full transcript of the 2010 fiscal summit

1-800-FOR-DEPOAlderson Reporting Company

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4 2010 Fiscal Summit

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8 America's Challenge and a Way Forward

9 Sponsored by the Peter G. Peterson Foundation

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13 Ronald Regan Building

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17 Washington, D.C.

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19 Wednesday, April 28, 2010

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1 M-O-R-N-I-N-G S-E-S-S-I-O-N

2 PETER PETERSON: Good morning and welcome to

3 the 2010 Fiscal Summit. I look at the great minds

4 around this room and am truly humbled, although I know

5 there are many who doubt such a thing is possible.

6 [Laughter.]

7 PETER PETERSON: It is our hope that we can

8 come together in this summit and make progress on

9 reaching consensus in three main areas. First the

10 nature and magnitude of our fiscal challenge. Second,

11 the future -- the nature and general direction of

12 solutions. And third, how do we educate and activate

13 American citizens to do something about it?

14 We've got all kinds of ideas and ideologies

15 represented here today. While we may not agree on a

16 whole lot else, but most of us agree on one thing, our

17 present fiscal course is unsustainable. At a time of

18 multiple bailouts, one uncomfortable thought lingers in

19 the back of our minds, who's going to bail out America

20 if our policies continue to stumble down this

21 unsustainable path?

22 Now some of you know that this is an issue


1 that's close to my heart. I've written four books on

2 it. I've been boring people with it for decades. In

3 fact, Ted Sorenson said of one of my books, once you

4 put it down, you will not be able to pick it up.

5 [Laughter.]

6 But I believe the issue we address today has

7 become more urgent with time. The real purpose of

8 today's summit is to listen to you, but before that I

9 simply would want to summarize some views of our

10 foundation.

11 First, it is important to clarify how we

12 define the problem. We make a very important

13 distinction between current budget deficits and our

14 longer term structural deficits. Contrary to some

15 perceptions, the short term deficits are not my primary

16 concern.

17 We understand the urgency of people's

18 economic hardships, the painful effects of high

19 unemployment and an urgent need to create jobs. It's

20 the longer term structural and unsustainable deficits

21 that are pushing those of us in our foundation up the

22 fiscal Richter scale.


1 In the Nixon White House we had the

2 economist, Herb Stein, who was also a humorist, though

3 I know some of you may find the term Nixon humorist an

4 oxymoron.

5 He used to say, if something is

6 unsustainable, it tends to stop. He also said, if you

7 horse dies, I suggest you dismount.

8 [Laughter.]

9 We keep acting as if we can ride this horse

10 indefinitely. We at the foundation think it's time to

11 dismount and address this challenge before a crisis

12 occurs.

13 Another concern we have are ballooning

14 interest costs. In only 12 years interest costs and

15 entitlements alone would consume 100 percent of the

16 projected revenue. These huge interest costs would buy

17 us nothing and would crowd out critically needed

18 investments in a much more competitive world. I'm

19 speaking of more of R&D, education, and desperately

20 needed infrastructure. In effect, what we would be

21 doing is spending our children's future rather than

22 investing in it.


1 It is also important to recognize that by

2 addressing these issues soon, we can make decisions on

3 reforms fairly, thoughtfully, and with compassion. In

4 a crisis, the government could be forced to make

5 changes urgently endangering the important social

6 programs on which so many Americans depend.

7 As the very lucky son of Greek -- of

8 American, of immigrant parents -- I decided not to

9 focus on the fact that they were Greek given the

10 current financial situation there.

11 [Laughter.]

12 I am deeply concerned about preserving the

13 social safety net for those in need. And make no

14 mistake about it, no so-called safety net can be

15 considered safe in times of genuine fiscal austerity.

16 Call it generational theft, or even fiscal

17 child abuse. But beyond the numbers, what would these

18 burdens mean to our kids and grand kids? We need to

19 ask ourselves, not just is that sustainable, but is it

20 moral?

21 What does it mean to burden our kids to an

22 unconscionable doubling of their taxes? And we're not


1 just talking here just about money. Debts this large

2 could bring about a radical change in this nation. A

3 change in the very idea of America and what it's all

4 about.

5 For the first time in our history,

6 generations of Americans could be facing a future less

7 bright than the past. For our kids, there would be

8 fewer jobs, greater burdens, more insecurity, and

9 diminished dreams.

10 And what of the American ideal? Since the

11 first explorers set foot on this country, Americans

12 have believed that this country of ours is an

13 exceptional place with exceptional possibilities in

14 store. We have lived on the basis of ever expanding

15 horizons. Without that, what would America be?

16 Politics in this democracy of ours has always

17 been a tough business. We bemoan the loss of civility

18 in our day, but imagine how much more brutal our

19 politics will become when they are a fight among

20 factions simply to hold on to their piece of the a

21 shrinking economic pie.

22 And what of America's leadership in the


1 world? For a century now the world has looked to

2 America to light the way and keep it safe. But how can

3 we lead effectively when we are more and more in hock

4 up to our eyeballs and higher to nations that may have

5 very different interests at heart? There's an old

6 saying that running into debt isn't so bad, it's

7 running into creditors that hurts.

8 For those of us that genuinely believe that

9 the world still needs America's leadership, for those

10 of us who truly care about leaving a better country to

11 our kids, we have no alternative but to get our

12 economic house in order. If America can no longer be

13 America, who can be?

14 So how do we undig this hole we find

15 ourselves in? First, we at the foundation believe that

16 everything should be on the table. Of course

17 expenditure cuts must play a major role but some have a

18 tax aversion syndrome. They've never met an increase

19 they didn't hate, and do everything in their power to

20 stop it.

21 To me, that is simply an untenable position

22 both fiscally and politically. Given the sheer


1 magnitude of he imbalances that we face, addressing

2 these without any revenue increases simply doesn't add

3 up. Doing so would devastate important social

4 insurance, and other important governmental programs.

5 Though there needs to be adjustments to it,

6 the social contract is part of the fabric of our

7 society and any set of solutions should recognize that

8 the core of these programs must remain intact

9 particularly for those who need them.

10 Meanwhile, some seem to have an entitlement

11 fixation, they have never met a universal entitlement

12 program they didn't fall in love with. But with a

13 rapidly exploding population of elderly who are living

14 much longer than ever before in human history we have

15 to ask, if all of us are on the wagon, who is going to

16 pull it?

17 We keep being told that Social Security is

18 "solvent" for another 30 years or so because of the

19 $2.4 trillion of assets in the trust fund. You didn't

20 hear it, but I was putting quotation marks around the

21 word, assets. That's because these so-called asset

22 have already been spent for purposes and even in


1 Washington, you can't spend the same money twice.

2 I believe that there are approaches to

3 reforming Social Security that are compassionate, fair

4 and reasonable. And if we act before a crisis occurs,

5 effective reforms can be implemented that are sensible

6 and which will preserve this indispensable social

7 safety net for those who depend on it.

8 For example, we would suggest for

9 consideration some combination of gradually increasing

10 the retirement age, indexing it to longevity, and

11 reducing benefits for the well off through what I call

12 an affluence test or progressive wage indexing. Then

13 one could also lift the payroll tax cap.

14 If we could address Social Security reform,

15 it would provide a much needed confidence builder with

16 our valued foreign lenders so they don't lose faith

17 that we can manage our own fiscal affairs.

18 However, addressing Social Security only

19 solves a small part or about 10 percent of the overall

20 fiscal problem. Health care costs in the U.S., on a

21 per capita basis are double those of the rest of the

22 developed world with no appreciable differences in


1 outcomes. Health care costs are the big elephant that

2 could bankrupt our economy. They serve the highest

3 priority on the fiscal agenda.

4 Now in order to really have a major impact on

5 the newest cliche, bending the cost curve, we believe

6 we must address many basic health care cost drivers

7 that have hardly been reformed at all. Take the fee

8 for service payment system. If you hired a roomful of

9 economists and told them to come up with a highly

10 effective incentive to inflate costs, I don't think

11 they could come up with something this perverse.

12 There are other largely ignored health care

13 cost drivers. End of life, where a disproportionate

14 amount of spending occurs, our counterproductive

15 malpractice system and how to expand the use of

16 integrated clinics which have both improved outcomes

17 and reduced costs.

18 The recent health care legislation put in

19 place two mechanisms that have the potential to both

20 foster much needed implementation of those reforms

21 which have been tested and provide much needed research

22 and experimentation for those that haven't, the


1 Independent Payment Advisory Board and the Innovation

2 Center.

3 But the real question is, will we have the

4 political will to tap this potential? Can the culture

5 of health care in America be transformed to one focused

6 on value?

7 There are a few other reforms that should be

8 on the table for consideration. A progressive

9 consumption tax that not only increases revenue but

10 also increases savings. Increasing our savings is a

11 nation imperative.

12 And energy or carbon tax to reduce our

13 dependence on foreign oil and foreign lending and

14 respond to the environmental challenge. So-called tax

15 preferences which aggregate to about $1 trillion a year

16 I can also understand why the American people

17 believe that there are significant savings to be found

18 in a defense budget hat is larger than Europe's,

19 China's, Russia's, Japan's, and much of the rest of the

20 world combined. Finally, budget controls like the pay-

21 go rules and spending caps of the 90's work.

22 Once this recession is behind us and more


1 Americans are back to work, we need to immediately

2 begin to implement these kinds of reforms. In sum, we

3 believe in timely action.

4 It is because we don't want to see our

5 futures diminished. Because we don't want financial

6 necessity to force radical disruptions in our way of

7 life. Because we don't want to see the safety net

8 frayed that we believe we must act now with moderate,

9 fiscally conservative and socially compassionate

10 reforms.

11 But how do we get there from here? This

12 after all is a nation whose enthusiasm for shared

13 sacrifice is rather restrained. I've heard it said

14 that we spend like Socialists but tax like

15 Libertarians. Our special interest politics seem to

16 operate on one imperative, give us more. It's part of

17 the culture, I want it all and I want it now, and I

18 don't want to pay for it.

19 But we believe there are other interests and

20 other constituencies that can transcend the more now

21 syndrome. They are the growing ranks of those who do

22 not identify with either party and for whom spending is


1 now the number one issue when they go to the ballot

2 box.

3 Maybe the most important general interest

4 group, however, is the young. After all, they have the

5 greatest stake in the future. The status quo is a raw

6 deal for them. Yet right now, too many are like the

7 student in the philosophy class when asked which is

8 worse, ignorance or apathy he mumbles, I don't know and

9 I don't care.

10 [Laughter.]

11 Our CEO, Dave Walker, will speak more about

12 engaging other constituencies. While some people may

13 see me as a Dr. Doom of the deficit, I'm actually still

14 hopeful. America has faced worse challenges before.

15 In the aftermath of World War II, our exhausted nation

16 confronted a public debt of over 110 percent of GDP,

17 twice what it is now, and a world economy in shambles.

18 Nevertheless, that generation managed to

19 reduce the public debt to less than 30 percent of GDP

20 while simultaneously launching and paying for the GI

21 Bill, the Marshall Plan, the UN, and building the

22 interstate highway system and other major


1 infrastructure.

2 They did it with courage and commitment, and

3 a positive vision of a prosperous nation at peace and

4 so can we. We also need a positive, optimistic vision

5 of what an economically healthy and growing America

6 would look like and what it will mean to our kids and

7 grand kids.

8 The adventure of America has only just begun.

9 We can open a whole new chapter of innovation and

10 growth. If we unencumber ourselves of our massive

11 debts and promises, our future can be ever larger.

12 And maybe most importantly, we will be able

13 to look our kids straight in the eye, feel proud of the

14 work we've done, and have confidence and hope in the

15 world we are handing off to their care.

16 We are the most resilient of countries. We

17 are the most entrepreneurial of countries. We are the

18 most innovative of countries, which is just what this

19 competitive new world requires.

20 If, and that if is much of what our

21 discussion will entail. If we provide the resources to

22 invest in this country's indispensable assets and in


1 our future. I say, yes we can. Let me change that,

2 yes, we must. Thank you all very much.

3 [Applause.]

4 [Musical interlude.]

5 MICHAEL PETERSON: Good morning. I'm Michael

6 Peterson, Vice-Chairman of the Peterson Foundation.

7 I'll be taking you through our program today, but

8 before we being a brief note about our foundation and

9 why we're all here.

10 What we confront and how we address it

11 impacts my generation and future generations of

12 Americans. That's what this foundation is all about.

13 We're dedicated to preserving economic opportunities

14 for tomorrow by making wise fiscal decisions today.

15 From our perspective, the problem we face is

16 inherently nonpartisan. It's about math. It's about

17 the realities of debt and credit. It's about investing

18 in the future versus consuming today.

19 When it comes to solutions and reforms on the

20 other hand, there will be many views and opinions from

21 across the political spectrum. But this foundation is

22 not about pushing a particular program of reforms.


1 Rather, we see our job as increasing

2 awareness and accelerating action. What the Peterson

3 Foundation is really about is doing exactly what we're

4 doing here today, bringing people together to start

5 building a consensus on a way forward. We hope to help

6 build a respectful and informed national dialogue.

7 To begin that dialogue today I will now

8 introduce our first panel. I can just imagine both of

9 our next speakers a few months ago enjoying a pleasant,

10 relaxed, and civil life outside of Washington, D.C.

11 That is, until they get a phone call from the President

12 asking them to serve as co- chairs of the National

13 Commission on Fiscal Responsibility and Reform.

14 I'm not sure there's a more perilous

15 assignment then this one. This past weekend they even

16 described their role as jumping out of a plane without

17 a parachute. But I am sure their job is critically

18 important.

19 And we'd have trouble finding a better team

20 to lead such a Commission then two men with a history

21 of reaching across the aisle to get things done. Alan

22 Simpson and Erskine Bowles are principled leaders who


1 have consistently put their country before now partisan

2 interests.

3 Mr. Simpson represented Wyoming in the U.S.

4 Senate for nearly 20 years, rose to the post of

5 Republican Whip and took the lead on contentious issues

6 such as Social Security reform. As White House Chief

7 of Staff under President Clinton, Mr. Bowles helped

8 broker a budget deal that paved the way for the

9 nation's first balanced budget in 30 years.

10 We applaud President Obama for establishing

11 the Commission, and we especially credit him for

12 choosing these two great Americans as co-chairs. They

13 have already demonstrated that they are a team and are

14 leading the way on the bipartisanship that we so

15 desperately need. And who better to direct this

16 discussion then Lesley Stahl of CBS News.

17 Please welcome Alan Simpson, Erskine Bowles,

18 and Lesley Stahl.

19 [Applause.]


21 LESLEY STAHL: Hi everyone, thanks for

22 coming. First I want to ask Alan, how's your knee?


1 ALAN SIMPSON: Well it's new.

2 [Laughter.]

3 ALAN SIMPSON: And it's seven weeks old and

4 it feels like I did at seven weeks old, crying every

5 night.

6 [Laughter.]

7 ALAN SIMPSON: No, it's healing and I did

8 kind of cut -- as I haven't had a drink. Came right up

9 there.

10 LESLEY STAHL: Yeah, but we ought to get that

11 out on the table.

12 ALAN SIMPSON: Erskine hadn't been

13 sympathetic at all.

14 ERSKINE BOWLES: I drug him all over

15 Washington, it's been great.

16 LESLEY STAHL: Okay, now we've dispensed with

17 the funnies because our topic is kind of heavy. So

18 Senator Simpson, let me just start off and ask you

19 whether the word doable is going to be factored in to

20 your deliberations?

21 In other words, if it becomes pretty clear

22 that there is a solution that's obvious, will you just


1 toss it out there or will the idea of whether this can

2 fly politically be woven in to everything you do?

3 ALAN SIMPSON: Well first let me just thank

4 Pete Peterson. That wonderful man has been working

5 with me and we worked on Social Security. He's more

6 than all the things you see. There's a deepness to

7 him, it's called patriotism, that's where he springs

8 from. And he's -- he's just very special and does so

9 much.

10 But doable? I don't know. When we got the

11 call, Biden called, he said Al I got a real deal for

12 you. I said sure Joe, I've heard that for 30 years

13 from you. And so he said your co-chair will Erskine

14 Bowles.

15 I said I have the deepest respect and

16 admiration and regard for him. And I called Erskine

17 and we said we got to talk to the President and see

18 where he is and we did. And all I can tell you is that

19 both of us agreed that we may be only able to move the

20 football a yard.

21 And I have no idea, but I can tell you that I

22 have no illusions. We're gong to get savaged from the


1 right and the left. We will be beat up. Every time we

2 go somewhere somebody says, are you going to have a VAT

3 tax or are you going to -- what are you going to do

4 with the children, you know the veteran's?

5 I say everything is on the table including

6 the new President's and Congress' Health Bill, that's

7 on the table too. There isn't anything off the table.

8 Now that may be the only thing that will save us. And

9 yesterday the Commission in a letter since we -- there

10 wasn't a single member of the 18 that didn't know that

11 this was one of the deepest problems of this country.

12 LESLEY STAHL: Well let me get back to my

13 question about doable --

14 ERSKINE BOWLES: That happens to us a lot.

15 LESLEY STAHL: -- which may be at the heart

16 of this. You know I was thinking about this and it

17 reminds me of the Israeli Palestinian --

18 ALAN SIMPSON: Ewh.

19 LESLEY STAHL: -- endless, endless problem

20 where there's a road map, and there has been a road map

21 since President Clinton was in office. And everybody

22 knows the answer. And to some extent this is what


1 you're confronting.

2 Everybody knows you're going to have to raise

3 taxes and cut things, and big things like put

4 restrictions on Social Security, everybody knows that.

5 So what is your Commission about? Is it going to be a

6 negotiation more than looking for the answer because

7 the answer's pretty clear, isn't it?

8 ERSKINE BOWLES: Yeah it's going to be some

9 of those things, no question about that. And let me

10 thank Pete too. I don't know anybody who I think is

11 less partisan or has been kinder to me than Pete

12 Peterson. And I think we're all blessed that he would

13 give us this opportunity to educate the American

14 people. So thank you.

15 [Applause.]

16 ERSKINE BOWLES: Lesley, it's going to be

17 about trust and confidence. If both sides, and

18 hopefully we'll end up with no sides, that we'll just

19 be American citizens. But if both sides don't believe

20 that the other side is serious, that we are not in this

21 for political gain but we're here to solve these really

22 big issues.


1 And if the Right doesn't believe, as Al said,

2 that Medicare and Social Security have to be on the

3 table, that we have to reduce the costs if we're

4 serious about balancing the budget and if the others

5 don't accept the fact that we're going to have to have

6 some new revenues.

7 It is just like Michael Peterson said, this

8 is arithmetic, I'm good at math. And we can't solve

9 this problem by talking about foreign aide or waste,

10 fraud, and abuse, we've got to seriously attack these

11 big problems and we've got to do it now because if we

12 don't, they're not going to be solvable without that

13 word, bankruptcy.

14 LESLEY STAHL: So in other words, this whole

15 exercise is much less about getting the answer, because

16 the answer is pretty clear, then it is about getting

17 those 18 people not to exercise a veto?

18 ERSKINE BOWLES: Well the arithmetic's clear

19 --

20 LESLEY STAHL: And it's really going to be --

21 ERSKINE BOWLES: The arithmetic's clear, the

22 solutions are relatively easy to see. But the


1 political will to step forward and make the tough

2 decisions is where we've got to do our job.

3 LESLEY STAHL: Now everybody's talking about

4 Pete, I'm going to throw my two cents in. Pete, as

5 everybody knows, has been working on this since at

6 least the 70's if not -- I don't know before because

7 we've been having deficit problems all these many

8 years. And my claim, since --

9 MR. PETERSON: World War I.

10 LESLEY STAHL: Since World War I. And my

11 claim to fame is that I actually convinced Don Hewitt

12 to do a deficit piece with Pete Peterson on 60 Minutes

13 somewhere in the early 90's.

14 And in that story we had ordinary citizens

15 sitting at tables, and we had a huge deficit issue back

16 then, and we gave -- they got the budget books and all

17 these citizens solved it. They just did it, it was

18 clear.

19 I mean raise Social Security eligibility, the

20 age. I don't know how high it has to go, some actuary.

21 Put on some taxes, gas taxes, everybody thinks that

22 would be a good idea -- well not everybody, soda tax,


1 whatever. And so that part of your problem is over.

2 Will you agree with that?

3 ALAN SIMPSON: Well people use flash words in

4 Washington, the immigration flash word is amnesty,

5 another one is national i.d.

6 Now these are good words to get people worked

7 up. Taxes is ours, the minute we were appointed, they

8 said there they are, they're stalking horses for taxes.

9 And we said, we're stalking horses for our

10 grandchildren.

11 And so in every situation here there is

12 emotion, fear, guilt, or racism. Those are the four

13 things that I've found in my time here. Either pass or

14 kill a bill with a death blend of emotion, fear, guilt,

15 or racism whatever the issue.

16 Social Security, hell there isn't a thing in

17 it that affects -- anything that I've heard in the last

18 10 years doesn't affect anybody over 57. What do I get

19 the guff? These 70, 80 year old cats. That's where I

20 get the guff, you're not going to take it away from me

21 are you? I put in it from the beginning, and in fact

22 if I could have invested it myself, I'd be a


1 trillionaire now.

2 And I say, well if you were the government

3 wouldn't be taking care of you so either way you could

4 make it. Anyway that's very predictable but speaking

5 of predictable, tell them the word yesterday.

6 ERSKINE BOWLES: Yeah I thought it was really

7 interesting yesterday we had our first public

8 commission hearing. And everybody talked about the

9 fact that the path we're on today is not sustainable.

10 Everybody, from the President to the Chairman of the

11 Fed, to the two former leaders of the Congressional

12 Budget Office, to Peter Orszag, and then everybody on

13 our Commission agreed.

14 But Paul Ryan, who is a Congressman from

15 Wisconsin, said it best. He said, this is the most

16 predictable economic crisis in history and it is. This

17 nation is on autopilot and if we don't change and make

18 big changes we are going to face disaster. He was

19 terrific.

20 And let me tell you how broad the consensus

21 is. Andy Stern, who is the recently retired President

22 of SEIU, the Union, agreed with him 100 percent. So


1 all of us here realize the problem.

2 But where I disagree with you is we've got a

3 real education issue in America. We've got to make

4 sure that the American people understand how big a

5 problem that is. That's why what you're doing here

6 Pete and Michael is such a big service. This will

7 educate a lot of people.

8 And secondly, what we've got to do is we've

9 got to get a real set of numbers out there. Numbers

10 that everybody agrees to. And what Al and I have said

11 is we're going to use the actuaries numbers from Social

12 Security and Medicare, that's pretty hard to argue

13 against. And then we're going to use CBO, the

14 Congressional Budget Office for everything else.

15 We're not going to use the Administration's

16 numbers. We're going to try to use those sets of

17 numbers that have the greatest credibility. And then

18 once we have an agreement on numbers, then we can lay

19 out the options and then we can make the tough

20 decisions.

21 LESLEY STAHL: If I asked you, each of you,

22 to right now tell the American people how dire the


1 situation is in your opinion, what would you say?

2 ALAN SIMPSON: Well oddly enough, in my

3 travels the American people know that something is

4 terribly, terribly wrong. You can call on anybody from

5 Cody, Wyoming to Chapel Hill to Dubuque, and they'll

6 say hey, what's wrong with our country? And that's why

7 these organizations spring up, the tea party, these

8 other things, the hostility --

9 LESLEY STAHL: Yeah, but they're no new taxes

10 organizations. They're don't touch my Social Security

11 organizations.

12 ALAN SIMPSON: I know, but they know that

13 something is desperately wrong in America. That's the

14 key, and as long as they do they -- that's what we're

15 trying to tell people, something is terribly, terribly

16 wrong with this country.

17 A dysfunctional Congress in that sense, the -

18 - we were taught and trained by our handlers to bring

19 home the bacon and now the pig is dead and the candy

20 store is closed.

21 ERSKINE BOWLES: This is what I get to be

22 with.


1 ALAN SIMPSON: He does the math I do the

2 color.

3 [Laughter.]

4 ALAN SIMPSON: Hell, I don't know the math.

5 ERSKINE BOWLES: And if we can build the

6 trust in this whole Commission that the two of us have,

7 we're going to the promised land. How do I -- here's

8 what I tell our students at Chapel Hill, and they

9 immediately get it. This is a fact, this is not a

10 forecast, this is where we are today.

11 If you take the revenue of a country today,

12 this year and butt it up against the mandatory

13 expenditures, which are principally the entitlements,

14 Medicare, Medicaid and Social Security, they equal each

15 other.

16 Now what does that mean? That means that

17 every dollar we spend on education, infrastructure,

18 transportation, the military, homeland defense, every

19 single dollar is borrowed and half of it is borrowed

20 from foreign countries.

21 Now just stop and think about that. You know

22 all of my friends who say all we ought to be talking


1 about is jobs, jobs, jobs. Well I can tell you one

2 thing I know having been a small business guy, small

3 businesses can't grow and can't create jobs without

4 what?

5 ALAN SIMPSON: Money.

6 ERSKINE BOWLES: Capital. And there's not

7 going to be any capital, it's going to be crowded out.

8 You talk to the people who think, hey we live in a

9 knowledge based global economy, we better invest in

10 education, we better invest in training, we better

11 invest in infrastructure and innovation if we're going

12 to be competitive. There won't be any money for it.

13 We've got to take these big, these big steps.

14 And the biggest thing of all, half that money is

15 borrowed from foreign countries. Somebody said well

16 what if the Chinese just quit buying our debt?

17 Hell, what if they just -- what if they start

18 to sell it? My God, the crisis we're going to face is

19 tremendous. Greece just went through it, Portugal went

20 through it.

21 ALAN SIMPSON: Spain's coming up.

22 ERSKINE BOWLES: Yeah.


1 LESLEY STAHL: What about the Baby Boom wave

2 coming into Social Security and Medicare? I mean that

3 has to be tsunami that's going to hit all of us.

4 ERSKINE BOWLES: That's basic arithmetic and

5 you can't solve that problem through increased taxes

6 because no matter what else you look at today, you have

7 the cost of health care is growing faster than the GDP

8 and you've got old guys like me who are aging right

9 into the problem who have you know, all these issues

10 that have to be dealt with.

11 LESLEY STAHL: Senator Simpson, you were on a

12 commission in the 1990's that was an entitlements

13 commission and apparently everybody on the commission

14 absolutely understood even then how dire the

15 entitlements situation was and yet nothing came of it,

16 it collapsed.

17 ALAN SIMPSON: Well that was --

18 LESLEY STAHL: So my question is, what did

19 you learn from that experience where it was a failure

20 that informed you for this one?

21 ALAN SIMPSON: We learned that when the

22 economy is like roses, wine and roses and everybody is


1 consuming everything they can and buying everything

2 they can, that they ignore everything, but these are

3 different days.

4 And that was a great group. That was Jack

5 Danforth and Bob Kerrey and we did a lot of work. In

6 fact we had a game where it was called like whack a

7 mole. They'd say well we can just cut spending, well

8 what would you cut? And then you'd give them this

9 little game. And nobody could, wanted to you know, do

10 any of their pet stuff. But it was, there was good

11 record of it.

12 I've been on commissions before, they haven't

13 all failed. The immigration, the Select Commission on

14 Immigration, we did two bills. The reason it failed is

15 we couldn't get a more secure identifier because the

16 right and the left said this is a National I.D.

17 I was on the Iraq study group. We had to

18 agree on every word. They've adopted about 57 of those

19 out of the 79 by now. So the cynicists -- there's more

20 than skepticism in this city, which was here when I was

21 here, now it's cynicism.

22 LESLEY STAHL: Right.


1 ALAN SIMPSON: And you guys will fail, you

2 guys will fail, or what a laugher this is. Well you

3 know, the drinks are on me, hell I'll go home.

4 [Laughter.]

5 LESLEY STAHL: Well what happens Erskine, if

6 you go through the exercise, it's all public, we all

7 watch it and you end up deadlocked because both sides

8 have a veto out of the 18. I mean what then happens?

9 ERSKINE BOWLES: You know in my opinion, that

10 won't be victory but we will have made real progress,

11 just like Pete and Michael are making here. If we can

12 educate the American people as to what this problem is

13 and we can get some push from them on the elected

14 officials to actually face up to these big problems.

15 And I can tell you, every grocery store I go

16 in to, especially when I'm with this guy, you know

17 because everybody knows him, it is -- it is amazing,

18 people come up to you everywhere and say please take

19 this on. Please do something about it. Please do it

20 for your grand kids. I've got seven, Al's got six.

21 We've got to do this.

22 And Lesley if you think back, you mentioned


1 it earlier, in 1997 when President Clinton asked me to

2 lead the negotiations to balance the budget, there was

3 not a person in the press who didn't think it was a

4 joke.

5 There was little support in the Congress and

6 I must have spent months locked up in conference rooms

7 with Speaker Gingrich and Leader Lott, and y'all owe me

8 a lot for that I'm telling you.

9 [Laughter.]

10 ERSKINE BOWLES: But seriously, it was great.

11 [Laughter.]

12 ERSKINE BOWLES: And you know I didn't leave

13 those meetings, and nor did they, and talk about the

14 politics of any of the discussions we had. We stayed

15 at it, we built up some trust in each other and we got

16 to a solution that did balance the budget. That's what

17 we've got to do again.

18 LESLEY STAHL: And I know you -- well I don't

19 want to put words in your mouth. I assume you're both

20 pretty optimistic about this. But on day one, which

21 was yesterday, your first meeting, a Republican group

22 held a big news conference and said that you were a


1 Trojan Horse for a value added tax commission. And the

2 liberals had another news conference and said, we want

3 you to -- we need to raise spending on infrastructure

4 and education, something you alluded to.

5 So it sounds like both sides have shot off

6 their cannons and then you're going to go inside and

7 have to already deal with something that they've put on

8 the table.

9 ALAN SIMPSON: We've been there before. You

10 learn in politics when they rip your skin off it grows

11 back double strength. I've been called everything.

12 I'm pro-choice so I've been called a baby killer, not a

13 very pleasant thing. I work hard with the gay, lesbian

14 community so I get called a lot of stuff. And you

15 know, that's the way it is.

16 MS. STAHL: A Trojan Horse is not a --

17 MR. SIMPSON: But never let them destroy who

18 you are. Never, ever let them destroy who you are, and

19 that's not who we are. VAT tax, what the hell.

20 If you do a VAT tax you got to do some

21 adjustments with the income tax. You think you were

22 coming in and slapping that on top of the income tax.


1 Children, veterans, all those people won't have

2 anything when it's all sucked up.

3 I mean if people can't understand that well

4 we -- we'll do the best we can to let them know that

5 everything you love will not be there. How's that for

6 an answer? Everything you deeply love, when you button

7 your shirt your heart fell out, everything there in

8 government, the children and the poor, is not going to

9 be there. There won't be any bucks for them because of

10 automatic pilot.

11 LESLEY STAHL: Let me ask you both one final

12 question. How do you get the public to really accept

13 the idea that everybody's going to have to have a --

14 make a sacrifice? How do you get the American people

15 into that frame of mind? Because boy, they're not

16 there now.

17 ERSKINE BOWLES: We have to convince them, in

18 my opinion, that this problem is real. We have to do -

19 - convince them that Paul Ryan was 100 percent right

20 and Andy Stern was 100 percent right, that this is the

21 most predictable economic crisis in our nation's

22 history. And if we don't do something about it, we're


1 going to be a second rate power before you know it.

2 LESLEY STAHL: That's pretty tough. Alan

3 what do you say?

4 ALAN SIMPSON: Well I agree. Someone said,

5 well we'll just do something with the money supply,

6 we'll print more, we'll do this, we may default. But

7 then instead of America the beautiful and the powerful

8 we become second rate. That's what -- we're not going

9 to expire, we'll just become second rate.

10 LESLEY STAHL: On that lovely note, I think

11 we all wish you the best of luck and we're all kind of

12 counting on you.

13 ALAN SIMPSON: Yeah, sure I can hear that.

14 [Laughter.]

15 MR. BOWLES: Thank you.

16 MR. SIMPSON: Thank you.

17 [Applause.]


19 MICHAEL PETERSON: As we said earlier, this

20 summit is about convening views from across the

21 spectrum. And in that regard, our next panel

22 discussion is right on mission.


1 I won't predict that our panelists will agree

2 on all the steps we should take, but I am hopeful that

3 our experienced moderator can find some common ground

4 on these issues that affect all of us.

5 With us today are two members of the National

6 Commission on Fiscal Responsibility and Reform, Alice

7 Rivlin, who is a Senior Fellow at the Brookings

8 Institution and was the first Director of the

9 Congressional Budget Office. This past January she

10 agreed to co-chair the Debt Reduction Task Force

11 sponsored by the Bipartisan Policy Center. Her fellow

12 co-chair is former Senator Pete Domenici, who I am

13 pleased to say is also here with us today.

14 The second is Paul Ryan, Republican

15 Congressman from Wisconsin. He has spoken out

16 regularly about the importance in addressing these

17 difficult fiscal challenges. In addition, we have

18 Larry Mishel who is President if the Economic Policy

19 Institute here in Washington which has a special focus

20 on the interests of American workers.

21 Bob Greenstein, he'll be joining us a little

22 late, but he is the founder and Executive Director of


1 the Center on Budget and Policy Priorities, a think

2 tank that focuses on Federal and state fiscal policy.

3 Lastly, Neera Tanden, who is Chief Operating

4 Officer of the Center for American Progress and has

5 been involved in health care reform for more than a

6 decade. The panel moderator is Gwen Ifill, managing

7 editor and moderator for PBS' Washington Week.

8 Please welcome our next panel.


10 GWEN IFILL: You'll notice we're missing

11 exactly one member of our panel, Bob Greenstein who's

12 somewhere in a cab fleeing his way here so he'll be

13 here shortly. But we're going to get started without

14 him because as you could tell from that last panel,

15 there's a lot to start with.

16 Paul Ryan just walked in the door so he

17 didn't hear himself get quoted, but I'm going to start

18 with him, ha-ha, because you're fast on your feet.

19 We just heard Erskine Bowles and Alan Simpson

20 quote you as saying that this is the most predictable

21 economic crisis ever. I'm going to start by asking you

22 to explain a little bit more about what you meant by


1 that and then ask everybody else on the panel to weigh

2 in on their thoughts.

3 CONGRESSMAN RYAN: Sure. I said this in the

4 context of TARP. I remember vividly October 2008, you

5 watch the credit spreads all over the place go wild.

6 We had the Chairman of the Federal Reserve, we had the

7 Treasury Secretary come up to the Hill in a panic,

8 talking about a crash, a crisis, a deflationary spiral.

9 And then we engaged in crisis management in

10 Congress. And we came together in Congress and put

11 together a very deeply flawed plan to get out of that

12 crisis. That came up and got us by surprise. Now we

13 can go back now with hind sight and untangle the mess,

14 but that was a surprise crisis.

15 This one's not. This, I say, is the most

16 predictable crisis we've ever had hitting our economy.

17 It's a forthcoming debt crisis, we know it, we see the

18 problem on the horizons in Europe, Greece, Italy,

19 Spain, Portugal, we know a debt crisis is coming.

20 We know that interest compounds viciously

21 once interest rates go up. And so this is something

22 that is obvious, easy to predict, and therefore,


1 something we should tackle. And what's crazy about

2 this is we have yet to muster the political will to

3 actually prevent this crisis from occurring.

4 GWEN IFILL: Alice Rivlin.

5 ALICE RIVLIN: I agree with that. We've

6 actually known about this crisis for a long time. The

7 fact that our entitlement programs, especially Medicare

8 and Medicaid, but also Social Security, are on track to

9 grow faster than the economy's growing and our taxes

10 won't grow that fast.

11 We've known that for a long time. But

12 something else has changed to make this much more

13 urgent. We used to have a sort of manageable debt. It

14 was about 40 percent, 37 percent of our GDP.

15 But we've come through this terrible

16 recession and that has given us a much bigger deficit,

17 the recession itself and the things we had to do to

18 combat it and to rescue the financial system.

19 That deficit will go down, but we've built up

20 our debt. We used to think it would -- 20 years from

21 now maybe we'd have debt equal to 60 percent of the

22 GDP. We're there now and it's rising fast.


1 So we're not Greece, but Greece is sort of a

2 useful lesson. If you have massive debts, eventually

3 your creditors lose confidence. And I think we're on

4 the verge of having that happen to us. But, there are

5 things we can do about it. It may be a predictable

6 crisis, it's not a necessary crisis.

7 GWEN IFILL: Lawrence Mishel.

8 LAWRENCE MISHEL: Well Gwen what's

9 interesting to me is this talk about predicting a

10 crisis when in fact we're actually in a crisis and I

11 don't hear any discussion about it whatsoever.

12 We're going to have 10 percent unemployment

13 this year. I think one out of three workers are going

14 to be unemployed or underemployed at some point this

15 year, around 40 to 45 percent in minority communities.

16 I believe that two years from now we're going

17 to have an unemployment rate of more than eight percent

18 and that's higher then it ever got in the last two

19 recessions. So how about that for a predictable

20 crisis? We're actually in one.

21 And the fact is that this discussion of

22 deficits, overlooks the fact that right now we have a


1 large deficit because we have a very large recession.

2 We have an out of control economy, not an out of

3 control government budget.

4 And in fact, David Walker and I wrote an OpEd

5 two or three months ago that said the first step

6 towards deficit reduction is actually generating jobs.

7 And that may require more deficits now and I hope we

8 can all agree on that, that our first thing to do is

9 actually generate jobs, get more tax payers and that's

10 the -- that's a complimentary path to deficit

11 reduction.

12 GWEN IFILL: Even if drives the deficit even

13 higher?

14 LAWRENCE MISHEL: Absolutely, I think you

15 know, George W. Bush six years ago said, in a time of

16 war and recession you have to have a large deficit.

17 President Obama would agree. This is not something

18 that -- I mean there are some people that disagree, but

19 this is something that I think hopefully we can all

20 agree on that we should not let this focus on the long

21 term structural deficits kill the opportunity to

22 generate millions more jobs that people need.


1 We talk about the worry about our

2 grandchildren, well that's true but people are being

3 scarred right now that's going to leave a permanent

4 scar on our productive capacity as innovation and

5 productivity is hurt, as children are hurt. We're

6 going to have children 50 percent higher you know next

7 year then it was before the recession.

8 GWEN IFILL: Okay, they'll plenty of chance

9 for everybody to make their speeches but I want to get

10 everybody to respond too because this is the

11 conversation we want to have here. Neera Tanden and

12 then Congressman Ryan weigh in on that.

13 NEERA TANDEN: Well I think we -- I would say

14 I definitely agree, that we all have to have economic

15 growth now. And that even those who are most concerned

16 about the deficit recognize economic growth is the way,

17 is the chief way actually to ensure that we're

18 addressing deficits over long term.

19 But I think as progressives we understand

20 that long term deficits are a problem. We sill facer

21 challenges down the road that will starve investments

22 if we don't actually -- investments that we all care


1 about if we don't actually make some of the though

2 choices over the next year or two.

3 That doesn't mean we should take drastic

4 action now to reduce economic growth, that is the wrong

5 choice. But we do have to make decisions now to ensure

6 that we don't have to make tougher and worse decisions

7 down the road.

8 GWEN IFILL: Congressman and then Alice

9 Rivlin.

10 CONGRESSMAN RYAN: I'm not sure that John

11 Maynard Keynes would even be a Keynesian today based on

12 where we are. What I mean when I say that is, deficits

13 are here, it's obvious there's nothing you can do about

14 it in the very short term.

15 What is driving those deficits is an

16 excessive spending with more borrowing that doesn't

17 really do a lot to grow the economy, lower

18 unemployment, that's not good deficits. Are we

19 lowering tax rates to produce incentives for

20 entrepreneurs, for risk takers to get out there and

21 create jobs, that's good.

22 Here's the economic climate in the future.


1 2010, we're growing. Not nearly as fast as we should

2 coming out of the kind of recession we had. But what's

3 coming in 2011? Tax rates on capital, tax rates on

4 labor, tax rates on income.

5 It is a bad climate for a risk taker, for an

6 entrepreneur, for a small business person. The federal

7 reserves are clearly going to be hitting the brakes,

8 they're going to be sopping up the money supply.

9 So we're going to go from easy money to tight

10 money, from lower tax rates to higher tax rates. That

11 is not a good recipe for economic growth. And that's

12 right, economic growth, job creation, going from

13 collecting unemployment to paying taxes is one of the

14 important things we need to do.

15 But what's behind this recession and these

16 deficits is this huge massive structural problem in

17 entitlement crisis. An entitlement crisis that is

18 going to sink us that is a predictable forthcoming debt

19 crisis.

20 And that is why we don't have a lot of margin

21 for error like we used to coming out of recessions

22 because our debt to GDP ratio is so much higher then it


1 ever used to be and it's on an unsustainable

2 trajectory. It goes to levels that the models can't

3 even predict what would happen to our economy.

4 GWEN IFILL: Alice Rivlin.

5 ALICE RIVLIN: I think the American people

6 are smart enough to think about two things at the same

7 time. I'm not sure that --

8 LAWRENCE MISHEL: If we talk about them.

9 ALICE RIVLIN: I'm not sure that Larry thinks

10 that. I agree, we are in a crisis, a very deep

11 recession now. We need to grow the economy. The

12 increase in the deficit that we have had I believe was

13 absolutely necessary, part of it was automatic because

14 of the recession.

15 Some of it reflected the things we needed to

16 do to help grow the economy. But while we're doing

17 that we have to think about the future. And there are

18 things we could do now that would reduce the deficits

19 in the future that wouldn't hurt the recovery at all.

20 CONGRESSMAN RYAN: It would actually help it.

21 ALICE RIVLIN: Yes.

22 GWEN IFILL: For instance?


1 ALICE RIVLIN: For instance. Well actually I

2 think there's been too much talk already in this

3 meeting about Social Security. But I'll come back to

4 it because it's an easy example.

5 We know that the Social Security system is

6 out of balance. The things that we need to do to get

7 back in balance might include raising the retirement

8 age in the long run future, changing the way benefits

9 are calculated so that upper income people don't get as

10 many of them.

11 But you would never do that for people who

12 are already retired or people who are about to retire.

13 So doing those things doesn't hurt the recovery effort.

14 It doesn't damage the recovery at all or the

15 current benefits of people who are already retired.

16 But it would give confidence to our creditors that we

17 have our house in order. That we're actually thinking

18 ahead.

19 That we aren't just thinking about the next

20 six months or the next two years. We realize that we

21 got something looming at us and we're grown up enough

22 to do something about it.


1 GWEN IFILL: Ask Greece about giving

2 confidence to creditors in a debt crisis. Let me ask

3 Neera Tanden, because really we could spend the entire

4 time talking about Social Security, you're right.

5 But I am curious about something that came

6 out yesterday in the meeting of the Debt Commission.

7 Which is someone asked, so what is the big fish in they

8 sea of options here, of ways to reduce the deficit.

9 And the reply, I think from Bob Reischauer, was there's

10 one big shark and it's health care and all the rest are

11 sardines.

12 So is health care on the table? Should it be

13 on the table, this brand new bill we passed for cost

14 reduction, deficit reduction?

15 NEERA TANDEN: Well I think what's critical

16 is that bill was a framework. And I think it's very

17 incumbent on the Administration to ensure that we have

18 aggressive action to ensure that we have the kinds of

19 savings --

20 GWEN IFILL: Framework, really?

21 NEERA TANDEN: I know, having gone through

22 that --


1 GWEN IFILL: All that for a framework?

2 NEERA TANDEN: Having gone through that very

3 long period of discussion on health care and having a

4 lot of battle scars around it. But around the issues

5 the payment reform.

6 There was aggressive deficit reduction in the

7 bill. This was $100 billion dollars over the first

8 year, over $100 billion dollars over the first 10 years

9 and a trillion dollars over the second 10 years. So I

10 think health care has done -- is actually helping us

11 with our long term deficit picture, health care reform.

12 But there are a variety initiatives in the

13 legislation, payment reforms that actually change the

14 way, are attempting to change the way we pay for health

15 care. And those are a little bit of a framework,

16 they're demonstrations, they're grants, they're

17 programs that will ensure that we have models for

18 changing the system.

19 Most important is for the Administration to

20 really lead on that and ensure that we have aggressive

21 action and that we're driving the system. That that's

22 going -- that those initiatives are transforming the


1 way we pay for health care away from a fee for service

2 model, more for paying for quality. Giving less and

3 fewer incentives for overuse.

4 And I think it's really important for the

5 Administration to ensure that we capture those savings

6 by taking aggressive action to do so. I think those

7 are actually better ways to change the system then some

8 of the issues around vouchers and other ideas that

9 others have had.

10 GWEN IFILL: Congressman Ryan.

11 CONGRESSMAN RYAN: Well first on Social

12 Security, to save time, I agree with everything that

13 Alice Rivlin said. So ditto on your point.

14 ALICE RIVLIN: Thank you, I appreciate that.

15 LAWRENCE MISHEL: Let me dissent.

16 NEERA TANDEN: Yeah, we'll go the other way.

17 CONGRESSMAN RYAN: So on health care we see

18 things a little differently

19 NEERA TANDEN: Yeah.

20 CONGRESSMAN RYAN: Just to say the least I

21 think suffice it to say.

22 NEERA TANDEN: Yeah I think.


1 CONGRESSMAN RYAN: We got an interesting

2 report from the Chief Actuary, Rick Foster at Medicare,

3 on Friday. Our national health expenditures increased

4 $311 billion dollars. The federal commitment to health

5 care increases $251 billion dollars.

6 As soon as this dock fix is fully passed the

7 claim of deficit reduction evaporates right away. The

8 only way under this kind of an architecture of a health

9 care system, to achieve these kinds of savings, these

10 fiscal savings is to deeply and systematically ration

11 care.

12 I know ration's a word that people don't like

13 to use and it happens and it occurs in many ways, but I

14 don't think it ought to occur primarily from

15 Washington. And so I think this bill, the health care

16 framework's a fiscal train wreck.

17 We used to say the big three entitlements,

18 Medicare, Medicaid, Social Security. Well we got four

19 now. And this fourth one basically says to people once

20 it's up an running, if you make less than $100,000 a

21 year, which is most people in America, and your health

22 care expenses exceed anywhere from 2 to 9 percent of


1 your income don't worry about it, the Federal

2 Government's got you covered, we're going pick up the

3 rest of the tab.

4 That is the creation of the largest

5 entitlement we've had. It's the biggest piece of

6 social legislation to have passed since 1965. And I

7 have no doubt in my mind that it's going to exacerbate

8 our fiscal problems.

9 GWEN IFILL:. I'm going to let Neera Tanden

10 respond and then I'm going to keep this going.

11 NEERA TANDEN:. Yeah, just briefly. What the

12 Chief Actuary found is that when you cover 30 million

13 people is costs money to do so. So that's what the

14 Chief Actuary found.

15 CONGRESSMAN RYAN:. But spending's going up.

16 NEERA TANDEN:. Yeah, spending goes up but he

17 amount of money we're paying for each person who had

18 health insurance goes down. So we have a trajectory in

19 which we're actually lowering costs per person who has

20 insurance. And I think that all of recognize that

21 that's going to cost money. But what the Chief Actuary

22 overall found is that we actually are saving money over


1 the long term.

2 And so I think the issue -- I think that what

3 we should recognize from this is that we have greater

4 efficiencies when we actually -- what the Chief Actuary

5 found is when you actually insure people, there's less

6 cost shifting over the long haul and we have

7 efficiencies that way.

8 In terms of other issues around this, CBO,

9 you know someone we generally all agree with, says

10 we'll have a trillion dollars of savings in the second

11 decade and we recognize, we do -- we are insuring 30

12 million people.

13 We do create a system where people have a

14 right to health care and that that's an important

15 thing. We don't -- no one should say that we're not

16 changing the system to ensure everyone has health care.

17 GWEN IFILL:. We have very efficiently

18 stumbled right into two hot buttons right away. I'm

19 very proud of you.

20 CONGRESSMAN RYAN:. I could go into that but.

21 NEERA TANDEN:. Yeah, we'll go back and forth

22 I'm sure.


1 GWEN IFILL:. And we'll keep coming back to

2 them but it makes the point which I guess is the

3 problem with this whole conversation we're having all

4 day long. Which is, what do we have the stomach for in

5 this country?

6 LAWRENCE MISHEL:. Gwen you know that's the

7 way some people are framing it. I absolutely disagree

8 that its about what kind of spinach we want to eat.

9 This debate is not what Michael Peterson said, it's a

10 simple matter of math.

11 It's about what kind of nation we want. What

12 are our priorities? What do we want to spend on? What

13 do we want to tax for? What we want to be -- let me

14 give the Social Security as an example. And I won't be

15 long.

16 GWEN IFILL:. That's okay.

17 LAWRENCE MISHEL:. We have a Social Security

18 shortfall. That is something that we can address. It

19 happens to be that we can actually pay every benefit

20 promised for the next 30 years or so. Absolutely, you

21 know it's the least of our problems.

22 But cavalierly, like frankly Lesley Stahl did


1 earlier, said well let's raise the retirement age. But

2 the fact is that she didn't know that retirement --

3 life expectancy grew a lot over the last three decades.

4 However, it only really grew for the people

5 in the upper half of the income distribution. People

6 in the bottom half of the income distribution are not

7 living longer. So we have a fundamental problem of

8 inequality that we have to deal with.

9 We also have a problem of retirement

10 insecurity. We just saw a massive loss of wealth.

11 401k's are now derisively and appropriately called

12 201k's. If we actually reduce Social Security benefits

13 by raising the retirement age or some other way, we're

14 actually exacerbating a problem.

15 So the problem we have is, I'm not talking

16 about a Social Security shortfall, but what are we

17 going to do about retirement in this country?

18 GWEN IFILL:. Alice Rivlin.

19 ALICE RIVLIN:. I agree with Larry, not about

20 the fate of Social Security but about his basic premise

21 which is, it's about what kind of a future do we want

22 for the U.S. economy.


1 But I think aside from all the gloom and doom

2 that this crisis should be seen as a big opportunity.

3 For example, we know that we have a tax system which is

4 inefficient and doesn't raise as much revenue as it

5 could from a fairer, simpler tax system that would be

6 better for the economy.

7 We know we have a very inefficient health

8 system. And we've talked about --

9 GWEN IFILL:. You want to hold your

10 microphone up.

11 ALICE RIVLIN:. We've talked about fee for

12 service and we need thorough reform.

13 CONGRESSMAN RYAN:. You're mic is going out.

14 GWEN IFILL:. Let's fiddle for a minute.

15 ALICE RIVLIN:. Sorry.

16 GWEN IFILL:. Okay, you got it.

17 ALICE RIVLIN:. Better?

18 NEERA TANDEN:. Right.

19 CONGRESSMAN RYAN:. Don't move.

20 [Laughter.]

21 ALICE RIVLIN:. Okay, we know that we have a

22 very inefficient health system and that we need to make


1 it more efficient. In a way, that's kind of an

2 advantage, the fact that we spend more than other

3 countries. We've got a lot of inefficiency and

4 ineffective care that we can get out of the system

5 before we have to do any rationing.

6 GWEN IFILL:. Congressman?

7 CONGRESSMAN RYAN:. I agree in many ways with

8 what you said. First of all, we've got to come up with

9 better ways to help assist retirement. You know, it's

10 the three legged stool. The tax system penalizes lots

11 of saving and investing for the future.

12 We need to incentivize those things. So we

13 got to give people better tools to better prepare for

14 retirement. This is not a spinach eating exercise.

15 This is an exercise where if we do this right, we will

16 have a more prosperous future.

17 Look, the Congressional Budget Office, and

18 let's use the CBO, the Congressional Budget Office is

19 telling us, we are giving the next generation a lower

20 standard of living. We have never done that before.

21 If we turn this thing around, if we actually, per

22 capita GDP is going down in the future, a lower


1 standard of living.

2 LAWRENCE MISHEL:. They say --

3 CONGRESSMAN RYAN:. I'll send you the chart.

4 LAWRENCE MISHEL:. It's going to grow two and

5 a half percent a year, our productivity. How can it be

6 a lower standard --

7 GWEN IFILL:. We're going to pretend this is

8 a news hour segment and let everybody finish their

9 sentences.

10 [Laughter.]

11 CONGRESSMAN RYAN:. Look at the alternative

12 fiscal scenario and look at the CBO's projections

13 forward. The point we're saying is, because of the

14 debt and deficit that we're bequeathing the next

15 generation, we are giving the next generation a lower

16 standard of living.

17 If we get off that path and fix this, we will

18 have a more prosperous future. We will have higher

19 living standards, better jobs, more prosperity. This

20 is not pain in root canal. This is doing what we need

21 to do to make sure that we can grow and prosper and

22 have opportunity.


1 Look, the big difference in philosophies that

2 we have is what size of government are we going to

3 have. And from my perspective, that determines how

4 much individual opportunity and achievement are you

5 going to be able to have.

6 Are you going to be able to reach your

7 destiny and tap into your potential? That's a

8 philosophy thing, I don't want to get into that. The

9 point is --

10 GWEN IFILL:. That's a perfect point for Bob

11 to jump in I think actually. You're late, but we're

12 going to put you into the deep end of the pool here as

13 punishment.

14 BOB GREENSTEIN:. I really apologize.

15 GWEN IFILL:. That's okay.

16 BOB GREENSTEIN:. 50 minutes for me to get a

17 cab this morning.

18 GWEN IFILL:. We understand lord knows in

19 this room. But tell us about this, the differences in

20 philosophy is what we're talking about here. Whether

21 it's about how -- what the problem is, who's

22 responsibility solving the problem is?


1 Whether Americans have stomach for the

2 problem, that should be what's driving the solution.

3 All of these things we've been talking about on the

4 table. We touched on health care, Social Security,

5 we've been having a fabulous time. How would you

6 define the problem?

7 BOB GREENSTEIN:. The problem is not the

8 immediate deficits, which are necessary to deal with

9 the most severe economic downturn since the depression.

10 And I think we go in the wrong direction when

11 we start saying things like we can't afford to extend

12 unemployment benefits which we need even for jobs so

13 that those workers will have money in their pockets to

14 buy products and businesses don't lay off more jobs.

15 The problem is the long term structural

16 imbalance between the level of revenues that we bring

17 in and the amount that we expend. And I don't think

18 there's any mystery. That is the core of the problem.

19 And we have to deal with that long term structural

20 imbalance.

21 GWEN IFILL:. Well let me turn the corner

22 then to something which I'll direct to you first and


1 then to the other members of the panel which is, taxes.

2 Pete Peterson, among others, believes that that is

3 something that we ridiculously take off the table all

4 the time.

5 When in fact, that's part of the solution to

6 the problem. Not the entire solution, but part of it.

7 How much of the solution do you think it ought to be?

8 BOB GREENSTEIN:. Well the first point is the

9 key one. Nothing can be off the table and certainly

10 not revenues. Revenues has to be a substantial part of

11 the problem, especially in the short term. Let me

12 explain why.

13 Health care costs are the single greatest

14 contributor to the problem. Health care costs system

15 wide. As Bob Reischauer said yesterday to the

16 Commission, I know you're a member of the Commission

17 Congressman Ryan, you cannot year after year have

18 Medicare and Medicaid costs significantly slower than

19 health care costs system wide, it can't be done.

20 Or at least it can't be down without a widely

21 two-tiered system in which we throw lots of our

22 citizens out to dry and don't let them have the


1 benefits of modern medicine. So we have to find ways

2 to slow the rates of growth of health care costs system

3 wide.

4 But we don't know all the ways to do that.

5 It's going to take us time. It's going to be a number

6 of years before we get major savings there. We know we

7 have to close the long term Social Security shortfall.

8 But there's bipartisan agreement that we're

9 not going to slash benefits for people who are already

10 retired today. Any changes in Social Security will be

11 made gradually and phased in over a long period of time

12 as the Greenspan Commission did in 1983.

13 That means not only that in the short run the

14 single major place that you get most deficit reduction

15 from is going to have to be revenues. And over the

16 long run it's going to have to be a balance.

17 In the long run, the single largest

18 contributor I think has to be from slowing the rate of

19 growth of health care costs but no one thinks we can

20 slow health care costs so much that you could do the

21 whole job there. Because there will be medical

22 breakthroughs and they will save lives and they will


1 improve health, but they will add to costs.

2 GWEN IFILL:. Let me ask Neera Tanden to

3 weigh in on that, that's her expertise. Is that true,

4 is that an accurate take -- your accurate take on what

5 happens to health care?

6 NEERA TANDEN:. Well I agree totally with Bob

7 that there's -- that it will take time for us to

8 realize the savings, the potential of savings that are

9 in the legislation itself. But that I believe you

10 know, that CBO was very conservative and that we could

11 realize greater savings when we ramp up those -- when

12 we ramp those up.

13 But I don't think that we should -- we should

14 live in a world where we expect that health care

15 inflation will dramatically decrease or get to place

16 where we -- it's in line with everything else. And so

17 that has to be part of our understanding of what the

18 long term picture is. And part of how we make tough

19 decisions about the budget overall.

20 GWEN IFILL:. Alice Rivlin.

21 ALICE RIVLIN:. Oh, I agree with that. But I

22 think we have to start now to strengthen the health


1 care framework as Neera said that's already in the

2 Bill, to give it more teeth, and to think hard about

3 how we get these health care savings down the line.

4 Because they aren't going to happen tomorrow

5 and we're never going to fix that problem. We're going

6 to have breakthroughs in health care that people want

7 and that they need to have. And health care's going to

8 be pressing on us forever.

9 NEERA TANDEN:. And the --

10 GWEN IFILL:. What about revenues?

11 ALICE RIVLIN:. Revenues have to be part of

12 the solution. I believe we can shift our tax system to

13 a much more fair and productive one. That can mean

14 taking our income tax, making the base much broader,

15 getting rid of a lot of the special provisions.

16 Now it's easy to say that in the abstract.

17 Some of them are things that people really care about

18 like the mortgage interest deduction. But if there

19 ever was a moment when we have proved that high end --

20 we over billed high end housing, guess what we did it

21 and the mortgage interest deduction contributes to

22 that. And we don't need to abolish it, we need to


1 phase it down.

2 GWEN IFILL:. Congressman, you live in the

3 world of the reality as opposed to the abstract. How

4 much of this --

5 CONGRESSMAN RYAN:. I like to think so.

6 GWEN IFILL:. Well some days.

7 [Laughter.]

8 NEERA TANDEN:. When did we start calling

9 Washington that?

10 GWEN IFILL:. I know, what is --

11 CONGRESSMAN RYAN:. I live in Janesville,

12 Wisconsin.

13 GWEN IFILL:. I'm sorry, I had a moment

14 there.

15 [Laughter.]

16 GWEN IFILL:. Assuming for a moment that you

17 live in the world of reality and not in the abstract,

18 how's that?

19 CONGRESSMAN RYAN:. That's on the weekends

20 when I go home to Janesville.

21 GWEN IFILL:. Exactly. Let's talk about

22 taxes and whether that is part of the solution or


1 should be or even can be?

2 CONGRESSMAN RYAN:. Well I try not to get

3 into table talk as a Commission member, meaning what's

4 on and off. This is my 12th year in Congress. I have

5 served in Democratic and Republican majorities.

6 Here's the problem on taxes, when you take

7 pressure off of the need to reduce spending, you never

8 end up reducing spending. It doesn't matter who's

9 running Washington. That's the problem.

10 So if we simply go to the quick fix which is

11 raise the revenue line to come closer to the spending

12 line, you never end up getting that spending line down.

13 We need to keep the focus on the problem, and this is

14 my opinion, the problem is spending, it's not revenues.

15 And of course we should clean up our tax

16 system. It's a terrible tax system. It penalizes

17 growth, it's making us internationally not competitive.

18 I've obviously produced reforms myself in my bill. But

19 I think we need to focus on that spending line. And

20 like Bob and Alice said, what really matters is the

21 trajectory.

22 Heritage and Brooking did this paper a year


1 or two ago of a bunch of budget experts that Alice I

2 think, and Stuart Butler headed which I thought was

3 very significant. And it said, let's score keep these

4 things long term. Meaning, let's show the trajectory

5 of American fiscal balance sheet.

6 And if we actually lowered our trajectory

7 because these saving in the health care take awhile to

8 accumulate, but we actually put these reforms in place

9 and show the out year differences, it will buy us

10 breathing space in the credit markets. It will revive

11 some confidence in the America economy going forward

12 and that will help us in the near term with growth as

13 well I think.

14 GWEN IFILL:. Bob and then Larry.

15 BOB GREENSTEIN:. Yeah, well let me disagree

16 with Congressman Ryan here. I do not think it is

17 accurate to say this is simply a spending problem. It

18 is an imbalance between revenues and spending.

19 Let's remember that eight years ago, nine

20 years ago in 2001 the Congressional Budget Office

21 forecasted surpluses as far as the eye could see.

22 Chairman Greenspan worried that the surpluses were too


1 large at that point. A number of factors intervened

2 but one of the key ones was massive tax cuts that were

3 not paid for.

4 I know this isn't going to happen

5 politically, but it's interesting to note that if the

6 policy makers adopted a policy that any of the Bush tax

7 cuts that they wanted to extend, they would pay for in

8 non-deficit finance the 40 percent of the fiscal gap

9 through 2050 would go away.

10 A second key point is this distinction

11 between spending and taxes is very artificial. We have

12 over $1 trillion dollars a year in what the experts

13 call tax expenditures. This is spending that uses the

14 tax code as the vehicle for the spending.

15 That $1 trillion dollars a year is nearly as

16 much as the current cost of Social Security and

17 Medicare combined and it is double everything we spend

18 on every domestic non-entitlement program, veteran's

19 health, education, environmental protection, protecting

20 the borders, everything combined is half of what these

21 tax expenditures add up to.

22 I remember serving on the last deficit


1 commission, the Kerrey-Danforth Commission in '94, and

2 when Mr. Greenspan testified before us at one point he

3 called these tax entitlements, they are. They're

4 entitlements delivered through the tax code.

5 So if we want to keep the pressure on

6 spending Congressman, the pressure should be on all the

7 spending that's in the tax code as well as the spending

8 that's on the other side of the budget.

9 GWEN IFILL:. Larry?

10 LAWRENCE MISHEL:. Ditto.

11 GWEN IFILL:. What he said.

12 LAWRENCE MISHEL:. Let me raise another issue

13 which obviously --

14 NEERA TANDEN:. Your mic -- you might want to

15 use the --

16 CONGRESSMAN RYAN:. Use the other one over

17 there.

18 LAWRENCE MISHEL:. One of my concerns about

19 the deficit discussion is the excitable nature of the

20 fear mongering. The idea that somehow, to respectfully

21 disagree that our standard of living is going to be

22 lower 30 years from now when productivity growth is


1 going to two percent a year, per capita income is going

2 to be far higher 30 years from now.

3 CONGRESSMAN RYAN:. If our debt is 300 or 400

4 percent of GDP?

5 LAWRENCE MISHEL:. Yeah, exactly. And

6 secondly, you know you get the fear mongering also

7 from, unfortunately Senator Simpson, who's a collegial

8 funny guy as we all saw.

9 On the talk shows he said we can't grow our

10 way out of this even if we had 10 percent a year

11 growth. Well in fact, the Commission has a goal of in

12 2015, and growth between now and then is supposed to be

13 three or four percent.

14 If only it were five percent a year between

15 now and then it would hit it's goal without breaking a

16 sweat, without far from getting the 10 percent. Now

17 where he gets you can have 10 percent a year growth and

18 we'd still have a problem, seems untethered from

19 economic analysis.

20 So I just want to call attention to we need

21 to be really careful about how we approach things.

22 Because the public needs to know that there is a


1 challenge we have, but if it is fear mongering, false

2 crisis mongering we won't get the decisions I think

3 that are wise.

4 CONGRESSMAN RYAN:. So citing CBO numbers is

5 false crisis fear mongering?

6 LAWRENCE MISHEL:. We can huddle afterwards

7 but I don't think the CBO --

8 CONGRESSMAN RYAN:. Okay.

9 LAWRENCE MISHEL:. -- shows that per capita

10 income is going to be lower 30 years from now even

11 after taxes then it is now.

12 GWEN IFILL:. Alice.

13 ALICE RIVLIN:. I think we've got fear

14 mongering on one side and denial on the other and I

15 rather think Larry's in the denial camp.

16 [Applause.]

17 ALICE RIVLIN:. But let me come back to what

18 Bob was saying and I was glad to hear him reference the

19 surplus that we actually had at the end of the 90's.

20 We got that surplus partly because the

21 economy was growing quite rapidly. And it was growing

22 quite rapidly at then tax rates which have since been


1 cut. So there isn't much evidence that going back to

2 those tax rates, eventually, not now Larry, would be

3 very deleterious to growth.

4 And the other way we got it was by very

5 strict budget rules that meant that spending went up

6 very slowly throughout the 90's until the end of the

7 decade. And that was real restraint, bipartisan

8 restraint on the part of the Congress, which was

9 controlled for much of that period by the Republicans

10 and a Democratic administration. It's harder now, but

11 the spending restraint is not impossible.

12 GWEN IFILL:. Bob.

13 BOB GREENSTEIN:. There's an important point

14 here in what Alice just said. And I think it is that

15 restraints, when they're tough but realistic can work.

16 When you try to impose restraints, targets,

17 whatever they may be, that look good for those policy

18 makers who are putting them in place and don't take

19 effect for a number of years, and go so far that

20 they're wildly, politically unrealistic, that doesn't

21 help at all. It can even be a negative because that's

22 when the system blows them away.


1 So for example, the Gramm-Rudman-Hollings

2 targets were far too severe, they were blown away. The

3 limits that were put into effect in the 1990 bipartisan

4 agreement, Democratic Congress, Republican leaders

5 cooperated, President, first President Bush led, he

6 should get good credit for that.

7 The 1990 agreement had pay as you go rules

8 and it had caps on non-entitlement spending that were

9 set at realistic levels and they were adhered to. And

10 that was continued in the '93 Clinton agreement, and

11 those were adhered to.

12 Now in '97, there were spending caps on non-

13 entitlement spending put in that were far more severe

14 and they got blown away. Partly it was because the

15 deficit disappeared and there was less need, but also

16 they were severe they got blown away.

17 Also in '97, all the other Medicare saving

18 enacted in '90, '93, 2005, and in '97 really did take

19 effect except for one big one that wasn't assumed to be

20 big at the time. This was the physician's fee thing.

21 And it was poorly designed in '97 unfortunately.

22 It was originally designed, they thought it


1 would only do modest savings. It would be one of these

2 realistic things. It turned out that it caused a

3 formula that caused huge cuts in fees to physicians

4 taking them below their costs and Congress blows it

5 away every year.

6 The reason I'm bringing this us is I have a

7 little bit of a fear and I look at both Alice and

8 Congressman Ryan, I hope the new Commission doesn't set

9 some kind of goals or targets that look like they hit

10 something down the road, but are so tough and so severe

11 that they won't be adhered to.

12 I would rather take somewhat longer to get to

13 it, and I think Bob Reischauer said the same thing in

14 his statement to you yesterday, I would rather take a

15 little longer to get to whatever goal we're trying to

16 get to on debt as a share of the economy and have it be

17 a path we can enforce and we can live within then set

18 some kinds of targets that in the beginning look good

19 on paper but when the rubber meets the road they get

20 blown away.

21 GWEN IFILL:. Well the short term versus the

22 long term goals is at the nut of this so let me ask the


1 two members of the Commission to respond to that,

2 Congressman first.

3 CONGRESSMAN RYAN:. Well I agree kind of what

4 both of what they've said. This is a putting the horse

5 in front of the cart kind of argument. You've got to

6 change the law that creates the spending. So you've

7 got to change the way entitlements work.

8 You have to change the law that brings the

9 spending baseline down and then enforce that with

10 budget discipline and budget caps. You know both

11 parties messed up on deficit targets, discretionary

12 spending caps.

13 I've been pushing the caps issue for ever

14 since I got into Congress. And I mean I've had --

15 we've had a hard time. But you can't just put deficit

16 caps in place or spending targets in place without

17 fixing the underlying spending. So you got to do both.

18 They won't work without the other.

19 And so change the law on entitlements, change

20 the law on discretionary to get the spending trajectory

21 down and then come in with a very rigid enforcement

22 regime to make sure that we can enforce the discipline


1 down the road to make sure that this thing sticks.

2 That's how I see we ought to do it.

3 GWEN IFILL:. Alice.

4 ALICE RIVLIN:. I agree with Bob but I think

5 one can also make a case for being a little bit

6 conservative especially on spending. There's no point

7 in being so aggressive that you can't enforce it and

8 you have to turn it around.

9 But over the long run, if we grow the economy

10 as fast as Larry thinks we're going to, we're going to

11 have plenty of room to do more things then we want to

12 do. We just shouldn't be locked in to things that

13 people decided now were necessary and that we find we

14 can't afford in the future.

15 BOB GREENSTEIN:. My one addition to what

16 Congressman Ryan and Alice just said is, again I have

17 trouble just talking about spending. Both

18 substantively and politically.

19 You know if I come back to these tax

20 expenditures, let me give an example and I don't want

21 anyone to think that in this example I'm calling for

22 cutting child care, I'm not, but it's a nice example.


1 If you're a working poor family, you're a low

2 income family, you make $25,000 a year, your child care

3 costs are very high, you may be able, it's not an open

4 ended entitlement, you may or may not, but you may be

5 able to get some assistance, a subsidy from the

6 government to help with your child care costs.

7 If you make $5 million dollars a year you

8 qualify for a subsidy for your child care costs too.

9 The low income family gets it through a "spending

10 program", the high income family gets it through a tax

11 cut, a tax expenditure, a tax credit.

12 Now a subsidy is a subsidy, is a subsidy.

13 They're both subsidies, they're both spending. And

14 when we get in to this artificial thing where we just

15 talk about --

16 GWEN IFILL:. But one is untouchable and one

17 is not.

18 BOB GREENSTEIN:. It is a precise example of

19 why, if you focus just on spending and you leave taxes

20 to the side, what it means is that you're going to look

21 at those programs that provide various supports and

22 subsidies and assistance to low and middle income


1 people primarily.

2 And you're going to put to the side those

3 programs that provide subsidies to corporations and

4 high income people. They largely get their subsidies

5 on the tax side, low and middle income people largely

6 get theirs on the spending side.

7 Let's treat them all equally, put them all on

8 the table and that's you know, why I get uncomfortable

9 when I hear Congressman Ryan's discussion about -- one

10 more thing, some people say we agree we should reform a

11 number of these tax expenditures. But they propose it

12 as part of a deficit neutral tax reform that doesn't

13 provide any help at all towards long term deficit

14 reduction.

15 Now in 1986 I thought the bipartisan, led by

16 Ronald Reagan Tax Reform Act was great. But we can't

17 afford another one like that. We need tax reform, but

18 tax reform needs to contribute to deficit reduction.

19 Just as reforms in health care and other areas do.

20 GWEN IFILL:. Neera and then Congressman.

21 NEERA TANDEN:. So I think this actually

22 relates directly to what the Congressman said earlier


1 as a broad principle, which is that you know, we have -

2 - you have to limit the government because that allows

3 the private sector to grow. And so there is a direct

4 correlation.

5 And I think just to go back to an earlier

6 point, I mean we did see in the late 90's and in that

7 period a time of profound economic growth and of much

8 higher tax rates. So I think we have to recognize the

9 experience of that tells us that these things are not

10 actually in direct conflict.

11 That one is not at the burden of the other.

12 That we can have -- we can have investments that

13 actually help economic growth just as we can have

14 targeted tax savings or tax savings -- have tax cuts

15 that help economic growth. But the idea that we can do

16 one and only one and not the other for economic growth

17 I think is not shown by the facts.

18 GWEN IFILL:. Congressman.

19 CONGRESSMAN RYAN:. We do need fundamental

20 tax reform if only for the reason that we are now in a

21 21st Century global economy and we take for granted our

22 super power status in the economy like we did in the


1 20th Century.

2 Bob's right, the tax code is basically like

3 an appropriations bill. I've been on the Ways and

4 Means Committee for 10 years. I remember the last tax

5 reform commission we had which occurred in the Bush

6 Administration.

7 I'll give you one little quick story. I

8 wanted to make sure that members of the Ways and Means

9 Committee and Congress didn't dig in and say that they

10 were going to protect this tax expenditure or that tax

11 expenditure. And that we would sign a letter saying,

12 we're going to reserve judgement until we see the full

13 you know, comprehensive tax reform and then we'll

14 reserve judgement.

15 The problem is, other members of Congress on

16 the Ways and Means Committee were circulating their

17 letters saying, under no circumstances will we ever

18 alter this particular tax expenditure or that

19 particular tax expenditure. And I didn't get nearly as

20 many signatures on my letter as the others got on

21 theirs. So the problem --

22 GWEN IFILL:. Like for instance, cutting the


1 military is never going to be an option, right?

2 CONGRESSMAN RYAN:. Well I'm talking tax code

3 right now so the --

4 GWEN IFILL:. Well but okay, but we're

5 talking --

6 CONGRESSMAN RYAN:. Well I think there's a

7 lot of savings you can get out of DOD for sure. There's

8 a lot of waste over there. But Bob is right about the

9 tax code has become an appropriations bill basically.

10 Where we appropriate through the tax code and that

11 needlessly raises rates which depresses economic

12 growth, entrepreneurship, saving and investing.

13 So let's clean up our tax code so we can

14 maximize economic growth and stop doing all the social

15 engineering in the tax code. I completely agree with

16 that. But at the end of the day, where we are going to

17 disagree, is what level of taxation do you want to have

18 in this country.

19 And we're just going to have a disagreement

20 about that. And my disagreement is based upon my goal

21 and desire to maximize economic growth and job

22 creation.


1 GWEN IFILL:. Larry.

2 LAWRENCE MISHEL:. I want to draw out a

3 little bit on what Bob said about tax expenditures and

4 use it again for a larger point. You know two- thirds

5 of the tax expenditures go to the upper 20 percent of

6 our nation.

7 So leaving them off the table it has very

8 direct distributional consequences. And we should be

9 breathing directly into this discussion what the last

10 30 years have been. Because in the last 30 years or so

11 -- now they're going to cut me off?

12 [Laughter.]

13 LAWRENCE MISHEL:. The last 30 years we've

14 seen that the bottom 90 percent of families,

15 households, received about 16 percent of the all the

16 income growth and the upper one percent about 56

17 percent.

18 The upper 10th of the upper one percent got

19 about a third of all the income growth. Now that's

20 pretty relevant to me when we talk about how we resolve

21 things going forward. If we're -- you know, are we

22 going to change that?


1 And these number I'm giving you are actually

2 pre-tax. After tax it would have been even more

3 distorted because of the fact that the tax system is

4 still progressive but less progressive then it used to

5 be.

6 GWEN IFILL:. Bob, and then I want to bring

7 it to a larger question.

8 BOB GREENSTEIN:. Well I wanted to get back

9 to this question that Congressman Ryan just raised

10 about taxes and economic growth. Now there is no

11 precise level, of gee if you are at this level of

12 revenue as a share of the gross domestic product,

13 growth is terrific and if you're a half a point or a

14 point above it, growth is bad.

15 A tax system could have a low rate of revenue

16 collection and be inimical to economic growth because

17 of the nature of the tax system. And it could have a

18 much higher level of revenue collection and be better

19 for economic growth.

20 GWEN IFILL:. I agree with that.

21 BOB GREENSTEIN:. So take the corporate

22 income tax. The corporate income tax we have one of


1 the -- I think it's maybe the second highest marginal

2 rate among advanced countries but we actually take in a

3 lower percentage of corporate profit in tax then many

4 of our leading competitors because we have so many

5 corporate loopholes that we apply a high rate to a

6 narrow base.

7 And then even within the corporate sector,

8 some types of corporations pay high effective rates and

9 some types of corporations pay low or even negative

10 effective rates.

11 You could reform the corporate tax system,

12 I'm my view, in a way where you make our corporations

13 more competitive by lowering the top marginal rate but

14 you broaden the base to such a degree that you increase

15 the total amount of corporate revenue that we're

16 collecting as a share of profits.

17 The second question is, I think most analysts

18 would agree that the thing that is dangerous to robust

19 long term economic growth is decade, after decade,

20 after decade running deficits of the magnitude that's

21 projected off into the future.

22 Modestly higher tax rates that contribute as


1 part of a larger plan over the whole budget to

2 significantly addressing long term deficits and debt.

3 That would be much better for the economy then having

4 higher debt and lower rates.

5 And finally, there are important studies,

6 like by Peter Lindert, that show some Western European

7 and other Western countries appear to have improved

8 growth even as the y raised rates. Excuse me, even as

9 they raised revenue because they raised revenue in

10 economically efficient ways and invested the money in

11 things like infrastructure, education, basic research

12 that were positive for long term growth.

13 So the bottom line is, there's no simple

14 measure. Gee, here's the hard yellow line in the road.

15 You go one dollar beyond that on revenues and you kill

16 economic growth. That's not right. Our main focus

17 should be, short term do what we need to do to get the

18 economy back on track.

19 Mid-term, longer term we got to bring the

20 long term deficit and debt down. And yes, higher

21 revenues are going to have to be part of that. As

22 Alice said, we had robust growth in the late 90's at


1 the Clinton era rates, and changes in other areas led

2 by system wide health care reform, the biggest issue

3 for the long term has to be part of it too.

4 GWEN IFILL:. Let's assume for a moment that

5 Alan Simpson was right yesterday when he said that the

6 Commission is on a suicide mission. And in fact, that

7 there is no silver bullet that can -- that everyone

8 will want to hear it or that anybody out there is going

9 to agree on to get to the longer term or the solution

10 for these issues.

11 What could, can a Commission, another

12 Commission, any Commission any panel discussion do to

13 begin to first of all, agree on what the problem is.

14 And then second, begin to address it. And I'll start

15 with you Alice Rivlin.

16 ALICE RIVLIN:. I think the Commission is

17 pretty well agreed on what the problem is. The

18 dimensions of it, the numbers, the growth rates in the

19 debt, and the unsustainability of it.

20 We are not agreed and probably in the end,

21 won't all agree on an exact solution. But if we can

22 put forward some practical proposals that control the


1 rate of growth of spending in the future and that raise

2 revenues a pro-growth way. I think we'll get a hearing

3 in the Congress.

4 Because my sensitivity is that the American

5 public does realize there is something wrong and

6 something needs to be done and maybe after this

7 election we'll be ready for some sensible solutions.

8 GWEN IFILL:. Can I ask you this, can you

9 even agree on the priorities?

10 ALICE RIVLIN:. We don't know yet Gwen. We

11 met for the first time yesterday. I couldn't possibly

12 answer that question. But I hope so.

13 GWEN IFILL:. Larry.

14 LAWRENCE MISHEL:. Well my hopes for the

15 Commission is that at the end of the process we have a

16 more informed public then we do now. And I think that

17 first and foremost that means talking about the inter-

18 relationship of these problems, which I acknowledge

19 Alice, contrary to what you think.

20 You know, that we have structural fiscal

21 imbalances in the years ahead. But we have to

22 reconcile how do we deal with that with the deep


1 inequalities we have, with the needs for growth and

2 competitiveness, with the needs for health security,

3 the needs for retirement security.

4 And I think part of the information also has

5 to be -- you know the American public has a lot of

6 ideas that may not be so accurate. Erskine Bowles

7 mentioned them. Many people think that we have

8 tremendous waste, fraud, and abuse. And of course one

9 person's waste, fraud, and abuse is not another's. But

10 you know if you raise taxes --

11 GWEN IFILL:. One person's earmark is another

12 person's post office.

13 LAWRENCE MISHEL:. Right. So you know, so

14 when you go to raise taxes, hey don't take raise taxes,

15 take it out of waste, fraud, and abuse. If you go say,

16 cut spending, someone says don't cut my program, take

17 it out of waste, fraud, and abuse.

18 Frankly, I think we've had 30 years of people

19 looking very hard at the budget trying to find a lot of

20 savings and haven't been so successful, both

21 Republicans and Democrats. So I guess I would hope

22 that some of these ideas should be openly discussed and


1 that we have a more clear debate moving forward.

2 GWEN IFILL:. Congressman Ryan I'm going ask

3 you to respond to that as well. But in the context of,

4 at a time when Americans are feeling so much economic

5 stress and don't really want to hear from this. They

6 don't want to hear about taxes, they don't want to hear

7 about long term problems. They're worried about the

8 issues which are confronting them on a daily basis.

9 How do you begin to shape your priorities in a way on

10 the Commission that speaks to that?

11 CONGRESSMAN RYAN:. Well I think people are

12 worried about spending, they are worried about deficits

13 and debt. And they see the direct correlation with

14 jobs and the economy. I get that all the time at home.

15 As a Commission member, I don't think it's

16 wise to get into the table talk on what it should or

17 should not do. Because you know, like Alice said we

18 just met and we need to start hashing these things out.

19 If only we do one thing, which is public

20 education, like what the Peterson Institute has been

21 doing. What the Fiscal Wake Up Tour did, that's a huge

22 service to the country. I hope it goes beyond that and


1 actually comes up with some solutions.

2 I'd simply say that the social insurance

3 strategies of the 20th Century are not sustainable in

4 the 21st Century and so they have to be redesigned, we

5 do not have a choice. So we have to decide what are

6 our principles and values as we do that.

7 Most of us believe, you need to have a safety

8 net to help people who cannot help themselves or who

9 are temporarily down on their luck. But it can't be a

10 safety net that sucks everybody in society onto a

11 system of dependency. Because that will drain our

12 economy from reaching its potential.

13 We are going to have disagreements on where

14 those lines are drawn. The point is this, these

15 programs must, have to change if we are going to avert

16 a forthcoming debt crisis.

17 GWEN IFILL:. Neera.

18 NEERA TANDEN:. First in an area of agreement

19 I would just want to laud the Congressman for talking

20 about the Pentagon budget which is dramatically higher

21 then it was at the height of the Reagan build up. And

22 so I think it's obviously an important area and make


1 sure as we're talking about all these issues of

2 spending that that area of spending is on the table as

3 well. So I wanted to laud that.

4 I actually, I am actually profoundly hopeful

5 about the Commission's work given the last year we had

6 of talk in health care. And I know that the year felt

7 draining.

8 GWEN IFILL:. You would think it would be the

9 opposite.

10 NEERA TANDEN:. But actually I mean that was

11 an area where we, the Congress for the first time in a

12 long time actually paid for something large. And part

13 of the reason why it was such a difficult thing to do

14 was because it was paid for through revenues and

15 through savings.

16 And part of what animated the President was

17 the long term deficit and debt issues around health

18 care and why one of the most important issues for the

19 President was to ensure that there was savings in the

20 second decade, and dramatic savings, and it put us on a

21 better cost trajectory.

22 But I think the fact that leadership came


1 together to tackle a large problem, obviously there was

2 a lot of disagreement about that. And you know, one of

3 the big problems we faced, and I think people in the

4 Commission should realize they'll face as well, is that

5 we faced in opposition that both said we need savings

6 in the system and you need to cut costs and you're

7 rationing.

8 I mean that was an attack that came from

9 people on the other side. And that something that the

10 Commission will face as well. But at the end of the

11 day we were able to do something large and important

12 and something that helped the deficit over the long

13 term.

14 GWEN IFILL:. Bob.

15 BOB GREENSTEIN:. Well you know remembering

16 the 1994 Commission which I know Pete Peterson and I

17 and many others both served on. And it was viewed at

18 the end of the day as not having succeeded, maybe as

19 having failed. We didn't reach agreement on anything.

20 I think it's going to be very difficult to

21 get 14 of 18 members of this Commission to agree on

22 major policy changes. And so odd as it may sound, I


1 actually would recommend -- not that we give up on that

2 but that we not set the expectations too high because

3 one think we don't need is a storyline that we had

4 another failure.

5 I do think as Alice said, as Congressman Ryan

6 just said, that some broader education of the public of

7 the nature of the choices could be helpful. But I have

8 to say, that to me what Congressman Ryan just said is

9 exactly what you don't want to say to the public.

10 I think it is inaccurate. To say that the

11 fundamental problem is that social insurance by its

12 nature is unsustainable seems to me entirely incorrect.

13 The long term imbalance in Social Security is

14 about seven tenths of one percent of the gross domestic

15 product. You know that's about the same cost as the

16 cost of making permanent the Bush tax cuts for people

17 over $250,000 a year.

18 CONGRESSMAN RYAN:. What about the 38

19 trillion in Medicare?

20 BOB GREENSTEIN:. Let me get to that in a

21 second. I just want to --

22 GWEN IFILL:. Okay, but you only have a --


1 we're winding up here.

2 [Laughter.]

3 BOB GREENSTEIN:. Medicare is clearly a big

4 increase in cost, part of the long term fiscal issue, a

5 big part. But it is not because there's something

6 inherently inefficient in Medicare.

7 NEERA TANDEN:. Right.

8 BOB GREENSTEIN:. It pays providers less then

9 the private system, it has low administrative costs.

10 The problem are health care costs system wide. And

11 transforming Medicare into something that is no longer

12 functions as an effective safety and not dealing with

13 health care costs growth system wide would greatly

14 increase hardship among seniors without dealing with

15 the long term fiscal problem.

16 The bottom line is that -- and this is what I

17 think is most important for the public to know. There

18 aren't any easy answers. The average retiree benefit

19 in Social Security is $14,000 a year now. It's not a

20 fat benefit. Medicare isn't wildly inefficient.

21 We have fundamental issues in the whole

22 structure of the health care system, the structure of


1 the tax system. It isn't foreign aide, you can't waive

2 a wand and say make fraud, waste, and abuse go away.

3 The choices really are hard and part of the

4 problem I think is that many of the public believe that

5 there are easy choices that members of both parties are

6 avoiding. And educating people on the nature of the

7 choices, because they really are hard.

8 Of course no one wants to raise revenues or

9 make changes in major programs if there are easy,

10 painless alternatives that we're just willy nilly

11 avoiding. I think that may be the most important

12 lesson the Commission could teach.

13 GWEN IFILL:. Well we are here of course all

14 day to talk about hard choices. And this was a good

15 way to start it off. Thank you all very much.

16 [Applause.]


18 PETER PETERSON: All right now I'd like to

19 introduce somebody that doesn't need an introduction

20 and therefore I won't give him one. Bob Rubin.

21 [Applause.]

22 PETER PETERSON: I hope you're here Bob.


1 ROBERT RUBIN: Thank you Pete for the

2 gracious introduction.

3 PETER PETERSON: That's fine.

4 [Laughter.]

5 PETER PETERSON: We had lunch yesterday and

6 he refused to pick up the check.

7 ROBERT RUBIN: Well we allocated it by net

8 worth.

9 [Laughter.]

10 PETER PETERSON: Well no, no you Democrats

11 keep believing there's a free lunch but you're wrong

12 about that.

13 [Laughter.]

14 PETER PETERSON: Bob, you spent a lot of time

15 in financial markets and trading and so forth and also

16 thinking about the fiscal situation. A lot of

17 discussion here about whether the outlook is

18 sustainable or not sustainable or what. Where do you

19 come out on that? I'm talking about the longer term.

20 ROBERT RUBIN: Sure. Pete, as you know, the

21 Congressional Budget Office, when they re-estimated the

22 budget was projecting a debt to GDP ratio of about 90


1 percent when you get to 2020 up from 40 percent at the

2 end of 2008. And then 130 percent, if I remember

3 correctly, in 2030.

4 I don't think -- there's no mainstream budget

5 analyst that I know Pete, who thinks that numbers

6 anything like that are sustainable. And I think that

7 there's a virtually unanimous opinion that given our

8 savings rate -- remember there's a context for this.

9 And the context for our fiscal situation is

10 unfortunately highly exacerbating I think with respect

11 to the risks. We have a very low savings rate. We

12 have very large annual maturities or annual debt

13 maturities that also have to be funded. And we have

14 heavily overweighted dollar denominated positions in

15 foreign portfolios, et cetera.

16 You put it all together Pete, and I don't

17 think there's a mainstream, or at least there's not any

18 mainstream analyst that I know of who thinks that this

19 situation is sustainable. And I think there are really

20 only two choices.

21 One is, we act preventively. And that's

22 going to be very difficult, but I think absolutely


1 imperative. And then if we don't, that we have severe

2 disruptions in our capital markets that will produce

3 very difficult conditions with respect to jobs.

4 This is a problem for all of -- this is not a

5 Wall Street problem, this is a problem for all

6 Americans. It undermines jobs, it undermines incomes

7 and that is going to ve very, very difficult to deal

8 with. I'm more worried about this Pete than anything

9 in my adult lifetime in terms of the economic future of

10 our country.

11 PETER PETERSON: Well what do you think the

12 risks are Bob if we don't take significant actions?

13 ROBERT RUBIN: I think that the fiscal

14 situation that we face presents multiple risks of

15 varying degrees of severity and time probability if you

16 will. The conventional economist's view would be that

17 there's a risk of crowding out, that is to say the

18 deficits will crowd out capital so that the interest

19 rates will be higher, there'll be less private

20 investment.

21 A variant of that is the comment that Alan

22 Blinder, later Vice-Chairman of the Fed, made to


1 President Clinton in 1993 when he said the deficits

2 could choke off recovery if it starts. Because you

3 already have deficits which are a claim on our capital

4 and are affecting interest rates. And if you then had

5 the kind of higher rate of private investment that you

6 would desire, that could get choked off.

7 I think right now deficits are already

8 affecting business confidence more generally which

9 means affecting, adversely affecting hiring and

10 investment. And then you get to the more serious risks

11 which are that concern about future supply and demand

12 for capital or concern about future inflation, one or

13 the other, or both create a deficit premium and higher

14 interest rates will deter investment.

15 Or the most severe of all these risks, which

16 is that you have what we described a few moments ago

17 which is severe disruptions in our capital markets and

18 the enormous impacts that that could have on jobs and

19 on incomes and really on the economic well being of all

20 Americans.

21 And I think unfortunately Pete, there is no

22 easy -- there is no ready escape from this. There's no


1 -- I don't believe and I have not seen anybody put

2 forth a way to muddle through this. I think we need to

3 face it.

4 In which case it's going to take very

5 difficult measures, not measure you put in place now

6 because with the very high rate of unemployment you

7 can't I don't believe act now on the deficit on the

8 long term picture. But rather, we need to commit in

9 some realistic and credible way now to take actions

10 when the recovery can sustain the effect of those

11 actions.

12 And if we don't do that, then I think the

13 probabilities are overwhelming high that at some

14 unpredictable point we will have a fiscally driven

15 crisis that will be severe and then we will have to

16 take very difficult measures to come back from that.

17 PETER PETERSON: As you know Bob, our foreign

18 borrowing has increased dramatically and forgive the

19 name but the Peterson Institute for International

20 Economics has done some forecasts that -- enough to

21 keep you awake at night in terms of where the foreign

22 debt levels reach.


1 Given our lack of savings we've become

2 extremely dependent on foreign lenders. What do you

3 think the odds are that they lose confidence somehow in

4 the United States and what would the effects of that

5 be? What might cause them to lose confidence and what

6 would the effects be?

7 ROBERT RUBIN: You know Pete I've been around

8 markets for many decades as you well know, the

9 psychology of markets is a sort of an unpredictable

10 kind of thing. But I think the one thing you can say

11 with some confidence if you've been around it long

12 enough is the psychology can change quickly and

13 dramatically.

14 And I think at least, and I don't -- go back

15 to a comment I made a moment ago, I don't know anybody

16 who's been involved in these processes that doesn't

17 think that at some point as the markets look at this

18 enormous imbalance between the supply and demand for

19 capital that is created by our fiscal deficits and our

20 very low savings rate.

21 And also the possibility of inflation,

22 although that actually to me seems like a lessor risk.


1 And at some point the psychology will change and when

2 it changes it can be very rapid and very harmful. Now

3 when that will be is I think unpredictable.

4 You know there's a tendency Pete to say this

5 is a longer term problem, we don't really have to deal

6 with it now. I think that's a very dangerous point of

7 view.

8 We cannot act now, at least I don't believe

9 we can act right now because with 10 percent

10 unemployment and 6 percent underemployment and the

11 recovery in its early stages and pretty uncertain, I

12 think we shouldn't act now in a -- we shouldn't take

13 actions that have effect right now but I think what we

14 imperatively need to do is to find the political will

15 to take actions now, to put in place measures now that

16 will take effect when the recovery --

17 PETER PETERSON: To work out a plan now in

18 effect?

19 ROBERT RUBIN: Well more than just work out a

20 plan. I think we need to put in place measures that

21 are both real and credible to the markets that will

22 take effect when our system can afford to absorb the


1 effects on fiscal matters.

2 And we have to hope that we grow enough and

3 quickly enough so that we can put these in place before

4 these fiscal risks begin to have too great an adverse

5 impact on us. And can I just add one other thing Pete?

6 I heard one of the speakers of the prior

7 panel say, and I totally agree with this, that our

8 nation has a tremendous income distribution problem.

9 And we also have to provide economic security for

10 Americans. But you cannot do either of those things

11 without a healthy economy. And you cannot have the

12 capacity for the kind of public investment we need for

13 those purposes unless you have a sound fiscal regime.

14 PETER PETERSON: I've worried about your

15 income being excessive frankly and I haven't wanted to

16 discuss it publically but --

17 [Laughter.]

18 ROBERT RUBIN: Well I worry about how I can

19 get you to adopt me.

20 [Laughter.]

21 ROBERT RUBIN: But I haven't discussed that

22 publically either so there we go.


1 [Laughter.]

2 PETER PETERSON: Believe me, I'd be a very

3 illegitimate child if you ever did that. Bob, we've

4 spent a -- I think there's a pretty wide spread

5 agreement but I want to hear your views on -- that

6 Social Security is just a part of the problem, a very

7 small part. Our research people say maybe 10 percent

8 or something like that of that gap. But it's only a

9 small part of the problem.

10 But there are people that are saying that the

11 Social Security Trust Fund has two and a half trillion

12 dollars of assets and the system is solvent for the

13 next 30 years or so. Or to put it differently, in

14 terms of the fiscal ability of the United States to

15 meet its obligations, what do these bonds that are in

16 the trust funds provide in terms of additional fiscal

17 capacity for the Federal Government?

18 Well tell us about what they are, what are

19 they worth, what are they for, what do they do?

20 Because if the American people don't think there's a

21 problem for 30 or 40 years you can rest assured they're

22 not going to be inclined to do much about it.


1 ROBERT RUBIN: Sadly Pete, I think that the -

2 - leaving aside your question which I'll get to in one

3 second. I think the risks that are posed by our fiscal

4 position are going to affect us massively before 30 or

5 40 years.

6 That's independent of the Social Security

7 problem. And I just hope and pray that your efforts

8 and the efforts of others bring a level of

9 understanding to the American people to the point where

10 they hold their elected officials responsible for

11 taking the very difficult measures that we're going to

12 have to take if we're going to get back on track.

13 The Social Security question is a very

14 complicated question as Pete knows because he and I

15 discussed this. We actually dealt with what these

16 bonds mean in 1995 when we had a debt ceiling problem.

17 And let me try to just put it in two simple

18 propositions if I may.

19 The two and a half trillion dollars worth of

20 bonds don't add any independent resource to the Federal

21 Government. Basically you have a creditor, and the

22 creditor is the Social Security Trust Fund, and you


1 have a debtor which is the general good faith and

2 credit of the United States.

3 So there's no independent asset to add to our

4 ability to deal with either Social Security or any of

5 the other obligations that the Federal Government has.

6 That's one point and it's I think really the principle

7 point.

8 In terms however of Social Security itself,

9 it gets quite complicated. Because they are full faith

10 and credit bonds, obligations of the United States

11 Government.

12 And as long as the Federal Government has

13 resources sufficient to meet its obligations, then if

14 there's an annual shortfall in Social Security then

15 these bonds can be redeemed and they have the absolute

16 full faith and credit right to be paid to the extent

17 necessary to meet Social Security obligations.

18 The place you run into trouble and the

19 problem that we feared we might face in 1995 is that

20 the Federal Government either cannot borrow, and

21 hopefully that will never happen.

22 But if the Federal Government cannot access


1 the markets, or if as it looked like it could have

2 happened in 1995, the Congress and the Administration

3 can't agree to raise the debt limit. Then you could

4 have a situation where the government does not have

5 adequate resources to meet all of its obligations.

6 And I can tell you with absolute -- I can

7 tell you because I know this to be the case, I knew it

8 from them and I've rechecked it with counsel since,

9 there is no clarity as to who has priorities under

10 those situations.

11 So you have these full faith and credit bonds

12 but on the other hand they're -- all obligations of the

13 Federal Government are deemed to be full faith and

14 credit obligations and there is no settled law on who

15 will get -- how the resources of the Federal

16 Government, if they're short of the full level of the

17 obligations that we have, will be allocated.

18 Hopefully we will never face that but that is

19 the case. Can I add one more comment Pete that just

20 strikes me? It didn't strike me until this morning.

21 PETER PETERSON: I think it would take an

22 elephant gun to stop you so go ahead.


1 [Laughter.]

2 ROBERT RUBIN: Well I don't know about

3 elephant gun but I am sort of inclined to make the

4 comment. We are massively different, we are not

5 remotely like the situations in Greece, Portugal, and

6 other countries of Europe. But I do think that we

7 should look at what's happening over there.

8 We're not remotely like that and I don't want

9 to suggest that we are. We are not. We are not

10 remotely like that. But there is a fiscal crisis going

11 on in Europe right now of a kind that a few years ago

12 nobody could have thought would happen.

13 And I think we should try to learn from that

14 how important it is to make sure that whether it's --

15 whatever period of time it may be, that we never face

16 anything even remotely like what they're facing right

17 now.

18 PETER PETERSON: Bob I've been waiting for

19 the 30 years I've known you for you to make a specific

20 headline estimate or projection. And I've considered

21 you an expert in constructive ambiguity --

22 [Laughter.]


1 PETER PETERSON: -- but I want to be sure I

2 understand what you've said because this is a real

3 dramatic headline. You expect an economic crisis to

4 hit before 30 or 40 years from now? Is that right?

5 [Laughter.]

6 MR. PETERSON: You know it's such a bold

7 statement that I wanted to --

8 [Laughter.]

9 ROBERT RUBIN: Well let me say it slightly --

10 let me say it slightly different --

11 PETER PETERSON: Yes I'm sure you are, yes.

12 [Laughter.]

13 ROBERT RUBIN: By the year 2030 the

14 Congressional Budget Office is now estimating that our

15 debt to GDP ratio will be I believe it is a 130 percent

16 of GDP. Or was it 140? No, I think it's 130 percent

17 of GDP. I live in this world, I speak to economists

18 and people who follow the markets every day.

19 I don't know of anybody who thinks that we

20 will get that far or even remotely that far in time

21 without having very, very serious disruptions in our

22 capital markets that would have enormously untoward


1 effects with respect to jobs and incomes for all

2 Americans.

3 PETER PETERSON: Thank you sir. Bob, you're

4 the ideal person it seems to me to introduce the

5 President Clinton. In fact, who better than you to do

6 it? You worked very closely with each other and the

7 Congress to bring about a period of enormous sustained

8 growth combined with fiscal responsibility and jobs.

9 But before you do that Bob, I'd like to

10 commend the President on behalf of his remarkable

11 philanthropic work. Mr. President if you're here, you

12 obviously deserve enormous credit for your record on

13 fiscal responsibility and strong economic job growth.

14 And Bob is certainly the best equipped to talk about

15 that with you.

16 However, I very much doubt that you have

17 received enough credit for the extraordinary work of

18 the Clinton Foundation. I have been privileged to

19 attend the last two annual meetings.

20 And the Foundation's work there, for those of

21 you who don't know, includes an extraordinary array of

22 philanthropic projects including HIV/AIDS, climate


1 change, childhood obesity, assistance for small

2 business owners, and helping African farmers increase

3 their yields.

4 At these Foundation's annual meetings,

5 President Clinton attends the entire meeting and I was

6 fortunate enough to sit next to him or near him at the

7 last meeting and he was simply remarkable.

8 After each of about seven or eight project

9 descriptions and progress reports, the President for a

10 few minutes would add a few very interesting new pieces

11 of information on every one of these projects. And

12 then at the end some important insight, its meaning,

13 and where to take it from there.

14 And Mr. President, it seems to me that while

15 you get a lot of credit for what you've done in the way

16 of fiscal responsibility and growth, you don't get

17 credit enough for your remarkable contributions as a

18 post-President to society.

19 And I would -- I want to just to be sure that

20 we begin recognizing that as much as any President I've

21 ever known, your post-Presidential record is throughly

22 admirable. So Bob take over in introducing the


1 president.

2 ROBERT RUBIN: Okay.

3 PETER PETERSON: And thank you.

4 ROBERT RUBIN: Thank you Pete. That was very

5 good, you were very good.

6 [Applause.]

7 ROBERT RUBIN: Pete thank you. And before

8 introducing the President, let me if I may, introduce

9 Bob Schieffer, who as you know has been the anchor and

10 moderator of Face The Nation since 1991 and is the

11 network's chief Washington correspondent. In today's -

12 - and Bob will conduct the discussion with President

13 Clinton.

14 In today's world Bob seems to me to be an

15 increasingly rare commodity. I've had the opportunity

16 to be on his show quite a number of times and always

17 greatly welcomed it.

18 He was tough but decent. He was committed to

19 exploring the substance of issues as well as the

20 politics and he was committed to giving you the time

21 and the opportunity to really try to explain what it is

22 that you were trying to say.


1 It is no surprise that after such a

2 remarkable career in journalism, having covered all of

3 the four major national, or Washington national

4 assignments, that is to say the White House, the

5 Pentagon, the United States Department of State, and

6 the United States Congress, not sure why Treasury

7 wouldn't be one of them, but in any event.

8 [Laughter.]

9 ROBERT RUBIN: He is a member of the

10 broadcasting hall of fame, and winner of numerous

11 awards over now more than 30 years as a journalist.

12 And this morning, as I said a moment ago, Bob Schieffer

13 will be interviewing President Clinton who I now have

14 the honor of introducing. And let me thank Pete for

15 allowing me to introduce President Clinton.

16 That was a great privilege that I had many

17 times during the six and half years that I served in

18 his administration. And every time I had that

19 opportunity it felt very special and it still does.

20 I won't recite from the President's resume,

21 you all know it extremely well. Instead, let me make

22 two observations if I may. From having worked with him


1 for six and a half years that in my view go to the

2 heart of why he was such a great leader for our

3 country. And also go to the heart of the purpose of

4 today's fiscal summit.

5 Firstly, President Clinton was an outstanding

6 decision maker. He energetically sought to understand

7 all aspects of whatever it was that was in front of him

8 and absolutely insisted on hearing from those who had a

9 different view then he did.

10 And then, after thoughtfully weighing and

11 balancing all the considerations and with a recognition

12 that all issues are about probabilities not

13 certainties, he acted -- he decided and he acted. He

14 proved that thoughtfulness and decisiveness can be

15 brought together into one great leader.

16 Secondly, President Clinton engaged in this

17 decision making approach with his economic team

18 throughout his eight years in order to restore and

19 maintain a sound fiscal regime. He believed that a

20 sound fiscal regime was important in itself, and was

21 also critical to provide the capacity, fiscal and

22 political, for the public investment that was so


1 necessary for our economic future.

2 And fundamentally his view was that sound

3 fiscal conditions and the public investment that they

4 allowed the government to do were absolutely essential

5 if we were going to achieve his objectives of

6 competitiveness, growth, robust job creation and

7 increased income at all levels.

8 Embracing those objectives his policies

9 contributed to the longest economic expansion in our

10 nation's history with massive job creation, increased

11 incomes at all levels once the recovery took hold, and

12 a transformation of our fiscal condition from the large

13 deficits that he inherited, large deficits I might add

14 that were projected to increase at a very rapid level,

15 to a substantial surplus that he turned over to his

16 successor. His was truly a remarkable achievement.

17 With that, it is my pleasure and my privilege

18 to introduce the 42nd President of the United States

19 and a thoughtful and courageous champion in addressing

20 our nation's economic challenges, William Jefferson

21 Clinton.

22 [Applause.]



2 PRESIDENT CLINTON: Thank you.

3 BOB SCHIEFFER: Well thank you all I haven't

4 gotten a standing ovation like that in a long time.

5 [Laughter.]

6 BOB SCHIEFFER: Mr. President, it's a start.

7 Mr. President, we've heard a lot of things this

8 morning. Why don't you just kind of start off by

9 setting the stage for us. Where do you think we are

10 right now? Where do you think this is going and how

11 serious is it?

12 PRESIDENT CLINTON: First I think it's a

13 really serious problem. I think the -- I think we

14 should, everybody here -- the problem with all these

15 meetings is we tend to all be preaching to the saved.

16 But I noticed the other day in one of the,

17 one of the liberal blogs, Mr. Peterson and I, and by

18 the way I think you have done a fabulous job on this in

19 the charts, the work, the background you've done is

20 unbelievable and I'm grateful.

21 But anyway, we were criticized as being for

22 this and the country's in a terrible recession and how


1 could we not be for just spending like crazy. And I

2 think that we forget that a lot of people don't know

3 all the facts.

4 And one of the things that bothers me most,

5 and maybe we can talk about this later, is that 48

6 percent of our debt is now held by non- American

7 sources. I think this is a national sovereignty issue

8 and it's about control over our economic destiny. And

9 you know I'm a free trader and I like to cooperate with

10 everybody but I don't like to be in someone else's

11 control and I don't think America should be.

12 When President Bush was in office and they

13 reversed our policies and doubled the debt of the

14 country there were some economists on the other side

15 that made this superficially rational argument that

16 national deficits and debt didn't matter anymore

17 because we lived in a global financial system and we

18 were almost doing China a favor to take all that hot

19 cash off their hands that they got by selling us their

20 stuff and letting them finance my tax cuts. I don't

21 agree with that either for the same reasons.

22 But let me say, I think all of you should --


1 and I don't think we can solve this problem unless we

2 see it in the proper context. This is -- this deficit

3 problem, the debt problem is a problem of an aging

4 civilization. And if you go back to the dawn of time

5 and you study the oldest civilizations they all have

6 one thing in common. Once you become successful you

7 tend to become rigid.

8 If you compare for example, a job I've taken

9 on in Haiti with where we are in America. Poor

10 countries, their problem is they don't have systems.

11 So that no matter how smart people are, no matter how

12 hard they work, there are no predictable consequences

13 to their efforts. So you have to build systems to

14 build a great country.

15 The problem is, once those systems get built

16 and they work and they make you great, they tend to

17 become more concerned with holding on to the position

18 they have in the budget or whatever then furthering the

19 purpose for which they were established. More

20 concerned with the preset then the future.

21 We like to believe America is forever young,

22 that we're always a future country. But if you look at


1 the budget, you have to see it in the context of all

2 these, what I would call delivery system problems.

3 We've got a problem in health care where we're spending

4 17.2 percent of GDP and nobody, last time I saw

5 Switzerland it was at about 11 and a half, and

6 everybody else was between 9 and 10 now. And yet we

7 don't get better outcomes.

8 That means we spot our competitors a trillion

9 dollars a year before anybody goes to work. And we

10 can't afford that. And we can't solve the deficit

11 problem unless we deal with the underlying health care

12 costs that affect not only government spending but the

13 private sector as well.

14 If you look at the energy situation Deutsche

15 Bank just did a study saying that Germany netted

16 300,000 jobs out of their solar subsidies even taking

17 account of the drag, the subsidies imposed on the rest

18 of the economy.

19 If you extrapolate that to America, you

20 superficially it's 1.2 million jobs. But in fact it's

21 much more because our capacity for solar is so much

22 greater. The sun shines in Germany about as much as it


1 does in London. And they still decided to make a bet

2 on the future, changing the way we produce and consume

3 energy.

4 We have the same thing in education. We have

5 two crisis in education. K through 12 the problem in

6 achieving uniform quality. Higher education the

7 problem is cost. I strongly supported the President's

8 Higher Education Reform Initiative but I think most of

9 it will be gone within five or six years if our

10 experience is any indication.

11 We had the biggest increase in higher

12 education aide since the G.I. Bill and the economic

13 benefits were gone in five or six years. The delivery

14 system there is deeply flawed it has to be changed.

15 We have the same problem in finance. Look

16 all these derivatives and hedging mechanisms, they had

17 a -- they started out with agriculture. Every farmer I

18 know of any size always hedges against dramatic changes

19 in crop prices.

20 The Commodities Future Trading Commission is

21 never criticized. Gary Gensler had a great article in

22 one of the newspapers in the last week saying that one


1 solution to this would be to have the same sort of

2 clearing house that they have. You never hear anybody

3 called a crook in the commodities trading business

4 anymore.

5 So I think this is -- and so you have to see

6 the fiscal crisis we have as a part of America's

7 challenge to modernize its delivery systems, to be more

8 concerned about the future again. Which means we have

9 to be careful about how we get rid of the deficit.

10 The easiest target is the discretionary, non-

11 defense discretionary spending because the future

12 always has a smaller constituency then the present.

13 But we're already dramatically down in R&D and we're

14 going to pay a terrible price for it if we don't

15 reverse it. We've got a lot of problems.

16 So I think it would be helpful to all of you,

17 and let me say I'm really honored to be here. I thank

18 Rob Rubin for his introduction. He's taken a few licks

19 lately like all of us have. I think he's the finest

20 Treasury Secretary since Alexander Hamilton, and I

21 still believe that. And I think that you're all here

22 to think about this. I think Peter Orszag's got an


1 impossible job, I know he's going to be on.

2 Let me just say, I supported the President's

3 stimulus program and it was difficult for me to say

4 that because I hated to do anything to increase the

5 deficit. But the economy was contracting at such a

6 rapid rate this deficit would have been worse I think

7 if we hadn't done something to try to stabilize it and

8 you had another million people unemployed in state and

9 local government alone if we hadn't done it.

10 So for whatever its worth, that's my general

11 take on this. We need to do this but we will not

12 succeed unless we also do something to generate more

13 jobs, unless we do something to change the population

14 distribution which to me means more immigrants, unless

15 we do something to deal with these other issues as well

16 in education and energy across the board, and

17 especially health care.

18 BOB SCHIEFFER: Let me just ask you this to

19 get you on the record. Do you agree with what the

20 commission that President Obama put together announced

21 yesterday that everything has to be on the table,

22 including the newly passed Healthcare Reform Bill?


1 PRESIDENT CLINTON: Sure. As a matter of

2 fact I would think the President would want some sort

3 of good faith bipartisan effort. And let me say, I

4 definitely if I'd been in the Congress I would have

5 voted for that bill because until you get the coverage

6 system straightened out you will never get the cost

7 system bent.

8 You know you couldn't -- you can't let people

9 cherry pick. Last year when the economy was down

10 health insurance profits were up 56 percent.

11 And one of the Goldman Sachs' memos that had

12 not been discussed this week because it doesn't reflect

13 poorly on the company I suppose, said that he had just

14 talked to some investors in health care who said, at

15 the time they assumed health care reform would be

16 defeated, that they didn't really care what happened

17 and how many people didn't get insured, they'd just

18 keep charging those that could stay more.

19 So yes, I agree everything has to be on the

20 table. I think defense has to be on the table. Keep

21 in mind again, older societies are obsessed with

22 security. And security for us is national defense,


1 Social Security, Medicare.

2 And believe me, I mean we had -- I invested

3 in new weapons systems, new strategies, I want to spend

4 -- I support the conflict in Afghanistan, what we're

5 trying to do there, but that doesn't mean there should

6 be no review.

7 And I think the Secretary of Defense, who by

8 the way I think has done a fabulous job, has shown that

9 in his willingness to review some of these weapon

10 systems. I think they got to put everything on the

11 table.

12 BOB SCHIEFFER: Congressman Ryan, who's on

13 the Commission, said this morning that there is no way

14 that the new health care reform legislation is not

15 going to exacerbate this problem. Do you agree with

16 that, and if this is on the table, what do you do to

17 make sure that doesn't --

18 PRESIDENT CLINTON: No, I don't agree with

19 that.

20 BOB SCHIEFFER: You don't agree?

21 PRESIDENT CLINTON: No I do not. For one

22 thing, at least it will make people in the small


1 business and individual markets have some market power

2 with these purchasing exchanges. I think if they had

3 created a public option to compete with the insurance

4 companies it would have helped. But I don't agree with

5 it. Nothing could be worse then what we have.

6 I mean those guys that were, who were against

7 this were in effect defending -- their only answer to

8 spending 17 percent of GDP on health care when every

9 other big country in the world was at 10 and half or

10 less.

11 Switzerland was at 11 and half largely

12 because it's got a lot of rural people living high up

13 in Alpine villages and the delivery system is

14 expensive.

15 So their only defense, the answer to spending

16 a trillion dollars more then anybody else spent for

17 health care that doesn't get better results was to let

18 people buy insurance across state lines, which I agree

19 with by the way, and to do malpractice reform.

20 The problem with malpractice reform, if you

21 look at you have -- it has modest results. I think

22 you'd have more success by having more self insurance


1 by large pools of doctors.

2 If you look at the University of Texas at

3 Houston's medical system for example, after they went

4 to self insurance they embraced the elemental principal

5 that a humongous percentage of the actual malpractice

6 is committed by a very tiny percentage of the doctors.

7 It's like most violent crime is committed by

8 a tiny percentage of criminals. And they just didn't

9 insure them. So the average malpractice premium for

10 specialists dropped 50 percent or more. And we could

11 do that everywhere.

12 Now you'd have to do -- if you did it in the

13 D.C. area you'd have to say they could cross state

14 lines so you could get Virginia, Maryland, and D.C.

15 doctors in groups. But I think that that should be

16 done.

17 I think that if you want more primary and

18 preventive care physicians you ought to let them do

19 what we did with the Rural Health Service Corps going

20 back to the 1970's, let them knock off 20 percent of

21 that $250,000 medical school debt for every year they

22 work in an underserved area or in an underserved


1 speciality as primary care physicians or pediatricians

2 or OB/GYNs.

3 BOB SCHIEFFER: You, you're a pretty good

4 politician. I think there'd be general consensus on

5 that in this room and across the country. If you were

6 going to run for office right now, and obviously fiscal

7 responsibility was a big part of your administration.

8 How do you frame that? How do you get

9 elected -- and I would also say how do you stay elected

10 by telling people we're going to have to do something

11 here? We're going to have to do something about

12 Medicare and Social Security. We may have to raise

13 taxes.

14 How do you get yourself elected and stay

15 there in the Congress in this current environment?

16 PRESIDENT CLINTON: Well first of all I would

17 say, the end result works because look what happened

18 when Bill Clinton was president, if I were running.

19 [Laughter.]

20 PRESIDENT CLINTON: That's what I would say

21 now. The second think I would say, more seriously is

22 that America has got to get back in the future


1 business. We've got to be a tomorrow country.

2 And we have to create more jobs, we have to

3 revive manufacturing in this country. We have to do

4 all these things we have to do, we can't do it if we

5 keep mortgaging our future to other people.

6 The way to sell this to people around America

7 is just to tell them that half our debt is held by

8 people from other countries and pretty soon it will be

9 75 percent and do they really want that for their

10 children and grandchildren.

11 And then I think I would tell them that I'll

12 be careful how I do this. I'll do everything I can to

13 minimize the burdens on the old and the poor and the

14 unfortunate.

15 But that in order to do that you have to

16 change the way we do health care, the way we do energy,

17 the way we do education, and you've got to have more

18 immigrants. You've got to reverse the age ratio and

19 that we can do it. And you know that may not be

20 popular either.

21 BOB SCHIEFFER: Well I was going to say let's

22 talk about that a little bit because that's sort of in


1 the news lately, immigration.

2 PRESIDENT CLINTON: Yeah, I was just in

3 Arizona.

4 BOB SCHIEFFER: And you see that as part of

5 those reforms?

6 PRESIDENT CLINTON: What?

7 BOB SCHIEFFER: Do you see that as part of

8 fiscal reform and responsibility?

9 PRESIDENT CLINTON: I do. I think the bill

10 that Senator McCain supported before or what the

11 efforts the President's making now. They ought to go

12 back and -- you know they need to pass something. Look

13 I don't like that Arizona bill but I get why it

14 happened. I also just came from Mexico. It's horrible

15 what's happening along the border.

16 And I feel, I was indirectly triggered events

17 that did that. Plan Colombia, which helped Colombia

18 and the countries around it in the Andean areas and the

19 efforts we made before to break all the Colombian

20 cartels and do all the things that were done, give more

21 -- Medellin, the Inter-American Development Bank had

22 its 50th anniversary meeting in Medellin and Secretary


1 Geithner and I went to once was the most dangerous city

2 in the world, it belongs to the people of Colombia

3 again.

4 So what happened? All these guys, and we

5 also got much better at interdicting airplane transport

6 of narcotics into America and water transport. So they

7 saw a great opportunity in overland route through

8 Mexico.

9 And the overland route took them by Monterrey

10 which is the richest city in Mexico and they had enough

11 people who could afford their own drug habits. And so

12 here we are with all hell breaking loose up there and

13 everybody's scared.

14 And you got a lot of people coming over the

15 border into America who are totally innocent who are

16 literally looking for safe haven and they're worried

17 about others because we're basically arming the other

18 side.

19 The Mexican army and police are up there

20 dying every day trying to keep the drugs from coming

21 into our kids and the bad guys come over here and get

22 somebody to go buy a .50 caliber rifle or an assault


1 weapon for them because we didn't reinstitute the

2 assault weapons ban and they're out gunning the people

3 that are trying to stop the drugs.

4 So I understand what happened, but over the

5 long run the great virtue of this country, the great

6 thing we have, if we have any advantage over China in

7 the race for the 21st Century, over India in the race

8 for the 21st Century, it is that we got somebody from

9 everywhere here and they do well.

10 And you know I ask -- people all the time

11 say, you don't really think you can make anything good

12 happen in Haiti do you? I have a lot of cynics who

13 come up to me and say, why are you doing this? And I

14 said look, I'm 63 I just had a second heart surgery, do

15 you think I'd spend the next three to five years of my

16 life doing something I thought that we were going to

17 fail at?

18 So I'll tell you a little example, less than

19 2 percent of African-Americans are Haitians, 11 percent

20 of African-American doctors are Haitians. This country

21 still works for immigrants.

22 And the real reason there's anti-immigrant


1 sentiment is if you look at the numbers it's white male

2 factory workers without a college degree got killed in

3 the last decade. Men in terms of their real wage loss

4 suffered even more than woman did.

5 There's still a wage gap and woman are not

6 equally paid with men, but the burdens of the last

7 decade's economic downturn were basically on white male

8 high school graduates, or non high school graduates, or

9 a couple years of college who just got shivered in this

10 economy.

11 I get it. But they'll get more jobs if the

12 economy grows. Their taxes will be lower if we got

13 more tax payers. The pressures on Social Security and

14 the changes we'll have to make will be sightly less

15 draconian if you have more people contributing into the

16 system.

17 So I don't think there's any alternative but

18 for us to increase the immigration. And you know we

19 can start in the areas basically at the top and the

20 bottom which will not displace more people who are most

21 insecure. But I feel very strongly about it. I just

22 don't see any palatable way out of this unless that's a


1 part of the strategy.

2 BOB SCHIEFFER: Since we're talking to you

3 about what's in the news right now let me just get your

4 general impression. What did you take away from the

5 hearings yesterday when you had the Goldman Executives

6 who basically took the line that whatever is wrong with

7 the economy they didn't cause it and as I understood

8 what they said, they really feel no responsibility for

9 that.

10 PRESIDENT CLINTON: Well first of all I think

11 they're really mad about the SEC deal. They think that

12 -- I think the timing was suspect and they don't

13 believe they violated the law.

14 BOB SCHIEFFER: Do you think there was a

15 connection?

16 PRESIDENT CLINTON: Well I'm not sure on this

17 particular SEC deal. I've read a lot of material on

18 this and I'm not sure they violated the law by not

19 telling people that John Paulson suggested the

20 securities that would be in this CDO, because of the

21 ability of people on the other side to get information.

22 I think there's a bigger problem here. Which


1 is, you got too much of our growth in the last decade

2 was in finance. And ever since we went off the gold

3 standard which was necessary for economic management

4 purposes, if you look at it we financial -- we had a

5 global financial economy before we had a global trade

6 economy and certainly before we had any global

7 environmental and labor safeguards.

8 And ever since then, economic inequality has

9 increased. The only time the bottom 20 percent's

10 income increased in percentage terms more than the top

11 20 percent, since then was the second four years of my

12 term because the labor markets got so tight and because

13 health care costs were in line with inflation so you

14 didn't have employers pouring what would have been wage

15 increases into health care premiums, and because of

16 some other support things that were done.

17 But I think the fundamental problem is

18 articulated by your friend John Vogel, another good

19 Republican who pioneered the index mutual funds. And

20 what he says is that people in his business where he

21 spent a lifetime are taking too much out of the middle

22 of the economy. That their finances are gobbling up


1 too much dollars and things.

2 For example, if you're a farmer in east

3 Arkansas, you want to hedge against the prospect that

4 you'll have a bad crop year and you won't produce. Or

5 you want to hedge against the prospect that you'll have

6 a great crop year and it'll drive down the price of

7 crops too low. That has a legitimate economic purpose.

8 What purpose was served by this? And by the

9 way, suppose Paulson had lost money and Goldman Sachs,

10 which had to take the last 100 million dollars of the

11 billion dollars on the other side going long, had made

12 money? Either way, what would have happened?

13 If he loses money it confirms that -- if

14 Paulson makes money as he did, he made a billion bucks,

15 it confirms people's sense that the housing market is

16 going down and maybe leads to a quicker unraveling and

17 a deeper one. On the other hand, if he lost money and

18 the other side made money, what good would that do? It

19 would keep more people pouring money into an

20 unsustainable bubble.

21 So for me, that's why I like this idea of you

22 know, requiring greater reserves on derivatives and I


1 think there ought to be clearing houses as Gary Gensler

2 suggested. Because I think that too much of this stuff

3 has no economic purpose no matter who wins or who

4 loses.

5 And to me, that's the bigger problem. These

6 Goldman guys are mad because they think they were

7 targeted at this time and they think they didn't

8 violate the law. I'm not at all sure they violated the

9 law, but I do believe that there was no underlying

10 merit to the transaction.

11 And that's what I think we need to look at

12 and that's how I think we need to structure whatever is

13 done on the regulatory side to reduce leverage, and

14 increase transparency through some sort of clearing

15 house system.

16 BOB SCHIEFFER: You set up a commission on

17 entitlement reform. It was very successful in

18 outlining how serious the problems were but it didn't

19 come up with solutions. You weren't able to give them.

20 What advice would you give to Erskine Bowles and to

21 Alan Simpson as they start out on this Commission?

22 PRESIDENT CLINTON: Well first let's talk


1 about what happened and didn't. The Medicare thing

2 lost steam because when I took office Medicare was

3 projected to go broke in 1999 and we added I think 25

4 or 26 years to the Medicare Trust Fund, which was about

5 the average length.

6 Social Security you want to have longer for

7 obvious reasons. A pension fund you wanted to have --

8 I mean it's been -- it's sort parallel to a pension

9 fund. It never has been a funded pension system. And

10 we added only four or five years to that.

11 The reason we didn't get Social Security

12 reform is the Chairman of the Ways and Means Committee,

13 Bill Archer a Republican from Texas, and I had just

14 about reached a deal where we would slow down the cost

15 of living increases for Social Security and make them

16 more in line with real costs of living, at least for

17 upper income people we would do more on that.

18 In return for which, we would make available

19 through tax incentives, the opportunity to build a

20 savings account on top of Social Security. And we had

21 worked the numbers out and we thought we could take it

22 out 75 years.


1 And as far as I could determine, it was about

2 the only issue that Newt Gingrich and Dick Gephardt

3 agreed on. They both told us that neither party wanted

4 to fool with Social Security before the 2000 elections

5 and would we please go away.

6 And you know, if the leaders of both houses

7 are against it, it's pretty hard to pass something. So

8 actually it was -- and I got it, they were listening to

9 their members, they didn't want to feel the heat. I

10 don't think there would have been much heat. I think

11 actually people would have appreciated it.

12 And now, if the numbers that I see on Pete's

13 charts are anything close to right, the fix that we had

14 would not be sufficient to take it out to a 75 year

15 life span and to take the burden off -- the coming

16 burden off the budget.

17 BOB SCHIEFFER: You know --

18 PRESIDENT CLINTON: So my advice -- anyway,

19 my advice to them is to tell the truth. People are not

20 stupid. The American people know that the average age

21 of our society is going up.

22 There are lots of people in higher income


1 levels who don't need all the benefits that they may be

2 entitled to under the government that would -- you know

3 if you took a poll, most people in the top two or three

4 percent would give it back to stabilize the country and

5 give their children and grandchildren a better future.

6 There are lots of options there. Now the

7 Democrats have never wanted to do that because we were

8 afraid that it would chip away at the universality of

9 the system. And the Republicans have never wanted to

10 do it because they didn't think it was fair. Because

11 since you pay in as a percentage of your income at

12 least up to the cap, upper income people pay relatively

13 more.

14 If you're going to keep giving everybody what

15 they're entitled to, at some point you're going to have

16 to raise the cap. And if you don't want to raise the

17 cap at what is it, $109,000 or something now. Where is

18 it, $115,000, $106,800. Then maybe you should wait

19 until you get to $200,000 to raise the cap or something

20 higher.

21 One problem by the way in making policy in

22 all this, I saw that one of the things that Pete's


1 group has recommended is that we look at all these so-

2 called tax expenditures. You know the step up of the

3 estate tax at death and the biggest one by far is the

4 employer health deductions.

5 One problem that you have with all this, just

6 a fact of life is the drastic differences in the cost

7 of living from state to state as well as the state and

8 local tax burden. For example, if you make $250,000 in

9 Little Rock you're doing well. If you make $250,000 in

10 New York City you're doing well but you're also paying

11 about five or six times as much taxes, maybe 10 times

12 as much.

13 So this is going to be something that this

14 Commission headed by Alan Simpson and Erskine Bowles is

15 going to have to -- they'll have to look at that too.

16 Is there some way to navigate this reform in a way that

17 faces the fact that you know, a young person in New

18 York City making $150,000 may look like an inviting

19 target some place where the cost of living and the tax

20 burden's low.

21 But if a young couple is living on that and

22 paying New York City rents and maybe got three or four


1 kids, I'll guarantee you they don't have a lot of

2 disposable income at the end of the year. And that's

3 another thing that we're just going to have to be

4 sensitive to.

5 BOB SCHIEFFER: President Obama suggested

6 yesterday that he will follow the recommendations of

7 this panel. Do you think he can keep that promise?

8 PRESIDENT CLINTON: In general I think he

9 can. You know first of all I don't think you could

10 have two better people chairing this panel then Simpson

11 and Bowles. Alan Simpson voted against me all the time

12 but he told me good jokes and so I cut him a lot of

13 slack.

14 [Laughter.]

15 PRESIDENT CLINTON: And I think Erskine

16 Bowles is literally one of the ablest human beings on

17 the planet. You know he served me as head of the Small

18 Business Administration, as Deputy Chief of Staff, as

19 my Chief of Staff.

20 He brokered the last balanced budget

21 agreement, which had the Children's Health Insurance

22 Program which until this health care bill passed was


1 the biggest increase in health coverage since Medicaid.

2 And he's been great at the University of North

3 Carolina. And he ran the effort I did for the U.N. in

4 the tsunami relief reconstruction.

5 These people are really smart and they're

6 able, and they will know immediately what pressures the

7 President and both parties of Congress will be under.

8 So they're free enough to disregard the politics and

9 smart enough to take them into account.

10 So I think they're not likely to put

11 something on the President's plate that will undermine

12 the very foundations of his Administration or of both

13 parties if everybody holds hands and jumps in the boat

14 together.

15 BOB SCHIEFFER: You better than anyone will

16 remember the impact of Ross Perot on American politics.

17 And say what you might, he did make people aware of the

18 fiscal crisis that this country faced.

19 I've always wondered, was the fact that Ross

20 Perot was in that race, did that cause you to focus

21 more on fiscal responsibility? Or what was his impact?

22 I'm wondering, I mean do we need another Ross Perot


1 here these days?

2 PRESIDENT CLINTON: Well first of all, the

3 answer to your question is no, it didn't and that's

4 because I was governor of a state that had one of the

5 best budget systems in the country. I want to say a

6 little bit more about that in a minute.

7 I think on balance, until the very end he had

8 a very positive impact on the race though because he

9 highlighted the problems of the deficit and what it was

10 doing to the economy and to interest rates. And that's

11 another thing, people haven't felt that yet because

12 interest rates are still so low because the whole world

13 is coming out of a global recession.

14 But one of the things that no one knows is,

15 we were able to have very high growth with very little

16 inflation because we had open markets and high

17 competition. But even with open markets and high

18 competition, the size of our debt and the fact that so

19 many others have debt around the world, I think as soon

20 as this economy picks up and there's a mad scramble for

21 cash to service debt and I'll be very surprised if you

22 don't have a pretty brisk increase in interest rates.


1 And keep in mind, that's going to play hell

2 with the President's budget and with Congress'

3 calculations because they'll have to be spending more

4 and more and more on interest to service the debt.

5 One of the reasons that -- I think we took

6 three cents off of that, that's a huge amount. I

7 believe that's what we -- I believe that's what our

8 budget said over eight years, three cents a year off --

9 three percent off of servicing the debt, and that's a

10 massive amount of money. It enables you to take

11 something from the past and put it into the future.

12 And that's another thing I think that will

13 resonate with the American people because they are all

14 paying high interest now every month. They pay home

15 mortgages, car payments, credit card bills, other

16 consumer payments. They understand that and it's

17 another argument I think that will do well.

18 Let me just say that one of the things that

19 one of the problems we've got in this country that is

20 only peripherally related to this but aggravates the

21 current situation is the fiscal condition of state

22 governments throughout America.


1 And while it is true that 49 states have

2 Constitutional provisions that prohibit deficit

3 spending, only Vermont does not, and Vermont really

4 does because they don't have a printing press either.

5 They'd go to jail if they started printing money just

6 like the rest of us.

7 Most states don't follow that. What they

8 mean by balanced budget in most states is the

9 Legislature gets together, they pass a program the

10 Governor signs it, they agree on what they think the

11 revenue growth will be, let's say 5 percent.

12 And if it only turns out to be 3, they spend

13 at 5 percent for a year and then they draw down from a

14 rainy day fund. Now that's fine if you just have one

15 bad year and then you got four or five other good ones,

16 and if the deficit's not too much.

17 But if you do that year in and year out and

18 then you have the kind of year California's had, you

19 have the kind of year New York's had, you run smack dab

20 into a brick wall. Now Virginia has a pretty good

21 system and they still have terrible problems so I don't

22 want to sugar coat this and pretend there's an easy


1 solution.

2 But in my state in 1948, I can that I had

3 nothing to do with this, nothing, the state adopted an

4 amendment that requires a balanced budget. That is the

5 legislature passes all the bills twice, which is great.

6 Everybody can pass their pork bill, the

7 governor can sign it, you can have a picture taken,

8 everybody is happy as a clam. Then at the end of the

9 legislative session, a body of the Senate and House get

10 together and organize all the bills that have been

11 passed.

12 And what you spent last year minus what you

13 don't have to spend anymore, a court case or whatever,

14 plus what you do have to spend this year, that's

15 category A.

16 Then let's say you say revenues are going to

17 go 3 percent, that will be category B. Then they put a

18 savings account in so we'll have money to maintain our

19 buildings and things. And then everything else is in

20 category C.

21 So if you hit a gusher, more power to you.

22 And everything is funded in proportion as the


1 legislature sets. So here's how it works.

2 If you start off then when they go home if

3 two months later when the budget year starts you're

4 only having 2 percent revenue growth, then the governor

5 is bound to fund only two-thirds of category B.

6 And then every quarter you can cut spending

7 and if you let one day more than two quarters go by,

8 the governor and his chief fiscal officer have

9 committed a misdemeanor. I once cut spending six times

10 in two years.

11 I had an early retirement program when the

12 middle of the country was hurting in the 80's, but we

13 never had massive layoffs, we never had the kind of

14 crisis these people are facing now. And my governor in

15 Arkansas has a 70 percent approval rating. And he's a

16 Democrat in a state that voted heavily for Senator

17 McCain.

18 So one of the things that ought to be a part

19 of this, at least peripherally, is we ought to try to

20 do whatever we can to get these states on a sounder

21 fiscal footing. You know and stop borrowing from the

22 pension funds and doing all this kind of crazy stuff.


1 That's going to have a big indirect ramification on all

2 of this.

3 BOB SCHIEFFER: Let me just ask you a quick

4 question because it appears that one of the things

5 that's going to get heavy scrutiny by this Commission

6 is the value added tax.

7 Do you in general, what's your view of a

8 value added tax? Obviously I think any value added tax

9 that had any chance of getting through you'd have to

10 exempt groceries probably because it is regressive.

11 But what do you think about value added taxes?

12 PRESIDENT CLINTON: Well the Europeans have

13 used it quite successfully. I think if you did it

14 you'd have to readjust the whole rest of the tax system

15 to keep it progressive. It's also somewhat complex

16 because it's on every stage of the production process.

17 But the one thing that blue collar America

18 should like about it is it's good for exports. And it

19 doesn't allow quite so much subsidy of imports when

20 other countries subsidize their production for export

21 at least they get slapped with a value added tax when

22 it comes in here. And it's good for exports.


1 So if you're not ready to give up on

2 manufacturing and I'm not. I think this is a great

3 time for us to rebuild the manufacturing sector in

4 America.

5 If we had the right sort of value added tax

6 and we made enough adjustments in the other tax bills

7 to make it, to keep the progressivity of our tax

8 system, it could be really good.

9 Now the real problem of the value added tax

10 is the problem why we couldn't pass a single payer

11 health care system. A lot of things that are good in

12 theory require so much change that people just can't

13 make the mental leap.

14 So I'm not at all sure that the Simpson-

15 Bowles Commission will wind up recommending it. I know

16 them well enough to know that they'd have to have a

17 theory in their mind about how it could actually pass

18 before they would recommend it. It's a big leap.

19 But if you look at it, people in Europe, it's

20 like any other sales tax, they just get used to paying

21 it and it would be good for exports and it would -- our

22 home market products would be on more even footing with


1 imports if we had one. And we compete in countries

2 that have them all the time. So we get it coming and

3 going because they have it and we don't.

4 BOB SCHIEFFER: We asked people on the way in

5 if they had questions for you. I want to get to just

6 one. This is Sheila Weinberg of the Institute for

7 Truth in Accounting. And she says, do you believe that

8 if Congress knew the true long term financial

9 consequences of the decisions that they would make

10 different decisions?

11 I would answer that, I think they do know but

12 I'd love to know -- that they don't have the political

13 will to change those decisions --

14 PRESIDENT CLINTON: I think it's somewhat

15 more complicated than that. I think they're generally

16 aware but not specifically aware. That's why I think

17 these charts are important that Pete's group puts out.

18 The Center for American Progress you know

19 have a much more progressive group then identify with

20 the Democrats put out a really interesting plan about

21 what's going to happen if we don't do something to deal

22 with this deficit and what we have to be prepared to


1 do.

2 And they said stuff that you would never

3 expect a liberal group to say because they understand

4 what is going to happen to the American economy if we

5 don't do it.

6 Now I think one problem is is that the

7 Congress is not organized to deal with it. You know

8 Bob Rubin said this in passing. But one of the most

9 significant things that we contributed, I think, to

10 economic policy making in our administration was the

11 establishment of a National Economic Council along the

12 lines of the National Security Council with all the

13 relevant players in the room including the Commerce

14 Department, the Overseas Private Investment

15 Corporation, all those, the Agriculture Department,

16 people you don't think -- we understood that there was

17 a micro as well as a macro economic strategy we had to

18 everybody in there together.

19 Look how Congress is organized. I believe if

20 you had a committee, even if it was a special committee

21 established for just two years that was organized

22 around this problem, where the members of the committee


1 were influential and respected in both parties and they

2 defined their success by whether or not they produced

3 progress.

4 Maybe didn't adopt every jot and tittle that

5 you know the President would recommend or this

6 Commission would recommend, but they actually did

7 something, I think it would make a difference. The

8 Agriculture Department is not organized to cut farm

9 subsidies, right?

10 The -- name any other committee they're not -

11 - The Armed Services Committee is not organized to

12 decide what should not be done in defense. People

13 don't say, put me on the Armed Services Committee so I

14 can close the base in my district.

15 [Laughter.]

16 PRESIDENT CLINTON: So I don't think that you

17 know, I have a higher regard for politicians then most

18 people do. I think most of them work harder and

19 they're smarter and they're more honest then they get

20 credit for and they -- I think that this is something

21 that we all say is a priority but here we are having to

22 have this meeting because there's no committee in


1 Congress organized for this purpose. Otherwise, we'd

2 all be up there testifying.

3 BOB SCHIEFFER: Mr. President, this will be

4 the final question. We've been talking about long term

5 problems, but I want to focus on the short term for you

6 because you have a big deal coming up here this summer.

7 You're about to give away your daughter.

8 [Laughter.]

9 BOB SCHIEFFER: And I would just ask you

10 this, are you in shape to handle that?

11 PRESIDENT CLINTON: I don't know. You know

12 when she was a little girl I told her that it would

13 suit me if she didn't move out until she was 25 and

14 then get married until she was 35. She's my only child

15 but yeah, I think I'll make it.

16 Although she doesn't think I'm in shape to

17 handle it. You know you got to walk -- she told me the

18 other day, she said dad the only thing you got to do is

19 walk me down the aisle and you need to look good. So I

20 said well what's you definition. And she said oh,

21 about 15 pounds.

22 [Laughter.]


1 PRESIDENT CLINTON: So I'm half way home.

2 But I'm really fortunate, I like my future son in law a

3 lot and I admire him a great deal, he's a fine human

4 being so Hilary and I are delighted.

5 BOB SCHIEFFER: Well thank you very much Mr.

6 President.

7 PRESIDENT CLINTON: Thank you.

8 BOB SCHIEFFER: Thank you all.

9 [Applause.]


11 [Whereupon, at 11:33 a.m., the morning

12 session was concluded.]

13

14

15

16

17

18

19

20

21

22


1 A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N

2 PETER PETERSON: Good afternoon. You know at

3 every lunch of this kind there's one guest who doesn't

4 get to enjoy a leisurely meal and that perhaps today is

5 Peter Orszag.

6 As you know, Peter is the Director of the

7 Office of Management and Budget. From his days as

8 Special Assistant to President Clinton for Economic

9 Policy, right through to his most recent position as

10 Director of the Congressional Budget Office, Peter has

11 shown willingness to state the facts, whether people

12 want to hear them or not.

13 As we have said many times this morning,

14 health care costs are the big elephant standing in the

15 way of our fiscal future.

16 In the recent legislation on health care,

17 Peter worked extensively to insert a variety of

18 creative mechanisms to reduce costs, The Independent

19 Payment Advisory Board and the Innovation Center.

20 Some of these measures are unprecedented and they are

21 designed in ways that potentially, at least, they could

22 have a big impact.


1 The question one might raise is will that

2 creative framework result in real savings or not and is

3 our nation really ready to actually make tough choices

4 on health care or not. And no one is better equipped

5 to discuss these and other questions than Peter.

6 The person interviewing Peter is just the

7 journalist to dig into those tough choices, Jon

8 Meacham, the Editor of Newsweek and a Pulitzer Prize

9 winning author.

10 JON MEACHAM: Thank you, Mr. Secretary, for

11 that. And I must say as just a point of personal

12 privilege, I don't think there is anyone else on the

13 planet who could have pulled something like this day

14 together than Pete Peterson and so, thank you, sir.

15 [Applause.]

16 JON MEACHAM: And it has been such a cheerful

17 conversation so far --

18 [Laughter.]

19 JON MEACHAM: -- that there will be Zoloft

20 out in the lobby. Pfizer underwrote that.

21 Mr. Director, first a personal question. A

22 lot of kids grow up wanting to be ball players, wanting


1 to be politicians, God help us. What made you -- what

2 drew you to these issues and turned you first into an

3 economist and now into the man to see?

4 PETER ORSZAG: Well, I wanted to be a fighter

5 pilot but my eyes were not good enough, so - - it was

6 in college that Alan Blinder, who is one of my very

7 first professors at Princeton, wrote this book called,

8 Hard Heads, Soft Hearts, which really struck a

9 corrected with me because it was about trying to make

10 people's lives better off by doing so in a rigorous

11 way. And that combination of math and real world

12 applicability is what drew me to the field of economics

13 and then the rest has been kind of serendipitous.

14 JON MEACHAM: Based on your experience in the

15 last 18 months or so, do you believe that our political

16 system, as currently constructed, is likely -- not is

17 capable of, because that's theoretical. Theoretically,

18 we are capable of anything and have proven that.

19 Is it likely that you think Congress, the

20 Administration, or any administration and the

21 Electorate, which is a part of this conversation we

22 don't always include, can make the kinds of fundamental


1 reforms that I know you support and a lot of the folks

2 here do?

3 Is it a likely scenario that the political

4 will can be mustered without a precipitating crisis?

5 PETER ORSZAG: Well, look, it's clearly

6 challenging. The political system deals better with

7 crises -- or at least deals with crises. It has

8 trouble with gradual long-term problems. And our

9 fiscal trajectory, let's hope, is a gradual long- term

10 problem, and it doesn't turn into a crisis.

11 That having been said, I think there are two

12 reasons for some hope. The first is, frankly, and let

13 me join in the kudos for Pete Peterson and the

14 foundation. The more that these types of awareness

15 raising events and outside pressure is exerted, the

16 more likely it is that the political system will deal

17 with the problem before it becomes a crisis.

18 And the second thing is, I think we actually

19 do have -- I know we may turn to this later, but we

20 have a recent example in which I think there were

21 changes made, including through the Medicare

22 Commission, or what's called the Independent Payment


1 Advisory Board, to deal with something ahead of time

2 that was not easy to do.

3 So there are glimmers of hope, but in general

4 the political system has challenges with gradual long-

5 term problems.

6 JON MEACHAM: Would you talk about the

7 criticism of the health care plan in terms of deficit

8 reduction and its ultimate impact on our fiscal health?

9 PETER ORSZAG: Yeah. Let me say two things

10 about that. There are two components, basically, to

11 the cost control, deficit reducing part of the

12 legislation. One is what I'll call the straight-up

13 deficit reduction.

14 So the reductions in provider payments and

15 the update rate -- update factors that are used for

16 them, changes in Medicare Advantage, some of the

17 revenue pieces. That's sort of the traditional way of

18 trying to reduce budget deficits, and we can talk about

19 that.

20 The second piece, though, is if all we did

21 was a traditional approach, we would still face the

22 same underlying problem in terms of the structure and


1 delivery system of our health care system.

2 There is no way, in my opinion, that you can

3 resolve our long-term fiscal imbalance through the

4 traditional budget approach of just adjusting provide

5 payments and adjusting revenue. It's not possible.

6 You need to change the underlying incentives

7 and the underlying structure of those incentives for

8 providers. So --

9 JON MEACHAM: Just quickly. That's not an

10 economic -- that's not solely an economic issue.

11 That's a cultural shift. And, I mean, health care is,

12 at least in my private view, is not a rational market

13 because you want what you can get when you're sick.

14 PETER ORSZAG: And that's my point, which is

15 right now we have incentives for more care, rather than

16 better care. And that's -- in no small part, there are

17 a lot of forces, and I agree that the culture and norms

18 among doctors is very important. That's going to take

19 a long time to shift.

20 But a very important contributor to that is

21 we have a fee for service system in which you have an

22 incentive for more and more, rather than better and


1 better.

2 I think everyone, whether you're a Republican

3 or a Democrat, agrees we need to be moving towards a

4 system based on quality rather than quantity.

5 And by the way, let me just also say there

6 really are different theories of the case.

7 Representative Ryan, for example, has put forward an

8 approach that is based on consumer directed health

9 care, in which consumers have more skin in the game and

10 that will put pressure on providers and then move

11 towards that quality based system.

12 In my opinion, while there is some promise to

13 that kind of approach, the basic flaw is that we're

14 always going to provide deep insurance, or a lot of

15 insurance, for catastrophic costs. That's the whole

16 purpose of insurance.

17 And such a large share of health care costs

18 come from catastrophic costs; the top 25 percent of

19 Medicare beneficiaries account for 85 percent of costs;

20 that you don't get that much traction, which leads me

21 back to the thought that the key that we need to do,

22 the most important single thing we can do, is change


1 the decisions that providers are making.

2 And part of that is the payment system. And

3 there are very important changes that the legislation

4 makes to move us in the direction of paying for

5 quality.

6 JON MEACHAM: To what extent do you believe

7 the paying of higher taxes on income -- that is,

8 straight out money going from one's checkbook to the

9 government, with no expectation of a direct service,

10 how big a role is that going to have to play over the

11 next couple of decades?

12 PETER ORSZAG: Well, look, if we're back to

13 the broader fiscal imbalance, it's very clearly the

14 case that spending -- projected spending is

15 substantially in excess of projected revenue and, just

16 arithmetically, you need either lower spending, or

17 higher revenue, or some combination thereof. And I

18 would suspect that the political system will evolve

19 towards some combination.

20 But I'm going to come back again and say,

21 unless we adopt this evolutionary approach to moving to

22 pay for quality in health care, there is nothing else


1 that's going to matter, because you cannot adopt the

2 traditional tool kit to getting us on a sustainable

3 fiscal path over the very long term. You have to

4 change the way the health care system works.

5 JON MEACHAM: Let's talk about Medicare

6 because there are a number of analyses that ultimately

7 there remains -- there will be an extraordinary amount

8 of unfunded shortfall.

9 PETER ORSZAG: Medicare faces a very

10 substantial long-term imbalance. And it is at the

11 heart -- Medicare and Medicaid, the rate at which those

12 programs are growing, are at the heart of our long-term

13 fiscal imbalance.

14 Social Security also does face an imbalance

15 between its expenditures and its incoming revenue, and

16 that needs to be addressed, but it's a much smaller

17 magnitude than the issue in Medicare and Medicaid,

18 which is exactly the motivation for moving to a

19 different structure in those programs.

20 And let me pause because I think it has been

21 under-appreciated. The Independent Payment Advisory

22 Board that was created as part of the legislation, the


1 health reform legislation, I think it's not implausible

2 -- it will depend on how well the culture develops

3 there and how it's executed -- but I think it's not

4 implausible that if a group like this, sitting in a

5 room like this, in 30 or 40 years, looks back at the

6 health reform legislation, that the creation of that

7 board could wind up being the single-most important

8 provision in the legislation.

9 And the reason is that it creates a change in

10 the way Medicare policy could be set. It has a strict

11 set of targets, in terms of cost growth rates that it's

12 supposed to hit. And, importantly, its recommendations

13 take effect unless the Congress specifically votes the

14 recommendations down and then that bill is signed by

15 the President.

16 So the default has now shifted in a very

17 important way towards the recommendations from a board

18 comprising health professionals who have a -- who are

19 instructed to hit a set of cost targets while boosting

20 quality.

21 And let me also say, since there has been,

22 apparently, some misinterpretation of this, I think


1 it's only in Washington, D.C. that a board created to

2 help address our long-term fiscal imbalance, while

3 boosting quality in health care and that is

4 specifically by law prohibited from rationing care,

5 could be called a death panel that is intended to

6 ration care. It is specifically prohibited from doing

7 so.

8 JON MEACHAM: Let's talk a little bit more

9 about the cost controls because there's an enormous

10 amount of skepticism -- you may have picked up on some

11 of this -- in terms of whether the bill will actually,

12 ultimately bend the curve, make this come to -- have

13 the results that you so fervently hope. What are some

14 specifics that you can say, This is going to happen.

15 This is going to control costs. This is going to help

16 us have a stronger fiscal standing?

17 PETER ORSZAG: Well, I think there are two

18 sets of issues surrounding those two different buckets

19 of deficit reduction provisions in the legislation.

20 One is the traditional reduce provider payments or

21 increase revenue and skepticism surrounding whether

22 they'll actually take effect.


1 There I actually think the history of

2 previous legislation is auspicious. That is, when

3 reductions are legislated, they tend to take effect

4 much more so than some of the media depictions had

5 suggested when the bill was being debated.

6 JON MEACHAM: It's the media's fault?

7 PETER ORSZAG: Of course it is.

8 [Laughter.]

9 PETER ORSZAG: The second source of

10 skepticism, though, is whether things like the Payment

11 Advisory Board, the Innovation Center, the Patient

12 Centered Health Research Center, whether they will

13 work. And I think there are two things to note about

14 that.

15 One is, no one knows today exactly how to

16 design a system in which you are paying for quality.

17 There are lots of promising ideas, but the precise

18 parameters are not fully known. And, in any case,

19 health care is a dynamic market.

20 So what you want to do is have an

21 evolutionary approach in which you're trying something

22 and then you have an infrastructure in place to move


1 the scale on the promising ideas and continually

2 adjust. That's exactly what the legislation creates.

3 But the second risk, and I will emphasize

4 this, a lot will depend on implementation. A lot --

5 you know, for example, this Payment Advisory Board has

6 a lot of potential power, but how it actually operates

7 in practice will depend on the culture that it

8 develops, the reputation it develops, you know, what

9 the leadership is like.

10 I like to say that the Congressional Budget

11 Office, if you looked at it institutionally, you'd say

12 it would never work. It's budget is set by the

13 Congress. It's director is chosen by the Congress.

14 It's director can be dismissed by the Congress through

15 a simple vote in either house. You would look at that

16 and say there is no way it would develop into an

17 independent rigorous agency.

18 It did, in no small part because Alice

19 Rivlin, the first director, who is here today,

20 established a culture and a norm there that has

21 persisted to this day of independence and rigorous

22 analysis.


1 That's exactly what we need for these new

2 institutions that are being created under the

3 legislation.

4 JON MEACHAM: I want to shift you back to

5 taxes for a second because, ultimately, if the money is

6 not coming in, you can't balance anything.

7 For your, again, 18 months, what do you think

8 the likelihood of a presidential candidate successfully

9 arguing for shared sacrifice with a specific proposal

10 on raising taxes?

11 PETER ORSZAG: Well, I guess the way I would

12 put it is this issue of our fiscal trajectory is

13 clearly generating increasing concern among the

14 American public. And I would again note, we are in an

15 exceptional period now because private borrowing has

16 collapsed.

17 And in that situation, the exceptional steps

18 that we had to take to bring the economy back have not

19 generated large increases in interest rates on

20 government debt. That will not always be the case.

21 And so, both the political dynamic, in terms

22 of popular concern about the deficit, and also the


1 financial market pressure will build over time.

2 And I think the key issue that we face is we

3 need to make sure we act before that pressure becomes a

4 crisis. Because if we wind up in the sorts of fiscal

5 crises that, frankly, we're seeing in other countries

6 around the world today, the situation will be much

7 messier than addressing it ahead of time.

8 JON MEACHAM: Do you think, looking back on -

9 - well, you probably don't look back on it, but it's

10 the -- since it's still unfolding, to some extent, on

11 the crisis of '08/'09, it seems to me as a layman that

12 that did not produce the kind of sense of we need to

13 put our house in order, we need to talk more about

14 sacrifice. We need to look at the long-term.

15 And my personal analysis is the reason is

16 unemployment did not reach a high enough rate, that

17 tragically, more people are going to have to be out of

18 work before the sense of crisis comes together in order

19 to force long-term reform. Do you agree with that?

20 PETER ORSZAG: I don't know. The

21 unemployment rate seems pretty high to me. And the

22 share of the unemployed who are long-term unemployed is


1 also quite elevated. So --

2 JON MEACHAM: Then why -- health care was not

3 a -- passing health care was -- at least from where I

4 stand, didn't look like a walk in the park. So, if

5 you're -- you said before that you think there is a

6 growing awareness on the part of people that we have to

7 take some steps that will be more expensive for them --

8 PETER ORSZAG: But I would reach the opposite

9 conclusion, which is one of the difficulties that we

10 face is, given the depth of the short-term downturn,

11 and the weakness in the labor market, it is sound

12 macroeconomic policy to step in, for example, through

13 the Recovery Act, with aggressive efforts to fill in

14 the gap between how much the economy could produce and

15 how much it was producing, through -- including through

16 a higher budget deficit. That's actually desirable

17 when the economy is very weak.

18 The issue is then, as the economy starts to

19 recover, deficits become harmful. And so I think the

20 problem is not that people weren't suffering

21 sufficiently; I think there was plenty of pain to go

22 around; but rather that it is a very complicated thing,


1 which is you've got to -- you have to be adding more

2 now, but subtracting more later.

3 I mean, imagine a business with a business

4 plan of rapid growth for two or three years and then

5 substantial decline or vice versa. That's a very hard

6 thing to manage, especially if your board of directors

7 includes 535 people.

8 JON MEACHAM: And 306 million ultimately.

9 PETER ORSZAG: There you go.

10 JON MEACHAM: The President has asked the

11 Simpson-Bowles Commission to try to suggest ways to

12 achieve primary budget balance by 2015, excluding

13 interest. Given the significance of the cost of

14 interest, what's the thinking behind that?

15 PETER ORSZAG: I think there has been a

16 little bit of too much attention paid to the primary

17 balance for the following reason. The goal is to get

18 three percent of GDP by 2015.

19 Three percent of GDP in 2015 has the

20 desirable consequence that you're then stabilizing debt

21 as a share of the economy, which is why the three

22 percent threshold was chosen.


1 It so happens that it would also result in --

2 if the overall deficit were three percent, that the

3 budget would be balanced, excluding interest payments

4 on the debt, because in that year interest payments

5 would be about three percent of the economy.

6 So it's just another way of describing the

7 three percent goal. But the -- the key threshold is

8 three percent for the overall budget deficit.

9 JON MEACHAM: So, what do you expect to come

10 from the commission?

11 PETER ORSZAG: You know, I saw Alan Simpson

12 earlier and I know Erskine Bowles well. I believe that

13 these two guys are serious and they are going to

14 produce a set of recommendations that will help get us

15 to where we need to be, not only with regard to three

16 percent by 2015 for the budget deficit, but also to

17 meaningfully improve our long- term fiscal imbalance.

18 And for those of you who are skeptics, I

19 think you probably haven't spent too much time with

20 Alan Simpson and Erskine Bowles.

21 JON MEACHAM: Do you think that there is an

22 idea out there that has not been had?


1 PETER ORSZAG: I think the fundamental

2 challenge that we face at this point is a political

3 economy one, which is we need -- there are significant

4 steps that need to be taken. We need to do so on a

5 bipartisan basis. And that's why something like a

6 commission makes sense, which is you need to bring

7 people together to reach consensus among the various

8 options that are out there.

9 So, it's less an issue of expanding the set

10 of options and more an issue of finding an acceptable

11 compromise among people who have different points of

12 view with regard to how this thing should be rectified.

13 JON MEACHAM: As a student of history, could

14 you describe a couple of commissions that successfully

15 completed their mission?

16 PETER ORSZAG: Well, I think we have Alan

17 Greenspan in the room and the Greenspan Commission in

18 the early 80's on Social Security Reform is perhaps the

19 most recent example of a successful commission that

20 helped to address a long-term problem that we faced.

21 There have been a variety of analyses of why

22 that commission was successful, beyond just the


1 personalities involved. And what I would say is I

2 think commissions succeed for a combination of reasons.

3 There has to be buy-in in the political

4 system for what you're trying to do. And then you also

5 need the people involved to be skilled at the art of

6 the possible. So it's not just one or the other.

7 JON MEACHAM: Your own future. Are you here

8 for the long haul?

9 PETER ORSZAG: I find this job fascinating.

10 It's never dull. And every day has a new challenge, so

11 I -- I'm very pleased with what I'm doing.

12 JON MEACHAM: So are you here for the long

13 haul?

14 [Laughter.]

15 PETER ORSZAG: Define the long haul.

16 JON MEACHAM: I'm a trained journalist.

17 PETER ORSZAG: Yes. Again, I am happy --

18 JON MEACHAM: Are you here --

19 PETER ORSZAG: What a Washington parlor game

20 this is.

21 JON MEACHAM: You're what we got.

22 [Laughter.]


1 JON MEACHAM: If we could do something else,

2 believe me, we would.

3 [Laughter.]

4 JON MEACHAM: Which leads me to an audience

5 question and then we'll go out.

6 PETER ORSZAG: Okay.

7 JON MEACHAM: This is from Diane Rogers of

8 the Concord Coalition, so I wonder what angle that will

9 be taking.

10 Do you believe it's possible for the

11 President to both keep his campaign promise to not

12 raise taxes on households with incomes under $250,000 a

13 year and to honor his commitment to get the deficit

14 down to three percent of GDP by 2015? If yes, how?

15 So, let's just go to the how.

16 PETER ORSZAG: Well, look, yes. I mean,

17 technically, yes, it is certainly possible. And there

18 are a variety -- again, there are a variety of things

19 that one could do.

20 One of the reasons we set up the commission

21 is -- and the President, I think, has been very good

22 about making sure it has the running room to -- to


1 evaluate lots of different options -- is it would be

2 easy now to say, We want to take this off the table.

3 We want to take that off the table. We're going to

4 take this off the table.

5 I'm not going to do that. He didn't want to

6 do that. Let's let Mr. Bowles and Mr. Simpson have the

7 running room to do their work. And I'm going to let

8 them do that.

9 JON MEACHAM: Let them run.

10 PETER ORSZAG: Let them run.

11 JON MEACHAM: Mr. Director, thank you. I

12 just want to say that I do believe, with the possible

13 exception of Dick Darman, that you are the only OMB

14 Director of whom it could have been written, as it was

15 in the Los Angeles Times, He's hot. He's sexy. He

16 runs the OMB.

17 [Laughter.]

18 JON MEACHAM: That's not a large category, I

19 imagine.

20 [Laughter.]

21 JON MEACHAM: Thank you.

22 PETER ORSZAG: Thank you.


1 [Applause.]

2 JON MEACHAM: Now that's a headline.


4 MICHAEL PETERSON: The next item in our

5 program is a brief video. As we said earlier, the aim

6 of the foundation is to preserve economic opportunity

7 for our children and grandchildren.

8 So we set about developing the objectives of

9 the foundation, we decided early on that it was

10 essential to get young people involved in this

11 dialogue. Not only can they have a powerful voice, but

12 it is, after all, their future that we're talking

13 about.

14 The so called Millennials, the 80 million

15 Americans born between 1980 and 1995, are poised to

16 succeed the Baby Boom Generation and they are beginning

17 to realize what they are in for.

18 The Peterson Foundation recently joined

19 forces with Mobilize.org, which spearheads a project

20 called 80 Million Strong, a coalition of more than a

21 dozen youth organizations all working together to

22 promote a stronger economic future.


1 Last fall we worked with Mobilize to convene

2 a group of 150 young adults to participate in a

3 National Youth Summit in Chicago. Over three days the

4 young people attending the summit discussed an array of

5 fiscal challenges and various reforms. The event was a

6 great demonstration of the energy and ideas that can

7 come from American's youth.

8 In this clip, you will see a few of the young

9 faces and voices that give us hope for the future and

10 their engagement in this issue.

11 So, let's roll the video.

12 [Video presentation.]

13 [Applause.]

14 MICHAEL PETERSON: On to health care. Health

15 care reform has been debated and re-debated, voted on

16 and re-voted on, and legislation has finally been

17 signed into law. Wouldn't it be nice if that were the

18 end of our health care challenges?

19 Even with this legislation behind us, we're a

20 long way from reining in the growth in health care

21 costs. What to do about this is the tough question

22 before our next panel of experts.


1 Judd Gregg is a Republican Senator from New

2 Hampshire, who serves as the ranking member of the

3 Senate Budget Committee and sits on the National

4 Commission on Fiscal Responsibility and Reform.

5 For many years he has been an outspoken

6 advocate for fiscal discipline, including spearheading

7 the notion of a fiscal commission with Senator Kent

8 Conrad, Chairman of the Budget Committee. And he has

9 played a major role in debating and shaping health care

10 legislation.

11 Allyson Schwartz, a Democratic Congresswoman

12 from Pennsylvania, serves on the Committee on Ways and

13 Means, which among other things has jurisdiction over

14 Medicare and Social Security. Prior to her service in

15 Congress, she was a leading health care executive in

16 Philadelphia.

17 John Castellani, who has long been focused on

18 health care costs, is President of the Business

19 Roundtable, an association of CEO's of leading U.S.

20 corporations, with a combined workforce of nearly 10

21 million employees.

22 John Rother is Executive Vice President of


1 Policy and Strategy for AARP, responsible for the

2 federal and state public policies of the association.

3 John is an authority on Medicare, Social Security,

4 pensions, and the challenges facing the boomer

5 generation.

6 John Podesta, founder, President, and Chief

7 Executive Officer of The Center for American Progress,

8 and Chief of Staff to Former President Bill Clinton.

9 Elliott Fisher is Professor of Medicine,

10 Director of the Center for Health Policy Research at

11 Dartmouth Medical School, where they have done some of

12 the best recent work on health care costs. A

13 particular focus of his has been the causes and

14 consequences of regional differences in the cost of

15 health care.

16 Lastly, the panel's moderator is Bob

17 Reischauer, who has served as President of the Urban

18 Institute since 2000, and prior to which he was

19 Director of the Congressional Budget Office. Bob's

20 hands-on experience with the fiscal impact of health

21 care no doubt qualifies him to lead this discussion.

22 The ongoing health care debate is in good hands. Over


1 to you, Bob.

2 BOB REISCHAUER: Thank you. And judging from

3 what others have said, welcome to the Animal House,

4 particularly the elephant portion of it. We're here to

5 deal with what others have suggested is the major

6 contributor to the long-run fiscal unsustainability

7 that this nation faces.

8 We've just enacted and are in the process of

9 implementing a major health reform proposal. The CMS

10 chief actuary has suggested that by 2019 this will add

11 a modest amount, 300 odd billion dollars to national

12 health expenditures.

13 That's government spending and spending in

14 the private sector.

15 But the real question is not what will the

16 level be in the future, because we'll be covering a

17 considerable number of people. I calculated it out on

18 the back of an envelope yesterday that there will be

19 about 185 more -- million more covered lives over the

20 next ten years and the per covered life cost is about

21 $1,600, which is a rather modest amount.

22 But the real question that we face is what is


1 this going to do to the rate of growth of national

2 health expenditures and federal health expenditures.

3 And I'd like to turn first to Elliott and ask

4 him, looking -- not to drink any water, to look

5 forward, and look at the innovative components of this

6 piece of legislation, which Peter described some of,

7 but there are things like the Cadillac tax, as Peter

8 said, the Independent Medicare Advisory Board, The

9 Center for Innovation, as well as lots of demonstration

10 and pilot programs, and say what do you think are the

11 most promising of these to move us in a lower

12 trajectory for health care costs?

13 ELLIOTT FISHER: I think there are a couple

14 of things that are really important in this

15 legislation.

16 You know, we know that we've heard the toxic

17 payment system we have, fee for service payment. We

18 also know that patients don't understand the choices --

19 many of the choices they face. Huge investment in

20 comparative effectiveness research has already been

21 made so that we can help identify and inform patients

22 about which of the 30 odd percent of services that are


1 provided are truly useless and possibly harmful.

2 Patients don't want, in my experience, unnecessary

3 care.

4 So, better information for patients is deeply

5 rooted in this bill and will be very important.

6 I think the change in the incentives, in

7 giving providers who now want to practice in different

8 ways -- physicians are not enjoying working in the fee

9 for service system, many of them. Hospitals are

10 frustrated by their focus on the bottom line.

11 There are a number of models that are --

12 delivery system models and payment reforms that are

13 included in the bill that offer great hope and the

14 opportunity for physicians to work in new ways, as

15 members of teams, as members of accountable care

16 organizations, in the medical home.

17 Let me just tell two quick anecdotes. The

18 medical home pilot at Group Health Cooperative in Puget

19 Sound, reinvented the practice for an 11 physician

20 group, taking care of primary care patients. They

21 showed quite clearly, over the two year course of the

22 pilot, that they had improved quality for patients,


1 improved experience for physicians, and reduced total

2 cost.

3 In fact, at the end of those two years, two

4 physicians, who had been planning to quit medicine,

5 decided to stay on because they were having too much

6 fun as primary care physicians.

7 There are a number of models there that offer

8 us a very hopeful path that will become attractive to

9 many physicians. Accountable care organizations,

10 medical homes, bundled payments, that if we support

11 them adequately, I think give us the opportunity to

12 really -- to slow the growth in health care spending.

13 And the Payment Advisory Board and The Innovation

14 Center can be very supportive of those initiatives.

15 BOB REISCHAUER: John, how do you see the

16 private sector being affected by this and will it be

17 energized by the changes in Medicare and the government

18 programs, or will it feel that it's going to sort of

19 pick up the burden that the public sector shifts onto

20 it?

21 JOHN CASTELLANI: Well, that's the concern.

22 You know, the Business Roundtable member companies not


1 only employ ten million Americans, but we provide

2 health care for 35 million Americans. And so it is as

3 a pair that we looked at how our systems and our costs

4 are inexorably tied to Medicare and Medicaid.

5 And there's two sides of it. No matter how

6 innovative and creative we can be in the private

7 sector, we're inhibited by the practices of Medicare

8 and Medicaid. And to the extent that Medicare and

9 Medicaid -- Medicare particularly, under-reimburses the

10 health care delivery system, those costs are shifted to

11 those of us who pay.

12 So, we need the kind of innovation that can

13 come from this legislation that is smartly and quickly

14 implemented to both change the nature of the delivery

15 system to focus on quality, to focus on outcomes, from

16 Medicare, so that we can come behind them and do the

17 same kinds of things in the private sector.

18 One of the studies that we had done during

19 this debate said, if you've got it exactly right for

20 Medicare, got everything right, and the bill doesn't

21 get everything exactly right -- the legislation doesn't

22 get everything exactly right -- but if you got it


1 exactly right and were able to implement it quickly,

2 then an efficient operating Medicare system that

3 focuses on quality and outcomes would allow the private

4 sector the potential of saving more money in our costs

5 for -- for each employee. In fact, up to $3,000.

6 BOB REISCHAUER: Senator, at the meeting of

7 the commission yesterday, there seemed to be a lot of

8 interest in reducing Medicare's cost, but not a lot of

9 specificity about whether for the traditional routes

10 that Peter was talking about, payment cuts, higher

11 premiums, and higher cost sharing, would be the way to

12 go, or more innovative and revolutionary kinds of

13 changes, such as Representative Ryan mentioned with

14 respect to voucherizing the program.

15 What do you see the Commission focusing on?

16 JUDD GREGG: Well, first off, Robert, I think

17 you've got to be realistic here. I mean, the simple

18 fact is, I know that nobody likes to confront the

19 powers that are, such as the President, or the

20 Democratic Congress, but the fact is the bill that

21 passed and was signed by the President is a massive

22 expansion in the size of this government. It takes


1 government from about 21 percent of GDP to about 26

2 percent of GDP.

3 And when you expand government that quickly

4 and that -- in that extraordinary way, it's very

5 difficult to figure out a way to pay for it.

6 The way it's paid for is by cutting Medicare

7 reimbursement essentially -- and essentially

8 eliminating Medicare Advantage, which is an insurance

9 program.

10 Now, that as a policy has basically hamstrung

11 the Fiscal Commission relative to how we're going to

12 address health care reform. Because when you take,

13 which this bill does, a half a trillion dollars in the

14 first ten years, and a full trillion dollars in the

15 first ten years of full implementation, and three

16 trillion dollars in the first 20 years out of Medicare,

17 and you do it by basically cutting provider payments --

18 there is no significant reform in this bill, in my

19 opinion. I mean, there's a tip of the hat to reform,

20 but the real reform is not there. Certainly in the

21 Medicare accounts.

22 When you do it by cutting provider payments


1 and essentially eliminating the Medicare Advantage, and

2 then take those funds, that half a billion dollars,

3 half a trillion dollars in the first ten years, a

4 trillion in the first full ten years of

5 implementation, and three trillion in the second full

6 ten years, instead of using them to make Medicare more

7 solvent -- because David Walker is here and he'll tell

8 you that Medicare has got a $38 trillion unfunded

9 liability. Instead of making Medicare more solvent,

10 you take that money and you move it over to the other

11 side of the ledger and you create a brand new

12 entitlement, which is on its face under-funded, even

13 with that Medicare money, and you expand Medicaid by 50

14 percent with those dollars, you've aggravated the

15 problem radically that we're confronting. And you've,

16 as I said, significantly restricted the capacity of a

17 group like the Fiscal Commission to look at Medicare as

18 a place that we can constructively address because, for

19 lack of a better word, the low hanging fruit, although

20 it's probably not -- it's probably very difficult fruit

21 for the Congress to deal with -- has been taken off the

22 table relative to Medicare.


1 So chances of reforming Medicare and getting

2 significant savings are extraordinarily limited for the

3 Fiscal Commission in my opinion.

4 Sure, if we could put in place some sort of

5 brand new aggressive approach towards Medicare, like a

6 voucher program, or take some of the ideas that

7 Dartmouth has put forward and actually explode them

8 across the country, rather than just give them a tip of

9 the hat -- and, in fact, actually leave a lot of them

10 on the cutting room floor, as happened in this bill,

11 then you could make progress in the Medicare accounts.

12 But Medicare is the big health care account,

13 soon to be followed by Medicaid, especially with this

14 expansion by 50 percent under this bill. And we have

15 extremely limited our capacity to make significant

16 movement in those areas. I think we've got to be

17 realistic about it.

18 We've dealt ourselves a very hard hand here

19 and undermined our capacity as a nation to right our

20 fiscal ship on the primary issue that we need to right

21 our fiscal ship on, which is the issue of health care

22 costs and how we deal with Medicare and Medicaid.


1 BOB REISCHAUER: John Podesta. The Senator

2 said no real reform when it comes to costs in this

3 bill. What's your view? Medicare and Medicaid costs.

4 JOHN PODESTA: Well, I think that -- I think

5 the Doctor laid out those and Peter Orszag laid out

6 those elements in the bill that can really drive change

7 in the way health care is delivered in this country.

8 JUDD GREGG: Name three.

9 JOHN PODESTA: I have to say --

10 JUDD GREGG: Name three.

11 JOHN PODESTA: I have to say -- I have to say

12 the Senator seems to want to fight last month's war or

13 two months ago's war.

14 JUDD GREGG: It's next generation's costs.

15 JOHN PODESTA: I don't know -- I don't know -

16 - Senator, I didn't jump on you.

17 I don't know what that means for the ability

18 of this Commission to get 14 votes for anything. But I

19 think that the question, I think, on the table -- the

20 question before really the Commission, I think, one of

21 the -- one of the things that the Commission can do is

22 a couple of things. To ban accountability on the


1 implementation of the provisions that are in the bill

2 that can really drive the delivery of health care

3 towards quality and away from quantity, away from

4 piecework medicine. Right now the private sector and

5 Medicare are disaligned in that regard.

6 The private sector has a hard time moving

7 towards bundled payments, the new -- the kinds of

8 delivery reforms that are -- have the possibility

9 that's -- that are in this bill because they are up

10 against Medicare, which is still largely a fee for

11 service system.

12 So, the teeth that was put into the bill

13 through the IPAP, the ability for Congress, I think, to

14 resist the temptation to stop those improvements from

15 going into effect, the demonstrations that can be had

16 now under the bill, through the Innovation Center, have

17 to be implemented. And I think one of the roles that

18 the Commission can play is to demand accountability

19 from the administration on implementation and back them

20 up when they're making tough decisions.

21 If they decide that they're going to look at

22 things like demonstrations in high cost areas, and the


1 high cost areas start to squawk, the Commission could

2 play an important role, I think, in backing up those

3 tough political decisions.

4 BOB REISCHAUER: Congresswoman --

5 ALLYSON SCHWARTZ: Can I just jump in?

6 BOB REISCHAUER: Well, I'll ask you a

7 question and then --

8 ALLYSON SCHWARTZ: Go ahead.

9 BOB REISCHAUER: -- you can answer anything

10 you want.

11 [Laughter.]

12 ALLYSON SCHWARTZ: Fair enough. That works

13 for me.

14 BOB REISCHAUER: You know, humor is me.

15 Last month's battle or next November's

16 battle, how are your constituents looking at the

17 various measures that, you know, might rein in costs?

18 ALLYSON SCHWARTZ: A great question. And I

19 will say that there has been so much uncertainty and so

20 much misinformation and, of course, even as the

21 President said, really keenly untrue things said about

22 the health care reform legislation as we were moving it


1 through. And I do believe we have to start having this

2 next conversation and I hope that all of us,

3 Republicans and Democrats, no matter how much we fought

4 on this, really make this work. That's what this is

5 going to be about.

6 The hard task, as hard as last year was, is

7 going to be even harder to make sure that the goals

8 that we have set on -- for health care reform is -- are

9 really going to happen. And a lot of burden on HHS to

10 do that. But it's really a burden on all of us to

11 really make sure that we drive the delivery system. I

12 encourage my hospitals, and my doctors, and -- and my

13 constituents to really look at this differently, and it

14 is a huge shift.

15 The biggest shift, I think, is in the last

16 just couple of weeks when I was home is -- it's kind of

17 interesting the way people -- people in parts of my

18 district where I don't think they really necessarily

19 were keen about us doing this, they have come up to me

20 and they kind of do this in an odd way. They whisper

21 to me. They say, "I just want to tell you," like they

22 don't want anyone else to know this, "It was a really


1 good thing you did. Thank you for doing health care

2 reform. It's about time in this country we did this."

3 I keep telling them they should shout about

4 that. I mean, this isn't something for us to be

5 apologetic or embarrassed about. This is a big shift

6 for us in the country.

7 I think something that hasn't been mentioned

8 yet is that for the first time in this country all

9 Americans will both share the responsibility and we

10 will give them the opportunity to buy health insurance.

11 That means they've got to change what they do, too.

12 Just as the health care delivery system

13 really has been geared towards people who are very

14 sick, who come at the last minute, either to the ER or

15 to the hospital, they do a very episodic treatment of

16 care most -- in most health care. That's the way most

17 Americans handle it as well. Americans also have to be

18 seeking primary care and acting more responsibly,

19 hopefully, in terms of their health policies -- health

20 practices, and really taking the advice and

21 recommendations that we all know we should be following

22 when our health practitioners tell us to follow up and


1 do something and half of the time we don't do it.

2 So there's a lot of shared responsibility in

3 this between government and the health delivery system

4 and the American people. And I think the American

5 people are up to this. I think the health care system

6 is up to this.

7 We have to push them to do it, demand

8 accountability for quality and efficiency. That just

9 can't be said. It has to be done. And we have to

10 follow what works.

11 I mean, the Secretary has real responsibility

12 to take these delivery system reforms and what works

13 and not just say, "Nice, good job" and file it, but to

14 say, "No. Now we're going to keep doing that. We're

15 going to do many more of them. We're going to make

16 everyone do this."

17 You know, there are real ways that we can

18 scale this up and we have to, if we are going to drive

19 down the costs, we're going to get more value for our

20 dollar, and we have to engage and -- and make it

21 happen.

22 BOB REISCHAUER: John Rother. The bill


1 reduced Medicare spending over the next decade by

2 something in the order of $550 billion. Some

3 characterize that as cuts in Medicare, ask, you know,

4 how can AARP support legislation which "cuts Medicare."

5 But, as we all know, most of those reductions --

6 virtually all of them took the form of reduced payments

7 to either health plans -- Medicare Advantage plans, or

8 to particular provider groups. And, in fact, the

9 beneficiaries on the whole got some expansion of

10 coverage and benefits, so it was good for them. Donut

11 hole being closed, et cetera.

12 Now, what is the scope looking forward for

13 some restraint that affects directly beneficiaries? We

14 know many beneficiaries have very low incomes and it's

15 very hard -- is there an opportunity here or should we

16 begin looking elsewhere?

17 JOHN ROTHER: Well, let me take first what

18 happened in the law.

19 We did not eliminate Medicare Advantage.

20 Medicare Advantage plans are going to continue to

21 operate. In fact, the good ones will get bonus

22 payments if they can demonstrate delivering good


1 quality and actually coordinating care, as they are

2 supposed to do.

3 The Medicare Trust Fund was extended for ten

4 years or so, so that's a major improvement in Medicare.

5 And many of the savings were agreed to by the

6 very providers that were the subject of the savings.

7 For example, the hospitals agreed to a one percent per

8 year slow down in the rate of growth in their payments.

9 Why did they do that? Because they got every patient

10 insured on the other side of the ledger. They're going

11 to be fine.

12 So, I think that, you know, the bill was

13 prudent. It did -- as you said, it did improve

14 benefits for Medicare beneficiaries for the most part.

15 And going forward, I think that there is very

16 limited potential to impose greater costs on those

17 beneficiaries. About 75 percent of Medicare enrollees

18 today pay more than ten percent of their incomes for

19 health care, which is a very heavy burden compared to

20 anyone else.

21 So I think the potential lies more in what

22 we've been talking about here, changing reimbursements


1 for providers, better coordinating care. And in

2 particular, the potential for improvement is better

3 management of chronic conditions.

4 The five most common chronic conditions

5 account for 75 percent of total health spending. So if

6 we don't get our arms around those, you know, we are

7 not going to make progress.

8 So the system, by and large, that we have

9 today is based on episodic care, not continuous

10 management of chronic conditions. That's what we have

11 to go for, if we are going to get our arms around this

12 --

13 BOB REISCHAUER: And how do we do that?

14 JOHN ROTHER: Well, I think that some of the

15 techniques that Elliott mentioned already, the medical

16 home, accountable care organizations, bundled payments.

17 Give responsibility to providers to actually manage

18 care over time and then reward them for good outcomes.

19 It's very important to build that in as well, because

20 we want to improve value, not just lower cost.

21 ELLIOTT FISHER: Can I give one example that

22 sort of links the story on the -- on the private sector


1 and the Medicare sector?

2 Geisinger Health Care System, which I know

3 has been held out as an icon, nonetheless -- there are

4 many other people that are trying to learn from them.

5 But what they did was remarkable over the last 15

6 years.

7 I mean, they had both the kind of shared

8 savings model that we're talking about nationally under

9 accountable care organizations, as they were part of a

10 Medicare demonstration, but they were also -- had a

11 similar payment model on their under 65 because they

12 had their own health plan. So they had incentives to

13 reorganize and coordinate care more effectively.

14 They invested themselves in markedly

15 strengthening primary care, improving payments to

16 primary care physicians. Over the course of the 15

17 years that we had the Medicare data from Dartmouth to

18 look at them, they reduced their Medicare spending by

19 ten percent -- no, 15 percent below where it would

20 otherwise have been.

21 They also reduced costs both on their under

22 65 population. So, one of the school districts was


1 able to give its members a $7,000 raise over three

2 years because they could afford to raise wages rather

3 than increase the cost of health care benefits.

4 And so, getting the private sector and

5 Medicare lined up to get these payment reforms in

6 place, I think offers real promise and then it can be

7 disseminated elsewhere.

8 BOB REISCHAUER: I want to stick with you,

9 Elliott, because many of the folks who have spoken to

10 us before today have said, "Well, now we pay for

11 quantity. We have to stop paying for quantity and

12 start paying for quality."

13 But quality is difficult to measure. It's

14 not apparent that consumers, meaning patients, respond

15 to qualitative measures and are happy in systems that

16 say, "I want to steer you to this physician or this

17 group because they have a higher quality than that

18 measured for the one that's in your neighborhood or is

19 more convenient." Where are we in the whole quality

20 measurement issue and how long will it be before you

21 think we will have a robust system that we really can

22 tie payments effectively to quality?


1 ELLIOTT FISHER: I think we have made

2 tremendous progress over the last 15 or 20 years. The

3 measures have been developed.

4 The Agency for Health Care Research and

5 Quality has invested a lot in learning how to interview

6 patients and get their reports on their experiences of

7 care.

8 We're done -- we're doing much better at

9 starting to measure outcomes and be thoughtful about

10 how to measure -- how to measure and report them.

11 The motivation for physicians to improve and

12 systems to improve lies in that measurement. So I'm

13 actually less -- I think it's important to use those

14 measures to reassure and inform consumers that they are

15 getting great care and the tools are there.

16 But I think it is also tremendously

17 motivating for physicians. They want to do better and

18 want to improve. So the measures are going to motivate

19 the systems to improve.

20 I want to -- you know, we should say that,

21 you know, we have three places around the country with

22 the support of the Commonwealth Fund here, who are


1 working together for both a private and public model of

2 accountable care organizations. They've all agreed to

3 adopt a progressively robust set of measures that are

4 going to include, you know, "Did your -- did you

5 understand what your doctor said to you when you left

6 the office?" Fifty percent of the patients don't

7 understand what went on in the office when they leave.

8 We're going to start to hold these systems accountable

9 for that.

10 BOB REISCHAUER: Want to do a show of hands

11 on that?

12 ALLYSON SCHWARTZ: Yes. Exactly.

13 JOHN PODESTA: Well, I just want to jump in.

14 Some things are hard to measure and some things are not

15 so hard to measure. Hospital re-admissions are

16 measurable. Medical errors are generally measurable.

17 The kinds of things that -- scans that have

18 no diagnostic value are actually measurable.

19 So the question is, do you align your payment

20 systems to produce the outcomes and the quality that I

21 think the medical research would indicate is relatively

22 -- that's the low hanging fruit, I think, in the


1 system. But we have yet to align our payment system to

2 pick that fruit, if you will.

3 BOB REISCHAUER: John.

4 JOHN CASTELLANI: I just want to make the

5 point and Elliott is not the problem here, but let's

6 not kid ourselves. I mean, there's still a lot of

7 resistance. I mean, one of the things we advocated for

8 was the release -- the appropriate release of the CMS

9 database on costs and quality. The biggest group that

10 resisted that were the documents.

11 ELLIOTT FISHER: I'd love to have their data.

12 JOHN CASTELLANI: Because right now we don't

13 know, as payers for health insurance. We don't know as

14 patients. We don't know as documents who performs the

15 best quality procedures at the lowest price, with the

16 best outcomes. But all of that database is within CMS

17 now.

18 Luckily, the legislation includes that. The

19 Act includes that. We think having that kind of data,

20 as well as the innovations that are not enough in the

21 bill and in the Act that need to be expanded, they need

22 to be accelerated, they need to be done much more


1 quickly than they are done now. But we think that that

2 has promise because the other choice is -- and it's

3 unfortunate -- only in Washington we talk about 500 --

4 $550 billion in cuts, $550 billion in reduction in

5 future growth as a cut in Medicare. Because if you do

6 not think -- and this was our perspective. If you do

7 not think you can modernize the system, that you can

8 reform the system so as to reduce the cost trajectory,

9 then why don't we give up right now and suffer the

10 consequences of having to raise taxes to pay for an

11 inefficient system.

12 We just aren't prepared to give up on that.

13 We know it can work. We're able to control the systems

14 and it has to be able to work within Medicare and

15 Medicaid or the economic consequences are -- are dire

16 for the nation.

17 BOB REISCHAUER: Do you want to comment?

18 ALLYSON SCHWARTZ: Please. Please. An

19 opportunity to agree. So I'd like to be able to do

20 that.

21 So, absolutely. I think that that is

22 something we have to believe we can do and then


1 actually act on it. You know, not just put in this

2 sort of nice list of innovations that are available,

3 but to actually then push for them.

4 And I think the issue sometimes is, is make

5 sure that we have to realign the financial incentives.

6 I mean, that's what we're trying to do in this

7 legislation is really -- not just to say it would

8 really be nice if doctors and hospitals coordinated

9 care. Wouldn't that make us all feel better?

10 That's not what we did here. What we did is

11 to say we're going to focus on primary care. We're

12 going to provide extra payments for care coordination

13 through medical homes, so that doctors will be -- have

14 nurse practitioners working with them. They'll not

15 just wait for the patient to come back to them, but --

16 they were diagnosed with diabetes. They're going to

17 say, you know, "I'm going to call this person in a week

18 and see if they understood what I said to them. Did

19 they take their medication or know because they have an

20 electronic medical record that they didn't fill that

21 prescription, so that they'll be able to follow up.

22 They'll understand that this person actually needs


1 nutrition counseling. They eat wrong.

2 You know, these are things that they are - -

3 we're going to encourage hospitals to have their

4 practitioners get outside the walls of those hospitals,

5 rather than just wait.

6 So now we have actually defined quality as

7 that episode. Did you do that procedure well or not?

8 And in Pennsylvania we have that as public

9 information. You can do cardiac bypass. You can find

10 out every physician group and hospital in Pennsylvania

11 and find out how much it costs and if they had better

12 quality.

13 But you really don't call for that pamphlet

14 when you are in the ambulance after you called 911 when

15 you have chest pain. That's not really terribly

16 effective.

17 What is effective is when one hospital looks

18 at another and says, "Why am I not number one or two?

19 Why am I number ten or 12?" And they go out and find

20 out what they can do differently. And it's that

21 accountability in the system to demand quality for that

22 procedure and to demand improved outcomes for patients.


1 So it's not just good enough to have had that

2 episode work well. What else should you have done,

3 needs to get done, that is in the most cost efficient

4 setting, provides the best kind of care, and improves

5 health outcomes for your patients. That's what's going

6 to save money in the long run and we put real

7 incentives to make that happen in the bill.

8 BOB REISCHAUER: John, can we make Lake

9 Wobegon stretch into the health sector?

10 JOHN ROTHER: I wanted to broaden the

11 discussion a little bit. Two things that we haven't

12 mentioned, public health and prevention.

13 And if we're serious, really, about getting

14 our hands around this, fiscally, as well as in terms of

15 health status, they are actually more important than

16 anything we've talked about so far.

17 Public health, including the foods we eat,

18 how much salt is in processed foods, very important.

19 Prevention, in terms of starting early with

20 exercise, other forms of health habits, extremely

21 important.

22 If we just look at what's happened to us in


1 the last ten years, we've had an epidemic of chronic

2 conditions. That's not -- you can't explain it in

3 terms of the medical delivery system. What it's all

4 about is our food, our exercise habits, or lack of

5 them, and other things that are really driving this at

6 a fundamental level. And we've got to take that on in

7 addition to doing all this insurance and delivery

8 reform.

9 BOB REISCHAUER: Okay. We probably should

10 have had seven treadmills up here --

11 [Laughter.]

12 BOB REISCHAUER: Senator, some have argued

13 that government health care costs won't be brought

14 under control until we establish an explicit budget for

15 health care with enforceable limits.

16 Others have proposed -- and I won't name

17 names -- that we tie health care spending to a

18 dedicated revenue source, like a value added tax, that

19 the proceeds from which don't grow as rapidly as

20 baseline health care expenditures, and that only by

21 going in these more radical directions will we be able

22 to bend the curve.


1 What's your feeling on the sort of more

2 drastic medicine here?

3 JUDD GREGG: I don't think either of those

4 are practical. If you want to address health care

5 costs, you have to go to the issues which Dartmouth has

6 been talking about, which John has been talking about.

7 You've got diseased drivers, like obesity and

8 Alzheimer's.

9 You have quality versus quantity

10 reimbursement issues.

11 You have the issue of employers not being

12 able to adequately reward people for going out and

13 causing their employees to pursue healthy lifestyles

14 and preventative care.

15 And you have the fact that we have an

16 insurance system which is going to be significantly

17 aggravated by this bill, in my opinion, which pushes

18 people into -- in the public sector pushes people into

19 reimbursement systems, such as Medicaid, which grossly

20 under-reimburses, or Medicare, which significantly

21 under-reimburses, forcing the cost onto the insured

22 private sector of the un-reimbursed cost, which means


1 that people who are getting the Medicaid and the

2 Medicare reimbursement coverage, assuming they get

3 coverage at all, are not paying their full share, or

4 are not being reimbursed at their full share and,

5 therefore, the incentive for efficiencies in the system

6 are totally perverted because the private sector ends

7 up picking up the cost of such a large percentage of

8 Medicaid and Medicare.

9 And you couple that with the fact that you've

10 got an insurance system which essentially says, in the

11 public sector at least, that there is no incentive for

12 the individual to get engaged in how they -- in what

13 their caregiver is giving them and testing what their

14 caregiver is giving them as to whether or not it's good

15 care, or whether or not it's quality care.

16 So the value system that we're using on our

17 health care system is wrong, in my opinion. And this

18 bill, it may be yesterday's debate, but it's going to

19 be tomorrow's cost. And it's going to drive costs in

20 this country up dramatically relative to the cost to

21 the taxpayers and the size of the government, without

22 getting commensurate downturn in the goal, which was to


1 control the rate of growth in health care costs.

2 And it is, in my opinion, fundamentally

3 flawed and is going to radically aggravate our problems

4 as a nation relative to health care and will,

5 inevitably, lead us to a different type of system

6 probably five to ten years from now because it will

7 breakdown, in my opinion, because of the fact that the

8 reimbursement structure under Medicare and Medicaid is

9 not sustainable. Health providers will not participate

10 in those systems at their present reimbursement rates

11 and projected the reimbursement rates, at a level that

12 is necessary to give adequate care to senior citizens

13 and people on Medicare.

14 BOB REISCHAUER: Elliott, do you have a

15 comment on that?

16 ELLIOTT FISHER: Well, I share the concerns

17 about the lack of formal mechanisms in the legislation.

18 But, as I travel around, talking to both physicians and

19 yesterday to lots of hospitals at the American Hospital

20 Association meeting, there is a real sense of desire to

21 move to this new payment model, both for the private

22 sector and the public sector, that they really want to,


1 you know, align their values with their work.

2 Hospitals stepping forward to want to be accountable

3 care organizations, talking about, you know, voluntary

4 non-proliferation pacts in their communities. They are

5 starting to think about how to stop the medical arms

6 race which is driving up health care costs.

7 So I actually -- my friends all say the glass

8 is half -- I look at an empty glass and say it's half

9 full. But I think we have a real opportunity here, if

10 the communities that I'm seeing do step forward the way

11 they have promised to.

12 BOB REISCHAUER: Did you go to McAllen,

13 Texas?

14 ELLIOTT FISHER: I haven't been there yet,

15 but I'm looking forward to a visit.

16 ALLYSON SCHWARTZ: Next rip.

17 BOB REISCHAUER: Not to pick a random city.

18 Much of the growth recently in health care

19 spending has been attributable to the introduction of

20 new technology. And I would like to ask John Podesta

21 if there are any ways to ensure that a higher fraction

22 of our new technology turns out to be cost effective,


1 it turns -- you know, there are many interventions that

2 seem like wonderful things when they're adopted. They

3 spread and then 15 years later, we find out that this

4 is harming people, or having no substantial benefit,

5 but it has cost oodles of money over the preceding

6 decades.

7 JOHN PODESTA: Well, look, I think that's a

8 very hard point to intervene in, because I think that

9 we don't want to stifle innovation. We want to

10 encourage innovation in the health care system. We

11 want to deliver, you know, better treatments, better

12 outcomes, new drugs, et cetera.

13 On the drug and medical device side, you do

14 have FDA authority to at least look at safety and

15 effectiveness. And I think that the question -- I

16 think Elliott raised this earlier. There's now a new

17 center. There's a lot of health information technology

18 that has been authorized by the previous bill, by the

19 Recovery Bill, that's being now disbursed, spread out.

20 The question is, will that information -- can

21 it be consolidated, can it be informed, both the public

22 -- and I think probably, even more importantly, inform


1 the providers.

2 I tend to agree with them. I think that

3 there are incentives which drive over, you know, higher

4 costs because we're aligned them, you know -- and I

5 think if you look at questions like usage of doctor

6 owned facilities, versus prescriptions for the same

7 kinds of tests and facilities that are not doctor

8 owned, you see much higher rates of usage. Well, why

9 is that? Because, you know, there is a natural

10 incentive to over prescribe in those areas.

11 So I think there's things that can be done.

12 But what I wouldn't want to see is waiting until you

13 were certain about the cost effectiveness. As long as

14 the safety is assured, before new technology is taken

15 up, I think that would -- that would sort of impede

16 development in the United States, sort of not the way I

17 think we do business, and I think it would, in the end

18 of the day, lead to worse health outcomes.

19 BOB REISCHAUER: Congresswoman, we saw a lot

20 of controversy surrounding the government's attempt to

21 move into comparative effectiveness research. And does

22 this look promising to you, to your constituents who


1 whisper in your ear, to those who shout on the street?

2 ALLYSON SCHWARTZ: Well, certainly it was --

3 we were very explicit -- let me put it this way, in the

4 legislation on comparative effectiveness. I think this

5 was mentioned before. And that comparative

6 effectiveness data, evidence based medicine, basically

7 telling our doctors, being sure they get the

8 information, disseminating that information about what

9 works best, and having that be very timely, is very

10 beneficial. Making sure that it does not actually

11 drive reimbursement decisions is written into the

12 legislation.

13 So I can reassure my constituents, we can

14 reassure Americans that this still is -- we are not

15 interfering with the doctor's decision to use --

16 prescribe something, use a particular device, order a

17 test.

18 But the physicians ought to know, and I think

19 we would all want our physicians and hospitals and

20 others to know what works and what doesn't. And if we

21 could speed that up some, because changing doctor

22 practices is hard to do. We probably all said, "Oh,


1 I've always done it that way." I mean, many

2 professionals would say that. But if we could speed

3 that up by just a few years, through electronic medical

4 records, through making sure that the use of clinical

5 protocols, so that you make sure you have asked all

6 those questions, and -- and that you know what works

7 best, and then you can make that decision to order the

8 MRI because you think that this person they really need

9 it. But to --

10 [Brief loss of audio feed.]

11 [Video presentation.]

12 PAUL VOLCKER: -- points of view, the

13 personal income tax goes up and down a little bit, but

14 I don't think you're going to solve the deficit problem

15 with the personal income tax, nor with the estate tax.

16 If you have to raise taxes, or even

17 substitute some of the present taxes, what's the most

18 efficient way to do it? And -- alternatives do jump

19 out at you? We do have an environmental problem -- I

20 don't think it's on the political table now for the

21 indefinite future, but that's the kind of thing you

22 have to look at.


1 The basic thing is, if we've done all --

2 PETER PETERSON: -- 20 - 30 years, the

3 expenditures are a lot higher than 25 percent. They

4 are 30 plus, 35 --

5 PAUL VOLCKER: A lot of that is the

6 entitlement programs, so the entitlement programs have

7 to be front and center here.

8 PETER PETERSON: One of the arguments for

9 doing something is this whole idea of confidence

10 building that somehow we convey the message to the rest

11 of the world, who are lending us all this money, that

12 we're finally getting our act together.

13 How much emphasis do you put on the --

14 PAUL VOLCKER: Well, I put on some. You know

15 what we can do concretely at the moment is limited, for

16 the reasons I suggest. We are still coming out of the

17 early -- early stages of coming out of the recession.

18 A lot of questions about the strength of the recovery,

19 continued high level of unemployment. It's not an

20 economic situation that's conducive to strong action.

21 So what can we do? In my view, we could deal

22 with the Social Security problem reasonably promptly.


1 It's not going to produce a big change in the fiscal

2 situation in the short run, but it's confidence

3 building.

4 What the President has decided and what many

5 people in the Congress and outside the Congress have

6 suggested, I think including some important nonprofit

7 institutions, is to have an honest-to- goodness outside

8 commission look at it, getting underway a very tough

9 mandate to produce a comprehensive solution to this

10 problem by December. If it does nothing else, it

11 focuses on the problem and I would hope comes up with

12 some constructive ideas that will be doable in an

13 orderly way over the next few years.

14 PETER PETERSON: There are some people that

15 say we can grow out of these problems.

16 PAUL VOLCKER: Oh, I think these projections

17 we're talking about assume growth. It's impossible to

18 be so optimistic as to grow -- to think we are going to

19 grow our way out of this trajectory that seems to be

20 built in. Obviously, growth will help, but it's not

21 going to solve the problem, in my opinion.

22 PETER PETERSON: When the economy starts to


1 recover, there are expectations that the Fed will have

2 to increase rates.

3 As you look at this, how does this relate to

4 this fiscal outlook, in your opinion?

5 PAUL VOLCKER: Well, it certainly relates in

6 the sense of the confidence point that you raised. Is

7 this country capable of getting its act together to

8 deal with the fiscal problem and head off any

9 inflationary repercussions of the very -- monetary

10 policies you have. Have we got the wisdom and the

11 backbone to do that in time? And it is a very

12 difficult challenge for any country at any time, and

13 that challenge is -- I don't know that I'd say front

14 and center, because you don't have to do it right now,

15 for the reasons I suggested. But you've got to build

16 confidence that you're going to do it in a timely way,

17 and that takes action. It takes action on the Social

18 Security front. It will take action on the monetary

19 policy front before too much time passes, if the

20 economy continues to recover.

21 I don't think it's a technical problem. I

22 think the Federal Reserve is able to do this. In these


1 times what's really critically important and I can't

2 let this go without using the word again about the

3 importance of maintaining price stability and policies

4 aimed at price stability.

5 If we have these budget deficits and we have

6 these big increases in indebtedness, as built into the

7 system, if we have a lot of liquidity in the system,

8 it's terribly important that people maintain confidence

9 in the stability of our currency.

10 How many trillions of dollars of U.S. assets

11 are held abroad now? And they're held abroad, to some

12 degree, because they have some confidence those assets

13 are going to be worth something, worth something in

14 terms of their own currency. And that means stability

15 in our price level. Currency can have ups and downs,

16 but it can't have a feeling that the dollar has no

17 place to go but down. That would be very destructive

18 in these situations.

19 PETER PETERSON: One final question, Paul. I

20 was rather surprised the other day to look at so-

21 called tax preferences and discovering that they

22 amounted to something like a trillion dollars, mortgage


1 deductions and the way we treat health care expense,

2 and so forth.

3 Do you have any overview of how we have to

4 think about our tax system?

5 PAUL VOLCKER: If we can't control it by

6 reducing spending, you've got to do something about

7 taxes. Now you include in that area something about

8 taxes might be getting rid of some of these preferences

9 because they are enormous.

10 Now, I'm a little bit skeptical you can do

11 enough of that to cure the budgetary problem that looms

12 ahead. You could keep the income tax rates more or

13 less where they are, simplify them a bit, probably

14 increase some basic exemptions, do something about the

15 corporate income tax. If you are really willing to

16 take a swinging attack on those preferences, you're

17 talking about both in the corporate area and on the

18 personal area, the big one -- the big one, personally,

19 is the mortgage deduction, which no other country

20 provides. But, you know, to just mention that

21 possibility doesn't sound all that promising. But it

22 would be healthy, in my view, to get rid of -- get rid


1 of all of them you could, which reduces the need to

2 raise tax rates or a new tax.

3 PETER PETERSON: Mr. Chairman, you are a rare

4 national treasure, in my opinion.

5 PAUL VOLCKER: Well, thank you. But we

6 haven't had any very good news to talk about.

7 PETER PETERSON: Well, hearing it from you

8 makes it more palatable.

9 Thank you, sir.

10 PAUL VOLCKER: Well, you're welcome.

11 [Applause.]

12 PETER PETERSON: We, obviously, have another

13 former Chairman of the Federal Reserve that needs no

14 introduction, and I will not give him one, except in

15 one respect. There has been commentary, Mr. Chairman,

16 on your successful experience with the 1983 Social

17 Security Commission.

18 What has not been mentioned is one of your

19 personal qualities that may have led to that result.

20 And it is evidenced most on the golf course. I have

21 never seen a more relentless negotiator, who is willing

22 to give up less than this gentleman.


1 [Laughter.]

2 PETER PETERSON: If you play golf with the

3 Chairman, you have to allow enough room on the first

4 tee that equals roughly the amount of time you take to

5 play golf. So, typically, if the golf game starts at

6 two o'clock, you get there about ten in order to have a

7 negotiation that you always lose. I have a feeling

8 that had a lot to do with the success of your

9 commission.

10 Now, another problem is no one ever accuses

11 you of excessive generosity of giving things up. Now,

12 there is a word in golf called a gimme putt and most

13 gentlemen in golf, if the putt is three inches or less,

14 usually say, "Go ahead, take it." The ball could be

15 hanging on the edge of the cup and he would not yield

16 it. To him a gimme putt is another oxymoron. There is

17 no such thing as a gimme putt. So I think that

18 personal quality that you have might be one that Bowles

19 and Simpson could use in coming up with this.

20 I'm not going to give you equal time for - -

21 ALAN GREENSPAN: If I took equal time, we'd

22 be finished.


1 [Laughter.]

2 ALAN GREENSPAN: But you have convinced me

3 that there is a general flaw in the way I look at this

4 process. Henceforth, when you and I play golf, I will

5 -- to give you two inch putts.

6 BOB REISCHAUER: You see that negotiating

7 process? You start with zero and you inch up, as it

8 were. Very good.

9 ALAN GREENSPAN: Have you ever made a two

10 inch putt?

11 [Laughter.]

12 BOB REISCHAUER: All right. Mr. Chairman,

13 we've been talking about the unsustainability or

14 sustainability, the longer outlook. I not only want to

15 be interested in whether you think it's sustainable or

16 not, but something kind of puzzles me. If the outlook

17 is so dire, why isn't it reflected in the long-term

18 interest rates?

19 ALAN GREENSPAN: I think this is a terribly

20 important issue, largely because it's very difficult to

21 make the argument for fiscal restraint without

22 consequences which invariably must lead to inflation.


1 And if there is no inflation, the process of moving

2 towards restraint is very significantly undermined.

3 So that, if you take a look at where we are

4 now, the reason why interest rates are so low, and here

5 we should be talking mainly about market interest rates

6 -- longer term. The ten year Treasury note, the 30

7 year bond. The reason those rates are low is that the

8 global economy is still coming out of a very deep

9 period of deflation.

10 And so, the notion of inflation expectation

11 is pretty much at the moment out of the system. That's

12 going to change.

13 At the moment, the financial system, both in

14 the United States and across the globe, is still

15 fragile. But we are to the point where the solvency of

16 our banking system is really no longer a concern of

17 anybody, for no other reason that there is still a

18 belief that the U.S. Government will step in and

19 prevent a too-big-to-fail type of situation.

20 But what we have here is a situation which

21 cannot be sustained. The reason, basically, is that

22 we're beginning to see a gradual easing up. And the


1 most important thing that's happening in the United

2 States and, indeed, around the world, is that the

3 extremely severe inventory liquidation that occurred

4 immediately following the Lehman Brothers bankruptcy,

5 that is taken out a very large chunk of commercial and

6 industrial loans out of the system, which, as you know,

7 are the major forms of financing.

8 We're now beginning to see that the level of

9 inventories after this horrendous decline is now in the

10 process of stabilizing. And without getting into the

11 technicalities of all the things that are going on with

12 respect to the inventories markets, it's turning up and

13 it looks as though it's going to move up fairly

14 considerably.

15 If that is the case, we're going to find that

16 the trillion dollars or so of excess reserves that

17 depository institutions are holding at Federal Reserve

18 banks, which are being held there with only 25 basis

19 points, whereas they can get well over three percent in

20 C&I loans, it's basically saying that there is -- there

21 is credit risk fear of 300 basis points on very short

22 maturity issues.


1 This is the type of psychology, if it

2 persisted, is amicable to inflation and, indeed, if

3 it's anything, it's the other way around. But that is

4 in the process of changing.

5 And as it begins to change in a significant

6 manner, we're going to begin to see so called money

7 multipliers start to work, which means that the banks

8 with these huge amounts of short-term liquid assets is

9 going to start to make loans. And this is going to

10 create an increase in the money supply and, ultimately

11 -- not immediately -- it's going to be able to move the

12 system away from this deflationary environment. And

13 it's in that type of environment which I think we have

14 to be very much concerned about all of a sudden the

15 psychology turning very quickly, as I think Peter

16 Orszag mentioned.

17 We don't realize how fast that can happen.

18 You remember in the latter of 1979 long-term interest

19 rates went up 400 basis points in five months or four

20 months, or something like that. And that is a

21 startling change. And if we ran into that sort of

22 problem, it would crush our system.


1 So we've got to get this issue of the budget

2 solved sooner, rather than later.

3 PETER PETERSON: All right. Are there any

4 other effects or risks of not taking timely action on

5 the longer term budget situation?

6 ALAN GREENSPAN: Oh, yeah. I think that

7 every -- everyone is pretty much going with the

8 Congressional Budget Office forecasts and OMB

9 forecasts. I think that's the right thing to do for

10 the average, but in my experience, and I think the

11 experience of all those who are putting these forecasts

12 together, is that our ability to forecast is very poor.

13 We do not have a reasonable set of notions of what the

14 cost of Medicare is going to be ten - 15 years from

15 now. We make estimates, but the estimates are based on

16 small samples of various different tests and with this

17 extraordinary change that is currently going on in

18 innovation in the medical system, and remember,

19 innovation by definition is not forecastable. We know

20 it's going to happen. We know there is going to be

21 more of it and the quality of medical care is improving

22 very dramatically. And I think, you know, the problems


1 of what do you do with the number of transplants that's

2 going to start to occur. I mean, it's going to become

3 a routine operation, but they are very expensive.

4 And so, we have the potential here of having

5 a very small capability of forecasting within the

6 narrow range. And what that means is the following.

7 If we are in the current position where the

8 federal debt is rapidly closing in on the level of our

9 capacity to borrow, for the first time since 1791,

10 we're beginning to see real serious questions as to

11 whether we are going to be running into serious

12 problems in that area. I find that very worrisome.

13 And if, at the same time, there is a very

14 major question about what the range of error is --

15 forget the statistics. If you just look at public

16 policy in this area, and it basically has to go around

17 the question not of your forecast so much, but what

18 happens if your forecast is wrong.

19 And in this particular instance, with the

20 buffer gradually moving closer -- I don't know if it's

21 rapid or gradual, but it's certainly moving, we have to

22 be in a position where if we make a mistake here and we


1 underestimate in a significant manner what the upside

2 of outlays are, it is extremely dangerous to the

3 system.

4 If we are wrong on the downside, that's all

5 well and good. We can adjust to that. So we're not

6 confronting an issue of how do we take the current

7 services budget, put on programs -- and make

8 adjustments. We've got to keep in mind the fact that

9 there is a cost benefit analysis here on policy, which

10 requires that we focus on the notion of trying to make

11 certain that the catastrophic event does not happen.

12 And that means to me that we have to not only

13 curtail expenditures, or basically reduce the budget

14 deficit that we're projecting, but aim at a much lower

15 deficit than we really think is likely to happen.

16 PETER PETERSON: How long would you guess we

17 have before there is truly a significant increase in

18 long-term rates, perhaps related to the market's

19 perception of the fiscal situation? You've always been

20 an expert in constructive ambiguity and my guess is you

21 may duck this question. But I think people are

22 interested in knowing how long have we got here before


1 something major happens.

2 ALAN GREENSPAN: Well, to say that I know how

3 long is clearly something which is little more than a

4 guess. But, I'll tell you what I look at every

5 morning. I look at the yield on the ten-year note,

6 which has been hovering under four percent for quite

7 awhile, and that's extraordinarily low in this type of

8 environment.

9 And so I think, as I have mentioned

10 previously, that the canary in the coal mine, so to

11 speak, is the ten-year note and the 30-year bond. If

12 they start to move up in a significant manner, it is

13 suggestive of the fact that we are in trouble.

14 And once that begins to happen, action has

15 got to be taken reasonably quickly or we're not going

16 to be able to head it off. My guess and, you know, who

17 knows what one can guess here, I think we've got a

18 year, because this deflation has not yet turned around.

19 So we still have got deflationary pressures.

20 But, remember, the rest of the world is

21 beginning to move. East Asia is doing exceptionally

22 well. Even Latin America. Brazil is doing very well


1 and the remainder of Latin America is doing well.

2 We are doing okay. The American economy is

3 accelerating faster than we realize. The trouble is,

4 in Europe, where we have a major problem for -- with

5 the exchange rate had problems, and in Japan, which is

6 coming back. And everybody is coming back, but there

7 are laggards. And the -- the problems are getting

8 closer and closer to where the deflation is going to be

9 behind us and the real issue of inflation begins to

10 arise, which as Paul Volcker said, which I agree with

11 fully, you can't have a system in which you have very

12 large deficits, very large expansion in the monetary

13 base, and not ultimately get inflation. It has never

14 happened.

15 PETER PETERSON: Well, speaking of the Fed,

16 what can the Fed do about some of these longer range

17 problems?

18 ALAN GREENSPAN: It's mainly out of the hands

19 of the Federal Reserve, in the sense that these are

20 deep seated political cultural type of problems.

21 What bothers me specifically is that in

22 recent months we are exhibiting an absolute inability


1 to cut anything. I think the C-17, which is a great

2 cargo plane, we got too many of them, according to the

3 Air Force. They're trying to cut back and they are

4 running into difficulties.

5 The space program, which the other day came

6 out with some cuts and everyone started to rubble. The

7 thing actually which bothers me the most in this sort

8 of game playing is the issue of financing the Consumer

9 Protection Agency with Federal Reserve funds. The

10 reason they are doing that is that it appears to be

11 unappropriated funds and it doesn't affect the budget

12 deficit. And it isn't like getting pay go, which was

13 not required for that operation.

14 What it is, of course, is that if you fund

15 the Consumer Protection Agency with Fed revenues, those

16 revenues are not also available to be paid to the

17 Treasury and, therefore, you've got a reduction in

18 receipts and it doesn't appear to be attributable to

19 the Consumer Protection Agency. So that, we've got so

20 many of these gimmicks that we're using, which we just

21 refuse, basically, to cut back on anything.

22 And the one thing I must say about the


1 meeting you've held here, I think I'm beginning to hear

2 that there is a recognition of this, and the startling

3 fact is a willingness to put the existing health care

4 program on the table.

5 PETER PETERSON: I mentioned earlier, given

6 my Greek descent, I've been reluctant to bring up

7 Greece in this session.

8 Is there anything in the Greek situation that

9 in any way suggests parallels between us, or what do

10 you take out of what's happening there?

11 ALAN GREENSPAN: Yeah. There are parallels

12 and there are very significant differences. Let me

13 just mention the differences quickly.

14 The Greek situation is one in which there has

15 been profligate deficits for years. When they went

16 into the Euro, the presumption was -- and, indeed, it

17 happened, that exchanging the drachma for the Euro

18 would lower their interest rates and it did.

19 But what it also did, which was the other

20 side of the balance sheet, is essentially to raise the

21 basic -- the basic exchange rate to a non- competitive

22 level because, obviously, if inflation is more rampant


1 in Greece than it is in Germany, you're going to get a

2 non-competitive exchange rate. And this is creating a

3 major problem and clearly we're not in that position

4 where we have a fixed exchange rate. We have a

5 variable exchange rate and we do, remember, have

6 extraordinary access to the rest of the world's savings

7 because we are the reserve currency.

8 But what the Greek situation does suggest to

9 us is that a major civilized country can get itself

10 into the types of things that we're beginning to see in

11 the United States.

12 I mean, to just repeat, I cannot conceive of

13 anything you could recommend at this particular point

14 which won't -- which will cut spending. I mean,

15 there's even a problem in the Unemployment Insurance

16 benefits which they can't get through a longer term

17 projection because they can't find the funds

18 essentially to -- under PAYGO to meet the demands. So

19 they are stuck with a short-term Unemployment Insurance

20 benefit.

21 Now, it strikes me that -- the reason, of

22 course, they can't get the funds is they've used those


1 funds for something else, and -- which they had

2 originally agreed upon, so that there's a -- we're

3 coming to, essentially, a bankrupt process which

4 something has got to give. And I'm fearful that

5 because, as everybody has noted, medical care is the

6 big 800 pound gorilla in the system, we have to shrink

7 that in some form or another. And I must admit, I

8 cannot come out other than we are committing far more

9 resources than we physically have and that means we

10 have to ration.

11 Maybe the thing to do is to change the words

12 so it becomes politically acceptable, but we do ration.

13 It's just now the physicians ration and there are

14 ration in lots of other different ways. But you cannot

15 have a fee for service subsidized third-party payment

16 system in an area where people find it's

17 extraordinarily important to be in a position where

18 they can get the medical care they want and it is a

19 value. I mean, it's part of the GDP and it should be.

20 But there is no question that if you get very

21 large parts of the GDP going to medical care, it means

22 a huge amount of the workforce is working in medical


1 services. It means capital resources are in medical

2 services. And they are not simultaneously available

3 for other aspects of economic growth.

4 And since our growth is limited, we have to

5 recognize that we are requiring or demanding a number

6 of things, all of which are very important to us. But

7 if you add them all up, we don't have the resources to

8 do them all. We have to make choices.

9 PETER PETERSON: I heard, Alan, that

10 something like five-sixths of our total health care

11 expenditures the consumer has no particular knowledge

12 of what the costs are and no particular incentive to

13 reduce them.

14 Does that fit into your concept of the

15 culture that we have?

16 ALAN GREENSPAN: Well, it sort of -- the

17 question answers itself in the sense that that's

18 essentially what the nature of what's with the system

19 is that you have no -- there is no effective rationing

20 mechanism in our system where, for example, we know

21 that we're not going to be able to get growth in our

22 economy from productivity of more than three percent a


1 year for any protracted period. And the reason for

2 that is if you go back over the - - oh, say, back to

3 1870, we have never had a period in the United States -

4 - there may be very, very few periods -- where output

5 per hour grew more than three percent over a 15 year

6 period, or less than one percent over 15 year periods.

7 And that is telling us something about how our economy,

8 culture, and technologies work.

9 We are at the cutting edge of technology and,

10 therefore, we cannot borrow productivity or technology

11 like the Chinese can do from us and grow much faster

12 than we do. So that, we don't have the capability,

13 considering the fact that we know within a reasonably

14 narrow level what the working age population is going

15 to be in 2030, therefore, what the labor force is going

16 to be. And if you attach that to the productivity

17 growth, you know what our physical resources are, the

18 outside limit. And right now we have committed to a

19 much larger requirement than would be consistent with

20 stability in that limited overall real GDP concept.

21 And that's what our problem is.

22 I mean, it's not that -- medical care is an


1 extraordinarily highly valued product, as everybody is

2 now demonstrating. So is food. So is clothing. So

3 are other things. We've got to make choices and our

4 political system does not seem to be able to make

5 choices.

6 And that's the reason why, if the Commission

7 works and it can put everything on the table, and the

8 President is going to support what they do, I grant you

9 that the odds are still small because it's a -- it's

10 going to be very tough, and I wish them well.

11 PETER PETERSON: Well, speaking of the

12 Commission, you had a successful experience. What are

13 the parallels that you see between your commission and

14 this one and if Alan Simpson and Erskine, who have been

15 here -- were here, what advice would you give them?

16 ALAN GREENSPAN: Well, there is an important

17 reason why that commission worked and others don't. If

18 you have a commission which starts off, deliberates,

19 writes a report, and then gives it to the Congress, you

20 get immediate reaction from the Congress about all the

21 things they don't like. And even after you -- when you

22 explain it to them, they say, "Yeah, that makes sense,


1 but I've already taken my position."

2 So what it is that we did, which was evolved,

3 is that we recognized that this was a controversial

4 issue and that unless we had really bipartisan

5 agreement, it wouldn't work.

6 And what happened was, that Bob Ball, who was

7 a very important analyst and Social Security

8 Commissioner, many years ago, was the head -- I would

9 say Tip O'Neill's man on the commission, and I was

10 President Reagan and Jim Baker's man on the commission.

11 The two of us worked together exceptionally

12 well. And what we did is kept our superiors fully

13 informed as to what was going on. So as the commission

14 made progress, it was coming to agreements, we brought

15 the key political people involved to make certain that

16 we could get support.

17 And at the end of the day, we did come

18 together with very few dissenting votes. Bob Ball and

19 I decided that -- at the Ways and Means Committee,

20 whenever we testified on the bill, that we would

21 stipulate that this is not an amendable recommendation.

22 You take it or you leave it. And I would answer


1 questions to Bob from the Republicans and he would

2 answer questions from the Democrats.

3 And eventually the bill went through the

4 Congress very closely aligned to what the commission

5 stipulated. So I think if there is a lesson to learn,

6 is that there is no such thing as an independent

7 commission that doesn't link itself up in real time to

8 the political mechanism. And I would very much suggest

9 to these veteran co-heads, who know more about this

10 issue than I could ever know, that they make certain

11 that as they go forward, that the President is on board

12 and the senior people in the Republican Congress are

13 shaking their heads in agreement. Because if that does

14 not happen, the Commission will write a very

15 interesting report and everyone might read it, get good

16 press, and then goes on the shelf for posterity.

17 PETER PETERSON: Very interesting. My final

18 question.

19 You've been involved with Social Security for

20 30 years or more. We heard some people say that the

21 trust fund will keep the system solvent for 30 years or

22 more. What do you -- and that it has two and half


1 trillion dollars in assets in it.

2 What would you say about these statements?

3 And, more generally, what is the economic significance

4 of the trust funds, because if the American people

5 believe that we don't have a problem for 40 years, or

6 30 years, it would seem to me they are very unlikely to

7 support reform, because if there is no problem, why do

8 you need a solution?

9 ALAN GREENSPAN: Well, that's a valid issue.

10 PETER PETERSON: Why don't you help

11 straighten us out?

12 ALAN GREENSPAN: Well, first of all, let's

13 remember that, unlike trust funds, which are off budget

14 types of things -- we see them in the private sector.

15 We see them in the public sector. That's not what

16 Social Security Trust Fund is.

17 Start with the premise that what the law

18 stipulates is that in the event that the trust fund

19 goes to zero, the Social Security Administration can

20 pay benefits only to the extent that dedicated payroll

21 taxes come in, which means, effectively, a significant

22 cut in -- in benefits.


1 Now, the probability in this political

2 context, after all we talked about about having

3 difficulties of cutting, the possibility of that

4 actually happening is zero. And if I were to revise

5 it, I would say the zero is too high.

6 Now, once you start with that premise, then

7 what it essentially means is that when you begin to

8 have the level of benefits rise -- let's say, first, if

9 the benefits are below the dedicated tax, there is no

10 problem.

11 It's only when benefits begin to rise above

12 the taxes that you then get a reduction in the trust

13 fund.

14 Now, if you get down to zero and, in effect,

15 general revenues are effectively put back into the

16 fund, you are doing exactly what the fiscal situation

17 would do if the Social Security Trust Fund never

18 existed. Because what you're doing is you're --

19 Congress votes a level of benefits and it effectively

20 guarantees it.

21 Now, whether it is using the dedicated taxes

22 or general revenues, is difficult to tell because they


1 are intermixable, obviously, and so that effectively,

2 the issue of the trust fund is -- does not change any

3 action that anybody is taking.

4 If there is a trust fund and it's guaranteed,

5 so that when it runs out, it gets replenished. What's

6 happening is that all of the -- all of the shortfall

7 and receipts is met by marketable securities being sold

8 for cash to get the moneys to pay the benefits.

9 That's what happens with or without the trust

10 fund. And since it makes no difference, the trust fund

11 has no economic significance from an accounting point

12 of view.

13 And if you wanted a trust fund that was off

14 budget, it's got to have non-federal assets in it,

15 mainly, say, municipal securities or more generally

16 private securities. Because if you have receipts of

17 dedicated taxes falling below the benefits, you can

18 draw on those assets. That action does not affect the

19 unified budget.

20 PETER PETERSON: So, in other words, for it

21 to have economic significance, to be sure I understand

22 you, you would need assets in there that were really


1 independent assets of some sort?

2 ALAN GREENSPAN: Yes. They cannot be merely

3 obligations or guaranteed obligations of the United

4 States Government, because it's the same thing as a

5 corporation, which has got an intra- company transfer.

6 On a consolidated basis, it washes out. And on a

7 consolidated unified budget basis, the Social Security

8 Trust Fund washes out.

9 PETER PETERSON: Washes out. Mr. Chairman, I

10 am so grateful to you that I'm giving you 20 strokes.

11 [Laughter.]

12 ALAN GREENSPAN: 21?

13 [Laughter.]

14 PETER PETERSON: You would normally ask me

15 for how many holes and the answer is 2,000. Thank you,

16 very much, sir.

17 [Applause.]

18 MICHAEL PETERSON: Much has been said today

19 about seeking a consensus on the fiscal challenge. As

20 it happens, we have at least one model for bipartisan

21 agreement to tell you about.

22 The results are in from a survey commissioned


1 by the Foundation of the most senior economic officials

2 from the last eight administrations and congressional

3 leaders from the last 30 years.

4 The respondents were asked about the

5 challenges posed by our long-term structural deficits,

6 as well as possible solutions. And the outcome was

7 something we haven't experienced in Washington in a

8 long time. Consensus.

9 Here to tell us more about the survey results

10 is Jeff Pollack from the public opinion research firm

11 that carried out the survey, Global Strategy Group.

12 Jeff.


14 JEFF POLLACK: Thank you, very much. Thank

15 you for having me here.

16 I'd like to begin -- I'm going to show you

17 the results of the survey that we conducted and start

18 and hopefully this -- there we go.

19 [Slide presentation.]

20 JEFF POLLACK: So let me begin by talking

21 about what we did. We -- sorry, could you go back

22 please one slide.


1 What we did is, we conducted a survey

2 whereby, as Michael said, we talked to some of the

3 nation's foremost economic thinkers. Essentially we

4 compiled a list of folks in the last decades -- number

5 of decades -- who were [a] still alive, and [b] --

6 obviously, and [b] who were not currently serving in

7 office in any way. And all of the titles you can see

8 right there, in terms of the kind of folks that we

9 talked to. Secretaries of the Treasury, people from

10 the Legislative and Executive Branches. We're talking

11 about folks who were Directors of OMB. We're talking

12 about Council of Economic Advisors.

13 And so, when you look at that list of titles

14 that you can see on both sides -- on both monitors,

15 it's an impressive list of people. And if you take all

16 of them, it's about 100 or so people over the last

17 number of decades.

18 We sent a survey out to them and got a

19 response back from -- amazingly, from 58 people. And

20 the response that we got, we were getting FedEx's. The

21 day we sent it, we got it back the next day. It was

22 quite amazing how invested folks were.


1 One very high level economic official forgot

2 to send in one page. We got a frantic phone call that

3 they had the page and they wanted to get it faxed over

4 to us. So these are folks who cared very much about

5 the results.

6 And so, let's go through some of them. First

7 and foremost, we've divided them up by Republicans and

8 Democrats. And the reason for doing that is quite

9 simple. We wanted to show what people who were part of

10 a Republican administrations or Democratic

11 administrations believed.

12 And what we found, more than anything, is

13 that there is absolute bipartisan consensus on

14 everything. On every metric that we measured, there is

15 bipartisan consensus.

16 And so, for example, we asked the question,

17 "Do you agree or disagree that if we don't act soon to

18 address the nation's long-term fiscal situation, we're

19 heading for another major economic crisis?"

20 And look at -- Republicans, 63 percent

21 strongly agree; Democrats, 71 percent, but

22 overwhelmingly, over 90 percent of both total agree.


1 In addition, there is unanimous, and I mean

2 literally unanimous, 100 percent of both Republicans

3 and Democrats said that the Federal Government is

4 currently on an unsustainable fiscal path.

5 In addition, they all feel, unanimously, 100

6 percent believe that the long-term structural deficits

7 that we face are far more of a crisis that we need to

8 focus on than any kind of short-term ones.

9 Next what you'll see is, we asked people a

10 couple of different things about timing. And

11 overwhelmingly people think that the economic crisis

12 that we're facing is going to happen sometime in the

13 next, say, three to ten years.

14 But more impressively, among both Republicans

15 and Democrats, 92 percent of Republicans and 82 percent

16 of Democrats say, we must take action in the next one

17 to two years.

18 So, even though they know that it's coming,

19 that the crisis is coming a little bit later, they

20 believe we've got to take action now. And again, as I

21 said, both sides of the aisle agree.

22 We also asked people what they thought, if we


1 failed to enact some meaningful measures in order to

2 address the structural deficit, what is likely to

3 encounter. And you can see, again, bipartisan

4 agreement, Republicans and Democrats.

5 For example, 80 percent of Republicans and 71

6 percent of Democrats said we're likely to see rapid

7 growth in federal spending. We're likely to see a rise

8 in interest rates.

9 We're likely to see, most impressively, a

10 decline in the U.S. standard of living, 65 percent of

11 Republicans and 53 percent of Democrats. An

12 impressively high number of people who say that this is

13 very likely. Not just likely, but very likely. And

14 that intensity is an important point.

15 You can see that there is agreement across

16 the board that so many things are problems that are

17 coming if we don't address this shortly.

18 In one of the most bright line findings,

19 though, so many times in Washington we hear about one

20 solution versus the other. In particular, tax cuts

21 versus spending cuts.

22 And what we can see from our sample of


1 economic leaders, is that the answer is that both are

2 absolutely necessary. Among Democrats, 88 percent say

3 both spending cuts and tax increases are necessary.

4 But even among Republicans, more than two-thirds, 68

5 percent, say both spending cuts and tax increases are

6 absolutely necessary to solve our long-term structural

7 deficit.

8 Some other things that people agree with, 100

9 percent, for example, agree that we need to seriously

10 consider overall spending cuts. We need to consider

11 entitlement reforms, like Social Security, Medicare,

12 and Medicaid reforms.

13 But we also have to reform our tax code. 100

14 percent of Republicans and 94 percent of Democrats

15 agree.

16 And even tax increases. You can see, as I

17 mentioned before, we asked two questions here, but in

18 either case, both Republicans and Democrats agree that

19 we absolutely need to consider tax increases as a part

20 of things.

21 So, significant decreases in discretionary

22 spending, tax increases. All options have to be on the


1 table.

2 So the notion is that economic leaders today,

3 economic leaders who have been a part of our nation,

4 have watched where we're going, what -- have been a

5 part of what we were doing and see where we are going,

6 universally agree that we've got to address these

7 things now, and that we need bipartisan agreement. We

8 need all sides to the table. And it fits very

9 perfectly in with what the Commission is doing today.

10 I'd like to thank you for giving me this

11 time.


13 PETER PETERSON: It's now my pleasure to not

14 only introduce but thank David Walker, our President

15 and CEO, who I call some combination between Paul

16 Revere and an Energizer Bunny. He's been to 41 states.

17 He's made hundreds of speeches all over the country.

18 He has done all kind of op-ed articles and TV

19 interviews and so forth. It's a testimony to his --

20 the depth of his marriage that it has survived it.

21 Dave, I just want to say that we want to

22 express our deep appreciation to you for all you have


1 done on behalf of the country. And I know your

2 previous experience as Controller General is still more

3 evidence that you're an American patriot. So it's my

4 pleasure to introduce Dave Walker.


6 DAVID WALKER: Thank you, Pete, very much and

7 let me, on behalf of all of us here, thank you for your

8 generosity in putting your money where your mouth is,

9 and your time where your heart lies with regard to

10 federal fiscal responsibility and trying to make sure

11 that it's not an oxymoron.

12 We are approaching the end of this conference

13 and I want to thank everybody who participated

14 throughout the day. We've heard many perspectives and

15 opinions from a variety of players across the political

16 spectrum, and that's exactly as it should be.

17 As Americans, we not only speak our minds

18 about governance and policy challenges facing this

19 country. We also understand that freedom of speech is

20 an essential part of our democracy.

21 As has been discussed, prior to this

22 conference, the Peterson Foundation funded a


1 confidential survey of former top Executive Branch,

2 Congressional, and Federal Reserve officials and

3 solicited their views on a range of timely and

4 important fiscal issues.

5 The results were revealing and of critical

6 importance. These bipartisan top officials from the

7 past several decades reached unanimous agreement that

8 our Federal Government is on an unsustainable fiscal

9 path.

10 These top economic officials believe that the

11 United States will ultimately face a major economic

12 crisis if we fail to address our structural deficits,

13 mounting debt burdens, and imprudent reliance on

14 foreign lenders.

15 There was also strong bipartisan agreement

16 that everything must be on the table, including budget

17 controls, social insurance reforms, defense, and other

18 spending constraints, and additional revenues.

19 During this summit, we've heard a number of

20 people reinforce these important survey findings,

21 including the fact that the real problem is our

22 structural deficits and not the short-term deficit.


1 We heard from former President Clinton about

2 how he made fiscal responsibility a top priority and

3 achieved real results.

4 President Clinton also reminded us that while

5 the federal challenge is great, many states face their

6 own fiscal imbalances that need to be addressed, and

7 that we may well have to reorganize government, both

8 the Executive and Legislative Branch, in order to get

9 the job done.

10 We heard that health care costs remain the

11 single largest challenge to our nation's fiscal future.

12 Importantly, there is strong agreement that there are

13 no easy solutions and that a range of tough choices

14 will be required if we want our collective future to be

15 better than our past.

16 This includes taking a hard look at the

17 approximately one trillion dollars in tax preferences

18 that represent back door spending, and starting to make

19 sure that the government is focusing more on the future

20 rather than the past.

21 It also includes reorganizing -- pardon me --

22 recognizing the significant differences in cost of


1 living in different geographic areas around the United

2 States.

3 Finally, the two co-chairs of the President's

4 Fiscal Responsibility Reform Commission discussed what

5 they planned to do to discharge their responsibilities

6 and help our growing federal fiscal challenge.

7 And now, as we prepare to leave here, the

8 real work begins. We did not come together just to

9 hear ourselves talk. What brought us to this summit is

10 a shared sense of urgency. Ever since our founding,

11 America has offered each generation the opportunity for

12 a better life.

13 Now we have to put that long-standing

14 tradition at risk. Serious structural deficits and

15 mounting debt burdens threaten the future prosperity of

16 our country, its position in the world, and the quality

17 of life for our children and grandchildren.

18 This is the challenge that will exist after

19 the economy has fully recovered, after unemployment

20 levels are down, after the wars are over, and long

21 after the financial and housing crises have passed.

22 Our actions in the months and years ahead


1 will either preserve the American dream for generations

2 to come or further mortgage their future.

3 So we are facing not only an economic

4 challenge, but an ethical and a moral challenge as

5 well. All of us gathered here are committed to meeting

6 those challenges and I'm convinced that we will. After

7 all, this is America.

8 But the only way this will happen, short of a

9 crippling crisis, is if the first three words of the

10 Constitution come alive. "We the people."

11 Many Americans complain about politicians in

12 Washington, but we the people are ultimately

13 accountable for what does or does not happen in our

14 nation's capitol. The fact is, we cannot afford a

15 toxic mix of public ignorance and apathy.

16 All our citizens need to become more informed

17 and involved if we want to accelerate the

18 transformational reforms that are so necessary to put

19 us in a more prudent and sustainable path.

20 To make that happen, we need to lay out the

21 facts to the American people, speak the truth, talk

22 about the tough choices we need to make, and explain


1 the absolute necessity of acting sooner, rather than

2 later, and the potential adverse consequences to our

3 country and our families if we fail to do so.

4 It will take capable incredible people

5 engaging with representative groups of Americans across

6 the country, but I'm confident that it can be done.

7 At the same time, those in positions of power

8 and influence must listen to the American people and

9 learn from them. Washington experts don't have all the

10 answers, not by a long stretch. Our policy makers need

11 to benefit from the ideas, experiences, and

12 perspectives of citizens across the country. That is

13 how we will fashion policies that truly address the

14 concerns and priorities of those who actually pay the

15 nation's bills.

16 This citizen education effort should be

17 conducted in selected cities around the country and

18 shared from coast to coast via the latest communication

19 technologies, and it needs to take place soon, given

20 the lessons from the recent mortgage related subprime

21 crisis, the recent fiscal warning signs from Europe,

22 which are on pages A1 of both the Washington Post, New


1 York Times, and other major papers around the world,

2 and the growing concerns expressed publicly by

3 Americans, our foreign lenders, and others.

4 In this regard, I am pleased to announce that

5 the Peterson Foundation, the MacArthur Foundation, and

6 the Kellogg Foundation are partnering to make this need

7 a reality this summer.

8 We are very appreciative that Mike Stegman,

9 Director of Policy and Housing at the MacArthur

10 Foundation and Ann Mosle, the VASWANI PLACE for

11 Programs at the Kellogg Foundation have joined us here

12 today to demonstrate our shared commitment to this

13 important effort.

14 By pooling our resources on Saturday, June

15 26th, an unprecedented citizen education and engagement

16 exercise will be conducted that will focus on our

17 federal fiscal challenge.

18 This national effort will involve

19 representative groups of Americans in 20 cities around

20 the country, all of which will be linked via satellite

21 and the web. The participants will be provided the

22 fiscal facts and then asked to express their views on a


1 broad range of reform options.

2 Very importantly, they will also be asked how

3 to prepare proposed reform packages that will achieve

4 certain longer term fiscal objectives. After all,

5 failing to effectively address our large and growing

6 structural deficit is simply not an option.

7 This historic civic exercise will be

8 conducted by America Speaks, a nonpartisan organization

9 with considerable experience and a proven track record

10 in conducting similar forums. Rest assured, that the

11 information and options provided in this exercise will

12 be accurate, reasonable, and comprehensive. To help

13 ensure this, America Speaks has engaged several

14 advisory groups, each comprised of individuals that

15 span the political and etiological spectrum.

16 I am pleased that Dr. Carolyn Lukensmeyer,

17 CEO of America Speaks, has also joined us here today.

18 We are confident that the results of this citizen

19 education effort will prove extremely valuable to

20 federal elected officials, the President's Fiscal

21 Responsibility and Reform Commission, the Bipartisan

22 Policy Center's Debt Reduction Task Force, the press,


1 the general republic -- general public, I'm sorry --

2 and others.

3 But it's critical to understand that this

4 effort should not be a substitute for a range of

5 citizen education engagement efforts that the two

6 commissions and that individual members of Congress

7 should conduct on their own initiative.

8 Only through substantial and sustained

9 outreach beyond Washington's beltway will we be able to

10 bring the kinds of reforms that can put this nation

11 back on the path to fiscal sanity.

12 You will hear more about our related efforts

13 in the coming weeks.

14 Before I conclude my remarks and this

15 conference, I'd like to ask Mike, Ann, and Carolyn to

16 make a few brief remarks.

17 And so, Mike, if you could come up first and

18 then followed by Ann, and Carolyn, please. Thank you.

19 MIKE STEGMAN: Thank you, Dave.

20 [Applause.]

21 MIKE STEGMAN: Bringing together thousands of

22 diverse Americans from across the country


1 simultaneously to discuss the nation's fiscal

2 challenges holds the promise of spurring an even

3 broader national dialogue. This would help build the

4 urgency and political will necessary to tackle our

5 deficit and debt.

6 MacArthur supported the recent nonpartisan

7 report by the National Research Council and the

8 National Academy of Public Administration that argued

9 under continuation of the current trajectory of the

10 federal budget, the nation faces the risk of a

11 disruptive fiscal crisis.

12 Concluding that forceful, even painful action

13 must be taken soon to alter the nation's fiscal course,

14 the report contains a range of tax and spending options

15 that could be adopted to stabilize the debt within a

16 decade. Because every day's delay in fixing our fiscal

17 policies implies necessary spending cuts and revenue

18 increases have to be larger and more abrupt, it is

19 urgent that we get about the task at hand.

20 And it is in that spirit we are pleased now

21 to support his creative new effort with America Speaks,

22 among several others, to inform and engage the American


1 public and find common ground.

2 Thank you. Ann.

3 [Applause.]

4 ANN MOSLE: Thank you, Mike. Before I get my

5 remarks started, I'd like to just really thank the

6 Peterson Foundation and especially Secretary Peterson

7 for his unwavering passion and leadership on a very

8 difficult subject.

9 I come here from Battle Creek, Michigan. The

10 Kellogg Foundation was created in 1929 by a man who

11 sold brooms door to door. It was many years and many

12 decades before he created the Kellogg Company that has

13 now resulted in seven and a half billion dollars in

14 assets that we are able to use to propel vulnerable

15 children forward.

16 So when we were approached about this grant,

17 this was a little bit outside of our wheelhouse. We

18 spend about $300 million a year, based in the state of

19 Michigan, while also doing national and international

20 work, thinking about how can we improve the lives of

21 kids each day, next year, five years from now.

22 The issues that we have been talking about


1 today will define this generation, the next generation,

2 and beyond. So collaborating with our colleagues, both

3 MacArthur Foundation that has a distinguished track

4 record at the community level, and with the Peterson

5 Foundation, we wanted to bring our passion and focus

6 around kids, vulnerability, equity, and civic

7 engagement.

8 Two quick reminders about when you get into

9 the civic engagement business. One, and I think Alice

10 Rivland said it really well, one -- in public can do

11 two things at one time. They can think about their

12 daily crisis and they can think about the years ahead.

13 I think we have to honor that wisdom. About

14 a couple of months ago, I worked with the Stanford

15 University Center for Deliberative Democracy. I spent

16 three full days with 300 residents of Michigan that was

17 scientifically representative of the state, from CEO's,

18 to janitors, to teachers, to young people, and

19 everybody in-between.

20 The project was called Hard Times, Tough

21 Choices. They were willing to make the tough choices,

22 but they have to have credible things to respond to.


1 We cannot underestimate the willingness and the will of

2 the people.

3 We also, when we engage the public, have to

4 remember to listen. And with that, I'd like to - -

5 before I turn it over to Carolyn, we had the

6 opportunity, the Kellogg Foundation, among many others,

7 to support America Speaks in the crisis of Katrina.

8 America Speaks went door to door, trailer to

9 trailer, to engage the citizens of New Orleans in

10 defining their future. Those voices, those

11 conversations resulted into a lot of great policies and

12 solutions. Still a lot more work to do, but America

13 Speaks was wonderful in truly engaging the public.

14 Thank you.

15 [Applause.]

16 CAROLYN LUKENSMEYER: Almost every speaker

17 here today has emphasized the absolute necessity of

18 educating the public and engaging the public in the

19 fiscal challenges facing our nation.

20 And thanks to Peterson, McArthur, and

21 Kellogg, America Speaks is privileged to bring together

22 on June 26th every walk of life will be represented


1 simultaneously, in 20 cities across the country, and in

2 many other communities and congressional districts, in

3 community conversations to look at the facts about the

4 situation that the country is facing.

5 And to look at the options in terms of

6 changing the curve in health care costs, in terms of,

7 although we've heard many times today it's a much

8 smaller part of the problem, but it is a structural

9 part of the problem, on Social Security and on revenue

10 options, and all the other nondiscretionary domestic

11 items and defense.

12 What we've learned over a decade and a half

13 in the privilege of doing this work is four things.

14 And, actually, Leslie Stahl said -- I don't know if

15 she's still here, but she said this this morning.

16 And we actually used the tapes of that 60

17 Minutes segment on the budget process in the 90's to

18 train some of our teams that are out doing the

19 organizing around the country today.

20 But here's the four things we have learned.

21 Every time we have done one of these

22 projects, no matter what the topic, no matter where in


1 the country, the public really wants to be at the

2 table. They are really willing to give up their

3 personal time and to listen open-mindedly and open-

4 heartedly to each other to [2] come to solutions.

5 It's one of the extraordinary pieces of

6 social capital in this country. Americans want to

7 solve problems. And they want to do it by discovering

8 common ground.

9 And the last piece of conventional wisdom

10 that is really at a peak right now in the country is

11 that people inside the beltway won't listen to people

12 outside the beltway. It's easy to understand why

13 that's what we think, given what is -- what is

14 available to use to understand.

15 But as Ann said, and has been our experience

16 in every case, when, in fact, the public is brought

17 together in demographically representative samples --

18 it's not just this interest group. It's not just this

19 age group, but it's the whole public together.

20 Lawmakers and decision makers are more than happy to

21 listen.

22 And in this case, the President's commission,


1 the bipartisan Policy Center's Debt Reduction Task

2 Force, the Senate Budget Committee Majority/Minority,

3 the House Budget Committee Majority and Minority have

4 already agreed to listen to these outcomes.

5 It's exactly like Alan Greenspan said at the

6 end of his talk. The lesson that he would pass on to

7 the commission is it has to be connected to the real

8 politic.

9 Based on the generosity of these funders, the

10 timing of this, this national discussion is connected

11 to the real politic. And it is exactly what gives me

12 the hope and optimism that something really will come

13 out of this year's work.

14 Thank you, very much.

15 [Applause.]

16 DAVID WALKER: Thank you, Mike, Ann, and

17 Carolyn for those words. We're looking forward to June

18 26th, Saturday coming up.

19 As this summit comes to a conclusion, there

20 is one more critical ingredient for success that we

21 must acknowledge. We must find ways to bridge the

22 current partisan and etiological divides that have


1 reached epidemic proportions in Washington.

2 In the end, the only way to turn ideas into

3 action is to offer nonpartisan policy options and non-

4 etiological proposals that can achieve broad based

5 bipartisan support. Doing do will require special

6 processes, as well as courage and extraordinary

7 leadership from the President of the United States and

8 key congressional leaders. We must not give up hope.

9 All this can happen.

10 Yes, we can, still ensures that our

11 collective future is better than our past. And yes, we

12 can achieve fiscal responsibility in ways that ensure

13 social justice. These two key concepts are not

14 mutually exclusive.

15 We at the Peterson Foundation will do our

16 part. This includes bringing attention to possible

17 solutions, ranging from comprehensive tax and social

18 insurance program reforms, to statutory budget

19 controls, to reprioritizing constraining defense and

20 other spending, especially health care costs.

21 We will also promote efforts to help ensure

22 that elected officials either make the required


1 decisions or are held accountable if they fail to do

2 so. After all, our fiscal clock is ticking and time is

3 not working in our favor.

4 In closing, the Peterson Foundation is eager

5 to work with all of you as we face up to our nation's

6 fiscal challenge. Please review the information in

7 today's participant package and encourage others to do

8 so by going to our foundation's website, www.pgpf.org.

9 That's www.pgpf.org.

10 If all of us do our part, we can keep America

11 great and preserve the American dream for future

12 generations. We owe our nation's founders and our

13 families no less. Let's do it together.

14 Thank you. Safe travels.

15 [Applause.]


17 [Whereupon, at 2:51 p.m., the summit was

18 concluded.]

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full transcript of the 2010 fiscal summit

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