MELISSA BLOCK, host:
There is a thriving cottage industry in deficit reduction advice these days. Today, the Rivlin-Domenici plan; yesterday, the Jan Schakowsky plan; last week, the Simpson-Bowles plan. That's former Senator Alan Simpson, a Republican, and former Clinton White House chief of staff Erskine Bowles. They are the co-chairs of the bipartisan National Commission on Fiscal Responsibility and Reform. And they're here with me in the studio. Welcome.
Mr. ALAN SIMPSON (Co-Chair, National Commission on Fiscal Responsibility and Reform): Thank you. It's great to be here.
Mr. ERSKINE BOWLES (Co-Chair, National Commission on Fiscal Responsibility and Reform): It's a pleasure.
BLOCK: And I want to talk to you about the ratio in your plan of spending cuts to new tax revenues. It's about three to one, $3 in cuts for every $1 more in revenue. Why is it skewed so strongly in that direction, Mr. Bowles?
Mr. BOWLES: Well, we worked really hard to see, you know, what was the maximum amount we could reduce spending and get to - eventually to a balanced budget. And so focused first on the discretionary budget, then we focused on the long term entitlements. And having once done that, then we had to see what we could do on the revenue side. And on the revenue side we tried to stay focused on what we could do that would really spur the economy forward. So what we did on the revenue side, I think, was pretty interesting.
There's all this spending that's in the tax code. They're called tax expenditures up here, but it's just spending by another name. It's things people really like, like the deduction for mortgage interest or for charitable deductions or for state and local taxes. We wiped all of those out. And by wiping that $1.1 trillion in spending in the tax code out, we were able to take the tax rates down to eight percent, up to $70,000. Fourteen percent up to $210,000 and 23 percent would be the top maximum rate. And we could reduce the corporate rate to 26 percent so America would be the best place to start and grow a business.
And if somebody comes back and tells us, gosh, you got to add back in, you know, the mortgage deduction or the earned income tax credit, we say, fine, show us how you're going to pay for it.
BLOCK: Let me run by you some criticism from the economist Paul Krugman, writing in The New York Times, who thinks you've got your priorities backward, especially on taxes, that you're stressing lower rates over deficit reduction. He sees this as a major transfer of income upward. He wrote: same old, same old tax cuts for the rich and erosion of the social net. Senator Simpson?
Mr. SIMPSON: Well, I'd love to meet Paul Krugman because I think sometimes he just looks like he's lost his marble. I know he won the Nobel Prize. I respect that. But let me tell you, his ideas are not going to go anywhere in this atmosphere because it's a different time than he wrote before when he was just dinging on George Bush. It was more fun to ding on Bush economically than anybody else and he loved that.
But let me tell you, if he can't realize what we're doing in Social Security where we protect the lowest people in society, the lesser fortunate, grazing the retirement age one year till the year 2050, to 68 because the life expectancy is 76, the demographics of the United States, the fact we can't grow our way out of this with double digit growth for 30 years. What is he speaking of? He's going to lose his relevancy, just as Grover Norquist will lose his.
BLOCK: You're talking about the main anti - Grover Norquist, who has the big anti-tax group.
Mr. BOWLES: Let me add something to what Alan said, 'cause we agree on this. Look, Paul Krugman is a very, very smart guy. He's a Nobel Prize winner. But what I will say is if you do a discretionary analysis on this and you look at who's affected by these tax expenditures, you can see that the people who benefit from them most are the people in the top one percent.
If you look at the tax benefit that somebody gets in that top one percent from tax expenditures today from these deductions, that benefit's about twice as much as the average person in America makes. The vast majority of the people do far better under our plan than they would under any of these other plans. So don't forget, we're also lowering the rate while we're wiping out these expenditures.
BLOCK: When we talked back in February, when you were named to head this commission, Erskine Bowles, you said, we've got to earn people's trust. And Senator Simpson, you were a bit more colorful, as is your wont. And I want to play you what you said back in February.
Mr. SIMPSON: Oh god. Go ahead. I know this will be good.
(Soundbite of previous recording)
Mr. SIMPSON: And there are a lot of bitchers and whiners and snorters out there and we intend to listen to them all and then crush them.
(Soundbite of laughter)
BLOCK: Okay. Well, that was February. What about those whiners and snorters...
Mr. SIMPSON: I had a very poor breakfast that day and feeling very puny. Let me tell you, I've been here in and out of this game. All I know is the way you pass or kill something around this place, you use a deft blend of emotion, fear, guilt or racism. And the only way you beat those people back is with facts. I've always used facts, which is a great irritant to people who use emotion, fear, guilt and racism, who are the bitchers, the whiners, the parsers.
But let me tell you, the American people have got this baby figured out. And when I walk through airports now, instead of getting a digit salute, I get a thumb up. And there's a reason. They know that they went broke in their own family, that they had to cut up their credit cards, that they're on the ropes, they're on unemployment. And they're saying, where the hell is the federal government in this game? Well, this game is over.
BLOCK: You have this December 1st deadline by which you need to, I guess, have a vote in your commission, 18 members, 14 of whom need to agree. What happens between now and then? How do you try to achieve consensus, and if you don't, what happens with the marker you've laid down in your report? Senator Simpson?
Mr. SIMPSON: Well, honestly, it's not a threat. We have no power to threaten. But it's very simple. If we got 14 votes, that's great. If we have 10, that'll be great. If we have eight, we won't blame anybody. If we have none, Erskine and I will just put it on the table and it ain't ever going to go away. It's going to sit there like a big indigestible lump. And they won't be able to get around it.
Mr. BOWLES: I think you're going to see us work hard over the next two weeks to try to build some support for a proposal that we can submit December 1st. You won't see us weaken the proposal we've already made. We'd rather have, you know, eight votes for something real, than 14 votes for something that's a whitewash.
BLOCK: Erskine Bowles and Alan Simpson, thanks very much.
Mr. SIMPSON: Well, thank you.
Mr. BOWLES: Thanks for having us.
BLOCK: Former Senator Alan Simpson and Erskine Bowles are co-chairs of the bipartisan National Commission on Fiscal Responsibility and Reform.
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