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Obama to Unveil Debt Reduction Plan
Aired September 19, 2011 - 10:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WOLF BLITZER, CNN ANCHOR: Hi, Kyra. Thanks very much.
I'm Wolf Blitzer in New York. We're awaiting a huge announcement from President Obama just 30 minutes from now. He'll step into the White House Rose Garden and unveil a bold plan to try to save some $3 trillion from the nation's debt.
At the heart of it all, a new tax rate for millionaires. CNN correspondents are breaking down the angles. Brianna Keilar is over at the White House, Christine Romans is here in New York. Kate Bolduan is up on Capitol Hill giving us the big picture.
Gloria Gorger, our chief political analyst will also get Republican reaction this hour, but up first, a bit of contacts. Every second of every day, the national debt clicks higher and higher.
Right now we're standing at more than $14.7 trillion, that comes to more than $47,000 for every man, woman and child in the United States. For taxpayers, the bite is even worse. Each of us would have to shell out, get this, more than $130,000, if the bill were due today.
Let's begin over at the white house, our correspondent Brianna Keilar is standing by. Brianna, based on what we know, we're going to be hearing shortly from the president, where does this $3 trillion he's proposing come from?
BRIANNA KEILAR, CNN WHITE HOUSE CORRESPONDENT: Wolf, some of it comes from spending cuts. That's $580 billion. But the largest chunk of it, $1.5 trillion, half of it, would come from increasing taxes among some of the proposals, letting the Bush era tax cuts expire.
Closing some of the loopholes, you've heard the White House talk about it, for corporate jet owners, hedge fund managers, oil and gas companies, and also limiting itemized deductions, capping itemized deductions wealthy Americans take.
As well, there is $1.1 trillion in war savings, and interest savings. If you don't owe the money, you don't have to pay the interest, right? Well, the White House says that that would save $430 billion. Wolf, this is kind of like a first shot.
This is really - the White House putting out the -- the president putting out kind of a goal post thing. This is really where I want to start. We've heard from senior administration officials that this is not necessarily where the president thinks things would end up. I mean, we all know that is not what's going to happen, but this is really the first shot and it's really about laying out a contrast between the White House, between the White House Democrats versus Republicans. Wolf --
BLITZER: Brianna, just to be precise, what this is, is a series of recommendations that the president is giving to that so-called "Super Committee," those 12 members of the House and the Senate, six Democrats, six Republicans, that have to come up with some really tough decisions by Thanksgiving. Otherwise, across the board budget cuts will automatically take place?
KEILAR: That's right. It's really -- the ball here is really in the court of that "Super Committee," but the president here also sort of interjecting himself into the process.
Specifically by kind of a grand ultimatum that he has said here, Wolf, which is that he will veto any recommendations or any bill that would have entitlement reform or spending cuts for Medicare and Medicaid if there is not tax increases. That really sets the stage for a gigantic fight between the White House and congressional Republicans.
BLITZER: Most congressional Republicans say no tax increases, period. I want you to standby, Brianna, we're going to be going to the president shortly, soon as he walks into the Rose Garden.
But let's crunch some of the numbers. Christine Romans is here with more on the so-called "Buffet Tax" named after Warren Buffett. Explain what the president has in mind here.
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: So the president wants millionaires to be taxed more, Wolf, basically and he points to Warren Buffett because Warren Buffett has long said that his effective tax rate is something like 17 percent or 18 percent.
His secretary and his employees pay 36 percent or 35 percent. So the Buffett rule would tax millionaires more. Letting those Bush era tax cut expire that would affect anybody who makes $200,000 individually or as a family of $250,000 or more that would raise some $800 billion.
Capping these loopholes, itemized deductions, we really want to hear more about this. Is this the mortgage interest deduction? And also what about investments into muni bonds, what would that mean for states and localities who borrow money from rich investors so that they can build sewers and schools and the like, very key there.
And closing tax loopholes, we heard Brianna talked about it. Basically, Wolf, the effective tax rate for millionaires is said to be about 22 percent. In the Clinton era, it was 31 percent. Bottom line, taxes for everyone have been going down, down, down for a long time and our deficits have been going up, up, up.
And what the president is putting forth here, many people who study budgets say sort of a liberal dream. It's ending the war, taxing the rich, ending Medicare over repayments, but not raising the eligibility age or touching that program or Social Security in any other way. So that's what you have here, Wolf.
BLITZER: This Warren Buffett thing is basically a populous notion because Warren Buffet himself wrote an op-ed in the "New York Times" not that long ago saying, you know, this is unfair. How come I pay a smaller percentage of my income that I generate every year than my secretary does?
ROMANS: And he does because his secretary's income all comes from her work, her hours of work. Warren Buffett and a lot of very rich people, their income comes from their investments. Their capital gains are taxed at half the rate of what their income would be.
So you hear pro-business people saying, look, that keeps the money flowing and that keeps investments happening. That's good, to make sure that people aren't taxed too much on how they use their money.
But Warren Buffett and people who agree with him, and his -- they say, look what you do with your hands shouldn't be taxed more than what you do with your money.
BLITZER: And the other argument that they make is that the money, the investment money that you invest, that's already been taxed once when you earned it. So this is a form of double taxation.
That's why a lot of Republicans and some Democrats are saying, no. This is unfair to go ahead and tax this income as regular income, if you will. That's going to be the core of this debate.
ROMANS: And it will be and you'll hear a lot of people say you shouldn't be raising taxes at all on anyone in such, you know, tender economic times such as this. But this is obviously a ten-year plan and it is the first -- right? It's the first step. Some of this is clearly politics. No question.
BLITZER: Clearly politics setting the stage for a huge political debate. You might be surprised there's a re-election campaign --
ROMANS: Coming up pretty soon.
BLITZER: All right, stand by. Let's do a little reality check on Capitol Hill. Our congressional correspondent Kate Bolduan is getting some quick Republican reaction and not surprisingly, not very favorable?
KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: That's exactly what I was going to say, Wolf. Not surprisingly. The early reaction to the president's deficit reduction suggestion, the Republicans are not happy with it.
Specifically I'm talking about the $1.5 trillion in tax revenue. Speaker Boehner, House Speaker John Boehner, he said just last week, at the end of last week, that tax increases should be taken off the table. He says they are not a viable option for the "Super Committee," the committee of 12.
In his reasoning, exactly what Christine said that many Republicans would say, which is that he says raising taxes at this time would hurt the country's economic recovery rather than help. And on specifically that Buffett rule that you were just kind of delving into a little bit, Republicans are slamming this idea.
This kind of overarching, kind of policy idea that the president has put forth. Taking to the Sunday talk shows yesterday to call it -- to say that the president is waging class warfare through this policy. Listen here to the House Budget Committee Chairman Paul Ryan on "Fox News Sunday."
(BEGIN VIDEO CLIP)
REPRESENTATIVE PAUL RYAN (R), WISCONSIN: Class warfare, Chris, may make for really good politics, but it makes for rotten economics. We don't neat a system that seeks to divide people. We don't need a system that seeks to prey on people's fear, envy and anxiety. We need a system that creates job and innovation and removes the barriers to go out and hire new people. These types of tax increases, I'm afraid, don't work.
(END VIDEO CLIP)
BOLDUAN: And to further that point, I received this statement just this morning from House Speaker John Boehner's spokesman Michael Steele, and when I asked for reaction about the president's suggestions, he wrote to me, well, it is disappointing the president has nothing but a fresh slogan for the same job-killing small business tax sites opposed by bipartisan majority in Congress.
So we can see very early on that this is going to be quite a battle here on Capitol Hill between Republicans, Democrats and the White House. Probably similar to the kind of battle lines that we saw during the debt ceiling debate. It will not be easy. The House Republicans and Senate Republicans not happy with this proposition of raising taxes at this time. Wolf --
BLITZER: But just to be precise on this point, Kate, this is not formal legislation that the president is introducing today. These are some general guidelines that he's recommending to the so-called "Super Committee" that will be looking at all of this.
The formal legislation that he submitted the other day that was for job creation some $500 billion plan that he wants. That's the legislation Congress is going to have to consider. The Senate's going to consider it, let's say, a month from now or so, it may or may not go anywhere in the House of Representatives. But this is just a series of recommendations from the president.
BOLDUAN: That's absolutely right. But I think what we're seeing coming out so quickly is the president is making these recommendations, kind of laying out his first - you know, his first move in these recommendations to the "Super Committee."
And Republicans very quickly saying, this is a no go. So we're seeing kind of the lines in the sand being drawn here. But still, these decisions are going to be up to this committee of 12. They have their next hearing this Thursday and probably fittingly now the topic of this hearing is revenue options and reforming the tax code.
So all eyes and so much pressure is on this committee to try to find some ways to find more than $1.2 trillion in deficit savings. The president is making his suggestions. The committee continuing their work and they do not have much time.
That deadline, we know is Thanksgiving. But the Congressional Budget Office said just a little while ago that they actually need the plan by the beginning of November in order to come up with a cost savings in time to have this vote for the committee.
BLITZER: So they've got to move quickly. Kate, thanks very much. Let's take a look at larger political landscape right now. Gloria Borger, our chief political analyst. I suspect, Gloria, that already tense out this fear in Washington is now about to get a little bit more tense.
GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: Yes, it is going to get a little bit more tense. But what you're seeing now, Wolf, is sort of the beginning of a negotiation. As you point out, this is the president's marker, and he laid down this marker so the base of the Democratic Party, which has been kind of upset with him, would know exactly where he is going into these negotiations.
There are a couple of things that Barack Obama has been criticized for in the past by Democrats. One is, not participating enough in negotiations, and, two is, when he does participate, they believe he kind of negotiates with himself and he gives away a lot before he actually enters the room.
So what he's done here is lay down the marker and say, if this were a perfect world for Democrats, we would do a lot of things, including repealing the Bush tax cuts, end the subsidies for oil and gas, et cetera, et cetera.
And he's saying, look, we have to reform the tax code. When we reform the tax code these are the things that are important to me, because we would be lowering the top rate. Because all of this, Wolf, comes down to the question of will they be able to do tax reform in such a short period of time?
BLITZER: You know, one of the most significant parts of what the president is about to propose, Gloria, and we heard it from Kate, and we heard it from Brianna earlier, is this notion that the president now is formally notifying the Republicans in Congress of a veto threat.
If you have any reductions whatsoever, he said, in entitlements, Social Security, Medicare, Medicaid, I will veto any of those changes, any of those reductions and spending for those entitlement programs unless it's balanced by an increase in taxes for richer Americans.
And that sets the stage for a stalemate, because Republicans are making it clear, you know, they're not going to approve any tax increases. BORGER: You know, the president also did that on the debt ceiling. He wouldn't accept a temporary extension. So we see this as sort of the beginning move. Now what is a tax increase? How do you define that? Is it not extending the Bush tax cut for the wealthy?
I mean, you know, it all depends on the definition here, Wolf. So I think the president actually is going on the record saying, we have to have what he considers to be a balanced plan. I'll tell you this.
If you look at our polling, we asked people in early August, should deficit -- should any deficit reduction bill increase taxes on businesses and higher income Americans? By a 2-1 margin, Wolf, the people said, yes, it should. So the president goes into this negotiation with, he believes, the American public very much on his side.
BLITZER: There's a lot to digest and dissect. We're going to continue doing that, Gloria. Don't go too far away. Douglas Eakin, he's standing by as well. He was a key economic adviser to John McCain among other Republicans. We'll get his take on what's going on.
We're standing by to hear from the president momentarily, he's going to be walking into the Rose Garden over at the White House. We'll take his remarks live. Much more of our special coverage coming up in the CNN NEWSROOM right after this.
(COMMERCIAL BREAK)
BLITZER: President Obama's unveiling his debt reduction plan that's coming up in a few moments. We'll go live to the Rose Garden once the president walks into the Rose Garden.
The plan includes raising taxes on people making more than $1 million a year. A CNN poll shows nearly two-thirds of Americans are OK with increasing taxes on those higher income earners. There was a big partisan divide on the topic.
Four out of five Democrats say high income taxes should be raised. Only 39 percent of Republicans, though, agreed. Republican leadership in Congress obviously disagrees with that.
Let's bring in Douglas Eakin, Douglas, once the director of the Congressional Budget Office. He's an economist for both -- he was an economist for both of the Bush White Houses and the McCain presidential campaign four years ago.
All right, so you know generally most of the specifics, if not all specifics, of what the president has in mind. Give us your immediate reaction, Doug.
DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION FORUM: I think from a purely policy perspective, this is very disappointing. The president's own commission, the Bowles-Simpson Commission pointed out that we have a (inaudible) that required big solutions. That our problem was largely a spending problem and it proposed Social Security reforms, for example, and other entitlement reforms.
Those are essentially missing from the president's proposal. He's got only modest changes in Medicare that amounts to the old waste fraud and abuse approach. On the tax side, his commission said, if you want to talk about revenue, you have to have serious tax reform.
The president's proposals today make our taxes more not less complicated and the so-called Buffett tax really doesn't address the greatest inequality in America, which is between people that have jobs and don't have jobs. So I find it a very, very disappointing set of proposals and it's also unfortunately has this gimmicky feel.
They count stuff that's already been done in the debt ceiling deal. They're counting on war savings over $3 trillion. You know, those already are going to happen and they're counting on the Bush tax cuts. We know that's already scheduled to happen in 2013. So there's really not a lot here that's new, real and addresses the actual problem.
ROMANS: Doug, for so many years taxes have been going down. I mean, look at any serious budget expert's analysis of the situation, taxes have to go up. So at what point do Republicans say, OK, we agree taxes have to go up and here's what we'll agree to?
EAKIN: Well, the question has always been how do you raise taxes? We've seen taxes go down for three reasons. Number one, there have been obviously, tax laws passed, 2001, 2003, being notable examples. But more fortunately, when the economy got weak, tax receipts went down and went down sharply and then further tax cuts.
The president himself is proposing tax cuts out of the Social Security payroll tax even as he proposes this. So if you were to let the economy recover, if you had a serious jobs plan, we'd get a lot more tax revenue and then go back to the blueprint of the Bowles-Simpson Commission, which was bipartisan. That did include elected member of Congress and look at a serious tax reform that might raise more revenue.
BLITZER: You know, one of the proposals that the White House would like to see go forward, for these millionaires and billionaires, as they like to say, is that you take a guy, and I'm sure you're familiar with this case.
John Paulson who is a hedge fund guy here in New York, he made last year made $2 billion. And effectively the income -- the income rate that he paid was about 15 percent as opposed to the highest which is 35 percent, because it was defined as what they call carried interest or something like that.
Is that fair that he could pay 15 percent to the IRS as opposed to 35 percent, which is the highest rate right now?
EAKIN: Well, let's be honest. Fairness is in the eye of the beholder, but we do deserve a serious discussion about actual tax policy. What's left out of the so-called Buffett tax discussion and the Paulson example is the fact that most of that income is taxed what's initially earned. If then invested, it's taxed a second time when corporate America pays a 35 percent rate on that, highest in the world and then they focus only on the third tax. The one when it goes back to individuals, either Mr. Buffett or Mr. Paulson.
A real tax reform systemically addresses all of those taxes in a uniform fashion so we see economic growth and people pay their fair share. This notion that you can find 22,000 high-income Americans, target them to solve our problems just doesn't add up. It might be good politics. You only raise about $20 billion.
BLITZER: In the case of --
EAKIN: The key -- you don't get much.
BLITZER: In the case of John Paulson though, the money that he's investing in those hedge fund investments, that's other people's money. It's not necessarily his money, which he made a profit, an income of $2 billion taxed at 15 percent.
So he's not really playing with his own money. He's playing with other people's money. So the question remains, should he be taxed at 35 percent as opposed to 15 percent?
EAKIN: The real issue is how do we want to deal with the return to saving investment in the tax code? You can't do it on a hedge fund manager. You have to ask the serious question, do we want to have incentives to save? Americans always save too little.
When they save and put it in risky investments, how much of the profit do we want to take out? You can construct a system where everyone has something that looks like an IRA. They get to deduct it when it goes in.
Tax everything when it comes out so everything at 35 percent and have a much better tax system than this approach, which goes after only a narrow targeted part of the problem.
ROMANS: Doug, so you're talking about the Buffett rule. It affects maybe 0.3 percent of taxpayers, about 450,000 individuals. So what's wrong with raising taxes for that crowd so they're paying the same on their overall income as a middle-class family? I mean, what's wrong with raising taxes on just that sliver of the rich?
EAKIN: Well I think if you look at this subjectively, we already have something called the alternative minimum tax. It was designed in the 1970s to catch those 200 odd people who had lots of income and paid no taxes. It's been on the book for 40 years.
And instead of fixing it, instead of actually addressing the nation's tax problems, the president's putting out a rule which is going to be popular once they pay their fair share, but there are no specifics.
Once again, he's failing to lay down a national plan. There's no legislation and somehow this is going to solve problems. No. A real solution would be write down a tax code and a tax reform that the joint committee could try to get through by November.
That would raise the revenue that he views as appropriate. Raise it from the people that he thinks would be fair and start to debate from that point of view. This doesn't move the debate forward. This is just a side show.
BLITZER: I want you to listen, Doug, to the former President of the United States, Bill Clinton. He was on the "Today" show today and he said this. Listen to this --
(BEGIN VIDEO CLIP)
BILL CLINTON, FORMER U.S. PRESIDENT: The Republicans in Washington always say the same thing. Any tax on any upper income person is bad because they're job creators. It's an insult to those people. They don't mind being asked to pay their fair share.
(END VIDEO CLIP)
BLITZER: You agree with the former president?
EAKIN: I don't think it's an insult to people. I think it highlights the serious problem we have, the discussion on tax policy right now, which is it's all about who pays it, not what are we trying to do with our tax code?
A tax code should have a purpose. It should have a philosophy. It should be more than just trying to collect money from particular people without an aim for economic growth, without an aim toward fostering charitable contributions, in that's desirable.
We need to have that discussion. Not this sort of a sideline about 22,000 Americans who happen to be very rich. That's what I'd like to see, that's what the Bowles-Simpson Commission tried to do, broaden base, lower rates, raised a lot more revenue. More than a lot of Republicans would probably like, but that was a sensible starting point for discussion.
ROMANS: So in the absence of real tax reform, I mean, if you're saying what we need is real tax reform, a lot of people agree with you, but they say there's no political climate for real tax reform right now.
In the absence of real tax reform, what do you do in the very near term to raise revenue, to get more money coming into the government and so that we don't keep running and yawning deficits?
EAKIN: That's not the source of the deficits. I'll be very, very clear. If you look at America's problem and if look forward as commissions have, the problem is spending. It was 8-2 spending in some commissions. It was 7-3 on the spending side and others.
The problem with spending, the problem is the entitlement programs, which are broken. Social Security is running red ink right now. Medicare is borrowing $280 billion a year from the general revenue. Medicaid is being entirely deficit financed. These are programs that are not serving their beneficiaries well right now as in Medicaid or won't in the future, Medicare and Social Security, unless we fix them. So we have about obligation to fix these safety net programs. We need to do it from a budgetary level and because the debt explosion threatens our very economy, it's imperative that be the first topic.
And if Republicans are supposedly and always recalcitrant because they won't talk about taxes, Democrats have put zero, exactly zero in the way of serious entitlement reforms on the table. That's the biggest problem. The president's own commission said so. So what's really disappointing about this, where the leadership is missing is on the spending side.
BLITZER: Let's not forget though, and I want to take a quick break. Doug, I know you're going to stick around with us. A lot of the Republicans who were on that commission include Paul Ryan. They rejected, they voted against the recommendation of that Bowles-Simpson panel as well.
So it's not just the Democrats who rejected it. A bunch of Democrats supported it, a bunch of Republicans supported it, but key Republicans opposed it at the same time. All right, hold your thought for a moment.
Christine is here. Gloria Borger is here. We're going to have much more. We're waiting for the president of the United States momentarily. He's going to be walking into the Rose Garden. We'll get to hear what he has to say on all of these issues then we'll assess it a little bit more and much of our special coverage coming up right after this.
(COMMERCIAL BREAK)
BLITZER: All right. You're looking at live pictures of the Rose Garden. You see the reporters and others, they're inside getting ready for the president who will walk out of the oval office, go down those stairs and go to the microphone and make his pitch to the American people on why his proposals to slash trillions from the national debt are worthwhile.
As we await the president, let's go to London right now. Richard Quest is standing by. Richard, a view of this financial crisis here in the United States, God knows the Europeans have their own problems right now, especially Greece and those problems could eventually spill out if not already here in the United States.
But what is the general attitude in Europe, if there is a general attitude, Richard, as they see this economic crisis unfolding here in the United States?
RICHARD QUEST, HOST, "QUEST MEANS BUSINESS": The first and most important thing is that anyone who's living in a glass house shouldn't throw stones, and Europe at the moment is certainly in no position to make any criticisms other than the fact that the European situation, probably more serious at the moment will get sorted out and then the attention will focus on the United States. And the medium and long- term issue will be the question of U.S. deficit, and the gridlock taking place in Washington.
On the question of raising taxes, here I think that's pretty much a widespread amazement that the U.S. is not preparing to go down that road. The U.K. has a 50 -- or 50 percent high tax bracket for very high earners. Germany has high taxes. France has introduced more taxes. Italy has just done so.
Now they're not doing it -- I can hear some viewers shouting socialism at the screen. They're not doing it for that reason. They're doing it because you can't breach or break the deficit gap without doing both things. Spending cuts and raising taxes. So from that point of view, I think they'll be looking with some interest to see whether the Buffett rule gets passed.
WOLF BLITZER, CNN ANCHOR: Because the argument here, Richard, as you know, that the Republicans make, and some Democrats, I must say, is that you shouldn't get -- go after those job, a time of high unemployment.
QUEST: Yes.
BLITZER: Those who -- the individuals who create the jobs, namely the wealthier Americans?
QUEST: Yes. It's the argument -- it's the old argument and it's got one coronary to it. Not only -- and your previous guest said this. Not only do you go after the job creators but you don't raise much money in doing so because the highest percentage doesn't actually bring -- now we know you make money on taxation by hitting the middle classes, by hitting the big bulk in the middle.
But there comes a point when you're cutting people's benefits, and you're cutting Medicare which is not in this plan, or some form of Social Security, which may not be in this plan, but you have to take something from those at the top. And that's what the fairness argument in Europe has primarily been about this and I suspect -- Well, no suspect. It's a raising certainty, that's the argument President Obama is going to give in the Rose Garden.
You can't earn a million plus and not expect to gain a bit more. That's the way the argument goes.
BLITZER: Yes, Richard, stand by. There are some relatively modest Medicare and Medicare cuts that the president will propose. No cuts, no changes at all in Social Security spending, at least for now.
Richard is staying with us.
QUEST: Right.
BLITZER: Gloria Borger with us as well, Christine Romans is with us.
Gloria, you know, a lot of people are going to look at the president's speech right now and say, you know what? He's laying down a marker for his re-election campaign so he can differentiate where he stands on these issues as oppose to some of the Republican rivals, the challengers, who will be seeking the White House in 2012?
GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: That's exactly what he's doing and the White House looks at the polls. They know that they've got public opinion on their side for now. At least for now.
But, Wolf, I want to go back to what you said about the entitlement issue, because the president was very light on the entitlement side here, and you know that that's very important to the Democratic base.
The Democrats believe that they can make some headway on the Medicare issue, because of Paul Ryan's budget, in the next election. So the president did not propose raising the eligibility age for Medicare and he talked about cutbacks, but to providers, and not to beneficiaries.
He said no cutbacks to beneficiaries. Could take effect until 2017. And did nothing with Social Security. Didn't propose raising the retirement age for Social Security either. So it seems to me that that's going to be a matter for some compromise with the super committee, because I think there is an opportunity there to do something on entitlements, but if the president does go along with that, as he did in his negotiations with John Boehner, he's going to have to take on his own party, but at least for now, he gave this to his base. He gave this to the Democrats who said, this is not where I'm starting out.
BLITZER: Christine Romans is there.
Christine, as we're watching and waiting for the president, he's going to be going to the Rose Garden momentarily to make his presentation, Wall Street numbers is not very good right now. I don't know if that has anything with what -- the reaction to what the president is proposing or something else.
ROMANS: It has to do with austerity and financial and deficit concerns in Greece, not here, quite frankly. It's concerns about what's happening in Greece. Greece has agreed to sort of a stepped up timetable to qualify for more aid, for more help. And that means that Greece running out of money becomes ever closer. And that's what this is all about.
So this is really a European story this morning. Although many people have been saying that when you look what's happening in Europe and you look at what's happening in the United States and what looks to be a very serious job situation, that's always in the backs of their minds.
Even as right now, though, the crisis for them this morning is Greece, Europe. European exposure, banking exposure, Wolf, to what's happening in Europe.
BLITZER: Yes, Gloria, very quickly, the polls show the American public right now, when it comes to increasing taxes on the rich, the American public's with the president and the Democrats as opposed to the Republicans.
BORGER: They are.
BLITZER: Here's the question. Will this put enormous pressure on Republicans to blink?
BORGER: Yes, 2-1. There you are. I think it will. Absolutely. But -- but, Wolf, also there's something else that's interesting. This is a president who believes that if they don't blink, he can successfully run against the do-nothing Congress, because their polls also show that while the president's approval rating is down, when we asked who do you trust more to handle the economy? The president is at 46 percent. Republicans in Congress are at 37 percent.
So people still trust the president more to handle the economy. So he feels he's on pretty firm political footing here, but you also understand, Wolf, that the American public wants to get something done as well, and it could be a tax on all their houses if they end up in a stalemate, with the super committee because then those draconian cuts sitting out there would automatically take effect and people will really hate those.
BLITZER: Yes. Well, some people will really hate those. Maybe not everyone will. That may be more palatable to some than the cuts that are --
(CROSSTALK)
BORGER: Well -- and also, that would affect defense spending tremendously, too, which, you know, the secretary of defense has said would be unacceptable to him.
BLITZER: Leon Panetta at the Defense Department hate it.
BORGER: Right.
BLITZER: But those who think the Pentagon could afford more cuts they would welcome.
BORGER: Right.
BLITZER: Those Defense Department defense cuts. So there will be a big debate on that as well.
All right, Gloria, stand by. Christine Romans is standing by. Much more of our coverage coming up. The president momentarily will be in the Rose Garden to announce his $3 trillion debt plan.
(COMMERCIAL BREAK)
BLITZER: All right. We're awaiting the president of the United States. There you see the rose garden, the president will walk out of the Oval Office momentarily. We're told he's running a few minutes late. And we'll go to the podium there and make his announcement outlining his plan.
Immediately afterwards, top White House economic advisers will spell out some of the more -- some of the specific details to reporters over at the White House as well. We're watching all of this unfold. Douglas Holtz-Aiken who's an economist who served in both Bush administrations, also worked for John McCain's campaign four years ago.
He's joining us. Christine Romans is with us as well and Gloria Borger.
Douglass Holtz-Eakin, one specific point talking about tax reforms a lot of people point this out. But tell us how to fix this if you think it should be fixed. A company like General Electric, they makes billions and billions of dollars last year. I think something like $14 billion.
$5 billion here in the United States and effectively in terms of federal income tax pays zero. Less than you pay, less than I pay, less than Gloria, Christine, anybody else. Is that fair? How do you fix that?
DOUGLAS HOLTZ-EAKIN, PRESIDENT, AMERICAN ACTION FORUM: Well, it's certainly legal. That tells you a lot. Because it's not that they evaded taxes. They followed the law. And it tells you the law is badly broken. It has too many loopholes, too many special targeted exemptions, too many credits, and I think, you know, Richard Quest made a very important point about Europe's high personal rates but he didn't mention the fact that actually the European business tax systems are way better than the United States.
So they don't endanger their jobs when they tax individuals. We need to fix our business taxes. GE is an example of that and it should be the number one topic in tax reform.
BLITZER: All right, Christine, go ahead. You've got a question for (INAUDIBLE)?
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Well, I was going to say, you know, if you want to talk about reforming the corporate tax code, that's going to mean raising taxes for some corporations, because when you're going to simplify, you're going to get rid of the loopholes, that means tax rate while on paper will be lower than 35 percent, some companies are going to be paying more tax. And the mood in Washington is, don't raise taxes for anyone. So how do you do it politically?
HOLTZ-EAKIN: You certainly cannot accomplish that in any tax reform. The essence of which is lower the rates, broaden the base. When you broaden the base people previously got deductions and exemptions, pay more tax. So that I think is why it is important that we have the so- called super committee.
It has a mandate to do this kind of work. It has lower legislative thresholds, 50 votes, expedited procedures. But in the end -- and I think this is the key point, what the Congress is being asked to do through the super committee is actually just do its job. Pass legislation to address entitlement reform, to address tax reform and those large rear reforms that always required White House leadership.
Bipartisan leadership always starts with the White House. And the question is whether the president's going to do that or not.
BLITZER: Let me bring Gloria Borger into this conversation as well.
Gloria, I just want to be precised and then I want Douglas to also weigh in on this. If you find tax reform that effectively would force GE, for example, I don't want to pick on GE but it's out there, to pay more in terms of -- pay something at least in terms of their income tax, their federal income tax, or if you eliminate some of the deductions, the loopholes for Exxon/Mobil or some of the big oil companies, to many of the Republicans, that is seen as a tax increase, which they would not support.
BORGER: Well, it depends on what you do to the rates. I mean, the same thing with individuals, Wolf. Look, if you lower the top rates for individuals, and you get rid of some of their deductions, say, mortgage deductions, for example. Does that become a tax cut? Or is that a tax increase?
And, you know, it's in the eye of the beholder. That's why a lot of people are looking to tax reform as a way to get more money into the system. Now, in the Simpson-Bowles Commission, as you pointed out earlier, some Republicans, Paul Ryan, the House budget chairman, who was on that commission, voted against it, because he thought that while he supports tax reform, it didn't have enough cuts in it.
So it seems to me, that if you're going to get anything out of this super committee, and it has tax reform in it, it also has to have some kind of entitlement reform to balance it and then maybe they'll call it a day and say we can get something done. I hate to be Pollyannaish, but maybe they will.
BLITZER: I just want to -- try to pinpoint this notion of what exactly is a tax increase?
Douglas Holtz-Eakin, you've studied this, you know this, you've worked for Republican presidents, Republican presidential candidates.
Under Grover Norquist's proposal, does it always have to be tax neutral in terms of revenue? In other words, you have to reduce the rates for some if you're going to increase rates for others but in the end there can't be an increase in revenue from taxes? That's just not going to happen. Is that your understanding of what he and his purist tax as far as ax increases have I mind.
HOLTZ-EAKIN: I think that's Grover's definition. I'm not an expert on his pledge and haven't really paid too much attention to it.
I will tell you, I think Gloria's got it right. I mean in this environment I can tell you how many angels fit on the head of a pin, but I can't tell you where the tax increase is. It really is in the eye of the beholder. And I think the key has to be to stop having a discussion about up and down and talk about the quality of taxation.
Take the oil companies, for example. Always a target for these write- offs they get. We actually have wind, solar biomass, ethanol, name it. A million different tax credits and special considerations in the tax code. Real tax reform will says OK, we're going to have an energy policy that we understand, but we're not going to run it through the tax. We're going to broaden the base, take that revenue and try to create jobs. And that's what's missing in this discussion by picking on particular pieces and not looking at the whole playing field.
BLITZER: You understand, Doug, that as far as, you know, big oil companies are concerned -- and I don't want to pick on Exxon/Mobil but I will just for a second for the sake of argument. If they're making enormous profits every quarter, tens of billions of dollars, why should taxpayers, like you, me and all the viewers out there, subsidize them to make even greater profits when they're already making $30 or $40 billion, or $50 billion in profits, they're doing just fine?
HOLTZ-EAKIN: Again, I think the key is let's write a tax code that we can defend not versus oil companies or wind solar, any particular industry. How are we going to tax profits, how are we going to write up the costs and where are the taxes going to reside?
That's a sensible discussion to have. If we always configure it in terms of who's successful at the moment, we're not going to have a tax code that looks forward and supports the kind of things that are important. So, you know, I would love to see a serious discussion of tax reform. It would reveal, I think, many of the key issues about what we do and do not want to favor in the United States.
Are we going to continue to subsidize charity? Are we going to continue to subsidize on our housing? How much are we going to subsidize higher education? We are using the tax code to try to achieve too many objectives simultaneously. The end results you don't raise enough revenue. So you know let's get serious on what we want our tax code to do.
BORGER: And Doug, you remember -- and Doug, you remember, there was a reform on the tax code in the 1980s, and that somehow managed to unravel, because all these loopholes kind of crept into it. So if you do a reform of the tax code now there has to be a way to ensure that that doesn't happen again. Because what happens is, the special interests get involved, and the tax code rewrites itself somehow. And so that's what they're looking at now is kind of a way to find a way reform it.
HOLTZ-EAKIN: I agree.
BLITZER: Yes, I think there will be a series --
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HOLTZ-EAKIN: Yes, I completely agree.
BLITZER: Doug, Gloria, stand by for a moment. We're waiting for the president. I was just going to say there'll be a serious discussion of tax reform during this coming election year. Whether anything gets done obviously remains to be seen. I suspect in an election year, nothing serious is going to get done, although there will be a lot of discussion about a fair tax, a flat tax. Enormous tax reform. We'll see what the candidates have to say.
We're awaiting the president of the United States. As I said, he's running a few minutes late. We'll go to the Rose Garden as soon as he walks in. Much more of our special coverage here in the CNN NEWSROOM right after this.
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BLITZER: You're looking at the live pictures of the Rose Garden. The president, as we say, is just a little bit late. He'll be walking out of the Oval Office and going to the cameras there to that podium making his statement. His top aides are already sitting down in the Rose Garden so we know it shouldn't be long before the president comes out and speaks about his $3 trillion proposal to cut the nation's national debt.
We're assessing what's going, Georgia Borger is with us, Christine Romans is with us as well, Douglas Holtz-Eakin.
We're sort of getting some Republican reaction, Doug, from you before. We'll get your reaction afterwards as well. Later we'll be hearing from the president himself obviously within the next few minutes and then from all of his top economic advisers, we'll get the White House's perspective on what's going on.
But from your perspective right now, Doug, and you know the Republican field fairly well. How divided, if at all, do you think Republicans in Congress, the Republican presidential candidates are when it comes to these latest proposals that the president is putting forward?
HOLTZ-EAKIN: I don't expect a great deal of division. By and large, the candidates agree on an economic philosophy with a small, contained government, a reliance on the private sector, and the president's proposals don't move in that direction. So I don't expect a lot of divisions. I think everyone agrees that a status quo is dangerous for America.
The entitlement program is all running red ink. Enormous debt crisis on the horizon. No jobs. Where they will disagree is among themselves on some of the specifics of going forward. We've seen that. So that, in my view, is a very healthy debate both within the Republicans and across the party lines.
BLITZER: One of the criticisms, Gloria, that Republicans have made -- you heard Doug making earlier -- is that when it comes entitlement spending which is such a huge percentage of what the U.S. government has to spend every single year. There are no recommended reforms in Social Security.
No cuts in Social Security that the president is putting forward and relatively modest cuts in Medicare and Medicaid. In other words, they're saying when it comes to this huge, huge expenditure, the president basically is punting, and is not really dealing significantly with entitlement spending. You've heard that criticism of the president? BORGER: Right. And in his first steps, the president - they're right. The president doesn't make any Social Security suggestions. On Medicare, it's really cutbacks to providers which we've already heard from him in the past. So it's very clear to me that that is the opening for Republicans.
You know, the Democrats were attacked on Medicare cutbacks in the midterm election as a part of health care reform. Lots of them want to take that to Republicans in the next presidential election and say, look at the budget passed by the House of Representatives.
The budget that Paul Ryan wants, which would essentially turn Medicare into a voucher program, gradually, sometime in the future. They want to use that politically. That's why at this point the president sort of laid down this mark and said in a perfect world, OK, that's what I want, too, but I do think there's an opening there to do something on Medicare, if, as the president says, you can do something on the tax side, and that's where, Wolf, he has threatened this veto.
So you see -- you see where the battle lines are drawn, and you can also see where the compromise could come, if there were one.
BLITZER: You know, Christine, we're just being told the White House is giving us what they call a two-minute warning right now so that we'll hear from the president momentarily, within the next two minutes or so.
I just want to point out, and you know this, because you live here in New York. When the president of the United States comes to New York, it's a mess. Let alone with 100 other world leaders who are coming here at the same time to attend the United Nations General Assembly.
ROMANS: Oh, yes, it is a total mess for logistical reasons, not political reasons. But yes, he'll be here I think tomorrow or later this afternoon.
BLITZER: She comes today.
ROMANS: She comes today.
I want to make one point about who is paying all these capital gains income that's realized. This is the core of the Buffett rule, is that there are some people in this country who make an awful lot of money with their money. Not with their hands. I guess you could argue it's with their brain, but you know, you work a tax differently in this country. That the people who work for Warren Buffett, 35 percent tax rate. The people, or the -- Warren Buffett paying in the high -- you know high double-digits or highest teens.
You know, 80 percent of the capital gains income realized in the U.S. in the past 20 year has gone to the top 5 percent of people. According to "The Washington Post." So that's what the White House and more progressive economists want to zero in on. When you have to find money, you go to the people who have the money, and they say that's where it is. So it's a pretty easy pot to go after. BLITZER: Yes, that's what Willie Sutton used to say. (INAUDIBLE). All right. The president is walking in. You see the folks standing up. So let's listen to the president of the United States.
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