Dealing with the Country's Deficit
ALI VELSHI, CNN HOST: The government you want versus the government you're willing to pay for. Welcome to YOUR MONEY, I'm Ali Velshi; Christine Romans joins me in a moment to break down what cuts President Obama's bipartisan deficit commission is proposing. How it is going to affect you. But first I want to bring in CNNs chief national correspondent John King who hosts "John King, USA," airs every week night at 7:00 pm Eastern. John, the proposal calls for $4 trillion, $4 trillion in cuts to the deficit. This CNN National Exit Poll found that voters felt reducing the deficit was the highest priority for this next Congress, higher than creating jobs, higher than cutting taxes. John does this mean that a politician could actually get away with either raising taxes or cutting programs if it means a serious reduction in the deficit and a reduction in the debt?</s>JOHN KING, HOST, CNNS "JOHN KING, USA: " My friend, welcome to Washington. Yes, we wish that were the case. Already, you saw the initial reaction. From the left it was dead on arrival because it touches Medicare and Social Security. From the right it was dead on arrival because it has revenue increases, meaning tax increases. And so you have instant polarization, which is the reason we haven't dealt with any of these big issues whether it is the deficit or entitlements for about a quarter of a century now. Bill Clinton tried couldn't get much done, George W. Bush tried, couldn't get much done. Because both parties immediately retreat into their ideological special interest bunkers that is why they try to have this Ali it's like a base commission. You have to have an up or down vote in the Congress. They won't get a majority for this report for that. So we'll see going forward but the early reaction tells you quite a bit.</s>VELSHI: All right. But at least the discussion is happening and hopefully continues to happen. Let me just give our viewers a sense of the debt. The deficit is the yearly shortfall between how much revenue the government comes in and how much they spent. The accumulation of those deficits is the national debt. Here we are right now. Debt is about 60 percent. U.S. debt is about 60 percent of the GDP that is the size of the whole economy. That's particularly high. It's not double our normal historical levels but it is pretty high. Now look what happens under current law. If nothing changes, follow the red line with me. You'll see that our deficit -- our debt will continue to grow all the way out to 2040. We're going to be crossing 80 percent of GDP. But current law is going to change. Things are changing. If it did change based on policies that we're expecting, follow the light blue line with me all the way out we cross, we're getting to 200 percent of GDP. Can you imagine if your debt were double the size of your entire economy? I mean at 100 percent you're basically looking at bankruptcy. Now the Deficit Commission that we're talking about. Take a look at this. This is the dark blue line, under their proposals, if the proposals that they suggest go through you will see the debt actually dropping to under 40 percent of GDP by 2040. David Walker, you've seen him on our show. David Walker is the founder and CEO of The Come Back America Initiative, he is also the former U.S. controller general and he is a deficit hawk. David, for all the complaining about this whole thing, by 2040 if you enacted all the proposals in this commission you'd still be at 40 percent of GDP for our national debt which is higher than people think it should be.</s>DAVID WALKER, FOUNDER & CEO, THE COME BACK AMERICA INITIATIVE: That's right, Ali. In fact, when you look at truth in accounting, we're already over 60 percent of GDP with public debt you mentioned. That's only the second time in the history of the United States we've been that high. The only other time was World War II. If you count what we owe Social Security and Medicare we're 92 percent of GDP already. We're only three years away from where Greece was when they had their crisis. We have a problem. The fact the far right and the far left have a problem with the proposal is good news because the answer is in the sensible center.</s>VELSHI: Christine, there are a lot of cuts here. John was saying this is why everybody gets into their ideological bunkers. Let's talk about cuts; defense gets cut just like everything else. To bring military savings up to $100 billion in 2015, here is what the panel is recommending. Freezing pay, including noncombat pay in the ranks, cutting procurements, the military actually ends up buying less and closing overseas military bases by a third. That's the Pentagon side of things. Take a look at domestic spending. The panel is recommending freezing government pay by -- freezing government pay and cutting the workforce, the government workforce, also eliminating all earmarks. This is what the critics have called pork. Although as we know, earmarks don't amount to a whole lot of difference in the federal budget. Then there's the issue of taxes. The panel says to reform and simplify, cut tax rates into three rates, but also cut important some deductions including for many people with big mortgages the mortgage interest deduction. There is also a proposal to raise the gas tax by $0.15 a gallon. Christine, the president asked for tough cuts. Everything had to be on the table. This is going to be a hard sell and its alienated people with any of these interests.</s>CHRISTINE ROMANS, CNN HOST, YOUR MONEY: It has. And I agree with David Walker that so many people are alienated and it shows that maybe they struck a nerve here. How does the president sell it? In one way it maybe gives the president and Congress some cover, if you can get this commission to propose these tough cuts and sell it to America people and if you look we've got to do this. But listen here is what budget analysts say, if you don't do this now, take for the gas tax, for example, you won't have a job to drive to in 25 years where you're putting gas in your car or you won't be able to afford the car to put the gas in. These are the things that have to happen now so we can have a vibrant economy down the road. We have to pay for what we have already spent and make sure that we do it in a way that doesn't hurt economy and recovery right now but and the time has come. That's what the president and Congress have to sell to American people.</s>VELSHI: Diane Swonk is the chief economist with Mesirow Financial. Diane we have a few issues here, we want to make sure that this commission doesn't end up like the 9/11 commission where nobody does anything. But that danger really does exist. They were told do what you have to do to figure out an answer to this debt and deficit question. Did they overreach to the point, as John suggests, it might be dead on arrival?</s>DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: You know I think no matter what they did was going to be dead on arrival. I think John points out something really important, what the American people think they want and the reality of what that actually means for their lives are two different things. The gap in bridging that is very difficult. And in fact I agree with David I mean I still think the commission fell short in terms of what they could have done. They didn't want to overkill and sort of go where they thought they really needed to go to deal with the real structural deficit out there. This really doesn't have much on entitlements over the longer haul. But on the other side of it they were trying not to go so far that they wouldn't get any negotiation. At the end of the day, the background research on this Pull and Pearson Research (ph) says we need have new budget accords; we need to have new rules that Congress has to act. That's what is lacking in all this. We can have all the commissions in the world and point out the commissions to advise us but if we don't have rules in which we have to get Congress to actually be disciplined to have a discussion, they are going to continue to act like children. I really am kind of ready to give the whole Congress a time-out at this point.</s>ROMANS: A time-out. But if you could somehow so that when they overspent they have automatic tax increases. Right, Diane? You automatically have triggers that when we --</s>SWONK: Spending freezes. Absolutely.</s>ROMANS: So that they had to -- that would also give them the political cover as well. They could say to the constituents, look, these are the rules. Because nobody wants to take the blame at the voting booth for actually doing the things that the people at the voting booth say they want done.</s>VELSHI: One of the things that is going on here, a proposed increase in the retirement age from 67 to 69. We saw what's going on in Europe, in England, protests --</s>SWONK: But it is over decades Ali. I mean -- come on, how much lower can you do it?</s>VELSHI: People who are going to be affected by this will have 30 or 40 years to plan for it.</s>SWONK: Yes.</s>VELSHI: John, who carries this ball and tries to get it through Congress?</s>KING: The president says he will carry the ball Ali and he says he will try to get both sides to listen. Look this is a town that is dictated by the politics of the moment. And something just happened in the midterm elections that I believe is a significant obstacle unfortunately to having a grown-up conversation about the issues you're talking about. And that is for the first time Republicans won the elderly vote, the senior vote by a big margin, it was a huge shift toward the Republicans. So will they the Republicans who have said that reforming Social Security and Medicare is critical to deficit reduction and long term structural fiscal sanity in Washington will they now be willing to take the risk of alienating those voters they just won over. If you're the Democrats you just lost the elderly vote, you have long said you wouldn't do this, you would stand up and fight this, well you now think the way to get them back is to say no, we will not raise the retirement age, no we will not subject more income to taxation. Short-term politics of this are unfortunately right in the middle, right in the way, a giant speed bump if not road block.</s>VELSHI: OK, hold the thought. We're going to take a quick break; we're going to continue with all of you here. Let's continue this discussion. We know we have to cut the deficit but why? What would change in your life if we did not actually do anything about this? I know David Walker has some thoughts on this so does Christine. We'll talk about that in a moment.