and so a whole bunch. ..

>> is sort of the average state. home of every demographic group you could think of is well represented here. catholics, protestants, fundamentalists, mainstream protestants, various ethnic groups. the only group that's not well represented here probably is hispanics. even though there is a growing hispanic population, there's some places in the state where there's a fairly significant concentration of hispanics. so there's an infusion of hispanics, but they don't amount to much in terms of the overall significance of their voting in elections. demographically, it's almost as if you want to test a consumer product, you would test it in ohio because you've got every

demographic ice that you want. and, of course, ohio also is a big city state. large rural areas with very low populations, but most ohioans live in big cities and their suburbs. >> do you foresee ohio always being be an important state in presidential elections? >> i think for the foreseeable future, yes. now, ohio is not growing as fast as other states which means our electoral college weight is going to decline over time. we lost two congressional seats in the most reapportionment of congressional seats. and that will probably continue to happen as there is more rapid growth elsewhere than there is in ohio. we're kind of stable, population wise. where the sunbelt states tend to be growing, although the recession has hurt them in terms of their growth. so as long as we are significant in the electoral college and particularly as long as we're competitive, we will be a

battleground state. candidates will be coming here, they will be saying i have to win ohio if i'm going to win the presidency. i think both of the candidates are saying they have to win ohio, they will spend a lot of money here and be here a lot. >> for more or information on booktv's recent visit to columbus, ohio, and other cities on c-span's local content vehicle tour, visit c-span.org/localcontent. >> david wessel reports on where the money goes. this is about an hour. rz. >> you're doing great, i think i'll just met you keep talking, and i'd find out what the interesting parts of the book are. very good to be here at politics & prose, and i assured brad that

not all these people are my friends or fellow members of temple sinai. there actually are, apparently, people who want to think about the budget in august which is, i think it's heartening. i want to talk a little bit at the beginning about how this book came to be. my agent, who's here, talked to me once about doing a book about the budget, and the editors at the crown unit of random house who had published the book i did on the fed said to me, well, the fed was boring, and you made that interesting. the budget's boring, can you make that interesting? [laughter] and i said, well, you know, making the fed exciting in 2008 when we were about to tumble into a great depression wasn't all that hard, but there's nothing going on with the budget. i mean, a book-length treatment of the failure of the supercommittee is not something i'd read, let alone want to write. so then they said, well, what if you did, like, a year in the life of the budget? you could start with the budget being crafted behind the scenes

of the white house, and then the president presents the budget, and then congress actually acts on the budget, and then the money goes out the door. and i said, well, you know, that's not really the way it works. and they said, really? [laughter] so i began to think maybe i did actually know something that could be useful, and i brought with me to this conversation that some of the charts pete peterson has done on the budget. i'm not sure he's made much progress on the policy front, but he's made lots of good charts, and they're actually excellent. and as i went through the charts with them, i began the realize and i think my editors realized payment that maybe -- at the same time that maybe there was a market for a book that just explained where the money comes from and where it goes. and as i thought about that, i thought, well, this is a good idea. this is a book i could do

quickly. i was a little cocky about how quickly. and i thought, i'm going to write a book about the federal budget for people who have never managed to get to the end of any "wall street journal" story on the subject. [laughter] and i had this naive hope that maybe i could play a small role in separating fact from opinion. because i think what's happened in a lot of our budget discussion is that people have mixed up what the facts are, what the reality is and what choices we have to make. the choices are fundamentally political. they have to do with our values, how big a government we want to have, the nature of success in our economy and so forth. but what's happened is people start with a set of positions, and then they build a set of facts that support them, and they never let the other side of facts interfere in their argument. if you watch one cable channel, you get one set of facts. you watch another cable channel,

you get another set of facts, and you'd never know they were talking about the same thing. so i know it's kind of unflag bl to be -- unfashionable to be writing a book that says i do not have a solution. this is not david wessel's version of bowles-simpson, but the role of a journalist is to say, look, in the isn't so complicated. let's break it down. now, it is hard to understand because it's so big. the instructions that the white house sends out to the agencies to tell them how to submit requests for the president's budget run to 972 pages. the budget itself, four printed volumes -- you can read them free online -- 2,238 pages last year. and then behind each one of those pages is a whole other set of explanations. my favorite is the department of homeland security which submitted to congress 3,134 pages to justify their budget, one for every $12.6 million they

wanted to spend. now, the budget is big, $3.6 trillion a year, $400 million a day, $17 million an hour. and dave barry, who is a humor columnist who used to write for the miami herald and is really good at the the this stuff, once said that the problem, the reason people don't understand the federal budget is that millions, billions and trillions sound too much alike. [laughter] and if we just called them golf balls, watermelons and hot air balloons, it would be easier to understand the magnitudes, and there is definitely something to that. so in this book i try and break the budget into the big pieces into digestible morsels. and i want to talk about a couple of them here today before we turn to questions. one is that when congress shows up every year, they've already committed about two-thirds of the money. 63 percent of the money spent last year was committed to

social security, medicare, farm sub si is -- sub subsidies, intt on the debt, and they found the rest of the year arguing about everything else. and what this means is they're never forced to confront how much do we want to spend on retirement programs, how much do we want to spend on health care benefits? what is the right amount of farm subsidies in a modern economy? it's automatically baked in the cake, and only if there's some reason to reopen the bill -- which there sometimes is -- do they make any changes. an economist named gene sterling who used to be with the treasury in the reagan years pointed out that this -- in 2009 every single dollar of tax revenue had been committed before congress arrived. so the rest -- all the money that the tax code brought in went to cover benefits and interest on the debt, and all the money that we spent on everything else -- defense,

domestic, discretionary stuff -- all that was borrowed. that's one thing, and that's a big change from the past. the second thing is, and it's related, is the one thing that is rising faster than everything else is health care. that's because the cost of health care is going up faster than almost everything else. in 1960 before medicare and medicaid, the programs that insure the elderly, the disabled and the poor, 9.5% of the federal budget went to health care. last year it was 25%. and we're on course even with the affordable care act, according to the congressional budget office, to hit 33% by 2021. so this is an inexorable fact. you can argue about how we should change it, and it's certainly a fact that we don't have the world's healthiest

population by far, even though we spend more on health care than any other country per capita, but you can't escape this fact. and i'm struck that in a town where democrats and republicans basically can't agree on what time it is, there is some consensus on health care is a big part of the problem. we spent $700 billion on defense last year, $700 billion. that's more than the combined defense budgets of china, britain, france, russia, japan, saudi arabia, germany, india, italy, brazil, south korea, australia, canada, turkey, the uae, spain and israel. our defense budget is bigger than the defense budgets of the next 17 countries combined. i don't think that's sustainable. there are some big choices here about to what extent do we want

to be the cops of the world, to keep the oil lanes open, to what extent do we want to send people at the drop of a hat into libya or somalia or syria or wherever? but there are some big items there. one of my -- and i think the trouble with the defense budget, it's a little bit like covering the federal reserve. it's developed a set of facts and speech and concepts that outsiders can't understand. so in the book i tried to take just one thing that the defense department has to decide; how many aircraft carriers are enough? so congress, in its infinite wisdom, has told the pentagon that they have to have 11 aircraft carriers. they got special permission to have ten for a while while they're building a new one, and the pentagon wallets to replace -- wants to replace one aircraft carrier every five years for the rest of of my life. these new aircraft carriers, which are enormous -- the navy

calls them four-and-a-half acres of mobile, sovereign territory -- [laughter] costs $11 billion. $11 billion is the same amount that medicare will spend on all the hip, knee and shoulder surgery on 700,000 medicare beneficiaries. so that's -- when you do your scale, one aircraft carrier, 700,000 joint replacements. and that's not the worst of it. when they take one of these things out of commission, it costs $2 billion. aircraft carriers are expensive even in death. each one has two nuclear reactors, and disassembling a nuclear reactor is expensive. so we have some decisions to make on how big a defense budget we want to have. brad mentioned a couple of misconceptions people have. one of the other misconceptions people have is that all the money the government spends goes to bay bureaucrats -- pay bureaucrats, most of whom most

people think don't do a good job. now, it is true that the federal government employs a lot of people, 4.4 million people. most of them either in the defense department, in military or civilian or in one of the various homeland security apparatuses. if we fired every single one of them from president obama's secretary to the person who's collecting tolls at yellowstone to the guy or woman who's sitting at norad right now, if we got rid of all of them, all their wages, all their benefits, we'd save $435 billion last year. that wouldn't have reduced the deficit by even 40%. we would have still had almost a record deficit if we had no federal government employees whatsoever. so where does all the money go? well, the federal government in a sense takes a lot of money and

sends it out of here. the federal government is a military with a big health and welfare retirement fund attached to it. $2.2 trillion that came into the federal government last year went out in the form of benefits to individuals of some kind, and much of the rest went in grants to state and local governments. so it is not gonna be possible to reduce the federal deficit by nickel and diming federal employees. doesn't mean we're not going to try, but we're not going to suck suck -- succeed that way. another misconception we have is that we are paying more and more taxes and more and more than people in other countries. i think a lot of people in this room appreciate americans actually have a smaller government than those in most developed countries, and we pay less in taxes, and we get less of our services from the government than they do in, for instance, northern europe. but i think what's less understood is for a variety of

reasons the share of income that people at the middle of the middle class have paid in taxes has been coming down steadily for 30 years. in 1979 people in that middle strata, the middle 20% of the income distribution, paid about 19% of their income in taxes of all kinds to the federal government. according to the congressional budget office. in 181999 -- in 1999 it was down to 20%. in 2007 it's about 14%, and last year, partly because of the recession, people's incomes were depressed, it was down to 12%. the typical american family has been paying less in taxes every year as a share of their income even though the government has been spending more money every year as a share of their income. so where's the money coming from? we're borrowing it. last year we borrowed 36 cents of every dollar we spent.

most of it from are abroad, half of that from the chinese. at the bottom a series of policies, many of them pursued by republicans as well as democrats, have gradually lightened the tax load on people at the bottom. last year 46% of american households did not pay any income taxes. 46%. that was swollen by the recession, but in ordinary times it's been about 40%. now, a lot of them paid payroll taxes, the social security and medicare payroll tax which for most working americans is a bigger tax than the income tax, but even with that about a fifth of all americans didn't pay either payroll or income taxes. they didn't make enough money, they were elderly people living on social security, or they took advantage of one of a myriad set of tax breaks for people who are low-wage workers or who have big families or other deductions. some of them were probably well off, some of them ripped off the system, but most of them did

not. so if you want to think about the federal budget, you have to think about those three things; what are we going to do about health care, what are we going to do about defense, what are we going to do about revenues? almost everything else is a detail. if you get those three things, you'll have begun to put the pieces together. now, the deficit today is enormous, bigger than almost any time in the our history when we weren't fighting a world war. but the u.s. government is borrowing almost unlimited amounts of money at extraordinarily low interest rates. the government is borrowing today ten-year money at 1.5%. that's a record low. it's never been that low. since the government has been borrowing. as far as the records we have. so the problem we have now, the acute problem we have now, of course, is unemployment.

8.3% unemployment, more than three million people who have been autoof work for a full year -- out of work for a full year or more, and those are just the ones who say they're still looking. the deficit is not today's problem. but it's going to be tomorrow's problem. even at today's low interest rates, the federal government last year spent $230 billion on interest. that's the same as the combined -- that's bigger than the combined budgets of the department ofs of commerce, education, energy, homeland security, interior, justice, state, plus the federal courts. so how is it that we're able to borrow so much money and pay so little interest on it? why aren't we like spain or italy or greece? it's certainly because we've well managed our finances, it's because the rest of the world looks even worse. the united states is the world's tallest midget when it comes to

borrowing money. [laughter] if this could go on forever, it would be ban tsaic -- fantastic. it is not going to go on forever. i have no clue when it's going to end, but it is not going to go on forever. last -- and as interest rates return to normal, the share of the federal budget that goes to interest is going to rise, and that will crowd out spending on other things. it'll mean we'll pay taxes, and we'll borrow money, and some of the money we borrow will go to pay interest on the money we borrowed last year, and some of the taxes we pay will go to pay interest to our creditors. and those creditors are increasingly overseas. in 1990, 19% of the federal debt was held by foreigners. 19%. last year it was 46%. right? so that means that we will be working harder, and if our economy grows, we will have more tax revenues, and a little share of each of our paychecks will go

to pay interest on our debt mainly to the chinese which is really weird when you think about it. here's a country where the standard of living is far below ours, yet somehow they manage to save incredible amounts of money -- largely because the government makes them do it -- and then they use it to lend to us and, in fact, they were very generous, they allowed us to have a housing bubble and borrow all this money so we could run up the value of our houses in time so we could have a big crisis, and so then we find ourselves in the situation we are today. this can't go on forever, right? it just can't. and sometimes people are asked, well, when is it going to stop? when is the bond market going to rebel? when are the chinese going to stop lending us money in and i think it's a great question with no answer. but if you know something is not going to go on forever, it does seem prudent not to plan on it not going on forever. but right now we are on a course to become the world's largest subprime borrower, and we do not

have a business plan to avoid that. now, one of the -- there's not too many heroes in my book. i had heroes in the last book, but this one didn't lend itself to that, but there are a couple. and one of them is doug elmendorf who's head of the congressional budget office. the congressional budget office is a really remarkable institution. it is perhaps one of the few institutions in washington that works the way it's supposed to work. and it's actually functioning. it was created largely in rebellion of the congress trying to take control from richard nixon to give them independent advice and honest figures on the federal budget, on federal spending. and it's done just -- its done just that. and doug elmendorf has said, and he's trying to talk sense into his bosses in congress -- fortunately, he's not paid for performance -- he said a couple things which i think are relevant. one is we cannot go back to the tax and spending policies of the past because the number of

people 65 and over will increase by one-third between 2012 and 2032. the number of people over age 65 will increase by one-third over the next ten years. that's the aging of the baby boom. the idea that we were going to fix the budget deficit, fix social security, do something about medicare before the baby boomers started collecting it is over. the oldest baby boomers are now turning 65. and so we are going to have to have a bigger government than we had in the past, despite what you hear from some candidates, mainly republicans, who think we can go back to something we had before. it's, of course, possible to go back to a smaller government, but it's extraordinarily difficult in a society like ours to tell people we are not going to keep our promises to pay benefits to the elderly because we decided we want a smaller government. and that goes to a second point which i think is one of elmendorf's best observations,

the best summary of the federal budget crisis in a single sentence. this country faces, he says, a fundamental disconnect between the services the people expect the government to provide, primarily in the form of benefit toss the elderly, and the tax revenues that people are willing to send to the government. and that dilemma, that contradiction is at the root of our budget crisis right now. now, i've been criticized, as i think i mentioned earlier, for not ending my book with a plan to say this is how we ought to get out of it. there are plenty of plans out there. i think the problem we have is that we are unable to face the facts, we have the luxury of not having to face them right now because we're able to borrow so readily, and we have even by american political standards an extraordinarily polarized political system. so what changes this? well, i can only come up with two possibilities for what changes this.

one is a crisis, maybe a financial crisis where the bond market rebels, europe suddenly gets its act together and the chinese decide maybe they'll have more money in year rows and fewer in dollars. -- euros. maybe it's a fiscal cliff that comes when spending is supposed to be cut across the board and taxes are supposed to go up unless congress and the president reach some compromise on a better deficit reduction scheme. maybe that'll do it. and i'm happy to talk about that in the questions. the alternative is a sudden outbreak of leadership. [laughter] i think i'm betting on the crisis being more likely. now, leadership can come from strange places. i personally am glad that ross perot was not elected president, but i think he played a pretty constructive role in that race in forcing the candidates to kind of stop trading one-liners and deal with some legitimate issues. and it would be nice if

something happened like that again. it's not going happen in this election. my fantasy, and there's a petition going around by one of the anti-deficit groups s that one of the presidential debates will be dedicated to here's the deficit, we'll agree on what the number is, we'll agree on what the target is for reducing it over the next decade, tell us how you'd reduce it so we can compare the mitt romney plan to the barack obama plan. so i -- another sort of semi-hero in the book is leon panetta who's really an extraordinary man. leon panetta's 74 years old, and he came to washington during the nixon years. he was working for a republican in the congress who lost, wasn't conservative enough for california, and he then went to work in the nixon administration, and can he had the great -- and he had the great, well, you can decide whether it was fortune or misfortune, to be put in charge of the department of health and education and welfare's school

desegregation task force at a time when nixon had promised strom thurmond and others in the south that they wouldn't enforce school desegregation rules. so panetta ended up getting fired and writing a book about that which i had no idea until i started researching this thing. but later he became chairman of the house budget committee in the years when there was an agreement between democrats and president h.w. bush to reduce the deficit. he was in the clinton white house in those four years when we ran a surplus, which seems like a long time ago, and it was a long time ago. and now, of course, he went down to be director of the cia and now secretary of defense where he's busy defending the defense department against people who want to do what he would have wanted to have done when he was at the house budget committee. [laughter] but he does have a lot of perspective, and i talked to him for the book in his office at the pentagon which is pretty cool. it has a little shrine there to the capture of osama bin laden. and he told me in the 12 years he was out of office when he was

teaching at an institute he set up in monterey, california, he said i used to tell the students that we are either governed by leadership or by crisis. and i always thought that if leadership wasn't there, then ultimately you rely on crisis to drive decisions. in the last few years, he said chuckling -- he likes to laugh at his own jokes -- in the last few years is my biggest concern is that crisis doesn't seem to drive decisions either, so there goes my theory. so there i'd like to end. i'm happy the take your questions. i want to recognize briefly my wife, naomi carp. anybody who's written a book is the worst thing is for the spouse to have to put up with someone who can't think about anything else, who can't sleep at night and is perennially crabby. this was a quick book, so she got an intense dose. and someone else here i mentioned is my agent who is married to a psychiatrist, and it really shows because he's a

great counselor when you say how can this work. so there's a question here, and i've been asked to if people have questions, to come to the mic so they can be recorded. hi. >> um, that was really interesting. the thing that intrigues me the most -- [inaudible] among other things is the number that you mentioned at the beginning, the 40% -- was it 40% of people who thought, who were on medicare and/or social security who thought that they were not receiving government benefits? the republican plan -- leaving the cost aside for a minute, the republican plan would slash medicare. and people would get fewer services. that's the republican idea. we get too many services, and people should only get what they can afford. if the obama campaign were to explain that, do you think it would change anything? do you think it would shift voteses from the republicans to

the democrats if people realized what was going to happen to medicare even if it didn't happen to them and it only happened to their children? >> it's a good question, and i don't know the answer. let me make two observations. one is that neither campaign has done a good job of explaining medicare and medicaid in their plans for health care in a way that makes sense to everybody. i think both camps are a little too much on the free lunch school for me, that we're going to make health care more efficient, and so everybody can have all the health care they want and all the health care they need, and no one will ever say no to them. i don't think that's very realistic. the, um, the obama camp, i think, has kind of taken a pass on medicare, and they've -- all the cuts they've proposed would hit providers. they don't really propose to do much to beneficiaries. and the republicans want to turn it into more of a, not the way they'd put it, but the way i'll

put it, a voucher thing and then not make the voucher worth as much as health care actually costs and hope you can winnow it down. i do think if one campaign or the other convinces people that their opponent is going to gut medicare, that would win you votes. that's true. but i'm not sure that either campaign is doing us any favor if they tell us that we can have a pain-free solution to health care cost growth, because i don't think we can. >> i can k but that's for -- i can but that's for another time. >> okay. sir? >> so starting with the idea that medicare's catastrophically underfunded, $40, $50 trillion underfunded according to the government accounting system that they require employers to use, present value accounting, and that it's going to squeeze out spending on everything else, probably even including defense. and it's not a means-tested program. it doesn't -- we pay the same

co-pay, same deductibles. >> different premiums in some case. >> but it is -- it's not like medicaid or anything -- >> right. >> so two questions. why would democrats support, basically demagogue cuts in medicare which i think are -- i mean, i should be paying ten times the deductibles and co-pays of somebody else, so why would they basically demagogue that and let medicare gut every other program they care about, every other program they care about is going to be cut because of their support for medicare? and then why would republicans propose any cuts in medicare when they can just let it go ahead, eat the rest of the budget, and they can live with a government that has medicare, defense and interest on the national debt which would be fine by them? >> so the answer to any question that begins why would political party a demagogue -- [laughter] is because they think it'll get

them votes. and i'm handgun to substitute -- i'm willing to substitute my judgment for a lot of people, but when it comes to politicians, i stand back. i don't think republicans want a government that's all medicare, defense and interest on the debt. i think they want a smaller government. and i think both sides if you press them, recognize that we have to do something about health care costs in general. it's not just medicare, and it's not just medicaid, and it's not just the other half of the health care bill that's paid by private employers and insurers and private -- and consumers, it's that health care costs are going up faster than almost everything else, and we have struggled to figure out a good way to control that. if there were a magic bullet solution to health care costs, that would be in either the obama or the romney plans. but there isn't. and so there are two things we have to do. one is we have to be really

efficient in the rest of government, because health care is inevitably going to be a larger and larger slice of what the government spends. and secondly, we have to find some way to restrain the growth of health care, and there are little seeds planted in the affordable care act, there's some ideas on the republican side, and at some point we're going to have to implement those and maybe even ration health care in order to do that. and there are at least three people i know in the audience who are far more expert on health care costs than i am. if i keep getting questions on them, i'm going to call on you guys. so be ready. [laughter] >> one thing i've been trying to understand is why after 30 years of starving the beast, why government under both republican and democratic administrations continues to get bigger and bigger. and i've come to the following answer, and i'd like you to comment on it. i haven't read your book, so maybe the answer's already there. >> no, that's okay. >> as "the wall street journal"

continually reminds us, when you want to cut the consumption of some commodity, you raise its price. conversely, if you lower the price of a commodity, you increase its consumption. so i submit it to you that by cutting taxes you make government cheaper, and so people think, oh, therefore, i can get more government for the same price. so you have this paradox of trying by cutting taxes, you cut the cost of government, you make it cheaper and so, therefore, it is not surprising that people want more of government. comment, please. >> i think that the reason we have more government is in part because it was so easy o borrow money, and -- so easy to borrow money, and we department have to pay for it. -- didn't have to pay for it. that's the difference between us and spain and italy. we have to pay 7% to borrow money, we pay 1.5%, and at a 2%

inflation rate, that's a good deal. in the book i resurrect one of the original supply siders, a panel me tier who worked for the editorial page of the "wall street journal" for which i do not work. [laughter] and he popularized something he called the two santa claus theory. the democrats, he said, are best suited for the role of spending santa claus. the republicans, traditionally the party of income growth, should be the santa claus of tax reduction. he said it's been the failure of the gop to stick to this role that has caused much of the nation's economic misery. it's not that republicans don't enjoy cutting taxes, they love it. but there is something -- remember, this is 1976 -- there is something in the chemistry that causes the gop to be hypnotized by the prospect of an imbalanced budget. they play into the hands of democrats who know the first rule of successful politics is

never shoot santa claus. [laughter] there are many theories out there about government, one of them which has been definitively disproven is the starve the beast theory. that was part of the reagan administration's plan. you cut taxes, reagan called it cutting the government's allowance, and that would force this cut in spending. it doesn't happen. it doesn't happen. i'm not sure it's only for the reasons you say, that if you tell people you can get something for less, they want more of it, it happens because there's this relentless pressure to spend more. very few members of congress really want to spend less. even some of the tea party people, they want to spend less in principle, but in practice they're not so sure. and when you can borrow the difference, there's not much pressure to reduce the size of government. i think it's that simple. i'm going to give shorter answers because there's a lot of people in line. >> it's rather symbolic that the washington nationals have a

mascot called screech. [laughter] but i had to say something about the affordable health care act because it really isn't. it's just subsidized health insurance. and no one can be denied health care if they fail to pay for deductibles or their copayments. a lot of offices essentially have voicemail that says if this is an emergency, go to the emergency room. so that is, actually, a huge fallacy. the reason it's less costly in other countries is cheap labor and tight restrictions on the costs of medications. um, that's really the huge problem. and then other countries make people wait for care, that's where rations come in. of i wonder, though, if you could comment about the reportable incomes of persons in government who have to report their income especially on either side of the aisle and what their taxes would be if their taxes were increased

proportionally after $250,000? >> i'm not sure i -- so -- >> the big, the big furor had been that governor romney doesn't pay enough in taxes, although warren buffett doesn't because he doesn't take a salary. everything is given to him. >> well, i thought you were going somewhere else. one thing that is interesting is we do have a pretty transparent society. you can pretty much find out what any government employee makes. and there are not a lot of them who make on their own -- some of them are married, of course, and havespouses enough to be hit by the $250,000 threshold. i think that i have a different plan. my plan is every member of congress should have to fill out his own tax return, and maybe without turbotax. it does get me a little nuts that people decry the complexity of the tax code, and then you look at the tax returns, and some members of congress do

actually disclose their tax returns, and a number of them are taking advantage of every single possible loophole, deduction, credit, exclusion. i think that the issue with governor romney's taxes and warren buffett's taxes is that, a, if you're really rich, the tax code provides a fertile field for finding ways to the avoid paying taxes. and, b, if your income is more in capital gains and dividends in less in wages, you're taxed at a lower rate. i think that's pretty much the bottom line. um, i don't think, actually, that mitt romney is campaigning on a tax plan because i think it would benefit him particularly. i think he either believes in the tax proposals he put forward, as vague as they are, or he thinks they will win him election. i think sometimes that people are a little too hard on these rich people who run for office and think that when they get to office, they're doing things to benefit their own personal pocketbooks.

i actually don't think that's the case. >> [inaudible] would you comment briefly on what you consider to be a true loophole versus a justified exclusion? >> well, every loophole is -- that's a great point. my loophole is your justified exclusion. my favorite is, um, the -- well, there are two that come to mind. one is i really don't understand the social purpose in having a special depreciation tax break for people who own nascar race tracks. [laughter] right? that was one that was set to expire, but the senate finance committee has just decided to extend it again. and another was one in which i go into a little depth in the book called like-kind exchanges. if you sell a piece of property and you sell it at a profit but then you turn that money and spend it on another piece of property, you don't have to pay capital gains tax, at least not right away. well, this dates to the '20s when the income tax was in its infancy, and over a period of

time it's been stretched so they're brokers. if you want to selling sell som, they'll help you put something in something else. i have an example in the book about one of these brokers talks about a case where a number of people had very valuable antique cars, and they wanted to sell them and not pay capital gains on the proceeds, so they found another set of antique cars to put their money in so they didn't have to pay capital gains, and then they explained on if you did the right thing on the estate tax, they could pass those on to their kids and never pay taxes at all. the irs now has to decide what is a like-kind exchange. there's a way if you do it right, if you have a dental practice, you can sell the dental practice, and you can buy a vacation property, and that's a like-kind exchange. [laughter] but the irs says livestock of different secs are not -- sexes are not like-kind exchanges. [laughter] >> which makes eminent sense.

[laughter] i'd like to be the one who, um, shifts from spending to the revenues question and just ask a simple question that i've not been able to determine an answer. since 1980 had tax rates been what they used to be like as in the mid '70s or the mid '60s, for that matter, had they remained that way and capital gains been taxed at, as regular income, what would our situation be now? >> so it's a great question for which i don't have an answer. um, i think that there are two things you have to -- obviously, if we had more tax revenue and the same spending, then we'd have a smaller deficit. the magnitudes are a little harder hard to judge because it's always this problem. so what would the economy have been like if we had the same tax rates today that we had before

ronald reagan became president? i don't know the answer to that. but if you're asking me is there a set of -- this isn't what you asked. i'm going to answer a question you didn't ask. is there a set of tax rates that's higher than the ones we have today that would allow us to still have a prosperous economy, i believe the answer to that is, yes, and i believe you can see that from the experience of the 1990s. >> i'd like to ask a simple of -- >> it's dangerous when people say i'm going to ask a simple question. [laughter] >> well, the question is brief in the sense that what is the real tax hike? you're trying to elucidate the facts of a very complicated tax system, and, for example, on page 113 you show the tack fight, but this is -- tax fight, but this is income taxes.

on page 106 -- >> no, that's not right. um, in, on page 113 is the congressional budget office average tax rate, and that's federal taxes of all kinds. that's the payroll tax, the income tax, excise taxes, and they distribute the corporate income taxes. >> okay. well, maybe i misunderstood then in my quick -- i just picked up your book this evening and haven't really studied it that well. >> that's okay. >> but i was bringing to mind that the tax system is so complicated that a few of us really appreciate it and that there are, there's not only the taxes that we pay on our income -- >> right. >> invoice that we receive from the employer, but there are the hidden benefits and the payroll tax is just a part. >> right. >> i mean, what the federal government receives is the employer's contribution and the employee's crick, and if you're self--- contribution, and if you're self-employed, you

appreciate more what you're contributing. >> that's exactly right. >> so you're saying now the table at 113, and apparently i misunderstood, it includes all taxes? >> right. so what this is is -- >> but i was also going to refer to page 106, your table on the tax mix showing -- >> right. >> -- the payroll taxes and i presume there's also, that includes the medicare perhaps? >> right. the chart to which -- let me just explain so people know what we're looking at. there's a chart in the book which shows the share of federal revenue in income taxes, corporate income tax, payroll tax and other things. and, basically, what you notice is that the payroll tax is an ever greater share, and the corporate income tax is a smaller share. and that is, of course, because we raise taxes on social security, but also we invented medicare in the '60s, and that's financed in part -- not in whole -- by the payroll tax. >> well, when i first looked at this table on page 113, it

struck me that a worker who may have sufficient exemptions and he may not pay any income tax -- >> that's correct. >> but nevertheless is going to be paying 15% roughly of the payroll -- or rather i should say the federal government is receiving 15% -- >> well, not necessarily. >> his contribution plus the employer's contribution of both medicare and the social security taxes. >> right. so you're right that when you want to think about taxes, it's a mistake to think only about income taxes. and i think that's an incredibly important point because as i said, most working americans pay more in payroll taxes, particularly if you include the employer share because that's kind of wages they didn't get, than they pay in income taxes. about a fir -- fifth of the households don't pay payroll or income taxes east because they didn't work or because we have -- and i talk about this in the book a little bit -- decided that we don't want to give

people money and call it spending. because spending is not kosher. [laughter] but tax cuts are very kosher. [laughter] and so if you have a choice, they would rather give people a tax credit rather than put it through the spending thing. so that, in some cases, the federal government has programs that for working people reduce their payroll tax sometimes to zero and actually give people money back. and that counts as a spending -- that counts as a tax cut, and that kind of pollutes the whole conversation so you can never figure out what the hell they're doing. [laughter] >> that would help explain why this low e quintile is -- lowest quintile than -- >> can we have the next question? >> thank you. >> thank you. >> good evening. >> good evening. do you have a simple question too? >> i have a very simple question. it's more about a clarification, i'm confused. i worked for the state

government, federal government and county governments, and i've on o served that while state, county and federal employees are on the decrease, the amount of contractors are on the increase. >> right. >> so i'm seeing government increasing not directly, but indirectly. is this a correct assumption? >> well, it's -- yes, with one caveat. i don't think at the state and local level right now they're increasing much of anything. i think they're letting contractors go, and they're letting employees go because they've been under such pressure. but it's precisely analogous to my point about we want to do something, we want to call it a tax cut rather than a spending increase in order to keep the number of federal employees down, the government has tended to rely more on contractors. some of them are even people who used to be employs and are now contractors. and so a good accounting, and i didn't want do this in the book -- i didn't do thises in book, but people have tried to do that, shows how many people

adds the two things together. but, basically, the answer to your question is correct. >> there i'm clear now, thank you. >> i'm glad i've clarified at least one person's question. [laughter] i should stop now while i'm ahead. >> well, i'm not going to challenge you. i want to thank you. you've had some tremendous insight, provided me insight at least. just a couple on vegases. first of all -- observations. first of all, you mentioned there's a lack of leadership, and i agree, and i think many people here would agree with you. and in a lack of leadership, anything fills the gap including the media, of which i include you. but that happens to be good in this instance, and so i thank you for that. [laughter] >> i thought i knew where you were going, but you surprised me. >> no, i'm not at all. i hard he believe in a free press. i'm a tourist who wandered in, this is great. [laughter] as an observation, my father's 72, and i look around, and i see many people here who are older, and they're all worried about the same thing: will i receive

what i paid in, do i receive some fairness? i think we all probably agree, and i would hope we would agree that we would all sacrifice something if we just knew that we were being treated fairly. and that leads me to my conclusion that i just don't trust anybody in washington. i'm going back to south dakota! [laughter] >> well, actually, i think you make a fundamental -- i want to disagree a little bit with one thing you said. my experience a lot of people who are on social security, medicare and maybe even some people in this room are worried about, yes, they want to be treated fairly, everybody does, but they're also worried about their kids and their grandkids. >> oh, yes. >> and i think what's troubling about our current course is the cost of continuing on this path is going to be felt not by today's retirees, but by those who have not yet retired. but i think you make a fundamentally important point. this stuff is hard. because we are going have to tell people someone's going to

get less, and one's going to pay more in taxes. it would be great if the economy grows faster, and i hope it will, and that'll make it easier. but growth ahone is not going to fix this problem. so that requires the citizens to have some trust in government. and as you know, that's been eroding. i like to say that the only institution in washington that people have less confidence in than the press is congress. so i think the government is going to have to earn back the trust of the people before we can solve this which is why some of these things that seem kind of petty like the bridge to nowhere stuff are really important. because i think that if the people think the money's being wasted on bridges to nowhere or ridiculous projects for someone's congressional district for which they got extra campaign contributions, they're going to be reluctant to pay higher taxes, higher medicaid premiums and whatever.

>> i think they're beholden to the political party and then the rest of the people, and i don't think anybody's going to say i'm not beholden to my party. my question to you is, what can be done to stop that? you live in washington, you see these people. what can we do? [laughter] >> well, there are some -- >> thank you. >> -- members of congress, i'm drawing a blank on which republican senator it was who said that he was not going to abide by the grover norquist pledge not to raise taxes because he thought his pledge to support the constitution actually took over that. >> coburn. >> senator coburn. i'm not out to change washington. i'm glad that there are a lot of people in town who want to change it. i think the role of journalists, as i said at the beginning, is to try and put a few facts on the conversation so that when we make changes, we make them on some evidence. and that's all i'm trying to do. so two more, and then we have to stop because it's 8:00.

>> will i liked your observation concerning why everybody is buying our bonds with the biggest midget. pretty big midget too. >> right. >> i'm suggesting, i wonder what you think of this, that maybe there's also another reason that we have a implicit bargain with the rest of those 17 countries you mentioned to spend less on defense that in exchange for us picking up the defense burden, being the policemen of the world, spending 6% of gdp on security -- >> right. >> in return for that, surplus countries will keep buying our bonds. i ask the question, suppose we were to cut defense to something like 3% of gdp, require the other 17 to contribute more and have a joint policing kind of effort? if we did something like that, might -- would there be an unintended consequence that maybe those surplus countries would feel less inclined to buy our bonds -- >> it could be, although since one to have big surplus

countries right now is the chinese, and i think they may look at us more as an adversary than an ally except for the possible exception of keeping the sea lanes open for oil in the middle middle east, but there is definitely some synergy here. i used this tallest midget line, and my nice, rebecca, said to her mother, why is david being so nasty to midgetses? [laughter] so i just want to make clear i have nothing against midgets. let the guy behind you ask, and then we'll close. >> thank you for a wonderful talk, and i look forward to reading this book. >> thank you. >> if you can't given everything away. [laughter] so you've spoken quite a bit about congress and their role, but it strikes me that the presidential budget proposal which gets dissected is so mythical. why did it become such a fake document, and is there any hope when you see president obama several years ago trying to

propose a more accurate budget, is there ever any hope of making that presidential budget meaningful? >> the president's budget has become kind of a political document. it has the advantage that a president has to put numbers on his promises which the people running against him don't have to do which makes -- um, but i think it's, something's gone wrong in our system where the president looks at the budget as the opening salvo in a long two or three-year negotiation. so if you wanted me to be hopeful, i think there's a shot, a shot after the election. if president obama's reelected and presuming he faces a congress that still has a lot of republicans, that may be the moment where he has to put down an honest proposal that fleshes out some of the things that he says he sport -- supports but which actually hasn't found his way into his budget. that's the best i can do. thank you very much, they were all great questions. [applause]

>> for more information visit the author's web site, davidwessel.net. booktv recently visited columbus, ohio, with the help of our local cable partner, time warner cable, to explore the areas literary history. all weekend long we're airing interviews with local authors and tours of prominent literary sites. watch one now right here on booktv. >> we get asked a hot, who was billy ireland, and why is the library museum named after him? billy ireland was a longtime editorial cartoonist for the columbus dispatch. he was the cartoonist from 1898 til his death in 1935, so he spent 37 years at the columbus dispatch. at the billy ireland cartoon library museum, our mission is to collect, preserve and make available american printed cartoon art. our scope includes graphic novels, magazine cartoons,

editorial cartoons, comic strips, comic books and sports cartoons. here are some examples of what you would find in our library. what i have pulled here are the passing show pages that billy ireland did for every sunday. and in the these you can really see sort of his style, what he drew. he drew about things that everyday things that happened in columbus, like the potholes on high street. you know, things that the average person could relate to and identified with. um, in this panel over here ireland was, he was a master of gentle sarcasm. he really thought that humor was a more effective instrument than anything else, and as you see here, a councilman talks about he wants to fine people for sneezing in this public, and he sort of wonders how do you stop that?

should we wear a sneeze strainer? should we have a veil over our faces? so in this panel you see he's saying the magnolia trees are just as beautiful or more beautiful than the cherry trees in washington. this is more political passing shows. this is at the end of 1918, and he's kind of hoping that 1919's a peaceful year. he draws the proceeding war years as rambunctious little boys, and the globe is sort of the beleaguered father with a bunch of cuts and bruises. so he's hoping for 1919 will be a peaceful, quiet little girl. and these are some of our editorial cartoons. these three car doone -- cartoons are by sam malay of the pittsburgh courier. these are sort of great to see the exes