NPR Story
1:00 pm
Mon November 21, 2011

Fallout Expected Without Debt Agreement

Originally published on Mon November 21, 2011 2:31 pm

Transcript

NEAL CONAN, HOST:

It's not yet official, but all signs indicate the so-called supercommittee will raise the white flag on Capitol Hill later today. The bipartisan panel was charged to cut more than a trillion dollars from federal spending over the coming decade. Failure to reach an agreement means automatic cuts in 2013, half to the defense budget. Yesterday, Democrats and Republicans traded blame on the Sunday talk shows. Does the supercommittee's failure matter to you, and if so, why?

Give us a call, 800-989-8255. Email talk@npr.org. You can also join the conversation at our website. That's at npr.org. Click on TALK OF THE NATION. NPR senior Washington editor Ron Elving joins us here in Studio 3A. And Ron, always nice to have you with us.

RON ELVING, BYLINE: Good to be with you, Neal.

CONAN: And I guess despite that super moniker, there was never a lot of faith that there was an agreement even possible.

ELVING: No. And many people are going to look back on this and say that the committee was loaded for failure from the beginning, that the commitment of the leaders of the two parties in the two chambers was never really to an agreement so much as it was to political protection. I would go so far as to say that's not the whole truth. I believe that the leaders in both parties in both chambers were interested in some kind of a solution. They just didn't know how to get there. And they had the immediate political problem of putting six individuals from each party, six from each chamber, onto this committee to bear this responsibility, and they went about that in the usual congressional political fashion.

They were representing the various interests and constituencies that they live with every day. That's why they're the leaders. They're not just people who descended from the sky with these responsibilities. They're raised up to those positions by their own rank and file. They're responsible to that rank and file.

CONAN: Is there any credit, at least from what we can tell, to the Democrats' argument that the Republicans were never willing to entertain the possibilities of significant new taxes?

ELVING: I think you're going to have to say that Jeb Hensarling, the co-chairman of the committee, the 12, who is a Republican from the House, from the House leadership, summed it up pretty well when he said that the Democrats were not willing to go forth with any plan that would restrain entitlement programs, reform entitlement programs in his terminology, cut the spending in the long run on entitlement programs, like Medicare and Medicaid and Social Security, unless there were going to be new taxes, increased taxes.

That's the way Hensarling summed it up, and I think that you can put it that way, or you can put it the opposite way. That is, the Republicans were not willing to consider any new taxes, unless they were offset by larger tax cuts. They put forward a plan of 250, 300 billion dollars in tax reform, as they called it, that they said would actually improve government revenue, but only if the Democrats would agree to make the Bush-era tax cuts of 2001 and 2003 permanent when they expire in 13 months.

If that were done, the amount of revenue that would be lost over this 10-year period would be more than double the amount that would be gained through the supposed tax reforms.

CONAN: And as we're now approaching 11 months till Election Day, is there any truth to the cynics' argument that both sides actually were more interested in having their issues than a deal?

ELVING: In the last couple of hours, my inbox for email has been filling up with statements from people saying, you know what, this was probably a good thing, to have this committee go away is a good thing, because the bargains that were being considered were not good from our standpoint. Now, these are coming primarily from ideologically driven or constituency groups that that didn't want to see a deal because they didn't want to see a compromise that gored too many of their own oxen. We're also, of course, hearing from people who are very disappointed that there wasn't a deal from the standpoint of the country's long-term fiscal health.

CONAN: And, well, we're seeing the Dow Jones Industrial Average down 261 points today. There is, I guess, at least a possibility - though these cuts are supposed to be automatic. They're supposed to be all calculated into the budget in 2013. Nevertheless, the inability of Washington to make a deal could convince some of the rating agencies to mark down the U.S. credit rating again.

ELVING: It is always risky to try to ascribe to the markets, particularly financial markets, in the same day timeframe too much about what exactly is driving them. A lot of it is internal market psychology and, of course, we have the enormous problems in Europe.

The problems in Europe are related to debt, and they're related to political dysfunction. They don't know how to deal with their economic problems, which are superable because they're a divided group of countries with different political authorities. We have the same problem in our country, even though we are a united political system because our political system is so divided between its two parties. And because they don't want to work together, their dysfunction is beginning to resemble, not in degree, but you understand that there is some resemblance here even with all the differences, the dysfunctionality we see in Europe. If they're that disunified, that's hurting the markets there. It's hurting the markets here. If we are this unable to deal with our fiscal problems in the United States for our own reasons, that's going to hurt our fiscal markets as well.

CONAN: We're talking with NPR senior Washington editor Ron Elving. Is the failure and - I don't think we're going too far out on a limb. The white flag has not been raised yet, but it will be later today. Is the failure of the supercommittee matter to you? If so, why? Give us a call, 800-989-8255. Email: talk@npr.org. We'll start with Dana(ph). Dana with us from Plymouth, Massachusetts.

DANA: Oh, thank you. Thank you very much. I feel the supercommittee was built on an unsound premises. But since you want to know how it affects my life, I'm 60 years old and I don't think people my age or a future generation should - or elderly should have to suffer cutbacks in Social Security when, you know, then - when the Republicans and some of the Dems aren't willing to raise taxes on the wealthy 1 percent.

CONAN: Which of the proposals that you heard about, Dana, might have affected you?

DANA: Well, Social Security. I mean, I will be collecting it, I guess, in another five or six years, and, you know - I mean, and I just don't - and I don't see why that should be cut back. I'm going to need it. Others are going to need it. And, you know, and as a believer in democracy, I really feel that the supercommittee - I mean, we shouldn't even be going for the deficit. We should be getting people to work first. That's how I feel. I mean, you know, we should tackle the deficit after people are working...

CONAN: OK.

DANA: ...to get the economy working.

CONAN: Thanks very much for the call, Dana. Ron Elving, as far as I understand, the proposals involving Social Security that have been banded about would be to raise the eligibility age for people younger than Dana - in other words, people who are still a long way from collecting Social Security now - and it might be for those making a fair amount of money to raise the amount that is taxable for Social Security purposes.

ELVING: Which is a kind of means testing to say that if you're quite affluent, if you've got hundreds of thousands of dollars in income in your retirement years, perhaps you don't need that supplemental amount of money, which is so crucial to the survival of many people when they pass 65, 66, 67. 10, $20,000 can mean the difference between absolute penury and doing OK. Now, the question here is, do you need to pass on that amount of money, to which they are entitled, of course, under the Social Security system, to those who do not actually need to have it? Somebody who is affluent enough that maybe when those little Social Security checks come in, they maybe just leave them in a drawer. I actually know of people who were embarrassed about cashing their Social Security checks because they had so much money of their own, and they didn't want to feel like they're on the dole.

Well, that would be one kind of way, perhaps, of nicking a little bit the cost of Social Security, raising the age for people who are now, say, 50 or younger, so that they couldn't retire and receive Social Security until they were 67 or 68. That's a little bit more marginal change, but it does make a big difference in the long run to bending down the curve of deficit in Social Security.

CONAN: Let's go next to Nathan(ph). Nathan with us from Denver.

NATHAN: Hi there. Thanks for having me on. My question is, if the Fed can print money to bail out the banks, why can't the Fed print money to pay off our debt? Interest rates are lower than even, why don't we get ourselves out of this recession and screw the deficit?

(SOUNDBITE OF LAUGHTER)

CONAN: Well, there's a simple resolution, Ron, and there must be a simple answer.

ELVING: Well, it was possible to come up with a certain amount of money on a temporary basis through the Toxic Asset Relief Program, TARP, which we all, of course, were unhappy about it, hated. But a certain amount - a defined amount of money, very large amount of money, hundreds of billions of dollars could be used to keep those banks from going insolvent, keep the entire credit system from freezing up, keep the entire economy from grinding to a halt. And that was actually fairly successful. Now it's, of course, engendered enormous resentment throughout the country on the left and the right.

CONAN: As we just heard.

ELVING: And many, many people feel that this was a terrible injustice, that these banks were saved and that many of their executives are doing better than ever, and that is bothersome. No question about it. But in the long run, by having those banks make a comeback, just like with the auto companies, eventually, they pay that back. And it is not a great long-term increasing liability.

On the other hand, the federal budget deficit, which keeps getting bigger and which takes more and more money to service every year - in other words, we have to pay the obligation interest on everything we've borrowed up to now - that keeps getting worse and worse and worse. So we're really talking about problems on totally different scales. TARP was temporary and in the long run, it's not a permanent serious cost. Whereas, this budget deficit that keeps going up and up and up and up has to be addressed at some point or the country goes bankrupt.

CONAN: And you're talking about paying back those loans. I think it's accurate to say 40 percent of every dollar we spend is borrowed at this point.

ELVING: At this point.

CONAN: And that's when interest rates for American Treasury notes are, well, 1.3, four...

ELVING: Historic lows. Historic lows.

CONAN: If you're talking about getting up to where people don't trust U.S. Treasuries to the level where they don't trust Italian treasuries - 7 percent...

(SOUNDBITE OF LAUGHTER)

ELVING: Well...

CONAN: ...it's huge.

ELVING: Yeah. One laughs only because it is so inducing of nervousness. The idea that we would have to pay three or four times as much for the money that we owe, the way the Italians and some other countries are having to do, that would, of course, be horrific and would put us at the lead of all the debtor nations in the world in terms of our being beholden to other countries, including China, including some people who may not always wish us well. So that is why this deficit problem needs to be restrained before we get into that sort of situation.

CONAN: We're talking about the supercommittee, which will announce its failure later today. The actual deadline is Wednesday, but they would have had to submit it to a Congressional Budget Office to be scored in time to a vote on Wednesday. That ain't going to happen. You don't have to worry about that much. It's all going to be over today. We'll talk about what the budget cuts may mean in 2013. You're listening to TALK OF THE NATION from NPR News.

Let's go next to Brad, Brad with us from Milford in Connecticut.

BRAD: Yes. I'm a youngish 59 and not so worried about extending the retirement age because I plan to work into my mid-'70s, but I have three daughters that are six, 10 and 13. And I just want them to be encouraged about Washington and politics and the ability to make a change. And I'm, personally, so discouraged about the Grover Norquist tax pledge and the seeming headlock or nonnegotiable stats he's put all the Republicans in under the threat of not being able to be re-elected because money will pour in to opponents in the primaries. So maybe I'll do what my friends suggest because my daughters are pretty and get a sailboat and just stay offshore in shark-infested waters and not be civically engaged.

CONAN: Brad, we would urge to take the other direction, to come back to port, but we're glad you're there now. In any case, explain to us, Ron Elving, Grover Norquist is a - well, he's a lobbyist.

ELVING: Grover Norquist is a lobbyist. He is also the head of an organization called Americans for Tax Reform. That organization has been around now for more than 25 years. And the organization is not really that significant, but Grover Norquist, as a voice in Washington, particularly with this device that he came up a long time called the No-Tax Pledge, and this has been effective in presidential politics, congressional politics. He goes to Republican candidates and says will you sign this pledge that says I will never increase taxes for any purpose at any time for a reason? And people sign it because if they don't sign it they find that they have a hard time explaining why they're in favor of tax increases in the next primary election among Republicans or even in some general elections.

And because you need to get nominated as a Republican or a Democrat for that matter, before you can get elected in most of our offices - certainly federal offices - this has become an enormous roadblock for a lot of Republicans who might have different views on taxes and many do. Few people in the past couple of weeks have actually stepped up and said I signed Grover Norquist anti-tax pledge many years ago, but I'm going to set that aside given the exigency facing our country. And I'm holding my constitutional pledge to do the best I can for my constituents above my pledge to Grover Norquist.

CONAN: This is an email we have from Judy(ph) in Denver. Yes, it matters, but not financially. It matters to me because I was naively hoping politicians could agree and actually lead the country. Our political system is broken. I support Occupy Wall Street. I believe the time for revolution of the people has come. I'm 50-something but will never be able to retire no matter what happens to the entitlements I've paid into over the past 40 years.

And you can hear some anger in that last comment in particular. But does it, in fact, matter? These budget cuts, $1.2 trillion, are written into the law. They don't take effect until 2013, which is after the next election. Can Congress just change the law?

ELVING: Congress can. Congress can. It can always come back and change laws that it itself has made. I mean, no Congress can bind and future Congresses. Although, I think, the general assumption is that when anything is going to get done about this, it's going to be done under great pressure at gunpoint as it were. And sequestration works well in that regard. Now...

CONAN: Sequestration of these automatic cuts.

ELVING: That's right. The money just never gets to the agency to be spent. And so, from the standpoint of people who believe the whole problem is spending and not revenues, then there's a certain attraction to this 1.2 trillion in forced spending cuts. The problem from the standpoint of many Republicans who, otherwise, would be all for cuts in spending, is that half of these cuts have to come in discretionary defense spending. And that is an issue that is a part of the government spending, that is near to the hearts of many conservatives, many Republicans. And many of them have already begun to say wait a minute. That's unacceptable. We know we've voted for that last August when we were in the debt ceiling crisis. But now we're going to have to revisit that and save our Defense Department budget.

The president has already said, this is what you guys came up with. This is what we all agreed to. That's what we're going to go forward with next year. So they might be looking at a veto from the White House if they do try to change sequestration, having failed to come up with any of the alternatives to sequestration that the law provided, such as the supercommittee.

CONAN: And are we going to have more debt ceiling votes coming up because - and more demands for deep cuts in exchange for an agreement to do that?

ELVING: Down the road, yes. Down the road, there is no automatic mechanism to increase the debt ceiling every time we have borrowed enough money to need that again. It's happened almost 100 times since 1917. It will happen again.

CONAN: NPR senior Washington editor Ron Elving with us here in Studio 3A. Ron, thanks as always. More on the failure by the supercommittee later today on NPR News. So we're going to wait official word, and we'll report when the white flag officially flies from the Capitol.

Tomorrow, military service and sacrifice. NPR's Tom Bowman will join us to talk about the Marine's Darkhorse Battalion. Stay with us for that. I'm Neal Conan. It's the TALK OF THE NATION from NPR News. Transcript provided by NPR, Copyright NPR.