raise the maximum marginal rate to 80 percent. You’d have to raise the corporate rate to 70 percent. You’d have to raise the capital gain rate to 50 percent, if you’re just going to do taxes.

We can’t cut our way out of it. People say, oh, well, let’s just — let’s just cut the budget.

If you just rely on deficit reduction through cutting, and you want to exclude Social Security and Medicare and defense and, of course, interest, then you’d have to cut everything else by about 60 percent to 65 percent.

JUDY WOODRUFF: But some of the proposals have met with fierce resistance on Capitol Hill. For his part, President Obama has said tough decisions will have to be made.

And for more about their proposal and other ideas being discussed, we are joined now by former Budget Director Alice Rivlin and former Senator Pete Domenici.

It’s good to have you both with us. Thanks very much.

PETE DOMENICI (R), Former U.S. Senator: Thank you. Thank you very much.

ALICE RIVLIN, former director, Congressional Budget Office: Good to be here.

JUDY WOODRUFF: Now, let me just start by saying, with all due respect, you have done a lot of work here over the last year, but why not leave this up to the presidentially appointed commission?

Alice Rivlin, you’re a member of that commission. It’s already created waves. It’s dramatic. Why not leave it up to them?

ALICE RIVLIN: Well, we’re not taking over for them. We’re just offering our ideas.

We got a group together. And this started before there was a presidential commission — that the senator and I agreed to co-chair this group. We got 19 people from across the country, former governors and senators and mayors and some budget experts, and created this plan.

So, we think it’s a very good answer, not only to how do we get out of the recession, but how do we solve this big debt problem. And we’re offering it in hopes that it will be taken seriously.

JUDY WOODRUFF: Senator…

PETE DOMENICI: But, Judy, we have got to understand that the president’s commission doesn’t have a plan. We have a plan. Ours is completed. There’s consensus. Everybody on it was: It’s a plan. I sign on.

JUDY WOODRUFF: Of your task force?

PETE DOMENICI: Of our task force.

JUDY WOODRUFF: Part of the Bipartisan Policy Center.

PETE DOMENICI: Bipartisan — yes, Bipartisan — and so we started it, and we have to finish it.

And it’s terrific. It’s the best plan ever seen. And I’m hopeful that Erskine Bowles and Simpson do something, but, as of now, they have a series of ideas, many of which are the same as ours or similar. And we have an obligation now to get ours out there. And, frankly, I’m going to repeat myself, but to both get the recession out from under us and get ourselves moving again with a growth-oriented country that has a future, our plan is just a terrific plan.

JUDY WOODRUFF: Well, let me — let’s talk about some of the specifics.

I mean, one way your plan, Alice Rivlin, would differ from this commission, the Simpson-Bowles plan, is that you would suspend the Social Security payroll taxes for a year. That’s good for people, in that they wouldn’t have to pay the taxes. It would add to the deficit by $650 billion.

So, my question is, how do you — your — one of your principal goals is to cut the deficit, but you’re adding to the deficit when you start out.

ALICE RIVLIN: Yes, we think that the country faces two big problems. One is, we have to get out of this recession. We have to be — we have turned the corner, but the economy is not growing fast enough, and unemployment has got to come down faster.

So, we think that the payroll tax holiday, which puts money in the pockets of all working people, and also help employers, is a good thing, but it’s a temporary thing. Yes, it would add to the deficit. But, at the same time, simultaneously, we believe that the Congress should adopt a broad range of deficit-reduction measures, and that that itself will help us get out of the recovery.

JUDY WOODRUFF: And, Senator…

PETE DOMENICI: But you have got to understand — you have got to understand one thing. We have got to make the point for your viewers. We can afford a one-year holiday, because, at the end of our work, when we have cut everything we can, when we have reformed taxes, we put on a two-year — it’s implemented in two years — sales tax on consumption that will pay for the cost of the one-year — one-year holiday.

So, we don’t add to the deficit.

JUDY WOODRUFF: So, you do impose — you would impose a 6.5 percent national sales tax. And you would lower — you would simplify the tax code…

PETE DOMENICI: Lower the income tax.

JUDY WOODRUFF: … lower income tax, corporate tax rates. As you know, there are progressives out there today who are saying what you’re doing is a big hit on the backs of working people.

PETE DOMENICI: Well, not so. I mean, she can tell you with more specificity, but it’s quite the opposite. Our plan, in its totality, is more progressive than the current income tax system of our country, by far, because we have the reform in the tax code. Plus, we kept two very major programs for child care and the low-income workers. They have been improved, and they get very good benefits. And when you put those in the mix, it’s more progressive than what we have got today.

JUDY WOODRUFF: You also, as we said, made some pretty dramatic cuts in spending, in both domestic and — freezes in both domestic and defense spending across the board.

Why is across the board, Alice Rivlin, better than looking at it program by program?

ALICE RIVLIN: Oh, we don’t intend this to be across-the-board cuts. We expect…

PETE DOMENICI: On everything.

ALICE RIVLIN: On everything. What a freeze means is that the total is frozen. The Defense Department, for example, would have to figure out how to live within a fixed total. Now, that means that they could phase out and eliminate some programs that are no longer necessary or are low-priority, as Secretary Gates has already started doing, but emphasize the things that are high-priority and are needed, similarly on the domestic side.

You wouldn’t want to cut across the board an equal percentage. That would be crazy.

PETE DOMENICI: Besides, Judy, you’ve got to know and our — your listeners have to know that, on the domestic side, there are literally thousands of programs.

We wouldn’t have — it wouldn’t be right for us to go through and talk about each one. We just said the pot won’t grow for four years. And if it’s capped, you’re going to have to go within that domestic program and decide which ones you want and which ones you don’t.

JUDY WOODRUFF: But the perennial problem with cutting is that people — everybody wants to reduce the deficit, but, when it gets to specifics, that’s when you run into problems.

How do you plan to sell this on the Hill or to the American people, for whom many of these programs are popular?

PETE DOMENICI: Well, I will take it first.

I believe the reduction in domestic appropriated accounts, which we’re talking about now, the pot of money with a cap on it, and the pot for defense, and with a cap on it, that’s much easier to sell than most parts of this budget.

The parts that are hard to sell are the fact that we must have a new source of revenue after we’re finished with all the cuts. We can’t cut enough to get ourselves where we want to be in terms of the debt. And so we have to put a new tax on. That’s the part that people are going to get angry about.

But we have the make them understand that we have a silent killer out there, and we have got to fix it. And fixing it means you might have to have some new revenue, like we recommend.

JUDY WOODRUFF: And that is going to run into its own buzz saw.

ALICE RIVLIN: Yes. Anything that you do that fixes this big looming debt problem, where the debt is — if we do nothing, is escalating very rapidly, anything you do is going to be unpopular, whether it’s the spending side or on the revenue side.

So, yes, some of the things that we suggest, by themselves, would be very unpopular. But the point of this is, do it altogether and we will avoid the crisis that we think would destroy the U.S. economy.

JUDY WOODRUFF: You both know this town very well. How much do you — how realistic is it to believe that a significant piece of what you’re proposing will be enacted?

ALICE RIVLIN: Do you remember the ’90s? We…

JUDY WOODRUFF: I do.

(LAUGHTER)

ALICE RIVLIN: We got a surplus. We both worked on that.

And we got the budget from a considerable deficit into surplus. And the way it was done was some tax increase and holding down spending. The caps on spending are the same idea that we had back in the ’90s. And it worked. It worked. Yes, it worked.

PETE DOMENICI: I want to say this one thing about this. And, as far as I’m concerned — tell me what I’m talking about, because I have forgotten.

JUDY WOODRUFF: About whether you believe that this will actually be solved, that the members of Congress will vote…

PETE DOMENICI: Oh. Yes. We were able to — we were able — we were able to do bipartisan work and get some big problems solved. This problem is many, many more times difficult for America. We’re going to be ruined as a nation and become a second-rate country if this debt is allowed to continue like it is.

So, we have a bigger, a more just reason to convince people. We convinced them then to work together. We ought to be able to now. It won’t be easy, but I believe leadership, including leadership from the president, is going to make this a war, a war on this debt. And, if we do that, we might win.

JUDY WOODRUFF: On that sobering note, Pete Domenici, Alice Rivlin, thank you both.

ALICE RIVLIN: Thank you, Judy.

PETE DOMENICI: Thank you, Judy.