tavis: good evening. from los angeles, i am tavis smiley. united conversation with sheila bair about -- tonight a conversation with sheila bair about deep budget cuts that went into affect this weekend. debate is raging in the country. we will try to make sense about what this means for you. we are glad you joined us. a conversation with sheila bair is coming up right now. >> there is a saying that dr. king had that said there is right thing.

by doing the right thing. to completely eliminating hunger and we have work to do. fighting hunger in the u.s. as we work together, we can stamp hunger out. >> and by contributions to your pbs station from viewers like you. thank you. tavis: is no stranger to the budget battles of have dominated washington politics. she was head of fdic and champion homeowners during the worst early days of the ongoing economic recession. sheila bair has been looking at

the mandated $85 billion cuts and assessing the impact on our country's fragile recovery, which is not much of recovery for so many citizens. sheila bair joins us from washington. >> i am happy to be here. tavis: let me start by asking if this was necessary. it seems like a bad idea. this sequestration process. was it necessary? >> no, we go from one fiscal crisis to the next. the sequestration was designed to be a bad thing. it was designed to be a gun to congress's head to get a long- term fiscal plan in order to put us on a sustainable path. it was meant to be a punitive thing, so members of congress would want to avoid it, but because of the continual this

functionality of elected officials, they have not come to a resolution, so now we have sequestration. >> if it was a bad idea to begin with, why would the president of the united states and congress agree to this in the first place? >> i think there is a broader recognition. our spending is on an unsustainable path. we cannot continue these huge deficits, so we have to get spending and revenues to a new equilibrium and on a sustainable path. the problem is if we do not do sequestration, there is nothing else to do, and there was an agreement to have a combination of spending cuts and revenue increases. we have some revenue increases with the fiscal cliff discussions. now the president is saying i

want some more revenues, and both probably have legitimate positions in their own ways, but they are just talking to each other and not getting it done. there is nothing to replace it with. our fiscal situation is not sustainable. tavis: there are two or three things. in no particular order, you reference the fiscal cliff conversation in january. i could not have asked this question a couple years ago when you were in the fdic's share. your mind, how much of this is about politics? that is to say the president was reported to have clean the clocks of the republicans in the fiscal cliff negotiations, and everybody knew then when it came to this point, the republicans were going to look to exact some revenge, so we are asking

whether or not you see politics all over this. >> i did see politics over this. i think politics are on both sides. there is legitimacy as well. i think the republicans are right. you need something on the spending side. democrats are right. you need something on the revenue side. it needs to be a combination. both sides are trying to make the other side look like the culpable entity. instead of just coming to the table like grown-ups and getting a resolution to this. about $85 billion this year. not reduce spending will be more like $42 billion, because some of the money would not have been spent until 2014. we have got a 2.5 trillion dollar budget, so that is of a big number, but it is not huge compared to the total budget.

the problem is the way sequestration was designed, the impact of those cuts are a very small piece of the budget, so looking at this, the entire landscape of our budget is to come up with this amount of money, and to assume some kind of revenue increases or spending reductions. it should not be that hard to do, but when you are trying to play the political advantage, you do not want the other guy to look good, and if you come up with a bipartisan agreement, maybe everyone looks good and that does not serve partisan purposes. i have to blame both sides. i think neither has been as adults as they should be, and our country is suffering as a result. >> inside the beltway there has been media spin that may be the president has overplayed his hand. there was an op-ed piece in "the

new york times." they have a debate about this issue. they believe the president overplayed his hand, in part because the impact of these cuts are on a small slice of the budget. no. 2, or people are going to be impacted, but they are not going to feel the worst in front of this, at least not initially, so the president is holding these press conferences, so has the president overplayed his hand on this issue? we will come to republicans in a moment. >> there may be some truth to that. i think the impact will not be immediate. it will be over time. i do not think the president is overplaying his hand in that regard. maybe in terms of setting up expectations, there is soaring

to be an immediate terrible crisis. that is not what will happen. this is going to be gradual, but it will be painful. to cut spending and to deal with a meat ax, to not make any judgment about where we are getting better efficiencies. he is right to say it is very bad, and sequestration was designed to be bad, but the immediate impact will not be severe, so that might create some credibility issues. i think both sides the rhetoric is so he did in makes it harder to come to the table and get an agreement, so on that score, i think understating the impact or overstating the impact with a lot of the red hot rhetoric, it makes it difficult to take a deep frbreath.

the numbers we talk about are not insignificant. if you looked at spending and additional revenues as well, it should not be hard to figure this out. tavis: if the president gets things for overplaying his hand, dingedepublicans againss get for shutting down the government? >> i do not think they are going to shut down the government. certainly, over time the impact of the sequestration cuts are going to be very focused and concentrated in certain discrete areas people rely on, so i think they have some vulnerability, and this is so unnecessary. the reason i do not like to say it is one side over the other, at the end of the day they are all accountable for running the country. republicans and democrats have responsibility to govern, to

manage our budget responsibly, and to manage our fiscal situation responsibly. at the end of the day they are not doing their job when they get into situations like this. tavis: i had alice on my radio program, and we had a spirited conversation about our disagreement. they disagree about one fundamental issue, and i want to get your take on this. it is not just the two of them. there are many of us whether or not the time is right for deficit reduction there are a lot to think the president has sold out by going so far into this conversation in a horrible economy. krugman would argue this is not the time to talk about deficit reduction. where did you come on that debate? >> i think there are things we could do that would not increase the deficit problems. i wrote in "the new york times"

this week where i argued key areas would be tax reform, a lot of which benefit upper-income people for no good reason, the lower rates we applied to investment income. i think having tax reform would get our economy going. it would be done in a way to reduce revenues and lower rates for everyone by getting rid of these loopholes. i think it would help get the economy going, which would produce more revenues. another area is infrastructure. there would be no time in history where you would have the ability to find long-term infrastructure programs. construction costs are very low because the economy is very

weak. it is fiscally irresponsible not to be issuing long-term debt to repair infrastructure, and that can be paid overtime through special taxes. there is a way to generate revenue to support infrastructure improvements in a way that would not increase the deficit, so those are two areas where we can take action to help our economy get back on its feet in a way that will not exacerbates long-term fiscal problems, but this idea of the government is too big, cut it back. the government is too big now, slice it back, that does not afford to help anyone, especially when it is done this way, when you are not making judgments about what is helpful. you are taking a meat ax to the budget which though differentiation between what is good or not. i love the suggestions you made in the op-ed, one of which we just talked about,

which is about the tax code and how some of our tax policy, a good part of our tax policy benefits those who do not need it as much as those who are disenfranchised economically and are suffering the most. i raise that to ask why it is we cannot get anyone in washington to have a real conversation about that. my sense is washington is bought by wall street and by a big business. i know we do not always agree on that particular issue. how much about not getting serious about fast, why does that conversation never get off the ground in washington? >> i do all these breaks in the tax code. they have a lot of lobbying money behind them and want to protect them. some of them have broader popular appeal like mortgage

deduction. i would like to scale back like with a tax credit, that gives equity in the home, but the most egregious example of a special break that i have not seen any good economic literature to support it is the lower rate we applied to investment income. as i said, the manager of a hedge fund can pay half the rate of the manager of a shoe store because of these lower rates we applied to investment income, so if you make lower money through wages, you can pay higher rates, but if you make your money through investments, it has 15% -- going on to 20%, but that is half of what it was for wages common so the rationale for this is we need this investment income. we need to encourage investment so it will create jobs.

there is no credible economic evidence that is the case, and what you have is a lot of people trying to make money to invest, trying to structure income to qualify for these low rates. it is wasteful. there is a study that shows by the year 2020 we will have 900 trillion dollars of investment capital sloshing around the world, supporting our real economy of 90 trillion dollars gdp. we have way too much investment already. we do not have enough jobs, so taxing wages at a higher rate than investment makes no sense to me at all. for middle income people that get a little investment income, there are ways to deal with it by shifting the first several thousand dollars from tax. that will be fine with me, but these hedge fund managers paying

14% or 15% tax on vested income, i think it is outrageous. >> in lead me ask how is the notion of austerity, what ever people in washington do not want to call it, that is what this is. this is austerity masking as a conversation about deficit reduction as far as i am concerned, but how did the conversation gets higher on the agenda than jobs with a living wage for citizens? i have not heard as much talk about that as sequestration or austerity cuts. but we have not. i need to see both sides on this. i think two of the biggest issues are immigration reform and gun control, and i am with him on both of those.

there has never been as big of a focus of her should be on jobs and economic policies but will create jobs, and i know there has been resistance on the hill. there has been resistance from republicans on some proposals, but i do think at the end of the day -- ratigan always had a group of democrats he could work with to get votes, and now linkedin had a team of rivals. -- klincoln the team of rivals. mr. obama needs to find that working center that can get this country moving forward. it is all about economic growth. it is all about jobs, and the economy is not performing well at all. it is pretty much right on its back. get a lot of improvement comes from people dropping out of the work force, not from the creation of jobs. even when we do get a job creation, they tend to be lower paying jobs.

real income is only going up for the top 1%, so this needs to be a singular focus for republicans and democrats. it is amazing -- it is debasing what our country is about. making sure the rich people do not get these special breaks or corporate do not get special breaks, that is fundamental fairness, and you can lower everyone's rates, and ultimately, and whether special interest wants to admit it or not, it will bid in the interest of the economy and their interest as well, but we need to get a governing coalition to do that. i think the president should look more strategically and republicans he can work with. i remember stories of reagan visiting members of congress in their office personally to give

their support and willingness to work with him. >> he is taking that criticism on the chin for his first term, so how many times you or others say that, spend time with them, play golf with them, he is not changing his strategy. i do not know what that is about, but there is no evidence. >> the republicans have not treated him well either. there is blame on both sides, but i think being strategic about this, trying to reach out to republicans in swing states, people that have more moderate voting records, that are willing to vote independently, i think those are the folks he needs to make a concerted effort to deal with, and i am not sure they have been as strategic as they should be on this. it is interesting. tip o'neill and ronald reagan had a good working relationship.

tip o'neill was speaker of the house, but one reason he worked well with ronald reagan is he knew there was a good block of democrats that would vote with ronald reagan, so it gave the opposition leadership an incentive to work with the president, knowing he has swing votes, so i feel we need to get strategic and tactical about this, and i know it is easy sitting in a studio, but it is the best advice i can give because we do not have government coalition. we do not have a center that can move this country forward, and produce good legislation, and we need it desperately. >> the one thing washington does not need desperately as another paper about how to fix the problem. go the paralysis of analysis, as one of my friends says. i raise that, because i am curious as to why when we do have these commissions with

outstanding americans to know this well, you reference to the plan, and i think simpsons- bowles, they are not that different in many recommendations they make, but the president commissioned simpsons-bowles. he put it on the shelves. it has been collecting dust. no one took it seriously. my question is why do we have these ideas in these reports that include sequestration, but nobody has taken seriously? >> they were both good plans. inre's a lot of overlap similarity, lowering the rates for everyone. they would have taken the rates down to 28% and much lower for low income folks, so that would have been a huge benefit, and i would love to see that happen.

there is a lack of process any more. washington does not work the way it used to. he used to have a process with these issues. 1983 is a good example. i worked under bob dole. i remember in 1983 there was a bipartisan commission he was involved in, and they produced a bipartisan recommendations for getting social security fix, which was going to run into serious trouble in the near term, and it worked. it was a combination of tax increases and benefit cuts, and it worked. it put the system on a solid footing for 30 years, and that his how the system used to work. you make these recommendations. we do not have to process any more. there is so much distrust. even the best ideas are put on the shelf to gather dust. people are too busy fighting

each other to lead. congress, the president, their job is to govern this country, and they are not doing their job. >> look in your crystal ball and tell me the reason there is no conversation in washington as we speak tonight is because there is no pressure to do anything at the moment as far as i am concerned. if the cuts are going to kick in and immediately and are not going to hit the poor and disenfranchised, help me understand what is the reason for them coming together at the moment, now that we are already in this, what is the reason for solving the problem? >> they need to fix it. why wait until it reaches crisis proportions when it is already starting to have a big drag now mong? tavis: that is how washington works. >> jumping from one crisis to

the next and last the problem is right in front of you and you have to deal with it, not being able to make a decision and if businesses are run that way, they would have disastrous results. you want to send your kid to college, you want to make a down payment on a house, you think several years in advance, and congress needs to do the same thing. the frustrating thing is as we launch from crisis to crisis and you have patches to deal with short-term problems, short-term emergencies or long term problems like infrastructure, like our educational facilities not doing what it should, like our health care costs, for excessive to what we are spending, those long-term problems are not getting solved the way they should, so we need to think long term, but right

now washington is not doing that either, and i think this is an important message for your viewers to communicate to their elected representatives and their congressmen and to write to the president as well and let them know, you are tired of finger-pointing. you do not care whose fault is. they have a job now. do it. make some decisions, and get things done that are for the benefit of the country. tavis: i have more questions, but i do not have more time. thank you for your time. good to have you on. that is it for tonight. thank you for watching. as always, keep the faith. today's show, visit tavis smiley at pbs.org. tavis: hi, i'm tavis smiley. join me next time for a conversation with actor matthew fox about his new film "emperor," and takes place

in japan at the end of world war ii. king had that said there is always the right time to do the right thing. i try to live my life every day by doing the right thing. we know that we are only halfway to completely eliminating hunger and we have work to do. fighting hunger in the u.s. as we work together, we can stamp hunger out. >> and by contributions to your pbs station from viewers like you. thank you. thank you.