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America's Money Plan; The Current Budget: Where Does the Money Go?; Pentagon Changes Policy; Riding the Recession; Oil From Algae

Aired February 26, 2009 - 11:59   ET


TONY HARRIS, CNN ANCHOR: And hello again, everyone. I'm Tony Harris in the CNN NEWSROOM, and here are the headlines from CNN for Thursday, the 26th day of February.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Just as a family has to make hard choices about where to spend and where to save, so do we as a government. There are times when you can afford to redecorate your house, and there are times where you need to focus on rebuilding its foundation.


HARRIS: There it is, America's budget blueprint for 2010, a spending plan with a $3.5 trillion price tag.

And we'll look at how the recession is taking a big bite out of a Chicago area popcorn venture. We'll visit with a small business owner live this hour, in the NEWSROOM.

You're probably facing tough decisions about your household budget these days. And President Obama says there are some hard choices ahead, as he presents his first budget to Congress.

We have a team of correspondents breaking down the president's plan: White House Correspondent Dan Lothian, Senior Congressional Correspondent Dana Bash, and National Political Correspondent Jessica Yellin.

Tax increases for the wealthy, more affordable and accessible health care, just some of the highlights from the president's spending plan.

White House Correspondent Dan Lothian starts us off this hour.

Dan, let's go. The president said last hour, there are times, as you just heard a moment ago, when you can redecorate, and there are times when you have to work on the foundation.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: You really have to. And you know, you're talking about a household budget, but this is something much bigger than that. We're talking about $3.5 trillion.

But what the president is trying to lay out is that, you know, there are difficult times. And during these difficult times, you have to spend some money to try to turn things around.

He's talking about boosting taxes on the wealthy to pay for things like health care. He's talking about closing tax loopholes. But also will be giving tax breaks to hard-working Americans as well.

This is a roughly 140-page outline. The details of the budget will come out in mid to late April. But the president is saying that it is an honest accounting, the way that he says, looking forward, he can turn the economy around.

Take a listen.


OBAMA: While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity. And that is precisely the purpose of the budget I'm submitting to Congress today.


LOTHIAN: Now, even though we won't be seeing a lot of the details yet -- those will come out later, as I mentioned, in mid to late April -- Peter Orszag, the budget director, did try to fill in some of the gaps. He talked about how this budget is trying again to be very honest, to lay out not only what the cost and the needs are now, but also long term.

Take a listen.


PETER ORSZAG, WHITE HOUSE BUDGET DIRECTOR: This budget will not play the games that are typically played in which you assume that there will never again be a hurricane or a disaster; that the alternative minimum tax, which is a second tax system resting alongside the regular income tax, would be allowed to gradually take over the tax code; that the cost of the war in Iraq and Afghanistan will magically disappear overnight.


LOTHIAN: Tony, one of the things that will no doubt be getting a lot of attention not only from Americans, but also from up on Capitol Hill, is this so-called placeholder. It's what they put in the budget for roughly $750 billion of bailout money to be used if needed. The budget director is saying that right now, they don't foresee needing that money at all, but they have it there just in case they need it to continue this process of fixing the economy -- Tony.

HARRIS: That's right.

All right. Our White House Correspondent Dan Lothian for us.

Dan, thank you. Republicans in Congress already taking aim at the tax increases in the president's budget blueprint.

Senior Congressional Correspondent Dana Bash live on Capitol Hill with a look at the battles ahead.

And Dana, am I overstating it when I suggest this plan is going to be a battle every step of the way?

DANA BASH, CNN SR. CONGRESSIONAL CORRESPONDENT: Oh, there's no question about it, because I think big picture, it's important for our viewers to remember that, of course, this is President Obama's plan, it is his policy. And these are his guideposts in terms of how he plans to change the direction on pretty much every issue you can imagine.

But it is here in Congress -- in fact, I want you to take a look at a picture that really illustrates this. It is here in Congress that they are going to actually make this happen or not.

The picture I'm talking about is right there, Peter Orszag, the president's budget director, literally, symbolically, handing over that 140-page summary to the chairman of the House and Senate Budget Committees. And that just says it all. It is going to be Congress, and specifically Democrats in Congress, who are going to have to get through this, and to try to figure out how they make what President Obama calls the tough choices.

There are some questions about whether or not he really is asking for those tough choices. And those questions are coming from the Republicans here. They are in the minority, but they still do have a powerful voice, particularly in the Senate.

But in the House, the Republican leader, he made very clear why he thinks that this is a mistake. And specifically, it is not a surprise here, Tony, it is because what the president is doing here to pay for a lot of what he wants to do, particularly reduce the deficit, is to raise taxes on the wealthiest Americans.

Listen to how the House Republican leader responded to that.


REP. JOHN BOEHNER (R), MINORITY LEADER: The American people know that we can't tax and spend our way to prosperity. It's just the formula that appears the president's budget is relying on.

The era of big government is back, and Democrats are asking you to pay for it. The administration's plan, I think it's a job killer, plain and simple. And it raises taxes on all Americans while we're in the middle of a recession.


BASH: Now, a little bit of a reality check here. There was a Republican president, President Bush, down 1600 Pennsylvania Avenue not too long ago. And he was, you know, presiding over government growing in a big way. And Republicans got hurt for that in the last couple of election cycles.

But nevertheless, they understand politically, Republicans, that that did hurt them. That is why you're going to hear much more of that kind of rhetoric from Republicans. And not just rhetoric, actually a real philosophical fight over how to bring this country out of this economic crisis that it's in.

HARRIS: Boy, the battle ahead.

All right. Our Senior Congressional Correspondent Dana Bash for us.

Dana, thank you.

You know, he is the man behind the president's budget plan, the White House budget director, Peter Orszag. And he is fast becoming a power player in the administration.

The story from National Political correspondent Jessica Yellin.


JESSICA YELLIN, CNN NATIONAL POLITICAL CORRESPONDENT (voice- over): He's the youngest member of the president's cabinet, an increasingly public face of the Obama economic team...

ORSZAG: The president of the United States, Barack Obama.


YELLIN: ... and a cooperative target of White House jokes.

In a meeting with congressional leadership, the president teased Peter Orszag for this photo which ran in "The New York Times."

ORSZAG: And I said, "Yes, I'm super nerd." And the whole room cracked up. But I try to -- I don't think I was self-described.

YELLIN (on camera): As a nerd?


YELLIN (voice-over): Neither would "People" magazine. Its Web site called him one of the Obama team's hunks.

Tomorrow, Peter Orszag will present the president's blueprint, which for the first time will account for the cost of the wars in Iraq and Afghanistan.

ORSZAG: We're not going to play the games that have been played in the past.

YELLIN: A marathon runner, he lives off Diet Coke, and he will need it. President Obama has tasked Orszag with cutting the budget deficit in half and helping to get health care done this year.

A professional economist, Orszag has long argued that large-scale health care reform is essential to fixing the deficit.

ORSZAG: And we will have to see where that legislative process goes, but I -- I think the goal should be universal coverage.

YELLIN: He was one of the key negotiators in the final hours for the stimulus bill, which prompted Senator Harry Reid to declare:

SEN. HARRY REID (D-NV), MAJORITY LEADER: He's a natural. He's a brilliant man.

YELLIN: And he won the trust of fiscal conservatives when he ran the Congressional Budget Office.

UNIDENTIFIED MALE: I think Peter's one of the best things that President Obama has going for him when it comes to bipartisanship.

YELLIN: Recently, Orszag got some unexpected attention. He accidentally forced an evacuation of a White House building when he lit some logs that were left by his fireplace. He didn't know the building's chimneys had been covered over.

ORSZAG: And, so, while everything was venting down here, two or three floors up, there was smoke filling a room.

YELLIN: But he quickly came up with a joke to make light of it.

ORSZAG: Rahm wanted me to send some smoke signals to the Hill, or, I'm the budget director. Come on. I was just trying to save a little money on the heating costs.


HARRIS: And Jessica Yellin live from Washington.

And Jessica, you know, we talked about it last hour with our senior medical correspondent, Elizabeth Cohen. The president and his team, including Peter Orszag, are putting a very large emphasis on health care in this budget.

YELLIN: That's right, Tony. And as you heard Peter Orszag say there, they believe that health care reform there is the key to cutting the fiscal hole that the nation is in. And the budget they've laid out paves the way for a massive overhaul of the health care system.

So compare it to the Clinton years, where they laid out a detailed policy, but asked Congress to help find a way to pay for it. This time, President Obama's team says they're learning from the mistakes of the past. They found a way to start paying for it, and they will work with Congress on the details of what that reform should look like.

And as you've heard, Tony, right now they've identified a way to get about $634 billion for health care reform over the next 10 years through a variety of mechanisms to help raise that money.

HARRIS: Jessica Yellin from Washington for us.

Jessica, appreciate it. Thank you.

And once again, if you would like to see the entire plan for yourself, 140 pages or so, let us guide you to The best political team -- you can see members of the team there on the right side of your screen working through the budget outline from the president right now, line by line.

We've got you covered, so stay tuned for more of that team's in- depth reporting, right here in the CNN NEWSROOM..

So, the economy slips again. And nothing suggests the slide is anywhere close to an end. The number of Americans file for first-time unemployment claims soared again last week. The 667,000 figure is much higher than analysts predicted. Overall, a record 5.1 million out-of-work Americans are getting jobless benefits.

This video helps illustrate just how severe the problem is. Thousands turn out today for a south Florida job fair. Lines wind around the building and down the block. Look at this.

General Motors says it lost almost $31 billion in 2008, an astonishing amount. But believe it or not, an improvement over 2007.

And despite super low mortgage rates, new home sales in January plunged 10 percent. The annual sales rate of 309,000 homes is the slowest pace since record keeping began back in 1963.

One of the president's top lieutenants on the economy is taking questions at the Capitol today. Paul Volcker, who chairs the president's Economic Recovery Advisory Board, is in front of a joint Senate/House economic committee. The focus, short-term steps to unclog the credit pipeline and long-term plans to prevent a repeat meltdown. He says one remedy is a tighter regulatory grip on banks.


PAUL VOLCKER, CHAIRMAN, PRESIDENT'S ECONOMIC ADVISORY BOARD: But taken together, the need for change is both obvious and wide-ranging. In approaching the challenge, I do urge that all these matters considered in the context of the considered judgment about the appropriate role and functioning of the financial system as a whole in the years ahead. At the most general level, I'm certain we would all like to see a diverse, competitive, predominantly privately-owned and managed institutions and markets able to efficiently and flexibly meet the needs of global, national, local businesses, governments and individuals.


HARRIS: And we'll get a member of the money team to break that down. The Senate Banking Committee has questions for President Obama's housing secretary. Shaun Donovan is explaining the mortgage modification program the president announced in Phoenix last week.


SHAUN DONOVAN, HUD SECRETARY: The plan not only helps the responsible homeowners at risk of losing their homes, but prevents neighborhoods and communities from decay, as defaults and foreclosures fuel falling home values, local business collapses and further job loss.

First, there are three parts to the plan. First, encourage homeownership by helping keep mortgage rates low.

Second, support for refinancing of up to four to five million responsible homeowners to make their mortgages more affordable.

And third, to launch a $75 billion homeowner stability initiative to reach up to three to four million at-risk homeowners.


HARRIS: So much going on, and we are keeping you on top of all of it. As always, stay up to the minute on America's money crisis, everything from housing to banking to retirement. Log on to A lot of information available there, including five steps to rescue your retirement plan.

And as the president lays out his budget proposals, just how much government spending does he really control?


HARRIS: So we've been talking about the next fiscal year budget, but what about the current budget? What does it tell us about the next one?

Our Chief Business correspondent Ali Velshi talked about the '09 budget earlier on CNN's "AMERICAN MORNING." .


ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: Let's take a look at the 2009 budget. This can be a little bit confusing, because right now we're working under the 2009 budget until September 30th of 2009. Then the budget that we are going to hear about today, the 2010 budget, kicks in. But here's what he's working with to start with, the president.

This is the budget for 2009, $3.66 trillion in spending. That's a whole lot more money than the government took in. The government is over-budgeted at this point by $1.3 billion for this fiscal year.

Now, of that $3.6 trillion pie, two-thirds of it are things that you can't actually get out of. They're obligations. They're mandatory spending, things like Medicare and Social Security, money that is owed and spoken for. If it were your budget, think about it as the things that you've got to pay for -- your utilities, you know, loan payments that you have.

About one-third of it is discretionary spending. But of that one-third, half of it's defense.

Now, when we say discretionary spending, it means the same thing to government that it means to you, things that you can't change if you wanted to. So what the president has really got to do is he's talked about pulling troops out of Iraq and ending the war, but until that happens, they've still got to spend a great deal of money in Iraq and Afghanistan. So he's got about half of the one-third, or one- sixth of the budget, where he can start to trim things.

And then, of course, when we think of trimming, it's kind of like job losses; right? It's a combination of jobs that were added minus jobs that were lost. When you think of trimming the budget, there are some things that are obviously going to be added to the this budget, including all of these various stimuli that we've had, stimuluses (ph)...



ROMANS: I like that.

VELSHI: So, you know, this is the challenge. He's going to have a budget that's a lot bigger, and he wants to cut this deficit, this $1.3 trillion more that we spent than we took in for 2009. The president says by the end of his term, he wants to cut that extra to only about half a trillion dollars.


HARRIS: OK. You ready? Even more inside from earlier today on CNN's "AMERICAN MORNING." Christine Romans asked three money analysts about the president's budget.

Listen to what they say the president must do.


ROMANS: He has to show how he's going to pay for it. And what -- what are we really looking for in this budget here today?

JACKI ZEHNER, FOUNDING PARTNER, CIRCLE FINANCIAL GROUP: Well, I think what's interesting is that, when you look at the budget, we saw what Ali just said. He said one-sixth is discretionary spending. One-sixth.

So, obviously, so much of this is going to be on the revenue side. And that's where the dirty secrets are going to be found; right? And what we have clearly been told by the president is, you know what? The two percent of the country that makes the most money is going to really foot the bill for this.

I think the part that is really disingenuous is that the president needs to say that's for these couple of years, taxes for everyone are going up in the long run. And that is what is not being said right now.

ROMANS: I see nods here.

Do you think taxes for everyone is going up for everyone in the next few years?

JILL SCHLESINGER, FINANCIAL ADVISER: Absolutely. They just have to.

I mean, I looked at his program. Health care is incredibly expensive. Retirement, incredibly expensive. And to say that government is the solution to this, I don't think it's going to happen. People are going to have to start saving more money for both.

RYAN MACK, INVESTMENT ADVISER: There's no way right now we can continue on this pace and spending these dollars without increasing taxes eventually. I understand we have middle class tax cuts, and that's actually great. If it was up to me, I would not have provided middle class tax cuts. But over the long run, someone is going to have to foot the bill outside of just the top two percent.

ROMANS: Ryan, the budget includes this huge chunk to overhaul health care...

MACK: Yes.

ROMANS: ... $634 billion. Most analysts say the cost of guaranteeing coverage for everyone could easily be, like, a trillion dollars over the next decade.

Is it a smart thing to do right now? Is it an investment right now for the future?

MACK: Well, again, I think Barack Obama ran on the fact that he was not going to actually guarantee coverage, but try to give coverage...

ROMANS: OK. You're right.

MACK: ... that makes sure it's lesser cost rates to individuals. So they're still going to have somewhat to foot the bill somewhat themselves.

But I do think health care, in the long run, is the number one cause of bankruptcy -- medical bills, medical coverage. Individuals are getting laid off, there's a portion of the stimulus package to assist individuals in making sure they can keep their coverage costs somewhat low, because COBRA, as it is right now, is outlandish in terms of the individuals continuing to pay for themselves. But we have to make sure that we're not -- we have a health care system, not a disease care system, and I think it helps him (ph) there.

ROMANS: There's a theory here that you have this big financial crisis right now, so that gives political cover to make some very big choices. You know, does it?

ZEHNER: Well, you know, I think it's interesting. The administration is taking that tact, but I would suggest that I think the American public would actually be happier if they just said, you know what? We're going to bite off what we can chew right now. This particular issue, the economic crisis, is as much as we can stomach.

I know that there's a whole political side. I'm not politically- minded. I am capitalist-minded. I want to save the system.


HARRIS: Smart stuff; huh?

The financial storm isn't the only thing we are trying to overcome. Hurricanes Katrina and Rita tashed a lot of homes. How well did the federal government respond? A new report card is out.


HARRIS: FEMA under fire. More than three years after Hurricanes Katrina and Rita, a new reports shows the agency still does not have an adequate housing plan for the next disaster.


SEN. MARY LANDRIEU (D), LOUISIANA: Fifteen sites, the taxpayers are still paying for empty, dilapidated trailer storage. And the housing plan that we discovered that FEMA had when Katrina hit -- and the saddest part is, they still have, today, four years later -- it will be four years in August -- is that trailers still remain the bulk of their plan. Wholly inadequate, wholly expensive.


HARRIS: Earlier this month, FEMA extended its temporary housing program for those still living in trailers and mobile homes another 60 days. The program was set to end March 1st.

Let's quickly get you to the Severe Weather Center now and Chad Myers.


HARRIS: And just in to CNN, a policy review is leading to a policy change at the Defense Department.

Barbara Starr is following that story for us -- Barbara.

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Tony, this has been one of the most sensitive issues, whether or not the U.S. media is allowed to view and report on the return of remains, flag-draped coffins of the war dead, returning to Dover Air Force Base. Until now, the media has virtually been banned from showing any of those very solemn ceremonies. Defense Secretary Robert Gates reviewing that policy at the urging of President Obama.

We are now learn that Secretary Gates has decided, under some circumstances, that the media will be allowed to view this very somber ceremony of the return of remains, but only with the permission of the families and the next of kin involved. He wants to basically put the decision to allow reporters into the hands of the families who have lost their loved ones.

A lot of family groups, I must say, have voiced their opposition to having the media there. They feel this is a very intense, private, grief-stricken moment when the coffin of their loved one first touches back down on U.S. ground. So the secretary now saying he will decide to let the families make the decision, and allow media coverage for the first time, if the families want it -- Tony.

HARRIS: Barbara Starr at the Pentagon for us.

Barbara, thank you.

We are going through the president's budget summary line by line. Find out what's in this blueprint right here in the CNN NEWSROOM.


HARRIS: Let's get you to the New York Stock Exchange right now for a look at the big board. Three hours into the trading session. And as you can see, boy, the Dow Industrials hanging on, clinging for dear life to gain certainly off of session highs at this point. The Dow, as you can see, up 20 points. The Nasdaq, a mixed day so far. The Nasdaq is down about three. We will continue to follow the numbers for you in the CNN NEWSROOM.

President Obama's budget plan for next year has an estimated cost of more than $3 trillion. So how is that money spread around? Ed Henry is in our Washington bureau with that money team.

Boy, you guys are going over this thing line by line. Let's see, you've talked about the Pentagon spending and cuts there. You've talked about health care as well. Why don't we talk about education?

ED HENRY, CNN CORRESPONDENT: Education is so important. It's clearly something the president laid out Tuesday night to Congress in that speech to a joint session that he believes to be one of his top priorities. Let's take a look at the numbers.

Specifically, when you go inside this document and really bring it home for people, he talks about expanding opportunities for students to go to college and graduate. Specifically, $2.5 billion for low-income students to be able to go to college. There's also money for other students, more money for charter schools, for example. That will matter to a lot of people. Let's look at the broad brush in terms of how the budget has been going. Here it was under President Bush in 2006. You see $43.5 billion in 2006. And it went up slightly in 2007. Then $45 billion in 2008. Now you see small increases here, $46 billion in 2009, $46.7 billion in 2010. So a small increase. And that is, in large part, because of money in the economic stimulus bill. The recovery act that we have already seen.

And so you can see here the president said the other night that his key priorities are education, health care, and energy, in addition to the financial stabilization because he's talking about not just short-term goals, but he's saying to deal with this crisis, you need some long-term investments. And education's at the top of the list -- Tony.

HARRIS: Well, so the president wants to spend more on education, Ed. And earlier we heard about big increases in health. How on earth is he going to pay for all this?

HENRY: That's the first questions Republicans asked, the first question people in the media are asking because you want to get inside the details.

Here is a chart that gives you a great idea of the situation because it shows you exactly what he's going to do. And he's going to raise some taxes. And that's going to be a big fight on Capitol Hill. Dana Bash has been reporting on that all morning. Specifically, who is he going after? Reinstating the 36 percent and 39.6 percent rates for those taxpayers earning over $250,000 if you're a married couple, $200,000 if you're single.

What does that mean in real terms? It means the Bush tax cut expire at the end of 2010. That's going to mean billions and billions of dollars that the president is going to try to put towards deficit reduction. Cutting the deficit in half, as he promised the other night.

Reinstating the personal exemption phase out and limiting itemized deductions for taxpayers earning $250,000 for married, $200,000 for single people. What does that mean? That is the money that we've been talking about all morning earmarked to health care. Specifically, right now, if you are making over $250,000 as a couple, instead of being able to write off 35 percent for, say, your mortgage interest, it would be capped off at 28 percent. So if you have $10,000 in mortgage interest and you were expecting that you'd get a deduction of $3,500, all of a sudden it's$2,800. That's $700 more for a person making that kind of money.

And, finally, obviously Wall Street will pay very close attention, impose a 20 percent rate on capital gains and dividends. Again, for those -- a couple, $250,000 a year, single, $200,000. That's going up from 15 percent. And so you're going to hear Republicans complaining that that will stunt economic growth and that it's going to hurt a large number of people across the country.

The White House response is that when you look at this number, about $250,000 for a married couple, that that is essentially 5 percent of the population. And that 95 percent of the population got a tax cut in the recent stimulus plan. So you can see how the president is going to try to frame the argument. This is going to be a major battle on The Hill later.

HARRIS: House Minority Leader John Boehner last hour called it a -- called the program a job killer. Just a flat-out job killer.

HENRY: That's what they're going to say. They're going to say that it's tax and spend. I asked a senior administration official last night, I said, you're going to hear the charge of tax and spend. And, in fact, you are raising taxes, as we just showed, and you are spending a lot of money. Their reaction is, look, we were handed a massive fiscal crisis. And the president doesn't just wants to clean it up in the short term. He wants to clean it up in the long term. Where do you get the revenue? It's going to be from raising taxes. The battle is joined, Tony.

HARRIS: Pain before the gain. All right, Ed Henry for us.

Ed, appreciate it. Nice job. Thank you.

America's credit crunch and soaring health care costs have been a double whammy to small business owners. One business owner who could really use some help right now is joining us right here in the CNN NEWSROOM, Erik Claesson. Eric is the owner of Madly Pop'n in Oak Park, Illinois.

Erik, it's great to see you again.

ERIK CLAESSON, OWNER, MADLY POP'N: Nice to see you too, Tony.

HARRIS: Yes, thanks for your time.

All right. Got a lot to get to with you here. During the president's speech to Congress this week -- I hope you were watching -- he specifically spoke to small business owners like yourself about the soaring cost in health care hurting you. Have a listen and then I've got a question for you.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: In the last eight years, premiums have grown four times faster than wages. And in each of these years, 1 million more Americans have lost their health insurance. It is one of the major reasons why small businesses close their doors and corporations ship jobs over seas.


HARRIS: OK, Erik, do you pay health insurance costs for your employees?

CLAESSON: You know, I sure do, Tony. And it has gotten prohibitively expensive over the last few years, too.

HARRIS: And talk us through that.

CLAESSON: That's right, huge . . .

HARRIS: Yes, talk us through that, if you would.

CLAESSON: Well, you know, it's -- there's the economy slowed and our business has kind of dropped off a little bit. We've cut as much out of our budget at our store as we can. You know, it's now to the point where it's like employees or health care. And we have to have health care. I have four kids at home and my wife has a chronic illness. So we have very expensive health care. I mean, what we pay a month in health care, we could almost hire another employee to work for us.

HARRIS: Really?

CLAESSON: And so it's a huge cost for us. And it's a big burden. And it really has tripled in the last four years for us.

HARRIS: Well, OK. But here's the other side of it, Erik. What do you think about the plan being floated to increase your income tax, as a small business owner, to feed into this idea of a universal health care reserve fund?

CLAESSON: And, you know, I don't know all the details on that, Tony. But I know that somewhere where you're going to get health insurance, somewhere somebody's going to have to pay for it. So I know that if this happens, taxes are going to have to go up. And I don't know what the most equitable way to do that is.

You know, we also, because our health insurance is really expensive, we also have very good health insurance, too. And I don't want to get locked into a program where the governments, you know, overseeing this and then all of a sudden it takes us two or three days and we have a four-year-old with an earache to get in to see the doctor. So, you know, that's another one of the fears on it.

Whether I pay it out of the business or it comes out of my taxes, it's almost -- it's almost a wash if the numbers wash that way. I can't imagine it could be any more expensive than we're paying already. And -- but we just really need the good quality coverage, you know? We're not members of Congress, so we don't get the plan.

HARRIS: Right, right, right. And maybe this last question sort of gets at that. Would you be willing to pay more in taxes to provide coverage if you thought you were getting quality coverage?

CLAESSON: If we thought we were getting quality coverage, I -- I guess I would be OK with that. You know, the other thing is, if we don't get more customers in the door and the economy doesn't pick up, you know, it's -- where are you going to get that money to pay those taxes. And so it's -- he's got his work cut out for him. I'm not sure how you do all this.

HARRIS: Yes. And the last time we spoke, we were approaching the holidays and business was down about 20 percent, Erik. How are you doing now?

CLAESSON: You know, it's about how it's holding, Tony. That's about the way the numbers looked at the end of last year. We have -- our biggest customers, our big corporate customers that would do 400, 600, 800 gift item, four of our six biggest customers did nothing at the holidays and into the first of the year here. So those are -- that's a big chunk of revenue out of a small business like ours. It's very seasonal. And, you know, big companies don't give gifts every month, you know? They do it once a year. They make a splash and they move on.

And so we've -- it's interesting, though, that the smaller businesses, where you have a business owner that orders goods and writes the checks, they seem to be in a little better spot financially than the big companies that perhaps had over extended themselves financially and then, all of a sudden, you know, living on the razor's edge and when things got tight, they're really in a bind.

HARRIS: Hey, Erik, hang in there. Hang in there.


HARRIS: And we appreciate it so much that you're willing to come on with us and talk us through, you know, the ups and downs of your small business. We appreciate it. And tell everyone in your family that we said hello, would you, please?

CLAESSON: Thanks, Tony.

HARRIS: OK. Thank you, Erik.

And just in. Just want to make you aware of something right now. Republicans -- a number of Republican senators, congressmen earlier, Republican members of Congress as well, are giving their feedback on the president's budget plan. If you'd like to watch it as it happens right now, we want to direct you to

All right. We're going to come back in a moment. When we do, we're going to talk about going green. Could algae provide a solution to this country's energy fix?


HARRIS: The Department of Energy recently teamed up with a California company. The goal is to produce oil and biomass for renewable energy on a large scale by using, get this, algae. Essentially pond scum.'s Poppy Harlow has our "Energy Fix" from New York.

Oh, explain this one, Poppy. Good to see you.


That was my exact reaction when I got word of this. We decided to investigate it. And it's right, last month the DOE's Idaho National Laboratory signed a research pact with a company called OriginOil. It's a small, publically traded company. You may not have heard of it. But what it does is it grows algae in a brewery like setting using what it called a Helix BioReactor. Take a look at that video there. The idea, extract oil from large amounts of algae and you don't need the sun or a pond to grow that algae. Take a look.


RIGGS ECKELBERRY, PRESIDENT & CEO, ORIGINOIL: Well, it turns into kind of like pea soup. And then we take some of the water out of it and then we run it through a cracking process, which uses ultrasound and microwaves that is tuned to the frequency of the oil. And the oil floats to the top and we draw it off.


HARLOW: All right. Well, it's not as easy as that. It's a pretty difficult process. The company, though, Tony, says this is carbon neutral because algae actually feeds off of carbon dioxide, essentially pulling it right out of the air, converting it into oil -- Tony.

HARRIS: Well, Poppy, it sounds like science fiction. But will this technology be able to, let's see, power homes and fill our cars with oil, what, made from algae?

HARLOW: Well, it's a great question. What good is it to us if we can't use it, right?


HARLOW: I asked the CEO this morning that exact question when he was here with us on the set. He said it could be four or five years at least before it's even used on a small level by factories in order to reduce their carbon footprint. He says it's going to be even longer than that before it would be available to the general public.

And here's why. There's a lot of challenges. Some big obstacles to tackle. Namely the ability to produce algae oil in mass quantities. This is just very small scale right now. That is where the deal with the energy department, that you mentioned, kicks in. It is exploring whether or not this is cost effective and viable for the masses.

You should know the company did warn its investors that algae may never achieve commercial viability. That's when the company went public in 2007 they said that. So people are taking a risk here. And the relatively small amount of oil produced by algae can be really, really tough to get to. If they can crack the code though, they may have a leg off on the rest of the competition.


ECKELBERRY: Now this is the third generation of biofuel. First generation was, you know, food crops. Second generation is not food but it still uses land and water. Things like switch grass and forestry products. The third generation doesn't need land, likes dirty water, it's not a food crop, it grows very fast, it loves CO2. Algae really is the candidate for what we need in this country for biofuel.


HARLOW: All right. It's just one option. There are many more alternatives out there, as you know. Do some more research. See what you think. More alternatives on But very interesting what happens from it.

HARRIS: It is.

All right, Poppy, thank you.

HARLOW: You're welcome.

HARRIS: Tonight, CNN presents "Black in America." Children from one of New York's poorest neighborhoods travel to South Africa and the principal holds everyone at his school accountable and gets big results. The program is tonight starting at 10:00 p.m. Eastern Time. Soledad O'Brien and Anderson Cooper are hosting.

We explore race relation in America as part of my "Class in Session" series. Recently I asked Georgia Tech students if they think racism is becoming less of an issue with young people.


HARRIS: Are your views and attitudes on race in line with your parents? Let's dive into the generational divide here. Worlds apart from your parents?

LAURA STILTZ, SENIOR, APPLIED MECHANICS: It's not my parents' generation, it's my grandparents' generation. Like I grew up with -- I mean my grandfather was a racist. There were plenty of thing that we were not allowed to see like with him because there were African- Americans in it. And because of my grandfather's attitude, my mother's attitude was very different. And she -- both she and my father instilled in me this tolerance.


HARRIS: Boy, a lot of honest reactions from these young people. Check out more from my "Class in Session" series tomorrow. That is Friday, noon Eastern, in the NEWSROOM.


HARRIS: The sounds of Stevie Wonder at the White House last night. How cool is this? That tops our look at some of the stories you are checking out most at President Obama presented Stevie Wonder with the Gershwin Award for lifetime achievement. The president says, had he not been a Stevie fan, his wife, Michelle, might not have dated him.

Lots of you also checking out news about a Florida professor and his wife accused of stealing money from NASA. FBI agents raided the office of the Nuclear Space Power and Propulsion Institute. That's in Gainesville. The Iranian born suspect is director of the institute.

And then there's the president's massive stimulus plan. It even contains millions for volcano monitoring. Our Brian Todd looks at how that has Republicans reeling.


GOV. BOBBY JINDAL, (R) LOUISIANA: What Congress should be monitoring is the eruption of spending in Washington, D.C.

BRIAN TODD, CNN CORRESPONDENT, (voice over): The Republicans rising star sounds the party's battle cry over the stimulus bill. The wasteful spending in this package, says Louisiana Governor Bobby Jindal, can be encapsulated in one pet project.

JINDAL: And $140 million for something called volcano monitoring.

TODD: The U.S. Geological Survey is getting $140 million in this package, but volcano monitoring is only one of dozens of backlog projects targeted for that money. It's not clear exactly how much is going to volcano monitoring, but that project has staunch defenders at USGS.

MARIANNE GUFFANTI, VOLCANOLOGIST, U.S. GEOLOGICAL SURVEY: We don't throw the money down the crater or the volcano and watch it burn up.

TODD: Volcanologist Marianne Guffanti says America's got some of the most active volcanos in the world. The one on Alaska's Mt. Redoubt will likely erupt within a few months and several others are rumbling. They need to upgrade the five volcano observatories across the country.

Not so much to warn people about lava flows and mudslides, but to warn commercial and military aviation about potentially deadly volcanic ash that often spreads for thousands of miles after the eruption. In the past, it's brought down at least one commercial plane and rerouted many others. So the monitoring, Guffanti says, has an economic impact.

GUFFANTI: If we can give good information about what's happening, that system of diversions and cancellations all works much more efficiently and fewer people are delayed and business -- standard businesses is resumed quickly.

TODD: But volcano monitoring gets millions every year from Congress anyway. Should it get this additional money in the stimulus? Officials at USGS and the Department of the Interior tell us the stimulus money is for modernizing old equipment that desperately needs it. The yearly budget money is for maintenance and operations. One economist says the additional money is stimulus.

PROF. DANNY BOSTON, GEORGIA INSTITUTE OF TECHNOLOGY: If it's upgrading, that's no different than the amount of money that you would spend in terms of building a street or building a bridge or something like that. TODD: Volcanologist Marianne Guffanti says when they upgrade their equipment with stimulus money, they're also buying new GPS sensors and radios, hiring helicopter pilots, programers, information specialists.

And when all these people go to the volcanos to install this equipment, she says, they have to stay in hotels, eat at restaurants. So they're doing their part, they believe, to stimulate the economy.

Brian Todd, CNN, Washington.


HARRIS: You know, the economy may be tanking, but some are still asking for the Gray Poupon as they head out for a ride.


HARRIS: You know, at a time when the world carmakers seem to be stuck in the slow lane, at least one super luxury brand is just cruising along. Jim Boulden reports Rolls-Royce is profitable despite slowing sales.


JIM BOULDEN, CNN CORRESPONDENT, (voice over): It may be doom and gloom in most automotive plants the world over, but not here at Rolls- Royce in southern England. Orders for these super luxury models continue to roll in. Sales rose 20 percent last year, with more than 1,200 cars sold. But the brakes could still be applied as January sales were down 10 percent.

GRAEME GRIEVE, ROLLS-ROYCE: We do have a strong order bank. We have a lot of customers waiting for the delivery of their car. So we'll probably see the delay slightly later than some other brands. But equally, what we do see is the new customer interest or current customers looking to change their cars, there has been a slight erosion in the activity that we'd normally expect.

BOULDEN: In fact, the entire U.K. auto industry had a dismal January, with production down nearly 59 percent. Super luxury brands have weathered previous recessions. Not this time. Bentley and Aston Martin both suffered a poor 2008. Rolls won't give any predictions for this year, but says it has no plans to layoff workers. In fact, it will move from one shift to two shifts later in the year, ahead of orders for a new highly anticipated smaller Rolls Royce. The sticker price of that new Rolls, yet unnamed, is expected to start around $240,000.

And that's an absolute steal compared to this phantom convertible, which will stet you back at least $430,000.

Jim Boulden, CNN, Goodwin, England.


HARRIS: And, Kyra, you're is on the way.

CNN NEWSROOM continues right now with Kyra Phillips.