 Well, thanks everybody for for turning out today. Obviously the the reason for us to convene here, well I guess it's there's a sort of a proximate reason and a specific reason. The specific reason is David Wessel's terrific new book, Red Ink, a brief but enjoyable tour of the mechanics of the budget. And I guess the more sort of proximate reason is this budget thing is is taking on a sense of urgency and and these deadlines that we're approaching at the end of this this year are really starting to focus the minds of people in Washington so the book is incredibly well timed, suffice it to say. I guess we should start by just introducing ourselves. I'm Noam Scheiber. I'm a Schwartz fellow here at New America and a writer at the New Republic Magazine and I'll let you guys introduce yourselves. I'm David Wessel. I'm the economics editor of the Wall Street Journal. Hi everyone. I'm Mark Goldwyn. I'm the policy director and a group called the Committee for Responsible Federal Budget and I also work here at the New America Foundation. So just by way of sort of amplification I think these these are two of the smartest budget and economics wonks that you'll find in this town. I've been bowled over by both of their work over the years and I can't recommend the book enough. It's really a terrific read. I figured that we one place to start was in the kind of historical section that you have in the book and you know reading the the that chapter it struck me that with only slight word changes here and there you could have kind of reframed it as the history of the conservative movement or at least the kind of economic conservative movement. You know there are various moments in that chapter you cite sort of the six big moments and in kind of modern budget history and most of those moments are kind of real milestones in the cut in the in the history of recent conservatism. I was struck by a couple of things. I mean one is the tax the deficit deal that Bush did in 1990 was balanced with the proportions were $2 of spending cuts for every dollar of revenue increases and the deal that Obama offered in his grand bargain last summer was what five to one five dollars of cuts for every one dollar of revenue increases and that's if you counted those revenue increases as bona fide revenue increases. So you know you went from a Republican president signing on to a two to one split to a Democratic president offering up a five to one split and it just kind of shows you how the center of gravity has really shifted over time. I was wondering is if if as you were writing this if that sort of looms in your mind that that these guys have been remarkably successful at moving the center of gravity rightward over the past generation or so. Well I think your your point is absolutely right. I mean I think Richard Nixon's economic policies would be to the left of the center of gravity of the Democratic Party right now. I mean wage and price controls and the earned income tax credit and all that. But I didn't do that. I didn't think of it that way because I was trying in this book to say there are facts and there are choices. And I'm a little worried that too much of the journalism has starts with the choice and then assembles a set of facts to back it up. So that for instance if you have one view you go on MSNBC and you marshal a set of facts to support that. If you have another view you go on Fox and set marshal a separate set of facts to do that. And anybody who happens to watch both channels I think there's probably 14 people in that category must be confused to see the same set of facts both purporting to describe the whole of the federal budget. So I was trying not to do this through the lens of politics point one point two you're right. I mean I started the story a little differently. I would say that something big happened in the Reagan years where the the Republican Party and I quote the famous Jude Winiskey on Santa Claus in the book. The Republican Party decided they'd rather have lower taxes than lower deficits. And so Reagan successfully cut taxes and we had an increase in spending. We got big deficits unlike the Republicans of today. He realized he's gone too far and then raise taxes and then did a revenue neutral tax reform that Mitt Romney probably wouldn't accept today because it raised the capital gains tax rate to the same place as ordinary income. You have to look at George H. W. Bush as an aberration. He did a deal that raised taxes cut spending relied on Democrats to get it through Congress put us on the path towards smaller deficits and eventually a budget surplus. And the lesson the Republicans took from that. You don't get reelected if you do that. And that's where they've been ever since. Yeah you know the point about Reagan I think is really important and it's an important moment in your the history that you tell because as you say sort of prior to that the norm had been you basically strive for balance. You do a big tax cut. You find offsets and the thing roughly balances out. And as you say they just threw this logic out the door and pass their historically enormous tax cut. You know Mark is you look at the recent history of budgeting. How important do you think that element of it is just kind of junking norms. You know there are all these there are laws right you know present has to present a budget and you know taxes are in the house but there are a lot of norms too that make the budget process work. And I think if again if you read David's history one recurring theme is these norms slowly going by the wayside. And you know one contemporary data point in that was you know his discussion of the Medicare Part D the prescription drug bill which you know was this totally unpaid for new entitlement. Even the kind of procedural norms were set aside in that context where you know I think Tom delay they held the vote open for an extra 13 minutes or whatever to twist arms because they didn't have the votes initially with the a lot of time. How important do you think that it that that theme is that just the the kind of wasting away of these norms or depending on how you see that that just sort of crass you know rejection of the norms to get a brass tax result. Incredibly important there you there used to be an idea in this country that we would have balanced budgets that balancing the budget was responsible. Occasionally we'd have wars or other national crises and we borrow for a while then we'd find a way to pay it back. We don't do that anymore. I think of course tax rate cuts are always popular. I think early in Reagan that there was an attempt to cut taxes but also cut spending to pay for spending. And then 86 we cut taxes but we paid for it by closing loopholes. Then it turned out it's politically easier to cut the taxes and not worry about the painful part. And that was a lesson learned by by both parties particularly in the second Bush administration when we saw things like the prescription drug bill unpaid for because it was easier and because it preempted what the Democrats were going to otherwise do anyway. And we saw two rounds of tax cuts. And that's continued frankly in this administration as well. So we continue to extend and build upon those tax cuts. I think that I think it's a very good point. Two things to mention in that regard one is the Medicare prescription drug benefit unpaid for was really a bipartisan program. Absolutely. So anybody who thinks that one party is responsible and the other isn't has to deal with that fact. The second thing and I think you're exactly right to focus on the norms is sometimes there's a fantasy in Washington that if we just change the rules that we would force the members of Congress to do the right thing that in a sense was the motivation behind the thing that leads to the fiscal cliff. But my reading of history is that first you have a consensus about the norms and what we're trying to do. You agree what you're going to do. And then you build the rules to kind of make sure you do it. But the rules don't force you to make the choices about taxes and spending one final point on norms. And I remember you know getting very exercised about at the time and you mentioned it a bit in the book but you know I was more reminded by of this just because of your discussion of the various people who have been head of the CBO and you know the sort of rectitude that they brought to the job. You know I think one thing that you ended up seeing in the second Bush administration to the 2001 to 2009 Bush administration was this real kind of monkeying around and this has always happened to some extent before but this monkeying around with with phase ins and phase outs and sunsetting and all to just as you say to to kind of start with the result you want and work backwards. How how how big a change was that. I mean was that a change in degree or was that sort of a qualitatively different way of doing sort of budget accounting in order to get in order to get the end result. Well I sense that you think it was a qualitatively different. I've tipped my hand. Go ahead. No. The 86 tax reform phase phased in the tax rates when the numbers didn't work. We see that other times. I think phase ins and budget games have always happened since there have been budgets. They've gotten worse over time and Congress has gotten more used to this idea that they're kind of a maintenance Congress and they can let things expire. The fiscal cliff is sort of the ultimate example of that everything expiring at once. But I think what we're seeing is the ratcheting up of something that's existed as long as budgeting has. Right. And I think what happens is that they keep they keep finding ways to do and runs around the rules they made. I mean why do we have 10 year budget estimates. Well because when we only had five year budget estimates all the costs would end up in the sixth year. And so there is this constant war between how do you get the rules so that makes it harder to credit. Well not going to go there but credit scoring is another great example. How do you account for loan guarantees. Used to be we counted for them zero. Well there's just a guarantee. Then we say that doesn't make sense. So you have to do a net present value of what it's worth. And then you set forth an army of lobbyists and congressional staff to figure out how to work in the interstices of that rule. I think that's the same thing that happened. I don't think anybody was very thoughtful to say the least about what would happen when the tax cuts expired. And this notion that there's a downside this much bemoaned uncertainty which is an artifact of these temporary things is was unappreciated at the time. Right. Well I'm going to come back to the fiscal cliff because that's a whole sort of part of this discussion unto itself. But let's just take a brief detour into health care. I mean you you have a chapter in which you sort of stress and and any sort of informed budget wonk will tell you that health care if not the entire ball game it's it's most of the ball game. And you have a very nice sort of portrait of Rob Portman in there who if for no other reason you should read just because he may be Mitt Romney's running mate very soon. But you know one thing I was curious to to hear you guys pronounce on is is this matter of Obamacare. How much you know the administration and the architects of the bill Peter Wurzag in particular will tell you that this this really has a series of game changers and this this you know this line item you know this massive you know you know kind of industrial complex in the economy that's reflected in is a huge part of the budget that they have managed to sort of if not totally tame it set us on the path to doing that and that these changes are just unappreciated at the moment but will become apparent over time. How much do you think that this bill you know on the sort of cost saving side will end up mattering in 10 or 20 years assuming it doesn't get repealed and go by the way side. Well I don't think we really know. I mean you expressed Peter Wurzag's view pretty well that he has helped the government plant a lot of seeds not knowing which one of them will blossom and which one will turn out to be oak trees but he's confident that we have these demonstration grants will discover that this thing works and then we'll adopt it and we have this iPad board that's going to make it happen and all that stuff. I think I'm in the show me category and I would say two things specific about that one is we now see in Massachusetts that they're trying to do something much more aggressive to control costs a notion that you have to basically put a lemon on it and then figure out how you live within it and secondly when you talk to people in the administration about what is the fiscal deal they would do after the election in that great moment of harmonic convergence between the day after the election day and the end of the year it usually involves doing some more things to save money in Medicare in particular probably on the beneficiary side so I don't think that we can I think we're caught in a dilemma we can't fix met we can't fix the budget without fixing Medicare and Medicaid we can't fix Medicare and Medicaid without fixing the way we organize our health care system we can't wait to fix our entire health care system before we save some money on Medicare and Medicaid if we're going to fix our deficit Mark how do you feel free to weigh in on Obamacare I think that's right I'll take a little detour here and talk about something that was discussed in the book which is there was a lot of skepticism over how the congressional budget office scored yeah Obamacare particularly those in favor of it thought they weren't getting enough credit for all of these pilot programs which have a lot of potential and of course those who opposed it thought that CBO was giving too much credit to things that they didn't think we're going to happen and something that David's book goes into a little is is how CBO is kind of stuck as this nonpartisan body and they take us from both sides and the truth is we've no idea if their scores right CBO says the health care of bills going to save a hundred billion dollars for ten years that's there are many trillions of dollars changing hands if we think that we can estimate without a precision we're kidding ourselves what we can do is is our best to understand where we're going and I think it's clear that there is some potential out of this bill it's also clear there's some risks out of it and it's clear we need to do more and I agree David's point I would even go further we can't wait to see what happens to the entire health care system to start making improvements to Medicare and Medicaid to get them on a better path you know what one of the great I thought the great moments in your book is the sort of smackdown for lack of a better word between Peter Orzak the Obama budget director and Doug Elmendorf his predecessor at at CBO and it was interesting because I think the the Obama administration hoped that that Peter Orzak would carry great way in precisely these sorts of smackdowns and I think he probably did I think he was a credible face for it but at certain points it got so sort of nasty that it you know I think any pretense of kind of you know civil conversation between two budget wonks went out the window and Orzak just started accusing Elmendorf of just pure you know almost partisan hackery I guess for lack of a better term were you sort of surprised to see this kid as yeah I mean this tells you about we're talking here we're now into the you got three budget nerds here yes we think it's exciting that there's a fight between Peter Orzak and Doug Elmendorf somebody in the book I quote now I'm drawing a blank on his name is said it was like Peter Orzak had invented a new hula hoop and Doug Elmendorf was the banker that said you want money for that but I think there is a more important point there and actually a hopeful one and you know it's a little hard to be hopeful these days in Washington I think the last four years have kind of sucked the hope out of everything that that we had particularly on fiscal policy but in 1970s the Congress took a little bit of control from the Nixon White House and created the the House Budget Committee the Senate Budget Committee in the Congressional Budget Office and the Congressional Budget Office really is one of the few institutions in Washington that's kind of worked the way it's supposed to which is encouraging and the way it was supposed to work a lot of this has to do with the tone that Alice Rivlin set when she set it up but it's continued because the budget leadership on both sides of the aisle has protected it from political pressure the way it's supposed to work is to say something like you make a good argument but we're not completely sure of it so we're not going to give you credit for it and that's a very conservative way of scoring and it may prevent you from doing some things that would save a lot of money or raise a lot of money in the future but it does prevent you from getting a little bit to Alice in Wonderland here which is what people tend to do the proponents of the Affordable Care Act wanted to believe that it would save lots of money and we should be able to spend that now the proponents of tax cuts believe it will create lots of economic growth in the future we should be able to spend that now and what CBO has done with Republican and Democratic directors is kind of lean against that wind they're not always successful and they're certainly not always right Newt Gingrich is off on some new jihad against about CEO CBO I've seen but in general people as different as Chris Van Hollen and Paul Ryan or their counterparts in the Senate have protected CBO from this partisan pressure precisely because they've come to value having someone who you can count on to give their best opinion about what's going to happen even though as Mark says these are opinions or projections or estimates about things that no mortal can actually know I believe we tried to score Newt Gingrich's plan using sort of CBO methodology I believe he called us flat worlders we believe the world is flat I think that's kind of how he sees the argument is CBO doesn't look at things dynamically they just think the world is flat of course everyone's going to use that to make their own case when I worked in the fiscal commission we'd some industry groups that would come in and give us a plan that they thought saved 120 billion dollars and we take it to CBO and they'd say no that's 1.2 billion dollars so people can have very large imaginations about how much you can save just one other thing on health care before we move on I have heard just in kind of casual conversations with administration officials that you know I should back up actually so one of the kind of narratives that you lay out in the book is this sort of you know Paul Ryan school of kind of pure spending reduction or not not pure but heavily spending reduction based approach to running in the deficit you know versus you know I mean the Obama approach generally I guess and it's interesting because if you if you see this debate between the administration and Paul Ryan and Democrats and Paul Ryan play out you would get the impression that that they regard this guy as kind of a budgetary anti-Christ who's just bent on you know on on destroying their most cherished values and but if you actually talk to sort of administration budget wants and I'm sure you guys have had similar conversations you sort of hear things like well you know not so crazy I mean if you know if we could imagine doing a sort of Medicare voucher type thing we would fund it more generously than he does we would make sure it kept up with you know medical inflation over time but but it's not so crazy you know a I wondering do you guys sort of hear similar things and B do you think that that could be kind of an end game for what we do to rein in Medicare over the long term well one yes they made them the anti-Christ because it's a famous game in Washington you need an enemy and Paul Ryan was providing a pretty juicy target given the size of some of his spending cuts second I think there's always grudging respect in this debate between the both sides when they think the other guy knows what he's talking about which as you know is not a threshold that most members of Congress meet on this subject so you always have to admire the guy who plays his cards well and knows what he's talking about and seems to have some intellectual discipline I think the healthcare thing is a riot in one respect so basically if you listen carefully to the debate and then extrapolate from it the way journalists do President Obama thinks we should have exchanges for everybody under 65 but not for people over 65 and the Republicans think the opposite so I can imagine a day when we get to some defined contribution healthcare in Medicare after all there is you know Ron Wyden and Alice Rivlin some people on the Democratic side have proposed those things I doubt it's going to happen soon but I wouldn't be surprised if you were talking about a decade or two decade long horizon that we go there you point out exactly the problem is that it's a little hard to know how to price the thing so that you keep the pressure on the system to not let cost go out of control you get the benefits of competition like we got in the prescription drug thing but you don't end up making it impossible for people to get the health care that they need and I think that even Larry Summers and Peter Orszag haven't figured out a quite how to do that although they're working on it by Friday they'll have an answer Mark yeah I mean well Congressman Ryan is kind of both a wonk and an ideologue and I think folks from all stripes respect his wonkdom and respect that he I mean if you spend some time in the room with him he really does nobody's talking about and he knows budget numbers better than people that work at CBO sometimes but he also has a very ideological view of what the world should look like which of of course as a politician on the other side you're going to attack that's that's natural in terms of whether his plan of premium support of some type can be the end game I kind of I agree with David I this is controversial but I healthcare is on such an unstable course that there will probably have to be some type of rationing at some point and so then you have to ask yourself the question is the government going to do the rationing or is the private sector because either ways can be rationing then it's a political question which do you think the American public will be more accepting of I don't know the answer but I wouldn't rule out something like this as an option let me make another point it occurs to me you know I've I've read a fraction of the stories that have been written about Milton Friedman's 100th anniversary of his birth and a couple of made a great point which is relevant here that when he proposed vouchers for schools it seemed like some crazy right-wing idea but now you know given the amount of unease about the quality of public schools the growth of Charter schools even in places where it didn't seem to be fertile you can see it's a much more accept socially acceptable idea well it's not hard for me to imagine that a decade from now it'll be the same thing with premium support or some kind of vouchers for Medicare block granting of welfare benefits was a crazy idea when it was first proposed a crazy right-wing idea that was then embraced by President Bill Clinton and is the law of the land now so things change fast let's jump jump to the fiscal cliff because we seem to want to go there is the fiscal cliff something we hit or is it something we go over agree on which what the metaphor is yes well then so this leads actually to my first question which is I think it was the center a center for budget and policy priorities center on budget and policy priorities that that has been trying to push back against any version of the cliff metaphor and you know has been regarding it is kind of a gentle slope how how cliffy do you think it is whether or not we're hitting it or going over it or getting caught under it or whatever you know how steep is the is the slope how how much trouble are we in how soon if we if the cliff sneaks up on us you know the CBO analysis assumes the taxes go up spending gets cut and that's a long-term proposition and that creates a recession that's kind of easy to see I think what the congressional what the center on budget and policy priorities trying to do with a number of other people on the Democratic left is make credible for the president the idea that he'd be willing to go over the cliff because they think that strength this is hands in negotiation with the Republicans if the Democrats if the president wins reelection so everybody is taking a position because they're trying to game the thing out I don't have a lot to add that except one thing that I'm afraid all the macro modelers are missing there's this notion out there that you can put in the numbers and outcomes of the size of the recession that you get or not I think we learned in August 2011 and I think we've seen other times that when things like this happen you can't just use the usual macro plumbing and so for instance imagine what happened what people's what happens to people's confidence in the government and the gut and their faith in the government's ability to actually function if after the election we have two months of screaming and yelling between a reelected president Obama won by this much and a Republican Congress which didn't lose very many seats and worse they that some of these theorists think well people understand this is just a game will go over the cliff and the third working third week in January will pull the car back up off the cliff well I don't think the world works like that I think that there would be large non-economic hard to measure confidence reducing effects of going over the cliff even beyond those that it was me let's face it the thing was set up for a reason it was set up because Congress and the president thought it would force them to act and be it was supposed to be so uncomfortable that they wouldn't do it well they kind of succeeded on the second one so I think it's kind of troubling because if we're going to solve this problem we're going to need a leadership in Congress in the White House that can say to the American people we got a deficit problem some of you're going to have to pay more taxes some of you are going to get less and benefits trust us do they really think they need to do more to erode people's trust in government I mean the best thing about the congressional ratings on their confidence of the public is they make the press look good just one related point about that maybe mark you can win on this I mean if that's the case and I think it's totally reasonable to me would we not start seeing the effects of the fiscal cliff you know months before we actually go over hit the fiscal cliff I mean you know if you look at some of the surveys of businesses even today you know that the anxiety about whether we go over is already resulting in you know a certain amount of austerity you think I mean you hear that tough to know you're tough to know I mean there too we have basically a couple sets of facts one is we have these surveys of businessmen it says all it's causing us to not invest and I can certainly understand why they'd say that particularly if they were defense contractors on the other hand the stock market seems to be setting new highs so this great barometer of business confidence doesn't seem to be flinching I think it gets worse as we get closer I don't know how big it is I don't know what you think sure to go back to the politics real briefly both sides are playing poker with Jack high and each other knows it what the center is trying to do and other groups is look over the shoulder the administration and pretend like they have two pair so they're saying well it's not really a fit it's not really a cliff it's a slope and it's obviously true it's not like on January one suddenly the economy is going to burn to pieces but we're starting to feel the effects already it appears both the uncertainty over what's going to happen for this cliff hits and the uncertainty of what's going to happen otherwise I think that there's a lot of business uncertainty that's causing a wariness to hire an awareness to invest and that will ramp up as we get close to the cliff and then the contractionary effects will probably happen pretty quickly not all in January second but I imagine by the end of January will be will be in recession I would imagine and another thing the macro models don't pick up is you know if you have a recession that's terrible and there's a lot of human cost to that but normal recessions we climb out of and if it's because we reduced the debt maybe we're better off as a result it's a little bit different when you're coming out of a steep financial crisis with severe long-term unemployment there's a lot of a lot of evidence that long-term unemployment leads to real long-term effects not the normal short-term effects we think of with inflation but people permanently lose their skills and human capital and ability to earn for the rest of their lives so I think a double difference session now would be far more damaging than say the vocal recession or another typical recession I would want to stay away from it and just on the you know one element of the cliff is the sequester and one big element of that is the defense cuts David writes a lot about the Pentagon and sort of the the kind of reflexive you know antipathy toward toward any cuts really even if they're sort of rational and necessary but how what's the kind of signal to noise ratio coming out of the Pentagon how many of these cuts are necessary how many can they actually withstand and how many will actually cut bone basically well I think the problem with the across the board spending cuts in the budget control act that leads to the sequester or word that nobody outside of this zip code understands is that they're kind of indiscriminate they're across the board so does the is the Pentagon budget going to be cut yes I mean would they settle for somewhat smaller defense budget in order to get rid of these across the board cuts yes it's just it's going to be an administrative nightmare and who knows what games OMB will play if they actually have to do it so I look at it as kind of a side show I think there is a huge question about how big does the defense budget need to be post Iraq and Afghanistan and that's a really big unresolved question and you know when I was a kid people used to complain that there was no difference between Democrats and Republicans who were running for Congress this was popular in the in the in the Nixon Humphrey debate and I think that this is one where there's a clear difference between the candidates Mitt Romney wants to have a much bigger defense budget and Barack Obama wants to shrink the defense budget though it would still by his current projections be larger adjusted for inflation than we've had before in peacetime so I don't quite see how this how this is going to be a hard one to resolve most of the Republicans in Congress are resistant to defense cuts except the kind of isolationist wing which is ready to cut I was on a radio show with Mo Brooks of Alabama and he's ready to do away with a lot of the defense cuts but I don't think he speaks for the majority of it's a real tough it's a tough one in the and I find that the people who are closest to the defense budget the ones who really understand the dynamics of the strategy better than I do are more concerned than the people who are just knee jerk because they feel that the Pentagon is not being realistic about how to plan for a defense budget that we can actually afford and sustain your thoughts on the Pentagon and the sequester imagine you were making and spending forty thousand dollars a year and three months into the year you were told by the way your salaries immediately going to be cut by 10% including we've already spent but you can't make any decisions about how to reallocate the money right to spend the same exact amount of your budget on groceries the same exact amount on rent the same amount exact amount on movies that's a terrible way to budget and that's what we're doing with the with the Pentagon and this entire sequester now will there be games to kind of help soften some of the edges of that I'm sure and the Pentagon and OMB I'm sure are working as hard as they can to find as many ways to to sign ease this pain but this is just there's no question the defense department is going to have to accept more cuts over time as is the non defense portion of the budget but to do this across the board without any strategy any planning or any thought of what works and what doesn't and what's valuable and what isn't is is just stupid and so just you know just a pure mechanical question I mean setting aside politics and assuming just kind of the best case scenario politically you know these guys for whatever reason decide they really want to get this done in the lame duck period I mean is there time is there time to write whatever statutory language needs to be written so that we can avert the cliff are there ways of just saying we agree to these broad principles will avert the cliff and then we'll take the next six months to sort out the details what what mechanically needs to happen so that we don't right so I think that's a good question I think we're beginning to see the possibilities here governor Romney is basically talking about if I get elected I want you to put her salt put off all this stuff so that I can come up with a budget my gut tells me that that Congress would love to get rid of this and if they can say we all the new president a chance to come up with their own budget fine we'll push the whole thing ahead six or eight months the much more interesting case is what happens if Obama's reelected I think there are three possibilities one is chaos we go over the cliff the second is chaos and they take the bullets out of the gun just the last moment and the third is the one which you're talking about and I think you're beginning to hear democrats talk a little bit about how that would work they get some kind of agreement which would be set a target for tax increases with some principles about how the tax increases would work some targets for cutting growth and health care spending with some principles how that would work a down payment some things perhaps in the non health care entitlements area maybe some little tax things closing some loopholes so there's a down payment and then they try and structure it so it's somewhat more believable than the super committee deal something for aficionados more like reconciliation where they have specific targets and it's not just like what they told the super committee find us you know X trillion dollars in budget savings but it's really reflects an agreement and then they would use that as an excuse to waive the spending cuts and tax increases I think that's ambitious but possible if after the election there's a sense okay we're now going to try and get something done we'll see whether that's the sense after the election do you agree with the sort of universal choices there yeah I think I don't have very much covered every possible I would say I would make two points there is a lot of legislation that's written there's a lot you know I mean we've written a lot on some symbols there's a lot that was written in the super committee there's been a lot people are working on privately so it's not as if we're starting from scratch there are a ton of plans out there there's a lot that's written in legislative language do I think politically that we would get all of it done in the lame duck I would say unlikely but they could have a framework and a down payment and the piece I would add is an enforcement mechanism the super committee didn't work for at least two reasons one it was totally non-specific but to the enforcement mechanism took place 400 days in the future I mean when has congress ever acted for something that was 400 days away the debt ceiling we solved what with the day left the last CR with an hour left 400 days isn't a threat and I think that the sequester of the kick it once may not be a threat so they may need to think of some specific enforcement mechanisms for example on the tax side they may want to agree to you know X hundred billion dollars or trillion dollars in the tax side with and across the board cuts attacks expenditures to deductions and credits to pay for it and the spending within medicare perhaps they want to have the trigger specifically hit providers and beneficiaries etc so I think you combine that framework fit process down payment with enforcement mechanism and you bring yourself some credibility with the markets and hopefully it's in the spirit of an agreement where politicians are using this enforcement just to make them do what they already wanted to not to do something they don't and one of the thing it has to be understood that a lot of republicans a lot of democrats are going to vote against it it's not going to be one that you can do with with only republican votes or only democratic votes and you're not you might not even get a majority of the republicans to vote for it so it requires something of a sea change in the political climate and that counting on that seems a little bit like counting on peter warzak's health care savings well I also think presuming the status quo the president wins the republicans keep the house you can't do it without john bainer you can't do without Dave camp and you can't do without max boggess i think those are you can't do without the president those are kind of the four players you need in the final deal so just briefly and then we'll open up to questions but let's just talk a bit about taxes tax reform what we might see going forward you know obviously bol simpson had a had a framework a lot of people like yourselves praised bol simpson you know on one level it was the kind of thing that you draw up on paper and looks great but politically is just incredibly difficult is is that still kind of is that still a model that we can or is that a model that we can actually approximate in policy or is that just sort of this ideal that you know will never come close to mark maybe I'll start with you since you actually worked on the on the commission yeah I'm maybe a little bit biased here but it's not as if bol simpson was just this broad general framework bol simpson had a lot of specifics and we've actually taken those and put them into legislative language so yes you can translate into policy now the second question is it politically achievable I think it's about as politically achievable as you can get if that's the amount of deficit reduction you want and specifically I'm referring to sort of the base close the ending of the tax expenditures which is obviously on the tax side is going to be it's the tax side is going to be very tough I think what we found was republicans didn't want to raise taxes at all uh... most of them had taken a pledge you all may have heard of it democrats wanted a fifty-fifty deal so that was our starting point was fifty-fifty versus zero and uh... we got to specifics no one was really ready to talk about it and I actually remember on the fiscal commission we'd at the staff level we'd come up with like four different tax plans and one was like there's a bill called white ingreg that was a much milder broad base what lower the rates and one was a version of that and one was a cap on tax expenditures and one we just took things to pay for other things and bursken bulls said what happened if you just got rid of all of them and we looked at him and we said all of what he said all the deductions and credits and solutions all the tax expenditures we thought he was crazy uh... because you're gonna want a mortgage introduction you're gonna want a charitable deduction etc and his response to that was but make people add it back start with the premise that you have a clean tax code and then make people make decisions and they pay for them with higher rates so uh... do i think we can you know get the rate down to twenty four or even twenty eight maybe not but i think if we start from that zero plan type premise there's no deductions and exclusions and credits because these many of these really are major government subsidies and spending they go primarily to the wealthy and when we actually have to justify adding the back in by by through higher rates i think if fine people are more austere than you give them credit for uh... i think that there's a some trade-offs here if the republicans want to lower tax rates then they're going to have to pay for it by removing some of the tax expenditures that's a given uh... there's a big difference about whether you're going to use this to raise revenue or not the nineteen eighty six tax reform thing didn't raise any revenue the administration wants to use tax reform to raise revenue and the republicans so far say they don't so that's a big problem the second thing in this is getting a little bit in the weeds but if you want to maintain the differential between capital gains and ordinary income rates and you want to do away with tax expenditures and you want to lower the tax rates you start with having one of those uh... try lemmas that you've got to give on something and i don't think that's complete completely sunk in but i do think that what the the service that both simpson did a couple of really important things one is he kind of made it seem possible to deal with the deficit where as before it didn't second to put a couple of uh... good faces on the idea of deficit reduction who are pretty good at going around and selling it but the third was in this was one of substance to say maybe we should be thinking about broadening the tax base to raise uh... revenues rather than just always raising rates and they kind of put that on the table this notion that we're spending through the tax code they they helped introduce that idea which is of course you know all the tax economists have been talking about this for a year but it now has much wider uh... credibility so i think it will be part of some eventual solution and it's interesting the dilemma you describe isn't exactly the dilemma that that you see if you start digging into romney's tax plan but it's it's similar to that's exactly right governor romney wants a plan that's revenue neutral lowers the rates and maintains progressivity and the taxes finishers to go mostly to the wealthy even things like more interest in local so you can raise lower the top rate some but if you don't look at least uh... at reducing the differential between capital gains rate in the ordinary rate which he does not want to which he does not want to do uh... it's it's very difficult to have substantial rate reduction at the top uh... just one thing that i was i was struck by in david's book uh... which is just this uh... this discussion of kind of corporate taxes versus income taxes and how most economists will tell you you know our corporate tax system is pretty uncompetitive with the rest of the world uh... most business people exactly as we'll tell you the same thing and it struck me that one yes i think that understate it while they uh... uh... but it's not really that you know i mean one very easy fix which is not on the table anywhere but a you know if if people really want to put their money where their mouth is we could dramatically lower corporate rates and uh... and make up the revenue by making the income taxes to much more progressive right i mean as income inequality has increased over time we now have billionaires paying the same top marginal rate as millionaires which is kind of crazy uh... we could you know i mean obviously that there's only so much you're back to millionaires is that yes who cries for the poor millionaires who are paying the same rate as a billionaire uh... but now i mean i guess my mind that the the broader point is you know their ways to make up revenue if you're if you're serious about it and and it's a matter of priorities in the in the same way that the bolson exercise a matter priorities and you know we we could get ourselves a much sleeker more efficient corporate tax system if we were serious about making up the revenue right i mean you know there's a number of c e o's who will privately say reduce corporate taxes and raise my individual taxes but they don't seem to be a lot of them that want to go in record for the wall street journal saying right uh... and so i think that's it i think that the thing about the corporate there's two things about the corporate income tax that have changed and that make this uh... different one is uh... capital is much more mobile and businesses much more mobile than ever before we really have a globalized economy it's much more difficult for the u s to run a different kind of tax system than the rest of the world that it was uh... thirty years ago and the second thing is a whole lot of businesses have taken themselves out of the corporate tax thing so you have this part of the corporate tax fighters is fight between the big multinationals which pay the corporate income tax and the growing number of firms not all of them small that choose not to be organized in that fashion so they made the rubik's cube of this much more difficult so there's kind of two views on this one is oh my god we can't do all the stuff at once because it's all so complicated so we should break it into pieces and we'll do the corporate tax here the individual tax here and then other people say but they're so intricate intricately linked and it's going to be so hard to do without making this thing even worse that the only way you can solve it is to do them all at once which is why it's all hard you can't write the final legislation in the lame dot for sure one of the interesting things about the nineteen eighty six tax reform is we raised taxes and corporations a lot and see those were willing to accept that because they saw big reductions in their individual tax rate you know it is a matter of kind of fairness and principle certainly makes sense to go the other way there's no such thing really is a rich corporation they're rich people that own corporations their own parts of their options this entire i know that i got attacked for a lot of it partially because it was a faux pas how he said it but it's true there's only rich people there's no rich corporations uh... so as a question of fairness probably makes a lot of sense is a question of politics i think any attempt to lower rates on corporate to lower overall tax burden of corporations and pay for the individual side even from very high earners i think it's going to be very tough yet one thing i was struck by this this uh... polling uh... statistic that you mentioned that i think it was a people that said that americans basically think that they're paying about the right amount of taxes they don't feel overtaxed right uh... but they did the question of fairness looms very large uh... and that that struck me as a very telling data point uh... you know that that tells you a lot about our our political moment absolutely uh... well let me there's obviously a lot more to get into but i think the most efficient way to do it is probably open up the floor to questions so why don't we do you want to do that and there is uh... makes the mic come up here is right in the front and have to be here and quick question about the the strategy uh... for the bombing campaign going into final few months there was a meeting of his top fundraising strategists at the w hotel just three days ago this week and uh... they handed out a uh... game plan attacking the uh... romney rhetoric that we've heard from last uh... couple of week or so and one of the things that they said was that uh... that mister romney was was uh... of a failure in his uh... strategies in new hampshire or sort of when he was governor when it came to uh... job creation tax strategies uh... all those things that are important uh... different right now in this election so how do we what's the counter measure to that i know as a as an author you have to you're trying to be uh... sort of bipartisan but do you have uh... a um... do you have a prediction as to how this is going to turn out in the end uh... my prediction is going to be a close election uh... look what frustrates me is and and i know mark and his crowd are pushing this is in all this back and forth it's very hard for people to get a sense of what would these two men do and what would they do differently for the budget and so the notion that wouldn't it be amazing if we had one of the debates where before the debate they agreed on on the baseline for the deficit and they agreed on a target for reducing it and instead of talking about who did what to whom in nineteen ninety nine and did you or did you not uh... say this and some out of context clip of which both sides are now uh... participating they had to say this is how i would solve the problem not three little things but this is what i do on taxes this is what i do on defense this is what i do on social security this is what i would do on health care and this is what i do on everything else which doesn't matter all that much and if we had if we had them to so they had to present us a menu of their options i think it would be incredibly healthy first of all it would allow people to make a choice because they have some sense we wouldn't have to get into these things where we have to figure out what it is they really mean when they give us vague plans but secondly it would give the winner some kind of a mandate the winner could actually say i went to this debate i said this is what i was going to do i won i don't control the congress you should do what i want because the people voted for me i'm afraid that's not going to happen but i think that would be much more constructive than another series of these ads i swear i didn't uh... pay pay david to to say that but we actually have a petition at debatethedebt.org which is asking the presidential commission committee to i'm sorry presidential debate commission to do just that debatethedebt.org and by david's book retired foreign egg service yeah i have uh... first of all in addition to all the issues that you have so expertly discussed the current budget limits that's supposed to be breached sometimes in october or november uh... what will congress do about that you mean the debt limit? the debt limit, the debt limit it's coming up and also how long will the federal reserve board is planning to keep interest rates at zero levels it's really hurting retirees and people that rely on fixed income well uh... the debt ceiling the last word from the treasury is that will hit the debt ceiling at the end of this year and then they'll do all the gaming that they usually do uh... lawful gaming uh... they'll get them through january or early february and i think that's another thing that'll be on the minds of congress as they decide but it won't look doesn't look to me like we'll have that showdown uh... before the end of the year before the new congress comes in uh... the federal reserve has said that it will keep interest rates low through twenty fourteen uh... i believe them and i think if anything it'll be longer than that because that's their strategy to try and keep the economy growing anytime the central bank keeps interest rates low uh... it hurts savers and helps borrowers and that's what's going on right now and uh... they're aware of that but they're reading of the pluses and minuses that it's better to keep the economy going and try and create some more jobs and avoid deflation and the one of the costs is uh... to the retirees who live on fixed incomes uh... let's go in the back gentlemen in the blue shirt tie uh... i'm basil scarlet's i've lived and worked in europe most of my life and one thing surprises me here in our debate is we on on budgets and deficits we rarely talk about public investment especially the way europeans do they have a separate investment budget all spending is equally evil in this country and i'd like to know do you foresee any chance that perhaps obama would stand up in one of those debates and say i'll reduce the deficit over me the medium term but i'm gonna focus on growth since we can grow our way out of this problem to some extent and i'm going to focus on a major public investment program for this country which is the best way to get growth started because of multiplier effects and what not uh... well first of all if it's seen as being anything copying the europeans it's dead so i recommend if you're in favor of that you remove the the prologue uh... secondly the president talks quite a bit about public investment uh... i think he's with the program uh... i think he's having a hard time selling it but i think there is a sense in fact when the president is at his most articulate and i think i've heard this more in the in the small off the record things with reporters more than i've heard it in public he says why should we fix the deficit because if we don't fix the deficit i'm never going to be able to do all the things in public uh... in public investment infrastructure and education that i think are essential to grow so i think there's a i don't i don't think that's off the table at all and i wouldn't be the least bit surprised if we do this grand bargain in the lame duck that it allows for some infrastructure spending which may be described as investment in the future it may be described as helping jobs now uh... it will not be described under any circumstances as stimulus or as european or as european right european stimulus would be anything right and you know i wouldn't serve i'm not so sure i would go too far on we got a lot of problems here and we could do better with more growth although growth is not going to solve our deficit thing but the uh... the case that the europeans have a great wealth strategy right now is a little uh... fragile yeah i know that i i i i would just second what david said i mean uh... you know obama's uh... theme for his state of the union address in two thousand eleven was when the future and that was that was their pivier you could argue not not so great distillation of of precisely that strategy that we we we we feel like there is an appetite for spending but it's got to be investments in investments with returns and and we have to pair and prune so that these things will be politically just enters the broader picture in this uh... is born out a little bit in david's book part of the problem with the current budget is uh... the pieces that go to consumption particularly social security medicare medicaid are growing and the pieces that go to investment are shrinking both as a shared economy uh... and in real terms i think uh... i think there'd be agreement program among economists that that should be reversed let's go to the very very back yeah all the way in the back dark shirt so my name is eddie edges and i i'm actually uh... i represent federal employees and uh... i can tell you that as to sequestration i think the thing that was most shocked me was that there were in fact no plans that we tried to get the agencies to talk about it and they said basically it would not happen uh... i think this the when when we talk when the republicans tried to exempt defense what that would have meant for the uh... for the agencies that like hot in education etc would have been twenty twenty five percent cuts incredible cuts and i i i think the reason for the deal itself was to prevent any kind you know one the cut from defense but actually move it on and try to get some kind of deal and i think that's what that's what they're planning to do i don't think we'll ever see sequestration right i think that you know you're the point you're making is the right one which is they set up something that was awful and unworkable so we wouldn't get there and then we say to people okay well how will this actually work well there they don't want to say that because they wanted to be awful and unworkable uh... so we don't get there and so it's just where we are it's the problem with trying to do this by rules that force you to come to consensus instead of coming to a consensus and then using the rules to enforce what you've agreed to right though i agree with the other point that you make that i mean had defense been exam today right suddenly becomes perfectly workable for one side and then you're going to get no agreement so this may not be the idea but is that you know the counterfactual was not very good uh... yes my name is christa watson i work at the national science foundation if uh... the unemployment rate were to stay at about eight percent over the next six months to year what effect would that have on the discussion over the deficit do you think the political discussion probably all of us uh... so i i think a week economy can pushes in two directions on the one hand you don't want to actually do substantial deficit reduction if you can avoid it when the economy is weak so you'd want uh... doesn't mean you can enact deficit reduction in fact you should but it should take place in the future so i think a weaker economy in that sense will make it harder on the other hand a weaker economy kind of maintains this public anger that washington is broken and the deficit is a big symbol of that so i think uh... you would see many people seeing this as a symbol that uh... we don't have our economy under control cause we don't have our deficit under control therefore there should be deficit reduction so i don't know if that's a push or uh... or who wins i agree with that and there's one other factor if you wanted to do anything that looked like fiscal stimulus it would be very hard to do unless it was done in the context of a longer term deficit reduction package but i hope we're not dealing with that problem and eight point three percent unemployment rate here because that would be devastating uh... yes my name is deafening urbina stein i'm a student at the university of michigan uh... at the end of the first chapter of your book you talk about how it's currently an unsustainable situation and i noticed that as a recurring theme throughout the book do you think that the fiscal cliff and what's to come is going to instill a sense of what in washington that we need to be more responsible and to live more sustainably no i mean when i worked on the book i i was really you know i had moments where i think my god this country is going off the deep end and then i have moments where i thought maybe it won't be so bad and i um... i i i talked a lot to leon panetta who's now the defense secretary but spent around this for a long time and uh... i quote him at the end of the book is saying i used to tell the students that we are either governed by leadership or crisis and i always thought that if leadership wasn't there then ultimately you arrive rely on crisis to drive decisions in the last few years by biggest concern is the crisis doesn't seem to drive decisions either so there goes my theory uh... i'm a little bit more optimistic uh... anyone who's been around the budget for long enough is a pessimist by nature uh... the one good news now the outcome of not doing deficit reduction is so horrible that that uh... politicians might see it as the better alternative now maybe they'll just punch on the fiscal cliff but i think that there will be popular opposition to that both both elite and grassroots i think that we're seeing a large number of people increasing their anger at washington they just see washington punt again do nothing for this problem that they're being told is the number one most important problem uh... i'm not sure they're gonna stand for it so for all of those cynical reasons i'm hopeful that's a good place to end okay thank you great questions nomas has been very uh... reluctant to promote his own book which is a really good description of what the hell was going on inside the obama administration thank you all for good questions