citizen of a fine country and doing your share. in this one, i am in for my six grandchildren and erskine is in for his seven. the president has won tough job, as do each and every one of you. if one is a leader, you take a ton of guff from people who know little and are motivated by, but i always said, four great charges -- emotion, fear, guilt, or racism. that is how you pass or kill a bill in the u.s. congress. emotion, fear, guilt, or racism. is that, but that is the way it is. .

good people of deep differences knowing the possibility of odds of success are rather harrowing to say the least. but i do have the naive belief and i think erskine has it to stabilize social security and insure its solvesy 75 or more years out. but as we address it, the keening wail of cut goes out through the lavend, or gut. good heavens. it's -- if people can't grasp that disability inshurns will be unsustainable in less than

ten years, it's grown double since 1980, i won't go into figures, that just makes people's eyes glaze over. but old age and insurance, will only pay out 75% of its benefits in 3e7. it won't go broke. just going to pay out 75 instead of 100. and that date will keep moving closer with population growth and aging. unsustainable, unconscionable, and predictable. but there are many options out there. over two dozens options out there will work and we'll work on them all. and i think if we could resolve that, there would be a sense of confidence in the land that would be good to portray. we have dr. coal burn and andy stern, union member and very conservative member of the senate from oklahoma, very two

very good men with sharp minds and sharp knives going over the defense budget without hurting our troops and the mission. plenty of fat in that baby. and then they say, well, republicans never want to touch the defense budget. that's not true. we're going to go wherever the fat is, and that will be the tough part. but here's where we are. every shred of tax revenue at this point goes only to three things, medicare, medicaid, and social security. i see him scratching out. he was going to cover that but i took care of it for him. you'll have to work on -- i'm almost through. and so the rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, the whole -- veterans,

the whole rest of the discretionary budget is being financed by china and other countries who are slowly building and china now is at 920 billion bucks of our little ious, and we do that, we're just borrowing to do everything but those three items. medicare is the monster of the midway. it's hard for us even to get around it, our hands around it, but we're going to have to have some trigger device in there. medicaid, boy, you people get the whole load on that one. working groups are at it one on discretionary and one on mandatory and one on revenues. we have a fine staff. i think with patience, what we're trying do first in the commission is establish patience, do your homework, comedy, and the biggest one is trying to establish trust in each other on this commission.

that's tough to do in this world, in this country. trying to lessen suspicion. and we're working on all that now. well, if you thought i was going to go on, i'm not. but we want to hear from you. you're in the trenches. i just say one other thing as to the magic flash word of tax. the other day, one of the more zealous -- a zell lot is one who, having forgotten his purpose, redoubles his efforts. so one of the great zell lots of our time talked about one of his great anti-tax president, rond reagan. i said, i knew ronald reagan. you're not ronald reagan. and i quoted the four big tax increases done by ronald reagan, seven lesser ones, and

a total of $132 billion in tax increases under those eight years. and why? to make the government run. and that was his fine eight years as one of our most beloved presidents. so, with that, i will then receive mail tonight and tomorrow that i spoke again to raise taxes and put a vat on top of the income tax plus something else, i don't know what it will be, but it will be a royal hammer blow, and i thank you for listening but we want to hear from you. [applause] >> as you can see, i have no need for a joke writer any more. i just steal everything al says and it seems to work perfectly. i will tell you, al, i do know one rule of politics that you don't, and that is always be introduced by someone that you contributed to.

>> that is not true. >> governor purdu has been my friend, i have been her supporter. i believe in her. she is strong, she is tough. and, by god, she gets the job done. and last night, she signed a balanced budget for north carolina, and she's got a lot to be proud of. al simpson is the best partner i've ever had. we are trying to do one thing, and that is on this commission, to build the same kind of trust with our fellow commission members as we have built among ourselves. and i'm confident that's what it takes to be successful. in 1997, as some of you know, i negotiated the balanced budget with knut gingrich and trent lot. and i had to spent months and months locked up in conference

rooms with them, and you democratic governors owe me a lot for that. but we did build up trust, we built up confidence, and we got the job done, and we got it in the long run done by trying to look at what made sense for the country as opposed to thinking about parties. i'm going to try to just add to what al said. i think it is a fact that, as a nation, we face the most predictable economic crisis in our history. this crisis that we just are going through now, many people didn't bre dict this one is as clear as a bell. this debt is like a cancer, it is truly going to destroy the country from within. and like al said, it is basic arithmetic. today, if you just look at the mandatory spending which is principle medicare, medicaid, social security, it does consume 100% of the federal revenues. that does mean that every

dollar we spend on homeland security, the military, defense, education, energy, infrastructure, transportation, all borrowed and half borrowed from foreign countries. that is a formula for disaster. over the next ten years, spending is forecast to grow by $2 trillion. 500 billion of that will come from social security, 500 billion from medicare, about 300 billion from medicaid of which you all participate, and about 650 to 750 billion from interest. by the year 2020, if we leave things on automatic pilot, we will be spending $1 trillion a year on interest. just think about that. all that money going summer else to create jobs and opportunity somewhere else. we can't grow our way out of this.

we've had every economist you can imagine look at this and we could have decades of double digit growth and not grow our way out of this enormous debt problem. we can't tax our way out. that doesn't solve the aging problem of america. it doesn't solve the fact that health care is growing at a faster rate than the economy is. the reality is that we've got to do exactly what you all do every day as governors, we have either got to cut spending or increase revenue or do some combination of that. if we want to get to a balanced budget by 2020, and there's no magic about 2020, we have to take $1 trillion out of the deficit in 2020. $1 trillion. if we want to get to a deficit to gdp ratio of 2%, then we've got to take $665 billion out of the budget in this year alone,

not between now and then but in that year alone. i thought it was interesting as i thought about what i would say this morning that the g-20 met two weeks ago in toronto, and they're dealing with the same exact problems that we deal with in the states, and that is how can we protect what is a truly very fragile economic recovery? at least it is in our state. and, at the same time, slow and then stop and reverse the rising level of debt that i believe jeopardizes my grandkids' future and our country's standard of living. and the g-20 approved two goals. the first is a relative walk in the park, and that's to cut the deficit in half as a percent of gdp by 2013. and when you start at a 10.6% deficit to gdp, that ain't any

heavy lift, believe me. but we should be able to do that and that's not a heavy goal for the u.s. what is a very heavy goal is the second one, which is to stabilize the debt as a percent of gdp by 2015. and to do that, we have to get the deficit to gdp ratio down to 2.8% by 2015, and that means we have to take in 2015, $250 billion out of the federal budget. and it's doable, but it's tough. and i want to talk about some of that, specifics. president obama i think has made it clear, he's been clear when he's met with al and me in private, he's been clear i think to the american people and public, he said that he is going to make recommendations next year that have real budget cuts in them, that will reduce the cost of the entitlements and help restore our nation's long-term fiscal health. i think there is a can ard out

there now that says, well, you can't do both. we can do both. in fact, since the recommendations we're making don't take effect until 2012, we've got about 18 more months of this economic recovery for it to gain a foothold before any of our recommendations take place. so we think that's enough time for our recommendations to take place, enough time for us to get the fiscal house in order and then begin to balance the budget. i thought i would tell you the principles that are going to guide my own decisions are on the committee and al and i discussed these, and i think we're in agreement on most of them, but they're all pretty simple. the first is i don't want to do anything that doesn't protect the truly disadvantaged.

i think that's an obligation of government and one that i'm willing to shoulder. second, i think while we balance the budget, we've got to continue to invest in those areas that make america strong and competitive, whether it's education or infrastructure, or research or innovation. it's no sense having a strong balance sheet and also not having a strong country. we've got to be competitive. it's a knowledge-based global economy. third, i think we've got to make sure that america is safe and secure. but i do think that means we have to be the world's global policeman or that we have to be involved in nation-building. i think other nations have to do their part. our military budget now exceeds the military budget of all the other g-20 put together. fourthly, i think we've got to reform the tax code to broaden the base and simplify the code, and to make america more

competitive. we can talk about various ways to do that, but clearly we've got to close the tax gap. and i wish mitch daniels was here because he can talk about it more clearly than i can. but most importantly, i think we have to eliminate or sharply curtail these things that are called tax expenditures but what they really are is just spending by another name. and if you look at the total cost of tax expenditures, they actually equal all of the income tax that flows into the federal government and they equal 50% of the revenue. i have put on the table that we ought to establish caps that keep revenue at or below 21% of gdp. i didn't just pick that off the ceiling. it's the number that we have had every time we balance the budget in this generation. i also have called for

instituting a plan to reduce overall spending to not more than 21% of gdp by making some really tough choices. if you look at the forecast in the cbo's forecast, spending is projected to go to 25.4%. so that's a big, big jump to get it down to 21% of gdp. we can do that but we have to reduce discretionary spending, and we're going to have to make some tough choices. as i was telling one of the governors a minute ago, what we do is not so hard to figure out. it's the political consequences of doing it that makes it really tough, the same decisions you all have to make every day in the states. if we can't agree on specifics, then one of the things we can do is freeze all discretionary spending between 2012 and 2015. that would generate $125 billion in 2015, and will get us halfway home to president

obama's goal. we also have to reform the entitlements and reduce mandatory spending. as al said, one of the things we're going to try to work for is extending the solvesy of social security for 75 years. as it relates to health care, there's lots of recommendations that we are considering now. but the one that we really have to tackle is how do we pay for quality and not quantity for health care as you all see every day. like the brits just did, my goal for what percent of deficit reduction should come from spending and what percent should come from revenue, i would like to see something similar to what the brits did where they had 74% of a deficit reduction on the spending side and 26% on the revenue side. whether it's that or

two-thirds-one third, but i think it has to be something where it's disproportionately large on the spending side. and lastly, i would just say that none of these recommendations that we're going to make should take place prior to fiscal 2012 in order to protect a very fragile recovery. that's where we are. i think we've made a lot of progress. we have three different working groups. one on revenue, one on mandatory spending, and one on discretionary. we've been meeting. it's been as bipartisan as you can imagine. i don't think you could tell the recommendation that come forward so far whether it came from a republican or a democrat. so i'm really pleased with the progress we're making. i think we are establishing trust and confidence, and i hope we can make some real progress. i know i like working with this guy.

[applause] >> governors, feel freedom to jump in. >> mr. chairman. >> mike. >> two or three observations. i don't know that i've ever heard a gloomier picture painted that created more hope for me. i mean, if there is any hope, it's the approach that's been taken. and i'm not trying to be obseek wess. brian, i will tell you what that means later on. but you two and the whole team and the objective and honest approach actually creates hope, at least it does for me. so if it's possible to tell us

how bad things are and make us feel good about it, i think both of you have done that. and i appreciate the fact that while you have plenty of other things to do, you have taken on this monumental task. i only wish we could put you in every corner of the country for everyone to be able to listen to and particularly those who are strident on one extreme or the other, because the honesty with which this came across i think has to at least affect enough people that americans would have enough courage to do what needs to be done based upon the leadership and the recommendations. senator simpson, if you and dale bumpers and david prior ould go with joe mantion, could go into the senate

chamber and spend a few weeks with the folks we've got there now and teach them about honest debate and collegial disagreement, instead of the rhetoric and the harshness that at least from the outside appears to exist, what a better place america would be. thank you, sir. [applause] >> wonderful person, wonderful lawyer. if you remember the final pitch towards president clinton was done by dale bumpers which should be recorded. it was about loyalty and it was [inaudible] and barbara, very dear and special friends come to see us in wyoming. i went into the chamber a few

years ago, and bumpers was wondering around. i gave him a big hug and some guy came and said what were you doing there? i said getting a hug from dale, who is a great dear friend. he says, i wouldn't do that again. great stuff. let me just tell you one other thing about those tax expenditures. there were two 200 of them. and you know what they are? they're [inaudible] they are employer deduction of health care premiums and they go on and on, and they went on the books as a tax cut. and to get them off they're called tax increase. i don't know who they've got out here but they sure [inaudible] because tax expenditure appeared as a tax cut which everyone -- and to get them

off. and we got them all off or a lot of them. some of them. we'll be well toward home and they would be called tax increase. >> governor. >> first of all, i want to second mike's evaluation of that presentation, i think it was excellent. i would only ask that in a spirit that we as governors have to have a balanced budget amendment and our forecasters and economists come to us and lay out the not so encouraging news financially of our states, we have to do what you just laid out that should be done. i would ask respectfully what is the impedment why the urgency is not there for this country to get its financial house in order? and how may that be done? >> we don't have a balanced budget amendment so we don't have to do it and there's probably good reasons not to

have one when you have the military responsibilities that we do from time to time. but my experience has been the congress generally acts when it has to and only at the very last minute. and we can go on and survive as a nation for three or four, five more years, and do nothing. but every day we delay, that old compound interest catches up with us. and every day we delay more and more dollars go out of the country. and every day that we delay, we have fewer dollars to spend on education and infrastructure. every day we delay, there's another small business has been crowded out of the capital markets by the government's borrowing. and when that happens, as you know, small businesses in west virginia can't grow and can't create jobs without money. so when it becomes a crisis,

then you're going to have to act. what we're trying to do is get ahead of what i'm confident i can show you just in arithmetic is the most predictable economic crisis in history and try to do something now when the pain would be relatively small. because if we wait, it will be really, really tough. >> governor. >> thanks. first of all, aagree with my colleague. really an outstanding presentation. two quick things. we've got a very strange way at the federal level of investing and paying for infrastructure. it's something that you mentioned briefly. but it does seem to me that unless we end up separating -- i know in delaware and i assume in most states, we've got a separate capital budget which we don't seem to have at the federal level. until we do that it does seem

we're going to be short-changing those investments. and were governor rendell or governor schwarzenegger here, they would probably make the same pitch. and then you mentioned briefly the issue of lk, and we've got to find a way to pay for quality and not just pay for quantity. and you mentioned it briefly, but i do think that there's a disproportionate amount of money in there. and if we dent figure that out, it's going to be really difficult to get to some of the targets that you're trying to get to. >> i certainly agree with both those comments. this health care is the big even lada. just to tell you how big it is, today medicare and medicaid spending amount to approximately 5% of gdp. if we don't fix it, medicare

alone is on a glide path to get to 22% of gdp. now, remember, i said i want to hold all spending to 21% of gdp. and the average revenue in this country historically has been at about 19% of gdp. so we've got to get it under control. and because medicare and medicaid are growing at such a fast rate it causes the interest on the debt, our deficit, to cause us to have to borrow more and more capital. and interest will be at 38% of gdp if we don't get off this glide path. we've had -- we've gone to see, alan and i have, every interest group i think in the country to listen to what their recommendations are. and most of them have told us what you can't cut. we haven't had many people, i'm sure you governors don't, either, have people tell you, cut this. but we do have a lot of good

recommendations on the health care side that we're exploring, some that i think make a lot of sense, and we're getting them from both sides of the aisle and i think we'll be able to come up with some recommendation that is governors will say, thank god. >> governor, as long as you're not obseek wess. >> i'll stay away from that. >> as governors, chief scuteyoifs, we find very early in our careers that there are an infinite number of good ideas and they all cost a bit of money. and our responsibility is to say no to most of those. most of us have the ability to do a line item veto. some of us have a mandatory vetos. and so at the end of the day, we balance our budgets by saying no to somebody, almost everybody. my concern is that we do have a blue ribbon commission. we have some of the finest minds, including the two of

you, in the country that will make recommendations. but we all have commissions and boards and they all make recommendations, and some of us think they're good ideas and some of you don't. but then you have a congress that has to move on it. what is the prosssess? is this a recommendation does it have some teeth? what is he going to do about the house and the senate? >> we have baby teeth, which is better than no teeth at all, i guess. unfortunately, seven of the senators who have been sponsored of what would have been a legislatively mandated commission walked at the very end and it only got 53 votes instead of 60 votes. and that would have been much more impactful than what we can do. >> i can that's fair to say. >> that was the saddest thing. they wouldn't have gone to the floor with setting up the legislative commission instead of this one as an executive order. they wouldn't have done that. buten