>> schieffer: today on "face the nation," no big deal but maybe a smaller one on cutting the deficit. treasury secretary tim geithner is in the studio this morning to talk about the impact on jobs and the economy if congress and the white house can't come up with a plan to raise the debt ceiling. but as negotiators head back to the white house tonight to try to hammer out a deal, the outlook for agreement is uncertain. >> this is a rubic's cube that we haven't quite worked out yet. >> schieffer: the president urged republicans to work toward a grand bargain, a budget plan to save $4 trillion over the next 10 years. >> both sides are going to have to step outside of their comfort zones and make political sacrifices. >> schieffer: last night, speaker boehner said the

president's grand plan was too much. they'd have to settle for something less. but what? we'll ask senate republican jeff sessions of alabama and florida's democratic senator bill nelson. it's all ahead on "face the nation." captioning sponsored by cbs "face the nation" with cbs news chief washington correspondent bob schieffer. and now from washington, bob schieffer. >> schieffer: and the secretary of the treasury is in the studio with us this morning. welcome, mr. secretary. the big news overnight, of course, the president and the speaker of the house john boehner were talking last week about what the president called a "grand bargain," a budget plan to save $4 trillion in government spending over the next ten years. last night, though, the speaker said that's not going to be possible without raising taxes, so he said they'd have to work on a smaller plan. so i guess i'm going to ask you to help us out here.

does this make it more or less likely that there will be some kind of deal, because if there's no deal, as you know, the republicans say they won't raise the debt ceiling which must be done to keep the government from defaulting on its debt. so, what happens? >> there has to be a deal, bob. the leadership and the congressmen understand that. the speaker understands that. republicans and democrats understand that. failure is not an option. the question is how good a deal is it going to be? the president needs to bring leadership to the white house t.is evening to keep at it. he wants to do the largest possible deal that's going to do the most for the economy. it's very hard politically. it will take some movement on both sides for that to happen. the president has made it clear he's willing to do very difficult political things for him and his party. but the republicans are going to have to do some things, too. >> schieffer: mr. secretary, you say there has to be a deal. the leaders know and the president knows that. but does the rank-and-file in the house know that, because my sense of it is the reason mr. boehner said this is because he simply does not have the votes to get a deal done right now,

especially a large deal if it includes some revenue increases. basically, that's what he's saying. so what happens? >> no doubt, he's got a challenging job. but he said from the beginning, we will not default. he's also said we can't play politics with this. he's also said we can't take this too close to the edge because that would be irresponsible. so he knows we have to do this. and it's tough, it's tough on him. it will be tough on all the leaders up there but we have no option except to come together. the question is not whether we're going to have an agreement. we're going to have an agreement. the question is are we going to have an agreement that will be good for the economy? >> schieffer: i take your point. but you have republicans like michele bachmann saying all this business about doomsday if you don't raise the debt ceiling, saying that that's just scare tactics on your part. on the other side, on the left, you have nancy pelosi saying, look, we are not going to touch social security benefits. >> i wouldn't have... >> schieffer: it sounds to me

like that this is no deal going to be made here. if not, how do you get the debt ceiling raised? >> i wouldn't equate those two things. first of all, the people who say that we could take the risk and default, there's no responsible leader that argues that would be a credible... >> schieffer: no responsible leader, mr. secretary, but does that seem to be prevalent view among many republicans in the house and some democrats. >> not prevalent. it's a political moment. people trying to get attention, they say amazing things but there's no credible argument, no responsible leader would say the united states of america, for the first time in its history, should not pay its bills and meet its obligations. that would be catastrophic for the economy. everybody understands that. there's just a lot of political theater in this business. now, on the terms of the agreement-- very difficult politically to do. this is what is at stake. the president has said he is prepared to do very difficult, very tough things to reduce savings across the government, across the government. defense, the rest of government. and find a way to get saving out

of medicare and medicaid over time. but to do that responsibly, in a way that's fair, you can't ask middle class americans, the elderly to bear all of the burden for those savings. so he's proposed totally sensible tax reforms that would eliminate loopholes and ask the wealthiest 2% of americans to pay a modest additional share of the burden. there's no alternative to doing it that way. i think that's what the house republicans demonstrated in their budget. if you try and do this-- this is the ryan budget-- if you try and do this without revenues, without any tax reforms and without revenues, then you are forced to do terribly deep cuts in benefits to medicare beneficiaries. remember, in that proposal, when fully phased in, the average cost of medicare for the average beneficiary would go up by $6,500 a year. that's like a $6,500 tax increase on elderly americans. the only way to do this is in a balanced way. that's the only way you can do

it politically because you can't do this with just republicans; you need democratic votes, too. >> schieffer: aren't the democrats going to have to give a little bit on what you do about medicare and medicaid and social security? aren't they going to have to say, look, these programs, we're going to have to look at reforms, because right now speaker... or former speaker pelosi has said i don't see it. there's no way we're going to do that. >> former speaker pelosi is being very careful in how she says this. what she's saying is we can't ask middle class americans and elderly americans to bear the burden of deficit reduction on their own. the president has been clear from the very beginning that to protect these programs, these critical programs for americans- - and they are absolutely essential to what defines the country. the basic commitment to retirement security and to health care when you retire are basic commitments that define this country. to preserve those, we have got to find ways, in a fair way, to find savings in those programs over time. the president is committed to that.

very difficult for him politically to do that. >> schieffer: it's fair to say you haven't found those ways yet, right? i mean, nobody seems to be coming up with anything like that? >> we have very substantial savings the president has put on the table. he's standing by those savings, but we need republicans to come, too. >> schieffer: does that mean cutting benefits eventually in social security, maybe means testing, maybe raising the age limit? >> again, the basic principle is we've got to... >> schieffer: i understand what the basic principle is. i'm talking about specifics. are those what some of the specifics are? >> the basic principle is we have to find ways to make these programs stronger and sustainable over the long run. that's going to require doing hard things, politically difficult things. the president recognized that. he's standing firm. >> schieffer: are things such as raising the age limit on social security, maybe limiting benefits, maybe putting in means testing? would those be the hard things that are on the table? >> bob, you know, i don't get to negotiate this with you.

i can't tell you what's going to be in any deal. what i can tell you is we're not going to do this in a way that leaves the burden all on middle class americans and on the elderly. i not fair. you can't do it politically that way. >> schieffer: let me ask you this, mr. secretary. while these negotiations go on, what about these republicans who say it's just scare tactics, about doomsday if we don't raise the debt ceiling? tell me what happens if you don't raise the debt ceiling. >> well, let's start with this, okay. as we go into july, further into july, the world is going to be progressively more concerned about whether this town, this city, washington d.c., can figure out a way to solve this problem. so the risk we face starts to happen in july. but then on august 2, we're left running on fumes. we have no capacity to borrow. i have to write 80 million checks a month to americans, including 55 million who depend on their social security check. we have to make principal

payments or roll over $500 billion in debt in the month of august. about $87 billion in that first week in august. and so, for those reasons, we have to act... congress has to act ahead of that point. if they don't act, then we face catastrophic damage to the american economy. the leadership, to their credit- - and i mean republicans and democrats-- fully understand that. they have been very clear to the president and to me, including last thursday, that they are not going to take that risk. >> schieffer: so is august 2 the drop-dead date? >> absolutely. we've looked at all options. all options my predecessors have looked at. everything past presidents have looked at. there is no feasible option to give congress more time. they don't need to take more time. >> schieffer: let me ask you this. does that mean, if august 2 is the date, does that mean... because harry reid said he's not sure you can get there by august 2 if you don't get something done this week. is this week the drop dead week? >> i believe in this week or by

next week, we have to have agreement on the outlines of the package. it has to be clear that the leadership have found a way to solve this and they have a path to get votes for something. that has to happen this week and certainly by the end of next week. >> schieffer: if you don't get something done this week on august 2, you're going to have to maybe not issue those social security checks, veterans' benefits, that sort of thing? that's going to happen. >> i want to say it this way. you can't wait until august 2. the credit rating agencies of the world have already made it clear in public that the longer we go into july without a path to resolution, the more threat of a cloud over our credit rating. there's no reason why the leadership in congress should let that happen. we all know the choices. >> schieffer: some republicans are saying that is, you know, that, all you have to do is just pay the interest on the debt and then prioritize from there. you're saying you're going to have to stop the social security checks if you don't get this done.

something has to happen. >> on august 2, we lose the capacity to borrow. right now, because of what congress has... the obligation that congress has put on us, we have to borrow 40 cents for every dollar we spend. it's worse than that because, as i said, we have $500 billion in principal payments coming due in august. so like every other president and every other secretary of the treasury have looked at all options, i can say to you with total confidence we have no other option to buy more time for congress. they don't need more time. they know what it takes to get this done. i'm very confident, bob, that they're going to do what is necessary. the question is how much progress are we going to make? >> schieffer: what you're saying is this morning, august 2 is the drop-dead date. this week is basically the drop- dead week. if they don't get something done this week, you won't be able to make that august 2. >> and we have a chance. we have a chance to do something very good for the country. >> schieffer: what do you think is the hang-up here? why did suddenly speaker boehner

back away? because last week, he was talking with the president about this so-called grand bargain. i mean, this whole "we're going to save, what, $4 trillion over ten years." i personally don't have much confidence in these ten-year-out forecasts, but that's my opinion. i'm not an expert. but what do you think caused him to say, well, we have to go for something smaller. >> hard for me to speculate. small deals are difficult, too. small deals involve a lot of pain as well. it's not clear it's easier trying to do less. as i said, the president is going to try to do the largest possible deal we can. i think the key problem, just to be direct about it is-- and the republicans will be honest about this-- is they want to do it just with spending cuts. as you saw in the ryan budget, if you try to do it just with spending cuts, you're putting unacceptably deep cuts in benefits for medicare beneficiaries in the future. you can't do that politically. it's unfair to do it.

>> reporter: if you had to make a guest or... guess a guess or an estimate, do you think there is going to be some kind of deal? >> i'll take the optimistic side of this, bob. if you listen carefully to the debate in washington over the last six months, the debate has moved a long way. i think republicans have moved and democrats have moved. i think again we have a chance to do something that would have been inconceivable six months ago. we're going to try and make it as good an agreement as possible for the economy. just the question is whether washington can meet this critical test. again, if you think about what is burdening the country as a whole, part or part of it is that this political system, are the leadership in washington able to come together and solve the many problems we have as a country? you cannot deal with these long- term challenges, you can't find a way to invest in the things we need to be stronger in the future unless we get our arms around this fiscal position. >> schieffer: there have been reports you might be leaving before the president's term is up.

what can you tell us about that? >> i have a lot on my plate. we've talked a lot about those things. i live for this work. i'm going to be doing this for the foreseeable future. >> schieffer: forseeable future- - define that. >> foreseeable future means the foreseeable future. it means for a while. >> schieffer: through the president's term. >> again as long as foreseeable. >> schieffer: all right. thank you, mr. secretary. >> thank you, bob. good to be here. >> schieffer: we'll get some views from the senate in just a minute. announcer ] this...is the network. a living, breathing intelligence that's helping drive the future of business. in here, inventory can be taught to learn. ♪ machines have a voice. ♪ medical history follows you. it's the at&t network -- a network of possibilities... committed to delivering the most advanced mobile broadband experience

to help move business... forward. ♪ >> schieffer: welcome back to "face the nation." senator jeff sessions is the ranking republican on the budget committee. he's in the studio with us this morning. senator bill nelson of florida joins us from orlando. well, senator sessions, let me start with you. the secretary of the treasury says he thinks that there will be a deal. do you think there's going to be a deal?

>> there needs to be a deal by august 2. i assume he's accurate on that date. but will it be a deal that's really good for america? will it do the things that we need to do? will it put our medicare and social security on a sustained, sound basis for the indefinite future? i doubt it. the republican leadership, i have to say, have been open about this. asking and pleading with the president. in the last few days, he's seemed to open up to the possibility of long-term debt fix, but it looks like now that that's fallen apart based on demands for higher taxes. >> schieffer: so if they can't get a deal-- and you seem to be saying because... you know, i would take it if you think it's a bad deal, i take it you're not going to go for it-- if you think there's not going to be a deal here, then what happens? will they just have to go to one of these short-term things on raising the debt ceiling? in other words, pass something to allow the government to

borrow for another month or so or six months or something like that? >> i would assume so. bob, i have been arguing for months that we should be doing this publicly in the constitutional process so the american people could see what is going on. we're not just going to ratify some secret deal, even if our good leaders plop it down on the floor of the senate. we need at least seven days to review something as historic as this. i'm really worried about all of that. i really believe we need a national discussion. you know, we had a terrible jobs report this week. this debt is right now pulling the economy down. the study that secretary geithner agrees with said it pulls down our debt... our debt pulls down our growth by 1%, which is equal to one million jobs. from 2% to 3%, we would have had in growth first quarter except for the debt. so we've got to do something because the crisis is now and

the problem is washington is... surging spending and we've got to bring that down. >> schieffer: let me ask you this flat question. do you think right now that republicans have the votes to pass an agreement, even if speaker boehner comes out and says i've agreed with the president on this? i don't know whether speaker boehner has the votes amongst the republicans in the house to pass something like this. >> well, depending on what their agreement is. that's the answer. if he's got tax increases like the senate budget that just leaked out-- the democrats have not made it public but their outline was made public. it was $2 of tax increases for every one dollar of spending cuss. that's miniscule. and $4 trillion is far too little. we're talking about only 5% reduction in the growth of our spending, when you cut the spending over ten years-- $4 trillion. >> schieffer: you heard what

secretary geithner said. he says there is no alternative to doing this without some sort of revenue increase. that's not acceptable to you. >> absolutely that is not correct. we have increased discretionary non-defense spending 24% in the last two years. we have been increasing defense spending. we've been increasing social security, medicare for 7% a year or so in up creases. you can make big reductions in spending without cutting spending, just reducing the growth rate of spending. we're on this idiotic idea that we should judge cuts based on how much it reduces the growth of spending. american people, if we focused on does it actually increase or reduce spending, we'd have a much more honor approach to the difficulties we face. >> schieffer: i want to get to senator nelson, who is down in orlando this morning, a senator from florida and a former astronaut. >> good morning. >> schieffer: you're hearing what senator sessions is talking

about on cutting spending. but i've got to ask you, it seems to me like speaker pelosi pretty much laid down the law about how democrats feel about making any changes in social security and the entitlement programs. a lot of people say, unless you get into that, there's no way you can get a realistic deal. how do you feel? would you vote for a plan if they said we're going to have to reduce social security benefits or any of these entitlements? >> well, bob, ask the question first. how did we get into this problem of the big deficit? and it's basically a fall-off of revenues and an increase in spending. so you got to correct that imbalance. otherwise, you're not doing real deficit reduction. we've got to hit something like $4 trillion in deficit reduction over the next ten years. i'm coming to your question in just a second.

but i want to lay the predicate. there are lots of ways to get additional revenue by eliminating some of these tax preferences for special interests called tax loopholes. i want to make an offer to jeffrey, who is my dear friend, that if you took the money that the federal government would save from all of those tax loopholes, and instead use that to lower all of the tax levels of the different tax brackets, what you'd have is a revenue neutral position. but because you would simplify the tax code, you would end up raising more revenue because it would spur up the engine of economic growth. now to your question about social security. bob, you don't have to touch social security to do what i just said.

and even if you touch social security, that's not going to help in this next decade to get the deficit reduction that we need. >> schieffer: quickly, senator, what's your response? >> that's a great position. i would support that. but that's not what the democratic senate budget that has been revealed partially to us does. it increases taxes by reducing these loopholes and increases other taxes and actually spends the money rather than using it to reduce rates. that's not acceptable. what's happened is this government has surged spending. the numbers of 24% increase in spending do not include the stimulus package which was almost a trillion dollars. they want to now demand that the american people pay more money to fund these increasingly high rates of spending. that's the big difference. the american people expect us to bring this spending down to

reasonable levels before they're asked to pay more taxes. >> jeffrey.... >> schieffer: before he.... >> i just want to say this, bob. jeffrey, you have to acknowledge that part of our deficit problem was the huge bush tax cuts in the early part of the decade. that accounted by what was handed off to the new administration of over a trillion dollars of annual deficit. that accounted for almost half of it. so, if you're going to be real about the numbers, you're going to have to address these kinds of things. >> that's not accurate, bill. revenue went up every single year after those tax cuts were put in. the revenue is down now because of the low economy. you're right about that. i would agree. so the question is do we... it's not because taxes have been cut in recent years. it's because people are not making money. they're not paying as much taxes. so increasing taxes on that weakened economy is not the way

to increase revenue at this time. i thought we agreed on that last december. >> schieffer: senator nelson.... >> jeffrey, i didn't say raise the taxes. i said eliminate some of those tax giveaways that aren't doing anything. there's a bunch of cash out there that is stashed overseas that ought to be taxed as income because it's an american income. you do a combination of those things and you can do some real changes here. >> well, if you use it to lower rates, i'm all with you. if you use it as the president suggests for more spending i'm against it. >> schieffer: gentlemen, i'm very sorry. the clock has ran out here. we have to end the discussion here. senator nelson, sorry i didn't get to ask you about the space program because you're a former astronaut but we ran out of time. we'll be back in a moment with some final thoughts. i have copd. if you have it, you know how hard it can be to breathe and what that feels like. copd includes chronic bronchitis and emphysema.

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there will be five more congresses elected over the next ten years. each and every one of them can change the agreement in any way they choose. so can whoever is president. what that means is whatever the current congress and the white house work out, it may bear no resemblance to what is in place ten years from now, or even four. the important thing is that the agreement will be worth something now, because congress says it won't raise the debt ceiling unless there's an agreement in place. and if congress can't raise the debt ceiling, the government can't borrow the money it needs to pay its bills. if you think this economy is bad now, wait until the word gets around the world that uncle sam has become a deadbeat and the phrase "has the full backing of the full faith and credit of the united states of america" is no longer the ultimate guarantee for borrowers around the world. that's the bottom line. all that really matters in this argument. if the rest of it, all the

predictions and projections about what the state of the economy will be seven or eight years from now sounds like mumbo-jumbo, well, that's because that's just what it is. that's it for us. we'll see you next week. right here on "face the nation." captioning sponsored by cbs captioned by media access group at wgbh access.wgbh.org ,,,,,,,,