Crossfire

Is the Proposed Bush Tax Cut Too Big, Too Small or Just Right?

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ROBERT NOVAK, CO-HOST: Tonight: President Bush's proposed tax- cut plan. Amid more signs of a slowing economy, is the Bush tax cut too big, too small or just right?

ANNOUNCER: Live from Washington, CROSSFIRE. On the left, Bill Press. On the right, Robert Novak. In the CROSSFIRE: Democratic Senator Jon Corzine of New Jersey, a member of the Joint Economic Committee and Republican Senator Pete Domenici from New Mexico, chairman of the Budget Committee.

NOVAK: Good evening, and welcome to CROSSFIRE. Consumer confidence was announced today at its lowest level since 1996. No wonder. It was just yesterday that DaimlerChrysler stunned its workforce by announcing 26,000 layoffs. Today, Amazon.com said it will layoff 15 percent of its workforce, and even the well-managed General Electric company says it could eliminate as many as 60,000 jobs this year.

Should we worry? Federal Reserve Chairman Alan Greenspan last week told Congress that the recession wolf is at the door, and tomorrow is expected to push through another cut in interest rates. But President Bush says interest rates cuts are not enough, and that big tax cuts are needed now. Greenspan seems to agree.

Does that guarantee passage of the tax bill or can Democrats block passage? Katrina vanden Heuvel, editor of "The Nation" magazine, is sitting in on the left. Welcome to CROSSFIRE, Katrina.

KATRINA VANDEN HEUVEL, GUEST CO-HOST: Thank you. Senator Domenici, in the last 20 years we have had the largest redistribution of wealth in our country's history to the wealthy, and now President Bush and the Republicans are proposing a tax cut which will give 60 percent of the benefits to the top 10 percent, who've made out like bandits in this last period. Isn't the president's plan badly-skewed, badly-designed to fit a recession. Wouldn't a tax plan that would help the working poor, the middle class be better for stimulus to this economy?

SEN. PETE DOMENICI (R), NEW MEXICO: Well, let me tell you, I know this issue. I know this is your first episode, and I haven't been on here too often, so, you know, we can both feel like rookies, even though I've been in the Senate a long, long time. Nice to be with you.

VANDEN HEUVEL: Thank you.

DOMENICI: I think there's a question that precedes that and then I'll answer this as quickly as I can. But I think the issue is can we convince, that is president of the United States, myself and others, can we convince members of the Democratic Party that as matter of fact, the surpluses are going to be too big, and we're going to have to give some of it back to the American people because we cannot reduce the debt as fast as just applying all of the surplus to the debts. It won't work.

In fact, tomorrow we will hear testimony from the official Congressional Budget Office. They will tell us the surplus is mounting. It'll be $5.7 trillion over a decade and even if this lull ends into a moderate recession, it will only cost that number about $6 billion. So what I think we have to start with is convincing everyone that we need to give some of this back the American people.

Then we have argue issue which is best kind of tax cut for the economy, and for the overall well-being of the American economy. And I happen to be on the side of Alan Greenspan that the best way that use tax cuts to effect the economy positively is to cut marginal rates. If you cut marginal rates, you do give back more to the top bracket only because they are paying the overwhelming amount of the taxes that currently create the large surplus.

VANDEN HEUVEL: But they've reaped so much in the last years. But where, if you put together the estate tax, the other tax boondoggles that Bush is talking about, you're going to end up with $2 trillion of a tax cut. Where will the money come for the priorities that he set out, education, which he cares so much about; the unworkable, unaffordable national missile defense of health care...

(CROSSTALK)

DOMENICI: Well, look, I am so deferential to my wonderful new freshmen senator, who has been on Wall Street and I'm glad he joined us, that I don't want to hog this show. So, I want to get on rather quickly and tell you that I don't think the issue is will we add more tax cuts to the president's request.

If we do our budget right, we will set a limit on the tax reductions for the next decade, and anybody wants to do more will have a difficult time doing that. So there will have to be trade-offs, not add-ons, and that's going to be healthy and good.

And let me tell you, when we finish presenting this matter tomorrow with the Congressional Budget Office, we are going -- they are going to provide for sustained growth of the appropriated amount accounts of our government at inflation for every year of the next decade, the next 10 years. Every year increases. You can use that for priority items and even add some more to it and the reality is, you can't use all the surplus to pay down debt. You need to do something with it. I believe you should give it back to the people.

NOVAK: Senator Corzine, I want you to listen to what Alan Greenspan, who used to be the hero of the Democrats, now he's the whipping boy -- but I want you to listen to what he said last week.

(BEGIN VIDEO CLIP)

ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: As far as we can judge, we have had a very dramatic slowing down and, indeed, we are probably very close to zero at this particular moment.

(END VIDEO CLIP)

NOVAK: Zero growth and going down. Now you, Mr. Corzine, Senator Corzine, before you decided to come to the Senate, you were you what Tom Wolf used to call master of the universe. You know, you knew all about how these things work, and you surely know that there's an enormous lag time on interest rate cuts. It's take -- they were just getting the interest rate increases coming in now. What would you do about zero economic growth?

SEN. JON CORZINE (D), NEW JERSEY: Well, first of all, there is a longer lag time in tax expenditures and expenditures in general relative to interest rates cuts, and I think Chairman Greenspan made that point. Often, when you cut taxes, the time frame both for the debate that allows them to be shaped and for their working their way through the economy is longer than for interest rate cuts. And so I'm very much supportive of what the Fed appears to be on a dramatic reduction.

(CROSSTALK)

NOVAK: Reduction of interest rates.

CORZINE: We also, on the Democratic side -- reduction of interest rates -- also believe in tax cuts. It's just a matter of degree, shape and structure. We want moderate, progressive tax cuts. A lot of people use the word targeted, but I think if you want to have real meaning you've got to put that where people have a desire to spend the money.

NOVAK: I listened very closely just to Dr. Greenspan and tried to understand it. I have a lot of experience. I used to cover the Oracle of Delphi, so I have -- I think I understand. And as I understood him, he said this tax cut, and I think I can even, if you didn't notice it, I think I can even get you a citation, this tax cut is not really out of the ordinary in size considering the past tax cuts.

CORZINE: Well, it is -- certainly fits within the percentage of GDP, and I can accept that, although it is very backloaded the way it was announced and talked about in the campaign. I think it needs to be restructured. There's a lot of talk about that. It needs to be timely and in my view, need to be more progressive if you want that have it have impact on the economy. The people...

(CROSSTALK)

NOVAK: You mean redistribute income. CORZINE: Well, you know, there is redistribution going on under any kind of format and as Katrina talked about, high percentage of this going to people who save a lot more than they spend. And I think we need to focus more on lower income tax brackets.

DOMENICI: I'm more than willing to have a debate on how the tax cut is structured. I think the first thing we have to do is decide in the budget process how much tax reduction is the right number. And I believe it ought to be a number very close to what the president recommended when he was campaigning.

NOVAK: Do you agree with that?

CORZINE: I think it's a little higher than I would recommend. But I believe we ought to have a substantial tax cut. I think $700, $800 billion is a pretty substantial number within the context, and as Chairman Greenspan talked about, sometimes you need to look at how the deficits progress. They're not as certain that all those assumptions will come true and you can take another look at it later down the pike.

VANDEN HEUVEL: Senator Domenici, you said were you concerned about the size of surplus...

(CROSSTALK)

DOMENICI: Wait a minute. I'm thrilled.

VANDEN HEUVEL: You're thrilled, but let me ask something heretical, something that's rarely discussed in that town because the Democrats have bought into debt reduction, paying down the debt.

DOMENICI: Yes.

VANDEN HEUVEL: That's their mantra. They bought into Alan Greenspan's sort of pact with the devil, so to speak, over the last eight years. Let me suggest that one could us those surplus to invest in the unmet needs of this country. Public spending is only 18 percent of GDP. It was 22 percent when the reign of George the First ended. So, shouldn't we think, maybe, about some use for the unmet needs of country?

DOMENICI: Let me suggest, when you're talking about the unmet needs and what we should spend money on, you're not talking to somebody that is not fully aware of that. I think it is going to be a phenomenal eye-opener when the American people understand how much you can increase the expenditures of our federal government for the things you're referring to.

Everybody has their own list. How much is enough? It's an interesting question. Seems like one side still wants to spend more than the other, but the truth of the matter is there is absolutely room for giving the people back some of their money. In fact, a substantial portion. If you leave around, we will spend it all.

Now we're being told you couldn't use it all on the debt if you wanted to, which is a most interesting thing. I mean, they're using a word for that. I never heard it before but it's -- it has something to do with the minimum amount that you can pay on a debt and you can't pay any more. So, what do you want?

We don't want the federal government to have all that money sitting around. We know what'll happen. They'll buy up assets and they'll reharm American. You can pay for Medicare increase, prescription drugs, defense increase, education increases, going down the line. Unless you want to spend the whole surplus, and then we stop and say too much is too much.

VANDEN HEUVEL: Might I respectfully add, I mean, $0.50 of each discretionary dollar is now going to defense spending. Where do we find the money when we have one in five children living in poverty or one-seventh of this country without health insurance?

DOMENICI: When John Kennedy was president, the defense budget was 78 percent of the entire federal government's budget. That's how the government his its priorities during the first and second budget.

NOVAK: Senator Corzine, Senator Domenici talks about if you don't spend it, if you don't give it back in tax cuts, Congress will spend it, and the interesting thing is the third political party decides how it's going to be spent? Do you know what the third political party is? The appropriators. They're a separate...

DOMENICI: Yes, I'm one of them.

NOVAK: I know, you're one of them. And so...

DOMENICI: I don't want to be.

NOVAK: And so you look at and you know what they spend it on? They spend it on little projects in Alaska for the chairman of the Senate Appropriations Committee, little projects in West Virginia for the ranking Democrat on the Senate Appropriations Committee. Senator McCain and I call it pork. And you know very well, don't you, senator, it's not going to be spent on the good things that Katrina talks about?

CORZINE: Well, there are other considerations. For instance, a lot of this budget surplus that we're talking about falls under what's called unified budget, and is the Social Security trust fund monies that are accumulating, and we Democrats would argue about Medicare trust funds which make up about, I think it's $3.1 billion or trillion of the $5.7...

DOMENICI: The two combined.

CORZINE: The two combined, and many of us would argue that we want to set that aside and make sure that this demographic bubble that's coming along is protected by the security of those.

NOVAK: You know, you've only been here 27 days, and you've learned how to dodge the pork question.

(LAUGHTER)

NOVAK: All right, don't miss your chance to ask the questions of our guests by logging on to cnn.com/crossfire right after the show.

And when we come back, we'll find out more about what's going to happen to this huge surplus unless we give it back to the American people.

(COMMERCIAL BREAK)

VANDEN HEUVEL: Welcome back to CROSSFIRE. I'm Katrina vanden Heuvel of "The Nation" sitting in the left. We're discussing state of the economy, President Bush's tax cuts, and what is to be done. Our guests: Senator Pete Domenici of New Mexico, chairman of the Budget Committee; Senator Jon Corzine of New Jersey, member of the Joint Economic Committee -- Bob.

NOVAK: Senator Corzine, you majored in economics at my alma mater, the University of Illinois, and I'd like to give you a little economics lesson from a professor of economics at Texas A&M University.

Let's take a look at it.

(BEGIN VIDEO CLIP)

SEN. PHIL GRAMM (R), TEXAS: The surplus is big. The tax levels is the highest level in American history as a percentage of income, and with the economy slowing down, the idea that we wouldn't give some of the surplus back to the American people, I think, is just out of touch with reality.

UNIDENTIFIED MALE: Let me ask you...

(END VIDEO CLIP)

NOVAK: Now, isn't it self-evident that when you have such high rates of taxation, after a time, it's going to wear down on the economy?

CORZINE: Bob, no one arguing that we should not have a tax cut. We are arguing about the shape of it, the size of it. And I believe that you will have a very cooperative Democratic caucus reaching out with its views about how that should be shaped -- progressivity, some of targeting, how we use it -- but I don't think you're going to see people the resisting idea of tax cut.

We also want to be able to spend on the kinds of things that Katrina had talked about. There is a real desire to improve our health care system, a prescription drug benefit for our seniors, and those things are going to take resources. I sat on the Environmental Committee the other day, and Republicans and Democrats talked about how we were going to deal with wastewater infrastructure in this country. It takes real dollars.

NOVAK: Senator, explain something to me. I -- 40 years ago, when I was covering Congress for "The Wall Street Journal," President Kennedy and later President Johnson were very, very eager to get across-the-board tax increase -- tax cuts, tax cuts and the Republicans, Pete, actually resisted that.

DOMENICI: I wasn't here.

NOVAK: No, tell me what has happened to the Democrats that they are against across-the-board cuts where people who pay a lot of taxes get a lot tax cuts? Did you get book of Karl Marx somewhere or something?

CORZINE: Goodness, Bob, no, I don't think we got Karl Marx running in my bloodstream or many Democrats. I think we believe there needs to be a tax credit for long-term care for seniors. We are supportive of doubling the child tax credit, work on the earned income tax credit to make sure that people who are not going well in our society have the resources; making sure middle income families have tax cuts that are more in the realm of reason than sort of the 60 percent go into the top 10 percent.

VANDEN HEUVEL: I love the reference to Karl Marx. The Soviet Union no longer exists, but we still -- we've got to do the red baiting.

(CROSSTALK)

NOVAK: I think about him a lot, though.

VANDEN HEUVEL: I want to ask with all due deference to Senator Domenici, I'm not speaking about you personally, but isn't it the case that in that city corporate, affluent Americans' voices are heard much louder than ordinary Americans due to the campaign finance system that we have. That those voices are heard and not, for example, the person working two or three jobs on a minimum wage so you're not getting the kind of tax cuts you might see?

DOMENICI: Well, look, if I were to tell you and the Americans and New Mexicans listening that campaign finance reform is not needed, I would obviously be a borderline imbecile because anybody knows we've got to reform. The question is how, and the fact that there is one bill that is being touted by a couple of good senators does not mean that it is the final word on what would be the best kind of campaign reform.

So let's say it is a given that money is coming into campaign, into parties in ways that none of us are terribly proud of and we wish we could change. But look, the Americans that senators are coming to our Budget Committee and worrying about right now. You take Senator Patty Murray on the West Coast with all these energy prices, she's talking about 1,000 people who have been laid off recently.

Look, they don't need anything from the government. They may need unemployment compensation, what they want is the economy to come back where it's growing 2 1/2, three percent because they'll get their jobs back, and it won't be the government that did it. It'll be a burgeoning, growing private sector. So, we have to decide how much spending is enough, and then we have to decide how do we structure the taxes of our country to make it more plausible that we'll have sustained growth for the economy so all these people can get back their jobs. So, I don't look to the government to fix as many things as other people do. I'm not reading your lips, but it seems to me you are on the side of the government ought to be doing more things. I'm on of the side of doing somewhat less and giving more back to the people.

Now, my last observation is a very simple one, and it is that when you have surpluses accumulating as large as they are, they are a huge drag on the economy. We didn't use to think of it that way. But now it's being apparent that large debts are bad and large, large surpluses are bad and you've got to fix it some way.

I want to repeat, there is plenty of money for all the high- priority items that I've ever heard of. Now, if people start inventing new ones because we've got a surplus, then we have to talk about that. But I will tick them off. Medicare, including prescription drugs, whether it's $200 billion or $300 billion there's a dollar number to make sure we get that and reform the system. You go down the line, there's money for all of them and we still have give back some to the American people.

NOVAK: Senator Corzine, the secretary of the treasury, Paul O'Neill, actually was a -- ran a company that made things, Alcoa. He wasn't an arbitrator or an investment banker. And he had a...

CORZINE: A little subtlety there.

(CROSSTALK)

NOVAK: He had a very interesting interview with "The wall Street Journal" Friday. I don't know if you saw it, but he said this, and let's put it up on screen.

He said: "... People who sit in front of a flickering green screen and they make decisions on a carefully constructed but nevertheless speculative basis about three basis point movements. I don't know how to do that, but I probably could learn in a couple of weeks. Traders are not the sort of people you would want to help you think about complex questions."

I guess he was talking about Robert Rubin, but was he talking about you as well?

CORZINE: Well, if he were talking about Robert Rubin, I think there'd be greater resistance to that concept. I don't think that we should be slammer traders per se because I think there are certain people who think in a very long-term context. Bob Rubin is a perfect example.

We'll leave my own categorization aside. I do believe that we have a serious issue about how much we're going to put into these tax cuts, what the shape of it and what the spending priorities are going to be. And I actually am very pleased to hear the kind of conversation we're having because that's the debate that the United States Senate needs to have.

NOVAK: Senator Domenici is a very civilized person, and so are you. Thank you very much, Senator Corzine. Thank you, Senator Domenici.

DOMENICI: Thank you very much.

NOVAK: Katrina and I will be back with closing comments.

(COMMERCIAL BREAK)

NOVAK: The CROSSFIRE doesn't end here. Log on to cnn.com/crossfire and join Senator Pete Domenici and Senator Jon Corzine in our chat room.

Katrina, since this is your first night as host on CROSSFIRE, I want to break precedent and try to find some common ground.

VANDEN HEUVEL: OK.

NOVAK: I bet you can agree with me that it is absolutely insane to eliminate the surplus. You may have different reasons from me, and -- I mean, to eliminate national debt as the Democrats want to do. How would you -- how would the central bank ever be able to adjust monetary policy if it didn't have any treasury securities?

VANDEN HEUVEL: But as I've said, I believe it's been wrong, this mantra of pay down, pay down the debt.

NOVAK: Well, we agree.

VANDEN HEUVEL: Well, we agree.

NOVAK: You agree for the wrong reasons.

VANDEN HEUVEL: But I agree that Republicans were put on Earth to do tax cuts for rich. That's the one thing they do well, and I think we've seen the largest of redistribution of wealth to the wealthy and that is class warfare.

NOVAK: Do tax cuts for everybody, everybody, because I am a great populist. And I want to have the poor and the rich alike get the same thing.

VANDEN HEUVEL: You've redefined populism. From the left I'm Katrina vanden Heuvel. Good night from CROSSFIRE.

NOVAK: From the right, I'm Robert Novak. Join us again next time for another edition of CROSSFIRE.

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