>> rose: welcome to our program. tonight, erskine bowles and alan simpson, co-chairs of the president's bipartisan deficit reduction commission lay out what has to be done to reduce the deficit. >> if you just rely on deficit reduction through cutting and you want to exclude social security, medicare and defense and of course interest, then you'd have to cut everything else by about 60% to 65%. you can't do that, either. what we've got to do is some combination. alan and i have come out with a plan that's balanced, that takes four trillion dollars out of the deficit over the next ten years. i think that's the kind of thing we have to do. and if we don't, the markets are going to force us to. >> you wanted to ask me that same question. >> rose: i do. >> and i can tell you exactly how we got here. for if last 75 years, we were sent to washington to bring home the bacon.ñi and i remember in my second term of the senate i went back,

somebody said "you haven't help us out here getting a new dam" or "a new visitor's center." or "a new v.a. hospital." i said "no, i'm not going to sign on for that. we already have one. we have this." "well, what kind of a congressman are you? what kind of a senator?" when you went home to your district, you had staff around you and your town meeting would say "do you have any questions?" "yes, we need this and i hope you'll get it." and the person turns to the loyal staff person and says "write that down, we'll inject it as an earmark." i mean, the fun and games is over. >> rose: bowles and simpson for the hour. next. maybe you want school kids to have more exposure to the arts. maybe you want to provide meals for the needy. or maybe you want to help when the unexpected happens. whatever you want to do, members project from american express can help you take the first step.

vote, volunteer, or donate for the causes you believe in at membersproject.com. take charge of making a difference. captioning sponsored by rose communications >> rose: erskine bowles and alan simpson are with me in washington this evening. they are the co-chairs of president obama's bipartisan deficit reduction commission. last week, they offered a sweeping plan to cut more than $3.8 trillion over the next decade. their plan includes an increased retirement age for social security, the elimination of

popular tax breaks, and cuts for medicare and defense spending. 14 of the commission's 18 members must agree to a final plan by december 1 to earn a vote in congress. negotiating a consensus will not be easy, but the proposal has been credited with starting a serious conversation about one of the greatest challenges facing the country today-- the budget shortfalls in 2009 and 2010 were the highest in terms of the total economy since 1945 when the country was at war. the co-chairmen are respected on both sides of the aisle. erskine bowles helped negotiate the last major bipartisan agreement in 1997. alan simpson certain served as wyoming senator from 1979 to 1997, rising to the post of republican whip. i am pleased to have both of them with me here in washington to talk about their proposals which they have released representing their views and no one else. we have been hearing from paul ryan last night and we will hear

from others about what ought to be done, what might be done, and what's feasible. so thank you for doing this in washington. >> a great treat. >> rose: tell me what you are seeing in terms of what has been released? >> well, i always say that first of all erskine and i have to stick together. you almost have to have a six-gun in each hand back to back to ward off the distortion. i tell people to read it. it's a sick idea, i know, but just read it all. and in the politician that hasn't said during this campaign "cut spending, cut spending, cut spending." well, we said "okay, pal, there it is. how many chunk wes got in there? 200 plus savings, specifics savings." tz >> just on discretionary spending in the year 2015. >> and they sleeked like a gunshot panther. "well, i didn't know you were going to do that."

so it's good to describe what we do. >> rose: so the point is here what? just represent your views? the two of you? or you want to get something out there to start the dialogue? >> we have to start the dialogue. charlie, i think this is the most... i think the path we're on is unsustainable. i think every member of congress knows that and i think we had to lay a predicate out there that would force action by this congress and future congresses. i think the problem is that deep. >> rose: everybody believes that don't they? i mean, the idea that the problem is deep, what we end up with is great differences from the left and the right and is the center as to how to deal with the problem. >> and that's what al and i have been trying to do is find out where that common ground is. we spent literally months coming back and forth to washington from cody and chapel hill trying to find out where the common ground is, what we can get done and we think this plan we put out there is a serious effort to bring people together to find

that common ground and i think it's probably more common ground than people expect now. >> rose: why do you say that? because you have had the debates inside when you had the meetings with the commissioner? >> yeah, we've had plenty of debates inside. we've had visits one on one. we've met with groups of people. >> i think's more common ground than people realize. >> but it took us months since we started in january to establish trust. this town is devoid of trust and it took us literally three or four months to trust each other. nobody's left the room. we don't agree seriously disagree, but nobody's left the room. but at least i thinkñi we've established... ruined the stereotypes that andy stern was this or dot dock coburn was this. all that's gone. but boy it took a long time. it's very sad for me to a person who loves this institution, loved this place, love the senate and erskine was the last guy to balance the budget around this joint. (laughter) and to come back and see...

>> rose: that was in the '90s, wasn't it? >> '96. to see the total lack of trust. >> rose: but did you establish trust within the confines of the commission? >> i do think because we... nothing ever leaked until the other day when we had our first meeting. >> rose: you were ready to go.ñi >> it looked like a sieve and we decided we better get in and defend ourselves because it was coming out in a distorted way. >> rose: give me a sense, erskine, of how it went. what happened inside? what would you do to sort of come out with a seriousness of purpose and trying to find 14 people who would vote for this to send it to the congress? >> it's very similar to what we did in '97 when we had the last balanced budget agreement. you have to go goo into these meetings and first listen. just like you do on this show. listen to people. let them talk. let them tell you. then find out what they're for and what they're against and what they might be able to support. and it's like doing any other kind of deal that i've done my whole life and trying to find that common ground. and as al says, build up some trust.

lots of that's one on one. gosh, i can't count the hours we spent. but i think we've done that. i think they think al and i are serious about this. they know that we're in it for the right reasons, we're not taking any jobs up here or coming back for elective office. >> or getting any money, either. >> rose: just for the record, there's all this rumor you might have seen the president about taking larry summers' job. you are not going to take larry summers' job? x$'m not a candidate for any job. i'm going home to charlotte. you can count on that. >> rose: you are not a candidate nor will you accept any job from the obama administration? >> i'm a big fan of the president and i'm going home to charlotte, that you can count on. >> rose: does thatñi sound likea sherman statement to you? >> it did indeed, yeah. and >> if nominated i will not serve. >> rose: i didn't hear him say that. >> i think roger would doll a terrific job. >> i do, too, and i know him quite well. he lives in jackson, stays in jackson, wyoming, has a home

there. >> rose: so if you go to wyoming you can't be all bad, can you? >> no. >> rose: stay with this idea. so where is the common ground other than we have to do something. >> i think the common ground is first people have come to accept the era of deficit denial is over. i think that's been an enormous leap on the part of most people. two, i think when we put out $4 trillion of real cuts in the deficit that people saw there was substance behind what we were saying. we've seen so many people, al and i have, come on shows like this and people say, well, that's all great and good but what are you really going to do? >> rose: right. >> well, we have more substance backing up each and every... we have specifics everywhere, each and every recommendation we make. >> and i think supreme come to realize that this is the problem facing our generation today. i was interested to hear the other day that admiral mullen said that this debt is the

biggest national security problem we have. you and i know, charlie, as business guys, that, you know, if we don't get this debt under control it's going to crowd the private sector out of the market and small businesses can't grow and create jobs without money. you have to think well all those people who want to make sure that we invest in education and infrastructure and high value added research and development, all of those people have to know that we can't do that if we continue to have this amount of debt build up in the country. it will eat the budget alive. >> i think there's a lot of common ground. >> and the trouble is if you get into percentage of g.d.p. and growth and so on... >> rose: but you have that in there, don't you? >> yeah, but you lose the american people when they say did they go further with g.d.p. or deficit? did this group or did the domenici group, the rivlin group did pete peterson's group, you get into... it's my experience to get into percentage and so on. we're just telling them, look,

it's unsustainable, you better get in and get wet all over. we have to touch every single segment of american ciety and so far the public is hearing it but when you have 12 of those 18 of us who are members of congress, it is to s.u.v. for them. >> rose: so tell me how you two made your decisions about tax cuts versus spending cuts? >> we listened. we think we have the problems bigger on the spending side than it is on the revenue side. we then tried to look not at just hard numbers but tried to figure out what we could really cut. as an example, as al was mentioning earlier, we've made $163 billion of cuts in discretionary budget in the year 2015. the president gave us a goal to get to 3% of g.d.p., we actually got to 2.2% of g.d.p. but in that $163 billion of the

cuts we've recommended, we have $200 billion of specifics, of things we would actually cut out of the budget. and we wanted to make sure we had credibility. we wanted to make sure we can put substance on the table, that we could be specific and we wanted to recommend... have more things that we recommended. >> rose: so when bob gates, secretary of defense, says well, this is cutting too much defense it's threatening the national security. >> there isn't anything that any group or agency in america won't say that it's so critical they can't do it. we have visited with bob gates. bob gates is a very special friend. we were on the iraq study group together before then. he was vectored over to this. so when we visited with him we said, you know, if we can't... if kent conrad of the budget committee, chairman, couldn't get the figures out of the pentagon as to what they're doing with contractors who don't do their job and then two years

later they hire them again, how many contractors are there and there's no record of it. if i remember they said it was between 250,000 and a million. we said, well, we'll just cut 250,000 contractors. i'm sure that are that will get a keening wail out of segments of society, but bob gates very beautifully was taking the saving and restructuring... put iting it back... >> rose: and that's what you were saying. the savings you're already trying to engender and putting back into the military we want to take out and eliminate the deficit. >> that's right. >> but don't forget about what admiral mullen said who's head of the joint joint chiefs. he said the debt is the biggest national security problem this country faces. >> rose: that's the thing that has happened, isn't it? even the president at n his speech at west point he said no nation which loses its economic vitality can yes remain and maintain its power as a global power. >> you can't be the strongest economic power, strongest military power if you're also

the greatest debtor nation. >> and you see what happened in the latest g-20 when he went over there. they're not listening to presidents like they used to listen to president because they say "look, don't come and give us too much over here, we know what's going on over there when the chinese reduce their ratings from a.a. to a-plus. we don't have... it's not obama's fault, that's not the point. it's america's fault. we are slipping into what other people perceive as a totally chaotic fiscalñi situation. >> rose: let me take some other people who've said things about this and maybe put all these in the same category. nancy pelosi said simply unacceptable. >> broke my heart. (laughter) i just couldn't get over nancy. i said, nancy... she hasn't been on board with us at all in that sense. >> rose: yes? >> and so what do you do? she feels strongly, but she's lost a lot of zeal since the

election. >> rose: but isn't that going to be the issue? and how do you get past this? you put stuff on the table to get the conversation started but you've got the left saying certain things. you've got people on the right... last night on this program, paul ryan who was a member of your commission... >> who we have great respect for. >> rose: here is what he said. role type. >> the original idea of the commission was to actually have a plan and passed in the lame duck. that's not really feasible from a logistical standpoint. i don't think you can write legislation or score it fast enough let alone get through all the hurdles in the senate to pass something even if you could get 14 of the 128 commissioners to vote for something. >> rose: and what about the up-and-down vote. >> that's what i don't think you're going to have. i don't think you're going to have that. >> rose: all right. so when you look at what the commission said so far, what those two co-chairs said, what do you like and don't like? >> what i like is the fact that you have the president's people that he put in charge of this, erskine bowles who's a great, very conscientious democrat saying that for america to be competitive in the 21st century we need lower tax rates. we need lower corporate rate, a

territorial tax system which is very important for our competitiveness and lower tax rates on individuals. so they're basically talking about broadening the tax base, lowering the rates. they're also going after spending. there are some things i would do and some i wouldn't but they're going after spending. what you what they didn't do in this plan which i think was a mistake is they didn't go after fixing health care. they pretty much skirted around the edge. >> rose: why not? >> because i think they wanted to accept the premise of obamacare. they wanted to accept the structure and architecture of obamacare which obviously i have a huge problem with. >> rose: all right. there you go. one issue, a person you respect, he said he respects you. i know he respects you. why didn't you take on health care. >> we did. >> we did. (laughter) >> i don't get it. >> i not only respect paul ryan, i like him. >> rose: right. >> i think he has a great future for this country and i wish we had more people like paul who are thinkers and do their home work and always come to the table prepared. i think it's great. he speaks too quick for me. i can't keep up. i don't know how you did it last night.

but what i can tell you is in our budget we don't do as much as paul would like us to do, but we have $700 billion for $500 billion worth of cuts in the next ten years. that's no small potatoes. >> rose: where does it come from? >> it comes from lots of different places. first of all we do something called the doc fix. that takes about $276 billion. we have $282 billion to pay for it. where do we get the money? from providers, from doctors themselves, from dug companies, from hospitals. we also get the money by charging people more for the services they are provided. and we get the money from lawyers. we have real tort reform in this package. >> rose: but why did he then say health care was off the table? >> because what paul would like us to do-- and we have what he recommends as an option in the second ten years-- is what we do is we cap the rate of growth of health care at g.d.p. plus one which is what the people in

congress say that the new demonstration projects about the pilot projects will hold the rate of growth of health care. and if that works, it's great. but we say if it doesn't work what you have to do is do something like paul has recommended which is a premium support plan or a robust public option. but some other plan that will force the cost of health dire come down. paul would like to see us do that earlier. >> but there isn't any question we touched health care because erskine and i got together months ago and said this is the worst thing we've ever been in so if we're going to do it... >> rose: leave nothing untouched. >> we took the pledge and we did address. it is... you can't even wrap your arms around health care, but if anybody believes that these little groups ten years from now, a group of congress persons is going to get together and do some limitation, forget it. i've never seen any of those work. so we did itñi, we deemed medicd medicare, social security, the whole works. because god bless them, if we get 14 of 18 it will be great.

but if they don't, we've put something out there that's going to be helpful to the american people. >> $700 billion of specific in black and white. >> rose: social security. what are you going to do about social security? >> i think we've taken a very balanced approach. we take about 43% of... we closed the gap to get to 75-year solvency. to us this is not about balancing the budget... >> that's the key. we're not balancing the budget on the backs of social security. that's just garbage. >> and people talk about what kind of affect is this going to have. there's what you promise and what you actually can deliver. and if we stay on automatic pilot, the social security trust fund-- including all of the interest earned on it-- runs out of funds in 2037. that's a fact. and by law they can't pay out

more than they take in. so there's going to be a 22% cut in social security benefits beginning in 2037 under any circumstance. and what we do is try to address that now. we raise a little bit of revenue. we raise... we have a few benefit cuts, principally on the upper-end people so that we can preserve social security and preserve its solvency for 75 years. >> rose: and then we have 125% of poverty for those at the lowest level and añi little boot for people over 80 and groups... big groups like the a.a.r.p. are saying to us, look, oh, this is horrible. but we have... we know that all we need to do is modest changes and we say will you please share with us what the modest changes are and all you hear is violin music in the background. they never come forward with what the modest... and they know what they are. you do something with the retirement age. we would raise the retirement age to 68 in the year 2050. if you can't get that done when

life expectancy is 76, take care of the steel worker who can't work past 62, we've done that. we have accommodated every single essence of the people who moaned and whined. >> here's exactly what we've done so there's no question. we have made our job harder by giving a higher minimum benefit to the truly disadvantaged. we've taken it up to 125% of poverty. people came in and told us that you've got to take care of the older old. so we have a bumpup in benefits between 81 and 85. both of those cost money. how do we pay for it? we have pay for it in three basic benefit ways. we do go to longevity. we increase the normal retirement age which already goes to 67 in 2027. so that's the law today. we take it to 68, 40 years from now and 69...65 years from now. you know, i have nine grandchildren. none of them will even be eligible by then.

>> you only had eight last time. >> i had another one. >> rose: but the argument made by paul krugman in the "new york times"... >> well, now paul is getting a little hysterical. i love the way he savages people absolutely savages people and then talks about savaging people, that we're savaging, i mean, paul may have the nobel prize but he doesn't have the nobel prize in figuring out what we're doing. >> rose: okay, but his argument was that when you raise the retirement age, the people... it benefits the wealthy rather than the poor who work with their hands, or the middle-class, because they don't the same life expectancy that the rich do. >> charlie, that's exactly why we put in the 20% hardship exception for the 20% of the people that really have back-bending jobs that need to retire at 62. we not only put in a provision for them but we fully funded it so they can still retire at 62. we took careñi of that. if paul had read it, he would

see that. >> i tell you, he's a brilliant guy. i wish i could meet with him. it would be nice if he could meet with us. i would love to visit with him. but i tell you when you see a guy who's really almost flunking the saliva test about what's wrong with america, you have to question his economic skills. >> i do question them seriously. >> rose: which part of... >> that you have to spend more, you have to grab great dollops of money out of this economy and shovel it in and you have to get the unemployment and just scoop it in by shovelfuls and just keep going and never look back. that's impossible. >> rose: i mean, one of the arguments coming out of the g-20 as both of you know, on the part of angela merkel and david cameron was that, yes, in fact, you can do spending cuts and grow the economy at the same time. you don't to say we have to grow the economy first and then we'll get to austerity later. their argument is you can do both. >> but one of the things we tried to do is to protect what

is a very fragile economic recovery. >> rose: the president's concerned about that, too. the federal reserve as well. >> everybody should be concerned about it. we don't have any cuts in wave the. we have only $69 billion worth of cuts in 2012. and a $14 billion economy: that's not going to have a big affect. but what it will do is send a signal to the markets that we're serious about deficit reduction. >> rose: what about private accounts on social security? what's your... >> you know, george bush went around the country on that and just like a hollow gong and he tried so hard and bob kerrey and i at one time proposed a little of that. we tried a lot of stuff. >> rose: when you sat about thinking about the things that you two... first question was it how you viewed the consensus of the commission or was it just simply what you two thought? >> i would say some of both. really we spend a lot of time listening to people so obviously that had a big affect on what al and i did. >> rose: and you two think the same thing?

>> absolutely. >> rose: there's no space between the two of you? >> none. not one sled. over the cliff, no parachute. there we go. (laughter) we're ready. it's great for a while, the wind in your hair... >> rose: (laughs) you've been watching too many movies. how much did you factor in as you thought about this what's politically feasible in today's political environment with a new republican majority in the house of representatives? >> alan and i didn't come here to get these nice editorials that we've gotten about how serious this proposal is. we came near do something. we spent eight months, the two of us, flying back and forth working with people. you have to take the political reality into account if you really want to get something done. but we tried to do what we would be proud of, what we thought was right. and we'd rather have a real proposal out there, we've got ten votes and some kind of marginal just bunch of ideas out there. >> we really made the pledge to

each other so that at this stage of life both of us thinking we've had a fair reputation. i do get my foot in it more than erskine ever did. >> (laughs) i don't know about that. >> rose: i'll grant you that. >> but we would go out with pride. that we did something that no one else has ever done. and they're picking that up. the editorial columns are picking that up. i don't agree... they'll say i don't agree with this or that but for heaven's sakes finally somebody had the guts to throw something out on the table and just let the whining begin. and that's where it is. >> rose: what did both of you think the president ought to do about the bush tax cuts? >> well, i tell you, that is to me... i hate to say this but i never thought it was a good idea in the first place. i thought the tax cuts way back there when they first did it was a mistake in this economy. and what was then the economy. but it happened and now i

don't... i'm not going to... they're talking about, you know, instead of $250,000 they're talking about a million. i just stay out of that one. that's for congress. we've got enough problems. >> rose: should the president as he has suggested certainly continue the middle-class tax cut shs? or not when you need revenue? >> well, if you give more tax cuts, you lose revenue. >> right. >> and... >> rose: $1.3 trillion, i would assume, isn't it? >> let me try to... first of all i don't think people like you and me need a tax cut, charlie. >> rose: no, that's true. >> i'm clear on that. what we have proposed is something completely different. we've said look, let's broaden the base, simplify the code, bring down rates, and cut the deficit. now, how do you do that magic? there are $1.1 trillion worth of tax expenditures, what i call spending in the tax code that basically benefit people like us. >> the top 1% of americans.

>> rose: we're talking about deductions that you can take advantage of. >> charitable deductions, mortgage interest deductions, deductions to state and local taxes. >> rose: and those things you are prepared to say no more? >> what we're saying is let's eliminate them and if we eliminate them let me tell you what we can do on tax income rates. we can take the rates to 8%, 14% and 23% and we can take the corporate rate to 26%. >> rose: from 30% down to 26%. >> where we can be the best place in the world to start a business, gok to a territorial tax system which makes a lot of sense. but most importantly we can get those rates down. no, if somebody comes back to us and says, oh, erskine, oh, al, we've got to add back in the earned income tax credit or we've got to add back the mortgage interest deduction say fine, how do you want to pay for it? whose taxes do you want to raise in order to pay for those deductions? that's what you have to do. we can get the rates down to 8% up to $70,000, 14% up to $210

and $23% the maximum rate above that. that's a good deal and we can c w that take $100 billion a year and pay down the debt. >> rose: you believe that the economic consequence beyond the deficit, lowering the corporate income tax, would be what? the corporate tax? >> i think if we get the tax rate down for corporations, america will be competitive. when our tax rate was put in, we didn't have a global economy. we didn't have competitors. my competitors in north carolina were in south carolina or virginia. now they're in china, they're in singapore, they're in brazil. we compete in a global economy. we have to have a global... we have to have a tax code that is sensitive to what goes on in the real world and if we have that, we'll create more jobs, we'll create more money flowing into the economy and it will be a better place to start and own a business. >> we're going to unleash a pile of scratch that those corporations are holding back. they're just looking around wondering what's going to happen

in this country. you've unleashed... what is it they have in there? $2 trillion? >> rose: it's in the trillions and the argument is that they are waiting to see what the regulatory landscapes look like, what the tax landscape will look like before they... >> and there are trillions of dollars overseas that they haven't brought back to the country which they would bring back if we had a territorial system instead of the system we had today. >> rose: tell me more about how the tax recommendations would work, because taxes will be at the center of this next congress. >> you know, we probably had more agreement on broaden thing the base and simplifying the code and bringing rates down and using some of the funding from getting rid of these tax expenditures to reduce the deficit than anything else we've done. on both sides of the aisle. what people disagree about is what do you add back. should you add back the earned income tax credit or the child tax credit? should you add back the mortgage interest deduction to preserve the housing industry? there are arguments on both

sides of that. >> rose: just take that one thing because i know that argument. do you believe that if you eliminate the mortgage deduction it will have an impact on the housing... >> it's interesting. they don't have a mortgage interest deduction in canada or in europe and they have fine housing industries. you know, i think it would have an effect but i think if you phased it in over time it would probably be okay. >> rose: so there was kind of a consensus about taxation. >> uh-huh. >> rose: where did the rubber meet the ground? >> i would say on the discretionary cuts that we have put forward. we have $1.4 trillion worth of discretionary cuts. there is significant difference on social security and whether it should be mainly out of revenue or of benefits. we have it as revenue about 43%, benefits 57%. and health is the other big area. that's the big...

>> rose: but most of that has to do with medicare? >> actually, a great amount of it has to do with medicaid. because... >> rose: and how does that work? >> because, you know, so much was done to take... to cut medicare in this bill that just went through the congress and so many more people have been added... >> rose: in order to add access. right. >> and i think the bill did a great job on improving access. i think where it does need improvement is while the democrats have lots of support that it does bring down costs of about $130 billion in the first ten years and $1.3 trillion in the next ten years, we've still got a $10 trillion problem. >> the thing about taxes is you have groups like grover norquist he and i don't agree on much and we've been at each other and i enjoy the spirited combat. but he just lays in the weeds to go to people and make them sign a pledge no taxes. and he goes to people like orrin

hatch and says "if you don't sign this pledge we'll do to you what we did to bob bennet." which was beautiful. bennet was a liberal. where are we? but when you can say to them you are really deceiving the american people when we can show you tax rates that have been reduced to 8% andñi 14% and 23%, i'm not listening to your babble on the other side, it's time to just cut them off. they become irrelevant. >> rose: peter orszag talked to me about the social security benefits cuts. he said the main flaw in the proposal of the security plan is it relies too little on revenue increases and too much on future benefit reduction. >> i think peter'd rather see the ratios at 50-50. he has said some good things about the progressivety in our plan. >> rose: right. >> but i think he'd rather see it more on the revenue side. >> rose: he's also a man who's on record saying the bush tax cuts for middle-class should also be eliminated two years from now because he thinks we'll need that trillion-dollar

revenue. >> peter's comments were totally appropriate. he was right on track that last comment within the last part of his statement. but the rest of it was very positive toward what we're doing. >> look, it's no surprise where we are you can't cut taxes, increase spending and think you're going to create anything but a pretty big deficit out here. we fought two wars, we put in a new prescription drug benefit in. so we've got a lot of things that have created this. plus we had this horrendous economic recession. and we've had to spent some money to get out of there. so it's easy to see how we got here. what we have to talk about is how can we end it? how can we get out of it? >> and if you tell people every dollar that's spent by this country we're borrowing plus 41 cents, i think it's 39 now, but whatever. i mean, that's something any american can understand. they understand that at the barstool in buffalo, wyoming. you cannot... every buck we spent we're borrowing 40 cents. this is madness. and they know this. so... >> rose: because they can't do

in the their own budgets so they know the country can't survive by doing it. >> you got it. >> rose: that's what they feel in their gut. >> and when those guys get there here and say "we're going to cut 40%." well, merry christmas, the drinks are on me. and if you can't compromise an issue without compromising yourself you're not a legislator you're just an ineffective totem. if you can't learn how to compromise an issue without compromising yourself go home. >> rose: okay. so tell me this out in the west where cars and trucks are very important. the how's a 15-cent gasoline tax increase... >> oh, i knew you were going to ask that. (laughter) >> because, let me tell you what we're just saying is under the transportation trust fund if you go over that, don't come to the feds and inject more money. and erskine says... >> basically we said it's either or. we are day to day spending more than we take in. so we said look, if you're going to spend that amount, let's pay for it. if you're not going to pay for it, let's cut the spending, that's pretty simple.

>> rose: you basically seem to say these are the kind of choices you have to make. you can agree and you can understand if you don't do anything there is disaster. you're going off the cliff. but these are the choices. so if you say to me you want this, you've got to give up this. >> right. >> rose: and if you say i don't want to give up this, then you have to find something else to give up. that ice what you're trying to make the country understand. >> we live in a world of choices and what we've tried to be clear that the problem is real, the solutions are painful and everything has to be on the table. >> and this wonderful congressman who i knew when i was here, he put one out the other day, erskine and i just kind of cheer leaded on the side. he said "wait a minute, i don't like a lot of this stuff but if you're going to reject something put something up there as to what you would do to replace your rejection." and boy that's called the rubber and the road. >> rose: at the same time there are people who look at this and say "okay, that's what we have to do." but they say "how did you come to $3 in spending cuts for every $1 in higher revenue?

why shouldn't bit $3... why shouldn't it be the reverse?" >> because the numbers guy... >> rose: okay, numbers guy, tell me. >> because i think we're probably... we also put a cap on revenue coming into theçó county at 21% of g.d.p. >> rose: that's right. >> and we think that's enough to take out of the economy. we want an economy that will grow and prosper.ñr and we think the problem is basically on the spending side and while we do want to increase revenue by lowering ratesçó andy cutting out these tax expenditures, we really want to focus on going to the main problem and the main problem is on the spending side. and that's why we proposed the cuts and we told people exactly how we'd pay for it. >> rose: do you believe that in the next congress coming to town in january they can find $100 billion in discretionary spending to cut? >> well, they'll start that way and they'll say "we're not going to stop there, we're going to go

to double that." and then the gears will begin to close around their ears and the grinding and the sound of rust... >> rose: you mean you've been there? (laughs) >> but let me tell you, three of these fine young men on this commission are going to be in positions of rare power. paul ryan... >> rose: he'll be chairman of the budget committee david camp head of house ways and means. >> wonderfully solid and... he's going to be third in the leadership. if. >> rose: and you think because they participated in this this commission they will be what? >> they will be able to tell people to cut through the fog. and i heard ryan speaking to durban the other day. >> rose: durbin is one of the people complaining about this 3 to 1 ratio. >> i know but they're talking and i heard ryan say to him-- without naming names-- he said "somebody of the new group said i'm going to get on the budget committee and do this." paul said "you can't possibly

get that done." so the sobering has started. they're up off the street now, they're standing by the lamp post and we've got them standing and we're going to sober them up. >> rose: one thing's... >> one thing's for sure, if they don't do it next year they can put it off for another year but i'm tell i don't go the markets will force us to act. there's no way we're going to have these deficits going out to the future. there's no way we're going to end up paying $1 trillion in interest costs. the markets are going to force us to be fiscally responsible. >> rose: okay. what happens between the release of this... what you two would recommend as you flesh that out and december 1? what's going to happen? >> we met for several hours today. we're meeting... >> rose: all 18 members? >> all 18 members. we're meeting for several hours in small individual groups andñi individually tomorrow and tomorrow we havenother all 18 of us come together. >> rose: and what's happening in these meetings? >> today we spent the whole time talking about what you're talking about today. discretionary cuts.

should there be more? should there be less? some people who wanted more i said fine, bring the specifics. we have $200 billion of specifics. you want to cut more than that you're going to have to show us more specific cuts. >> rose: you have said look, we've done the best we can and this is what we recommend. but we want... if we want 14 votes here, therefore show me a better way and i'm prepared to walk down that road. >> rose: and we're not going to wimp out on this deal. >> rose: wimp out would be saying we can't come come to some agreement. >> we may not. >> rose: but you think you've got 14 votes. >> no, i'm saying we're not going to wimp out and put together some whitewash that's just a bunch of principles. >> rose: right. i see. >> we're going to make sure that whatever we support we can stand behind and we can be proud of and to do that we've got to really address this deficit. >> we'd like to be able to use legislative language but we don't have the time to get that created. at some point that would be an ideal. >> rose: tell me one more time,

you have these meetings and you talk about discretionary spending, talk about the kind of feedback you've got since this is out there. >> we have the chairman's mark out there, we'll try to improve it, it will go through some changes but i guarantee you it's not going to be less than what we've already proposed. >> rose: and we're not bullying them. we're just saying look, we're not going to sign our names at this stage of life to a bunch of pap. just nothing that doesn't get it done. and is pushed to the side by the power groups in in town. as andy stern-- a good egg on the commission-- he said this city is not built for success. >> rose: so you guys really believe that in this case 18 people have come together? >> 12 members of congress. >> rose: 12 members of congress. >> six from each side. >> rose: and people who haveñi real influence in the congress. coburn. >> durbin. >> rose: durbin. they've all come together and they've got... there's a seriousness of sense that this

could be... you're looking at this as what's happened in this commission as a possibility for the first time. you've turned the road? turned the corner? >> when i said the era of deficit denial is over, i meant it. they all realize now that they can't deny this any longer, that they've got to face up to it. they may do more revenue or less or more spending cuts or less, but they're going to face up to it because they realize the problem is real. >> and i think we can... >> we call it the cruelty of making promises you can't keep. and that's a cruelty and that's what happened. >> it's like that social security promises. we can't keep them. it does run out of money in 2037. >> rose: all right. so what's been the response from the president so far other than to say i'm willing to work with the congress to get some of these things done? >> i think the president deserve a lot of credit for, a, appointing the commission and, b i think he knew that alan and i were deficit hawks when he appointed us to head this thing up, so he knew what he was getting in bed with.

and thirdly, i think his attitude to date has been great. he said, look, don't shoot down any of these proposals that erskine and alan have made, let's sure they get serious discussion and once you come up with the recommendation, bring them to me. >> i'm going to get ahold of biden who called me in january and said "al, i got a real deal for you." (laughter) you're gonna love this. "i said let me get ann on the phone, joe. you've bugged me before." >> rose: (laughs) i need a backup here. >> and then you've got steny hoyer over there. you have to have solid people on the other side. joe biden, steny hoyer. we have... it's not networking, it's just will you listen to us. >> there's been almost no politics in these meetings. people have checked their politics. >> rose: politics and go? >> yeah. ego, too. >> rose: okay, so you said to the white house i have spent more time listening to people in the opposition party than they have done as a whole group. what did you mean by that?

(laughter)ñy >> i think somebody that was tweeted? i don't know what it was. what i meant was... the truth, you know, the only way that you get to common ground is to listen to people, to meet with people, to really try to understand where we're coming from. and we had spent an enormous amount of time with republicans and democrats listening to them trying to come up with what we felt was a reasonable recommendation. that's all. >> i think jan that cow ski and i. >> rose: there you go, jan schakowsky. >> she bristled up. but let me tell you, she is who she is. and she was appointed by the speaker and she has some strongly held views. >> give her credit. today she came out with her own proposal. >> rose: exactly what... i have it flight my hands. >> but it's real. it's heavy on the taxing side and light on the spending side. >> rose: this is from the "washington post." "one of the most liberal members of president obama's bipartisan

deficit commission unveiled her on plan tuesday to balance the budget, keep social security benefits intact, make deep reductions in the pentagon budget and raise corporate taxes to target profits and excessive pay for chief executives." so you were saying... >> i'll talk with her. i don't know what will happen but... >> but you have to... you give her credit. >> you have to give her credit that she's done something real. it's not what alan and i... >> rose: so this is what you want. you want they want to get out front and say this is what i believe, this is what i do. >> she's recognized that we have to do something. people see this and they say how do you raise corporate taxes or how do you do this at this point in time? that's tough to do. >> rose: okay, so paul ryan said to me last night alice rivlin and i plan on putting out our own plan on health care hopefully this week. she and i are still talking about it so i don't want to get ahead of things. so you welcome that, too? on the table. >> rose:

>> paul and alice are going to come forward tomorrow with a premium support plan that we look forward to seeing. we haven't seen it yet and we look forward to seeing it. >> rose: the american people are looking at what in their future? >> they're looking at people who have decided to be patriots instead of getting reelected. >> rose: i'm asking what are they... okay. that's... does your political experience suggest to you that people are going to go that direction at this time? >> i think with what's happening in the world and at home and around the earth that with france and britain and everybody reads, they know about greece, they know these things that it's... at some point they'll say we can go no further, i don't know if this will work but these guys put something up and if we don't get anybody to go along, we won't say so and so does a minority report or a dissent. we're not into that, we're not blaming anybody. but for heaven's sakes, if you just want to sit and go through

this ritualistic business and the man behind the curtain saying things to the american public, notice what's happening. appropriate rateors are getting beat, guyss who have the purse strings are getting beat in congress. they used to be the guys who would come home and grace you with money. i just see people saying we're sending you there and if you don't do it we'll throw you out. in two years if these republicans are just obstructionists or whoever, democrat or... and they're going to play the ancient games the people of america are just going to pitch them right out again. and then i don't know where it goes. it gets into... >> rose: because we are in a moment. >> i think so. >> i think there are a lot of people in washington before this last month who really thought they'd be penalized if they made some of these tough choices. and they were specific. >> rose: a lot of people got penalized in this previous election. >> they did. and soy think people now realize they're going to be punished if they walk away from these tough

choices and if they don't make these really tough decisions. >> i think just two months ago, three months ago, that if a person did this they might be denied a leadership most the new congress... if the republicans took over and they found they had done... sullied themselves by doing something with the tax code or whatever that they would not get their leadership post. >> rose: how did we get here, erskine. you said we made promises we couldn't keep? >> charlie, it's frightening. we will be paying a trillion dollars in interest costs in 2020. i heard on the radio this morning just as a perfect example. china's economy is one-third the size of ours. yet they are investing in high-speed rail this year $100 billion. we're investing $9 billion. what makes me mad is that's our money they're investing. it's our interest on our debt. and where did they get that money? they loaned us the money to consume their goods that they were making over there. >> rose: right. >> that just won't wash in the

long term. we have got to get the economy of this country going. we've got to... you know, we can't grow ourselves out of this problem, we can't tax our way out of it. people who want to do just taxes you'd have to raise the maximum marginal rate to 80%. you'd have to raise the corporate rate to 70%. you'd have to raise the capital gain rate to 50% if you're just going to do taxes. we can't cut our way out of it. people say let's just cut the budget. if you just rely on deficit reduction through cutting and you want to exclude social security and medicare and defense and, of course, interest then you'd have to cut everything else by about 60% to 65%. you can't do that, either. what we've got to do is sdopl combination. alan and i have come out with a plan that's balanced, that takes $4 trillion out of the deficit over the next ten years. i think that's the kind of thing we have to do. and if we don't, the markets are going to force us to. >> you wanted to ask me that same question. >> rose: i do.

>> and i can tell you exactly how we got here. for the last 75 years we were sent to washington to bring home the bacon. and i remember in my second term in the senate i went back, somebody said "you haven't helped us out here get a new dam" or "a new visitor's center" or whatever. "new v.a. hospital." i said "no, i'm not gonna sign on to that. we already have one. we have this." "well, what kind of a congressman are you? what kind of a senator?" when you went home to your district you had staff around you and then your town meeting would say "do you have any question? " "yes, we need this and i hope you'll get it." and the person turns to the loyal staff person and says "write that down, we'll inject it as an earmark." i mean, the fun and games is over. you can't do that anymore. now earmarks, that's the... >> rose: that's over. >> but it'sç(j $16 billion. it's important we get rid of them, too, but it's not... >> but the point is that they

were sent to congress to get money and if they got it they were reelected. and as they got reelected time after time theyñi said there's a great way to keep this going, just bring more bucks home to the district. and that's where we got here and that's how we... that's where it happened. >> rose: and that's how the system became dysfunctional. >> you bet, boy. >> rose: but here is a piece in the "washington post" today. ezra klein. he says "here's the dirty secret that washington politicians know but they want to deny. voters don't care about the deficit and don't take it from me, take it from them. a cbs news poll found only 4% want the new congress to put deficit reduction first. that was far behind economics and jobs. 56% and health care 14%. that's why the simpson-bowles proposal is getting a lot of attention from budget wonks and policy writers but few endorsement from active politicians, even the ones who served on the commission." >> but when they do realize that the deficit and the debt is national security, it is jobs

because it will crowd the private sector out of the market it is education, it is infrastructure, it is high value added research. >> it's everything they love. >> it's everything they love and if we don't cure it, that money is going to create that next new thing over there, it's not going to be created here and the jobs of the future won't be here. >> that's what i tell them. what do you love? well, i love culture, i love education, homeland security. fine, by doing nothing these engines, these monolithic things of medicare, medicaid and social security will simply crush all discretionary spending. if that's smart, well then have a go at it. >> rose: thank you very much. pleasure to see you. >> you've done this to the two of us for decades. >> well, you have respect and people respect you. we're going to go out with respect. i don't know with we're going but that was another thing. >> rose: yes, it was.

we're still on the air. >> i know we are because reagan used to do that just to terrorize people in interviews. >> charlie, thank you for putting this on the table. >> this is critical that you have given us this forum and we try to stick together on it because we're totally committed to this. >> rose: thank you. great to see you. thank you very much. >> thank you. >> rose: thank you for joining us. see you next time. on the next charlie rose, the "new york times"ñi and ambassadr mcchain of "vanity fair" magazine lay out the narrative of how we got to the economic crisis we just went through. >> we wanted to tell the story of who created the key financial crisis and who were the key players as the collapse happened but rather the story of what created the conflagration in the first place. and that's a different story. >> there's no ticktock in our book about lehman brothers. >> rose: this is not andrew ross sorkin? >> right. this is not about what happened that weekend in september, 2008. we end before that and we start

30 years earlier and we say here are all the various things that had to happen, all the regulatory mistakes, all the mistakes in theñi subprime worl, all the mistakes on wall street. how they all came together. how they interacted to create this basically disaster. >> rose: where did it begin? >> well, we start... we >> we start with the invention... the modern invention of mortgage-backed securities in the 1980s because it really brings the key players on to the stage. it's the moment where wall street and the government come together to create the new market for mortgage-backed securities and like all things on wall street, it starts with the best of intentions, increasing the capital available for homeownership. >> rose: right. >> and it becomes something that ends in the worst possible way. captioning sponsored by rose communications

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