>> you can find more on these bestsellers by going to nytimes.com's and clicking on arts. >> david wessel, economic editor for "the wall street journal," reports on where the trillions of dollars that make up the federal budget comes from and where the money goes. this is about an hour. >> you're doing great. i was thinking i would let you keep talking and i would listen.

i would find out what the interesting parts of the poker. very good to be her one of america's best independent bookstores, politics and prose. i assured brad that not all these people are my friends our fellow members. they want to think about the budget in august which i think is heartening. i want to talk a little bit about how this book came to be. my agent he was here talked to be once about doing a book about the budget. the editors at crown union random house to publish the book i did on the fed said to me, the fed was boring and you made it interesting. the budget is boring. can you make it interesting? i said making the fed exciting in 2081 were about to tell into the great depression wasn't all that hard but there's nothing going on with the budget. a book length treatment of the supercommittee is not something i would read, let alone want to

write. so then they said well, what if he did a year and the life of the budget? you could start with the budget being crafted behind the scenes and then the president present the budget and in congress actually acts on the budget and in the money goes out the door. and i said that's not really the way it works. they said really? so i began to think, maybe i did know something that could be useful. and i brought with me to this conversation some of the charts keep a distance foundation of done on the budget. pete peterson is a guy who devoted $1 billion to do with the federal budget. i'm not sure to make much progress on the policy front but he is made lots of good charged and employed lots of graphic artists to make them and their actual. i began to realize, and to think my editors realized at the same time that maybe there was a market for books that just explained where the money comes

from and where it goes. as i thought about that, i thought here's a good idea, this is a book i could to quickly, and i thought of going to write a book about the federal budget for people who have never managed to get to the end of a "wall street journal" story on the subject. and i had this naïve hope that maybe i could play a small role in separating fact from opinion. i think what's happened a lot of our budget discussion is that people of mixed up with the facts are, what the reality is and what choices we have to make. the choices are fundamentally in the very best sense of the word political. they have to do with our values, how big of a government we want to have, the nature of success in our economy and so forth. 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 the facts interfere in

their argument. if you watch one cable channel, fill in blank, you get one set of the facts. you watch another channel you get another set of facts and you would never know their talk about the same thing. i know it's kind of unfashionable to be trying to write a book that says i do not have a solution to the budget crisis. chapter five is not david wessel's version of bowles-simpson or rivlin-domenici. but the role in the journalist is to say look, this isn't so complicated, let's break it down. it is hard to understand because it's so big that instructions at the white house and set to agencies to tell them how to submit requests for the president's budget runs 972 pages. the budget itself, for printed volumes, you can read them free online, 2238 pages last year. and content each one of those pages is a whole nother set of explanations.

my favorite is the department of homeland security which submitted to congress 3134 pages to justify their budget, one for every $12.6 million they wanted to spend. the budget is big, $3.6 trillion a year, $400 billion a day, $70 million an hour. dave barry was a humor columnist be used to write for "the miami herald," is really good at this stuff, once said the problem, the reason people don't understand the federal budget is it's in millions billions and trillions sounds too much like. if we just call them golf balls, watermelons and how to bless it would be easier to understand the magnitude. there is something to that. so in this book i try to break the budget into the big pieces into digestible morsels. when i talk about a couple of them, here today before turn to questions, one is that when congress shows up every year they've already committed

two-thirds of the money. 63% of the money that's spent by by the federal government last year was committed to various benefit programs, medicare, social security, medicaid, foreign subsidies, veterans, interest on the debt. and they spent basically the rest of you arguing about everything else. and what this means is they are 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 and immoderate economy? it's automatically baking the cake, and only if there some reason to reopen the bill, which there sometimes is, do they make any changes. an economist who used to be with the treasury and reagan just as now the urban institute, pointed out in 2009 for the first time every single dollar of tax revenue had been committed before congress arrived. so the rest, all the money the

tax code brought in when to cover benefits and interest on the debt and all the money where defense, domestic discretionary stuff and all that was borrowed. so that's one thing. if they change. the second thing is it's related is the one thing that is rising fast in advance is the federal budget is health care. that's because the government covers more people every year and because the cost of health care is going up faster than almost everything else. in 1960, before medicare and medicaid, the programs that assure the elderly, the disabled and the poor, 9.5% of the federal budget went to health care. last year it was 25%. we are on course even with the affordable care act according to the congressional budget office to hit 33% by 2021. so this is an execrable fact. you can argue about whether we

should, how we should change it, and it is certainly a fact that we don't have the world's healthiest population by far, even though it's been more in health care than any other country per capita but you can't escape the fact -- and i'm struck by in a town where democrats and republicans basically can't agree what time it is, there is some kind of consensus to health care is a big part of the problem. another big chunk of the federal budget is defense. we spent $700 billion on defense last year. $700 billion. that's more than than the combined defense budget to 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 budget of the next 17 countries combined. i don't think that's

sustainable. there are some big choices to be made here about to what extent do we want to be the cops of the world, to what extent is it important for us to keep the sea lanes open for oil shipments for everybody depends on oil from the middle east. to what extent do want to be able to send people at the drop of a hat into libya or somalia or syria or wherever? but there are some big buck items there. i think the trouble with the defense budget is a light covering the federal reserve. it's developed a set of facts in speech and concepts that outsiders can't understand. in the book i haven't -- how many aircraft carriers are enough? so congress in its infinite wisdom is told the pentagon have to 11 aircraft carriers. they've got a special permission of 10 for a while whether building a new one. the pentagon wants to replace each aircraft carrier it has, one aircraft carrier every five

years for the rest of my life. these new aircraft carriers, which are enormous, the navy calls for a half acres of mobile not for -- sovereign territory and cost $11 billion. $11 billion is the same out that medicare will spend on all the hip, knee and shoulder surgery on 700,000 beneficiaries. when you do your skin, one aircraft carrier, 700,000 joint replacements. that's not the worst of the. 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 disassembly 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 that people like it when the of the

misconceptions that people have is that all the money the government spends goes to 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 and the defense department and military are civilian or one of the fairies homeland security apparatus is. if we fired every single one of them from president obama's secretary to the person who is collecting tolls at yellowstone, to the guy or woman who sitting in some nor read air defense facility in north dakota right now, if we got rid of all of them, all their wages, other benefits we would save a lot of money. $435 billion last year. that would have reduced the defit 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 send it out again. the federal government in a sense is a military with a big health and welfare and retirement fund attached to it. $2.2 trillion is the money that came into the federal government last year, when out in the form of benefits, and much of the rest went to state and local grants to state and local governments. so it is not going to be possible to reduce the federal deficit by nickel and dining federal employees. doesn't mean were not going to try but we will not succeed. another misconception people have is we are paying more and more taxes and that we're paying more a more taxes to people in the country. i think a lot of people, particularly in this room appreciate that americans have a smaller government than those of most developed countries and with a less of her income 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 in the middle of the middle class have made in taxes has been coming down steadily for 30 years. in 1979, people and that middle 20% of the income distribution paid about 90% of their income taxes of all kinds to the federal government, according to the congressional budget office. in 1999, 20 years later, it was down to 70%. patchett, i mean in 2007 before the recession hit, it was about 14%. last year, partly because the recession from people's income were depressed and/or special tax breaks 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 the income. where is the money coming from? we are borrowing it. last year we borrowed 36 cents of every dollar we spend. most of it from abroad, half of that from the chinese. at the bottom fishers of policies, many of them pursued by republicans as well as democrats, have gradually lightened the tax load for 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 46% to a lot of them pay payroll taxes, social security and medicare payroll tax which for most working americans is a bigger tax and income tax. but even with that, about one-fifth of all americans didn't pay either paper or income taxes. it didn't make enough money, there were elderly people living on social security but they took revenge of tax breaks for people are low-wage workers or who have

big families, or have other deductions. some of them were probably work 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 committee think about those three things to one going to but health care can when we going to do about defense, when going to be about revenue? almost everything else is a detail. if you get those three things, you will have begun to put the pieces together. the deficit is enormous, bigger than we've had in almost any time in our history when we were fighting a world war. but the deficit today is not a problem. the u.s. government is borrowing almost unlimited amounts of money at extraordinarily low interest rates. the government is borrowing today a new 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 go. so the problem we have now, the issue probably have now, of course, is unemployment, 8.3% unemployment, more than 3 million people have been 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 with today's low interest rate the federal government should spend $230 billion on interest. that's the same as, bigger than the combined budgets of the departments 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? if sorting out because we will manage our finances, or that we have a political system that seems to be a marvel of efficiency of compromise and

comedy. 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. if this could go on for ever, it would be fantastic. it is not going to go on forever. i have no clue when it's going to in but it's not going to go on forever. as interest rates return to normal, the share of the federal budget that goes to interest is going to rise. and that will crowd that spending on other things. it means they will pay taxes and will borrow money and some of the money would borrow will go to pay interest on the money we borrowed flashy. some of 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%. so that means that we'll be

working harder, and if our economy grows we will have more tax revenue, publisher of our paychecks will go to pay interest on our debt, mainly to the chinese which is really weird and you think about pictures a country where the standard of living is far below ours, yet somehow they've managed to six incredible amounts of money, and then the user to to lend to us and, in fact, they were very generous and they allowed us to have a housing bubble and bar all this money so we can run up the value of our houses in times of everyday crisis and then we found ourselves in the situation we're in today. this can't go on forever, right? it just can't. and sometimes people are as we knew the going to stop? when is the bond market going to rebel? one of the chinese going to stop lending us money? 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 going on forever.

but right now we're 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 -- is not too many heroes in my book. i had euros in the last book, but there are a couple. one of them is doug elmendorf who is an economist who is head of the congressional budget office. the congressional budget office is really a remarkable institution. it's perhaps one of the few institutions in washington that works the way it is supposed to work. and it's actually function. it was created largely in rebellion of the congress tried to take control of richard nixon to give an independent advice and honest figures on the federal budget, on federal spending. and it's done just that. doug elmendorf said, and he is trying to talk sense into his bosses in congress, fortunately he is not paid for performance, he said a couple of things which i think are relevant and

intention. one is we cannot go back to the tax-and-spend policies of the past because the number of people 65 and older will increase by one-third between 2012 and 2020. the number of people over age 65 will increase by one-third over the next 10 years. that's the aging of the baby boom. the idea that we were going to fix the budget deficit, fix social security would do something about medicare before the baby boomers started collecting it is over but the oldest baby boomers are now turning 65. so we're going to have to have a bigger government than we had in the past despite what you hear from some candidate, namely republicans, think we can go back to something we had before. it's of course arithmetically possible to go back to smaller government but its extraordinary difficult in a society like ours to tell people we're not going to keep her promises to pay benefits to the elderly because

we decided we wanted a smaller government. and that goes a second point which i think is one of the gum adores best observations, the summit of the federal budget crisis in the single sentence. this country faces he says a fundamental disconnect between the services that people expect the government to provide, primary and form of benefits to the elderly, and the tax revenues that people are willing to send to the government. that dilemma, that contradiction is that the root of our budget crisis right now. now, i've been criticized because i think i mentioned earlier, for not any 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 are able to borrow so readily, and we have, even by america's political stance, extraordinary polarized

political system. so what changes this. well, i can only come up with two possibilities for what changes this. one is a crisis. may be a financial crisis with the bond market rebels, europe suddenly gets its act together and the chinese decide they want more money in euros and fewer dollars to maybe it's an artificial crisis like a fiscal cliff it comes at the end of year when spending is supposed to be cut across the board. and taxes are supposed to go up unless congress and the president reached some compromise on a better deficit reduction scheme. maybe that will do. 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. leadership can come from strange places. i personally am glad that ross perot was not elected president, but i think he played pretty constructive role in that race,

enforcing the candidates candidates to kind of stopped trading one-liners and deal with some legitimate issues. and it would be nice if something happened to get like that again. it's not going to happen in this election. my fantasy, and there's a petition going on, is that one of the presidential debates will be dedicated to here's the deficit, we will agree on what the number is, we will agree on what the targets for reducing it over the next decade, tell us how you would reduce it. so we can compare the mitt romney planned for barack obama plan. so another sort of semi-hero in the book is leon panetta was really an extraordinary men. leon panetta is 74 years old and he came to washington during the nixon years. he was working for a republican in congress who lost, wasn't conservative enough for california, and he then went to work in the nixon administration and he had the great wlcome you

can decide whether his fortune or misfortune, to be put in charge of the department of health in 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 and i had no against us are researching this, later became chairman of the house budget committee in years when it 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 the surplus, which seems like a long time ago, and it was a long time ago. and now, of course, he went down to be the director the cia and the secretary of defense where he is busy defending the defense department against people who want to do what he wouldn't have done. 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, a little shrine there to

the capture of osama bin laden. and he told me in a 12 years he was out of office when his teaching at an institute he set up a monterey, california, he said he 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, that ultimately you rely on crisis to drive decisions. the last two years he said, chuckling, he likes to laugh at his own jokes, and the last two years he said my biggest concern is that crisis doesn't seem to drive decisions either. so there goes my theory. so on their i would like to end. i'm happy to take your questions. i want to recognize briefly my wife, anybody who's written a book knows the worst thing is for the spouse who has to put up with someone who can't think about anything else, who can't sleep at night and is always crabby. this was a quick book.

someone here, i may mention also, is my agent who is married to a psychiatrist and it really shows. is a great counselor when you say how can this were? so there's a question here. i've been asked, if people have questions, to come to the mic so they can be recorded. >> [inaudible] the number you mentioned at the beginning, was it 40% of people who were on medicare and/or social security thought they were not receiving government benefits? a government plan, leaving the gaza side for a minute, the republican plan would slash medicare, and people would get fewer service. that's the republican idea that we get too many services and that people should only get what they can afford. the obama campaign were to

explain that, do you think it would change anything do you think it would shift votes the republicans from the democrats if people realize what was going to happen to make it even if it didn't happen to them and all happen to their children's? >> spent it's a good question and i don't know the answer. let me make two observations of that. one is that neither campaign is in a very good job of explaining medicare and medicaid in the plans for health care in a way that makes sense to everybody. i think both are a little too much on the free lunch school for me, that we're going to make health care more efficient, everybody can know all the health care they want and all health care they need, and no one will ever say no to them. i don't think that's very realistic. the obama camp i think is kind of taken a pass on medicare, and they, all the cuts they propose

it provided but they don't propose much to beneficiaries. and republicans want to turn into more of, not the way they put by the way i put it, more of a voucher thing and not make the factual worth as much today as today's health care costs and hope by the process you can when over. i do think if they convince their opponent will get medicare, that will win you votes, that's true. but i'm not sure that either campaign is doing us any favors, if we can have a pain-free solution to health care, because i don't think we can. >> started with the idea that medicare is catastrophically underfunded, 40, $50 trillion underfunded according to the government accounting system, that they require employers to use, present on the accounting, and it's going to squeeze out

spending on everything else, probably even including defense, and it's not -- [inaudible] same deductibles, same coping. >> different premiums in some cases. >> so two questions. why would democrats support, basically demagogue cuts in medicare, which i think at, i should be paying 10 times the deductibles and co-pays to someone else. so why would they demagogue that and let medicare got every other program they care about? every other program they care about is going to be cut because of their support for medicare. why would republicans propose any cuts in medicare? they can just let it go ahead and eat the rest of the budget and they can live with the government that has medicare, defense and interest on the national debt, which would be fine with them.

>> the answer to any question that begins why would political party a demagogue -- [laughter] is because they think it will get them votes. i'm willing to substitute my judgment for a lot of people when it comes to substituting my judgment for politicians about what gets votes, i stand back. i think that's the first edge. i don't think the republicans want the government to solve medicare, defense and interest on the debt. i think they want a smaller government and i think both sides 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 is paid by private employers and insurance and private, and consumers. is 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 either in the obama or the romney plan. but there is an. so they are two things we have to do. when his we have to be really efficient and 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. are some ideas on the republican side, and at some point will have to implement those and maybe even rationale care to do. there are less three people in the audience were far more experts that i am. if i keep getting questions on and i'm going to call on you guys, so get ready. >> i'm trying to understand this. why after 30 years of starting -- 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 that like you to

comment on it, haven't read your book, the wall street journal continua remin us when you want to cut the consumption of some quantity it raises price, conversely if you lower the price of a commodity the increase its consumption. so i submit to you by cutting taxes, you make a government cheaper and so people think oh, they're for 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 the reason we have more government is in part because it was so easy to borrow money and we didn't have to pay for it. that's the difference between us

and spain and italy. they have to pay 7% to borrow money. we pay 1.5%, and added 2% inflation rate that's a pretty good deal. in the book i resurrect one of the original supply-siders, a pamphlet named jude who work for the editorial page of "the wall street journal" for which i do not work, and he popularized something he called the to santa claus theory. the democrats he said, the party of income just to be 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 traditional role that is cause much of the nation's economic measure. it isn't republished don't enjoy cutting taxes, they love it, but this is something in republican chemistry that causes the gop to become hypnotized by the prospect of an imbalanced

budget. they embrace the role of scrooge playing into the hands of democrats who know the first rule of successful politics is never shoot santa claus. there are many theories about government, one of them which has been definitely disproven is starve the beast three. that was part of the reagan administration's plan. you cut taxes, reagan called it cutting the government allowed, and that would force cuts 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 need something for less they want more of it. it happens because its relentless pressure to spend more. very few mums want to spend less but 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. makes sense?

>> i'm going to give shorter answers. >> is rather symbolic the washington nationals have a mascot called screech. but i had to say something about the affordable health care act because it really isn't. it just subsidize health insurance, and no one can be denied health care to pay the deductibles or their copayments. a lot of offices essentially have voicemail that says 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 because cheap labor. that's really the huge problem, and other countries make people wait for care. that's our rations coming. i wonder though if you could comment about that report will incomes of people in government

who have to report their income, especially on either side of the aisle. and what their taxes would be if the taxes were increased proportionately after $250,000. >> i'm not sure -- >> the big fear has said that governor romney doesn't pay enough in taxes, although warren buffett does because he doesn't take us out of. everything is given to him. >> well, i thought you going somewhere else but one thing interesting is, we do have a pretty transparent society. you can pretty much find out what any government employee makes. there's not a lot of them who make on their own. some of them are married of course, enough to be hit by the $250,000 threshold. i think i've a different plan. my plan is every member of congress should have to fill out his own tax return. and maybe without turbotax, because it does give me a little

nuts that people, they decry the complexity of tax codes, and then you look at the tax returns, some members of congress to actually disclose their tax return, a number of them are taking advantage of every single possible loophole, deduction, credit and exclusion. i think the issue with governor romney's taxes and warren buffett taxes is that a, if you're really rich a tax code provides a fertile field for finding ways to avoid paying taxes, and b, if income is more an capital gains and income and less in wages you are taxed at a lower rate. i think that's pretty much the bottom line. i do thing actually that mitt romney is campaigning on tax plan because it would benefit him particularly. i think either believes in the tax proposals he put forward, as vague as they are, or he thinks they will win him reelection. i think sometimes that people are a little too hard on these

rich people who run for office, think that when they get to office they're doing things that benefit their own personal pocketbooks. i don't think that's the case. >> could you comment briefly on what you consider to be the truth loopholes versus justified exclusion? >> well, every loophole is -- that's a great point. my loophole is your justified exclusion. my favorite is, 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 racetracks. that was one that was set to expire but the senate finance committee has just decided to extend it again. and another is the one which i go into a little depth in the book i've called like kind exchanges. if you sell a piece of property and you sell it at a profit, but then you turn that money into, and send on another piece of property, you don't have to pay

capital gains tax, at least not right away. over a series of times it's been stretched so that there's actually, there are brokers so if you want to sell something and 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 it is 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 explain how he did the right thing on your estate tax to get past those cars onto the kids and never pay taxes at all. but my favorite part is the irs now has to decide what is a like kind exchange. so for instance, there's a way if you do it right, if you have a dental practice, you could sell the democrat's and you can buy a vacation property and that's a like kind exchange. but the irs says, i took stock

of different sexes are not -- [laughter] spent which makes imminent since. i'd like to be the one who shifts from spending to the revenues question, 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 tax as regular income, what would our situation be now see? so, it's a great question for which i don't have an answer. i think that there are two things. obviously, if we had more tax revenue than the same spin than we would have a smaller. the magnitudes are too hard to

judge. 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. is there a set of tax rates that's higher than the ones we have today that would allow us to deliver prosperous economy? i believe the answer to that is yes, and i think you can see from the experience of the 1990s. >> i'd like to ask a simple question. >> et al. dangerous when people start i want to ask a simple question. >> well, the question is brief in a sense, what is the real tax hike? you're trying to allude the facts of a very complicated tax

system, for example, on page 113 you show the tax but this is income taxes. on page 106 -- >> that's not right. on page 113 is the congressional budget office average tax rate, and that's federal taxes of all kinds. that's the payroll tax, income tax, excise taxes, and they distribute the income taxes spent maybe i've misunderstood them. i just picked up your book this evening and haven't really studied it that well. >> that's okay. >> but i was bringing to find a tax system is so complicated that a few of really appreciate it, and that there's not only the taxes that we pay our invoice we receive from the employer, but there are the hidden benefits and the payroll taxes is just a part. and me, the federal government

receives, the employer's contribution and the employer's contribution to if you're self-employed you appreciate more of what you are really contributing. so you're saying now that the table on 113, and apparently i misunderstood, it includes all tax. >> so what this is -- >> but i was also going to refer to page 106, showing the payroll taxes and were i presume there's also, that includes the medicare perhaps. >> the chart to which, let me explain, there's a chart in a book which goes back to 1940 which shows the share of federal revenue and income taxes, corporate income tax, payroll tax, and other things. and basically what you notice is the payroll tax is an ever greater share, corporate income taxes for because we raise taxes on social security but also we invented medicare in the '60s,

and that's financed in part not in hell, why the payroll tax. >> when i first looked at this table on page 113, it struck me a worker who may have a sufficient exemption that he may not pay any income tax. >> that's correct. >> nevertheless will be paying 15% of the payroll, rather i should say the federal government is receiving 15%, is cogitation plus the employer's contribution, both medicare and social security taxes spent so you're right when you want to think about taxes, it's a mistake to think only by income taxes. 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 employers share, because that's kind of wages they didn't get, than they pay in income taxes. about one-fifth of the households don't hate either income payroll taxes. that's because he the it didn't work or because we have come at

a talk about this in the book also but, decided that we don't want to give people money and call it spending because spending is tricks. it's not kosher. but tax cuts are very kosher. so if you have a choice you would rather give people a tax credit rather than put it through the spending, the federal government has programs that for working people would use their payroll tax and sometimes zero and sometimes give people money back if that counts as a spending -- it doesn't count as a tax cut and that blows the whole conversation so you can never figure out what the hell they're doing. >> that would help explain why this lowest quintile, less than 5%. >> yes. and we have the next question? thank you.

>> i have a very simple question. it's more about the clarification. i'm confused, federal government, state government and county government. i've observed that while states can have federal employees on the decrease, the amount of contractors are on the increase. so i am seeing government increasing not directly but indirectly. is this correct? >> well, yes. with one caveat. i don't think of the state or local level there increase in much of anything. i think they're letting contractors go and they are letting employees go because they been spun to such pressure. but is precisely analogous to my point about what 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 employees who are not

contractors. and so a good accounting is i didn't do this in the book but there are people who try to do it, shows how many people at the two things together. basically the answer to your question is, you are correct. >> so i am cleanup, thank you. >> i am glad i clarified at least one person's question. [laughter] stop now while i'm ahead. >> i'm not going to challenge. i want to thank you. effects and tremendous insight divided inside at least. just a couple of observations. you mentioned there's a lack of leadership. and i agree and a big many of the people here would agree with you. and in a lack of leadership in a thing fills the gap, including immediate of which i include you, but that happens to be good in this instance, and so i thank you for that. [laughter] >> i wish i knew where you're going to choose a price me. >> no, i hardly believe in a free press, i'm a tourist who wanted in.

-- who wandered in. my father 70 and a little bit 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 would all probably agree, and i hope we would agree, 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 last mac spent i actually think you make a fundamental -- one thing you said is my experience, a lot of people run social socil security, medicare, they are worried about their kids and grandkids. and i think what's troubling about our current course is that the costs of continuing on this path is going to be felt not by today's retirees by those who have not yet retired. but i think you make a

fundamentally important point. this stuff is hard, because we're going to have to tell people some is going to get lessons on what is going to pay more in taxes. that's the only way to bring the deficit and. it would be great if the economy grows faster and i hope it will and that will make it easier, but even growth alone is not going to fix this problem. so that requires citizens to have some trust in government, and as you know, that's been eroded. i like to say that the only institution in washington, people have less confidence in than the press is the congress. and 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 do seem kind of heavy like the to nowhere stuff, are really important because i think people think, money is being wasted on bridges to nowhere are ridiculous, projects or summons congressional district to which they got extra campaign contributions, they will be

reluctant to pay more in taxes, pay higher medicare premiums or whatever. >> the reason i don't feel government is responsive is because i think they beholden first to the political part and into the rest of the people. i don't think that anybody is willing to say i am not going to be beholden to my party because i won't get elected, am i right? what can be done to stop that work you live in washington. what can we do? >> there aren't -- there are some members of congress -- trying a blank in which republican senator 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. senator coburn. i'm not asked to change washington. i'm glad to throw out people in town who want to change. i think the role of journalists as i said at the beginning is to try to put a few facts on a conversation so that when we make choices we make them.

that's all i try to do. to more and then i think we have to stop. >> i like your observation on pension why -- i wonder what you think of this, maybe there's also another reason that we have an implicit bargain with the rest of those senate -- countries you mentioned that spend a lot on defense, and a change for us being the placement of the world, spending 6% of gdp on security, in return for that, certain country will keep buying our bonds. suppose we were to cut it to something i 3% of gdp, require the other 17 to contribute more and have a joint policing effort. if we did something like that, would they be unintended

consequences so maybe the surplus countries would feel less inclined to buy our bonds? >> it could be, although since one of the big surplus countries right now is the chinese come and i think it may look us more as an adversary, but there is definitely some synergy. i use this policy midget line on array the other day, and my niece, rebecca, said to her mother come what is david being so nasty to make its? [laughter] i've tried to make look, i have nothing against midgets. >> thank you for a wonderful talk on and i look forward to reading this book. you have spoken quite a bit about congress and the role, but it strikes me the presidential budget proposal, which gets the second is so mythical. why did it become such a big

document? is there any hope when you see president obama's several years ago trying to propose more accurate budget, is there ever any hope of making a presidential budget proposal meaningful? >> the president's budget has become kind of a political document. it has the advantage of a president has to put numbers on his promises which people running against them don't have to do, but i think it if something has gone wrong in a system where the president looks at the budget as the opening salvo in a long 203 your negotiation. so if you want to be hopeful, i think there's a shot after the election as president obama is reelected and presumably faces a congress that still has a lot of republicans, that may be the minority has to put down an honest proposal that flushes out some of the things that he says he supports, but which actually haven't found a way into the cycle.

thank you very much. they are all great questions. [applause] >> for more information visit the author's website, davidwessel.net. >> next weekend on booktv on c-span2 the 12th annual national book festival will take place giunta on the national mall in washington, d.c. some of the panelists and guess that will be covered live include doug brinkley, daniel yergin, sal thibodeau smith, tom friedman, david nairn is, those are just some of the authors fisher at the national book festival so join booktv on c-span2 next weekend. >> i have been writing history books for 30 years, and one of the things that i've done throughout his and everything

above address much is possible to go to the site of these expenses on writing about, especially presidential wants to this is a historical monument which is called president lincoln's cottage. it was neglected for a very long time and tells about 10, 15 years ago in which it was restored and they're doing their best to restore it so that looks the way it did at the time abraham lincoln was president. this house is in northwest washington. it is up the hill from the white house which is down near the river, as a result it's far enough away that he could escape and also it's a lot cooler. the book i'm writing is about presidents in wartime from james madison and were taking 12, to george w. bush and iraq. one of the centers of this book is abraham lincoln in the civil

war. and the thing about lincoln is that the experience of america during those years, you almost might think is there anything further to be said about abraham lincoln. there always is, both because of the lessons we can take away from his life experience and his presidency, and also because i'm basically enough new sources still turn up from time to time. coming to a place like this that you're writing about a president it you shall helpful because i was a historian trying to repeat, or give the reader a sense of what the president experience was. in this case, abraham lincoln in the civil war. and because you've come here to this house where he spent so much time while he was president, you could go into the room where he woke up in the morning. you can see the sights he saw while looking outside. you can hear a lot of the sounds that are very similar to what he would've heard at the time. this is my favorite room in in e house, which is the library.

for a couple of reasons. one is you really get the sense perhaps more than some of the other rooms at what the atmosphere in this room might have been like when lincoln was living here. as president. also, books and learning were so much a part of lincoln's life experience, particularly as president, that the room in which he did a lot of this turns out to be pretty important to as a war leader during the civil war he always wanted to make sure that the decisions he was making about men's lives never got -- that's something we've not always seen during a president during wartime. a way lincoln did it was this. so many soldiers were dying in the early months of the civil war that they had to build a national cemetery. they went to the president, where should we put it? and lincoln said essentially i want it near my summer home so that i will probably be able to look out of an upstairs window

and see men's conference, being taken on the case, fresh graves being dug as i come up to the house and back. he felt this would almost hourly remind him of the awful toll of the decisions he was making that had taken the country into civil war, and allowed him to execute it. to come it gives you an enormous sense, i think, of why you can write history form the normal sources documents and memoirs, but if you're writing about a president you are able to go to where he spent a lot of a lot of his time either growing up or while president. i think just standing there almost in its history in three dimensions. you will learn things about abraham lincoln where you would not if you have never been here. >> let's look at what the emancipation proclamation actually says to the

proclamation freed enslaved people in those states or parts of states still in rebellion to on january 1, 1863. it is not for everybody, okay? just those states or parts of states still in rebellion, so there's several parishes in louisiana were slavery still exists because of the union army does not have control of that area, okay. there's parts of virginia where the union army has a foothold, slavery still exists in those areas. >> president lincoln issued an early version of the emancipation proclamation following the union victory at antietam. take your questions on the battle and repercussions of the single bloodiest day of fighting in american history to day life from antietam national battlefield at me