MARGARET WARNER: I'm joined by the two Senate leaders who'll have primary responsibility for dealing with the budget in the months ahead. Sen. Judd Gregg of New Hampshire is the chairman of the Senate Budget Committee, and Sen. Kent Conrad of North Dakota is the committee's ranking Democrat. Welcome to you both.
Sen. Gregg, you expressed great support for this budget today. You called it... you said the president should be congratulated. What do you like about it?
SEN. JUDD GREGG: Well, I like the fact that he's put forward a specific set of ideas for restraining the growth of spending, both on the discretionary side, and a large number of the entitlement accounts, whether it's agriculture or Medicaid.
On the discretionary side, he's basically kept non-defense discretionary at a less than the rate of inflation growth. And on the defense side, he's actually reduced the rate of growth of the base of defense. So it's a pretty aggressive statement of trying to institute some policies to discipline our fiscal house.
MARGARET WARNER: And Sen. Conrad, you were, to say the least, not very complimentary. What don't you like about it?
SEN. KENT CONRAD: I think this budget by the president takes us just one more step down the trail of record deficits and record debt, and debt and deficits that explode as the president's proposals get enacted. You know, he just left out a lot of things.
When he says he's going to cut the deficit in half over the next five years, he left out war costs; there's no war costs past Sept. 30 of this year. He left out the trillions of dollars that his Social Security privatization plan will cost. He left out $700 billion needed to fix the alternative minimum cost.
MARGARET WARNER: Minimum tax.
SEN. KENT CONRAD: He just left out so many things. He left out making permanent the tax cuts that cost $1.7 trillion over the next ten years. You put all those things back together, and what you have is a pattern that takes us deeper and deeper into deficit and debt.
MARGARET WARNER: Sen. Gregg, what's your response to that -- because that's the criticism from the Democrats here, that there's so many big-ticket items that aren't included, how credible should the American people look upon these projections of cutting the deficit in half by 2009?
SEN. JUDD GREGG: Well, first off, they can look very much at what the president has proposed in specific spending restraint. And we'll look forward to our Democratic colleagues joining us in restraining those spending programs if they're interested in reducing the deficit. As to the specific issue of, for example, war costs, five years from now hopefully we won't be at war.
In fact, I'm sure we won't be at war in Iran or Iraq -- or in Iraq or Afghanistan. And as a result, we shouldn't be building that number into the base, the war costs into the base. The revenues which the senator from North Dakota appears to want to increase by raising taxes, that's not the approach that we want to take. But if they believe they should raise taxes to reduce this deficit, then let them bring forward a budget that raises taxes, or let them bring forward a budget that promotes their cuts.
MARGARET WARNER: But where -- if there are all these other costs that are known --that are known to be in fact incurred --
SEN. JUDD GREGG: Well, I don't accept...
MARGARET WARNER: You don't accept the $81 billion that the administration is about to command the Iraq War?
SEN. JUDD GREGG: I don't have any problem with stating that number, but I don't think you build it into the base, because five years from now, it's not going to be there. That number goes away. This is not a one-time item. It is going to be a two or three-year item. Two or three years from now, I don't want to increase defense spending by the cost of that war, so that the defense base suddenly has $80 billion of extra funds in it after the war is over.
And I think that would be a bad policy. You talked about reducing the deficit in half in four years. I think the president has put on the table legitimate numbers that move us in that direction rather aggressively. And I have heard from the other side nothing from their proposals to accomplish deficit reduction other than raising taxes. In my opinion, that wouldn't help the economy. It probably would slow revenue growth in many ways, as a result of the economy slowing down.
MARGARET WARNER: Sen. Conrad, what would be the Democrats' alternative?
SEN. KENT CONRAD: Well, first of all, I want to correct a couple of misimpressions. I've not advocated raising taxes. I have said revenue has to be part of the solution, and the first place we ought to look for revenue is the tax gap. That is the difference between what is owed and what is being paid.
The Bush administration itself says that that gap was $300 billion in 2001. That's people who are getting away without paying what they owe, shoving the rest of the burden on to all the rest of us who do pay what we owe. That'd be the first place I'd look.
Second, they talk about spending restraint. Is there really spending restraint in this budget? The president's budget increases spending by 8 percent over last year. Now, they've put a lot of focus on the cuts. I understand that. But if you look at the overall budget, it increases spending 8 percent. At the same time, the president says cut the revenue $1.7 trillion, we already have record deficits. You know, when you increase spending and you cut revenue, and you can't pay your bills to begin with, there's only one possible outcome. That's more deficit, more debt, more borrowing, and a weaker America. That's the prescription in this president's plan.
MARGARET WARNER: Let me just ask Sen. Conrad --
SEN. JUDD GREGG: I would just like to just quickly respond on this -
MARGARET WARNER: Okay.
SEN. JUDD GREGG: -- on two points. First, the spending restraint is there, and we will see whether or not our colleagues on the other side of the aisle are willing to address it. The increases in spending which the senator mentions -- which are legitimate numbers -- go to fighting the war and Medicare primarily. Now, maybe they're willing to cut the efforts in defense and maybe they're willing to cut the efforts in Medicare, but I doubt it.
Non-discretionary defense spending is kept below the rate of inflation. And there are proposals to reduce spending on the agriculture programs, which I doubt that the other side is going to be too excited about, and in other entitlements such as Medicaid. On the revenue side, let's remember, revenues are going up rather dramatically. Last year they increased by 9.2 percent. This year they're projected to increase by 6.5 percent.
We're headed on a path to receive much more in the way of revenues as a result of the fact that we shallowed out this recession by putting a tax cut in place early on in the recession so that we didn't have a significant economic -- as significant an economic downturn as we might have had. So we're getting significant revenue growth, and putting a tax cut on top of this economy would be very counterproductive.
MARGARET WARNER: All right, Sen. Conrad, let me -- let's talk now about the actual cuts. And I take your point that the overall budget is growing, but there is an actual cut in this non-homeland security, non-defense part of the budget.
Do you have a quarrel with those specific cuts, and if you don't, where else would you cut? I mean, if you do, where else would you cut?
SEN. KENT CONRAD: Yeah, there are priorities here that I think are badly misplaced. For example, I would not cut the cops program by 96 percent. Cops program has put 100,000 police officers on the street in this country. That's reduced crime. When we've got a terrorist threat, why ever would you reduce the number of police on the street? I wouldn't cut the firefighters by 30 percent.
I wouldn't eliminate funding for vocational education. You know, not everybody goes to college. And to eliminate the education for those who are going to go into the trades I just think is short-sighted for this country. So there are cuts that don't make sense. There are other cuts, frankly, that I do support.
I think we do need to go after states that are abusing and taking advantage of the Medicaid system. I would support limitations, payment limitations in agriculture, even though I come from a farm state. So there are places I would support the cuts. There are others that I think are very misplaced. But overall, remember, this is not a budget that cuts spending. It increases spending 8 percent, even though we already have record deficits. And then the president turns around and says, oh, by the way, cut the revenue base by nearly $2 trillion on top of it. There can only be one result. That's more deficits and more debt.
MARGARET WARNER: Going to the cuts, Sen. Gregg, a lot of these cuts -- I mean, there are others -- the ones Sen. Conrad named, there are also things like increasing the cost to some veterans for the health care benefits they receive, eliminating Amtrak. All of these programs have powerful constituencies on Capitol Hill, including with your own fellow Republicans. How realistic is it that these cuts will get through?
SEN. JUDD GREGG: Well, first off, I want to congratulate Sen. Conrad if he's willing to address agriculture from North Dakota. I congratulate him -- equally so in the Medicaid areas. I certainly hope we can reach agreement on those two areas.
Well, my view is that last year we showed that we can discipline the budget on a discretionary side and on defense when we set a number of $822 billion. The Congress wanted to spend considerably more than that. The White House said no, and we ended up with $822 billion. If we can reach agreement on a top line number-- this year the White House is suggesting $840 billion-- and then let the Congress set its priorities within that number.
There may be programs we'll support that the president doesn't support, and there may be programs he supports that we will support. Let us work out the details, but at least agree on a top line number that is enforceable by something called spending caps. And that's the way you make this work.
MARGARET WARNER: Is that doable, Sen. Conrad? Do you think you can agree on an overall number at least, and then let the appropriators decide where the cuts come?
SEN. KENT CONRAD: I would hope we could. And one thing where Sen. Gregg and I think are joined is on the spending disciplines; that is, restoring the old pay-go rules that say if you're going to increase spending or you're going to cut taxes, you've got to pay for it. And that's a discipline we badly need reenacted around here, and I'm hoping on a bipartisan basis we can do that.
MARGARET WARNER: Sen. Conrad, let me ask you this. If you look at -- whether it's the five-year part of this budget or the ten-year, we are now seeing deficits, as the old saying goes, "as far as the eye can see." Do you think we will ever get back to the point of balancing the federal books?
SEN. KENT CONRAD: It's critical that we do. The thing that I most fault the president on is that he has left the American people with the impression that he is reducing our fiscal imbalances. The fact is, he is not.
He is dramatically increasing our deficit and debt in the long term. If you look just beyond this five-year budget window, all the things he's left out explode in cost. And that's going to put this country in very, very grave difficulty, given the fact it's right when the baby boomers begin to retire. It will force very, very deep and draconian cuts. That's a very important point.
MARGARET WARNER: Sen. Gregg, but are we looking at eternal deficits? Is that really the message of this budget?
SEN. JUDD GREGG: No, not at all. What you're looking at is two different problems here. In the short term, we can certainly manage the deficit. We can reduce it by half, which will be an historic low, relative to the period that, we're over the last 20 years except for that period when we had surpluses.
But the problem is the demographic situation that occurs in this country, which is, when the baby boom generation starts to retire in 2008, the demands of my population, of our generation here on younger Americans, our children and our grandchildren-- for our retirement benefits, for our health care costs-- are going to be absolutely astronomical. And there simply aren't going to be enough people working to support the retired generation, because the retired generation will be so large. That is a huge issue.
And the president has been willing to step up to that issue by taking on the question of how we reform Social Security. So I think you've got to give him credit for recognizing that the long-term structural issue, which is demographically driven-- we're all alive, we all exist, and most of us are going to retire and take advantage of the retire system -- is there, and you've got to address it.
So his stepping out on the issue of Social Security is a very positive step in the right direction towards opening the debate on how we address the long-term deficit.
MARGARET WARNER: But Sen. Gregg, that does raise the question that none of the Social Security transition costs are even in this budget projection, even if we phase it in, as I think he's suggesting -- I think it's something like $750 billion or $780 billion by 2009 -- where does that come from? Where does this budget leave the prospects for the Social Security overhaul being passed this year?
SEN. JUDD GREGG: Well, Social Security has about five major moving parts, and if you address it in a comprehensive way, you'll put it into balance. And if you put it into balance, you'll save massive amounts of dollars in the out years -- something like $11 trillion. And part of that is the personal account approach. Part of it would be changing the bend points, which is basically means testing. Part of it would be getting a proper COLA.
But you've got to do a balanced, comprehensive approach. But once you do that, yes, you'll have some short-term increases in costs, because you've got to get to the corrections in the system that give you the long-term benefit. But over the long-term, you'll have huge savings and you'll make the system solvent, which is the key here for our children and our grandchildren who are going to have to pay to support us. And we don't want to put too much of a tax burden on them to do that.
MARGARET WARNER: Sen. Conrad, I guess what I'm really asking is, do you think the Social Security reform is politically doable this year as the president would like to do, when at the same time the members of Congress and the Senate are looking at these deficits?
SEN. KENT CONRAD: You know, the president has made it all more difficult, first of all, by not acknowledging the privatization cost. The 20-year costs are $4.6 trillion, and he proposes borrowing all of it. That's not a solution to a problem.
Second of all, in the short-term, the president over the next ten years is taking over $2.5 trillion of Social Security money and using it to pay for other things. That just digs the hole deeper before starting to fill it in.
Now, this is a policy -- this is a policy not of reducing deficits and facing up to problems. This is a budget plan that hides problems from the American people and hides the result. The inevitable result will have put us in a very deep hole and weaken the country's economic strength. That's a mistake.
MARGARET WARNER: Sen. Conrad and Chairman Gregg, thank you both.
SEN. JUDD GREGG: Thank you.