only just begun. we can open the whole new chapter of innovation and growth. if we on encumber ourselves of our massive debts and promises, our future can be larger. and maybe most importantly, we will be able to look our kids straight in the eye, feel proud of the work we have done, and have hope in the world that we are handing off to their care. we are the most brazilians of countries. we're the most entrepreneurial of countries. we're the most innovative of countries. which is wet this competitive new world requires. if -- and that it is what our discussion will entail -- if we provide the resources to invest in this country's indispensible assets. and our future. i say, yes we can.

let me change that -- yes, we must. thank you all very much. . ♪ >> good morning. i am vice-chairman of the peterson foundation. i will be taking you through our program today. a brief note about our foundation and why we are all here. what we confront and how we address it impact my generation and future generations of america. america. that is what this foundation is we dedicated to preserving economic opportunities for tomorrow by making wise fiscal decisions today. from our perspective, the

problem we face is inherently nonpartisan. it is about math. it is about the realities of debt and credit. it is about investing in the future versus consuming today. . . >> we see our job as increasing awareness and accelerating actions. what we are really about is doing exactly what we are doing here today, bringing people together to start building a consensus on the way forward. we hope to help build a respectable and informed dialogue. i will now introduce our first panel. i can just imagine each of our speakers a month ago and joined

d.c. until they got a phone call from the president asking them to share as cochairs of the national commission on fiscal responsibility. i am not sure there is a more perilous assignment than this one. they even described their role as jumping out of a plane without a parachute. i am sure their job is critically important. we would have trouble finding a better team than to men with a history of reaching across the aisle to get things done bur. simpson and erskine bowles or principal leaders who have consistently put their country report narrow partisan interests. mr. simpson represented wyoming in the u.s. senate for nearly 20 years and took the lead on contentious issues such as social security reform. as white house chief of staff under president clinton, mr. bowles help broker budget deal that paved the way for the nation's first balanced budget

in 30 years. we applaud president obama for establishing this commission and for choosing these two great americans as coach fares. they have already demonstrated they are a team and are leading the way on the bipartisanship that we so desperately need. who better to direct this discussion and lesley stahl of cbs news? please welcome alan simpson, erskine bowles, and lesley stahl. [applause] >> hello, everyone. thanks for coming. first i want to ask alan, how is your niece? -- have is your knee? it is new, and it is seven weeks old. it is healing.

i have not had a drink. erskine has not been sympathetic at all. >> now that we have dispensed with the funnies, our topic is kind of heavy. senator simpson, let me just are often ask you whether the word "doable" is going to be factored into your deliberation. if it becomes pretty clear that there is a solution that is obvious, will you just toss it out there? or will the idea of whether this can fly politically be woven in to everything you do? >> let me just thank pete peterson. that wonderful man has been working with me. we worked on social security. he is more than all the things you see. there is a deaconess to him called patriotism.

that is where he springs from -- there is a deepness to him. when we got the call, joe biden called and said i have a real deal for you. i said sure, joe, i have heard that for 30 years from you. he said my co-chair would be erskine bowles. i have the deepest respect and admiration for him. i called erskine and said we have to talk to the president and see where he is. and we did, and all i can tell you is both of us agree that we may be only able to move the football a yard, and i have no idea, but i can tell you that i have no illusions. we will get savaged from the right and left. every time we go somewhere,

someone says, are you going to have of vat tax? what are you going to do with the veterans? everything is on the table, including the new health bill. that is on the table, too. there is not anything off the table. that may be the only thing that will save us, and yesterday the commission -- there was not a single member of the team that did not know that this was one of the deepest problems of this country. >> let me get back to my question about "doable," which may be at the heart of this. i was thinking about this, and it reminded me of the israeli- palestinian analyst problem. where there is a roadmap -- it has been a road map since president clinton was in office. everybody knows the answer, and to some extent, this is what you are confronting. everybody knows you are going to

have to raise taxes and cut big things like putting restrictions on social security. everybody knows that. so what is your commission about? is it going to be a negotiation, more than looking for the answer? the answer is pretty clear, isn't it? >> it is going to be some of that, there is no question about it. >> i don't know anybody who is less partisan or has been kinder to me then pete peterson. i think we are all blessed that he would give us this opportunity to educate the american people, so thank you. [applause] lesley, it is going to be about trust. if both sides, and hopefully we will end up with no side, but will just be american citizens, but if both sides do not believe that the other side is serious, that we are not in this for political gain, but we are here

to solve these really big issues, and if the right does not believe that medicare and social security have to be on the table, that we have to reduce the cost, that we are serious about balancing the budget, and if the others do not accept the fact that we are going to have to have some new revenues, it is just like michael peterson said. this is arithmetic. i am good at math. we cannot solve this problem by talking about foreign aid or waste, fraud, and abuse. we have to seriously attack!q e big problems, and we have to do it now, because if we do not, they will not be solvable without that word "bankruptcy." >> so in other words, this whole exercise is much less about getting the answer, because the interest pretty clear, that it

is about getting those 18 people not to exercise a veto. >> the arithmetic is clear. the solutions are relatively easy to see, but the political will to step forward and make the tough decisions is where we have to do our job. >> everybody is talking about peake. -- everybody is talking p pete. we have been working on this since the 1970's. >> since world war i. >> my claim to flamfame is thati convinced the peterson to do a piece on "60 minutes ago we had a huge deficit issue back then,

and they got the budget books, and all the citizens solve it. they just did it. it was clear. raised social security eligibility, that age, i don't know how high it has to go. put on some taxes, gas taxes, everybody thinks that would be a good idea, so attacks, whatever. so that part of your problem is over. would you agree with that? >> people use flash words in washington. the emigration flashed word is amnesty. another one is national id. "taxes"is ours. in every situation here, there

is the motion, fear, guilt, racism. those things either pass or kill a bill, whatever the issue. anything i have heard in the last 10 years does not affect anybody over 57. it is very predictable, but speaking of predictable -- >> i thought it was very interesting yesterday, we had our first public commission hearing. everybody talked about the fact that the path we are on today is

not sustainable. everybody from the president to the chairman of the fed to the two former leaders of the congressional budget office, to peter orszag. then everybody on our commission agreed. but paul ryan, a congressman from wisconsin, said it best. he said this is the most predictable economic crisis in history. and it is. this nation is on autopilot, and if we do not change and make big changes, we are going to face disaster. he was terrific. let me tell you how broad a consensus is. and the stern, who is recently -- andy stern agree with him 100%. all of us here realize the problem. where i disagree with you is, we have a real education issue in america. we have got to make sure that

the american people understand how big a problem that is. that is why what you are doing here is such a big service. this will educate a lot of people. secondly, what we have got to do is get a real set of numbers out there that everybody agrees to. what allen and i have said is we are going to use the actuaries numbers from social security and medicare. that is pretty hard to argue against. then we will use the cbo for everything else. we are not going to use the administration's number. we are born to use the numbers that have the greatest credibility. then we can allow a lay out the options -- then we can let out the options and make the best decisions. >> if i asked each of you to right now tell the american people how dire the situation is -- >> oddly enough, in my travels, the american people know

something is terribly, terribly wrong. you can call anybody from kobe, wyoming to debut, and they will say what is wrong with our country? that is why these organizations that is why these organizations sprang up, the tea party, they are do not touch my social security organizations. >> then as something is desperately wrong in america. that is key. that is what we are trying to tell people. something is terribly wrong with this country. we were taught and trained by our handlers to bring home the bacon. now the pay is dead. -- pig is dead and the candy store is closed. >> that is what i do.

it he does the mat and i do the coloring. >> we are going to get to the promised land. this is what i tell our students. this is a fact this is where we are today. http revenue of a country today and butted up against the mandatory entitlements, the equal each other. each other. that means every dollar we spend on education, transportation, the military, homeland defense, every single dollar is borrowed, and half of it is borrowed from foreign countries. just stop and think about that. all my friends to say it all we ought to be talking about is jobs, jobs, jobs. one thing i know having been a

small business guy, we cannot create jobs and small businesses cannot grow without capital. there is not going to be in the capital. it will be crowded out. people say we had better invest in education and training, infrastructure and innovation to be competitive. there will not be any money for it. we have to take these big steps. the biggest thing of all, half that money is borrowed from foreign countries. some say what if the chinese quit buying our debt? what if they start to sell it? the crisis we are going to face is tremendous. greece and portugal just went through it. spain is coming up. >> what about the baby boom wave coming in to social security and medicare? >> that is basic arithmetic. you cannot solve that problem

through increased taxes, because no matter what else you look at today, you have the cost of health care growing faster than the gdp. you have a old guys like me who are aging right into the problem who have all these issues that have to be dealt with. >> senator simpson, your honor commission in the 1990's that was an entitlements commission. apparently everybody on the commission absolutely understood even then how dire the entitlement situation was, and yet nothing came of it. it collapsed. my question is, what did you learn from that experience, where it was a failure, that informs you for this one? >> we learned that when the economy is like roses, and everybody is consuming and buying everything they can, they ignore everything. but these are different days. that was a great group. that was subject danforth and

bob kerrey, and we did a lot of work. -- that was jack danforth and bob kerrey. we had a game where we would say we would cut spending, and we would say what would you cut? there was a good record of it. i have been on commissions before that have not all fail. the select commission on immigration, we did to bills. the reason it failed as we could not get a more secure identifier. i was on the iraq study group. we had to agree on every word. they have adopted about 57 out of those 79 by now. there is more than skepticism in this city, which was here when i was here. now it is cynicism. you guys will fail, you guys will fail. what a laugh this is.

>> what happens if you go through the exercise, it is all public, we all watch it, and you end up deadlocked? both sides have a veto out of the 18. what then happens? cracks in my opinion, that will not be victory, but we will have made real progress, just as peake and michael are making here. we can educate the american people as to what this problem is and we can get some push from them on the elected officials to actually they said to these big problems, and i can tell you, every grocery store i go into, it is amazing. people come up to you everywhere and say please take this on. please do something about it. please do it for your grandkids. we have to do this. if you think back, in 1997 when president clinton asked me to

lead the negotiations to balance the budget, there was not a person in the press who did not think it was a joke. there was little support in the congress. i must have spent months locked up in conference rooms with speaker gingrich and leader lott. you all zero me a lot for that, i am telling you. -- you all all me lockeowe me ar that. [laughter] we stayed at it, built up some trust in each other, and got to a solution that did balance the budget. that is what we have got to do again. >> i assume you are both pretty optimistic about this, but on day one, which was yesterday, your first meeting, a republican group held a big news conference

and said that you were a trojan horse for a bayou added tax commission, and the liberals had another news conference and said we need to raise spending on infrastructure and education. so it sounds like both sides have shot off their cannons, and you are going to go inside and have to already deal with something they have put on the table. >> we have been there before. when you rick -- when they rip your skin off, it grows back double strength. i am pro-choice, rather than a baby killer. i get called a lot of stuff. never let them destroy who you are. that is not who we are. vat tak -- what the hell?

you would think you are coming in and slapping that on top of the income tax. children, veterans, all those people will not have anything when it is also up up. if people cannot understand that -- we will do the best we can to let them know that everything you love will not be there. how is that for an answer? everything you deeply loved, when you but your shirt, your heart fell out. everything they are in government is not going to be there. that is because of automatic pilot. >> let me ask you both one final question. how do you get the public to really accept the idea that everybody is going to have to make a sacrifice? how did the american people into that frame of mind? ññññçñçg[g7çççña?o

i do that . instead of america, we became second-rate. we are not going to expire. we will just become a second- rate. >> on that lovely notes, i think we all wish you the best of luck. we are all counted. >> share. -- sure. thank you. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> this summit is about the use

of across the spectrum. and next panel discussion is right on this. i will not predict their panelists will agree. i am hopeful that our experience moderator can find some common ground on these issues. she agreed to co-chair the debt reduction task force. her fellow co-chair is a former senator. wisconsin. he has spoken out regularly about the importance of addressing these difficult fiscal challenges.

in addition, we have larry mishel. of greenspan will be joining us a little later. he is the founder and executive director of the center on budget and policy priorities, a think tank that focuses on federal fiscal policies. lastly, neera tanden who has been involved in health care reform for more than a decade. the panel moderator is gwen ifill. please welcome to our next panel. [applause] ♪

>> you will notice we are missing one member of our panel, but he will be here shortly. we are going to get started without him. as you saw from the last panel, there is a lot to get start with. we just heard erskine bowles and alan simpson saying that this is the most predictable economic crisis ever. i will start asking it to explain a little war by what -- a little bit more about what you meant by that. >> i said this in the context of par. i remember vividly 2008. we had the chairman of the federal reserve, that treasury secretary coming up to the hill in a panic, talking about a crisis, and then we engage in

crisis management in congress. we came together and put together a very broad plan to get out of that crisis. that came up and got us by surprise. we can go back now with hindsight and untangle the mess, but that was a surprise crisis. this one is not. this i say is the most predictable crisis we have ever had. we see the problem of the horizon in europe. greece, italy, spain, portugal -- we know a debt crisis is coming. we know that interest compounds viciously when interest rates go up. this is something that is easy to predict, and therefore something we should tackle. what is crazy about this, we have yet to muster the political will to actually prevent this crisis from occurring. >> i agree with that. we have actually known about this crisis for a long time. the fact that our entitlement

programs, especially medicare and medicaid and also social security are on track to grow faster than the economy is growing. our taxes will not grow that fast. we have known that for a long time. something else has changed to make this much more urgent. we still have a sort of manageable debt, about 37% of our gdp. but we have come through this terrible recession, and that has given us a much bigger deficit. the recession itself and the things we had to do to combat it, that deficit will go down, but we build up our debt. we used to think that 20 years from now we would have debt equal to 50% of gdp. we are there now, and is rising fast. we are not greece, but greece is a useful lesson. if you have massive debt,

eventually you are creditors lose confidence. i think we are on the verge of having that happen to us. but there are things we can do about it. it may be a predictable crisis, but it is not unnecessary crisis. >> what is interesting to me is this talk about predicting a crisis, when in fact we are in a crisis, and i do not have -- i do not hear any discussion about it whatsoever. one out of three workers will be unemployed or underemployed at some point around this year. around 45% in some minorities. how about that for predictable crisis? we are actually in one. the discussion overlooks the fact that we have a very large recession. we have an out of control economy, not the government budget. david walker and i wrote an opinion that said the first set

toward deficit reduction is actually generating jobs. -- the first step toward deficit reduction. that is a complementary path to deficit reduction. george w. bush said in a time of war and recession, you have to have a large deficit. president obama would agree. there are some people that disagree, but this is something that hopefully we can all agree on, that we should not let this focus on the long-term structural deficit kill the opportunity to generate millions more jobs that people need. we talk about the worry about our grandchildren. that is true, but people are

being scarred right now that is going to leave a permanent scar our productive capacity. we are going to have poverty to% higher next year that it was before the recession. >> i want to get everybody to respond. >> i definitely agree that we all have to have economic growth now. even those who are most concerned about the deficit recognize economic growth is the way -- the cheap way to insure we are addressing the deficit over the long term. we understand that long-term deficits -- at long-term investments are a problem. we have to make tough choices over the next year or two. we have to make decisions now to ensure that we do not have to

make tougher and worst decisions down the road. >> i am not sure that john maynard keynes would even be a keynesian today, considering where we are. what is driving the deficit is the excessive spending -- excessive spending with more borrowing that does not lower unemployment. are we lowering tax rates and to produce incentives to create jobs? that is good. here is the economic climate in the future. in 2010 we are growing. what is coming in 2011? tax rate on capital, labor, and income. it is a black -- is a bad climate for a small business.

we are going from easy money to tight money, from lower tax rates to higher tax rates. that is not a good recipe for economic growth. what is behind this recession and these deficits is this huge, massive structural problem in the entitlement crisis. it is going to sink us. it is a predictable, forthcoming debt crisis. we do not have a lot of margin for error coming out of recession. it's on an unsustainable trajectory. it goes to levels that the models cannot predict what will happen to the economy. >> i think the american people are smart enough to think about two things at the same time. i am not sure that larry thinks that. i agree we are in a very deep recession now. we need to grow the economy. the increase in the deficit we have had, i believe was

absolutely necessary. part of it was automatic because of the recession. some of it reflected the things we need to do to help grow the economy, but while we are doing that, we have to think about the future. there are things we could do now that would reduce the deficit in the future that would not hurt the recovery at all. >> it would actually help it. >> i think there has been too much talk in this meeting already about social security, but i will come back to it because it is an easy example. we know that the social security system is out of balance. the things we need to do to get back in balance might include raising the retirement age in the future, changing the way benefits are calculated so that

upper income individuals do not get as much, but you would never do that for people who are already retired or people who are about to retire. so doing those things does not hurt the recovery effort. it does not damage the recovery at all, or the current benefits of people who are already retired, but it would give confidence to our creditors that we have our house in order, that we are actually thinking ahead, that we are not just thinking about the next six months or the next two years. we realize we have something looming at us, and we are smart enough to do something about it. >> we could spend the entire time talking about social security, you are right. someone asked, what is the big fish in a sea of options here,

ways to reduce the deficit? one reply was, there is one big shark, and its healthcare, and everything else is sardines. >> what is critical, the bill was a framework. i think it is incumbent on the administration to ensure that we have aggressive action to ensure that we have savings. having gone through all that long discussion and having a lot of battles guards around it, around the issues of payment reform, there was aggressive deficit reduction in the bill.

health care is actually helping us with our long-term deficit picture. there are a variety of initiatives in the legislation that actually change the way we pay for health care. those are a little bit of a framework. there are programs that will ensure that we have models. most important is for the administration to really lead on that and ensure we have aggressive action, that those initiatives are transforming the way we pay for health care to

paying for quality, giving less incentives for overuse. it is important for the administration to ensure we capture those savings by taking aggressive actions. >> to save time, i agree with everything alice rivlin said. on health care, we see things a little differently. we got an interesting report from the chief actuary at medicare on friday. the federal commitment to medicare increases. the claim of deficit reduction evaporate right away. the only way under this kind of architecture of a health care system to achieve these kinds of savings is too deeply and systematically ration care. that is the word people do not like to use, and it occurs in many ways, but i do not think it should occur primarily from washington. i think the health care bill is a fiscal train wreck.

we have for entitlements now. the fourth one says to people, if you make less than $100,000 a year and your health care expenses exceed up to 9% of your income, don't worry about it. the federal government has you covered and will pick up the rest of the tab. that is the biggest piece of social legislation to have passed since 1965. i have no doubt that it will exacerbate our fiscal problems. >> what the chief actuary found was that when you cover 30 million people, it costs money to do so. spending goes up, but the amount of money we are paying for each person who has health insurance

goes down. so we have a trajectory where we are lowering cost per person who has insurance. it makes all of us recognize that that will cost money. but the chief actuary found is that we are actually saving money over the long term. what we should recognize is that we have greater efficiencies when we actually -- when you actually enter people, there is less cost over the long term. in terms of other issues around us, cbo says we will have one trillion dollars in savings in the second decade. we recognize we are insuring 30 million people. we are ensuring a system where people have a right to health care. >> we have very efficiently stumbled into to hot-button tried away. we will keep coming back to them, but it makes the point, what do we have the stomach for

in this country? >> that is the way some people are framing it. i disagree that it is about what kind of spinach we want to eat. this debate is not a simple matter of mass. it is about what kind of nation we want. what do we want to spend on and tax for? we have a social security shortfall. that is something we can address. it happens that we cannot pay every benefit promise for the next 30 years or so. that is the least of our problems. but lesley stahl cavalierly said, let's raise the retirement age.

she did not know that life expectancy grew a lot over the last three decades. it really only grew for the people in the upper half of the income distribution. people in the bottom half are not living longer. we have a problem of inequality that we have to deal with. we just saw a massive loss of wealth. 401k's are now called appropriately 201k's. the problem we have, not talking about social security shortfalls, but water going to do about retirement in this country? >> i agree with larry about his basic premise, about what kind of future do we want?

aside from all the gloom and doom, the crisis should be seen as a big opportunity. we know that we have a tax system which is inefficient and does not raise as much revenue as it could from a simpler tax system that would be better for the economy. we know that we have a very inefficient health system. we need a thorough reform. we need to make the health system more efficient. in a way, that is an advantage, the fact we spend more than other countries. we have a lot of any effective care that we can take care of

before we have to do any rationing. >> i agree, in many ways with what you said. we have to come up with better ways to help assist retirement. it is a three legged stool. we have to give people better tools to better prepare for retirement. this is not a spinach eating exercise. it is an exercise where if we do it right, we will have a more prosperous future. the cbo is telling us we are in a lowered standard of living. if we turn this around, per- capita gdp is going down in the future, a lower standard of living. look at the cbo projections forward.

because of the deficit where bequeathing the next generation, we are giving them a lower standard of living. this is doing what we need to do to make sure we can grow and prosper and have opportunity. the big difference in philosophy is that we have is what size of government we are going to have. from my perspective, that determines how much individual opportunity and achievement we are going to be able to have. >> you are late, so we are putting you in the deep end of the pool. tell us about this. the difference in philosophy is what we are talking about, whether what the problem is, whose responsibilities of and the problem is. we touched on health care and

social security. how would you define the problem? >> the problem is not the immediate deficits which are necessary to deal with the most severe economic downturn since the depression. i think we go in the wrong direction when we start saying things like we cannot afford to extend unemployment benefits, which we need, even for jobs, so that those workers will have money in their pockets to buy products and businesses do not lay off more jobs. the problem is the long-term structural imbalance between the level of revenues will bring in an amount we spend.

there is no mystery, that is the core of the problem. we have to deal with that long term structural imbalance. >> let me turn to taxes. pete peterson believes that is something that we ridiculously take off the table all the time, when in fact that is part of the solution to the problem. how much of the solution do you think it ought to be? >> the first point is the key one, nothing can be off the table, certainly not revenues. health care costs are the single biggest contributor to the problem, system wide. you cannot year after year have medicare and medicaid costs grow significantly slower than health care costs. it cannot be done without a two- tiered system in which we draw lots of our citizens out to dry and not let them have the

benefits of modern medicine. so we have to find ways to slow the rates of growth systemwide. we do not know all the ways to do that. it is going to take time. it will be a number of years before we get major savings. we know we have to close the long-term social security shortfall. there is bipartisan agreement that we are not going to slash benefits for people who are already retired today. the changes for social security will be made gradually and phased in over a long period of time. that means not only during the short run. the single major place that you get the most deficit reduction from is going to have to be revenues. over the long run, it will have to be a balance. the single largest contributor

has to be from slowing the rate of growth of health care costs, but no one thinks we can slow health care costs so much that you could do the whole job there, because there will be medical breakthroughs, and they will save lives, but they will add to costs. >> it is that an accurate take on what happens to health care? >> i agree totally with of that it will take time to realize the savings -- i totally agree with bob. i believe that the cbo was very conservative and that we could realize greater savings when we rambo's up. but i do not think we should -- when we ramp those up. it has to be part of our understanding of what the long- term picture is and how we make tough decisions about the budget overall.

>> i agree with that, but i think we have to start now to strengthen the health care framework that is already in the bill, to give it more teeth, and think hard about how we get the health care settings down the line. it is not going to happen tomorrow. we will have breakthroughs in health care that people want and need to have, and health care will be pressing on us for ever. >> what about revenues? >> revenues have to be part of the solution. i believe we can shift our tax system to a much more fair and productive one. that can mean taking our income tax and making the base much broader, getting rid of a lot of the special provisions. it is easy to say that in the abstract. some of them are things people really care about, like the

mortgage interest deduction. but if there ever was a moment when we have proved that we overbuilt high in housing, we did it. the mortgage interest deduction contributes to that. we did not need to abolish it, we need to phase it down. >> congressman, you live in the world of reality more than abstract. let's talk about taxes and whether that is part of the solution or even can be. >> i try not to get into table top. this is my 12th year in congress. i have served in democratic and republican majorities. here is the problem on taxes. when you take the pressure off

of the need to reduce spending, you never reduce spending. if you go to the quick fix, you never get the spending down. we need to focus on the problem, which is spending. it is not revenues. of course we should clean up our tax system. it penalizes growth and is making us internationally not competitive. i think we need to focus on that spending line, and like bob and alice said, what really matters is the trajectory. heritage and brookings did a paper a couple of years ago that i thought was very significant. it said let's score keep these things are long-term. let's show the trajectory of the american fiscal balance sheet. if we put these reforms in place and show the out your differences, it will buy us breathing space in the credit

markets. that will help us in the near term with growth as well. >> let me disagree with congressman ryan here. i do not think it is accurate to say this is simply a spending problem. it is an imbalance between revenues and spending. let's remember that 89 years ago, in 2001 the cbo forecast surplus is as far as the eye could see. chairman greenspan worry that the surpluses were too large at that point. a number of factors intervene, including massive tax cuts that were not paid for. it is interesting to note that if the policy makers adopted a policy that any of the bush tax cuts they wanted to spend, that would pay for and not deficit finance, 40% of the gaps in 20 dicty would go away. a second key point is the distinction between spending and taxes is very artificial.

we have over $1 trillion in what is called tax expenditures. this is spending that uses the tax code as the vehicle for the spending. that is nearly as much as the current cost of social security and medicare combined, and it is double. everything we did spent -- everything we spend on every domestic entitlement program is half of what these tax expenditures at up to. on the last deficit commission in 1994, mr. greenspan testified and call these tax entitlements. if we want to keep the pressure on spending, the pressure should be on all the spending that is in the tax code as well as the spending on the other side of the budget.

>> what he said. >> one of my concerns about the deficit discussion is the excitable nature of the fear mongering. the idea that somehow our standard of living is going to be lowered 30 years from now when productivity growth is going to be to present some of the year, per-capita income is going to be far higher 25 years from now. secondly, you get the fear mongering also, unfortunately, from senator simpson. on the talk shows, he says we cannot grow our way out of this, even if we had 10% a year growth. in fact, the commission has a goal in 2015, and growth between now and then is supposed to be 4%.

if only it were 5% a year between now and then, it would hit its goal without breaking a sweat. that is far from getting the 10%. where does he get that we could have 10% a year growth and we would still have a problem? it seems untethered from economic analysis. the public needs to know that there is a challenge we have, but if it is fear mongering, false crisis mongering, we will not get the decisions that are wise. >> so deciding cbo numbers is fear mongering? >> i do not think it shows that per-capita income will be lower 30 years from now after taxes that it is now. >> i think we have fear mongering on one side and denial on the other. i think larry is in the denial

camp. that become back to what bob was saying, and i was glad to hear him reverence the surplus that we actually had at the end of the 1990's. we got that surplus partly because the economy was growing quite rapidly, and it was growing rapidly at then tax rates which have since been cut. so there is not much evidence that going back to those tax rates eventually would be deleterious to growth. the only way we got it was by a very strict budget rules that meant that spending went up very slowly throughout the 1990's until the end of the decade. that was real restrain, bipartisan restraint, on the part of the congress which was

controlled for much of that time by the republicans and a democratic administration. it is harder now, but spending restraint is not impossible. >> there is an important point here in what alice just said. i think it is that restraint, wind up and realistic, can work. when you try to impose restraints that look good for those policy makers who are putting them in place do not take effect for a number of years, and go so far that they are politically unrealistic, that does not help at all. that is when the system blows them away. for example, the gramm-rudman targets were far too severe. they were blown away.

the limits that were put into effect in the 1990 bipartisan agreement, the first president bush should give great credit for that. the 1990 agreement had pay-as- you-go rules and caps on non entitlement spending that were set at realistic levels, and they were adhered to. that was continued in the 1993 clinton agreement, and those were in here too.

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>> what do you think the most promising of these to move us in a lower trophy jectry for henl care costs. >> a couple of things, we know we heard about toxics. we know patients don't understand many of the choices they face. patients don't want

unnecessaryly care. i think the change in the incentives and given providers. figses are not enjoying working. two physicians planning to quit medicine stayed on because they were having too much fun as

primary care physicians if we support them adequately, it gives the government programs or is it going to feel like it picks up the burden we are

inhibited by the practices of medicare and medicaid. particularly under reimbursing to those of us who paid. we need the kind of innovation that can come from this legislation that is quickly implemented to both change the nature of the delivery system to focus on qualities and outcomes on henl care. one of the studies we had done during this debate said if you got it exactly right, got everything right. the bill doesn't get everything exactly right an efficient

quality reading would provide the private sector more money on savings

>> what do you see the commission focusing on? >> you have to be realistic there nobody likes to front the powers that are such as the president or the democratic congress. the bill passed and signed by the president is a massive expansion in the size of this government. it takes government from about 21% gdp to 26% gdp. when you expand that quickly, it's difficult to figure out a way to pay for it.

there's no significant reforms. there's a tip of the hat to reform. certainlyly in the medicare account.

you restricted the capacity as a place we could constructively address >> extraordinarily limited to the commission in my opinion. sure if we could put in place some sort of brand new approach, or take some of the i hadias put forward and explode them across the country and

leave a lot of them on the cutting room floor, then you could make progress but medicare is the big healthcare account soon to be followed by medicaid. >> what's your view? those elements in the bill,

healthcare is delivered in the country. >> i have to say i don't know what that means. i think that the question i think on the table. really from one of the things the commission could do is a couple of things they are up

against medicare the ability to resist the temptation it has to be implemented things like demonstrations in a high cost areas that doesn't block the important role.

congresswoman? >> can i just jump in? >> go ahead. i'll ask you a question and you can answer anything you want there's been some really untrue things said that's what this is going to be about.

a lot of burden to do that. it's really a burden on all of us to really make sure to drive the system. really looking at this differently. it's a hunal shift. >> this isn't something for us to be embarrassed about. this is a big shift now for us in the country. for the first time in this country, all americans will

share the responsibility and will be given the opportunity to buy health insurance. they have to change what they do too. >> there's a lot of shared responsibility between the government and the american people. i think the american people are up to this. we have to push them to do it

just say no, now we are going to do that. we'll make everyone do this. there are real ways we can scale this up we have to engage and make it happen >> the bill that overcame medicare. some see that as cuts in medicare and ask how can they support legislation. taking the form of reduced payments to a provider group.

the beneficiaries on hold with it being good for them. >> now, what is the scope looking forward for some restraint that affects directly beneficiaries have very low incomes. is there an opportunity here or should we begin looking elsewhere? we did not eliminate medicare advantage

>> a major improvement in medicare. many of the savings were agreed to by the providers. for example, the hospitals agreed to a 1% a year slow down. why did they do that? they got every patient insured. i think that the bill was prudent going forward, i think that there is very limited potential to impose greater costs and around 75% pay more than 10% of their incomes which is a very heavy burden. the potential lies more in what

we are talking about here. changing reimbursements. in particular, the potential of improvement the system is based on the especially so dick care? that's what we have to go for if we are going to get our arms around this. >> how do we do that? the medical home, accountable care organizations give responsibility to providers to actually manage care over time and then reward them for good outcome. very important to build that in

as well. they had both a kind of shared savings model they invested themselves improving payments. over the course of 15 years that we had medicare data, they reduced their spending by 10 or 15%. they reduced cost growth in the under 65 population. one of the school districts were able to give its members a

7% wage over three years. getting the private sector and medicare lined up, i think offers real promise. then it can be disseminated elsewhere. many of the folks who have spoken to us before today, we have to stop paying for quantity and start paying for quality. this is not apparent that consumers, meaning patients respond to these measures and are happy in systems that say i want to steer you to this physician or group because they have a higher quality. that measure, where are we in the whole quality measurement issue and how long will it be

before you think we will have a system we can provide payments. >> i think we've made tremendous quality. it has invested a lot in terms of ways to interview. we are doing much better in terms of beg able to measure outcomes. the motivation for systems to improve -- it's important to use those measures to reaffirm and reassure that they are getting great care and the tools are there. measures are going to motivate the systems to improve. we have three places around the country who are working together for both the private

and public model. they've all agreed to adopt a row bust set of measures including did you understand what your doctor said to you when you levt the office. 50% of patients don't understand what went on in the office when they leave. >> i just wanted to jump in. some things are hard to measure, some somethings are not. hospital admissions are measureable. medical errors are measureable. the question is do you allow your payment systems to reduce the outcomes and quality that would indicate is relatively easyy but we have yet to align our payment system to pick that

fruit. >> i want to make the point. let's not kid ourselves. one of the things we advocated for is the appropriate release of the database. the biggest groups that resisted that was the docks. i'd love to have their data. right now, we don't know as payers or patients who performs the best quality procedures. all of that database is within now. luckly, the legislation includes that. we think having that kind of data as well as the innovations that are not enough in the bill and in the act that need to be expanded and accelerated. they need to be done more

quickly than they are done now. it's important, only in washington

>> what we did is to focus on primary care. we are going to provide for extra payments they were they diagnosed with diabetes, i'm going to call this person in a week and make sure that they understood what i said and are taking their medication, does

this person need nutrition nam counseling in pennsylvania, we have that public information. you really don't call for that balance and you have chest pains. that's not really terribly effective. what is effective is whether one hospital looks at another hospital and says why am i not one or two? and demanding improved outcome. it's not just good enough to have that episode work well

what provides the best kind of care and improves the best for your patients they are more important than anything we've talked about before public health, how much we eat, how much salt is in our food, starting early with exercise and other health habits we've

had an epidemic of chronic conditions we have to take that on in addition to doing all this insurance jo we probably should have had seven treadmills up here what's your

feeling on the grasping medicine here? >> i don't think either of those are practical. you you have disease carriers like obesity we have an insurance system that will be completely aggravated by this bill which pushes people into

reimburses system forcing the cost on to the insurance private sector they are not paying their full share the efficiencies are totally perverted. the private sector is picking up the cost testing what their care giver is giving them whether or not it is good care or quality care. the value system we are using n our healthcare system is wrong

in our opinion. in this bill, it may be yesterday's debate but it's tomorrow's cost. it's going to drive costs up dramatically relative to the size of healthcare without getting a town turn, which is the goal. it's in my opinion fundamentally flawed and will lead us to a different kind of system five or ten years from now because it will break down because of the fact that the reimbursement structure is not sustainable. health providers will not participate in the system. the rates that will level as necessary to give adequate care to seniors and people on medicaid. >> as i travel around talking to both physicians and a lot of

hospitals, there is a real sense of desire to move to this new payment model both to the private and public sector. they really want to align their values with their work. talking about voluntary packs in their community and talking about how to stop medical arms race. >> i look at an empty glass and say it is half full. if the communities i'm seeing do step forward the way they are promised to. >> have you gone to mcallen, texas yet? >> not yet. i look forward to visiting

later, we find out that it is harming people. i think that's a hard point to intervene. we don't want to stife el innovation we want to deliver better treatments or outcomes. new drugs, et cetera. on the drug and medical device side, you do have medical authority. i think that the question

raised earlier. there's a new center authorized that's being now dispursed, spread out. the question is will that information then be consolidated or be informed by the public. i think probably more importantly inform the provider. there are incentives which drive over the higher costs because we've aligned them. when we look at questions like usage of doctor-owned facilities i wouldn't want to

see if you were waiting. i think that would impede development in the united states and the way we do business does this look promising to you and those who whispering in your ear?

it's very beneficial. making sure that does not drive the decision. i can reassure americans that this bill is not interfering with the doctor's decision to use a device or order a test if we could speed that up some. many can say that. if we could speed that up through a few years if we do

get that information out across. we should do it. that's what this is all about. it is bringing in the private sector. i want to ok what john said. the issue is to actually encourage new devices. the surgeries that are less invacive and fewer days in the hospital. we want to be out there and know about the next thing. we want to know what works and doesn't. they commoun kate that. that's what the effectiveness is about. that's part of what we are seeking to do to get better

value for the dollar. >> i'm going to bring this to a close. thank you to all the part papts here for an informative, wide-ranged discussion. >> thank you. [applause] >> up next, we are lucky enough to have discussions with the two most resent chairman of the federal reserve. unfortunately, mr. volker is in europe and we have a taped discussion with him and chairman depreen span is here live following him. thank you. >> do you believe the current long-term or structural or fiscal out look is or is not

sustainable? you predicted this was a 75% chance there was a crisis. let's move fast forward to today. if no action is taken, what do you think the outcomes might be? >> i'm not going to put any precise date. stability gets more and more jepardiesed. right now, countries are in a recession we can't go on

indefinitely. you raise a question at some point who is going to buy all those whether that's compatible. once you begin raising the serious question about people's unwillingness to buy u.s.-based securities. you begin talking about inflationary implications, those are a great stand point. with the 78 billion baby boomers. the magnitude of these liabilities is impressive >> i do not think this is any question. they have an out look of rising expenditures and the deficit on the kind of funding provided it

should be an interest in taking the measures. it would not require any significant increase of taxes to stabilize for the future. that may not be any savings at all but i think psychologically, the fact that it would have a real impact

over time is reassuring i suppose it includes some defense stuff there are

arguments now about particular defense procurement programs and whether it is really necessary. some of those issues ought to get resolved by saying no. i'm no expert there. i know it is a problem. i hope there are things in this present bill that point in the right direction you know, it's sad many republicans haven't met a tax bill they didn't like or rarely met a universal entitlement program they didn't want to explore.

>> part of my scommnation is why we did so well in the 1990s. the two parties vetoed each other. you didn't have any tax cuts. eventually you were on a soap box. if we are left to put it in terms with expenditures of 22% of the gdp or 23 pist, 24% is against the historic trend, we have a revenue mash that produces less than 25%, we have to do something unless we bring

it back, we are a lit skeptical to say the lease. we have exhausted the current tax system. payroll tax is quite high. corporate income tax is quite high. personal income tax gos up and down a little bit. i don't think you are going to solve the deficit problem with personal income tax or estate tax. you have to raise taxes, it's the most efficient way to do it. there aren't that many alternative that's jump out at you. we have an environmental problem and global warming problem. both of those could be major revenue producers that would

not beneficial effects that would deal with other problems. we have the more depenl issue of the value added tax that's the kind of thing you have to look at. if we've done all we can do on expenditures and it is not enough, you have to face toupt revenue. >> you know as well as i, if you go out further, the expenditures are a lot higher than 25%. they are 30 plus, 35. a lot of that is the entitlement programs. they have to be front and center here. one of the arguments for doing

something is this whole idea of confidence building what can we do. in my view it is confidence building. what the president has decided and suggested, including some important non-profit

institutions is to have an honest outside commission look at it. getting under way a tough mandate to produce a comprow hencive solution by december. this is some people that say we can grow out of these problems that's growth. that's not going to solve the problem in my opinion as you look at this, how does this relate? >> it relates in the sense of the dovens you raised.

is this country capable of getting the results together and heading off any repercussions. we got the wisdom and backbone to do that in time. it's a very difficult challenge for any country at any time, that challenge is front and center. you've got to build confidence that you've got to do it in a timely way in these terms, it's critically important it's

terribly important that people maintain confidence in our stability >> how many trillion are held a brought now. the feeling that the dollar has no place to go but down >> discovering that they amounted to something like $1 trillion and mortgage

reductions and healthcare. do have you any over view of how we have to think about our taxes? >> i include in that area something about taxes might be getting rid of some of these preferences you can keep the income tax rates where they are, simfy it a bit if you were really willing to take a swinging attack just the

mention of that possibility would be healthy in my view. >> mr. chairman, you are an international treasure. thank you. we haven't had any good news to talk about. >> thank you, sir. >> you are welcome. [applause] >> we have another chairman of the federal reserve. there's been comment tarry on your successful experience with the 1983 social security commission what has not been

mentioned is your personal qualities and it is evidenced most on the golf course i have never seen a more relentless negotiater that is willing to give up less than this gentleman. if you play golf with the chairman, you have to allow enough room on the tea. typically, you get there about 10 in order to have a negotiation that you always lose there's a word in golf

qualified a gimme put. most gentleman in golf, if it's though inches or less, they usually say go ahead take it. the ball could be on the edge of the cup and he would not give it. there is no such thing to him as a gimme putt. >> i'm not going to give you equal time. >> if i took equal time, we'd be finished. when you and i play golf, i will aim to give you two inch

putts. >> you see that you start with zero and inch up. very good. we have been talking about the unsustain ability or longer outlook if the out look is so desire why isn't it reflected? >> this is difficult to make the argument for miss calorie straint without consequences. if there is no inflation, the

process of moving toward the restraint is significantly undermined the global economy is coming out of a very deep period of deflation the motion is pretty much at the moment out of the system. that's going to change. at the moment, the system looking at the united states and the globe is still fragile. we are to the point where this is really no longer a concern.

there is still a belief that the u.s. government will step in, in a too big to fail type of situation. the reason is that we are beginning to see a gradual easing up. the extremely sever liquidation that occurred immediately following the leeman brothers bankruptcy. that has taken out a very large chunch of loans. now beginning to see that the level of inventory after this decline now in the process of

stabilizing. it's turning up. it looks as though it is going to move up considerablely. if that is the case, through the time and the trillion of reserves. the prosecution of holding the federal reserve bank, it can get well over 3% in our loans. it's basically saying that there is credit risk here that is in the process of changing. as it begins to change, we are go