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YOUR MONEY

Broken Government and How to Fix It

Aired February 20, 2010 - 13:00   ET

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


ALI VELSHI, CNN HOST: Welcome to YOUR MONEY. I'm Ali Velshi. Christine Romans is off this week.

Many people will argue much of our government still works and it works well. Checks get paid, roads actually get plowed, police are generally honest and public hospitals still treat the sick, but the face of government, Washington and Congress, well, they appear to be broken.

Unemployment close to 10 percent in our country and our latest polling shows that 84 percent of you believe that Congress hasn't done enough to create jobs. Government itself may not be broken but you can't spit in Washington without somebody telling you either the process is broken or the participant, the players are not doing their jobs properly.

It's not just Washington, by the way. These problems exist in state capitols and town halls across the country. Partisanship, ineffectiveness, gridlock as you can see, regardless of which party is to blame, most of you feel the economy remains in poor shape, 83 percent of you feel that way.

Less than one out of five of those surveyed thought that economic conditions today were good. So we're making a commitment right now to shine a bright light on this issue. All next week we are going to be talking about broken government, but this isn't an excuse. It's not an easy excuse to vent at elected officials.

And I don't think we can talk about broken government without talking about exactly how to fix it or at least bringing in some suggestions. It's a challenge we start by posing that question to our guests today.

David Gergen, CNN's senior political analyst. Chrystia Freeland is the U.S. managing editor for the "Financial Times" and Shawn Tully is an editor-at-large with "Fortune Magazine." Three experts who follow this all very, very closely.

I want to start with you David because you said something the other day that stood out to me. Every time we see the levels of dissatisfaction we have with incumbents and we had a poll earlier in the week that showed how dissatisfied Americans are with their incumbents, what happens?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Well, there's often a wave election after this much dissatisfaction builds up so that one party gets swept aside by this wave and another party rides a wave into power. We saw that in 1994 when there was an anti-incumbent labor of Republicans led by Newt Gingrich, took over Congress, as you'll remember.

And then again in 2006 when there was an anti-incumbent wave that swept aside Republicans control of the House and Senate and brought a wave of Democrats in with Nancy Pelosi and Harry Reid. And it's possible, Ali, we don't know, but there's the making of a wave out there now certainly and if elections were held today, the November elections, there's a very good chance we would have a wave.

VELSHI: Hey, Shawn Tully. What's broken? Is Congress broken or are the participants just not working? I ask you this, because we've had Congress' in the last few years that work under the same rules and systems and they do get things done. What part of this is broken?

SHAWN TULLY, EDITOR-AT-LARGE, FORTUNE: First of all, it's very important to look at the numbers, because the 2011 budget numbers look worse than the 2010 budget numbers. This is freaking American taxpayers out.

We're looking at trillion dollar deficits in 2020, which is the end of the projection period for the budget. Clearly this is the first unsustainable budget that a president has ever presented to Congress. Congress has not been able to get spending under control.

There are essentially no cuts in the budget. There are much higher levels of discretionary spending that are enshrined in at a frozen rate, but there are no cuts. So I think what taxpayers are terrified of is the lingering effects of these deficits and the spending line that we see and the inability of Congress to dea with these issues are really to propose any cuts.

What we're going to get, I think, out of this deficit commission is a proposal to have a VAT. Once you have a VAT, the whole game changes ...

VELSHI: You're talking about a value added tax.

TULLY: Correct.

VELSHI: Talking about a -- we're going it talk in a little while about this deficit commission, which the president has just appointed. Appointed the two Chairpeople of the Deficit Commission, Ernstein Ball, a Democrat and Allen Simpson, a Republican to chair this commission.

I want just to go to Chrystia for a second. Chrystia, this is strange because one would think this is Congress' work to deal with the deficit and yet the president has gone outside of Congress and started the appointment of a commission to solve this problem that Shawn was just talking about?

CHRYSTIA FREELAND, U.S. MANAGING EDITOR, FINANCIAL TIMES: Absolutely and I think, Ali, that speaks to the question that you posed at the beginning of this show, which is, is the legislative system in America able to deal with the really big long-term difficult challenges which America as a country faces?

And I think the appointment of this commission is a sign that the president thinks it isn't, and there are a lot of reasons to believe that's the case. One reason is the Filibuster rule. We have a situation which looks really absurd to people from outside the United States, where the party that has the majority in the Senate still can't get legislation through.

I think another issue that is really important to bear in mind, and I think you made a great point, Ali, at the beginning of this by saying you weren't about pointing fingers only at politicians. I think we in the media have to point fingers a little bit at ourselves, because I think part of the problem with American politics right now is the highly partisan media environment.

And we are operating right now in an environment where the loudest, shrillest, most partisan voices are the ones that get the most attention. I think that makes it really difficult for politicians to come together in a legislature and have a national consensus around big issues like cutting the deficit

VELSHI: David Gergen, you were you an adviser to President Clinton. You've been an adviser to prior presidents as well so you've seen this. You've seen Gridlock, bipartisanship and partisanship. This Congress is definitely by measure one the most partisan that we have seen in more than 50 years.

GERGEN: That's absolutely right, Ali but I want to go back to where you started and that is to make the distinction between government versus politics. There are a lot of institutions in government itself, and when people say, government is broken, you know, they forget the fact, the federal reserve board is, and federal reserve is one of the most respected central banks in the world.

And it has basically done a very good job. Yes, made some mistakes. The Pentagon is the largest organization in the world, but it's made mistakes. It's our politics that are broken and it's a stalemate in the politics of pander that we're giving people a lot of benefits and we're not asking them to pay for it. Which have led to these huge deficits and stalemated in trying to get solutions. I think the consensus would have to be we're not, our politics is not addressing the big issues faced by the country.

FREELAND: If I could just very quickly jump in there, Ali, on David's point about the fed. I think that's really interesting because I agree with David that the sort of expert opinion in the international looking has done a great job. If you look at the beating the fed is getting by politicians, you wouldn't think that. So I think even institutions that are doing a good job are getting beaten up by the political process right now.

VELSHI: I want to continue this discussion along the lines of keeping in mind and, David, thank you for reminding us, and Chrystia, thank you for reminding us we're not just pointing fingers at government and politicians. We want to find out what's not working. Shawn, I don't mean to ignore you, but I want to actually hold you to the other side of the break because you brought up this whole Deficit Commission idea. I want to explain to viewers what it is and why it's important. The issue here is the question, has the United States become a bad bet in the eyes of overseas investors?

We're going to examine the evidence and break down the president's latest plan that Shawn just told us about to fix the massive debt problem in this country before it's too late.

(COMMERCIAL BREAK)

VELSHI: I'm pretty sure you don't need an explanation of this, but the U.S. debt is an accumulation of all of our deficits. Every year that we spend more money that we take in, it adds to the debt. U.S. debt right now stands at more than $12.3 trillion. It's going up every minute and the White House projects that our debt could reach nearly $20 trillion by 2015.

President Obama this week created a bipartisan panel to help reduce our nation's staggering debt and deficits but not a panel of Congress. It's actually people who aren't in Congress. He warned about the need for dire action.

(BEGIN VIDEOCLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Without action, the accumulated weight of that structural deficit of ever increasing debt will hobble our economy, it will cloud our future, and it will saddle every child in America with an intolerable burden.

(END VIDEOCLIP)

VELSHI: So he appointed the two chairman, one Democrat, one Republican. Erston Boll is the Democrat, and Allan Simpson, former senator from Wyoming is the Republican and then they're going to appoint more people. It's going to a bipartisan commission.

My guest, David Gergen, senior political analyst, Chrystia Freeland, the U.S. managing editor of the "Financial Times" and Shawn Tully, editor-at-large at Fortune Magazine.

Before I go to you, Shawn, about this commission, I want to show you a recent poll we've taken. The CNN Opinion Research Corporation, the economy is the number one issue to Americans. That comes as no surprise. It's been that way more than two years.

But when you break it down, unemployment comes in at 58 percent then terrorism and then the federal deficit. Now, we've asked a question about the federal deficit. That's the shortfall between money that comes into the government and money that gets sent out.

But ultimately whether you ask about the deficit or debt, it's the same type of concern. Shawn, the government is now going to have this commission. It's not made up of people from Congress. Is it going to be effective in its mission? TULLY: The commission is going to recommend either national sales tax or value added tax in my opinion. There may be a minority view that we should not have an additional sales tax or valuated tax.

The fact is, this commission should be looking at spending more than it should be looking at spending more than it should be looking at deficits. These deficits are being caused by runaway spending, increases of spending far in excess of the increases in annual GDP.

The only way countries, we are competing with, have ever been able to balance their budgets spending the kind of money that we're planning to spend is with a value added or national sales tax.

Once that is in place, especially a VAT, government tends to grow very, very, very rapidly. If we do get a VAT recommendation, what it essentially does is freezes in much higher levels of future spending and balances the budget at a much higher level of GDP.

We've already gone from 18 percent of GDP in government spending in 15 years to now 25 percent. We've added five points in two years. We don't want to have government spending rising as a share of the private economy, because growth rates slow way down.

And, therefore, tax receipts slow way down. Employment is much, about the absorption of the labor force is much lower. Immigrants don't get absorbed in the new jobs and nearly as quickly we see things happen in Europe. If we get a VAT, we're essentially surrendered.

Saying we cannot cut the budget. We're going to enshrine these much higher levels of government spending and we're going to move much more in the European direction towards lower growth rates and higher unemployment structurally.

FREELAND: Can I respectfully disagree with Shawn?

VELSHI: Please.

FREELAND: So respectfully I'd like to disagree with Shawn. I think the commission will suggest a value added tax or a national sales tax and I think that is absolutely the right answer.

And I think that Shawn's suggestion that if you do that you are forever locking in higher levels of spending is not necessarily the case. The counterexample is Canada, which very painfully did introduce a national sales tax, and didn't lock in higher levels of spending.

And Canada actually the example of Canada in recent decades cutting both its debt and deficit, I think is one that America should be looking at. I do agree with Shawn on the point that the commission needs to look at spending as well as taxation.

And here we come back to the issue that no one wants to touch anymore which is healthcare. The big medium term problem for the United States is healthcare spending, and Medicare spending, and that is because there is an aging population. Those people are going to graduate into the state system, and medical spending is increasing as a percentage of GDP. The country has to confront that and no one wants to look at that right now.

VELSHI: David?

GERGEN: If you can entertain a third view ...

VELSHI: We'd like that.

GERGEN: And that is, I don't think we should put too much weight on this commission. The two co-chair, Alan Simpson and Erston Boles, are both terrific guys and they happen to personal friends.

But the way this commission is structured, it takes -- there are going to be 18 people on the commission. It takes 14 votes out of the 18 in order to get anything officially recommended. Now, there are going to be more than -- at least 6 Republicans, I think 8 Republicans on that commission.

Most Republicans oppose a value added tax. They oppose the national sales tax. I think they're going to have, as Alan Simpson recognized publicly, they're have a hard time reaching a consensus on anything like that. I think this is going to ultimately require more leadership from the White House.

You know, a firmer stance by the president on what's need to reform Medicare and Social Security, and Medicaid. The entitlement program, and it's going to take, frankly, a big heavy lift out of the Congress.

To look to this citizens' commission, to solve all our problems, seems to me the bond market will look at that and say that is hiding behind a cover. It takes political courage to get this done on the part of elected leaders.

VELSHI: Right because won't have to listen to these commissions. The bottom line, 9/11 commission is a good sample. Stacked with some of the most remarkable people around and many recommendations not absorbed at all. Congress has to make a decision and cast a vote one way or the other on it.

GERGEN: Absolutely. Absolutely, and that's why it would be, I think it's important for the White House to move forward this year through its own leadership working with Congress to start making down payments that would on this deficit, that would trigger in 2012, spur the economy back up and running.

Not now. You don't want to shrink and withdraw the stimulus support now. The more we can get into legislation the better in working with the bond market and convincing the world whether it's Japan buying treasuries or China buying our treasuries, we're serious about getting this deficit under control.

VELSHI: Well, what I think is interesting about this discussion we're having with the three of you is that it has not focused on the politics or who's going win in November, or what any party has to do to win.

It's about the long-term problems whether debt or the bond market or healthcare. The reality is we're going to have to take these long- term views and Chrystia, you point it out well, might not just be the government. It's all of us.

Thanks very much for your time and those excellent suggestions. David Gergen, CNN senior political analyst, Chrystia Freeland, the U.S. managing editor of the Financial Times and Shawn Tully, editor- at-large at Fortune Magazine.

We're going to continue this discussion. I wanted you all to stay with me. That's why I didn't tell you about how big our national debt is or how much we owe other countries. So I'm going to do that when we come back, because we need to know some specifics about how we start whittling away at this debt. How we start cutting our deficits.

Coming up next, I'm going to talk to the one man who knows more about this than just about any one else out there.

(COMMERCIAL BREAK)

VELSHI: America is facing an unprecedented debt crisis that will not only impact your life but the lives of your grandchildren, possibly even your great-grandchildren unless it is fixed soon.

Let's look forward for a few minutes. David Walker is the President and CEO of the Peter G Peterson Foundation, former controller of the United States of America, and the author of "Come Back America: Turning the Country around and Restoring Fiscal Responsibility."

David joins me now. Thanks for being here. Good to see you again.

DAVID WALKER, PRESIDENT AND CEO, PETER G. PETERSON FOUNDATION: I live in Atlanta, twice so welcome to Atlanta.

VELSHI: Thank you, Sir. Listen, I'm going a little backwards on this discussion. We had a big political discussion about this commission to solve the deficits problem. Something that Congress doesn't seem willing to do.

But let's go back and talk about the deficit and the debt in this country. Put it in those plain words that you're so good at using, David. Tell me why as a viewer I am concerned about the deficit and the debt of this country? Because unlike my credit card, I don't have to make this payment every month and don't get an invoice for it every year. Why do I care?

WALKER: Well, first, Ali, it's important to understand the difference between the short-term deficits caused largely by the recession and drop in revenues, assistance to the housing industry dealing with the bank failures and all of those issues, and then the deficits that we're going to have when the economy has recovered when unemployment is down, when the wars are over. So the current deficits are a matter of concern, but the real problem is where do, what are we looking like in the future? The reason you ought to care is because, if we don't start putting our federal financial house in order, we're going to have to pay a lot higher interest rates to finance our debt causing more pressure on government spending and taxes, and that ultimately your kids and grandkids' future are being mortgaged at record rates. That's not only irresponsible, that is immoral.

VELSHI: What is the implication, though? Clearly, my parents were around when there was debt and now there's more of it, and my kids will have yet more of it, but is it actually costing me anything? And is it going to cost my kids or grandkids anything?

WALKER: Let me give you a sense, Ali. Right now under our present path, if interest rates don't go up, the single largest line item in the federal budget with 12 years will be interest on the federal debt and you get nothing for that.

That's assuming interest rates don't go up and they're going to go up. Look, taxes will have to double by about 2030, if we don't end up reforming our program. That's totally unacceptable. We would have to eliminate everything that the federal government does, other than Medicare and Medicaid and paying interest on the debt by around the same time frame.

That's an unacceptable scenario. We have to make tough choices and hopefully this commission will provide us a means to be able to do that sooner rather than later.

VELSHI: Let's take a look at the foreign holders of U.S. Treasury securities. When we talk about U.S. debt, most of U.S. debt, by the way, is held here in America, but much of it is held by other countries.

China, we always talk about China as the biggest holder. Slipped into second place as of December according to numbers from the federal treasury. Japan is back in the first place. First of all, David, tell me is that an area of concern? Does that mean China is saying things about its faith in the U.S. and its ability to pay back the debt or is that just normal movement of foreign debt?

WALKER: It is an area of concern. First we have to understand that not only is our debt going up, we don't owe it to ourself anymore. About half of debt held by the public is held by foreign lenders meaning the debt service payments go overseas to benefit them. Don't stay in our country to be able to benefit us.

VELSHI: You've devoted your life to this. The foundation you work for does this and you've written a book on it. I kind of feel stupid asking you in one answer to answer it, but what do we start doing now?

WALKER: First, the deficits may actually have to go up in the short term to get unemployment down. We need to learn the lessons from the failures of the last stimulus program and TARP efforts. They weren't designed properly. We didn't get the results we intended.

We've got to make sure this commission is successful. We've got to engage the American people with the facts, the truth, the tough choices. It needs to come back and make recommendations for statutory other budget controls, social security, healthcare and tax reforms that will achieve a vote in Congress and avoid us losing the confidence of our foreign lenders. It is possible, but it is tough.

VELSHI: That's why we have you on here. You were able to answer that question. That's not the only opportunity. You're going to get. We have a compliment to this discussion here on CNN David, you know that. We'll be having this conversation a lot more as we talk about the deficit and the debt, which you Americans have told us is one of your biggest concerns. David Walker, thanks so much for joining us.

WALKER: Glad to be back with you, Ali.

VELSHI: Listen, shifting gears for a second. The president is backing plans to build the first nuclear plants in the United States in more than three decades. Is going nuclear the answer to our energy needs?

(COMMERCIAL BREAK)

VELSHI: Big shift in the energy field. President Obama announced $8.3 billion 24 loan guarantees to back the construction of two nuclear reactors in Georgia this week. A nuclear plan has not been built in the United States in 30 years.

Nuclear power is a highly debated issue. I'll break down the arguments, for and against. Let's look at the pros, before anybody yells at me, I have environment on both lists, but the environment in terms of the pros, nuclear energy is thought of as a renewable energy.

The reliability of nuclear power plants has generally been proven, a lot of people are concerned about the safety of these things and abundance of uranium, the source material, one of the most abundant elements on earth.

Now, on the con side of things, the cost. It's actually not cheap to build these nuclear plants and we haven't built one in a long time. The environmental concern is what you do with those spent rods? The uranium used to generate nuclear power and of course the fear.

A lot of people associate nuclear power plants with meltdowns and things like that, that allow radiation to get out and the effects that it has. So the environment is a concern on both sides.

Let's have a bigger conversation about this, though. Stephen Leeb is an expert on these things and he's the author of "Game Over" which is a really good book to read about the limited natureof the energy that we consume.

Steve Hargreaves is a staff writer with CNN Money and also focuses on energy for CNN and CNN Money. Gentlemen, thanks for being with us. Let's put aside for a second the issue of a Democratic president being the first one in three decades to authorize nuclear power development in the United States.

And let's get down to brass tax. We've got oil around $80 a barrel again while in a recession. We all agree the world is moving towards alternatives. I know, Steve, you make the point that doesn't mean we're moving away from oil. Is it a smart move? Steve Hargraves, I'll start with you, is this a smart move for this president and for the country?

STEVE HARGREAVES, STAFF WRITER, CNNMONEY.COM: Well, the president and his secretary of energy, they're clearly pretty comfortable with nuclear power. They do think that the country needs a lot more electricity, and some say they're trying to buy off some Republican support for their plan to cap greenhouse gases with this move.

VELSHI: What do you think, Stephen?

STEPHEN LEEB, AUTHOR, "GAME OVER": Ali, I think it's almost solely political. To say two plans -- it's a nominal part of 1 percent of this country's energy needs, and when you contrast what we're doing with what China is doing, it's just unbelievable. I mean, China has on the drawing board something like 155 nuclear reactors, and I mean, they're going to surpass us in nuclear energy probably with the next, I would say, 10, 12, 13 years.

VELSHI: To that point, let's show a chart of the, different countries what proportion of their energy is generated by nuclear power. France out ahead, 76 percent of its fuel power from nuclear. Germany, around 28, 29 percent. Japan, 25 percent. The U.S. is at about 20 percent. One-fifth of our energy mostly electricity. And Canada, 15 percent. U.K. 14 percent and China is at 2 percent.

But your point, Stephen, is that China is going to be getting a lot more of its energy from nuclear power generation. Is that a good thing? Should we be aiming to be higher than 20 percent? Should we be aiming to be like France? What's the right amount of nuclear energy?

LEEB: I don't think anyone really knows that answer, Ali, but we should be running, no pun intended, on all cylinders when it comes to renewable energy. There's only so many sources in the world to make renewable energy. I mean, remember, nuclear power requires a lot of water, dedicated water.

It can be recycled, but, you know, it does require dedicated water. Requires a lot of other materials and so do winds, so do solar. All of these things have to be done. I mean, we have to be frantic in terms of building on renewable energies. Not so much because of the environment but because of the scarcity. As you pointed out ...

VELSHI: But we need energy.

LEEB: Excuse me?

VELSHI: Because we need more energy. LEEB: Absolutely. China right now has become a net importer of coal, and they're frantic. We've been a net importer of energies for a long time, and energies are drying up, and we've got create new energies, but the secret here and what really worries me is that it takes a lot of energy, a lot of materials to build out these renewable energies. I'm sorry?

VELSHI: Let me ask Steve Hargreaves, what happened to opposition? We cited opposition on the environmental front what to do with the uranium and we've cited about opposition in terms of people worried about the safety. Does that just evaporated at this point, Steve?

HARGREAVES: Well, no. I think people still are concerned about those things, but to get back to Stephen's point it is all about cost and whether you're talking about renewable energy, nuclear power, cost is a big factor.

And with nuclear power people are saying that, listen, this technology, it's just too expensive. They're saying, wondering why the government is getting in this game. Why is government subsidizing it? This is an old technology that's been around 50, 60 years. It's not new. It's not like, wind and solar, breaking into the market. They say if this was such a good idea, the private sector would have done this many years ago.

VELSHI: Great to talk with both of you about this. Stephen Leeb is the author of "Game Over." I really, really recommend that you read it. I learned a lot about renewable resources and what's out there, and Steve Hargreaves, follow him on cnnmoney.com.

OK, it is tax time or it's almost tax time. I've started gathering my receipts. Guess what? Audits are on the rise. Audits of individuals. Find out how to avoid the unwanted attention of the IRS coming up next.

(COMMERCIAL BREAK)

VELSHI: It's tax time and we're taking on your worst tax nightmare, the audit. What you might be doing to trigger an audit and what can you do right now to avoid one. But first, Philips what do you think of when you think of that name?

You might think of television? One of my producers says, they think of toothbrushes with the Sonic Care brand. You might think of the light bulbs that you buy. This is a diversified electronics health care and consumer products company, but what it really means to people puts Royal Philips Electronics CEO, Gerald Kleisterlee in the unique position to analyze everything from consumer behavior as a result of this recession to figuring out how lighting can change your kids' behavior in the classroom.

GERALD KLEISTERLEE, CEO, ROYAL PHILIPS ELECTRONICS: Today, Philips stands for a company that wants to lead in the health and well-being space that focuses on three sectors, health care, lifestyle and lighting. That blends nicely together and where we have made a choice to focus on the applications that reach and use this.

VELSHI: What do you think this recession will do to consumer behavior when it comes to lifestyle and home health care? What's the affect going to be on people? On one level people will be tighter with their money.

KLEISTERLEE: You see per category different behavior. If the category is less personal, less different shaded, then you see people really shopping around for the best bargain and maybe trading down in some aspects.

If it's very personal, if it's about you, your family, your kids, your health, people still go for the best. Especially almost, I would say, in uncertain times. If I have to think three times before I really decide to put down some money, I really want something good.

VELSHI: You have the privilege of sort of seeing how the world is unfolding because of your relationship directly to consumers, because of your relationship to medical practitioners, and industrial relationships. Where do you think we are in this recession and when do you think we start to feel really clear of it?

KLEISTERLEE: That's the $1 million question that everybody would like to have an answer to and I only can say what I see from the perspective of our businesses and I see that in the developed part of the world, the U.S., Europe, we're seeing the decline stopping. And most businesses we have been on the decline for the past number of quarters. If we can keep things controlled, no further financial disasters I think we will gradually recover from here.

VELSHI: Tell me about lighting. To many people they would think of lighting as a commoditized market. The cheapest one wins and technology sort of goes on its own track. How do you differentiate in the world of lighting?

KLEISTERLEE: Light has a huge influence on how we as people feel. So tailoring the lighting solution to specific circumstances where we differentiate. We know how to do light, for example, an example, in classrooms.

In a way that the concentration of students is enhanced and they're learning results, clinically proven done with scientific research by third parties, the learning results are better, through better lighting. If you go in that direction, then lighting is not a commodity.

Some of the components you use may about commodity. How you put it together. Together with controls to create a total solution, that's where you differentiate and the way we've gone with our lighting business.

VELSHI: America is carrying record debt. Washington wants your money and needs your money. The IRS audited more Americans last year than in a decade and this year the budget for tax enforcement raised by 10 percent. What do you do? Here are simple steps to take to avoid the red flags that could result in your being audited by the IRS.

The IRS is increasingly skeptical of those maintaining a home business. If you are self-employed, keep good records. A separate bank account and make sure you register your business with the proper authorities. The tax man is also cracking down on those claiming a great deal of business expenses, or anyone with an overseas bank account.

If you sold stocks you need to know the cost basis of those stocks. It's not enough just to plead ignorance because your grandmother bought you shares of Boeing back in 1983. You've got to dig through and find out the original price of those stocks.

Make sure you get receipts for your donations to charity. And finally, a special note to anyone making more than $200,000 a year, you are 50 percent more likely to be audited so be extra careful.

New rules for your credit card are out this Monday. Find out how those changes could affect you coming up next.

(COMMERCIAL BREAK)

VELSHI: Let's go beyond the headlines now with "Fortune" Senior Editor, Leigh Gallagher and Ryan Mack, President of Optimum Capital Management. New credit card rules are finally here. They're kicking in on Monday. The benefits for you, well, no rate hikes on existing balances if they haven't already done that to you.

It ends this complicated concept of double cycle billing. You've got more time to pay. This doesn't help, however, if you don't keep up your payments. The government says it's done its part, but that's not going to solve the debt problem for millions of Americans.

Leigh, here's what I want to talk about. Are we letting people off the hook here in terms of the personal responsibility, focusing on the government crackdown on credit card companies?

LEIGH GALLAGHER, SENIOR EDITOR, FORTUNE: Absolutely not, Ali. I see your point. Consumers, sure. After what we've been through, if anyone hasn't learned a lesson that debt is not always a good thing then that's a problem. But I think you have to keep in mind that credit card companies exist to make money/

They exist to find ways to find extra fees and line their pockets with it. They go after the consumers' wallet. That's their business motto. But the consumer needs protection against that. I think they got -- a difference between just extending credit and being a little bit predatory. I think some fees crossed the line.

VELSHI: If Christine Romans were here, she's remind us we did borrow someone else's money to spend it. Ryan, you're big on personal responsibility, but the last couple of years certainly is not going down as a banner year for the credit card companies, as Leigh says. They kind of overstepped, too.

RYAN MACK, PRESIDENT, OPTIMUM CAPITAL MANAGEMENT: I mean, they definitely overstepped. They handed these statements you can't hardly read. Take the time, with small letters, with the interest rates and fees hidden on the inside. That's definitely going to change and I'm glad it is.

You know, a lot of individuals marketing their cards through, to college students, just getting into school. First year of school, they get offer these cards at the store the other day, where a good friend of mine, her daughter, got this money from the credit card company. She maxed it out and said, why are they calling me? Well, I- I didn't know I had to pay the money back.

So a lot of these things are really predatory in their actions but we do have to understand, education, what is a credit card? This is not your money. We have to be much more responsible.

VELSHI: And it's not free. All right, listen, some help is on the way for the five states that are hardest hit by the housing crisis. Arizona, Florida, California, Nevada and Michigan were all chosen by the president, because those states have seen home prices fall more than 20 percent and are suffering from high unemployment rate at the same time.

President Obama announced a $1.5 billion fund to give money to programs designed to prevent foreclosures or for people who are unemployed and owe more than their homes are worth. This is the type of smaller targeting relief a lot of people are calling for. Leigh, what do you think?

GALLAGHER: You know, I think it's good that it's targeted to the five states that saw their home prices fall 20 percent from their peak. So that's where the problems really focus. That's the epicenter, but you have to look at a couple things.

This is a small, $1.5 billion is a drop in the bucket compared to the original loan modification program in the administration's original plan to help homeowners which hasn't worked well. The plan is very vague. It's not sure how these individual states will use them.

Will they help the unemployed as they try to make their home payment? Will they help people whose house is under water? It seems to be left to the states to decide which, you know, that may be a good thing. We just have to wait and see.

VELSHI: Which mean it will be a month or so or longer before we figure exactly how this is going to work. Ryan what do you think? Your home state, Michigan, certainly the hardest hit, and it's in here. Is it going to help?

MACK: Well, definitely it's going to assist by working with those state organizations, those organizations that are dealing with those people on the ground. You know, these individuals are attached to the community. They are actually talking to individuals who are unemployed, who have under water in their housing.

So they're actually really figuring out the true stories. A lot more connected as opposed from the federal level, coming from the state level. I do think this addresses a larger issue in terms of looking at your house, whether it's going to be an investment or a place just to live.

I think a lot of individuals in 2000, people started to leverage to purchase stocks. Started to do the same thing to leverage to purchase homes in 2002 when the real estate market was coming. And you know what, the individual that you borrow from, they could care less about what your underlying asset if it depreciates in value. They just want their money back. That's what these banks are saying. We're not even going to talk about principal reduction right now.

So we have to be a lot more responsible in how we're purchasing our pieces of property.

VELSHI: Good point, all right, Ryan Mack and Leigh Gallagher, stay right there. Coming up next, you probably watched it, probably have seen it many times by now, Tiger's apology.

Let's talk about Tiger's turnaround. What Tiger Woods is doing to win back fans, but first, a very different sort of turnaround, Allan Chernoff introduces us to a Connecticut restauranteur who is not leaving the future of his business up to faith.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT: Shawn Daigle thought he had a sure thing, Avon Old Farms Inn was a restaurant with a long history and a booming business, but shortly after he bought the Connecticut eatery in 2005, the sure thing started to look a bit shaky. Tragedy struck, an 18-vehicle accident killing 4 and injuring 19 just outside his door.

SHAWN DAIGLE, OWNER, AVON OLD FARMS INN: It was like a black cloud that was over this business.

CHERNOFF: Soon afterwards, a second accident at the same site prompted state construction of a 700-foot truck ramp almost on top of Daigle's restaurant.

DAIGLE: Always staying positive. You have to stay positive. With the employees, with the town, no one wants to hear anyone complaining. There's a lot of things to complain about, but, frankly, it doesn't go away.

CHERNOFF: Couple the unattractive ramp with the downturn in the economy, and business dropped off nearly 60 percent, suddenly, the old inn was bleeding red ink.

DAIGLE: Going into a tough economy not at the peak of your game, the downturn of the economy impacts you significantly more.

CHERNOFF: So Daigle fought back, scaling back his high-priced fine dining menu in favor of lower-priced comfort food.

DAIGLE: Fine dining has a unique statement associated with it. It's an honor we're known as fine dining but we're trying to hit a different price point and get you good food.

CHERNOFF: And getting customers in the door is key. The restaurant lowered corporate package rates and started hiring local bands on weekends.

DAIGLE: If you lower your price point being you need more volume. You need more people coming in. Life is good.

CHERNOFF: And they have started coming in. Business has tripled from its low.

DAIGLE: There's a high expectation again having a 253-year-old business and a reputation.

CHERNOFF: A reputation many customers haven't forgotten.

Allan Chernoff, CNN, New York.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

VELSHI: Tiger Woods making his first public appearance since the infamous Thanksgiving weekend incident and all the revelations about his personal life that followed. But can Tiger win back the hearts of his fans and, more importantly to the sponsors he has left, can he one day win back their wallets?

Leigh Gallagher from Fortune joins me, Ryan Mack of Optimum Capital Management. Leigh, let's start with you. I don't know where I read it, maybe it was Fortune, even after all of this, losing the sponsorships, Tiger still brings in more money than most athletes in the world do or ever will.

GALLAGHER: That's absolutely true. But if you look at his earnings, most of his earnings are from endorsements. His on-course earnings are a fraction of what he makes from endorsements. So this is actually a very big deal what's going to happen to him. The fact that he has lost Accenture, AT&T, Gillette and others are putting him on hold and pairing him back. It remains to be seen if he'll get those back. That is by far his money-making machine. A lot is at stake as we know.

VELSHI: Ryan, again, you're the guy who on many levels, mostly always about money, you're big on personal responsibility. How do you feel that that apology went, and how do you think it helps his him in terms of his return to golf, which he didn't say he was making just now but he didn't say when. It seems likely that he's coming back.

MACK: First of all, Tiger Woods to me hasn't done anything wrong. I'm in awe of not Tiger Woods the person. I'm in awe of his skill, the ability to hit a golf ball. I think that sometimes what we do is we want to set a lot of individuals up as almost becoming deity.

And basically allowing ourselves to have that much further of a fall when they disappoint us and so I think that a lot of individuals like myself, every once in a while who want to see him hit the ball very well, you know we'll still continue to do so. Individuals like myself, again, if I want to really get inspiration on how to live my life and the role model, I'll go to church on Sunday and hear a good message but not necessarily look to Tiger Woods to get that.

VELSHI: Interesting point. Leigh, what do you think of that? Isn't he a role model?

GALLAGHER: I think Tiger Woods did do something wrong. I think he did, you know, what's the number now, 20, 30 things wrong. I think that he has been held up as a role model. That's how society works. That's why this is so just stinging to his fan base, to the population at large.

I don't think he's doing such a great job at mounting the turnaround in terms of closing the press conference off to the media and scripting his comments and, you know, I just don't think it's enough. And to your point about him coming back, what struck me was that he said he's ruling out this career. That all but said, expect him to try to make a comeback this year.

VELSHI: Right. I think we're all agreeing that stars and celebrities do make comebacks. If he wants to come back, given his skill, he probably will.

GALLAGHER: Most of his fans are men so I think that will work in his favor.

MACK: Let me say there's no doubt that what he did was wrong. It was wrong. It was blasphemous. It's all the words as you want to call it, it was wrong, but you know what? Him doing that wrong compared to my neighbor doing that wrong, compared to me doing that wrong.

It's all on the same level as far as I'm concerned because wrong is wrong whether you're a star, whether you're a superstar or just the average Joe like myself who want to commit wrong.

I tell individuals all the time, if you want to put the cameras on me and follow me 24 hours the of the day, you may find some things you may want to talk about. I may sneak into a soul food place and get something to eat. I don't think we should put hi up to that level, but he's still a good golfer.

VELSHI: We will see. I'm sure we'll be talking about this more. If you ever want to sneak into the soul food restaurant, I'm happy to cheat along with you. Ryan Mack, good to see you. Ryan Mack of Optimum Capital Management Leigh Gallagher, Fortune Magazine. Real pleasure to have you both on the show again. Your good friends of the show.

And thanks to all of you for joining us on YOUR MONEY. You can follow Christine and me on Facebook and Twitter. We're going to try to keep you up to date on what we're doing on Facebook and Twitter as much as possible. Send us your suggestions and make sure you join us every week for Your Money. Saturdays at 1 p.m. Eastern, log on to cnnmoney.com 24/7 for more news. Have a great weekend.