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MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris.

The numbers have been crunched and the tally is eye-popping, $1.75 trillion. That's the projected budget deficit for the current fiscal year. The estimate emerges as President Obama unveiled his first budget proposal this morning.

President BARACK OBAMA: We need to be honest with ourselves about what costs are being racked up because that's how we'll come to grips with the hard choices that lie ahead. And there are some hard choices that lie ahead. Just as the family has to make hard choices about where to spend and where to save, so do we as a government.

You know, there are times where you can afford to redecorate your house, and there are times where you need to focus on rebuilding its foundation. Today, we have to focus on foundations.

BLOCK: Those foundations are education, energy and healthcare reform. There's also a quarter of a trillion dollars that could be used to further bail out banks. And for the first time, the budget includes the cost of the wars in Iraq and Afghanistan.

NORRIS: The administration's goal is to cut the budget deficit in half by the end of the president's first term. And today it was up to White House budget director Peter Orszag to explain how, through a combination of spending cuts, tax hikes and winding down the war in Iraq. Orszag deflected criticism that the deficit was padded to make shrinking it easier.

Mr. PETER ORSZAG (White House Budget Director): We're being very clear. We're not raising the price before a sale. This is deficit reduction relative to the deficit that we inherited before the recovery act and before any of our policy interventions.

BLOCK: We're going to get reaction to the president's budget now from Republican Senator Judd Gregg of New Hampshire. He's the senior Republican on the budget committee. Senator Gregg, welcome to the program.

Senator JUDD GREGG (Republican, New Hampshire): Thank you for having me on.

BLOCK: President Obama said today this is an honest reflection of hard choices. Is this budget honest enough for you?

Sen. GREGG: Well, the budget is reasonably honest. And, in fact, I give them credit for having brought online and made clear the cost of the war and also the fact that the AMT tax is never going to be collected, so they're not scoring that.

BLOCK: The Alternative Minimum Tax.

Sen. GREGG: Right, the Alternative Minimum Tax and the doctor fix. But the budget itself has got real serious problems, in my opinion, because it's a massive expansion in spending and a massive expansion in taxes. And the real problem is that in the out years, not only does it dramatically increase spending in taxes, but it passes on to our children a government that can't be afforded.

BLOCK: But Senator Gregg, this president was elected and the Democrats strengthened their majority in Congress on an agenda that included new initiatives on things like healthcare, energy, education. You heard the president today say, I'm determined to bring the change that the people voted for last November. If that's the mandate, why shouldn't they exercise it?

Sen. GREGG: Well, I don't think he was elected to bankrupt the country. And basically, if you run up deficits at this level, where you're doubling the national debt in five years and tripling it in 10 years. And then doing virtually nothing to bring it down in the out years, and you don't address the fundamental underlying problems that's driving the cost of spending, which are the cost of the major entitlement program as a result of the retirement of the baby boom generation, you're going to pass on to our children a government that simply can't be afforded.

The burden of taxation will be so extraordinarily high to maintain the cost of the retired generation, that they simply won't be able to have a high quality of life.

BLOCK: The taxes that you're talking about would fall predominantly on the wealthiest in some years out. Isn't it reasonable that the wealthiest among us should pay more to help create a more equitable society?

Sen. GREGG: Well, I know that's the NPR position, but it's not my position.

BLOCK: Not the NPR position, but it certainly would be the Obama position.

Sen. GREGG: Well, certainly your question's position. The simple fact is that under our system we have an extremely progressive tax law right now. Eighty-five percent of the taxes are borne by the top 20 percent of income people. And you got to remember who this 20 percent is. When you're talking about incomes in the $250,000 range, you're talking mostly about sole proprietors and people who run small businesses and maybe organize as a subchapter S-corporation where they are taxed on the income of their business.

So, it's a restaurant, it's an automobile dealership, it's a real estate agency. It's the people who create the jobs. Seventy percent of the jobs in America today are created by small business people. So, basically, what you're putting in place is a tax burden, which is going to make it very difficult for those folks who are the entrepreneurs and job creators in our society to be successful and what for.

Well, basically, it's being put in place to dramatically expand the size of the government. You're talking about adding massive increases in entitlement spending, massive increases in discretionary spending. And that's very hard to justify when you're in an economy that's as slow as it is and is slowing down even further, it appears, to be putting this type of burden on the people who are the job creators.

BLOCK: And the administration today, of course, is arguing that these taxes on the wealthiest will come into play when the economy has recovered.

Sen. GREGG: Well, it's going to be hard for the economy to recover if the people who create the jobs are having their taxes increase dramatically. I'm not sure that's going to work that much. And remember, there's also in this proposal a national sales tax on people who use energy specifically to heat your home and drive a car. So, that's another tax that they put into this.

BLOCK: Are you talking about the cap in trade?

Sen. GREGG: That's right - ends up being a national sales tax for all intents and purposes.

BLOCK: Senator Gregg, if things had gone according to the original plan, you'd be speaking to us as the Commerce secretary right now. You, of course, withdrew your nomination, saying it wasn't really a good fit. Do you see some irony that instead of being part of this administration you're talking to us now as a critic?

Sen. GREGG: Well, that's why I am. That's why I'm not part of the administration. I think that's pretty obvious, and I should've realized it earlier. I didn't. I accept the responsibility for that. But as a practical matter, I've been my own person for 30 years, and I do - am a fiscal conservative.

I do believe we need to get under control the rate of growth of the government so that we can afford it and so that we pass onto our kids a country they can afford. And that's at the essence of my view of government.

BLOCK: You did say when you withdrew that there would be a lot of issues on which you would carry the president's water in the Senate. You voted against the stimulus plan. You've been telling us about your opposition to this budget. What water will you carry in the Senate?

Sen. GREGG: Well, I think there's great opportunity for initiative on the most critical issue, which is entitlement reform. I, along with Kent Conrad, who's the chairman of the budget committee, have put forward a proposal which would lead to a bipartisan effort to try to bring under control the out year costs, which are basically going to bankrupt this country, specifically, the entitlement cost. And the out years aren't that far away, by the way.

BLOCK: And you're talking about Social Security and Medicare.

Sen. GREGG: Social Security and Medicare. I mean, you're looking at, within -by the time this president fulfills his second term, assuming he's re-elected, most of the baby boom generation will be retired. We will have doubled the number retirees in this country. So, the issue isn't over the horizon anymore as it used to be for years. The issue is - the problem is on the horizon and closing fast.

And if we don't act on it, as I've said numerous times already, we are going to pass on to our kids a country they can't afford and significantly deteriorate their quality of life.

BLOCK: Senator Gregg, thanks very much.

Sen. GREGG: Thank you.

BLOCK: Senator Judd Gregg of New Hampshire, the senior Republican on the budget committee.

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