date: November 5, 2004
GEOFF COLVIN: If you were wondering how President Bush's re-election might affect you, he wasted no time telling us. His second-term agenda, which he announced at a press conference Thursday, includes two extraordinarily ambitious goals that would touch every American: Reforming the tax code and changing Social Security. In Washington, fundamental tax reform and Social Security repair are topics that make strong men blanch. So what's really likely to happen? And who will be pushing it, and who's trying to stop it cold?
Jeffrey Birnbaum is a Washington Post columnist, wise in the ways of Washington, especially on money matters. He joins us from the Post newsroom. Justin Fox is one of my FORTUNE magazine colleagues and an expert on all things economic. Jeff, tax reform can mean all kinds of different things. Just how big is the President thinking?
JEFFREY BIRNBAUM: Well, I think that's one of the mysteries here. What does the President mean when he says tax reform or tax simplification? It's open to various interpretations.
In general, it seems that what he wants to do is lower taxes on investments and increase incentives, meaning also lower taxes, to encourage savings of a variety of kinds. Whether he actually wants to go in and revamp the entire income tax system -- most people doubt that that's what he really means, and they certainly doubt that he'd be able to pull that off even if he wanted to.
COLVIN: So something really radical like scrapping the income tax system in favor of a sales tax, that's off the table.
BIRNBAUM: Right, he wants to move in the direction of a sales tax, which is in effect a tax on consumption rather than a tax on income, but I don't think he, even in his most vivid dreams, imagines that he could actually get that far nor will he propose that.
COLVIN: Let's talk about where he gets, where President Bush may get the political juice to do these things. He talked about it a little bit at his press conference on Thursday.
(begin video clip)
PRESIDENT BUSH: I've earned capital in this election, and I'm going to spend it for what I told the people I'd spend it on, which is, you've heard the agenda: Social Security and tax reform, moving this economy forward, education, fighting and winning the war on terror.
(end video clip)
COLVIN: Well, Jeff, he did earn the capital, but the decisive issues in the election were moral values, maybe jobs, terrorism, seemingly nothing to do with tax reform and Social Security. Does he have a mandate to push through big action on those things?
BIRNBAUM: I don't know about tax reform. He rarely mentioned it, only in passing.
This was the second Presidential campaign, however, in which he did talk frequently about imposing on Social Security, allowing some younger participants in the Social Security system, those who pay payroll taxes, to put part of their money into private accounts rather than sending it all to Uncle Sam, all of their payroll taxes. This so-called partial privatization of Social Security I think will be one of his first and top priorities. It's a very expensive, very ambitious goal, but I would not be surprised if that's where he puts a lot of the capital, political capital that he says he wants to spend.
COLVIN: Justin, are these realistic proposals, these Social Security proposals?
JUSTIN FOX: Yes, but there's this one little part of them that doesn't get talked about. To make them realistic, I think you also have to do some amount of reduction of benefits, not necessarily for people already in the system or even people who are going to retire in the next 10 years, but I'm 40 years old, and I think that the plan would be to shift the retirement age further out for me and people younger than me and possibly, this is this sort of technical thing, but there's this -- right now Social Security benefits are indexed to people's wages, and if they just switched it to being indexed to prices, the assumption would be that would be a much more moderate growth in benefits in the future. Because the privatization, that doesn't fix the long-term deficit problems that Social Security faces. It eases them a little bit, but those problems, at some point you either have to, people have to pay more taxes or benefits have to be reduced.
COLVIN: Right, or paid later, at later ages. Jeff, you know the Secretary of the Treasury, John Snow, is not a particularly well-known person nor is he considered to be particularly powerful or influential, compared at least with, say, Robert Rubin in the Clinton years or James Baker in the Reagan years. Does President Bush want or need a powerful Treasury Secretary to push this stuff through?
BIRNBAUM: Obviously he doesn't need it. It would help him, and I think inside Congress where John Snow does a lot of good work -- he may not be known very well to the public, but inside the halls of Congress -- he is pretty influential, and I expect that he will be staying there. Some of the President's other economic advisors, however, may be leaving, including Steve Friedman, who is his top economic advisor in the White House; Greg Mankiw, who is the Chairman of the Counsel of Economic Advisors, may also leave and be replaced.
Snow may very well stay there. And someone who may move up somehow, though I haven't quite figured out where he's going to be put, is the President's good friend Don Evans, who is now the Secretary of Commerce. He, with Snow, would play a very big role in trying to persuade Congress to pass these big fiscal initiatives. That will be quite a test, even with more Republicans in both the House and the Senate.
COLVIN: Justin, one thing the President didn't mention, didn't say the word Medicare. But when we talk about the Social Security problem, the Medicare problem is at least as big, right?
FOX: Oh, it's much bigger. In Social Security there's a clear path to fix it that probably wouldn't be too politically horrible because it would be again imposed on people who are 30 and 40 years old and believe there's a greater chance of seeing a UFO than getting their full Social Security payments.
But Medicare is this open-ended commitment, and if health care costs keep growing anything like the way they've grown, it will basically be eating within -- I mean, it's already starting to eat a hole in the budget, because Medicare comes, most of the spending comes straight out of general revenues, that Medicare tax that we get out of our paychecks only pays for a small part of it, and that hole is just going to keep growing. And there's really no, there's no clear solution.
COLVIN: President Bush did say that whatever tax reform he does, he expects to be revenue-neutral. That is it will not increase or decrease the amount of money coming into the Treasury. So asked about the deficit, he said, well, it will it be fixed by reducing spending and by economic growth. Now how realistic is it for him to count on a steadily fast-growing economy through his term?
FOX: Well, you've got to guess that. If you're the President making projections, you've got to assume that things are going to be okay, but it's perfectly possible we'll have a recession in the next few years. I'm not predicting it right now, but there's no reason why every expansion has to last a decade, because the last one was the longest one ever. And if that happened, that would throw everything out of whack. And the other thing is, if Bush makes his tax cuts permanent, there's really no path towards closing the deficits anytime soon without massive spending cuts. And the problem in his first administration, it wasn't just political capital that the President was spending.
COLVIN: It was old-fashioned financial capital.
FOX: Exactly. And I just don't, maybe the President -- and I'd like to hear from Jeff on this -- maybe the President will crack down, but I just don't get the sense that in Congress, you don't have those Phil Gramm, John Kasich types who really care about this stuff anymore.
COLVIN: Well, Jeff, the question has been put to you. What do you say?
BIRNBAUM: Well, there is a vocal minority of fiscal conservatives that have grown slightly with this election, but it is a minority. It's quite clear that President Bush is not part of that group of fiscal conservatives. He's a big-spending Republican, together with the Democrats. In fact he has never vetoed a single bill in all his years in the White House, which is, I think, an indication that he is more than willing to expand government rather than contract it. He has promised to cut the deficit in half in five years, but has never come up with a detailed plan to do so, and I think that we should not expect that he'll be able to do that.
COLVIN: Jeff Birnbaum, Justin Fox, thanks.
KAREN GIBBS: One person who has spent his career fighting what he considers the devastating effect of those deficits is Pete Peterson, a former Commerce Secretary during the Nixon administration and co-founder of the Concord Coalition. He blames Republicans and Democrats alike for bankrupting our future and stealing from our children. He joins us from New York. Pete, how are we stealing from our children?
PETE PETERSON: I was taught that a long-term tax cut is not really a tax cut at all unless you cut long-term spending. It's a deferred tax increase.
At a recent book party for my book Running on Empty, I asked my seven-year-old granddaughter to come up to the platform, wonderful little girl named Chloe Kimball, and I said "Chloe, I understand we have a social contract with your generation. I want to ask you a question. Have you signed on to $74 trillion of unfunded liabilities?"
And she says "Papa," as she calls me, "Is a trillion more than a billion?"
And I said "Yes, darling, it's a thousand times more."
She says, "My God, Papa. I'm going to have to sell a lot more lemonade."
Then I said to her, "Have you signed on to a doubling of your payroll taxes to cover the costs of Social Security and Medicare?" And she said, "Papa, I'm going to need a bigger allowance, too."
So that's the sense in which we are slipping our kids the check for our free lunch, with unsustainable debts and with unsustainable taxes.
GIBBS: Pete, we didn't hear much about this deficit problem from any of the candidates or even the electorate. In fact, they pointed toward moral issues as the real driving force behind this Presidential election. Is there any way we can make the budget deficit a moral issue and get the attention of the voters and politicians alike?
PETERSON: Well, I analogize the political campaign treatment of these issues as somewhat analogous to having two trumpeting elephants in the boudoir and then saying to one's self, "I'm going to pretend they're not there and I hope no one else points them out to me."
Now what are the twin elephants? The first is the budget deficit, and the projections are, particularly as the boomers retire, not only deficits as far as the eye can see, but bigger than they've ever been and bigger than this economy can possibly sustain, not to mention our own kids.
The second or twin deficit that is receiving far too little attention is what you might think of as the foreign deficit. That's what we have to borrow from foreigners because we're consuming so much more than we're producing.
GIBBS: Isn't it rather pie-in-the-sky to hope that individuals will come up and say cut my benefits to take care of this problem, and more importantly have the politicians agree to inflict that kind of pain for gains that are going to be seen after they've left office?
PETERSON: That's the 73-dollar question, if I may say so as you noticed in the recent campaign, the only quote-unquote reforms that we heard about was to reassure everybody that we weren't going to increase taxes and we were not going to cut benefits. Indeed both candidates came up with programs that increased the benefits. And we have become such an all gain, no pain, all get, no give, win at any cost in elections mentality that a political campaign is a very bad time to be discussing reform of these programs.
Now if you try to solve the problem in a partisan way under a partisan setting where one courageous guy stands up and proposes how to reform the benefits, you end up with what we used to call in Nebraska the turkey shoot. The poor guy that lifts his head up and makes a proposal gets shot.
The American people desperately need a very heavy dose of truth telling. As long as we anesthetize the American people by telling them that some Social Security trust fund is solvent until the year 2042 and how these trust funds represent real assets and they'll take care of all of this, we can't blame the American people for resisting reforms. So we must start by telling them the truth.
So what I would propose in my best case is, President Bush immediately announces a twin deficit commission composed of very credible, respected Americans -- not special interest devotees who only have one reform; I want more -- but people like Bob Rubin, Paul Volcker, Warren Rudman, Sam Nunn, Alan Simpson, a totally bipartisan group. It must be bipartisan if you're going to avoid the turkey shoot phenomenon.
Next, I think the President has to take real leadership on this issue. Now why might President Bush do this? Because it might occur to him and persuade him that if he doesn't take action, because of the twin deficit problem, including the foreign deficit, the landing, the hard landing could hit on his watch, and what a legacy that would be.
I think, furthermore the President should give this commission a tight deadline, because these reforms are going to be difficult and the best time to get them done is early in an administration. The worst time to get them done is as you approach an actual election. Now that would be the best scenario.
The other scenario is what you might call the crisis Pearl Harbor scenario. And in the course of writing this book, I interviewed a large number of hard-headed people who say, "Pete, get real, this is a country that only responds to a crisis." I pray that is not the case, because if we have to have a hard landing in order to get our attention focused on it, the cost on our people and our economy is going to be very profound.
GIBBS: Pete Peterson, thanks very much for joining us.
PETERSON: My pleasure. Thank you.
Direct contact electioneering
COLVIN: Maybe one reason we don't get real reforms is
that hardly anyone markets the concept, and in a consumer society marketing
is what makes things happen -- especially political things. This election
was an exercise in consumer marketing far more sophisticated than most
people realize. The next edition of Frontline, airing on PBS stations
next Tuesday, reveals how the modern persuasion industry sells all kinds
of products, including candidates. In this excerpt, correspondent Douglas
Rushkoff uncovers just how political campaigns target you and other voters
for specific messages, starting with data from Acxiom, a little known
firm that collects and sells a shocking amount of information about millions
(begin video clip)
DOUGLAS RUSHKOFF voiceover: In recent years, both parties have bought data from Acxiom and companies like it. The Republicans don't talk about how they use it, but the Democrats do.
TERRY McCAULIFFE: If I want to sit at my desk, pull up on the screen the state of Ohio and say, "Who in Ohio says that education is going to be the number one issue they're going to vote on?" six seconds later, 1.2 million names will pop up. I then have the ability to hit buttons and do telemarketing to them immediately or to send e-mails to them immediately, send direct mail to them immediately, or actually send someone to their door to talk to them.
RUSHKOFF: This sort of voter profiling, which both parties used to chase down swing voters in the general election, incorporates behaviors we don't normally associate with voting, like whether you have caller ID, a sedan or a hatchback, or more than one pet.
The thing about narrowcasting is that it gives politicians a chance to say things to some people they might not want others to hear. In 2001, President Bush's chief strategist, Karl Rove, conducted a series of experiments in narrowcasting for the GOP. The following year, the state Republican parties put Rove's findings into practice. In Georgia, they were used in a campaign to unseat a slew of incumbent Democrats. The GOP used the incendiary issue of the confederate emblem on the Georgia state flag to galvanize a select group of usually apathetic male voters. Targeting their message door-to-door and through telemarketing, the team drove high numbers of rural males to the polls, and delivered a Republican sweep.
STUART EWEN, Hunter College professor: When you start sending messages which appeal to sort of you know white people in pickup trucks, and then you're also sending messages to black people in Cleveland and it's a qualitatively different kind of message, you're really trying to stir, or you're really trying to appeal to those aspects of people which sees themselves as different from each other.
(end video clip)
COLVIN: Correspondent Douglas Rushkoff joins us from New York. Doug, politicians have always tried to send different messages to different groups, men, women, business owners, union members. What's different now?
DOUGLAS RUSHKOFF: Well, it's interesting. I guess it
was probably easier to do it a long time ago than it was until very recently,
because you take a train trip around the country and the press is basically
in that area or in another area. So you could go to Utah and say one thing
and Minnesota and say another, and probably no one would put it quite
together. But now in an age of mass media, it's very hard to get on television
and say something that might be incendiary to one group and galvanizing
COLVIN: So how do they do it?
RUSHKOFF: Well, they use the good old techniques of direct marketing. You know direct marketing has been around a long time. It's been used by companies, usually just through direct mail, where they'll find out how a certain household may be apt to buy a gun this week or buy a television this week, and they'll try to make sure that they're only spending their stamps on that home. Well, politicians are using the same kinds of techniques. They go to one of the big market research firms, like Acxiom or Prism, and they buy as much data as they can on American households. Now they don't know exactly how we voted, but they do know what magazines we buy, what kind of car we have, whether we have call waiting on their phone...
COLVIN: Why do they want to know -- that struck me -- why do they want to know if we have caller ID?
RUSHKOFF: Well, it's interesting, because then what they do is, they'll go and interview a bunch of people who did vote the way that they want or who do care, say, about gun control, and they'll find out, "Oh, look at this, 80 percent of the people who respond favorably to a gun control message have also answered that they have two doors on their car and caller ID." They don't care why that correlation exists. All they care is that they can find a correlation. So it's really just modeling people.
COLVIN: And I gather that cable TV technology is now enabling them or will soon enable them to deliver these different messages to individual households. Is that right?
RUSHKOFF: Right. Well, just as your cable box knows whether you have HBO or Showtime or not, it's technologically feasible now to deliver different advertisements to different households. So everyone will get the same station break, but then everyone will get different commercials that are aimed just for them when that break happens.
COLVIN: The person you were talking to last in that clip we saw said something that seems maybe very important, which is that this form of marketing emphasizes the differences rather than the commonalities. Is this going to be a large trend or a more important trend than we already see?
RUSHKOFF: I think so. You know, if America is red and blue now, I mean once they can figure out exactly what shade of lavender or plum each one of us is, I think we'll be rather than just two countries, we may end up being, you know, 250 million markets of one, and that's the real fear. The problem with taking the techniques of marketing and applying them to the political sphere is marketing is about me, you know, it's about the individual. It's about what are you worth, what should you have? And that's not really what democracy is based on. Democracy is not a consumer choice. Democracy is a civic choice. Democracy is about participation with a group. And when people are looking at government as this entity that's supposed to deliver a brand attribute or a product attribute to them personally, I think it's dangerous place for government to get.
COLVIN: Is it a fact that the marketers in both parties are becoming so expert at the focus groups and crafting of messages and targeting voters and shifting resources that they could deliver electoral squeakers year after year?
RUSHKOFF: They could. I mean the interesting thing is, this kind of narrowcasting usually depends on highly emotionally charged issues. You know, it's harder right now for the Democrats to use these techniques than the Republicans. The Republicans can use phraseology like "partial birth abortions" and "Kerry's going to ban your Bible" and "gay people are going to get married," and these are much more emotional issues than say, "Do you understand how the tax structure is working now? Do you understand how unemployment works?" You know, when you say "He's going to take your gun," that's a much more targeted, personal, emotional issue, so I would think they'd favor...
COLVIN: But there's nothing in the nature of right or left that says one side has a monopoly on hot-button issues. Is this going to affect how the two sides choose the issues they focus on?
RUSHKOFF: It could. I mean what it does is it leads to a more highly emotional and less rational political landscape, and that's a big fear of mine, is that when people are making these kinds of decisions emotionally, looking at it the way they're going to pick a laundry detergent or Coke or Pepsi as Bush or Kerry, that's not really -- in my judgment, it's not the best way for people to be making decisions about something so important. It ends up being a place where it's sort of incendiary rhetoric works better than rationality.
COLVIN: It's a profound issue. The entire program called The Persuaders will be the next edition of Frontline next Tuesday on PBS stations. Douglas Rushkoff, thanks.
RUSHKOFF: Thanks for having me.
NEXT WEEK: Inside the White House