RAY SUAREZ: Welcome back to the Online NewHour's Insider Forum. I'm Ray Suarez. All this week the Online NewsHour has asked analysts and GOP leaders your questions as we report from the Republican National Convention in St. Paul, Minn. Today we're joined by Douglas Holtz-Eakin, a former director of the Congressional Budget Office and chief economist for the president's Council of Economic Advisors under President Bush. He's now one of Senator John McCain's top advisors on domestic issues and budget matters.
Douglas Holtz-Eakin, thanks for joining us.
DOUGLAS HOLTZ-EAKIN: My pleasure.
RAY SUAREZ: Well, let's plunge right in. How does Senator McCain's economic policy differ from that of Senator Obama in the main points? I know that both men have vast and detailed programs, but the main points.
DOUGLAS HOLTZ-EAKIN: The main points are that on all the top-line issues -- trade, energy, health, tax -- John McCain's primary focus is on creating jobs in America, whereas Barack Obama's approach has actually damaged the outlook for the job market in America.
Barack Obama has higher taxes on small businesses; John McCain is keeping the top tax rates where they are, keeping the dividends and capital gains rates where they are. Barack Obama has an expensive healthcare mandate for small -- for any employer, but especially hard on small employers. John McCain has a credit for individuals to help buy their own insurance. Senator McCain's been great on trade. One in five jobs are trade-related. Senator Obama has used it as, quite frankly, an oratorical weapon of political expediency. And, you know, we believe the energy policies that John McCain has brought in will give us options outside of imported oil that are valuable to the business community and will help the outlook there.
So we think everything should be framed in the way of jobs and that we have a much better package John McCain's put together.
RAY SUAREZ: The Obama campaign says, for its part, that some of these increases are just a return to the level of the 1990's when job creation was robust, corporate profits grew healthily, and we created a lot of millionaires.
DOUGLAS HOLTZ-EAKIN: Yeah, and they make that claim, but at the same time even Senator Obama has said, gee, maybe it's not such a good idea in this economy to be raising taxes. I might put it off. He was right about that. He shouldn't raise the taxes, and he shouldn't do it now or in the future.
RAY SUAREZ: Reaching us through Twitter, Scott asks, "I'd like straight talk on how McCain plans to pay for his policies without tax increases since they mocked Obama for that last night."
DOUGLAS HOLTZ-EAKIN: The straight talk is we want to return to an era that we're surprised the Obama camp is criticizing, which is, you know, the late 1990's, a period when then-President Clinton worked with the Republican Congress, enacted a balanced budget agreement in 1997 that controlled spending growth.
It had some tax cuts in it, but controlled spending growth and put us on track to balance the budget. We did balance the budget and then we promptly forgot that lesson, spent money hand over fist for the past eight years, and we want to go back to annual tight discretionary caps, real pay-go rules, and scrubbing the budget from one end to the other.
RAY SUAREZ: John from Coker Creek, Tennessee writes, "I hear Republicans and Democrats say they want to cut taxes, but with the enormous deficit we're running, with the crumbling infrastructure, with all of the social needs, how can it be paid for?"
DOUGLAS HOLTZ-EAKIN: I think that the major thing to recognize with our proposal is Senator McCain, he's going to keep the top marginal tax rate at 35 percent -- that's where it is now -- dividends, capital gains, the same -- 15 percent -- as it is now. So no big tax cuts there.
The one major initiative is the corporate rate cut. That's designed to keep jobs in America. They're being driven overseas by our business tax structure. It's out of line with the world. If we do that, we'll get the economy moving, and we've never really had a successful deficit reduction episode when the economy wasn't growing. We need to have that.
RAY SUAREZ: But we can't really reel back to 2000. When George W. Bush took office, the accumulated national debt was about $5.2, $5.3 trillion. When he leaves office in January it will be about $10 trillion, roughly doubled in eight years, so more of every dollar that comes though the pipeline has to go to debt service.
DOUGLAS HOLTZ-EAKIN: Yeah, we've lost a tremendous amount of flexibility because of this hand-over-fist spending episode we've seen. You know, we're committed to balancing the budget by 2013. That's John McCain's commitment. It will take real tough decisions.
You've got to take care of valuable projects like infrastructure, but you can't spend money on everything; there's no way around that. But it will only stay balanced if we do major entitlement reform and the Social Security reforms that, you know, we didn't see get done under the Bush administration, the Medicare and Medicaid reforms that we believe his healthcare proposals will be a step toward but won't be complete in themselves.
RAY SUAREZ: Hunter writes from Blanch, N.C.: "What's the Republican Party's official position on the nation's immense debt accumulation? Does the party have a plan on getting our nation out of debt?" Is it even possible to get out of a $10 trillion debt?
DOUGLAS HOLTZ-EAKIN: It is possible. You know, when we left World War II, at the end of that episode, we had a national debt, I forget the exact number but it was close to, you know, 80, 90 percent of our national income, and we got it down to about 20 percent very quickly.
So if you change the way you do business, which is to say control spending and get the economy going -- that was a great era for that -- you can bring down the national debt. Obviously, we don't have any great track record on that recently. We've had three -- no, four balanced budgets since 1971. That's not a great record. I think we've got to do better on that front.
RAY SUAREZ: John McCain, in the early 2000's, opposed the first set of Bush tax cuts, saying they would dig a deeper trough for the national debt, and in fact it appears that they did. But now he says he wants to maintain those same cuts. Why?
DOUGLAS HOLTZ-EAKIN: Well, you know, John McCain ran in 2000 on a tax cut. We had, at that point, historically high taxes in the United States, almost 20 percent of our national income. Post-war average is about 18 percent.
So he was in favor of reducing that tax burden, but he paired it with the Social Security reform, which we still haven't seen; he paired it with tight spending controls of the type that we'd seen, you know, under President Clinton and which disappeared after that, and he put the middle class first in line in his tax cut.
He wanted to build up the military. He didn't want to have as big a cut because he thought we'd had some necessary spending. I think after 9/11, with the, you know, the difficulties the middle class has faced, he gets some credit for seeing it the way it should have been, and he certainly has always opposed how much spending went on, on a Republican watch.
RAY SUAREZ: Did Senator McCain vote against any of the Bush budgets of either the first or second term, all of which arrived on the Hill with massive budget deficits already built in.
DOUGLAS HOLTZ-EAKIN: He has, you know, opposed the Bush administration in many ways. You know, he was one of the most vocal critics of the prescription drug bill, a $400 billion expansion of Medicare that wasn't paid for in any way. He now understands that we have, you know, pharmaceuticals is part of modern medical care; we have to put it in the program, but even this year he's proposed that very affluent seniors don't need a big government subsidy for that program. They could pay the full premium themselves.
And, you know, he's understood consistently that you've got a mismatch between the revenues and the spending. He's a longtime fiscal hawk. He wants to take care of the spending problem.
RAY SUAREZ: That's a good example of a program that ended up costing a huge amount of money --
DOUGLAS HOLTZ-EAKIN: A huge amount of money.
RAY SUAREZ: -- but a lot of the recipients aren't happy with. Less-than-affluent seniors get to that big stretch in the middle --
DOUGLAS HOLTZ-EAKIN: The donut hole, yes.
RAY SUAREZ: -- the hole in the donut where they're paying out of pocket and don't re-qualify for the benefit again until they've spent quite a lot of money. Is there any way to massage some of the problems with that and have it cost less over the long run?
DOUGLAS HOLTZ-EAKIN: Well, I mean, it is quite striking. We have a program that's very expensive where beneficiaries pay, on average, one-fourth of the price tag, so 75 percent of it's coming from other taxpayers somewhere, and yet no one's happy with it.
So let's look at Medicare as a program. We've got Part A -- it pays hospitals; Part B pays doctors; Part C pays insurance companies; Part D pays drug companies. There's no patient in there. This isn't a system that's oriented around the beneficiary at all. We really need to reform Medicare, the drug availability part of it.
RAY SUAREZ: Michelle writes from Essex Junction, Vermont: "What will McCain do for the many people who have had their homes foreclosed? How will McCain help the huge number of low-income, hard-working people who can barely scrape by while working two and three jobs?"
DOUGLAS HOLTZ-EAKIN: He had a proposal which he called the Home Program. It's a homeowner opportunity for mortgage exchange, but what it was was any homeowner who felt that they had, you know, the financial ability to be in their home, they wanted to be in their home, but they were in a bad mortgage and they weren't going to be able to handle it, they could apply. You would qualify for assistance if you had filled out a real credit report when you bought the home initially, so not a bunch of people who just signed things and lied about their income, if it was your primary home.
And in those circumstances, the original lender would take a loss. The FHA would guarantee the mortgage, and we'd get a 30-year fixed rate mortgage for those individuals.
Now, Congress passed something that's a little bit different but similar in spirit. He supported that because we need to get some help out there, and we'll see how well it works. If it's not hitting enough people we're going to have to be more aggressive.
RAY SUAREZ: You know, as an economist, I mean, you must be watching very closely this tremendous bottom-line loss in capital. I mean, perceived value --
DOUGLAS HOLTZ-EAKIN: Every day. Every day.
RAY SUAREZ: -- becomes real value and so people are servicing mortgages that are much larger than the real value of their home now.
DOUGLAS HOLTZ-EAKIN: Right, and it's complicated because we have two different problems. We have a problem which is the Ohio-Michigan problem where they never got a housing bubble of any sort, no housing boom. They just had bad economies; people had to take out these mortgages to get through and now they're in trouble.
And then we had the California, Florida, and Nevada, Arizona episode -- big housing bubble, big decline, different kind of problem to clean up there, and obviously a very difficult one.
RAY SUAREZ: Michael writes from Baltimore, "The New York Times recently ran an op-ed by Alan Blinder, professor of economics at Princeton, in which the results of the economic policies of Republican and Democratic Parties over the last 60 years were put head to head. Analysis of the data was clear," says Michael. "Under a Democratic president there's faster economic growth with less inequality. How can Republicans insist, in the face of the expertise and near unanimity, that the Bush tax plan, once criticized but now supported by John McCain, is good for America?" A long question but you get the essence of what is --
DOUGLAS HOLTZ-EAKIN: Absolutely. And I think the most important thing is to recognize that not only is the public disappointed in the Bush administration after eight years; they're also clearly tired of Congress, with a nine percent approval rating, that cannot seemingly take on pressing national problems, and we have long list of them.
So the most important thing is to bring into Washington a new attitude, a new way of doing business where you do the things John McCain has historically done: reach across the aisle in moments when it's perhaps not to your political advantage, when you stand with Ted Kennedy to try to do immigration reform. That was not politically advantageous; it wasn't his party line necessarily. He thought it was the right thing to do. The same with campaign finance reform, the same with judges.
We need to do business that way, and that's what John McCain and Sarah Palin are trying to do: change that part of Washington which has been too partisan and divides the world into Republican and Democrat. Let's get some things done.
RAY SUAREZ: He got a lot of attention during the run-up to the Michigan primaries by telling workers in Michigan that a lot of the jobs that had left the state were not going to come back in the industries that they were in before. Well, let's talk about what is going to go into Michigan now. There's a lot of people there; they need something to do.
DOUGLAS HOLTZ-EAKIN: Absolutely.
RAY SUAREZ: They need an economy that needs money coursing though it --
DOUGLAS HOLTZ-EAKIN: Right.
RAY SUAREZ: -- but you have to have something that is the seed corn in the first place.
DOUGLAS HOLTZ-EAKIN: Right and the most important thing you can do is take the existing industrial base, which is largely built on an auto industry and auto parts suppliers, and make that the industry for the next century, not the past century.
And, you know, John McCain has been fully supportive of flex-fuel vehicles, hybrids and electric cars. We need to do that, not just for the workers of Michigan, but because if we drive on something other than gasoline, we don't import the oil, we don't expose ourselves to the international ramifications, which are national security and also being held hostage to an international oil market.
So that's Michigan's future. That's something that Michigan's future. That's something Michigan can and will do, and it will spawn lots of things that we probably can't even imagine as spill-off.
RAY SUAREZ: Rhesa writes from Atlanta, "There's been much talk of creating an energy economy as a means of accelerating job creation. What strategies will the McCain administration use to ensure that this new economy is not simply an unsustainable shift in labor to short-term jobs?"
DOUGLAS HOLTZ-EAKIN: I think the most important thing, from the perspective of here to 2050, really transforming our energy portfolio is to get serious about global warming, get an international agreement that's comprehensive, includes the Indias, Chinas, South Africas of the world, and in the United States has the cap and trade program, the kind that Senator McCain's pushed since 2003.
That would give a tremendous incentive for all the cleaner technologies -- the winds, the solars, the biomasses, in John McCain's view also the nuclear powers, which are zero emissions. And it's a permanent message to the market: That's where the money is; that's what you ought to be doing. And those are long-term good jobs. They'd be pretty innovative jobs as well.
RAY SUAREZ: The spent fuel has to go somewhere --
DOUGLAS HOLTZ-EAKIN: Yes.
RAY SUAREZ: -- and that's one of the parts of this that we really haven't solved, I think, to anyone's satisfaction.
DOUGLAS HOLTZ-EAKIN: Certainly not to Senator McCain's satisfaction. He does believe that the science on Yucca Mountain says it's a safe facility, that if you look at the examples in Scandinavia, France, Japan, you can transport the fuel -- the spent fuel there safely.
But he also believes that we should revisit the decision made by then-President Carter to not reprocess our fuel. You know, only about a third of the fuel gets used in a single cycle. You could reprocess that fuel, and we believe the United States is not a proliferation threat. We can safely control our nuclear waste in a way that won't produce weapons around the world.
RAY SUAREZ: Well, Nevada is lucky that it's a battleground state because it gets to have, I think, a magnified say --
DOUGLAS HOLTZ-EAKIN: Right, right.
RAY SUAREZ: -- in the future of Yucca Mountain.
DOUGLAS HOLTZ-EAKIN: And one of the things that, you know, I am quite pleased and proud to be part of in the McCain campaign is that he'll go to Nevada and he won't hedge. I mean, he'll just say, look, I think we can do this, we should do this as a nation; we ask that Nevada help in this effort.
RAY SUAREZ: Well, finally, Douglas Holtz-Eakin, what do you see as the platform that the party stands on in the next 60 days? What are economic conditions like now, right now, because voters, when they head into the booth in the first week of November, don't think about how I felt a year ago or how I'm going to feel in a year; they do a lot of it out of right now.
DOUGLAS HOLTZ-EAKIN: Right. All the evidence is the past three to six months are what play heavily into the decision-making, and right now we've got inflation ticking up, we've got unemployment ticking up. I don't think anybody who looks out at that landscape says, gee, this is great. If you're on Main Street, if you make something and sell something in America, you're hanging on by your fingernails.
If you're in Wall Street, you finance things, you know, it's just a disastrous area in many respects, and the horse race is, will Wall Street's problems spill over so much that they'll drag down Main Street? We watch that every day. People can't feel good about it, so we have to have a strategy to deal with the housing problem, deal with the energy problem, deal with the credit market crunch, homes and otherwise, so we can get the jobs in America.
RAY SUAREZ: Just today the market went down 300 points.
DOUGLAS HOLTZ-EAKIN: Yeah. This isn't the best day to be speculating the stock market.
RAY SUAREZ: Douglas Holtz-Eakin, thanks for joining us.
DOUGLAS HOLTZ-EAKIN: Thank you.
RAY SUAREZ: And thanks to everyone who sent us questions over the Web and on Twitter and everywhere else that you can get to us. Thanks for watching during these two weeks of the conventions. Be sure to watch this space as well for updates to the Insider Forum, our next guests, and your space to add your questions. For the Online NewsHour, I'm Ray Suarez.