JUDY WOODRUFF: Next, the political and economic questions that linger after the defeat of a potential budget-deficit-cutting deal.
Ray Suarez has the story.
RAY SUAREZ: The failure of the deficit supercommittee echoed on the presidential campaign trail today. In New Hampshire, President Obama pressed Republicans to support extending payroll tax cuts for another year, something that might have been in a deficit deal.
PRESIDENT BARACK OBAMA: Now, I know Republicans like to talk about, you know, we're the party of tax cuts. The question they will have to answer when they get back from Thanksgiving is this: Are they really willing to break their oath to never raise taxes and raise taxes on the middle class just to play politics? I sure -- I sure hope not.
RAY SUAREZ: Republicans in Congress have objected to the cost of the payroll tax cut extension, $250 billion. The cut expires at the end of the year.
And Republican presidential hopeful Michele Bachmann said today the president never tried to get a deal on that issue or anything else in the deficit talks.
REP. MICHELE BACHMANN, R-Minn., presidential candidate: I would have been involved, unlike President Obama. He's been AWOL on the process. So if anyone bent over backwards to try and get an agreement, it was the Republicans on the supercommittee. The Democrats just sat back with their arms folded and said, we're doing nothing.
RAY SUAREZ: That same division was on display last night, as lawmakers on both sides spoke out after the supercommittee conceded it could not reach agreement.
SEN. ROB PORTMAN, R-Ohio: Republicans believe that, with spending being much higher than it has historically been, that we need to restrain the spending and do so in a way that's pro-growth, through tax reform in particular. And Democrats believe that we ought to pay for the increased spending by much higher taxes. And that's a fundamental difference.
SEN. JOHN KERRY, D-Mass.: It is clear to me that the problem is a huge ideological divide in our nation, a value system divide, and people need to resolve that over these next few months so that a small group of people, extreme in their view, cannot hold America hostage any longer.
RAY SUAREZ: When lawmakers return from a Thanksgiving break, they will have to confront the payroll tax cut extension, an extension of long-term jobless benefits and automatic spending cuts of more than a trillion dollars starting in 2013.
We get reaction now from two economic thinkers who have been players in the wider political debate as well.
Paul Krugman is a Nobel-prize winning economist at Princeton University and a columnist for The New York Times. And Martin Feldstein is an economist at Harvard University whose work is influential among Republican policy-makers. He served as the chair of the Council of Economic Advisers during the Reagan administration.
Professor Krugman, what was your reaction when you heard that the deadline was going to come and go with no agreement and the committee members were going to join their colleagues on recess?
PAUL KRUGMAN, The New York Times: Well, I was relieved.
There was never any real prospect that anything would good come of this. All we were going to get at best -- or maybe at worst -- was going to be some agreement that would include a lot of premature spending cuts, a lot of spending cuts that would take place while the economy was still depressed, some basically getting Democrats on board with cuts to Medicare and Social Security, and Republicans possibly agreeing to a few tax hikes, which they would renege on as soon as they got a chance.
So this was a bad idea from the start. We don't have a fundamental agreement about anything, about the shape of future deficit reduction. This was nothing that could be settled by a small group of people pretending that they could bridge a partisan divide that is really too wide. This is something that needs to go to the voters and not be done in a committee.
RAY SUAREZ: Professor Feldstein, same question.
MARTIN FELDSTEIN, Harvard University: Well, I thought all along that this wasn't going to lead to an actual agreement, because I think both the Republicans and the Democrats have the election, next year's election, very much in mind. And they want to deliver clear messages to their potential voters.
So the Republicans are saying, we're against tax increases. And the Democrats are saying, we're against entitlement cuts. Now, in reality, behind closed doors -- and I have spoken with a number of the members of the committee -- they were prepared to make some compromises on this, but not enough to overcome this really political, electoral barrier to reaching an agreement. But I'm optimistic...
PAUL KRUGMAN: Can I just break in? Oh, sorry...
MARTIN FELDSTEIN: ... that once we get past the election -- once we get past the election, what they learned in these discussions will pay off.
RAY SUAREZ: Go ahead, Paul Krugman.
PAUL KRUGMAN: Yes.
I was going to say, there's a false symmetry here. Democrats on the committee and Democrats more generally have actually been willing to offer quite a lot in the way of entitlement cuts. Some people, including myself, were kind of alarmed at how much they were willing to offer.
Democrats have been -- there's actually substantial Medicare cuts in the health reform that was passed last year. There are -- there were substantial further cuts in Social Security and Medicare that are on the table from Democrats. The real stumbling block here is that, with tax rates for the wealthy pretty close to their 80-year low point, Republicans have been unwilling to accept the possibility of any significant increase in those taxes.
And so it really is one-sided. The Democrats were willing to go a long way, as I say, so much so that a lot of the progressive base was pretty upset at the prospect. Republicans were not willing to give an inch on taxes on the wealthy. And so no agreement was possible.
RAY SUAREZ: Martin Feldstein, go ahead.
MARTIN FELDSTEIN: Well, that wasn't really true.
What the Republicans were prepared to do was to put caps, put limits on the deductions, which is basically something that only affects the higher-income individuals, but put caps on that as a way of raising revenue, some of which would be given back in lower tax rates, so that they could say, well, this is a pro-growth tax reform, but it would be one that would have raised significant revenue, a few hundred billion dollars, over the next 10 years.
But that wasn't deemed by the Democrats to be enough. And so, as I said, we're back to extreme positions until after the election.
RAY SUAREZ: Listening to you both, I'm wondering if, for all the other issues that were involved and all the various things that got called during the process, whether this was really a 12-person debate about the future and the past effect of the Bush era tax cuts.
PAUL KRUGMAN: Well, a lot of what we have is colored by those tax cuts. They set up a situation in which we have a much larger budget shortfall than we would have had without those tax cuts.
Actually, one reason to celebrate the demise of the supercommittee is that the surefire way of making a really significant dent in the budget deficit is to do nothing, to just let those Bush tax cuts expire. So, the supercommittee was to a large extent an attempt by the Republicans, if you like, to find a way to extend those Bush tax cuts while looking responsible fiscally.
And the fact that they have lost that shield, the fact that it's actually going to be, well, OK, we have a simple way to reduce the deficit, just let those tax cuts expire, the fact that that's where we seem to have arrived at is actually a good thing. It actually brings us closer to fiscal responsibility in the long run.
RAY SUAREZ: Professor Feldstein, do you agree that if nothing was done and those tax cuts were simply to allowed to expire, that would actually improve the fiscal forecast?
MARTIN FELDSTEIN: Well, of course, it would improve the fiscal forecast, but it would be an economic disaster.
I mean, with the economy still weak and likely to be, if anything, weaker in 2012, the idea of suddenly having a big jump in the taxes for everyone seems to me to be a big mistake. So I can't believe that Congress when it gets together after the election is going to allow that to happen.
RAY SUAREZ: So, having just said that, how do you service those various ambitions that have been laid out, getting the tax code reform, taming federal spending, getting the debt down? Can this all go on, even after this setback?
MARTIN FELDSTEIN: Sure it can.
But I think it's not going to go on until after the election, because, as I said, the candidates in both parties -- not the presidential candidates -- the congressional candidates, want to go home with very clear, simple messages to the voters.
But I think once we get past next November, then the kind of learning that went on in this committee and more generally in the Congress will lead to some real progress, some changes in Social Security. The president has spoken in favor of doing it. Republicans are talking about it as well. So I think that will happen.
I think Medicare is harder. But, again, there are bipartisan plans out there. They're complicated, but I think they can reach a compromise. So I believe we can -- and tax reform also of the sort that broadens tax bases, as Bowles-Simpson suggested -- broadens tax bases and lowers tax rates -- will appeal to both parties.
RAY SUAREZ: Professor Krugman, quickly, before we go, you heard Martin Feldstein talk about how the election is looming. If the United States ends up with a pretty evenly divided legislature after the next election, similar to what we have now, can those things go forward?
PAUL KRUGMAN: No.
We need a resolution of this grand political debate. And let's remember, on Medicare, we have a plan that calls for a significant slowdown in the rate of growth of Medicare expenditures. It's called the Obama health care reform. And Republicans attacked it for creating death panels.
So until we get to an environment where that kind of demonizing of real attempts on the part of Democrats to reduce future deficits is over, then we're not going to get bipartisan agreement. We might just get something that -- where -- where one party steamrollers over the other. And maybe that's how it has to be resolved.
RAY SUAREZ: Paul Krugman, Martin Feldstein, gentlemen, thank you both.