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State of the Union

Interview With Lawrence Summers; Interview With Senators Warner, Thune

Aired December 13, 2009 - 09:00   ET


JOHN KING, HOST: I am John King, and this is "State of the Union."


President Obama outlines his new plan to get Americans back to work.

PRESIDENT BARACK OBAMA: Because our work is far from done.

KING: But have his prior promises been kept? And can the country afford his ambitious agenda? I will ask the president's top economic adviser, Lawrence Summers.

Then, insight from two key senators on the economy, the deficit and the fragile health care negotiations. Republican John Thune of South Dakota, and Democrat Mark Warner of Virginia.

And our "American Dispatch" from Denver, Colorado. An up-close look at the pressures that lead many young doctors to choose a higher paying specialty over primary care.

This is the "State of the Union" report for Sunday, December 13th.


KING: We begin this Sunday with a few numbers and with the issue that dominates our national conversation, the economy. We are 328 days into the Obama presidency, 299 days since the administration's big economic stimulus plan was signed into law. It is often said that consumer spending drives the American economy, and 13 days from Christmas, there are some signs many of you are willing to dig a little deeper this holiday season, but there are plenty of not-so- encouraging numbers as well. Record federal deficits, a national unemployment rate of 10 percent. And while mortgage rates are below 5 percent, many Americans say the banks, even banks that received their taxpayer dollars in bailout funds, are being more than a little Grinch-like when it comes to handing out credit.

The president meets with some of those bankers Monday at the White House, and also wants to dip into some of those Wall Street bailout funds to help create more jobs on Main Street. A perfect moment to touch base with one of the president's top economic advisers on these critical pocketbook issues, the director of the National Economic Council, Lawrence Summers, joins us from Boston. Good morning, Mr. Summers.

SUMMERS: John, good to be with you.

KING: It's good to see you in the greatest city in America, Boston, Massachusetts. Let's begin with the questions so many people are asking. Sunday morning, they get up, they have breakfast with the kids, they have a cup of coffee, maybe pick up the Sunday paper, and they ask themselves for months now, when are the jobs coming back? We are at 10 percent unemployment. When will we see 8 percent, 7 percent, 6 percent?

SUMMERS: Look, John, it will take time. A year ago, the question was would we have a depression? Today everyone agrees that the recession is over. And the questions are around how fast we'll recover.

Experience is that it that these things -- that it takes significant time. First, GDP increases. We have seen that start to happen. Then firms ask the workers who are already with them to work more hours. That's starting to happen. Then, net job creation starts to happen.

We were losing 700,000 jobs a month when President Obama took office. Last month, we lost 11,000. So we are getting there. And most professional forecasters expect job growth by spring, and I think that's a reasonable judgment in an uncertain world.

And then after employment growth, given that when you start to create jobs, more and more people start looking for work because they are encouraged, it takes further time until you reduce unemployment.

But on the key measure, is the economy creating jobs or are jobs still on net being destroyed, most people now think that we are looking to see that by spring. And some forecasters think it will happen a little sooner, some forecasters think it will happen later. But we are a lot closer than where we were a year ago, and the signs that are the first signs that things are turning, the output starting to grow, hours worked starting to increase, we are now seeing progress.

That's not nearly enough, not nearly enough. We have got to do a lot more. There is no more important issue facing the country than job growth, because if we don't create jobs, we have got no prospect at the kind of budget deficits we want. If unemployment stays high, we are not going to have the strength in the world that we want, if unemployment stays high.

That's why jobs are the president's critical economic priority going forward. That's why he is working so hard to implement the recovery act. And actually, because it takes time to bring projects online, there are going to be twice as many projects going in the next six months as there were in the last six months. That's why we are working to support the private sector by encouraging credit to small business, by doing as much as we possibly can to promote U.S. exports at a time when we should be very competitive in the global economy. And that's why the president announced this week a set of principles to guide us going forward, emphasizing the importance of small business, the importance of infrastructure, and the real need for us to start making investments on a much greater scale, and incentives for investment on a much greater scale in energy investment.

There are opportunities for millions of your viewers out there to make investments in their home where they will get a very high rate of return. They will spend $1,000 today and they will save hundreds of dollars each months going forward. And we have got to get the right kinds of partnerships going between the public and the private sector to encourage those kinds of energy efficiency investments. Just like the cash-for-clunkers program spurred a lot of spending and helped the environment over the summer, we are going to have to do similar kinds of things to support people as they make improvements to their homes to promote energy efficiency.

KING: Let me jump in here, let me jump in here, because you mentioned partnership. One of the reasons we are in this ditch is because of abuses on Wall Street and big mistakes made by financial institutions. The president will meet with a number of big bankers tomorrow at the White House and he says in a "60 Minutes" interview to air tonight that he is worried many of them still don't get it. What don't they get and what must they do?

SUMMERS: Here is what I think they don't get. It was irresponsible risk taking that brought the economy to the brink of collapse. It was their irresponsible risk taking in many cases that brought the economy to collapse. And frankly, after the Asian financial crisis, after the S&L debacle, after the 1987 stock market crash, after other things that happened, it wasn't the first time.

And they don't get in some cases that they wouldn't be where they are today, and they certainly would not be paying the bonuses they are paying today, if their government hadn't taken extraordinary actions. Extraordinary actions not, frankly, with the motivation of helping them, but with the motivation of helping the economy, but of which they were nonetheless the beneficiary. And for them to be complaining about serious regulation directed at making sure this never happens again is wrong. For $300 million to be spent on lobbyists trying to gut serious efforts at financial reform is not how this country should be operating. For firms that have benefited from taxpayer support to be complaining about the government burdening them is, frankly, a bit rich.

The country took necessary steps. It helped, because there was no other way, the financial community. Now the financial community has got to think about its obligations to the country. That goes to issues about the flow of credit, that goes to making sure that we don't see a recurrence of what took place again, which goes to stronger financial regulation. It goes to making sure that we are doing everything we can, everything we can to prevent foreclosures and to enable families to stay in their homes. And it goes, when some institutions are saying they can't lend to small businesses because they don't have enough capital, they would have more capital if they were not paying it out to their workers in the form of very great bonuses. So the president is going to focus on what the bankers can do for their country, what they -- what obligations they should feel at what, even with the improvement, is still a critical juncture for our economy.

KING: Let me talk to you about a challenge, a critical juncture here in Washington. I want to play out something for our viewers to see.

KING: Congress is about to pass an increase in the federal debt celling, the amount that government is allowed to borrow and run up into debt.

Here's where you served in the Clinton administration, back in 1993, and you look at it; it goes from $4.37 trillion up to $12.1 trillion, the government now authorized to borrow. And Congress is going to raise that up a bit even more; $1.4 trillion, record budget deficit last year.

And yet, Larry Summers, even as families around the country have to cut their budgets or make concessions, Congress is going to vote today on a spending bill that will give some Cabinet agencies, a dozen Cabinet agencies, sometimes nine, sometimes 10, and some departments, as much as a 12 percent spending increase.

This administration says next year will be the focus and discipline on debt reduction. Why not draw a line now and say now we need to start, and that's too much spending?

SUMMERS: A couple points, John. First, if people study your graph slowly, carefully, they'll see that the debt was actually going down in the late years of the Clinton administration.

Frankly, when a new administration took place in 2001, all the innovations came off; we spent; we did, for example, a whole new prescription drug program, paying for none of it, and at the same time we launched massive tax cuts.

And that's why the 10-year deficit projection that President Obama inherited was $8 trillion. That's what happened. And President Obama recognizes that we've got an obligation to fix it.

Frankly, for the next year or two, priority number one -- certainly this year, priority number one has to be job creation. That's why we're putting people directly to work.

But then the priority has to be getting the country's finances under control. That's going to be very clear in the rigorous budget that the president proposes. That's clear in how the president, with the very strong support of Secretary Geithner, has administered the -- the TARP program.

Just this week we were able to announce that more than $200 billion improvement in the projection on that program. We're starting to collect the funds back with interest and dividends on a substantial scale. The Bank of America, for example, paid back some $45 billion that's now available for taxpayers.

We're very focused. The president has said that, on health care, we are not going to put into place -- he is not going to sign any legislation that increases the deficit at all. And in fact, the legislation provides a framework that will enable significant budget cuts.

So, yes, it's a -- it's a challenging agenda. But what we've got to do is make sure the economy starts growing again and growing strongly, because, if we don't do that, it's going to be enormously difficult to make progress on the deficit, and then, once the economy recovers, make sure in every way we can that our situation becomes more sustainable.

And the president's made clear his willingness to be part of any system that will bring the congressional leadership of both parties together around that crucial objective.

KING: When we come back, we'll talk more about that, the tough choices the president and the Congress will face if you do try to get the deficit down, and also, a bit of a score card on the stimulus plan so far. Much more to talk about with the president's top economic adviser, Lawrence Summers. Stay with us.


KING: We're back with Lawrence Summers, the director of the National Economic Council.

And, Mr. Summers, you were mentioning before the break, the president's willing to sit down with the members of Congress or anyone else to try to work on getting the deficit down.

As you know, one of the leading proposals in Congress is a commission. Kent Conrad, the chairman of the Budget Committee, a Democrat; Judd Gregg, a Republican, the ranking Republican, from the state of New Hampshire -- they say, let's form a commission; the president gets a couple of appointments; most of them come from the Congress; they come up with a plan, and Congress has to vote up or down, yes or no. Tough choices, probably, spending cuts in there; might be tax increases in there, but you have to vote up or down, make the tough choices.

We'll talk about some of the potential choices, but just on the basic premise, would the president say, "Yes, I'll support that plan?"

SUMMERS: President Obama -- the president wants to see the problem solved. He's open to a wide range of approaches. But, of course, it depends on where all the congressional leadership are. And anything that will bring together the House of Representatives and the Senate Democrats...

KING: Let me -- let me jump in. Because a lot of the... (CROSSTALK) SUMMERS: ... the president will be very open to.

KING: A lot of people that control the money don't want that commission. They think it takes away their power to appropriate, their power to raise or decrease taxes.

And other people in this town -- and again, you were here; you rightly so said you were paying down the debt when you left the Clinton administration; we had a balanced budget. There are other people who say, if we're going to make those tough choices, that's the way to do it, to take, as much as you can, the politics out of it.

Why won't the White House say yes, or say no, and make them find something else?

SUMMERS: The president will be happy -- the president wants to see the problem solved. He's prepared to accommodate others on the way -- on the way that will work to do it. What's important is that the problem be solved.

Adopting an approach that some people favor and that other people will block, that won't -- that won't work, if they have the capacity -- if they have the capacity to block it.

So the president is consulting widely with the congressional leadership in both parties, in both -- on both houses of the Congress, looking to craft an approach that -- that works. This is an issue that's crucial for the future of our country.

You know, people need to understand that we need to do both and focus both on jobs in the short run, because, if the economy doesn't grow, the deficit situation becomes impossible, and on the deficit situation for the medium run, because, if we don't have confidence that comes from sustainable deficits, it's going to be very hard to grow jobs.

SUMMERS: So we need, really, to be moving very aggressively on both fronts. And the president is very pragmatic. He knows that we need to move on both these fronts. He's determined to do it. He's proposed concrete steps in both areas. And he's prepared to work with others, because this is a democracy, in whatever way will be most effective to bring about these objectives.

KING: He's the president, though, and he's the most powerful member of his party. Our senior White House correspondent, Ed Henry, obtained a document this week that indicates there's a divide among the president's economic team, which you help lead, on this very question, on the question of, if you had such a commission, how broad of a scope would it have? Would it just be Social Security and Medicare or could it across the federal budget?

Should the president -- one of the proposals in that memo was, the president would, sort of, preempt the Congress and announce a commission of his own.

Where does Larry Summers stand on that question? Do we need a commission and how broad should its scope be?

SUMMERS: I stand where I -- where I just said I stood, and where the -- and where the president stands. We need to solve this problem.

KING: But we don't know exactly where he stands.

SUMMERS: We're prepared -- we're prepared to work with others, but we live in a country with an executive branch and with a legislative branch, with two parts of the legislative branch, the House and the Senate, and any approach to be viable has to be an approach that works for both of them, statutory commission, executive commission, direct action through the appropriations process.

That's not really what's fundamentally important. What's fundamentally important is that we find a solution that works. And the president will be open -- is open to any approach that offers the prospect of controlling the budget deficit.

And all of his advisers -- let me just say, all of his advisers are agreed on the importance of deficit reduction in the medium term, justice -- they're all agreed on the importance of spurring job growth over the next year.

KING: Let's quickly take a year-end report card, if you will, on the stimulus plan. Because, as you know, it was very important to the president and has become controversial politically.

He signed it into law 299 days ago. And let's begin by letting the president himself lay out what he called the test for this program.


OBAMA: My administration has begun implementing the American Recovery and Reinvestment Act, which will create or save 3.5 million jobs, and 90 percent of those will be in the private sector.


KING: And now, Mr. Summers, let's look, using your own numbers. Now, some people dispute these numbers, but these are the administrations numbers, total jobs created or saved.

The prediction was 3,675,000. So far, says 640,000; 329,000 jobs created.

As you noted earlier, a lot of the spending is still to come into the pipeline next year. Will you make that 3.6 million? Will you create or save 3 million jobs next year or does the administration need to revise that figure?

SUMMERS: You know well that you're comparing apples and oranges. The 3.5 million jobs figure was a two-year figure for the total impact of the program. The 600-and-some-thousand jobs took no account of the tax cuts and the extra spending that resulted from them, took no account of the fact that, when you put people -- put someone to work, they then spend money and there's a multiplier effect that puts other people to work.

The Congressional Budget Office, which isn't our administration, and certainly has been a thorn in the sign of administrations for a very long time, estimated last week that the program had already created up to 1.6 million jobs.

The number of projects under the program, according to the projections, and it's on schedule, is going to be about twice as great over the next six months as it was over the last six months.

So I don't think there's any question that the Recovery Act is serving its intended function. Look, look at the economic debate today. People are talking about how much job creation there will be; they'll be talking about the pace of the recovery from recession.

We're not where we'd like to be as a country, but, gosh, it's different from where it was when the Recovery Act was passed, when the question was whether we'd have another great depression; when the question was whether the financial system would collapse.

We've got a long way to go, but we're starting to see the basic mechanism of recovery. People spend; that creates income for other people; they spend, that creates more income; they spend. That basic mechanism, that cyclical process of recovery, is starting to engage. And that's really an accomplishment of the Recovery Act.

So we're very satisfied with what the impact of those measures have been, even as we recognize that the rate at which people were laid off in the spring was something that went way beyond what any forecaster last winter was expecting. And so we've got a great deal to do.

KING: Larry Summers is the director of the National Economic at the White House. We thank you for your time this morning.

SUMMERS: Thank you.

KING: Take care.

And coming up, two key senators weigh in on jobs and the push for health care reform. Stay with us.


KING: I'm John King and this is "State of the Union." Here are the stories breaking this Sunday morning.

The British Prime Minister, Gordon Brown is renewing his country's commitment to defeat the Taliban in Afghanistan. Meeting with Afghan President Hamid Karzai in Kandahar today, Prime Minister Brown promised more helicopters and equipment. Another 500 British troops are expected to join the 9,500 already deployed to Afghanistan.

History is made in Houston's politics. The city elected its first openly gay mayor in a runoff election last night. City controller Annise Parker won with more than 53 percent of the ballots cast, despite the anti-gay tactics of her opponent's supporters. Parker, who firmly backs fiscal conservatism, says she wants to, quote, "transform the lives of all Houstonians for the better."

It's a working Sunday in the United States Senate. This afternoon, senators will vote on a massive spending bill, that money needed to fund the federal government after next week. The omnibus bill provides more than $1 trillion to keep several Cabinet departments and other non-defense agencies running through the 2010 budget year. It also includes Medicare and Medicaid funding.

Yesterday Democrats cleared a key procedural vote to end a Republican filibuster and move that bill to the Senate floor for a final vote.

KING: Those are your top stories here on "State of the Union." Up next, two top senators debate the big spending bill, the president's new jobs proposal, and more.


KING: You just heard from the White House. Now let's get perspective from the other side, the other end of Pennsylvania Avenue. Joining us is Democratic Senator Mark Warner of Virginia and Republican Senator John Thune of South Dakota. Gentlemen, good morning.

Let's start with the spending bill you are going to have to vote on today. And I will start with the Democrats, since you guys are in charge up there. These Cabinet agencies -- now, we need to fund the government -- but these Cabinet agencies, some of them are getting 9 percent, 10 percent, in one or two cases some of the agencies are getting 12 percent spending increases. Everybody out there watching this morning, I doubt we can find people saying yes, the family budget is going to grow by 9 or 10 percent next year. Why?

WARNER: Some of these areas, like law enforcement, I think they need that kind of support. But on a longer term, I actually believe this process has totally gotten out of control.

I am a new senator. I came from being a governor, where we actually had to balance our books each year. And I frankly think that the only way we are going to get spending long term under control is to get this kind of bipartisan commission, Democrats and Republicans come together, go ahead and put revenues and spending both out there, and then come back and vote it up, straight up and down, similar to the Brock (ph) commission. I don't see how this process where everybody kind of lards on is going to actually ever come to an end unless we finally have the discipline to do a straight up or down vote across the board on revenues and spending cuts.

KING: So a former governor and a Democrat endorses the commission approach. I tried to get the president's economic adviser, he says he wants to do something about it, but he would not be specific. He would not say yes or no to this idea of a commission. Would the Republicans support that even if in the end you have to vote up or down on a package that could conceivably -- if we go back to the Bush model, the Camp David meeting, George H.W. Bush, could have some tax increases in it?

THUNE: Most would support the commission process. It doesn't mean the Republicans would vote for what the commission recommends. But I do think we have got to have a mechanism whereby we start getting control of spending.

In this case, however, I think the problem is, John, it's like closing the barn door after the horse is out. We have already borrowed $1 trillion to pay for a stimulus bill. We've got a $2.5 trillion expansion of health care that's pending before the Senate right now, and as you mention, these appropriations bills that are coming in, year over year at 12 percent. The consumer price index this last year is a negative 0.2 percent. That's what normally these things are pegged to. And so you are increasing spending at the federal level by 12 percent year over year, at a time when most Americans, as you mentioned, are having to tighten their belts. That is why we have been trying to stop this bill this weekend from being voted upon and send it back to the committee and come back with a reasonable proposal.

I don't disagree that we've got to fund government. Mark and I would agree with that. I think what I disagree with is these year- over-year 12 percent increases after having already passed a trillion- dollar stimulus bill, much of which is going to be distributed to the same agencies that will get the funding that will come through this appropriations bill.

KING: And so, again, you say you think some of it's a mistake and you've got to get serious and the sooner the better. Whose fault is it? Whose fault is it?

WARNER: Neither side has clean hands. I mean, I do think we have to recall what -- actually, your previous guest said, Larry Summers, eight years ago, this country had a surplus. We saw over the last eight years, a trillion dollars spent on the wars, off balance sheet, not...

KING: Let me jump in for one second.


KING: Let me jump in for one second. Let's assume...

WARNER: ... off the balance sheet. And I think at some point, we have just got to say time-out here. In short term, we are going to need to keep spending, because we have got to make sure that we get this economy headed back in the right direction. But we've got to have a plan in place which both sides can agree on, Democrats and Republicans, both are going to have to make some hard choices. I did that as a governor. Every governor around the country has to do that year in and year out, and I think we need that same discipline here. And the only way I think we'll get it done is if we say bipartisan, come together, vote it straight up or down, take our lumps, both spending and revenues.

KING: The former governor says that. But here is what Max Baucus, who is the chairman of the Finance Committee, which has a pretty big say in government spending, in federal spending, including the health care bill, which you're looking at right now. The idea of this commission where tough choices, a bunch of members of Congress, a couple people the administration appoints, you get together, you put it together, you have to vote up or down. That's tough. He says this, "This commission and its new fast-track process are truly dangerous. If we were to cede all of our responsibilities to this commission, we were to tie our hands so we could not amend its recommendations, then we would risk setting in motion some truly terrible policy."

Why is it that the chairman of your big important committee there, the speaker of the House on the other side, opposes this idea? If this needs to be done -- and forgive me, I am going to skip Senator Thune for a second, you have a Democratic president, you have an 82- seat Democratic majority in the House, and you have 60 Democratic votes or at least 58, not counting the independents, in the United States Senate. I will concede your point for now that let's say the Republican administration for eight years dug most of the ditch. You are in charge.

WARNER: I think what we're seeing is both sides don't have clean hands in this effort. And I think what we're going to need to do, the only way we will get the hard choices made both on the spending side in terms of cuts and potentially on the revenue side is if it's bipartisan.

What I see -- I am a new guy in the Senate. But it seems like everything kind of divides at the door in terms of Democrat/Republican. If there is ever a time to kind of chuck your D hat and R hat, it ought to be now. And on this kind of effort of getting our deficit under control, I think this would be the time for that kind of bipartisan approach.

And frankly, I do think there are some who say don't want to change the system, but this is a moment of crisis. This is a moment -- I think the American people realize it. I think the markets, the international markets are looking at whether we will be willing to take the steps to get this deficit under control over the long haul. It's not going to happen -- you know, we didn't dig this ditch in a year, we're not going to dig out of it in a year. It's going to take some time, but we have got to start down a path that will actually get us to a straight up or down vote.

KING: And do you believe we could start down a path to real deficit reduction without some tax increases? Again, I want to go back to the George H.W. Bush model. Many believe he lost his job as president of the United States because conservatives got mad at him because he broke his "read my lips, no new taxes" promise. But he did put the government on a path that allowed President Clinton, the Democrat, to balance the budget. Can you do it? Can you have real deficit reduction without at least some temporary tax increases?

THUNE: I think you have to start with spending. I mean, think about this, John. Here we are. We are going to be voting today in the United States Senate on an appropriation bill that increases spending 12 percent over last year when the consumer price index was a negative 0.2 percent. You've got to start there.

THUNE: And what I would say is -- and Mark is right, I mean, Republicans share some of the blame. When we were in charge, we did not control spending well enough either, but we look like pikers compared to what's going on now. I mean, you have a Democrat president, as you said Democrat majority in the House, Democrat majority in the Senate. All of them have their foot on the pedal. I mean, this thing is -- they are driving this thing over the cliff, and somebody has got to put the breaks on.

And what we are trying to say is, let's put the breaks on the spending side. Obviously, there is revenue in spending. These components, they interact, but until you start dealing with the spending issue here in Washington, D.C., we are never going to get our fiscal situation under control, and we are never going to be able, I think, to see the kind of economic prosperity that we have seen in the past. We can't continue to borrow and spend at this rate.

KING: I am going to assume that the Democrats have the votes to pass this today, and this bill will pass, the Republicans will complain, and they will move back to the health care debate. And one of the key questions there is health care costs are going up like this, and can you bend it? Can you start to bend that cost curve? As you both know, there was a report this week from an Obama administration, the actuary for the Medicare and the Medicaid program. He raises some questions about this, as to whether the Senate plan or any of the plans as it now stands truly bends that cost curve. Do you believe it does, or does more need to be done?

WARNER: I think more needs to be done. And frankly, earlier this week, a group of freshman senators put together a whole series of amendments that did not get a lot of attention in terms of the headlines, but were all about cost containment, all about more price disparity, all about trying to take programs that work in the private sector and bring them into the health care system in terms of what the government spends, trying to lower administrative fees. And we have got broad base support from it. We've got support from the business community, the Business Roundtable, National Association of Manufacturers, consumer groups. Even some of the hospital groups came forward and said we need more around cost containment.

Because what I have not heard from my Republican colleagues who say let's start over again, which I may be new to Washington, but that means let's just punt the problem for another 10 years -- if we do nothing, the biggest single driver of federal deficit is health care spending. Medicare is going to go bankrupt in eight years if we don't do anything. Average Virginia family, average South Dakota family in a decade will pay 40 percent of their income on health insurance premiums. And I'm a -- I spent 20 years in the business world. If America can't drive down our health care costs, the biggest single I think restraint on American business, no matter how productive our workers are, are our health care costs. We pay twice as much per capital as any other industrial country in the world.

So we have got to make cost containment -- and that has been my statement from the beginning of this debate -- cost containment has to be the driver.

On that actuary report, it did also include the fact that it does expend Medicare's life for nine years, and the actual referee that I think both sides perhaps have problems with at times but has been called the referee for this whole health care debate, the CBO, has said this plan -- and it's got to get rescored now as it's kind of -- as that final package compromise comes together -- this plan will actually lower the deficit $130 billion in the first 10 years, over $500 billion in the second 10. And the CBO has said that close to 90 percent of Americans who get health insurance through private sector will actually see their premiums either decrease or stay the same. Is it perfect? No. But we have got to start moving this one-sixth of our economy spend, which is right now a crazy basis of fee for service, into a more rational approach, and I think the health care bill is headed in that direction.

KING: If this freshman group has some success, is that enough progress for Republicans to say we'll come onboard and try to work with you some more, or is this to the point where the Republican message is that unless you're willing to start over, Mr. President, we're going to try and do everything we can to block this?

THUNE: Well, we hope there are some courageous Democrats -- and maybe Mark Warner will be one of them -- who will step forward and help defeat this really bad idea.

Republicans are not for doing nothing. We have a number of solutions that according to the CBO actually bend the cost curve down. But the ironic thing about this whole debate is, doing nothing would be better than doing what they are proposing to do. Because as Mark said, the whole objective ought to be to bend the cost curve down and to lower costs. You now have the Congressional Budget Office saying this health care proposal the Senate is considering will increase costs, bend the cost curve up. You now have the CMS actuary saying the very same thing. And you have got the CMS actuary also saying that about 20 percent of your hospitals are going to close, 17 million people are going to lose their employer-based coverage, and that the Medicare cuts that are proposed in the bill are unsustainable over time.

I mean, this was a devastating week in terms of this proposal that is currently before the Congress, and it needs to be defeated. We do need to start over, and we do need to focus on what Mark just said, and that's cost containment. Unfortunately, this bill does not do that.

KING: Your Democratic colleague from Virginia, Jim Webb, voted with the Republicans on the question of this Medicare savings or cuts -- people used different words depending on your perspective on the bill. Again, is that a place where your leadership needs to go back to the drawing board?

WARNER: First of all, I welcome John to help us work on this cost containment package. We've already got a couple of Republican co-sponsors. Again, broadest base of support, business, consumers, even some of the providers. Makes sense. The remarkable thing is, on the Medicare savings -- and I think we have to find these Medicare savings. And in effect, what some of my friends on the other side are saying is we can't touch Medicare, we can't touch the rate of increase. Well, if we can't do that, we are simply rearranging the deck chairs on the financial Titanic in terms of health care costs, going to send our country down, send our country down.

I believe -- and a lot of the savings that have been proposed have actually been proposed by the health care providers themselves that have said that if we actually start to change the way we pay for health care -- I mean, think of the system we have got right now, John. We basically pay for volume. Hospitals who have high readmission rates get paid more than hospitals who do a better job of keeping you out of the hospital. We have got to make sure that we no longer have this fee for service basis. We have got to make sure that we actually pay providers for the health care outcomes, not simply the volume of tests that you get, the number of drugs you receive, the number of nights you stay in the hospital.

And this effort -- this bill, perfect? No. And we are going to have to come back and fix it some more in terms of changing the whole financial incentives. But this notion -- I may, again, as I said earlier, I may be new to Washington, but I have heard that, you know, let's start over is simply code for let's punt for another 10 years on a problem. That if we punt for another 10 years, you know, it will be a financial disaster.

KING: Let me call a time out and give the Republican senator the last word here. Address any of that, if you will. But I also want to ask you, the president is meeting tomorrow with these bankers at the White House. I was in your state earlier this year, and ranchers, small businesses in rural America say, wait a minute, those are our tax dollars that went to bail those guys out, and I can't get a loan when I go to my bank up the street. What does the president need to do to fix that in South Dakota and elsewhere, small-town America where small business and farmers are having trouble?

THUNE: Well, I think the main thing the president can do right now and the Democrat leadership in the Congress can do is do no harm. I think the reason that banks aren't lending and that small businesses are not investing is they are -- they see this policy uncertainty over Washington. They see more borrowing, more taxing, more debt, more spending, and in the health care bill, they see their premiums going up.

And I think the banks around the country, small banks and large banks for that matter, are being very cautious. They are worried about credit quality. They are worried about value of collateral. They are making decisions that they have been told by regulators they need to maintain cash reserves. I think everything starts freeing up if we can take this $2.5 trillion health care bill off the table, start over, start doing something that actually drives health care costs down, do away with this climate change energy tax that is going to crush the economy, and especially in places like the Midwest, do away with some of these policies that create more spending, borrowing, and taxing, which are all bad for the economy.

KING: Senator John Thune of South Dakota, Mark Warner of Virginia. I like when the Senate is in business on Sunday. You guys can come in again another time, and we will invite you back as these debates go on.

Up next, we head out to Denver, Colorado. There is a medical school that puts a heavy emphasis on primary care, but many young doctors see more joy or more financial benefit in pursuing a specialty. Stay with us.


KING: As you just heard, here in Washington, a lot of the talk about health care reform is how much will it cost? Can we save money? Where you live, I bet many of you have asked the question, where can I find a doctor? We wanted to take a look at the primary care crisis in America. We went out to Denver, Colorado this week. Want to show you this, across the country right now, a shortage of 40,000 family doctors within the next 10 years. The average medical student about $140,000 in debt when they leave school. 44 percent of the graduates of the University of Colorado Denver Medical School go into primary care. That is more than twice the national average. So why is that? In "American Dispatch" this week from Denver, a look at the choice between a specialty that probably pays a lot more and a career in general medicine that to some, to some provides a greater reward.



KING: Dr. Taghrid Altoos is a first-year resident at an uncertain time.

ALTOOS: I still hear some crackles in your lungs.

KING: Learning her craft while Washington debates major changes to America's health care system.

ALTOOS: I know it will probably affect these specialists more so than the primary care physicians, so it will probably affect me as a radiation oncologist more so than a lot of the primary care physicians.

KING: Radiation oncology will put Altoos in the fight against cancer, not what she envisioned when she came to the University of Colorado Denver.

ALTOOS: Initially when I started medical school, I wanted to go into pediatrics. So I did think about it. I did think about primary career. I know there's a shortage. Primary care physicians are needed, but I think it's also important to know what would be the best fit for you.

DR. JOHN BELANGER, PRIMARY CARE PHYSICIAN: So, Larry, you say your back has been hurting you... KING: Dr. John Belanger, on the other hand, knew early on he wanted to be a general practitioner and to hang his slate in a rural community where doctors are hard to come by.

BELANGER: I enjoy a wide variety of things. So the full breadth of medical practice.

KING: Belanger opened his clinic nine years ago. Before that, it had been 40 years since tiny Paint Lick, Kentucky had a doctor. Many of the patients are poor and lack insurance, but they are welcome.

BELANGER: My salary is a lot less than the average family practitioner. Our average cost is $20 for a visit. And we never turn anyone away because they can't pay.

KING: This is a sign of the times. No new patients, because one doctor can't meet the demand.

BELANGER: We're overwhelmed. We hate that, but at some point, you have to go home.

Well, would you say it's getting better?

KING: Belanger's priority in health care reform is incentives to make entering family practice more attractive and more affordable.

BELANGER: People come out of medical school with huge debts. And so that changes how they approach the rest of their life.

DR. RICHARD KRUGMAN, UNIVERSITY OF COLORADO DENVER: There's another guy in the class of 28...

KING: Dr. Richard Krugman at the University of Colorado Denver agrees that more money is one appeal of choosing a specialty over primary care.

KRUGMAN: If you're leaving medical school, as our students do, with over $150,000 in debt, that is going to impact a career choice.

KING: But Krugman also sees other pressures.

KRUGMAN: Most faculty at schools of medicine and most faculty anywhere are probably looking to make their students into graven images of themselves. That's how you get rewarded. If 40 percent of the class goes into the specialty and you were their teacher, that's pretty rewarding.

UNIDENTIFIED MALE: It's more when I breathe in.

UNIDENTIFIED MALE: When you breathe in?

KING: Yet University of Colorado Denver's med school graduates primary care doctors at twice the national average.

KRUGMAN: They have primary care experience for three years a half day a week from the first month of medical school until the end of the third year. Most other schools stop that at the end of the second. We keep it going.

ALTOOS: It's getting worse. His liver is being shot.

KING: Dr. Altoos gets help with tuition from her father and says passion, not money is at the root of her decision to pursue a specialty. But she acknowledges some friends aren't so lucky.

ALTOOS: A lot of medical students do factor in the financial compensation of their specialties.

KING: She knows Congress is debating major insurance changes, and that some could significantly impact how doctors are paid. But Dr. Altoos says she isn't following the debate all that closely, but not because she isn't interested.

ALTOOS: I did during medical school, not so much as a resident. We don't really talk too much about it.

KING: Too busy?

ALTOOS: Too busy, I think so. They keep us talking about our patients too much.


KING: Our thanks to the doctors of University of Colorado Denver for their help and their insights.

We want to say goodbye now to our international audience, but up next, for our viewers here in the United States, Howard Kurtz and his "Reliable Sources" look at some big changes ahead for ABC News, including Diane Sawyer's new gig.


KING: I'm John King and this is "State of the Union."


KING (voice-over): George Stephanopoulos makes the jump from Sunday interviews to morning news. Is his new assignment a good move for ABC's top political correspondent and the network?

Plus, the Tiger Woods saga gets more sensational by the day. Is the media frenzy surrounding the story as bad as the star golfer's so- called transgressions?

In this hour of STATE OF THE UNION, Howard Kurtz, as always, breaks it down with his RELIABLE SOURCES.