hi, everybody. welcome to "the wall street journal report." i'm maria bartiromo. a compromise on extending the bush era tax cuts. but that's only the beginning. is it the start of a new centrist president? i'll speak to his former budget director, peter orszag. a provocative discussion. does less government mean more prosperity? the author oa new book says she has the answer in no uncertain terms. plus, in this season of giving, charitable giving. how much should you give, and to who and how to find the charities that are right for you. "the wall street journal report" begins right now. >> this is america's number one financial news program, "the wall street journal report." now maria bartiromo. >> here is a look at what is making news as we head into a new week on wall street.

you may be able to hold on to a little more of your cash next year, and the government hopes that will stimulate the economy. president obama announced the compromise to extend the bush era tax cuts for two years. the deal also includes a cut in payroll taxes from 6.2% to 4.2%. coupled with the extension of long-term unemployment benefits there is also an exemption of federal income taxes for estates worth up to $5 million. the package will add about $900 billion to the deficit. stocks were flat more much of the week. but the big story was actually in the bond market. on wednesday, treasury prices plummeted, which sent interest rates soaring. bond investors were concerned about the ballooning deficit, which could make long-term borrowing more expensive. drivers paid the highest price for gasoline in more than two years. the energy department says prices rose 10 cents to an average of $2.96 a gallon. higher crude oil prices are translating into higher gasoline prices. crude prices are rising because worldwide demand is still increasing. if you don't feel any

richer, you may be. americans' total net worth climbed 2.2% in the fourth quarter to more than $54 trillion. the federal reserve's flow of funds data showed the increase, largely due to a rebound in the stock market and consumers not taking on new debt. what are the implications of the president's tax cut compromise this week on economic policy in 2011 and beyond? peter orszag was the director of the house of management and budget until july of this year. he is currently a visiting fellow at the council on foreign relations. he just accepted a new job at citigroup. he joins me now to talk more about it. peter, great the see you. thank you so much for joining us. >> great to be here. >> so the president essentially cut a deal with congressional republicans, exchanging a two-year extension on the tax cuts for extension of unemployment benefits and a cut in payroll taxes. what is your reaction? >> thing is a good deal. we are in for over the next 12 months hard slog and this is going the make it better, adding maybe a percentage point to

growth or so in 2011, which is very welcome. >> so how does this lead to jobs, peter? tell me what you're looking at in terms of 2011? how does it look to you? you said it's a slow slog. is this going to lead to job creation in your view? >> it will lead to some. that unemployment rate is unfortunately only come down very slightly even with this package. but the things that i'm encouraged by in the proposal are not only taking care of the tax cuts on a temporary basis, but also the payroll tax reduction in particular, and the extension of unemployment benefits are going to give a good boost to the economy. >> how do we balance these tax cuts with the deficit? >> well, one of the things i'm quite encouraged by is that the extension is only temporary. because ultimately it's not clear to me that we can afford these tax cuts in perpetuity. so by making them only temporary, we're providing some flexibility in the future, depending on how much fiscal pressure builds up to ultimately not continue them unless they're paid for.

and again, so you have two years here. and we'll see how the world turns out during that period. >> we'll see if it leads to growth, in other words. so do you think the prescription suggested by the president's deficit reduction panel went far enough? >> i think there were a lot of encouraging components to that panel. they threw out lots of ideas on purpose. no one expects all othem to be incorporated into legislation. the component that i find the most encouraging is on social security, where i think you could have a deal done even early next year with some small tweaks to what alan simpson and erskine bowles put forward. >> so social security obviously one of those big kahunas that we have to attack. and then there are the other entitlements. how do you do that? what is your vision in terms of really getting our arms around this deficit? >> well, over the long-term, social security is a problem. it's not actually the main problem.

the main problem involves health care cost growth. but on social security, the proposals are relatively straight forward. for example, bowles and simpson put forward a combination of additional revenue in the form of, for example, raising the cap on where the payroll tax applies and then also indexing benefits or indexing the retirement age to life expectancy. there is a variety of changes that are possible here, and a combination of revenue and benefit changes is the most plausible scenario in terms of addressing the deficit in social security. >> and what is possible in terms of addressing the high cost of health care? >> well, there i think what we're going to need is an evolutionary approach where there are all these promising ideas -- the accountable care organizations and bundles and pay for performance. but we need to try them and then have a mechanism for moving the scale immediately when something proves to be promising or proves to be effective. the new legislation actually does create some mechanisms to do that through the innovation center and through the independent payment advisory board in particular.

you have institutions that will allow you to try out different approaches and alter medicare policy very rapidly, or at least more rapidly than in the past on the basis of the evidence that is coming in on what is working and what is not. >> what is your take on the feds -- i mean the federal reserve stated goal for the second round of quantitative easing was to lower interest rates. we're seeing the opposite in the bond market recently. can you explain why that is? >> well, look, i think the motivation behind the fed's action was noble in the sense that the fed is very worried that we're stuck in this high unemployment environment, which by the way could lead to longer lasting problems. one of the things that i where wrote about in "the new york times" on friday had to do with more people applying for disability iurance because the labor market was so weak, and thereby becoming permanently out of the labor force. the federal reserve is trying to promote growth. but the problem is they don't have very powerful tools at this point, and the various channels

through which quantitative easing would help, the interest rate channel that you mentioned and equity price channel and exchange rate, all are pretty small. so on balance, while i understand the motivation behind it, i don't think that this was a good idea to do. >> so the fed is running out of tools. >> but luckily, fiscal policy seems to be doing what it should be doing in the short-run, which is providing another round of stimulus, which is exactly what the economy needs, and frankly much more important and much more likely to be effective than the limited arsenal that the federal reserve has at its disposal at this point. >> it's a great point. it was a great piece in the times. so you left the administration in july. you have been contributing to "the new york times." and now you're headed to wall street. you just announced that you'll be joining citigroup's banking global business. when do you start? what will you be doing? congratulations on the new job. >> thank you very much. i'm very excited. i will start in january. i'm going to be part of the

global banking institution clients group there as a vice chair and also part of the senior strategic advisory group. so i'm looking forward. i'm going to be doing a variety of things, a lot of international work. i'm looking forward to macro-economic work. i'm a big fan of willem buiter, the chieeconomist there. some work in health care. i'm excited one of the nice things about a place like citi is the broad platform that lets me get involved in a variety of different things. >> peter, it's great to talk with you, as always. i hope you'll come back soon. >> i'm looking forward to it. >> thank you so much, peter orszag joining us in washington. up next on the "wall street journal report," she says government is just too big, but she is a big fan opresident clinton's. not so much when it comes to president george w. bush. my interview with the author of a provocative new book. and it's the season of giving. a look at the economy's impact on charities. where is the greatest need, and what you can do to help. as we take a break, take a look at how the stock market ended the week.

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it's tempting not to negotiate with hostage-takers, unless the hostage gets harmed. then people will question the wisdom othat strategy. in this case, the hostage was the american people. >> with those words, president obama explained his rationale for a compromise on the extension of the bush era tax cuts to the american people. he didn't sound happy, but he did sound pragmatic. is this a sign of a new more centrist president? joining me to talk about that and a lot more, michelle caruso-cabrera, cnbc anchor and author of the new book "you know i'm right: more prosperity, less government." also with us is ben white. he is a wall street reporter for politico. michelle, good to have you on the program. >> great to be here. >> michelle, certainly a provocative title, "you know i'm right." what do you mean by it and what is your take on the extension of the tax cut?

>> well, the subtitle is "more prosperity, less government." so i firmly believe that when you look at modern president, ronald reagan had it right when he said whenever government expands, liberty contracts. and so i think the tax cut extension is great because remember, every time the u.s. government spends a dollar, they have to take it from someone else. and so this is a focus on keeping the size of government smaller and lives of people. and the government has to really focus on the other side of the ledger, the spending side. they keep focusing on the ledger revenue side. >> we haven't seen the spending side really come into focus yet. ben, what are you thoughts? is this a political and economic compromise for the president? >> i think the president basically played the political hand that he was dealt here. he clearly did not have the votes for what he wanted which was obviously the top-end tax cuts not to be extended. but i think he made a very good deal here in the sense he gets a very large stimulus package. essentially, a $900 billion stimulus package coming up, you

know, as he heads towards reelection, both a payroll tax cut and the extension of all the tax cuts. he would have loved to have not had the top-end tax cuts extended, but he really had no choice. some democrats are very upset. but i think what you find out is that the democrats will ultimately vote to support this. >> michelle makes the right point. we've got to really see the ax come on spending. michelle, you say there is too much government. you would like to see some departments go away. you would like to see the department of education go away. you would like to see the energy department disappear. why? what would they be replaced with? what is your vision? >> remember, these are actually fairly new departments in the history of the united states, both created under jimmy carter. ronald reagan wanted to get rid of them. the department of energy was created to end our reliance on foreign oil. it has failed completely. the department of education, education has always been a local issue. and it's locally funded. when we pay federal taxes to education, all we're doing is sending it to washington and they're handpicking some programs across the country. education should be local function. the federal government's really

got to focus on what the federal government should do. and that's defending the borders, fostering competitive markets, enforcing private contracts and maintaining law and order, and that's about it. the rest should be left up to the states. >> what about that, ben? >> well, i think you can certainly have a debate about some of these departments. i think that they serve a purpose. i think what you'll see going forward is iwe have these large tax cuts extended, then we have $900 billion essentially in deficit increase because they are not paid for, these tax cuts. you will have to see some significant spending decreases. but i don't think you'll see across-the-board agency shutdown. i think you'll see some trends going forward obviously with the republicans in control. but some of these federal departments still have a role to play. >> you hear the phrase "these tax cuts are not paid for." but think of it this way, maria. they're pro-growth. if you want to increase revenue this country, you need the economy to grow. and the last thing you want to do is do anything that makes the economy shrink. that's the rationale for

extending the tax cuts for everyone. >> meanwhile, you have a big expansion in government. let's talk about that. while michelle is looking at areas to cut in terms of departments, we're looking at an expanded government with the president's health care bill, aren't we? do you think this bill is worth the price that we'll pay for it? >> for the expansion of health care is going to cost the government money as we move forward. but, you know, there are going to be more people insured. i think the president has been very strong on that he will run on health care reform as one of his big legacy issues. and i don't think he is too worried about the cost of that at this point. >> he's a not worried about the cost, he should be worried about the political costs. they kept saying this is going to reduce the deficit. the only way the health care bill reduces the deficit is if they raise taxes. when you read that cbo report that all the democrats like to refer, to very clearly it says government spending on health care under this bill goes up even more than if we had done

nothing. so it will absolutely raise costs for the government. >> you're talking about the negatives of an expanded government, whether it's health care, whether it's, you know, ownership of various industries. democrats don't have a monopoly on that, right, michelle? let's talk about we actually saw a huge increase in the size of government with the creation of the tsa. and that also ballooned the deficit, and that was under george w. bush. how do you explain that? >> this is why i wrote the book, because i was so frustrated. "you know i'm right" was meant to be a pun on redefining the right. because i watched for eight years while supposedly small government party just made government bigger, bigger, and bigger. george bush expanded spending like crazy, even when you seclude iraq and afghanistan. and i think that's why the republicans lost the last election. and i think it's why president obama got shellacked the last time around, because they just saw more and more of the same. >> thank you so much for joining us, both oyou. we appreciate it. >> thank you. >> michelle, ben, good to see you. up next on the "wall street

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he was the first to manage his philanthropy as if it were a business. how can we learn to give like a rock feller? joining me now is felicia taylor, chairman of rockefeller philanthropy advisers, a philanthropy services firm that has overseen over $3 billion in global philanthropy. good to have you on the program. two years after the financial crisis, what is the charitable giving landscape look like. >> it depends on what part of the landscape you're looking at. if you're up in the mountaintops where the ultra high net individuals are, the kind of folks who are participating in the giving pledge that bill gates and warren buffett has launched, things look pretty good. if you're talking about average americans, they're still struggling a little bit, not so certain about the recovery. not a lot of extra cash. and if you're looking at a lot of nonprofits in communities, they are really still right in the thick of the recession, and giving has been down for them for two years now, and maybe another coming. >> it's tough out there for the average. >> extremely tough out there for

the average person and the small nonprofit. >> you mentioned bill gates. this year warren buffett and bill gates spearheaded that pledge among the wealthiest people. >> right. >> to give substantially to charity. >> right. >> amazing. this last week there were more billionaires who have pledged this giving pledge. is this having a big impact? >> it's an enormous impact. and first of all, 65 of the 400 billionaires in america have already joined. and it's having a tremendous impact outside the united states also. bill gates and warren buffett went to china. some people had some issues with how that trip went and whether the giving pledge wasn't appropriate for the culture of china. but nonetheless, it sparked an enormous debate. i was in beijing a few weeks after they were there, and people were still talking about it everywhere. >> is that right? wow. you plan for foundations and corporations and individuals. how can the average person insure that they're being an effective donor? >> the first thing that you want to do if you are serious about

philanthropy and making a change is you need to ask yourself some questions. what are the real issues that motive me? what are the values that i bring to this? what is important to me in my heritage, my religion, my family, the way i've been brought up, and what is it that is really impelling me to give? because if you don't have a real connect to what is driving you from the inside to give, you're probably not going to stick with it for very long, and then you won't be very effective. >> that's a good point. and there is accountability because you want to see progress, that you're having an impact. >> right. you have to understand what problem you're trying to solve. if you don't understand what change you're trying to make, it's going to be hard to figure out whether you're make anything progress. so i have to focus on a couple issues that you really care about and what would i like to see different, what do i want to change here. and then you can select the organizations that are really working toward the same kind of goals that you are, and have the

same kind of approach as you have. maybe you like a direct service. you want to be sure that your funding is going directly to people who need help. maybe you're actually much more interested in changing a policy and so you want to be funding organizations that are doing research and advocacy. those are different kinds of things. they're both wonderful, but you want to have a sense of which way making change happens appeals to you. >> sure. you really want to understand what motives you, but you also want to figure out what external issues you connect with. >> exactly. and what approach to making change makes sense to you. >> you know, you mentioned china. it's a great issue to bring up, because we really do have a philanthropy mentality in america. >> it is. >> it's not necessarily the same outside of the country. >> no. >> how do the cultures change? >> this has been part of america since before we were really a country. organizations that we now think of as nonprofits and sort of civic society groups developed in america 16th, 17th century. and in america also we have a

real sense of faith that it's individuals and their innovation and creativity that makes change. and that makes progress. we have less faith that the government is going to make that kind of change happen. >> very interesting. melissa, great to have you on the program. thank you so much. >> thank you. >> and thank you for all of your efforts, really, making such a difference. melissa berman. up next on the "wall street journal report," we'll take a look at the news this upcoming week that will have an impact on your money. and can you weather the storm when it comes to your savings? a look at across the country at who is most financially responsible. are your neighbors on the list? back in a moment. lightning fast. lightning strong. verizon 4g lte. rule the air on the most advanced 4g network in the world.

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for more on our show and our guest, check out the website, wsjr.cnbc.com. you'll also find a link to my blog, investoragenda at cnbc.com. check it out. now a look at the markets that can impact your money this week. tuesday the open market committee convenes for the final meeting of 2010. and first since announcing another round of quantitative easing. last month's total retail sales are released on tuesday as well. and the producer price index is out. the ppi tracks inflation at the wholesale level. wednesday's release, the consumer price index, measures inflation for consumers. and thursday, the census bureau lets us know the number of residential units that began construction last month. finally today, how financially literate is your neighborhood? a new survey from finra, the financial industry regulatory committee compares merps' state

by state financial capabilities. new jersey and new york top the list for the most number of respondents with a rainy day fund to cover at least three month. in oklahoma city only 3% can say the same. a response was an uptick in the american savings rate. thank you so much for joining us. my guest next week, former prime minister of the uk, gordon brown. each week keep it right here where wall street meets main street. have a great weekend, everybody. i'll see you next weekend. join the jaguar platinum celebration ! come celebrate exciting cars that are stunning to look at, exhilarating to drive and worry free to own. celebrate this holiday season with the gift of platinum. jaguar platinum coverage: five years or 50,000 miles of complimentary scheduled maintenance, and no cost replacement of wear and tear items. visit your bay area jaguar dealer

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