candidate tim pawlenty outlined his agenda today. it includes tax cuts for individuals, a three-tiered tax system, and reducing government regulation. in his remarks, the former governor accuses president obama of engaging in class warfare. this is 45 minutes. [applause] >> thank you. [applause] thank you.

[applause] professor, thank you for that gracious introduction and for your presence here today. thank you for the hospitality and hoping up this important institution to this gathering. i really appreciate it, and i'm very grateful to have the honor to be here at the university ever chicago. this, of course, is a home to the best free market thinking in the country. we have a country now that needs significant and dramatic economic growth, and the solutions and ideas and principles debated and discussed in this important institution over many generations i think form the core of the direction that we need to move forward for this country. i want to start my remarks this morning by just asking you, how are you enjoying your recovery summer? [laughter] now, that's what the president said we were having, but that was last year, the recovery summer. now gas is $4 a gallon. home prices are in the gutter. our health care system, thanks to obamacare, is more expensive

and less efficient. unemployment's back over 9%. our national debt has skyrocketed. our budget deficit has grown worse, and the jobs and manufacturing reports are grim. now, if that was recovery, then our president needs to enter economic rehab. the american people need to stop his policies cold turkey. the addiction to spending has to be brought to a halt, and we must have a president who has a growth agenda with pro-growth policies, i will. now, the president wrongly thought the stimulus, the bailouts, and the takeovers were the solution. he says they worked. they did not. the president is satisfied with a second-rate american economy produced by his third rate policies. i'm not. i promise to level with the american people, to look them in the eye, and tell them the

truth. i went to iowa and said we need to phase out federal ethanol subsidies. i went to florida and said we need to raise the retirement age for the next generation, and means-test of cost of living adjust wants for social security for people coming into the work force. i went to new york city and told wall street the era of bailouts, carve-outs, and handouts had to end, and i'm willing to tell americans the hard truth, and i believe they are ready to hear it. the truth about our economy isn't hard at all. the truth is this. markets work and barak obama's central planning doesn't. america's economy is not even growing at 2% today, and that's what all projections say we can expect for the next decade, 2%, i mean, that's anemic, unacceptable, and it's not the american way. the recession may have changed our economy, but it didn't change our character.

the united states is still home to the most dynamic and entrepreneurial people in the world. they are all around us ready to innovate, invest, compete, and create new businesses and jobs. that will mean opportunities for everyone. they've been discouraged and weighed down by president obama's big government and heavy-handed regulations. they deserve a better deal. i'll give them one, and here it is. let's start as a nation with a big positive goal. let's grow the economy by 5% instead of the anemic 2% currently envisioned. such a national economic growth target will set our sights on a positive future, and it will inspire actions needed to reach it. by the way, 5% growth target is not some pie-in-the-sky number.

we've done it before, and with the right policies, we can do it again. between 1983-87, the reagan recovery grew at 9.4%, and between 1996 and 1999 under president bill clinton and a republican congress, the economy grew at more than 4.7%. in each of those cases, millions of new jobs were created. incomes rose and unemployment fell to historic lows. the same can happen again. growing at 5% a year rather than the current level of 1.8% would net us millions of new jobs, trillions of dollars in new wealth, and it would put us on a path to saving our entitlement programs, and it would also balance the budget. now, how do we do all this? well, in short, we need to create more economic growth by creating more economic freedom. we should start by overhauling

the tax code. it's currently an anti-growth 9,000-page monstrosity chalk full of special deals for special interests. it's main goal seems to generate campaign contributions, not jobs. american businesses today pay the second highest tax rates in the world. that's a recipe for failure, not adding jobs and economic growth. we should cut the business tax rate by more than half. i propose reducing the current rate from 35% to 15%. our policies cannot be about cutting rates, but also about promoting freedom and free markets. the tax code is littered with special interest handouts, carve-outs, subsidies, and hoop holes. they should be eliminated. such reform not only helps offset short term revenue loss

from the rate cuts, but also reduce crone yism, favoritism, and government manipulating markets for political purposes. business success should depend on winning over customers, not winning members of congress. these changes will make american companies immediately more competitive. investment from around the world will pour into our suddenly inviting market. creating desperately needed jobs and opportunities. just changing business tax rates isn't enough. that's because we know most job growth will come from small and medium size businesses structured as s corp.s or llcs, and their owners are taxed under individual tax rates, not the corporate rates so pro-job and pro-growth tax reform must include individual tax reform as well. small business owners and hard working americans need a better

deal too. small businesses should also have the option of paying at the corporate rate. on the individual rates though, we need a simpler, fairer, and flatter tax system overall, and i propose just two rates, 10% and 25%. that's it. under my plan, those who currently pay no income tax would stay at the zero rate. after that, the first $50,000 of income for an individual or $100,000 of income for married couples would be taxed at 10%. everything above that would be taxed at 25%. that's the whole structure. it would represent a one-third cut in the bottom rate, and it would allow younger, middle, and lower income families to save and build wealth and remit a 28% cut in the top rate, and it would spur investment and job creation. in addition, we should eliminate all together the capital gains

tax, the interest income tax, the dividends tax, and the death tax. government has no moral or economic basis to claim a second share of the same income. when you deposit a dollar in your bank account, every penny for ever more should be yours and your childrens, not the federal government's. now, once we unleash the energy of america's businesses and families and individuals as we did in the 80s and 90s, a booming job market reduces demand for government assistance and rising incomes will increase federal revenues. in the 1980s, revenues to the federal government increased by 99%. in the 1990s, revenues climbed high enough to balance the budget. 5% economic growth over the next 10 years would generate $3.8 trillion in new tax revenues, and with that, we can reduce

projected deficits by 40% all before we made a single budget cut. now, the next part of my plan deals with the rest of that equation which is the 60% of the deficit that is not solved under what i just described. a balanced federal budget shouldn't be a political soundbyte. it should be the law of the land. as one of 49 governors operating with a balanced budget requirement, i balanced four budget in my two terms as governor in minnesota. the reason i had a balanced budget was because under our constitution, they had to. we have to face the truth. congress is addicted to spending, and that's true regardless of which party's been in control. the best way, and possibly the only way to ensure fiscal discipline is to put congress in a spending straight jacket. that's why i support a

constitutional amendment that not only requires a balanced budget, but also caps federal spending as a per sen taming of our economy. it should be around the historical average of about 18% of gdp. only a constitutional amendment has the power to bind future congresses to keep their promises. it will force decision makers to finally make decisions, and it will give statutory reforms a chance to succeed, but passing a constitutional amendment is going to take awhile, and the crisis that we face is here right now, and it requires immediate action. i have, and i'll continue to outline specific proposals to reduce spending, reform government, and balance the budget. as i've mentioned, i've already begun that process with proposals regarding ethanol, entitle wants, government employees, reforming wall street, and much more. for example, i've proposed capping and block granting

medicaid to the states entirely. i proposed raising the social security retirement age for the next generation, and i've also proposed slowing the rate of growth of defense spending, but we can't really trust congress to do it. there's no historical record that would give us confidence that they will go forward. we can't allow though the situation to risk being unresolved. it will take down america's potential growth and our future prosperity. i propose that congress grant the president temporary and emergency authority to free spending at current levels and emotional pound up to 5% of federal spending until such time as the budget is balanced. they won't -- if they won't do it, i will. now, as an example of the effects of this in terms of the budget impacts, if we're able to cut or the president's able to impound just 1% of overall spending for six consecutive

years, we would balance the budget by the year 2017. think about that. 1% each year between now and 2017 would balance the budget by 2017. i know government can cut spending because it i did in minnesota. i cut state spending in real terms for the first time in our state's history. we did it with priority-based budgeting. we did it by setting a record for vetoes. it took a government shut down and a long government union strike, and many other difficult decisions, but we got it done. we didn't close our schools. we didn't imty or prisons. we cut spending where it needed to be cut, and we can do the same thing in washington. impoppedding the money -- impounding the money should be a last resort only to force policymakers to finally do their jobs, to cut what we don't need to allows to keep the things we need the most. now, there's obvious targets.

we can start by what i call the google test. if you can find a service or a good available on google or the interpret, then the federal government probably doesn't need to be providing that good or service. the post office, the government printing office, amtrak, fannie mae, freddy mac and others were all built for a different time in our country and a different chapter in our economy. when the private sector did not adequately provide those services, but that's no longer the case. what's more? the same competitive efficiency that revolutionized america's private sector over the last three decades should at long last be applied to every corner of the federal bureaucracy as well. it's no longer enough for the government to be on a diet. government needs to hit the gym, and hit it hard. one efficiency program as an example is called lean sig

sigma. it has a proven track record. using practices to streamline programs at the cia, the pentagon, and in military more broadly, and as i can personally attest, we used this in minnesota, and several of our agency, and it worked of the if we applied this approach throughout all federal agencies, we can save up to 20% in many programs. now, beyond all of this, the real slog of the next administration will be an unrelenting trench battle against the overregulation by our federal government. it's suffocating america's intrerp nearly spirit -- entrepreneurial spirit. conservatives have been made the butt of jokes, and considering the bureaucrats in washington and what they are in charge of doing like the strength of our shower heads, the vigor of our toilet flushes or the glow of our reading lamp, it's hard not to laugh or cry about such things, but the fact is federal regulations will cost our

economy nearly $2 trillion this year alone. it's a hidden tax on every american consumer built in the price of every good and service in the economy, and make no mistake, the current administration is hunting for far bigger game than just the lightbulbs. under obamacare's individual employer mandates, america's private health care market is in intensive care, and the prognosis is bad. the dodd-frank bill called for more than 200 new rules to be written by more than 10 federal agencies, none of them resolving the catastrophic scandal of fannie and freddie who came out untouched in the so-called reform bill. months after the law was in the books no one knows yet exactly what the law is or what the regulations are going to require. the environmental protection agency is now regulating carbon emissions. now, that was a policy that's

been rejected by the congress, but puts millions of jobs at risk. the country doesn't support it. the congress doesn't support it. yet, the epa continues to try to advance that agenda against the wishes of the elected officials in congress, and of course the people across the country. if the policies sound like they were written by people spending no time outside of government, you are right. they are known for their look of experience. this is unacceptable and fundamentally immoral to force working americans to hold down two or three jobs to afford the whims of the so-called experts who never really had one. we don't need obama care to create one-size-fits-all government run health care program. we need washington to allow a personalized private health care market to flourish and meet the diverse needs of individual patients and their families.

we don't need dodd-frank to further intertwine wall street and pennsylvania avenue. we need to privatetize fannie and freddie and remove the threat their funds can never again sink our economy. we don't need unelected officials at the epa to do what our elected officials in congress rejected. we need less epa monitoring of the economy and more monitoring of the epa's effects on our freedom and job growth in this country. our require sunsetting of all federal regulations unless specifically sustained by a vote of congress. under my administration, and it comes up for review in votes, there's sunset up for review every three to five years, under my administration also, the national labor relations board will never again tell an american company where it can and can't do business. just as the federal government must break down barriers with domestic markets, we have to break down barriers in the

international markets. congress should ratify immediately the free trade agreements with south korea and colombia. we should promote aggressively our exports all over the world. president obama set a goal of doubling exports, yet his policies have really prevented this. mine, will achieve it. finally, even if we're sceefl in changing the way washington taxes and spends and regulates, many of the gains we'd realized could be lost by the continued debasement of the dollar. as a result of the lose money policies of the fed, a strong dollar under girds all we do for economic growth. inflation and devalued dollar crucially underminds net savings and life prospects of every american. if we want to give taxpayers, retirees, investors, consumers,

and entrepreneurs a better deal, we have to maintain a strong dollar. no more quantitative easing, no more monetizing debt, no more printing money with reckless abandon. the president and the congress have an up sentive to maximize employment on their own, and a limited government streamline tax system and competitive marketplace gives the economy what it needs to do so, but we need a monetary policy focused like a laser on curbing inflation and maintain the dollar and price stability. that should be the role of the fed, and nothing more. now, america, as you know, is facing great challenges, and when times get tough, some politicians try to turn the american people against one another. regrettably, president obama is a champion practitioner of class warfare elected with a call for unity and hope. he spent three years dividing our nation, fanning the flames

of class engine and resentment all across this country. to deflect attention from his own failures and the economic hardship they visited on america. the class warfare is not who we are. i come from a working class background. i didn't grow up with wealth, but i've never resented those who have it. the top 10% of income earners already pay more than 70% of the income taxes in the country. we could jack that up to 80 or 90% as president obama would have us do, but that's not the point. while it makes the people feel better, it doesn't create a single job in america, and it would destroy many. president obama has had three years to turn things around, and all we have to show for it now is $3.7 trillion more in debt and climbing, nearly 2 million fewer jobs, a congress that has

not passed a budget in more than two years, a health care takeover that he pretends we can afford, and a fiscal crisis he pretends we can ignore. we've tried it president obama's way, and it's only made the economy worse. other countries around the world have tried it president obama's way, and they met with ruinness results. now, we have a choice. just because we've followed greece into democracy, doesn't mean we should follow greece into bankruptcy. the united states has always chosen its own path, culturally, politically, and economically. for 235 years, we've taken the road less traveled, the road of liberty, self-government, and free enterprise, and it's made all the difference. america is in trouble. there's no question about that. the frustration and apprehension

of the moment doesn't define us. where we are is not who we are. we are the united states of america. we settled the west, and we went to the moon. we liberated billions of good people from communism, fascism, and jihaddism, lit the lamp of freedom for the entire world to see. the strength of our country is our people, not our government. americans believe our country is exceptional, and they deserve a president who does too. we can fix our economy, our people are ready to get back to work. we just need to give them the tools to get there and get the government out of the way. thanks for coming today. i appreciate your time and your attention. thank you again for the hospitality to the university of chicago, and may god bless you and may god continue to bless the united states of america. i'll be happy to take your questions.

[applause] thank you. [applause] >> yeah, thanks, deen told me many of you have final exams coming up. we'll be brief, but get as many as we can. do you want me to moderate or are you? you? great. all right. >> thank you very much, governor, for coming today. we appreciate a bit of a break from our studying. i think today's a really interesting day and it's interesting you're talking about the economy because i believe just last night when you're talking about the failed economic policies of the obama administration, and a professor here just resigned from the or planning to resign from the cea, and he's been in the white house for two years, and perhaps two years from now u you'll be going into the white house. i was just curious about how you think the cbo should be reformed

potentially, you know, we keep hearing one talking about how will we fix the deficit? we'll only get projections up to a certain point in time. you know, they only up exorpt the next -- incorporate the next ten years of spending into the analysis, and i think that ultimately kind of skews things sometimes, perhaps in favor of, you know, certain politicians. >> sure. >> what do you think about that? >> that's a great question, thank you, and again, thanks for coming this morning. the question related to the congressional budget office or cbo, and of course, they are the so-called official scorekeeper in washington, d.c.. the white house puts out its own growth projections and the like, and the cbo does it as well as outside groups. i think being a governor it's important to have a neutral scorekeeper so that everybody is basing their proposals on a neutral and reliable consistent set of numbers so you have to get people to be scored on a

consistent set of numbers. that being said, i think there's a couple of things i think they can improve on. one is they do only static scoring. you're familiar with it in the room, but they don't assume growth effects to the negative or the positive. i know you have to be careful with scoring because you can get carried away and make exaggerated assumptions, but i think some very conservative or modest dynamic scoring would help model the effects of these programs. of course, they do only look at the tenure window, -- 10 year window. i also think they make a bunch of assumptions internally, and there's no , ma'am assumptions -- assumptions to be held over a consistent period of time. sometimes they assume things will be in law or they will base it only what's in law. in minnesota, you know, a model we use is we're basing it on current law and until and unless

it changes, we're score proposals going forward. two things, make sure the standards a consistent. two is allow for at least some modest conservative dynamic scoring, but i think keeping the cbo as neutral is important, and we don't want to dismantle it for that reason. >> [inaudible] >> yeah, thanks, deen? >> governor, you just proposed what would be the third round of tax cuts within the last 12 years waited for the wealthy. the first two according to an estimate i read this morning estimated the bush tax cuts added $2.6 trillion to the national debt. my question is this -- if there's a class war going on, as you suggest, who is wiping that war? -- who is winning that war? >> well, the thing i would like to focus on is to try to transsend the rhetoric and get back to this reality. for most americans, 95% of

americans, their quality of life economically is going to depend primarily on one thing, whether they have a job or not, and so to give you a little background about me, i grew up in a meat packing town. my dad was a truck driver, my mom was a homemaker much of her life dying when i was reel diffly -- relatively young, and my dad was later promoted. but he did lose his job for awhile. my mom passed on, my dad was unemployed. my brothers and sisters could not go to college not because they lacked capacity, but they did not have the opportunity. i come from a background so you know that is not of wealth. it gives you a little different life perspective, but the thing i know is this. for my family and families like it all across the country, when you ask them what matters to you and gets you excited or gives you meaning or hope, most people people describe their faith and then describe their family, and

then they describe a series of things that, you know, are meaningful to them. they say, look, i really am worried about gas prices and the ability to fill my car up with gas. they say i'm worried about affording my health care. i'm worried about whether i can get my kids to college. if they have extra money, they want to get their basement finished to have a little more space in the house, and down the list. if you go down the list, there's a common feature of each of it, and that is they need money and people have to have jobs, and so set aside the, you know, whether the wealthy benefit or not. the real measure of the proposals is is it going to generate in a transformative, significant way more jobs for more people across this country? there's about 5% of the country that is our entrepreneurial class, the people who start businesses, start capital, deploy capital, add employees, build buildings, invent things, conduct research, commercialize

it, and the like, and if that 5% becomes 9%, we have a bright future, and if that 5% becomes 1%, we're in deep doodoo, we're in deep crap. this is not about whether people are getting wealthier or not, but what are the things we need to do to make it more likely, not less likely that businesses are going to start, grow, add employees, buy capital equipment, build buildings, conduct research, and do all the things it takes to keep a private economy going. . .

>> so i'm not focused, nor should the country, be focused on whether it makes one group more or less wealthy. will it grow the economy? add jobs? we are not pro-business, we are pro-job. that's like being pro-egg and anti-chicken. i understand the shirt of your question. but i reject the premise this has fundamentally about nominal measures about who gets wealthy. it's really about important macromeasures about whether the private economy is growing autonomic rates.

i'm for the latter. there's tough to do to make it happen. it isn't make the problems more government centric. that's not working. >> hi, good morning. thank you very much for coming. i am a student here at the university of chicago here. i am have venezuela. i heard in the news there's a group of republicans in the congress trying to include venezuela in the list of countries that support terrorists. i would like to know what's your opinion about that issue. >> well, i followed the rhetoric of president chavez. it's troubling, disturbing, threatening, concerns. as to whether he should be listed or the country listed as a terrorists country, that's something i'd want to give study and thought. that is a term of art. certain thresholds are required before the label gets applies and deserved.

as to hugo chavez, i think he's extraordinarily misguided. i think he's dangerous. i think he is imposing burdens on the freedom and democracy and human rights and constitutional principals in venezuela. as to the label of terrorists country, i want to give it an additional study before i gave you the final answer on that. >> governor? >> sure. >> thank you. governor, the first tuesday on the staff side of chicago is the time when the civil defense emergency warning siren was tested. that was 10 a.m., the same time your event was scheduled. this year the standard credit rating agency issued it's own emergency warning sirens so to speak about the fiscal condition of the federal government. i think it's important that you have spoken about the issue as

an emergency that deserves the attention. you proposed a major tax cut. which is going to decrease revenue. right now if you look at the federal budget and if you pull to one side, four major programs, social security, medicare, medicaid, and defense. the remaining spending by itself, even if you cut all of it is insufficient to come close to balancing the budget. my question is in the short term, are you willing to commit to a major cut in spending on one of those four programs, medicare, medicaid, social security, and defense, or would you characterize your fiscal plan as waiting for the economic growth to balance the budget for you? >> thank you, it's an excellent question. let me tackle the spending side, then the growth side. and the federal outlays, as you know, the federal government takes in $2.2 trillion a year in revenue. all sources. and it now is spending about $3.7 trillion a year. so they over spent last year and this year by about $1.5 trillion

per year. per year. they are trillion dollar deficit programs as far as the eye can see. if you look at the pie chart, and you color the red part on the pie chart, what the gentleman just described as the so-called nondiscretionary outlays. social security, medicare, medicaid, interest on the national debt, and a few other entitlement programs. that red part would be over the halfway line on the pie chart and at the rate at which that's growing, it'll be over the 3/4 line on the pie chart within 15 or so years. or rest. almost all of the rest is defense. there's a little sliver in there for parks and prisons and a few other things. if you fast forward 15 years and look at the pie chart, it is almost all entitlements and defense. anybody who's serious about solving this problem on the spending side has to be willing to put on the table sacred cows,

including being able to talk about in detail reforming entitlement programs. so i take up that challenge. if you are going to be president of the united states, look people in the eye. tell them the truth. it's going to be the jack nickelson election. some of you remember the movie, "a few good men." the famous line, you can't handle the truth. the american people request handle the truth. doesn't mean we freak them out, scare them. it's important as the responsibility of leaders to inform, educate, and mobilize to a positive solution. here's what we should do in my view on the issues. one, on social security, as you know the numbers are upsidedown. it's a big part of the pie chart. so i have proposed specifically we're going to tell the people who are on the program or anywhere near retirement, you won't be asked. do not be afraid. we'll continue to keep the commitments to you just as they are. if you are coming in new to the work force, or newer, gradually

over time we are going to raise the retirement age. not by a ton. but by some. and that changes the big part of the numbers. it doesn't solve the problem by itself, it changes and solves a big part of the problem. number two, i don't like means testing to get back to your spirit of your question, sir. you know, i think it's not a great thing philosophically. but we are choosing between really bad options. one part of social security reform should be to say, look, if you are wealthy, you are not going to get the cost-of-living. if you are middle income or poor, you will. so the wealthy folk wills have the cost-of-living adjustment under my plan shut off. that doesn't solve the whole problem by itself. those two things combined make a very different picture going forward. two obvious on medicare, medicaid as you know, is the federal state program help for the poor. the federal program, the federal government runs it and

micromanages it at a level that's frustrated to innovators and programmers. can we do this? mostly they said no. every time we made a request to improve the medicaid program, they said no. end the duel management of medicaid, belong grant the whole thing in the states, shut off the auto-payroll spending increases, disease what we can afford, block grand the whole thing. i think you'll see amazing and positive results on innovative reform. the states can compete. laboratories of democracy, innovative, share best practices and the like. on medicare, which is the program for health care for seniors, we'll have a medicare plan out in the next couple of months or less. we'll make sure we, you know, check out that on the internet. but the component parts of it are going to say look if you want to -- if you are at or near retirement, you want to stay on medicare, that's great. in the future, we may allow that

on the option too. we're going to have other options. we're going to give people financial incentives to use the system wisely. nothing will change. but we have to switch the way we pay for health care in medicare and more broadly with this principal in mind. right now medicare pays providers, hospitals, doctors, clinics, and the like, based on volumes of procedures performed. and guess what, there are edge nap disparities between those charged based on historical costs. you know, if you do a knee replacement in minnesota, the reimbursement to the mayo is different than a knee replacement someone else in the country. it's not based on quality, it's not based on performance, it's not based on anything, other than historical weirdness in the way that medicaid gets reimbursed. if i charge you for volume, what do you think you are going to get? lots of volume. we don't want to pay hospitals and doctors and clinics and providers just for how many

procedures. we need to pay them fairly, but switch the payment system from one that pays for volume, to pays for better results and better efficiency. we've done these kinds of initiatives in minnesota. they work. i'll give you one example. if you did a survey, as we did in minnesota, what kind of care diabetes patients are getting. about 8%, this is one the healthiest states in the country with some of the best health care in the country. 8% of the type i diabetes was getting what you'd consider world-class or mayo clinic care. if you under treat or mall treat or don't treatment, it leads to all kinds of more expensive and morbid conditions. it can lead to amputations, organ transplants. not only bad for the people, more expensive, but they are also -- i should say more expensive. we said we will pay you bonus

ifs you can get increasing numbers of your patients not to this poor level of care, but to increasing levels of care and outcomes. guess what, they've responded well. costs, i think, are going to go down. that's medicaid. that's lots else. those are the big three. as to defense, i don't believe we should cut the defense. i think we can slow down the growth compared to the cbo baseline. i think the savings can be realized and back into defense. it's really important that we maintain the first responsibility of this country, which make sure the country is secure and the people are secure. it's the first and most important of the federal government. deane, we're done. let me say thank you for coming. good luck on your finals. if you want more information on any of these stay in touch with us. we'll be happy to do it. over the course of the summer and fall, you'll see a series of additional policy initiatives from our effort. and we'd love to make sure that

we keep this dialogue going. thanks for coming this morning. i appreciate it. [applause] [applause] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> tomorrow on "washington

journal" steven law. >> connect with c-span online with the latest updates on twitter, political places, in washington and beyond with four square and programming highlights on the youtube channel, c-span and social media. connect today. >> as congress and vice president biden continue to negotiate planning for cutting the federal deficit, four former budget directors discuss this at

a school for public policy and georgetown community press. the directors including alice rivlin, the cbo first director, robert reischauer, rudolph penner, and douglas holtz-eakin. author of the "honest numbers: power in policymaking." this is two hours. >> issues that we're having about issues of national important. i'm described so many people from diverse backgrounds through organizations bound, i'm sure, by the singular attraction to discussions of the federal budget are with us this afternoon. before we move on, i want to just pass on a couple of thank yous. the first is to georgetown university prez -- press which is a co-sponsor and the house

budget committee for lets us use their hearing room. it's an appropriate forum for the discussion about debt. i don't have to spend much time why this is a timely talking. we were treated to a near government shutdown. by early august, it will be necessary to increase the debt limit, in order to prevent the unprecedented default in the debt. in longer term, of course, the levels of debt that we have are unsustainable, making it imperative that something be done about them. there appears to be consensus on what, when, and by whom. to help us address the questions, we have a channel of experts who are each on the short list of the go-to people on the topic of federal budget. this is one of many things they have in common. not only are all they among the most accomplished economist. together they constitute half of the individuals who have been directorred of the congressional budget office.

cbo and most everyone knows and indeed most everyone in the country, has sent the founding become the source of objective analysis and federal issues and critical junctures help to clarify. the one now thereby no different. i want to quickly introduce, if i said all of their highlights -- i will hit the high points. to my immediate right, alice rivlin, she's a visiting professor at georgetown university and senior fellow in the economic studyings program at brookings. she has almost literally done in all. former director of omb, couple of stints at brookings, vice chair of the federal reserve, co-chair of the task force on debt reduction, and also on president obama debt commission. in 2008, she was named one the

greatest public servants of the last 25 years. this is a single line in her boy for my money represents her greatest accomplishment. it simply says ms. rivlin was the founding director of the congressional budget office which she served at from 1975 to 1983. to alice's right is rudy penner, institute fellow at the urban institute and holds the r.j. francis urban chair in public policy. previously he was a managing director of the berens group, and also affiliated with enterprise group and held many positions at government, omb, hud, and council of economic advisors. he was the second director. robert d. reischauer, to rudy's right, is president of the urban institute. he was a member of the medicare payment advisory commission from 2000-2009 and was it's vice chair. and he is also one of two public

trustees of the social security and medicare trust fund. he's also worked at brookings and was with alice rivlin when she set up cbo in 1975 and also served as the assistance director and dep si director. he was cbo third director from 1989 to 1995 during which time i had the great pleasure to work for him. you maybe expecting me to tell you that doug holtz-eakin who is to bob's right was the fourth director of cbo. this is not true. he was the sixth director. having served from 2003-2005. he came to cbo immediately from the without council of economic advisors. before of which he had a distinguished academic career. during 2007 and eighth, he was director of domestic and economic policy for the john mccain presidential campaign. currently he's the president of the american action forum. even though we're in the house budget committee hearing room, where each of these individuals

have spent, i would think it's fair to say countless hours, delivering prepared statements, we wanted to avoid prepared statements and make this session as interactive as possible. therefore, i'm going to pose questions to which each of the panelist will respond if they so choose. for each question, i will then open up to a more interactive discussion among the panelist if they would like to talk to each other, and the panelist and the audience. i can't wait. i'll start with the first question. and that is that the financial markets, for example, standard in moody's say it would take a plan to reduce the u.s. debt in the medium term. what i'd like to know from the panelist is what does a credible plan look like? that is what would be the minimum requirements for a plan to appear credible? i'm going to turn to alice first

and see if she has any views on that. >> yes, i do. [laughter] >> first, i want to thank phil for writing this book. and recognizing that cbo is an important organization and deserve to have a book about it. and not only that, it's a good book. but back to the question what is a credible plan? there's no single answer to this. i spent the last year and a half, almost two years now serving on two president's commissions who objective was to answer that question. how do we get the federal budget back on track? the president's commission and the one i co-chaired with my old friend pete deminichy are both bipartisan. i think we learned it is possible to put -- to put together a bipartisan plan that

answers that question. first, what's the objective? we decided in both these commissions that mainly you weren't aiming to pay off the debt or even to balance the budget, the first thing to do was to stabilize the debt so that it is not rising faster than the gdp is growing. and stabilizing at roughly 60% of gpd has come to be sort of a mantra of what constitutes the objective of a credible plan. and then when you start working through the numbers to see how you get there, you don't have much choice. you have to do something to slow the rate of growth of medicare and medicaid, and to put social security on a firm foundation. there are lots of ways of doing that. and we may get into a discussion of what's the best way later. but you have to slow the rate of

growth of those big entitlement programs or you can't get there. on the other hand, you can't do that quickly. so you are immediately driven to the discretionary spending side, which can be controlled faster. both the commissions froze discretionary spending for quite a number of years. but then when you get through all of that, even if you start with an ideology that says it's a spending program and not a revenue program, you realize that you've done an awful lot that you haven't solved the problem and moved to the revenue side. that drove both commissions to substantial tax reform that would improve the efficiency of our tax system and allow us to raise more revenue with lower rates. i think the arithmetic drives you there. that is basically the outline of a credible plan. >> rudy? >> well, thanks, phil.

thanks for organizing this and thanks for a good book. i had do one disappointment. as you said we've spent countless hours testifying here. i was hoping to set up here. here are we in the pits again. my great fear that maybe there is no such thing as a credible plan in the following sense. is that the two parties have become so ideologically pure and the ideologies are so far apart, what one party think to be a credible plan, the other party thinks to be totally noncredible. and that's very hard to see them agreeing to the sort of arithmetic plan. that alice put forward. we often blame bipartisanship for this.

i don't think that's the right word. how to think of anyone more partisan than tipp o'neil. and reagan. yet two of them got deal after deal after deal. the two of them agreed secretly not to oppose the recommendations of the greenspan commission on social security. can't imagine somehow speaker boehner and president obama agreeing to anything like that. would have been nice if they would have agreed to not to oppose or to support the recommendations of the fiscal commission when they came out. set a recommendations that i had adopt in an instance that are buffering on health care costs. but again it just very hard to imagine what kind of plan the two parties could agree to today. >> bob? >> thank you, phillip for

hosting this discussion. congratulations on the book. when i walked in the room, i was handed an envelope, which i understand has the credible plan in it. so as not to be an advantage over my colleagues here, i've decided not to open it yet. you know, maybe at the end i'll open it and reveal the credible plan. credibility, i think, has a lot of different dimensions. and some of them are substantive, some of them are procedural, some of them are attitudal. i don't think credibility involves a number like it has to be $2 trillion over ten years or $3 trillion or anything. i think it involves taking a significant step in the right direction. this is a mini inning game that we are in. and it's just begun. i think all of us would fall

over in a dead faint if, you know, the plan that would get us to 60% of debt to gdp ratio were enacted this year. what would we do? for the rest of our lives? [laughter] >> so that's -- >> sounds good to me. >> so a certain, you know, seriousness, not particularly important how big, and something that is perceived by markets and leaders as being sustainable. and that involves a degree of balance as alice has suggested. not all taxes, not all spending. because i think anybody with any political judgment at all would say if we go too far to one side, or too far to the other side, there will be a political reaction. and different group of folks

will come in and turn the card over again. it has to be a plan which the public and the policymakers think is the best they can get. and understand that they are going to have to take this medicine, i'll talk about that later and answer to some of the other question that is are raised. it has to have some safety valves that if things don't go right in the sense of the economy or world events, there's a way out that doesn't involve huge and wrenching procedural changes. and there has to be some kind of enforcement mechanism that if the system tries to undo it, or it fails to achieve the modest goals that it has, there's somebody standing in the

background, some procedure standing in the background, triggers maybe of some kind, that will push us forward. so those are the elements that i see in the credible plan and let's hope they are in here. [laughter] >> all right. doug? >> let me also begin by thanking the right people. house budget committee, georgetown university press, everyone from coming, and let me begin by complaining about phil joyce. if in any way i contradict what's in his book, it's the fault of the author, not interviewee. all of my life, i have to go after alice and rudy and bob. they always say everything. i never get to say anything new. it's happening again. thanks, phil. [laughter] >> i'm delighted to be here. on the credibility, the reality is credibility is something the market believes of that's a very slippery concept. so we don't know ultimately.

it's been incredible that the market has believed the things they have believed thus far. and certainly changing the direction is an imperative. we don't know exactly what they are going to buy into. i think we know -- i think we should think about it in particular ways though. number one, it's not a bright line. there's more and there's less and there's no bright line at which points the international markets are going to lose the confidence of the united states. i believe we are close to that state. and it should move in the other direction as quickly as possible. we don't know exactly what the number is, exactly what the contest is. more is better than less. at every juncture. we need to get more in the way of long-term fiscal outlook that is sustainable and has less debt. second, i'm with bob. i don't think there's going to be a plan. there's going to be multiple plan. what we are really worried about is what's the first step? and is the first step going to

be compelling to those international lenders that we compare so much about? there, i think we do know a couple of things. i think that policy changes are better than process solutions. they are -- it is more convincing to actually change the actual structure of entitlement programs so as to produce the budgetary in the years to come, than to set targets for the promise to do that at some point in the future. the more that we see the congress and the administration touch the kind of policy choices, which alice went right to. these are policy choices. i think the more we see that, the better. the right menu, all of the spending programs and tax reforms. the more they can get of that in the first deal, the better off we will be. the less we see of that and the more we see of appeals to targets, triggers, and promises that honest the next crowd is going to be really good at this. the less credible it's going to

be. >> thank you. are there anything that any of the panelist have to sort of respond to what they've heard from each other? >> i could just make a comment on doug's definition of credibility, which is whatever markets will believe in, to cast our eyes back a few years and remember markets will dilute themselves. very greatly as long as they possibly can. we saw that right up to the fiscal crisis. we wouldn't put a lot of faith in, you know, to get by all we need is for them to believe. they will believe in almost anything that makes them $1. >> that's about right. when markets move, they move fast. they don't have a lot of lead time. i agree with what several people

have said, there isn't going to be one plan. there's going to be a series of plans they didn't mean to imply, imply otherwise. but -- and i certainly agree with doug that it's a lot better to do substance than to do process. on the other hand, we're running out of time. and when you -- with respect to the debt ceiling. and when you think about what it would take to actually legislate significant medicare and medicaid reform and tax reforms, i don't think we're going to be able to do that. can we put in place a plan that's credible? >> now i'd like to if there are questions from the audience in terms of what a credible plans looks like. what might look credible to you, if anyone has any questions, we'd be happy to entertain them.

there's a mike to get you. all you have to do is raise your hand. yes, matt. please identify yourself and where you are from when you ask the question. [inaudible question] [laughter] >> and you have the credible plan. >> yeah, right. >> someone with a credible plan -- >> okay. i think we have it now. >> a couple of years ago, or even last year, we would have said that we have to distinguish between the immediate near term and the medium term.

point that in some eyes be under scored by the economic reports of the recent days which suggest that we are -- the economy is doing very badly. and one modest modest -- no -- s the main story to doing badly is cutbacks in spinning at the state and local level leading to big hits of employment of that area. i know i've had a conversation with at least one of you talking about the need to distinguish between pushing the economy in the short run and then somehow credibly moving in the medium term to do the opposite. now it's not at all clear our political system is able to do that sort of thing. we obviously went a long way, whether or not enough is a question. we went a long way in stimulus package two years ago. and now we are full speed ahead,

or part of the system is trying to be full speed ahead. cutting in the other direction with no -- with total rejection of the notion that the level of federal spending and level of deficit has anything to do with stimulating the overall economy. i guess this is a -- is there any prospect remaining for trading off some restraint in the very short run with credible commitments, two or three that would take effect two or three years down the road. >> you know, one thing was very bad. i never thought there was contradiction between the short and long-run goals. i think it would have been possible simultaneously to announce various kinds of short run stimulus programs, putting a plan that would, in fact, mix things up in the longer run. now i think things are a lot more complicated. first of all, things aren't as

bad. there is, indeed, a slow spot in the recovery, that's not uncommon for recovery. we are not sure what's going to happen next. i think we're playing with stimulus at this time even conceptually is -- >> okay. sorry about that. playing with stimulus even conceptually is somewhat risky when you are already in a recovery, given the time lags before they -- it has any effect. but politically, there's no danger there. i think. absolutely no prospect from the stimulus program, from even the fiscal or monetary authorities. >> i think as rudy suggests, it's a great opportunity missed. that we did not do stimulus simultaneously with long runs

deficit reduction. and i don't just mean two or three years from now, as you said. i mean the real problems are out there a decade or more ahead. and many of the things that we could do now and must do now are things that won't take effect for quite a long time. but should be legislated to show that we are serious and can do them. but you still have a timing question. i would be opposed to cutting the deficit too quickly right now. and i'd be very much in favor of cutting it out in the future. and i think that only makes sense given the fragility of the recovery. >> doug just raised his hand. i was going to call on him before he raised his hand. i was sure he had something to say about that. >> i'm on record as being a lot less enthusiastic about the stimulus than others. whatever the merits in 2008 or 2009, that time has passed.

that's for a couple of reasons. number one, i believe the situation is incredibly urgent. look at the measurable parameters. the things that you can take a look at on the numbers, gross debt to gdp, above 90%. the level associated with in the work, slower economic growth, big problem in the united states, higher probability, not something that we want to mess with. look at heavy reliance. they borrow short. they have lots of contingent. as far as the theory of the getting in trouble, we look like that kind of a place. i think there's tremendous urgency in gets something done. so the step two in the argument

is i started cynical and went downhill by watching the congress. their capacity to do two things at one. to two on and off, let's get on with controls the debt. the third thing, there's a tremendous deception about the spending cuts. when the house cr came out earlier this year, the hundred billion dollar numbers scaled over the horizon, it changed actual purchases of goods and services in 2011 by $8 billion. it's a $15 trillion. that's nothing. and to let that get in the way of doing a deal really does trouble me. and so people aren't terribly sophisticated about the fact that it takes the government a

long time to spend money. it takes a long time to unspend money too. we should get on with this and not let it stop. i live for the day that the congress cuts aggressively. we've never seen that. i'm waiting. i'd like to see that. i guess the last reason i worry about this is we have -- we have returned in a troubling way on a bipartisan basis to the policymaking regime of the 70s in which both fiscal and monetary policy were very reactive, attempt to fine-tune the economy, target unemployment, they don't worry about inflation. don't worry about the fiscal situation. the outcome of that policy regime was not good. it was chronic high employment, high inflation, poor economic employment. and i think we've lost that less. i'd like to set a strong fiscal path, lock it down. what's spending going to be, and what's the taxes going to look like and grow better.

>> other questions? tony? >> tony mckann, public policy at the university of maryland. having been up here in the '80, you look back at a time when agreement was reached and seemingly you made progress. when you sat here, the series of agreements every time we came back from reconciliation bill, the deficit was bigger and the problems seem to extent to quote david stockman as far as the eye could see. it didn't seem to me we made progress until we over heated the economy in the late 1990s and we were able to generate revenues to solve the problem. with that background, what does that say about a credible plan when as dr. schick has said, we made hundreds and hundreds of billions of dollars in scored cuts in medicaid and really never changed the program hardly

at all. >> i don't know. i'll say two things anyway. i think the first thing is to certainly anyone who is sitting fondly thinking we'll just run the clinton playbook and it'll be fine should take that notion and put it aside. we're not going to get a piece out of the fall of the soviet union. it's, in fact, a world with many threats. we're not going to count on the dot-com level we believe it's going to come on forever and balance the budget that way. and certainly, we are not 15 years away from the retirement the baby boom. the entitlement programs press things considerably. you really just -- you can't look back to that era and say it worked. we know what to do. different world. i think that's the biggest thing.

the second is among particularly conservatives, folks i talk to, there are some who are fascinated with the idea of the sort of regimes that are across the board cuts. one percent across the board. off we go. that doesn't fix the problem. unless you change the programs, reform medicare they are basically broke. they are not delivering the quality of service that we like to see. they are not providing secure safe net for the future. so we have a simultaneous obligation to have a secure safety net for the next generation. that requires reforms and the fact if you don't change the structure, once you stop, they come back to life and the budgetary problems there. reform is the keyword. it's not enough to balance. you got to reform. >> just -- >> sorry, bob. go ahead. >> tony, you harkin back to the

1980s. the 1990 and 1993 budget reconciliation bills were real med meat. they did lower for the discretionary spending, they did raise taxes, they did cut entitlement programs and combined with the strong economic history of that period and some luck, we ended up with four years of budget surpluses which i don't think you or anyone on the panel here in 1995 even in 1997 after the balanced budget act was passed would have predicted it would occur. the 1980s, you know, there were a few things done. there was rub which had a few

problems with it. i would argue based on the work i've done and that others have done, while it came nowhere near achieving it's objectives, it did dampen the growth of deficits. so, you know, i don't think it's the same kind of situation that we are looking at right now. >> i was going to say much the same thing. to emphasize not only did some good. the processes that we were working under in those days did a lot of good. paygo actually mattered. the spending matters. and help, and the benefit slowly and economy growing faster in the 90s. even you can argue and i think i saw bill walk in actually had

some impact. it wasn't nothing. so i wouldn't rule out the efficacy of some strong process rules. >> reflecting back on the 80s, i think the question early defining the spending cuts and because we went through the '80s with a large number of so-called tax increases, the first of which was tefra bill of 1982. i heard it characterized by some as the biggest tax increase in history. but it was a tax increase relative to a line that was flunging in -- plunging in terms of the revenue cuts that had been passed early in the reagan administration. similarly with the remarks about medicaid cuts or medicare cuts. they are things that slow down the rate of growth and didn't really cut things.

when you put that on top of the recovery, vigorous by today's standards in the early '80s, was still disappointing then. and it really did create a lot of frustration in the congress. because they had done these hard things. they had changed the tax trajectory. they had slowed spending, they thought, and yet the deficit continues to go up. that's what brought us graham-rudman was ultimately the frustration. i've been reading a lot about the british austerity program. they don't have the same notion of baseline. they compare everything to last year. it's so refreshing. and so easy to understand. i just wish we could do that in a country. >> thank you very much. we will return to -- for more questions later. now i have another question to ask. and i'm sensitive to doug's plight. i'm going to ask him to respond first. the question is this: we have

heard a lot of people make arguments recently, perhaps having the u.s. default on it's debt wouldn't be so bad. if that's what it took to get the congress and president to be serious to reduce the debt. my question for the panel is there any plausible argument in your view that says if the default is necessary to getting serious about debt reduction it's desirable. should we draw any distinction between the little and bigger. that is one that's two or three days and gets people attention. then we sort of move on versus something that's more long term. >> let me answer the last part first. which is eve said to adam, it wasn't a very big apple. it's a bad idea. little default, big default, default is bad period. there should be no one who believes otherwise. and the idea that somehow it's a

pro-growth strategy to raise interest rates on the permanent basis in the united states is just crazy. we need to grow at this point, more than anything else. so everything about the avoidance of default should be conditioned on the recognition that raising the debt limit is a recognition of the symptom. the symptom is the bills are coming due. we have to raise the debt limit. the problem is the debt. we have to fix the problem and deal with the symptom. i can't endorse anything that involves faulting first. >> i -- we're going to go this way. >> yeah, please. >> okay. i saw alice warming up. i thought -- >> sorry about that. >> alice wants to disagree with me. >> while i agree with your basic point, you know, is there a constructive perspective on this issue? and by default, what we're

talking about here is the failure to pay in a timely basis the obligations of the federal government. and that might mean that, you know, social security recipients receive their payments and those who have interest earnings receive theirs. and the urban institute has none of its bills to the federal government paid. so, you know, this -- >> that's easy enough to endorse. >> i want to get you on board here. [laughter] >> and it strikes me that we don't have forward movement on this. in part because a significant number of policymakers and larger number of people in the public aren't convinced that pain and some sacrifice is unavoidable. and somehow we have to change that situation. we also have a number of policymakers who have staked out

positions which in no way are no concert with resolving this issue. and they need some cover. and so if there were some way to engineer a 700 point drop in the stock market or something like that for a few days, you know, to shake people up and say, you know, you got to get serious about this. we have to do it in sustainable kind of way. do i advocate that? no. do i think that's risky. yes. you know, but we're looking for adult behavior here and seeing none. [laughter] >> the only trouble with the 700 point drop, it could be 2100

before we're finished. i find the talk about this totally baffling. i agree the dumbest thing to do would be to default even for one day at this point. i find dumber politically this notion of prioritizing things. where we make darn sure the chinese get their interest payments, but we're a little dubious about whether we'll pay social security benefits or pay the bills of people here at home. that doesn't seem to be a winning political strategy somehow. for a period in any life, i worked a lot internationally. there are probably more countries in the world that don't pay their bills that do. but when you work in a country like that, it is a very bad scene. because somebody has to choose which bills to pay and which bills not to pay. and if you talk about an opportunity for favoring your political friends, or taking side payments, the amount of corruption, that kind of

situation engenders is very problematic. so i don't see much good coming out of these notions that somehow if we got a big budget deal it'd be okay not to pay interest for a few days or weeks. it's playing with matches against gasoline, as far as i'm concerned. and would be incredibly stupid thing to do. >> i agree. i want to be firmly on record. default is a bad thing. we shouldn't let it happen. >> all right. that's clear. are there? yes. go ahead. >> just to go back. i think it's important to emphasize just how misguided is this notion that if you raise -- if you don't raise the debt limit, somehow it'll all be okay. this is -- i think at the heart of this crowd that believes there's going to be no real pain. and the problem is that number

one, that we let $2.3 trillion in revenue. there's only $300 billion in debt. it might be risky. pay the debt service to the chinese. there's $2.1 in mandatory spending. you can almost pay that bill. $100 million haircut. that's when you have entree -- have zero for national defense and nothing in the spending. that's just just -- it's imposse to believe that that's either viable or credit market, rational. it's like saying i like the second mortgage. you can go out and take the time, the house has no roof, windows are broken, siding is falling off, there's no way you can get the second mortgage. this makes no sense from a credit management, and doesn't

make any sense, doesn't add up. what's worse about it from an absolutely political strategy, the spending isn't gone. all it says is the treasury gets to prioritize which bills to pay. it's still the law of the land that we have to spend the money. it moment it comes in, it goes out. they haven't accomplish the goal. if you want to cut spending, change the law. i have no sympathy for any of this line of reasoning. >> okay. we have a remarkable degree of consensus on the panel. defaulting the debt is a bad thing. i would like to entertain questions from the audience. anything anyone wanted to opine about the debt ceiling. >> john ducey graduate of public policy, i work in the space domestically. since we're all in agreement about the default. going back to the question about cutting the debt, the tax reform, so historical question and then a sense of what's going to happen in the future.

so in '86, 1986 tax reform, did that have a significant impact on reduction in the debt? what do you think the prospects, even though tax reform isn't the silver bullet to solve everything? do you see a likelihood in the next two to three years? >> i do. the question about '86 is no. '86 was done in a revenue neutral session. it shouldn't have been, but it was. and the kind of tax reform we're talking about now i believe must not be done a revenue neutral. we must have a more drastic, base broadening than we had in '86. such that we can lower rates and still raise more revenue. >> yeah, i think it's almost a necessary condition for resolving our budget problem in the long run. it's very difficult politically

as we showed in '86 and the fact it hasn't happened since '66 -- since '86 is an indication of how challenging it would be. i see no prospect of resolving this budget problem without some kind of increase in revenues. i see very little prospect of conservatives ever agreeing to say the new tax, like the value-added or energy tax. it'd be crazy in my view to simply raise rates on the current inefficient and unfair system of taxation. so the only hope i see is as alice said, the ability to raise more revenues, but with lower rates. and the the only way you can do that in my view is with the radical tax reform that broadens the base very substantially. >> just another footnote on the '86 tax reform. and that was that it was revenue neutral over all, but for

individuals it was a tax cut. and it was a tax increase for businesses and businesses who are run by individuals thought that this was a trade off that would not last, that once the lights were off, they would come back to the ways and means and finance committee and undo some of the tax increases that were imposed on them on the corporate side. so we don't have a history here of sort of true revenue neutral tax reform, let alone tax reform which raises a great deal of money. although i would agree completely with alice and rudy, if there is going to be a significant contribution of revenue to the solution and i think there has to be. that tax reform is a critical

come -- aspect of that. but that brings us back to alice's original point. which is, you know, it's getting late. tax reform at '86 was the result of many years of work and study and analysis in treasury and elsewhere. while lots of people have sort of discussed the idea of reducing itemized deduction or various tax performances, you know, getting the dials set right on things like that are not easy to do. >> the last footnote on the 1986 tax reform is that while it was intended to be neutral, it did not play out that way. indeed, the corporate money never showed up. in part because i think we made a bad choice in how we structure this.

it lost money, and it drove the pressures somewhere after that. i think that is important to remember. tax reform is really hard to get done. you can count on one hand the number of substantial broad- based reform. on the evidence, this is an incredibly difficult policy task to achieve. i think this one is even harder for the reasons that have been outlined. the right reforms in this day and age are the ones that lower the corporate rate, in many cases quite dramatically. but with a corporate rate -- what were the corporate rate so we get in line with everyone else. -- lower the corporate rate so we get in line with everyone else. i am not a political expert, i have proven that, but i do not think that will be a winner.

if you are not going to do that, you have to drag into revenue neutrality. there are some real serious political opposition to getting another tax in the system. this is a territory that i believe, if we get it done, and i firmly believe we need a better tax system, it does not happen. >> it certainly does not happen fast. and i sense that there really is a difference atmosphere with respect to spending through the tax code, that even many conservatives are now recognizing that we have done a lot of spending to the tax code and call it tax entitlement, a tax earmarks or what ever, some of that is fair game. >> other questions? bill. >> [inaudible]

>> i apologize for being late, what is the best and worst memories you have while you were director? [laughter] anyone? >> people are struggling for their worst memories i am sure. there is such a long list of best ones. anyone want to take that? >> my best memory is when i was noted for wearing a dark suit with the red tie a lot. that might be every day. i was invited to breakfast by a

dear friend, and when i return to the office the entire staff was dressed in my clothes and standing in the great hall and serving my favorite foods, twisters and diet cokes. there were pictures of me in this very suit and tie all over the place, and i will never forget it. it was the happiest day of my life. the worst day for me was the night of the house vote on the prescription drug bill in 2003 where i was -- since our work was done and it was just recreational boat commenting, i thought it was ok to slow -- fly home. i turned on the tv in the were still doing recreational boats counting. it was clearly one of the fiscal missteps of the past decade, and it was one of the political policy missteps in the way the pope got done and the nature of strong army to get the

boat, and that was a bad night. >> anyone else have any memories? >> wait a minute. [laughter] >> should we just let him hang? you can think about that some and we can come back to it. >> one i remember was the moment in which we really established the cbo as a nonpartisan agency, which as i remember it was about two years into the cbo's history. we had two years of president ford, and every time we said anything that was critical of anything that the administration had done, like it would not save

that much money or whatever, the republicans were all over us. then unfortunately president carter put forward an energy plan that did not look to was like it would save nearly as much as they were planning, and we said so. although some republicans were saying isn't it wonderful we have a non-partner -- non- partisan congressional budget office. the non-partisanship was established from then on. >> i want to ask another question, and it is taking off from the discussion of tax reform that we just had, and it is partly a political question, but it is partly a policy question. it seems increasingly like many democrats would not accept a plan that such as medicare and social security, and in fact the lesson we are supposed to have

learned out of the special election in the buffalo area is that if you touch medicare you will be defeated. republicans will not touch a plan, apparently, that raises taxes. i am wondering, as alice said it is getting late, i am wondering if there is any way politically to touch either of those things in a way you can actually bring the two sides to agreement. i guess the other part of the question is there a distinction between what is politically feasible and perhaps what is desirable or could we have this happy circumstance of both being the same thing? >> well, from a substantive point of view, there is no way of solving this problem first of all without getting some handle on health cost. if you thought of financing them by raising taxes, you would have to raise taxes every year

because they are growing faster than our income. that is an essential part of the problem. the only other part of the budget that is growing and causing this problem is also security, and it is growing much less fast, but i think there is a lot of room for reform with that, and we hit the two hottest button issues you can imagine. i do not think government has ever invented anything as popular as social security and medicare is very close behind in math, but in my view they do need reform. i do not see an answer to the question without some increase in revenue. of course a ferocious battle on how much, a solution has to come from their purses slowing down spending growth. how do you get there politically is a great mystery. i do not think we do have much -- forgetting about the debt limit debate, i think more

generally there will come a time when people will stop investing in our debt, and we do not know when that will happen maybe it will not happen for 25 years, but i think it very well could happen in two years depending on circumstances. i see this as a race between a political system that is moving glacially toward some kind of solution. so glacially it is hard to see any progress whatsoever, and an economic system that is heading toward a crisis. so far the crisis path seems to be winning the race, and hopefully that will change soon, but i am very pessimistic right now, because i do not see much kind of change anytime soon. >> i think that is absolutely right, but i guess i am less pessimistic. i am always the crazy optimist.

i think it depends on a bipartisan group of leaders, and i think it has to include the president and the leadership of both parties being scared enough that they've recognized that they have to put together a package that they are not going to like, that it will have some things in it that each side does not like. we did that in simpson bowl els, in sitting members of congress and five committee members signed its, and all felt there were things in it that they did not want to support -- simpson-bowls, it and five sitting members signed it, and all felt there were things in it

they did not want to support. tom coburn said it best. we have to get that spirit to come to the forum, because people are scared enough of the consequences and the things we have been talking about appear that they are willing to give up something for the good of the country. >> on medicare and social security, we know the substance of that. that is not complicated. the important thing is for the american people to recognize that the status quo was unacceptable. in fact, as i said earlier, all of these programs are broken from a budgetary, substantive point of view. our obligation to the safety net requires that we actually fix them. that should change the policy of putting them on the table. it does. in polling i have done at my

think tank, if you ask -- for example, with the debt limit question, we asked about a clean debt limit increase and nine out of 10 americans are opposed. they are sick of the whole thing. if you ask what would you put on it to have it be sports -- have to be supported, they say changes to medicare and social security to make them both fiscally sustainable. if the choices presented to the american people, if you do not get to keep what you have forever, if it is not going to last, they will be amenable to changes to the programs. they want them to last. on that front, i think you can get it onto the table. the tax thing has always been problematic for republicans. did i say that right? i think there are two things to

recognize about that. one, there is a lot of tax policy that has nothing to do with raising revenue in an efficient action and it does look like social policy in disguise. -- like spending policy in disguise. and the other is that historically, when they have agreed to both spending cuts and tax increases, and they have been hoodwinked. they have gotten a tax increases and not the spending cuts. i think if this sequencing was right, you would change the tax debate considerably. i am with alice. i am optimistic. this country will get this done. >> no risk of me agreeing with him. i am deep in the camp of pessimism. i would disagree with a lot of

the things doug said. the consequences are not real to most americans at this point, and unfortunately, not too many political leaders as well. they might understand that these programs are broken from a budgetary standpoint and want them to be around for their kids and grandkids, but that is a whole lot different from saying cut my benefits. from a beneficiary standpoint, medicare is not broken. it is a terrific program. social security is not broken. even presenting to the american people that, you know, you're living a lot longer. a larger fraction of your total adult life is being spent on social security. do not think we should raise the normal retirement age along with a longer life you're going to be leading? a huge opposition to that.

and you wonder, where can you really start this conversation, because what we have to do is tell the american people they're going to get less for more. they're going to pay more and get less. we have been in a sense living beyond our means as we look forward, and that is not an easy thing to do. we have been having a great sale on government services for the last 20 years, and you do not want the sale to come to an end. so, i think it is going to be hard to get reason to prevail. in this discussion. the fundamental change that has taken place since the last big budget deals is the communication revolution that we have. cable television was not around the way it is. news broadcasts that were mostly

opinion and less objective news did not proliferate. there were not loggers. there were not facebook and twitter and all of these things. an objective presentation -- where an objective presentation of the evidence could dominate the debate, nothing dominates the debate now. and i think that will make it difficult to come to a resolution without some kind of external crisis. >> others want to respond to anything they have heard? > i thought rudy was going to say he is even more pessimistic after listening to bob [laughter] i have a follow-up which is a question i'm asking to a group of economists who have been around the political process for a long time, which is, what is

behind you are all saying is the increasing polarization. that is, there is a gap, it seems to me, between the leadership and the rank-and-file in both parties, and there are a lot more people who have, i guess i would call it taken the pledge. the pledge on the democratic side is we will not touch medicare and social security. the pledge on the republican side is we will not raise taxes. when i have heard a little bit is maybe we can raise taxes if we can say it is not a tax increase. it is just tax reform or eliminating tax expenditures or cutting back untack expenditures -- back on tax expenditures. i'm wondering if anyone would on how in anent an increasingly polarized environment any sort of solution will involve moving toward the middle? >> it is the major factor. i would put it ahead of the communication revolution. i think it is interesting to

look back to the 1950's and see the changes in the two parties. the democrats had some incredible fiscal conservatives, eastland, dennis, russell. whatever you thought of the rest of their views, they wanted to control spending except on defense. the party ranged from those guys to proxmire on the left. in the republican party had a range of ideologies from one yowho was as liberal as any democrat today to the first stirrings of the coldwater movement. the ideologies of the two party had a huge overlap. that made it a lot easier to cut deals. some of the most difficult

things were cutting deals within the party as opposed to cross party. the situation is so different today in that there is essentially no ideological overlap between the two parties. as i said before, the gap between what the two parties believe i do not think has ever been greater. >> anyone else? doug and then alice. or alice and then doug, how about that? >> in the midst of all of this gloom and doom, i think there has certainly been polarization and there is less of a medal on capitol hill. but i am not sure -- middle on capitol hill. but i'm not sure that we should conclude that the american public is significantly more polarized or significantly dumber either than it used to be or voters in a lot of other places like the u.k. were they seem to be able to face up to these things -- maybe they're overdoing it.

but if you get a reasonably represent a group of people in a room -- and this has been done multiple times -- and you sit them down and say look, here is the problem. these are the spending pressures. this is the revenue side. these are the facts. here are some trends. you get pretty reasonable answers. people can do that, average people, and we should not forget that. the characterization of everybody as having extreme views -- i do not think they do. they're on a city councilor in a city with the budget deficit, or on the state budget legislature, then they managed to come to the metal and make some reasonable -- manage to come to the middle and make some reasonable choices. i do not think that is

impossible at the federal level. >> the points that are the same to me and do not strike me as dramatically different are exactly what alice said. lots of studies have failed to find the disappearing middle, failed to find the polarization, failed to find the intractability of politics in the american people. i agree with alice completely. the bottom -- if the retail politics were strongly enforced all the way through, that is what the american people believe and want. the question is, how does that work? at the other hand, it is still the same. my view is that in this town, if you want bipartisan solutions, that begins and ends with the president. the president is the only official elected by all the american people. only the president has sufficient capacity to provide cover for all of those in his party to cover a tough vote and things like that.

congress is a partisan place. it has a chairman and ranking members. it has majority staffs and small staffs. it has majority offices and back offices. there is a lot of partnership built into the structure of congress. only the president can reach across the aisle. we have had two presidents who are not good at this. i do not know why, but we need more of that, and that does not -- that has not changed. there has been in gerrymandering of district and a safe seat phenomenon. i think that is a real problem and one that merits serious consideration. then there are some of these mechanical things. i cannot speak to the democratic side, but on the republican side, i think there was a vast misinterpretation of what the contract for america meant. in my view, the contract for america was a document hammered out by some very strong-willed individuals who did not agree on

everything. this was not a group of shrinking violets and they were not an automaton. they hammered out what they thought they could agree on in a short amount of time and off they went. it was enormously successful electorally. the mistaken conclusion drawn from that was, hey, if we all say the same thing, we will win. it produced this desire for clones within the caucus, and if you cannot adjudicate differences within your caucus, you're not going to be able to develop their reflexes to reach across the aisle. that happened certainly in the house of representatives for republicans. i think it has had a damaging impact on the nature of the overall process. i think we need the same thing out of the president. the american people believe the same thing. in between, there are some mechanical differences in getting things done. >> i would like to agree with the analysis of the american public, that it is not a whole

lot different from how it has been in the past. it is a bell curve more than two polar extremes. when you sit groups of people down in a room and you have some budget experts or some policy experts describe the problem to them in a sensible way, they come to a sensible, middle of the road decision. but when they walk out of the realm, policy is interpreted for them by interest groups, but bybsters -- by loggebloggers, cable television, and they quickly get polarized and diverted off to the side. we of heard it suggested that we reform the tax code in a way

that gets rid of some of the spending funded through the tax could. if we're talking about ethanol subsidies, everyone outside of ohio and nebraska can agree, but that is chump change in this game. what we're really talking about here are things like preferences that affect health, retirement, housing, charitable giving. that affects the middle and upper middle class of america. you see the tense to describe those situations -- attempts to describe the situation, and it is not as if you can get a large fraction of the public embracing them, even simple things like why should we allow mortgage interest to be deductible for second homes? we might, all of us who do not have one, might reach a

consensus there, but you know, if you are part of hoboken or north carolina or new hampshire ies where this is very important, it is a matter of life and death. >> i would like to know whether anyone in the audience has any opinion on the topics of either taxes or entitlements. [laughter] surely, someone does. let's open it up. >> apologies for speaking twice, but i want to call attention to something. our public opinion wing at the school recently did a budget survey in which we asked 1000 people or so to address in detail, systematically, the discretionary budget, and then

also asked questions about social security, entitlement, expenditures like mortgage deduction. the consensus answer with people who were confronted with this was the people ended up making decisions that would reduce the discretionary budget by about 75%-80%. a substantial share of that was tax increases that people supported. the majority of tea party sympathizer supported tax increases in this particular context, etc. you can say, what does that mean? by itself, it means nothing at all. bob is absolutely right that if you put that against the drivers and the people who support the second mortgage interest deduction because their entire communities depend on it, on the other hand, there might be some potential here as part of the campaign, the sorts of surveys, if the sorts of things were

given some publicity in some mileage and politicians could use them to some degree as protection and say we have some scientifically selected groups of americans who do not like this. they did not say they like a tax increase. they do not like the social security changes. but a majority of people said we could live with this as part of a package. there might be something here in the pr. >> that is a comment. anyone can respond who wants to? other questions? no one has any questions about entitlements? you can ask about anything you want. >> i wanted to pick up on your point about the cacophony of noise and polarization. i do a lot of work on the debt limit, as most of you know.

to pick up on doug's point, this is about paying bills you already incurred. my guess is that most of the people who are dramatically opposed to raising the debt limit think it is the same as a credit card limit, a belief in which they're wildly assisted by most of the press, and i am sorry to say, by many of their elected representatives. that leads me to think about, it is also easy to say i do not want you to cut my medicare benefits if i think i have paid for them and paid enough to cover them. franklin roosevelt was no 80 it. he knew why he wanted to have diot.idual -- no immediat he knew why he wanted to have individual programs so that no one could touch them in the future. how is it that everyone seems to be entitled to their own facts? >> i think as doug said, it

really requires a lot of leadership and it has to eventually come from the president. there is no one else in the country -- [inaudible] i think leaders will get the kind of shout from time to time if not outright get assassinated. it takes a lot of courage and strength. i hate to say anything optimistic in this group, [laughter] but if there is any help, i think it comes from the fact that other countries have resolved these issues. you see it in places like canada, australia, new zealand, sweden, etc., where they have come to agreement on some pretty severe austerity programs. they have reform social security. now the thing that makes me nervous is that all of these countries face real or imminent

crises. in other words, they did not really act until they got scared, and i think that is a disturbing thing. but when they acted, they acted quite rationally. you might not like all of the solutions they adopted, but they were not done in a panic. they were not totally mad. so there is hope. i did have a privilege of lunching with the canadian minister of finance the other day and asked him, how did you do it? how did you turn the country from cheering on spending to really being very concerned about deficits? he said, you have to keep a really simple. we convinced people that debt was bad. and that did it. and now, the canadian government runs deficits at their own peril. >> anyone else on that? >> i think we have come down to,

what is different about us from the grits or the swedes or the new zealanders, -- british or the swedes or the new zealander, who ever they are? is it that our credit card limit has been too high for these years? it is certainly partly that. is it that we have a system of government which makes budget making much more difficult and complicated than a parliamentary system? or is it the power of our interest groups and the media exaggerating the horrors of doing the things we know we ought to do? i do not know the answer to this. it is some of each, but i cannot think it has got to be disabling.

i come back to the same situation. i was talking to european the other day and he said, i was reading about you laying off teachers, laying off state and local workers. isn't this going to cause riots in the street? i said no, i think people understand this as an unfortunate necessity of having to balance budgets at that level. or at the city level. why we do not understand it at the federal level is not clear. >> years ago when i was at syracuse university, i became pessimistic about my chosen profession and decided i would be much better served by producing one economically literate journalist than 40 economics majors a year. i launched a program.

to cut to the end, the course got canceled. during the exercise, allowed students to turn in their assignments in whatever media they were going to go on to do professionally. writers wrote. newspaper guys, short. magazine writers come along. -- writers, long. one assignment was to cover the brewers. it was a tragedy. different story. [laughter] he came back to me with a guy trudging along with a lunch box. i said, how can you do this? he said, economics is about

taking the motion out. television is about putting the motion in. i remember that to this day. you have to inject into the debate emotion. we are all policy geeks. we want people to look at debt versus gdp. now. it is about attacking -- attaching fax to a motion. if you do not do that, you will not succeed. s to emotion.fact som if you do not do that, you will not succeed. injectou're trying to emotion into something like that is evil. hasn't that already occurred in some segments of the population, which has generated the idea that we do not need to raise the debt limit? how do you get people concerned

about something and at the same time be educated about it? >> i'm going to rephrase. the observation was made you're not entitled to your own set of facts. not true. but you are entitled to your own set of emotions. you have to trump that with the strong promotion of the consequences of debt and how bad it is. that is the marketing challenge of this moment. >> what you have to say is, i should not be running up debt, but i should pay the bills i have charged. most americans think they do not have any debt because the mortgage does not count, the loan from the car does not count, the loan for the refrigerator does not count. it is, i should not overcharge.

i should not borrow more than i can pay. i should make every effort to pay the bills that i have incurred. maybe that is the way you tie the debt limit to shrinking -- to a path that in forces and lowers the debt. if we had a balanced budget, we would have to raise the debt limit. if h.r.-one had become law, we would have to raise the debt limit. we would need trillions of dollars. >> any other comments? >> i do not think it is going to be hard to convince americans that debt is evil when they have mortgages, as you say. they buy cars. the finance education with debt. they start businesses with debt. you have to be schizophrenic to say debt is bad when it looks like this, but debt is my road to opportunity when it looks

like that. >> but that is exactly what canadians do. [inaudible] they're not the only country that has done it. the swedes underwent a remarkable transformation. >> part of dealing with entitlements is actually understanding the implications of what congress does. all of us have seen pieces of legislation passed in which the scorekeeping roles came up with a set of protective expenses that nobody really believed to be true. the most recent of that is the

affordable care act in which now, the cms actuary has said he does not believe it. that is because of the rules that you operate under. if you're going to make the role of the congressional budget office more effective in helping congress understand what it has done and what it has not done when it passes debt reduction legislation, for example, what rules would you add or change? >> i will be brief. i have two responses. number one, i believe there are rules that should be changed. i think there should be symmetric treatment of spending and taxes in terms of construction of the baseline. i personally would take every refundable credit and count it entirely as an outlay. the moment you make it refundable, it is independent of

the state of the world. i do not think that is the problem. the affordable care act, i mean, i think some people believe -- i do not think it is a good idea from a budget standpoint. it is not a cdo problem. it is a congress problem. if congress wants to gain the rules, congress is going to gain the rules -- game the rules, congress is going to game the rules, and they do. do not blame the rules or the cbo, blame the congress. that is who did it. the congress did that to them period. >> the particular example you're talking about, cms as well as cdo in its baseline estimates --

cbo in its baseline estimates had very similar cost estimates. what the actuaries said was that the payment mechanism for providers was going to be reduced by about 1.1% per year often to the future, which would make medicare payments to providers a lot lower than those from other payers, private sector pay years, and that overtime, were there not fundamental reforms in the delivery system of health care -- which there could be -- brought about by this pressure and other pressures -- this was unsustainable, probably. some providers would stop serving medicare beneficiaries. there would be an access problem and there would be a political reaction to that. we have seen that in a sustainable growth rate adjustment to the session -- to

physician fees were the congress has not adhered to the loss. it hasn't solved the system from the cuts -- congress has not adhered to the laws. absolved the system from the cut every year. when congress reneged on what should be done, the action is scored again, and has been every year. >> all of that is absolutely right, but i think the dead put his finger on the more profound put his fingeraoug on the more profound problem, and that is that congress keeps skirting rules.

what has happened now? congress passes temporary tax cuts. the number of them is growing, growing, growing. so they do not get into a base line and it is totally unrealistic. they have renewed that tax line how many times? 15 years in a row. the base line has gotten more and more unrealistic, and we debate things though, still, a round is totally unrealistic baseline. i agree that i would do some things to it, but i think whenever i would do to it, congress would figure a way around in a very few years. >> what is the alternative? to give the cbo the power to say what is a reasonable base line and what is a reasonable interpretation of what the congress will do in the future? i do not think so.

you do not want the cbo or any group of technocrats doing that. you want them applying the rules in a very straightforward way. this is what the congress said would happen under this particular law. if it does not happen, you can provide some alternatives, but you have got to take the congress at its word. giving the cbo a lot of discretion as to what it will do in the future is a road to disaster for the cbo. >> i have to be even more optimistic than alice. first of all, i think bob mentioned the fact that we will never get people to feel the

debt is evil when they have so much personal experience with it that works out for them. i think that is not true, because a few years ago, people realize they were sustaining a debt that was unsustainable. people got calls of, you had a credit line for $10,000 but we are taking it away today. i think people kind of appreciated as forced lessons in living beyond their means. now they're forced to live within their means. i think people are more sympathetic these days, having lived through their own private, personal crises of the past couple of years. when they hear that the federal government is borrowing at an unsustainable rate, they have a resonance with that because they understand that personally.

i have seen a change in reception to the idea that debt can be an unsustainable thing. second optimistic point. if you look at all of the plans that various fiscal commissions, task forces, study groups all came up with, if you do a diagram of all their proposals, there is a lot and a lot of money in the intersection of those proposals. it is just that the politicians are not willing to commit yet because they do not really want to have to dive into that intersection. they want to pretend there is nothing in an intersection because they do not want to have to move there. i think taxes have to be a big part of the solution. i actually think, in my glass half full view of the world, that even paul ryan is proposing to reduce tax expenditures. he is just proposing to cut

spending before he cuts tax expenditures. i believe we're not that far away from coming to an agreement about reducing tax expenditures as a significant part of debt reduction. how do we get the conservatives who are wedded to the no new taxes' pledge to better come to terms with the fact that tax expenditures are spending? you can cut tax expenditures and shrink government even as your raising revenue. and getting the liberals on board to, because once liberals realize that it is spending, they do not want to cut it either. we saw that from the ranking ways and means democrat recently. how close are we to making some progress, do you think? what is the key? what we have to tell chairman ryan to get him to like pause after the first part were he

raises revenue by reducing tax expenditures but before he spends a dollar lower tax rates. what do we say to the democrats to let them know that there are progressive ways of reducing tax expenditures? >> anyone? >> i think doug made a good point a while back. my own experience in trying to sell tax reform to republicans is they say, now you're telling us you're going to lower their rates and broaden the base. but if we do that, just wait. pretty soon you will be raising vat rate again in financing all sorts of spending increases -- again andat trate financing all sorts of spending increases. that happened in 1986, so they

have good reason to be suspicious. if they do finally agreed to more revenues, you must absolutely, certainly slow the rate of growth of spending some how. i do not know how you develop that ironclad guarantee. that is the really difficult part, the that is absolutely necessary to making progress. >> one answer is to get them all in the same room and they have to cut a deal because they are scared if they do not and some of the things we have been talking about will be part of that deal -- never mind. >> i agree with rudy. i just want to say, i do not think you can, in this circumstance, pulled one thing

out. the lesson is that it is all spending. the way i think about this -- look a bulls-simpson, for example. that gives you -- look at bowles-since then, for example. that gives you an example -- bowls-simpson for example. that gives you an example that this can be done. everything has to be out there and you need the tax expenditure is to do the tax reform. pulling one thing out is dangerous, and you always have to remember that. >> the other thing is you need a credible enforcement rules. i think the lesson of the budget enforcement act of 1990 was exactly that. the president did agree to some

tax increases. he came to regret it, but within the context of spending cuts and strong enforcement rules, and the enforced rules worked and ultimately brought us, along with a good economy, to a surplus. you have to do that again. >> an important point of that is, i think there rules worked so well because they weren't forcing a major agreement that was already on the table -- were enforcing a major agreement that was r.d. on the table. -- were already on the table. that will be a lot harder to pull off now. >> we had two components to the rules. one was pay as you go for entitlement programs. that said, we have reduced

entitlements spending. you cannot pass legislation that would increase it without paying for it somehow. that presumes we can get together and agree on some big entitlement reductions. then a procedure like that, i think, can be effective. the discretionary spending control was caps. that worked for really one reason and one reason only, and that was that the soviet union fell apart. we had no rational reason for keeping defense spending as high as it was. in fact, over the whole period, real domestic discretionary spending rose during this great austerity. it was because we cut back defense spending so much that we

could raise discretionary spending. it was not a time of true austerity, and that is what we were talking about now, seeking through austerity. >> while we're on that topic, we've not really talked about discretionary spending. i heard earlier, and correct me if i'm wrong, there was a point of view but across that maybe this is a first step. we're not going to do anything about entitlements or taxes, but we will cut back discretionary spending as a sort of down payment. my question is, how much can we cut discretionary spending? i think of is correct -- bob is correct that it is almost literally the case that going back to 1970 we've not really cut discretionary spending,

maybe once in the 1990's. how big of a cut can there be -- how big does it need to be to convince people like republicans that they can go along with an increase in the debt limit? >> if all the commissions have hard freezes and could hold the dollar numbers where they are, i think that is a possible thing to get agreement on. that is tough, but over time it saves quite a lot of money, and the numbers being bandied about now is about one trillion dollars over 10 years. discretionary freezes are common to all of the plans, and some other small mandatory cuts, accompanied by a strong process change that would force the coming to grips with

entitlements and taxes within a reasonable time, and i think it should not be too long after you raise the debt ceiling. >> i think you face the basic arithmetic problem. we all agree that the major part of the budget problem comes from social security, medicare, medicaid to a considerable degree. i think there is general agreement -- too much agreement, in my view -- that you cannot change these programs abruptly. you have to phase in the changes so as to not disrupt the retirement plans of those in or near retirement. in order to -- if you phase in reforms very slowly, in order to show any progress whatsoever on

the deficit in the shorter run without major tax increases, you have to hit the discretionary programs. that is my interpretation of what has gone on in all of these commissions and why they are, in fact, very hard on discretionary programs even their discretionary programs are not the cause of our basic budget problem. >> they may not be the cause, but as you go through them, both on the defense side and the domestic side, you can convince a lot of people that some of this is not necessary and some of it is not high priority, and that we ought to be prioritized. >> that is true, but that is what you see people pointing to as opposed to the programs that do not work. well. uc policies that would -- do not

work very well. uc policies that would -- you see policies that would freeze spending or beat the civil servants about. >> thank you. i am a cdo alumnus now at the center of budget and policy priorities. i have a question on a completely different topic. the federal government does not have a balanced budget requirement. most state and local governments do. at the same time, state and local governments get a significant amount of their revenue in the form of grants from the federal government. do you think the coming budget debate will be a setting for some sort of renegotiation with

state and local governments? >> i do not know. i look back to the canadian experience. lots of people looking different elements of that and pick out the things they like, but one of the things going on was that the federal government involved the provinces of a considerable amount of work and authority, despite the fact that the provinces were in terrible shape. it was done in part because it was perceived that the provinces were more functional, could take on these problems and solve them in a way that the federal government could not. look at our states. they are showing themselves to be much more capable of taking on tough budget problems and getting their houses in order than we have seen at the federal level. i have some sympathy for the notion that in this setting it might not be a terrible idea to really rethink that mix and that

the american people might be well served because the changes we now have to happen might happen more rapidly and more effectively. the question is will happen? i do not know, but certainly, there is some precedent for thinking it may not be a bad idea. >> i just finished a paper on this very topic. i will giveg, you my fearless forecast. i do think we will see this affect state and local governments severely. i do not think, however, that our federal politicians will be ready to devolve responsibility for specific functions downward. they will finance them less generously, but i think they really do like the power that comes from say, the highway program or messing with education, etc. i would not see much outright

devolution, but i would see the federal government becoming much stingier in the amount of money it sends downward. >> i agree with that. much as i would like to see the devolution and sorting out of functions more clearly -- i wrote a book about this about 15 years ago, which bill clinton liked a lot when he was governor of arkansas. when he got to be president, he liked it less. and i began to realize why. i had proposed a balding things like -- devolving things like criminal justice, education, and some other things to the states. if you run for president, you have got to relate to what people care about most in their neighborhood, and that is crime in the streets, better schools, better housing.

you find yourself making promises. i'm going to be the education president. i'm going to fight crime on the streets. no federal president can do that, but you have to promise to do it, and that is how many -- that is how we get so many of these cats and dogs in small programs that are not doing much. there is a feeling that the federal government has to be there to take care of what people care about most. i'm with you in spirit, but i do not think it is going thappen. >> i agree that it is not going to be part of the package of whatever we do in the next couple of years, but it is worth remembering that if you are taking out your public finance textbook and saying, what is federal responsibility and what should be a local or state responsibility, things that deal with income distribution and

opportunity, welfare health, education, along at the federal level, because the consequences of doing them well or doing them badly spillover across the geography of the nation. those things that affect the well-being of a more localized area can be devolved. the problems we're talking about stem from the large redistribution programs. if we want a more roughly equitable treatment of individuals across the country in those respects and in the areas where growth potential is the greatest and the ability to control them the best and do them rationally is really at the federal level, then they should not be devolved. >> i have a final question for the panel, which is, as has been said, time is short between now

and august 2nd. i'm going to lay out a scenario which you can decide how possible is. we do not reach a grand deal between now and august 2nd. in fact, we do not even reach a little deal, in the sense of policy changes being made. but there is something passed tied to the debt ceiling that has some procedural fix, which may include traders, targets, some other kinds of things, promises to do something in the future. in exchange for raising the debt ceiling. is there a way to do that that would be either credible or that would work in your view, or would that just be punting the problem forward and no good would really come of it? >> it will not work, and moody's will downgrade us on day two. on the prospects of something

like that happening -- the prospects of something like that happening are quite high because that date pushes right against the recess in august for congress and there are few things more sacred than the august recess. i think there will be a strong desire to get this over with, if not on the second, certainly before the seventh or so when they go out. >> i agree with that. august 7th, 3:48 p.m., the time of this is easy. >> when did they have their plane reservations to get out of town? but if we go that route, it is likely that this is going to be like groundhog day. the amount by which the debt ceiling is raised will not be sufficient to get us through to the next presidency. it will be six months, come back

and we will see what progress there has ben. -- been. >> i can even see shorter, temporary increases in the debt ceiling that start with freezes and what we went through with the continuing resolution. that will not result in any deals at all just prolong the bargaining process. there is one advantage of a temporary increase in the ceiling, and that is that the deadline is unambiguous right now. we do not really know how many gimmicks they really have. august 2nd is kind of a wish she washy deadline. but if you temporarily increase the debt ceiling, that means that when that expires you have to actually retire debt. that becomes unambiguous, i think. it is a significant amount of money.

that could well happen, but i could see this whole thing going on well into the fall with a series of temporary increases. >> as usual, i am a little more optimistic than your scenario. it is not unlikely that we will get a combination of substantive changes, mostly in discretionary spending, and a process change. i think there is a process change which is plausible and attractive. i have been working with people at the bipartisan policy center. we call it save-go. reminiscent of pay-go. it would involve discretionary caps and a pay-go process that

would apply to the the entitlements and taxes. why not just pay-go? because pay-go did not do anything but prevent the congress from making things worse. now they're going to get worse anyway, so you have to have additional savings that you're committed to in the future. but you would not have to specify initially whether they were on the entitlement side or on the tax side. you could leave that until later with the trigger mechanism that would force you to come to grips with it. i think something like that could get us past the debt ceiling. then the question is, for how long? i think it would actually not be such a terrible thing to have a

fairly short -- say six months -- increase in the debt ceiling that would force us to come to grips with these larger come a long run problems before the election. -- larger, longer-run problems before the election. i think we are getting towards a recipe for disaster with the debt crisis. we're getting towards the spring of 2014. i do not think we have that long. we have to do something within the next few months that is credible and long range. >> for those of you who might be concerned [no audio] these issues will drop off the front page if the debt ceiling is resolved even for six months, remember that the new fiscal year begins october 1st and we will need appropriation bills to keep the government running at that point.

we will be back into continuing resolution territory. >> buy your ticket now for the next panel. [laughter] i for one never worry the budget issues will drop off the front page. we have a few minutes left. i'm going to stop asking questions and see whether there are any remaining questions from the audience. >> what i thought you were talking about was a debt limit not big enough to carry us, but not going to expire. you talked about what we did in the old days which was raised the debt ceiling for six months and then have it drop again. i will tell you, for people in the markets, that does not, is down at all. -- does not calm us down at all.

>> i am talking about a temporary increase that would drop. it might not make markets happy. in fact, it would be nice if they were unhappy. i am not making a recommendation. i am making a forecast. [laughter] >> other questions? >> if i may, what i thought the scenario spelt out was one where we had an increase. we increase -- we agreed to increase the debt limit, but did not accompany it with anything real, just a process. i believe that will be perceived as not real, and i believe that will be unacceptable. i believe moody's has said that in writing. that is my answer, that that is also not the deal i expect to have happened. i'm with alice. we will get a much better deal than that.

.> we're about out of time on that note -- which i am sure is with the envelope involves pocket actually said, what we were just discussing, please join me in thanking the panel. [applause] everyone in the room is invited to a reception which will follow this event in room 121, a cannon, which is downstairs. there will be people to direct you to it. thank you all very much for coming. thank you to the panelists once again for sharing your insights with us. [inaudible conversations] [inaudible conversations]

[inaudible conversations]

>> each year, congress works to pass a total spending bills. the houses started work on the first two and you can follow progress for c-span's comprehensive progress with easy to find information that elected officials by daily schedules, committee hearings throughout the city of every house and senate session. congressional chronicle is at c-span.org/congress. >> the walter reid army medical center is slated to move this year from washington d.c. to bethesda, maryland. we discussed the impending move on tuesday's "washington journal." scrn rightafety minutes. >> the walter reid army medical. center went active may 1, 1909, congress authorized the hospital in its first authorization had 0 10 patients and was named after

meech or walter reid who was an army physician. it is located on 113 acres whrrently in washington d.c., which is where we are basing oun live shotg this morning. as you follow the walter reid of history, you know it is in the process of being moved to twowo locations. joining us tolocations. process us to talkut t talkan other issues is colonel norman kouth. thank you for joining us this morning. >> thankguest: thank you. it is a pleasure to be here today. host: for those of who have not been following that closely, can you give a short history about how this move came to be? guest: we are at 99 days to official closure under the base

realignment and closure commission guidelines. this will close down completely, the entire base. we are 51 days from the major transitional ceremony. we start the actual transitional movement north to national naval medical center that we are partnering with to create the wall street national military center will -- which will be the biggest, baddest military center in the world. a third of my staff transition to the community hospital 30 miles to the south of us which is a bride -- free and new ground up construction. one of the newest hospitals in the military system and what we hope will be the cookie cutter design for military hospitals in the future. host: can you give a little bit of history on each of the centers and what will be focused on at each of these centers. guest: here at walter reed we

have been doing for your care. then the law changed to allow wish to do beneficiary care. that is spouses and family members of retirees and military personnel. that work will continue at each location. right now we are in the 10th year of the global war on terror, and one of the things we have come to be known for the expertise in is for your care, and particularly and beauty care, those who have lost limbs in the conflict and are going through rehabilitation and developing in working with different companies in the design of different prosthetic devices to return folks to some semblance of normal or new abilities out of disabilities. that work will continue to go on, and that has become our expertise to our military advance training center. that military advance training system will move to the bethesda campus on an area that is larger and a little bit better designed

than the current design. the weight of warrior care, a particularly in beauty care and those with traumatic brain injury will go on at the bethesda campus. downtown is a large academic community hospital, so it will care for wounded warriors that are less complex than those severely wounded and injured than those that we have a walter reed currently. host: about 150 military personnel is what is being served at the congress, although it is 35 patients per day. how do you keep the current level of service happening for those who depend on it in the midst of the transition? guest: we really have not veered from the core business. here at walter reed we do 775,000 outpatient visits per year.

that is business as usual, and we're very good at doing that. we have been able to do that without a hiccup as we prepare the transition. we are partnering with the national navy medical center. that is their core business as well. when you bring these organizations together, the core business gets bigger, but it gets better also. then we start to transition our piece of the warrior care over to the north facility, so it is a natural progression. at the national navy medical center, they take care of mostly head injuries, brain injuries. that is their expertise, where as ours is the npt care. we're really tearing them together and treating the whole soldier at one location. host: our guest will be with us for the next 25 minutes to talk about the efforts there at walter reed. you can ask a question by doing the following.

call the numbers on your screen. if you have bound yourself being treated or correctly treated at walter reed, we're interested in hearing from you as well. here is the number -- you can also e-mail as questions at the journal@cspan.org. are you ready for this transition, and if you could, would you need more time or ask for more time? guest: we're absolutely ready. we are on track. and everything that i can control, it is well under control. we are meeting all of the time lines. we are ready. what people do not realize is the organization has been relatively flat since the late 1990's.

our staff at both facilities, at bethesda and walter reed, have gone back and forth routinely. this is really a smooth and easy transition. i do not control construction or the weather, but other than that, we are green and good to go. host: if you find yourself treated at walter reed army medical center, the number on your screen. connecticut on the independent line. steven, you are on with norvell coots. caller: thank you for taking my call. good morning. the soldiers are really strong mentally, but recovering from these catastrophic injuries in some cases, family support is really important. my question is, how do you incorporate the family and to

recovery? also, the congress. you have a lot of big supporters. do you guys get eaten up financing? -- get enough financing? guest: one of the things we recognize is that we have a more varied force than ever before. during the vietnam era, soldiers were not married. they are now. we recognize it is not just the solar -- sailor or soldier or airman that is injured, but it is the entire family. we get the casualties here within 48 to 72 hours of being injured on the battlefield. this is the first place that families come to see their spouse, son, daughter, husband or wife, so we recognize we have to wrap our arms around the family and care for them just as well as we care for the wounded warrior.

we like the family members to stay in the room with the patient if at all possible. we like them to be there during their inpatient and outpatient therapy. we also infiltrates them into the military health system and into the military, because very often these young warriors get married 30 days before going off to battle, and within 30 days they're coming back and that young spouse has never even got military i.d. card. we have an assistant center here that is one-stop shopping for all of those needs to give them ids to deal with the financial issues, because it is a financial strain on family members to come here and be with family members as well. we have very strong systems. we have a family support group and family readiness group. they take care of meeting -- they take care of meeting a lot of the family needs as well. we have more than 570 charitable

organizations that support us in some way, shape, or form and do things the federal government cannot do. that is from little old ladies and pennsylvania who knit blankets to big corporations the provide corthings for room, take them to dinner and local restaurants. there is one organization that lies the family members out in las vegas to get them away. we are very lucky in that respect. as to financing, absolutely, the congress is behind it. the american people are really behind us. i am very lucky as well. anytime i have a financial need, all i have to do is raise that through the channels and my needs are met. host: richmond, virginia. carry on the independent line. caller: i do not know a lot of background with this medical

center. my first question is why are you moving? my second question is why it is there two different centers? why isn't there just one big center? guest: that is a very good question. if you look at the map of the nation's capital you would see there is the walter reed centile in the heart of the capital. about 10 miles from it is malcolm grow air force hospital. there is can grow hospital at fort meade. about 30 or so different support net clinics -- subordinate clinics all in a very small area. when congress looked at it, they realize we need to capitalize on the efficiencies that we have. the closure of walter reed in the middle of washington seemed the logical conclusion. we are landlocked. there's not a lot of opportunity to expand on this campus.

when we drew a line down the middle of the nation's capital and looked at the beneficiary capital, there is the same amount of beneficiaries north of us as out of us. it made sense that when we close things down and consolidated to put a major medical center in the north where there is a large beneficiary population, and that would be the main center for training and things like that. then two and large facility bedded down at fort bellcore 40 miles to the south of us because of the large population living there. as far south as fredericksburg and even richmond, virginia. host: charleston, south carolina. john on the independent line. caller: i was stationed at walter reed from 1970 to 1980. i was part of the transition team from the old hospital to

the new hospital. i do not think they should really be moving, and i have talked to people who are not very happy about walter reed coming over there because of the traffic that will occur. i think they are perfectly ok with they are at. i do not see a reason why they should be moving. guest: i hear that a lot, and we recognize walter reed has been such an important hospital to so many people. there is a legacy here. there are people born here that are still working here. closing walter reed is like the death of your favorite uncle. we recognize it is part celebration, but part week in the general. as for people not being have become the no one is ever happy to lose a family member or lose their home. this is a merger. this is the largest mature -- merger in the history of the military health system.

anytime there is a loser someone feels like a winner and a loser. in this case, everyone is a winner because the american service member will get the best care consolidated at one location in the north, and those in the south will get equal care down there as well. for me, it is a tremendous opportunity to move towards the future and eventually towards a unified medical command. host: how many doctors are currently at walter reed? guest: i have about 1500 doctors. there are more than 5000 staff members here at the hospital. host: will all of those positions be wrote -- be relocated? guest: everyone will leave. two-thirds of the staff will go to bethesda. one-third will go to the south. host: will you have an increased amount of operating rooms and things you need to conduct your

business daily or will they stay the same? guest: everything increases in scope and size. in fact, there are renovation programs going on right now for the older operating rooms at the suspect to increase in size and put towers and that can handle all of the new technology that we are installing in the facilities in an ongoing process. across the street area of operations you will see an enhanced capability for surgical services. one of the things we're also doing is using fort meade and malcolm air force center to use as the ambulatory service center for north and south of the market. we are adopting a lot of civilian practices in terms of surgeries and things like that and putting that into the plans for the joint area of operations here. host: the average patient per day is 200.

that is down from the 1990. there are 14 operating rooms and 650 operations per month. as far as that is concerned, 67 6700 x rays done per day. akron, ohio. thank you for waiting. dorothy on the democrat line. caller: i was an officer and commander in the united states military, air force. i have gone to the vet center, a phoenix va, and brett bell, and i would like to know, and also been up to the va ig, secretary of the current the day, on the torturous of use of veterans. i have witnessed it and had it, sir. this includes veterans who are 100% disabled