through different tax expenditures, those numbers don't translate dollar for dollar into revenue. and this is going to be one of the big challenges of tax reform. we encountered this issue in the joint committee, the super committee. so for example, let's take capital gains. on a static basis you can say every year because of the capital gains preference, there is so much income that is not being taxed. but capital gains is an example of something that people can choose when to realize their capital gains. and if you change rates, it changes behavior. that's true on all these tax expenditures taking into account the interrelationship of all of them is essential in figuring out how much revenue you're going to generate. you can't just add up the different tax expenditures.

saying we got that amount of money, and dollar for dollar we can reduce these rates, because it doesn't take into account the behavioral changes of individuals. that's why the joint tax committee has spent an awful lot of time modeling, and still has a whole lot of work to do in this area. but it's why people need to be very careful not to say arbitrarily we're going to cut the rate to 25%, because every model that i've seen indicates that doing that would be financing tax breaks for folks at the top by increasing the tax burden on middle income americans. so let's -- let's keep doing the analyses. and as i say, jane revell at the cis recently did a very good analysis of all of this. let's see how we can -- let's approach this in a fact-based way, not an ideologically driven way. >> all right. one from me. so we talk a lot, and we talk a

lot in washington all over about oh, we just need to get past the election. when we get past the election next year, it will be different. there is almost no one who sees the election generating a single-party government. we're still going to be faced with divided congress, i don't know, i'm not going to speculate on the presidential. but in addition to that, we've also got a market that is not putting a heck of a lot of pressure on congress to take any real serious action on the debt, on the deficit, on the spending models. why should anyone in this room be optimistic at all that 2013 legislatively is going to look any different than 2011? >> that's a good question. and the point in your question was one of the ones, a point i was trying to make earlier, which is that anybody who thinks that the outcome of this election is going to somehow deliver, you know, a message from the american people as to the right answer i think is deluding themselves.

at the end of the day, we're going to have to reach compromise. now, why might this be different? and the reason it could be different is we have these action-forcing events. you have the end of the all the tax cuts scheduled by law to happen. as i said, that's $5 trillion in the mix. you have the sequester, which everybody agrees is the wrong way to reduce spending. and then you have the debt ceiling. that -- it's a very combustible cocktail, but it also has the potential to force people to make the difficult compromises. let's just take the revenue piece. and i will -- i'll make the assumption on the election. i don't know how it's going to turn out. but i believe the president has done a good job, and let's assume that he wins reelection. he has been very clear that we can no longer afford the tax

breaks for the folks at the very top. when we encountered this challenge not this past december, but a year ago this past december, our republican colleagues said well, we're not going to allow you to let the rate on top income earners go from 35 to 39%. and they held all the middle income taxes hostage to that. after this election, they may take the same position. but the president i think would have a lot of leverage in this negotiation, and you could imagine a scenario where you deal with capturing some of that revenue, whether it's through tax reform or other means dealing with the rates. and as part of that, you get into a discussion also about these other long-term issues that we've talked about. the kind of conversation that

was going on between the president and the speaker of the house this past summer. again, there is a clash of these fiscal forces that could produce a good result. it doesn't necessarily happen immediately in the lame duck session. i'm not saying that. i don't -- i don't -- if tax reform is part of the equation here, i think it's really hard to get that all done right then. but you could begin to set up the parameters and outlines of an agreement. and so that would be -- that would be the best case scenario. and it's certainly a possible scenario. and frankly, if we're going to address the long-term that provides an opportunity to get the job done. it's an opportunity i hope will be seized. >> mr. optimist, thank you very

much. >> thank you. [ applause ] live from the spy museumc., discussion about the truth behind the 9/11 attacks. participants include authors of books on conspiracies circulating about the terrorist attacks on the world trade center and the pentagon. it's moderated by former special assistant to president george w. bush, david fromm. while congress is on break this week and next, c-span 3 features american history tv prime time at 8:00 p.m. eastern. tonight the life of president dwight eisenhower. you'll hear from the architect of the memorial honoring the nation's 34th president, and from eisenhower's granddaughter, who opposes the memorial. then an archival film about general eisenhower, made by the u.s. army. we return now to the

national journal forum on the federal budget. next a panel discussion on the budget and deficit rejection. former budget committee staff director steve del endorsed an approach that would provide immediate economic stimulus along with future deficit cuts. this is about 20 minutes. >> next we have our discussion with our panel of experts. joining this morning, we have steve bell, senior director of economic policy, the bipartisan policy center, laura peterson, senior policy analyst, taxpayers for common sense, and ethan pollack, senior policy analyst, the economic policy institute. our moderator for this morning's panel is jim tankersley, the economics correspondent for national journal. jim joined us from the tribune washington bureau where he covered energy, the environment and politics for newspapers, including the "los angeles times" and the chicago tribune. he previously worked at the

toledo blade and the rocky mountain news and the oregonian. mr. tankersley and a colleague at the blade won the 2007 livingston award for their unusual series of stories revealing the true roots of ohio's economic decline. he was part of the coingate people that was a finalist for the pulitzer jim? >> thank you so much. thank you all for sticking around. i'm a numbers nerd myself, and have been delighted with the amount of numbers so far this morning. but i want to start without numbers and start with some raw politics. we just heard a lot of theoretical discussion back and forth about how numbers and how we should do this for $5 trillion here, $4 trillion there. let's talk what is going to happen, right. what does this look like a year from now, both from the lame duck and going forward. how much closer do you all think we will be toward actual fiscal health, towards balancing our budget, and most importantly,

where will those budget-balancing measures actually have come from. we'll start with you. >> history would tell us if you look at graham hollings, which was enacted 25 years ago was an amendment in order to get a debt ceiling passed, which should remind you of what happened last summer. history tells us it will take that kind of brinkmanship, frankly, to get something done. our estimate at the bipartisan policy center is some time in late december or early january, treasury will announce that they have to resort to extraordinary measures because otherwise the debt court of appealing would be breached. that and the expiration of the bush tax cuts and the implementation under current law of sequester, as mr. van hollen said offers some possibility. but, you know, after 40 years of doing this, and being a doer scots, i have to say the odds

are they're kick most of these grenades down until the bond vigilantes decide to exact some punishment. >> and do you agree with chairman ryan that the bond vigilantes are waiting for this election and once that's over, they'll pounce? >> it's not a secret. moody's has already told us that if nothing happens by january, they will downgrade sovereign debt. fitch has said the same thing. and john chambers of standard & poor's, who makes those decisions has said the same thing. so we have the three major ratings agencies in this country saying if you don't act, we're going to downgrade you further. and i believe them. >> the defense sequester. do we think it will happen? will it actually go through? or is it going to be shifted somehow? >> i'm not sure i would argue that the sequester as it is now envisioned will go through. thing is enough consistentsies within congress that don't want to see that, that there will be

some sort of alternative. but i do think the money is coming out of the defense department. they think $500 billion is going to have to come out one way or the other. i think both sides know itt. look at the books. you can kick stuff down the road for a while until, you know, you really kind of come up against the wall. and that's where they are right now. so i think there is going to be lots of machinations similar to what we saw earlier this year, strategy reviews. you know, there will be a lot of choreography to make sure that it looks -- that the pentagon looks like they're in control and that they're calling the shots and this is not being decided by the bean counters and that kind of thing. but i think whether it is through sequestration or whether or not it's through a budget, that eventually, you know, take some out here and there, that that money will come out eventually. >> quick diversion. is the pentagon in control? it would seem it would be much

harder to cut this if the generals really didn't want to do it as the gentlemen is indicating. >> i think about what they think basically blasting their boss, the commander in chief. but i have no doubt that chairman ryan, like in chairmen before him have had plenty of discussion with generals who come to him and say i would like more money. i think that happens all the time. and i think generals go, you know, it's part of the process. they go to the hill and they talk to chairman and they say this is what we'd like, particularly for my service. and, you know, they always want more. they're not really in the business of cutting. they're in the business of saying this is what i want to do. so i'm not sure -- back to your question, which was, you know, i think that the pentagon -- a big part of the strategy review that we saw earlier this year was -- came out of negotiations that

happened last year where basically said is we see this is coming down the pike, but we want to make the decisions. we just don't want congress or someone else handing us some kind of mandate. so i think they're going to maintain that argument, that they want -- they want the decisions about the cuts to originate with them. so they'll push for that. and i think that they will probably be -- under panetta and obama, that they may very well get it. but i just think it's unavoidable there is going to be more than the $497 billion coming out of the defense budget. >> speaking of mandates, let's talk what sort of mandate comes out of this election. do you think particularly in terms of the expiring tax cuts and how they get dealt with. how do you foresee that going and -- because it can have huge ramifications on deficit reduction, but also on growth. >> that's true. the irony here is if we do go based on current law and we

don't do anything, then the path we're headed on is actually for the budget, not necessarily a bad one. we do get to fiscal sustainability. not quite in the way a lot of members of congress or a lot of experts on the stage want to go. but at the same time, like we should recognize that this really is kind of -- these are choices that we're making that we do have a path that is laid out for us. we can choose a different path. but at the same time, the one path that we shouldn't take is basically just ignore all of that and continue down the same kind of current policy path that we're headed. in terms of getting some sort of mandate, i think it really depends on who wins. mitt romney right now is running on a platform that actually increases the deficit substantially. so if he wins, it's going to be difficult for him to then implement deficit reduction, because that means he is going to have to be breaking a lot of his campaign promises. >> just to push you on that, you think that his priority would be

to do the tax cuts he is calling for, which would be deficit-inducing instead of doing the deficit reduction that he is sort of in general calling for in terms of reducing the debt? >> i don't know what his priorities will be. but what i i do know is if you look at the overall plan, the spending cuts that are in his proposal, and this is not including, you know, the 20% cap or the balanced budget amount, which really are actual spending cuts. that's just a procedural mechanism. but the actual spending cuts are there in no way add up to the lost revenue that he has. if you're just scoring on what you can score, it actually results in a net increase in the deficit. so my worry would be that then he will have a difficult time adhering to his campaign promises. now for example, defense. he has said that defense should be at 4% of gdp for the foreseeable future. well, if you look at the ryan plan, ryan's plan brings down,

if you take out social security, you take out health programs, then everything else goes down by 2050 to about i think 3.75% of gdp, okay. that includes defense. so if defense is at 4%, that means everything else is eliminated. that's everything else including our entire regulatory structure, all public investments, transportation and research and development and education. that includes actually ironically, funding for congress. and the president. >> maybe not ironic. >> it gets a very weird existential debate at that point. >> first off, congratulations on breaking the numbers seal for all of us here. so let's dive into some other types of numbers, which is polling numbers, right. the public has very differing ideas on what they like. we would all like to see lower taxes. we would all like to see higher taxes on the rich. we would like to see a strong defense, but we would like to wind down the wars, and by the

way, don't touch my entitlements. how do we -- that does not suggest a path that absolutely fits for deficit reduction, or does it? >> it doesn't to me. i think the word that i would leave have in their minds is cognitive dissonance. if you take a look at the american public that. >> want what they want, but they don't want to pay for it. >> like my 5-year-old, actually. >> it sounds like my 65-year-old who is a member telephone tea party in south carolina. when i talk to him about such things as medicare changes and things like that not a tea part member anymore and says i've earned that. so there is this cognitive disonance. you saw what happened to cooper latourette. got a grand total of 38 votes, 16 republicans and 22 democrats.

they're very courageous people because it was only a message vote. an important message, but the fact that it was defeated so resoundingly i think reflects the fact that the american people haven't made most of these decisions. and there is so much junk, information going around. the numbers, which everyone gets bored by, are just thrown around without much regard for their truth actually. and so i don't think the american people have made this decision. until they make this decision, until palpable pain hits the average family in the midwest of this country, i think you'll see -- you'll see members of the congress behave accordingly. they're not going to break that mold. >> do you think we'll see public pressure on defense one way or the other? or will we continue to see it mostly coming from the pentagon, from contractors? where does that pressure happen? >> well, the polls that -- the public polling on defense

spending has shown a real sort of gap in answers depending how it's framed. framing is everything when it comes to defense. if it's an immediate threat, if it's something you really think compromises your safety, then it's like money is no object. spend what you need. when it b'sme placed in terms of, you know, large government-heavy projects that have negligible benefits to our immediate safety versus and you kind of give them the choice. so you're not making the decision in a vacuum, then people actually frequently choose to decrease defense spending. so it shows there needs to be a lot of education. and i think of the public. but i think this is why you see both parties engaging in this rec rick. and it's tough. because if you are -- if you're

really pushing the sort of panic button rhetoric, it's easier for that to get through than this sort of more measure like look, there is a lot of waste in the pentagon there is other stuff we could be doing with this money. your average american citizen isn't -- the pentagon is an enormous, enormous bureaucracy. it's bigger than most governments, you know, around the world. it's bigger than -- it employees more people than walmart, the largest corporation. and people don't get it. i barely get it. and it's just very hard i think for people, to your average member of the public to really wrap their mind around what isn't a threat to me and what is bureaucracy. >> and how does that wrapping your mind around change if we're, say, going to war with iran? >> right. so that -- so that is, that's an immediate sort of headline threat. that of course feeds anxiety

about immediate danger here at home. so that kind of thing does change. people's support for defense spending can wax and wane, depending on what is in the headlines. of course now we're facing a big burnout about iraq and afghanistan. so it depends on how long these things go on. >> right. >> i guess that's a long answer to a sort of question of -- it's unfortunately i'm not sure we can depend on the public to give us a clear answer about this. if they can depend on them to give us a clear answer about anything because i think it's so dependent, it's such a wide spectrum. it's such a big question. it's very dependent on framing. >> right. speaking of framing -- you are so -- i appreciate everyone for leading right into these next questions. ethan, one of the things, probably the only thing i remember vividly from high school economics is guns versus butter. the idea of do we spend our limited resources on defense or do we spend them on programs to help people in the country.

it seems to me choices laid out in chairman ryan's budget or ranking member van hollen's budget are in fact guns versus butter sort of choices. do you think those are the choices america should be debating right now, bigger military versus bigger social programs? and do you think we'll get a referendum on that in this presidential campaign? . >> well, i think that -- i don't want to get too much into this kind of trade-offs thing. to a large extent, that's definitely true. and you can see particularly from the ryan budget as one of the members of the audience pointed out -- two members of the audience i think pointed out that there is this trade-off where you're getting the large tax cuts that disproportionately go towards higher income americans, and then you're also getting huge massive cuts to the social safety net that primarily go to disadvantaged americans. so there is obviously an inherent trade-off there. but at the same time, i don't think that we should -- there is

a certain segment of people i think in the beltway that feel like something is only really good deficit policy as long as someone is being hurt. as long as there are some losers that are identifiable. if there are no losers identifiable, then it must kind of be a, you know, a setup. it must not actually be true there is a huge amount of skepticism. there are actually things. lunches, but certain things that actually don't hurt, and actually can kind of benefit everyone. brad delong from berkeley and larry summers who everyone released a paper recently looking at stimulus and found that actually when you do job creation in the short-term through fiscal stimulus, you're actually increasing long-run economic growth because there are certain aspects of the recession that actually create long-run drag on economic growth. and, you know, there are a couple of things, a couple of ways that it does that. one is that it decreases private -- recessions decrease private investment.

another increases poverty levels. and poverty is one of the things that is notoriously difficult to come out of, the poverty cycle. it can delay or make people forgo education, investments in education for themselves to go to college because they need to work to provide for parents who are now out of work. instead people go straight from high school to straight into the job market without investing in themselves. so far a variety of reasons, we see that recessions actually have long-run scarring effects. and doingomething now can actually forgo a lot of the scarring effects. you're actually getting the benefits now. the public is unified the number one priority should be jobs. even a lot of orangeses like the bipartisan policy center still agrees in the short-term we need to do some job creation and then deficit reduction in the long run. but the job creation in the short-run isn't just a sugar

high. that's something that benefits us for the near term, medium term and long-term. infrastructure would be another thing. we're getting the cheapest financing right now. in 50 years, we have a huge backlog of project. if we wait, they get much more expensive. it's much cheaper to repair a bridge than it is to rebuild a bridge. so for all of these reasons, there are things that actually we can do now. we can create jobs. we can boost our long-run capacity. and at the same time get us back on a fiscally sustainable path that don't actually require -- and i don't want to say there is everything because it makes me sound like oh, yeah, tax cuts can pay for themselves too. but generally speaking, there is a lot of really good policy there's that don't have a lot of pain that we could be doing now but we really aren't. >> one quick point on the delong-summers paper. their math only works if the interest rates that we pay for public debt are very low. so if chairman bond is right and

the see a skyrocketing of interest rates next year, that immediately wipes out what they're proposing. >> sure. >> sorry. i guess i wanted to make a math clarification. >> on the jobs point, actually, this is when you talk about public's perception of defense spending, and you talk about how the importance of defense spending is to congress, it's all about jobs. they've got guys coming into their office every day. literally i talk to officer staffers, i had a guy come in from raytheon today that there is 3.5 jobs. 3.5. they got it down to the part-time window washer. >> one person is different in a another level. >> this is one of the reasons that i think there is just a lot of anxieties. and at a time like this when we're in an economic crunch, it

becomes maybe the main reason why there is so much anxiety about taking on defense spending in congress, because there is -- the democrats kind of don't want to go there. but for both sides, for both parties, it's the jobs concern. >> and very tangible jobs, jobs you can literally say these are the 3.5? >> yeah, it's very difficult. but i do want to point out there have been many studies that not all of those jobs are sustainable in the same way that other sectors might be. so defense spending is actually not as sustainable an investment in terms of employment as some other sectors are. i'm not choosing winners or losers. but i think an argument that industry will often makeseis ar long-standing jobs. and then you get the fights over keeping these plants open or the bases open and that kind of thing. i think that's where we're going to see a lot of difficulty in the upcoming couple of years. >> steve, can we do these two things. the recovery is still very fragile, and in my opinion, it's

a little more fragile than most people think it is. but it's healing, slowly but surely. can we continue that recovery? can we continue to boost growth and find a way to assuage the fears of the deficit and the pending debt crisis moving forward? >> yes, we can. as bernanke said a couple of days ago at the nabe conference, there are still dangers. you don't have to be a genius to figure out that maybe greece has been build a out, but spain still poses some challenges. so you have some economic sluggishness for sure on the european continent. brazil has had to had to cut try rates so that its real is more competitive. they're having problems. and the question of the soft or hard landing, however you want to define that in china is very relevant. so we're not out of the woods. indeed, if you took a look at the underlying unemployment, you

find that the length of unemployment for the average person now on unemployment insurance is larger than it's ever been since we've had the program. >> more than 40 weeks. >> more than 40 weeks. and that tells you something important, that this is still a lingering sore. how do you do it? what we said the domenici-ritalin we have to a tax holiday and try to get this economy moving beyond sluggishness. we still hol t phase in deficit reduction. at the end of our plan, you're at about 62 to 65% of gdp and the imf and the world bank want you to be at 60. but a, this is ten years from now, 15 years from now so, all the numbers are wrong. but you try to make policy changes. i just leave you with three thoughts i think that are important. one we have a bunch of promises that we've made to americans that we can't keep.