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MR. COOK: I'm Dave Cook from the Monitor. Thanks for coming. Our guests this morning are the co-chairmen of the National Commission on Fiscal Responsibility and Reform, Erskine Bowles and Senator Alan Simpson. This is Mr. Bowles' first visit with our group. Senator Simpson is making his ninth visit today with the Better Journalism Through Bacon Club, despite describing his relations with the press in a book he entitled "Right in the Old Gazoo: A Lifetime of Scrapping With the Press." Welcome. SENATOR SIMPSON: I was drunk. I didn't know what I was doing. MR. COOK: Welcome to you both. In addition to his role as co-chair of the Commission, Erskine Bowles is president of the University of North Carolina, his alma mater. He's also a graduate of the Columbia University School of Business. His early career was spent in investment banking and venture capital. Came to Washington in '93 to serve as Director of the Small Business Administrator and later was named White House chief of staff or deputy chief of staff and then chief of staff for President Bill Clinton. He's been active in a variety of charitable endeavors. Alan Simpson followed his dad's footsteps into public service. His father served both as Wyoming's governor and later as its U.S. Senator. Our guest got his Bachelor's and law degree from the University of Wyoming. After a stint as Wyoming's assistant attorney general he went into private practice. In the family law firm, he was elected to the Wyoming legislature in '64, the U.S. Senate in '78, where he served three terms, and was elected by his colleagues as assistant majority leader. Since leaving the Senate in January of '97, he's been both a visiting lecturer and later a director of the Institute of Politics at Harvard, part of the University of Wyoming and practiced law. So much for biography. Now onto mundane matters of process. As always, we're on the record here. There's no embargo. There's no live blogging or Tweeting. Let me repeat. There's no live blogging or Tweeting. But after the session is over, feel free to give in to your unbridled multi-media urges. As always, if you'd like to ask a question, please send me a subtle non-threatening signal. I'll happily call on one and all. We have nearly 40 reporters here this morning, so I'll limit myself to one question and ask that you do too, so as many folks as possible can have a question. As always, if a follow-up seems urgent, go for it. We'll see if we can make as much news as James Carville did here yesterday, with his anatomical suggestion for the President and Secretary of State. And with that, we'll start off by offering our guests the opportunity to make some brief opening comments, and then we'll move to questions from around the table. With that, thanks again for doing this. SENATOR SIMPSON: Well thank you, Dave, and it is a great privilege and honor to come here because Budge, boy I'll tell you, when you were new in Washington and somebody said you've been invited to the Sperling breakfast, man, I didn't know what the hell that was. But my staff did, and boy they said "Oh, you got to do that." He was a genial giant, and one of the finest journalists I ever met, and I've met a lot of them. I've met some jerks, just like in politics. I've met some fine ones and I've met some jerks, and I've been in both categories of that definition. MR. COOK: Senator, thank you. SENATOR SIMPSON: Yes. Well I think that's all you want me to say there, because I can see you're cutting me off. (Laughter.) SENATOR SIMPSON: No, no. I'm ready. MR. COOK: (inaudible) SENATOR SIMPSON: It's a suicide mission and it's ghastly, but Erskine, this is one of the finest men I've ever worked with. We're linked at the hip. This is no mystery. You either do it or don't, and I don't know how many will join us in our happy cause, but by God they'll know that this thing is there and it's real and it's honest. So from that, to Erskine, the numbers guy. I do the color. He does numbers. (Laughter.) MR. BOWLES: And when he really doesn't want to answer one of your questions, he says I just got my hearing air -- it's just a little bit wrong for that. Thank you. I am glad to be here. I did avoid it for six and a half years. But this is a great opportunity for us to make sure that more people know that this huge debt that we face -- it's something we can't deny. It's not going to go away by staying on an automatic pilot, and that we've got to take a realistic approach. We put one out there that we think is realistic and is backed up by hard, specific facts. The problem we face is real. The solutions are all tough, and what Al and I decided was everything had to be on the table, and we are happy to get a chance to come to events like this, because we believe that the proposal we put out there will stand up to scrutiny. So thank you for having us, and I look forward to answering your questions. MR. COOK: Thanks. Let me just do one, and that is you were both on NPR's "All Things Considered" on Wednesday, and Senator Simpson, you said "Let me tell you. The American people have got this baby figured out. When I walk through airports now, instead of a digit salute, I get a thumbs up, and there's a reason people went broke in their own families and they cut up their credit cards, and they're saying where the hell is the federal government in this game. The game is over." How do you square that optimism with the latest NBC News-Wall Street Journal poll, which found that nearly half the Republicans called your plan a bad idea, while about one-third of the Democrats saw it that way. Peter Hart, the pollster, commenting on the results, said "Everybody wants to cut the deficit and cut the spending. But at the end of the day, everybody wants a choice that doesn't affect their well-being." What's your take on how, you know, is there a climate now where such a change would be possible? If not, how long would it take to build such a climate? SENATOR SIMPSON: Well, I never paid much attention to the comments. These people have to say that. Somebody said how did we get here? It's very simple. These people were sent to Congress, including yours truly, to bring home the bacon. Your sole purpose shrouded, as it as, was to go to Congress and be sure that you got the money for the dam, for the crops, for this, for that, for the rec center. In fact, it was so good you even brought your staff with you to issue the town meetings, and when someone asked for their little toddy or whatever it was, they'd say "Write it down will you, Jim, and we'll get that when we get back," loading it up. Then throw in four billion bucks' worth of anonymous and also attributed money in this campaign. Let me tell, when you've had a guy max out in your primary, max out in your general, you're going to listen to the people and they're frozen in place. Now when they get here, it will be a different matter. They can't babble on that we're raising taxes. We're lowering it, putting it to 8 and 14 and 23, and there you go. I'll quit, but you know, if I had to listen to -- this city is gauged for failure, not success. We'll just go right ahead. MR. BOWLES: I'll tell you what I think. Specifics make it tough, you know. My momma, you know, who's 92 said "Hey, you know. Erskine, I'm really glad you're doing this, you know. You had talked to me about my dad. Your dad really would have liked that. He was really fiscally responsible." And then she says in the same breath "But don't mess with my Medicare," you know, and that's about like everybody is, you know. Don't touch my stuff. Admiral Mullen says that our debt's our greatest national security problem, and yet Secretary Gates doesn't like the $100 billion in real cuts that we proposed in 2015. I think the world's changed, and I think they're ahead of politicians up here. You know, Senator Simpson's, you know, talked about getting the thumbs up rather than a digit. It's really true. I told somebody, you know, I go to the liquor store after I leave here, because Im about to go crazy. I don't know how y'all stand it. But everybody from every walk of life tells me they're glad we're doing this. I think for years and years, politicians have been afraid they'd be punished if they took tough decisions, if they made choices, and I think the world's changed. I think they're going to be heavily penalized if they don't make these tough choices, if they try to take a walk, and what we've tried to do is put a realistic plan out there. I can tell you we, the two of us, have gotten far more thumbs up than anything else. MR. COOK: Helen? MONITOR BREAKFAST: (inaudible) SENATOR SIMPSON: Great. She says something good about me once every two months. MONITOR BREAKFAST: I'll talk to them about that. Social Security, obviously in your preamble of the document, you make clear that it's not necessarily broken, but now is the time to fix it. Can you talk a little bit about the, in your mind, the tradeoff? There's already pushback. There's a GAO report that was leaked yesterday, just a little bit about why this -- how you went about spreading the pain, because you clearly tried to address current, future and benefits. MR. BOWLES: Yeah. What we try to do on Social Security is really simple. 75 years of solvency, and you can argue about the methods we choose, and we also tried to be completely transparent. It's kind of funny that one of the things we did in our plan is we went to -- we did longevity, and we were pretty clear about it. You all all know that Social Security, you don't get it now until you're 66. I know that, because I'm 65. But it's going to 67 under law as it exists today in 2027. So that's a fact, you know. That's the law today. We said, we took it to 68 forty years from now, and we took it to 69 sixty-five years from now, and I think that gives people a good amount of time to get ready for it. We listened to people that said well, you've got to take care of the people who have these back-breaking jobs. So we put a hardship provision in there that will take care of 20 percent of the populace. It's fully funded, that you know, that can't work later on in their life. Now we made some choice. Again, if you do the arithmetic you'll see that about 43 percent of the choices we made come from revenue and about 57 percent come from benefits roughly. I'll tell you what they are. First of all, we made our job harder, because if you see one of our primary principles is we're not going to do anything to hurt or truly disadvantage. So we upped the payment, you know, for the truly disadvantaged to about 25 percent of poverty, which is more than they get today. The second thing we did is people said well, you've got to take care of the older old. That's not you, is it? SENATOR SIMPSON: Keep going. MR. BOWLES: And that's people between 81 and 85. So we take it up one percent a year for those. So that increases the cost. That makes our job harder, not easier. What did we do on the other side? We put in new bin points to achieve some progressivity, so it would be harder on people at the high ends than it is on people at the low end. The current bin points are at 90, 32, 15. We took them to 90, 30, 10, 5. The second thing we did was the longevity. The third thing we did is we went to the chain CPI from regular CPI, because all these economists, whether it was Bob Greenstein or Marty Boskin, told us that that was a more accurate reflection of real inflation. Then on the -- we also brought in state and local workers, and the last thing we did is we took the amount that's taxed, which now goes up to $106,800, and on the natural it goes to the 160,000. By 2020, we took it up to 90 percent of wages, which takes it up to 190,000 by 2020. So we thought we spread the pain around in a progressive manner. But the good thing we did is we made Social Security solvent for the next 75 years. Could you do more in the revenue and less on benefits? Yes and no. But we tried to find the balance we felt we were comfortable with, and we think we achieved that. MR. COOK: Before we go to the next question, I just want to do an introduction, which is Bruce Reed, who's sitting next to Senator Simpson, who's chairman, who's executive director of the Commission and been here before, and it's nice to have you back. MR. BOWLES: And everything I just said, Bruce got me to memorize. He is our brain. MR. COOK: Brother Gizzy. MONITOR BREAKFAST: Thank you, Dave. Following up on your question, Dave, I'd like to ask both Mr. Bowles and Senator Simpson about Newt Gingrich's comments over the weekend. He was one of those half the Republicans who went on record who was critical, and he said the initial comments of the co-chairmen indicated that the plan would be a job killer, and that it would discourage business from creation of jobs. Your reaction to former speaker Gingrich? SENATOR SIMPSON: Well, I know Newt very well. We were in the leadership. We were assistant leaders together. I was very disappointed in Newt when he was part of the Andrews Air Base group, when they got George Bush the first to say you've got to break your pledge, and if you do, we can save the country. We'll get two-year budgeting, we'll get comprehensive health reform. We'll get everything. There's a lot of stuff in it, and Newt said that's good. Then Newt went to the House and voted against it, and said "Well, I was for it when I was out there, after George Bush made his ultimate sacrifice after read my lips." And Newt said "But now as a member, I'm against it." He then voted against it, along with Pete Stark and Henry Waxman and go look at the roll call vote on that one. So I don't really have a lot of thorough appreciation for his comments. MR. BOWLES: As you all know, I spent months and months locked up in conference rooms with Newt Gingrich and Trent Lott to do the balanced budget. SENATOR SIMPSON: You'd have to be locked up with them. MR. BOWLES: And y'all owe me a lot for that, I can tell you. I'm not worried about that comment. I actually believe Newt's a really, really, really smart guy. I just don't agree with him sometimes. It's not a job-killer. You know what's a job-killer? Doing what we're doing now. If we keep doing what we're doing now, that's a definite job-killer. MONITOR BREAKFAST: Why isn't a job-killer? MR. BOWLES: I'll tell you, you know, I'm a business guy. You know, you talk about, you know, creating jobs. The one thing I can guarantee you is small businesses cannot grow; we cannot create jobs without money. You've got to have capital, and they're going to be crowded out of the marketplace if we keep building up this debt. Second, you know, if we're going to -- we live today not in a world where my competitors are in -- I live in North Carolina. In South Carolina and Virginia, they are global, and if we're going to compete in a knowledge-based global economy, you can bet your buttons we'd better invest in education, infrastructure and high value research. We're not going to have any money to invest in education, infrastructure or high value research if in fact we keep, you know, under the power of compound interest and reverse leverage, and this debt keeps up, we'll be crowded out of the market. There won't be any resources for that. And just to go over that, I don't know if any of you are with NPR, but I was listening to it the other morning. They were talking about China's economy is a third the size of ours. They're spending $100 billion a year on high speed rail. Do you know what we're spending? $9 billion a year. And you know who's money they're spending? They're spending our money. And so all of the jobs that are being created, and that people say don't worry about the loss of low-skilled jobs, because we'll create the next new thing here, that next new thing will be created over there, and the jobs of the future won't be here. They'll be over there. So doing nothing I guarantee you is a job-killer. MR. COOK: Yes sir, Brian. MONITOR BREAKFAST: Thank you for doing this. I'm wondering irrespective of the criticism or the acclaim that your plan has received so far -- SENATOR SIMPSON: I don't hear. I left my hearing aid the (inaudible). MONITOR BREAKFAST: My grandmother used to do that. (Laughter.) SENATOR SIMPSON: Well, I knew your grandmother. MONITOR BREAKFAST: I'll try one more time. (Laughter.) MONITOR BREAKFAST: Irrespective of the criticism or acclaim that your report or your recommendations have received thus far, I wonder how either of you would describe it, as a left of center plan, a center plan, a right of center plan? Where does it fall on the sort of political and ideological spectrum? SENATOR SIMPSON: I'd just describe it as an honest plan. There's no other way to describe it. I've been accused of being an arch-conservative and a pinko here. So you can't win that game of categorization, right or left. But I've put it out as we were given a task. I have been called a Republican toady covering Obama's fanny, so that he can destroy the Republican Party. Erskine is evil over on his side, and it's a good place to be, because we have irritated hopefully everyone in the United Stets, and especially every group. The groups have organized against us and will come like harpies off the cliffs along the Rhine with their talloned hands and fingers up. Wait until the -- the realtors don't even talk with us, because they're just laughing. They know that we'll kill those finks on that, you know, home mortgage interest deduction. But if you start looking at it, you get rid of one trillion one hundred billion bucks of what really are tax earmarks, that are unnoticed, unnoticed, no oversight, no nothing. We get rid of those and go to three tax structures, 8, 14 and 23. So when somebody babbles to you we've raised taxes, tell them to get back wherever they came from on that one. That's bizarre. We're cutting things. We're doing things. You can be savaged from the right and the left, which is good, a good place. MR. BOWLES: Let me just add to that. You know, you all write and give all these guys up here all this credit for getting rid of $16 billion a year in earmarks. SENATOR SIMPSON: It's (inaudible). MR. BOWLES: It is. But when you think, those are earmarks that are in the spending bills. There are $1.1 trillion of annual earmarks in the tax bills, and you give them a free ride. It's crazy. It's one of the reasons why are tax rates are so high, and we do describe it as an honest plan. I'll give you an example. We knew that we could have taken the position that the Domenici-Rivlin plan did on longevity, and that we had a good chance of AARP coming out and saying okay. Now what we did taking the age to 68 and 69 is exactly the same arithmetically, no difference in benefits as what they have in their plan. Alice will tell you that; Pete will tell you that. But because we're transparent and we're telling the truth, you know, and we're encouraging people to work longer because that's good for the economy, that's what transparency does, you know, we got dinged by them and theirs looks like it's going to be okay. I'd rather be transparent. I'd rather people to know exactly what we're doing, and that's what Al and I decided. We weren't going to fool around with this. We were going to try to be open and honest. MR. COOK: Let me tell you where we're going next, which is Miles Benson, Ryan Luzza, Carl Lubsdorf, John Ward, Francine Keiffer, Rick Wolfe, Michael Shearer, Jill Lawrence, Alex Bolton, Jim Angle, Laurie Montgomery and then you get to go to the airport. MR. BOWLES: For the last four of those, I'll be at the airport gate. MR. COOK: That's right. SENATOR SIMPSON: I'll be with you. MONITOR BREAKFAST: To pick up on Senator Simpson's comment at the opening remarks. SENATOR SIMPSON: Good to see you again. MONITOR BREAKFAST: About the problem essentially being an addiction to pork on the part of the members, I think was your comment. But can you try to describe how we got into this mess? Is it the attitudes of the American voters? Is it the ineptness of the members of Congress, or is there a fault or a flaw in the founding fathers' original design for the way the system was supposed to work that brought us to this point? SENATOR SIMPSON: I wish I could get into that, but you know, it took us three months to establish trust within this Commission, because the first blast was we wouldn't be here if George W. Bush hadn't done what he did, and then the second blast was "But this President has done four times more than that." So as soon as we cooled their juices on both sides on that, so that we said forget it; there's no need to go back and decide how we got here. I think I could give my view, you could give yours. All I do know, and it's repetitive, is that people were sent here to get something from the federal treasury, and they finally figured out at home that they had to cut their own credit cards, that they went broke and they had to lower their lifestyle, and they're looking at the one agency of the world that has not done that, which is the federal government. So they're sending these anti-tax people. I can't wait for the blood bath in April. It won't matter where two of us have signed this or 14 or 18. When debt limit time comes, they're going to look around and say what in the hell do we do now? We've got guys who will not approve the debt limit extension unless we give them a piece of meat, real meat off of this package. Boy, the blood bath will be extraordinary, and they'll say well, how the hell do you get meat off this package? They'll say a couple of jerks did something for eight months and it's laying out there. Go look at it. It's written in English, no wizardry in it. Take a look at it. I say to people who bitch and snort and you know, pinpoint. I know the game around here, you know. Violin music. You pick out one thing, you study it all day and then drill your teeth. Just go read the damn thing. Read it all. Read the whole damn thing and then call us. MR. BOWLES: You know the best thing he said, you know, it's true. Al said the pig is dead. You know, everybody's been sent here to get all this pork for so long, and what he says "It's over." SENATOR SIMPSON: We had a guy come to us, one of the new members, he said we can't get anybody to go on the Appropriations Committee of the House. Well, by God when I got here, they were calling it the College of Cardinals. Well, they're not only purple-hatted now; they look purple in the face. That's the way it works. MR. COOK: Ryan. MONITOR BREAKFAST: What's your ideal scenario for what you want the President to do with your recommendations? What's the -- what's your hope the White House does with this, because one statement, it wasn't exactly ringing endorsements. But since then, it doesn't seem like they've wanted to talk about you guys and some people over there, I think, would like you guys to just quietly go away? So what do you want them -- what do you want the President to do? MR. BOWLES: I think that's fair, you know. I'm going to get to that. It's a good and fair assessment. SENATOR SIMPSON: It's a good question. MR. BOWLES: Some people want us to just absolutely die and go away. (Simultaneous discussion.) MR. BOWLES: That's exactly what we're going to do December 2nd. You don't have to worry about us. We're not staying up here. What I think is the President has done absolutely right, is this -- he deserves all the credit. This Commission is his deal, and he knew, he knew the two of us, and he knew that we were serious about the deficit. I mean it was no secret that we were deficit hawks, as you all describe it, and I try to say fiscally responsible. But anyway you want to describe it. He also knew the other people he appointed to the Commission were strong on the deficit, and in getting it down. He's really given us our wings. He hasn't tried to hold us back. He's said that if we get to the promise land and we get to 14 votes, that he'll be as helpful as he possibly can. But he's really not tried to interfere with what we've done, and I think that's the appropriate position. MONITOR BREAKFAST: So if you don't get the 14 votes, there's no promise of support? MR. BOWLES: No, because he doesn't know what we'll recommend. We didn't clear it with him before we did it, and we won't clear the final report before we do it. We're going to put out what we think is the right thing for the country, and hopefully he will like parts of it. Nobody's going to like all of it. SENATOR SIMPSON: Uh-huh. MR. COOK: Carl. MONITOR BREAKFAST: Let me follow that up, but also go back to what Dave said originally, that as Senator Simpson pointed out, it's no surprise that the Nancy Pelosis of the world or the Rush Limbaughs or the Grover Norquists all would denounce various parts of it. That's totally predictable, and members of Congress, we know, will immediately fasten on something and say they're going to protect their people in their district and stuff. But looking at it from the White House point of view, if you take the view that the White House, as you said, appointed this Commission, is in sympathy with the goals of it, if not at this point the specifics, which you know, and you look at not the reaction of Congress but the reaction of the American people, everyone's for cutting spending. That was the big issue in the election, the exit polls say. But if you look at the NBC-Wall Street Journal poll that Dave mentioned, the problem in there was that on specific proposals, major proposals, the public said "Well, we don't want to delay the retirement, you know, retirement age on Social Security. We don't want to do this. So you're in the White House and you look at this, and you say, you know, we took one big issue where the country was split, that the country needed on health care, and that got them a lot. It got them losing 60 seats in the House in this election. What incentives there for the White House or for any national figure to take this on, whatever the merits of what you're proposing? SENATOR SIMPSON: Carl, I have no idea. I don't. I was hired on. Joe Biden called me in January, and I've known him for 30 years, and said "Al, I've got a real deal for you. Co-chair this commission." I said well pal, you've got to help us, and he said -- he's a wonderful friend. This is very difficult for the White House, because they knew when they picked the two of us that we weren't going to call them at all and say what do you think of this piece or what do you think of that piece? I was on the Iraq study group. We didn't call the White House every day to say here we come. There are our recommendations, the ten of us, five Dems, five Repubs. It was maybe four or five of those were recommended and done, and now this administration has picked up about 57 of them. So I've been on commissions that actually did work. I can only say that I'm not here to do anything at the age of 79. Erskine and I said there are 14 reasons for doing this. I have six grandchildren; he has eight. Now he has nine. I don't have any more. He's got another on in the tent, and Lord knows what will happen. MR. BOWLES: All under five. SENATOR SIMPSON: All under five. But honest to God, I have watched this and been part of it. Don't think I wasn't part of bringing home the bacon. I could do it beautifully. But I also went back and told them I wasn't hired just to do that. I also took on Social Security when I was in office. I said there are only two ways to solve it then. Either raise the payroll tax or reduce the benefits. Those nuances have passed. It's too simple. But they liked this other proposal and it gets to the same place, exactly the same place except ours is out there and theirs is mysterious opaqueness. But it will get them there without losing membership. That's the key, and marketers, marketers. Always marketing. MR. BOWLES: Let me just say that -- SENATOR SIMPSON: Don't say anything Bruce. MR. BOWLES: I'm the worse one in the world to ask about politics. I have empirical data, you know, but I'm terrible at it. (Laughter.) MR. BOWLES: But things we're asking people to do are not popular. They are tough choices, just like any organization goes through. You know, I have 30, over 35 percent fewer employees in administration at the University today than I had when I walked in there five years ago, and none of that was easy. I can tell you that none of the people there believed it could be done. We're operating just as effectively now, and obviously a lot more efficiently. But we had to do it because the state has to balance the budget. There was no choice. The only incentive for elected people doing this is it has to be done. Staying as is is simply not a choice. I can promise you if we do nothing, if we stay on automatic pilot, the choice will be made for us. The markets will come; they will be swift, they will be severe, and this country will never be the same. MONITOR BREAKFAST: Can I follow this up just to say do you think it is possible, given all the problems that have been discussed around the table, for a president or a group of people in public life today, besides yourself, to actually sell the public on the need to do this, or is it going to take some even bigger disaster, although we're in a pretty bad one? MR. BOWLES: It could take this, the market reaction and a crisis. You know, this place operates better in a crisis than at any other time. But thanks to you all and the rest of the media, we've got a chance. You know, whether it's our proposal or Jan Schakowsky's proposal, which the opposite of ours, but it's -- SENATOR SIMPSON: She put it on the table. She had the guts to put on there. MR. BOWLES: She put it on the table. You know, we have something called the "Bosero rule." If you want to take something off, you've got to put something on to replace it, and by God she did that. And so I think she's got a lot to be proud of. But we're going to have to face up to this. You know, Bruce said the other day the era of deficit denial is over. It is over. You all have made it over, and it's going to be a lot easier to face up to this today than it will be three years from today, and we cannot as a country get to this point where we're paying a trillion dollars a year in interest, and our numbers showed that will be in 2020. I'll bet you anybody in this room that we'll get there before then if we do nothing. If we do, you know, half of that's going to foreign countries and just think about the infrastructure and the schools and the high value research we're building for our competitors to come knock our socks off, and we're in one of these vicious spirals going down. So you may have different ways to do, you know, more revenue, less spending cuts or more spending cuts, less revenue, but you can't do it either/or. The other thing that's an economic fact: We can't grow our way out of here. As Al says, you know, we've got daddy. You could have double-digit growth for decades and not solve this problem. We can't tax our way out of this thing, you know. If you do it all on taxes, you'd have to take the highest marginal rate to 80 percent; the highest corporate rate to 70 percent; the capital gains rate to 50 percent. Do you think anybody's going to start a business here if you've got that? If you try to do it all on the cut side and you do what one of these guys on one of these Sunday shows said, exclude Social Security, Medicare, defense and interest, you've got to cut everything else by 60 percent. How competitive are we going to be if we cut everything else 60 percent? SENATOR SIMPSON: I think when you tell the American people one simple thing, and you just say "Look pal, put it this way. For every buck we spend, we're borrowing 39 cents. Have a drink." (Laughter.) SENATOR SIMPSON: I mean what the hell are we talking about here? And then there's another one about taxes. We have had a tax to support every single war in our history, the Revolutionary on in. We're fighting two wars with no tax to support it, and one of the little entries in this thing, what do we call it, OC -- what the hell is it? MR. BOWLES: OCO. SENATOR SIMPSON: They changed it from supporting the war to OCO. We put a 50 billion chunk on there for it. We tried to figure that. People are war fatigued. But if you're going to fight a war, much less two of them, you ought to have a tax to support it to let the American people know there's a sacrifice involved other than the people who are fighting it. MR. COOK: John Morton. MONITOR BREAKFAST: One of the complaints that I've heard since your plan came out from the left is that Social Security has nothing to do with the deficit. I'd like to get your thought on that, as well as what you think your proposal on Social Security does in terms of does it move the system towards a more conservative vision of a more privatized system, does it maintain the status quo, or does it move it left? MR. BOWLES: We did exactly -- we took the same opinion. If you look at the numbers we put out, all of our deficit reduction numbers exclude the effect of Social Security, okay. So we're solving Social Security for its own self, not for deficit reduction, and we had two goals: protect the truly disadvantaged and get solvency out to 75 years. There are not a whole lot of ways you can do that, and the ways we choose, we took 57 percent out of benefits, and we did it very progressively. So if you look at a distributional analysis of our plan, it's pretty dern good. We took 43 percent out of revenue. Now what did we try to think of? We tried to do this in a way that would really take care of those truly disadvantaged; that's why we took the payments up to 125 percent of poverty. That's why we took care of the older old, and that's why we put the bin points in so it didn't effect the bottom 50 percent; it only affected the top 50 percent. So we tried to do things that truly made sense. But what drives me nuts is if you compare what people get under our plan, compare it to what's payable, not to what is -- what's that other word, Bruce? SENATOR SIMPSON: Scheduled. MR. REED: Scheduled. MR. BOWLES: Scheduled, okay. Scheduled is a joke. It is scheduled, but it's like my daddy said, "don't make promises you can't keep." You know, we can't meet the schedule. In 2037, this thing runs out of money. All of the trust fund and all the interest in our trust fund is gone. That money is out of there. 2037 benefits will be cut by 22 percent. MONITOR BREAKFAST: What about scrapping the cap? MR. BOWLES: You know, we've looked at scrapping the cap. We looked at actually taking the cap off of disability income, because that goes into the Social Security trust fund in just eight years from now. So we looked at all of that, but we thought that was a little bit too severe, and we wanted to keep everybody in the game. MR. COOK: Francine. MR. BOWLES: But we did take it to 90 percent of wages. SENATOR SIMPSON: Uh-huh. MR. COOK: So you've spent all this time on the nuts and bolts of solving this problem, in an economic budget fiscal sense. But there is the politics. So how do you solve the political problem? MR. BOWLES: Oh, it's your job. SENATOR SIMPSON: It's easy. They'll be there, and they're going to sweat bullets. Now I won't be around. If they ask Erskine and I to hit the road and promote this thing, I said just do a cardboard cutout and stick it in the bus and carry it around. (Laughter.) SENATOR SIMPSON: I'm not going anywhere. Let me tell you. This is going to be beautiful politics, the brutal kind. I love those. The debt limit, when it comes in April or May will prove who's a hero and who's a jerk and who's a charlatan and who's a fakier, and there it will be right there, because they're going to say these new guys, some of them, and I've met a good deal of them and boy they're sharp cookies. One guy gave me a lot of hope. He said I'm here to compromise an issue without compromising myself. I said good. Compromise is not a filthy word. It doesn't mean you're a wimp when you learn to compromise. You either learn to compromise and legislate or go home, in my personal view. Anyway, there they are, and they're going to say "I will not vote for the debt limit extension until you cut this." I say you can't do that. You can't possibly do that. I'll say well, then I'm not going for it, and they'll say "well, the government will close," which they'll say "that's what I came here for." Oh, I can't wait. It will be something. I'll be watching. (Laughter.) MONITOR BREAKFAST: From an undisclosed location. SENATOR SIMPSON: Yes, yes. From our witness protection program. MONITOR BREAKFAST: Mr. Bowles, would you comment on that? MR. BOWLES: I've already said I'm the worst politician in the world. I have empirical data. But look. All I can tell you is to date, we have spent months listening, and somebody said we what, we tweeted or twicked or whatever. I don't even know what word is. But you know, I've found in life that you can't get anything by just talking. You've got to really go listen to people and you've got to listen to, you know, what their position is, what they really want, and what they really don't like, and then what is that area they don't really care about. That way, you have a chance to find a middle ground. You're going to be surprised when you talk to members of the commission, which I know you will do, to find out there's probably more middle ground than you think, still here in what is a very partisan town. I know that, and Al knows it, because we talked to them and listened to them for months now, and we also did what Al said. We spent eight months building up trust, and they know I'm not going to come over here and blab to you where they stand, and we're not going to sell them out at the end of the day if they can't get there. But I'm telling you there is common ground there. If this town decides it really wants to come together and solve this problem today, it's doable. MR. COOK: Rick. MONITOR BREAKFAST: Just two quick things in terms of what's not in your plan and what's in the Domenici-Rivlin plan. Why didn't you go for a sales tax, and what's your opinion on voucherizing Medicare and I would presume getting a lot more money out of it long term than you guys got? MR. BOWLES: You can make a lot of arguments for a consumption tax versus a tax on earnings. But we got a little message, I think it was 95 to 5. SENATOR SIMPSON: It was 85 to 14 or something, a little thing from Senate, you know, a sense from the Senate, VAT tax, you know. If you want to run into that wall, why you must be goofy. (Laughter.) MR. BOWLES: We wanted to live in the real world of what was possible. MONITOR BREAKFAST: And I'm sorry, on the vouchers for Medicare. MR. BOWLES: That's been presented by, as you know, Paul Ryan and Alice had presented it to us. We talked about it. SENATOR SIMPSON: We had a long discussion. MR. BOWLES: For the last two days. We haven't reached any conclusion on it. As you noticed, we presented an option which was going to a global cap in 2021. What, you know, people in my party have said is these demonstration projects, these pilot programs will bring the cost of health care down to where it's only growing at a rate of GDP plus one, which is the same rate, by the way, that Paul and Alice used. And we said great, and if that happens, a big part of our problem is solved. But if it doesn't happen -- SENATOR SIMPSON: We don't believe it. MR. BOWLES: Yeah. If it doesn't happen, then you're going to have to take more drastic steps, because we can't have health care escalating at the rate it is. One of the options is a premium support plan. Another is a robust public option. Another is having people pay a lot more, more cost-sharing. But again, we're still in the looking stage there. MR. COOK: Michael. MONITOR BREAKFAST: Senator Simpson, you mentioned that everybody comes to Washington to bring home the bacon. In your plan, you zero out the abandoned mine lands program, which is really a Wyoming piece of bacon, or has been for a long time. So I wonder if you could, addressing the Wyoming delegation, explain why that -- and the people of Wyoming, explain why they should be willing to give that up? SENATOR SIMPSON: Well because I hope they're patriots rather than selfish. It's a sick idea, I know. Hopefully, it will get across. But let me tell you. There's oil and gas depletion allowance in there, fossil fuel, and let me tell you, if we get rid of all that stuff, which was costing us one trillion one hundred billion a year, and the majority of the people and groups that benefit from that are in the one percent of the top income in the America, better grab that one. Grab that hook. MR. BOWLES: The top 400 taxpayers in America pay an average income tax of 16.6 percent. SENATOR SIMPSON: That's right. MR. BOWLES: That's less than my assistant. SENATOR SIMPSON: And how? Because they have used those 200 tax earmarks to rare advantage. Now if you get rid of them all, guess what? They shouldn't cry too hard, because somewhere in the package will be a tax rate of 8 or 14 or 23, and if you can bitch when you're coming down from 35 to 23 for the top people in America, then I say there's no hope to get anything done. MR. BOWLES: And we take the corporate rate from 35 to 26. MR. COOK: Jill? MONITOR BREAKFAST: In terms of getting to 14, is this a situation where people could agree on certain elements of package, and that would be enough to send, or is this something that has to rise or fall as a complete package, and therefore, you know, it's kind of a winner-take-all? MR. BOWLES: The legislation allows either of those to occur. But Al and I, as co-chairs, have decided we want a bold package, and that's what we're working for. MONITOR BREAKFAST: So given that, then what are the odds? MR. BOWLES: Hey, I'm not in the odds business. I'm just a teacher. We've got a chance, you know. How good a chance, who knows? But you know, you have to have an end point. That's why I'm glad December 1st is coming up really quick. You know, we put this out until December 15th. We'd get there by December 15th. We'll even get there all we want. But what we have is nobody in this town can deny, whether they have Jan Schakowsky's viewpoint of how to solve the problem, or our viewpoint or Alice's viewpoint. You can't deny that we have to address this deficit and the debt that has accumulated, and I think, as Al says, we've laid that stink bomb out there now, and whatever happens with our proposal, these guys up here are going to have to deal with it. SENATOR SIMPSON: It's an indigestible lump in the midst of the city. You cannot avoid it. MR. COOK: We've got about 11 minutes left. Alex. MONITOR BREAKFAST: Members of Congress are talking about permanently extending the Bush tax cuts. Some Democrats want to do it just for the middle class and Mitch McConnell's proposed extending all the Bush tax cuts. What would you say to members of Congress right now, as they're debating a permanent extension? Is that a bad idea, and does it make it more difficult politically to get some of these reforms enacted that you're proposing? SENATOR SIMPSON: I would say don't call me; I've got enough problems. (Laughter.) SENATOR SIMPSON: I mean I'm not involved in that. We know what it will do. We're waiting to see what the figures, what they do, but I wouldn't enter that one in any way. MR. BOWLES: I'd say to people in my tax bracket don't need a tax cut, and I'd say what they really need is real tax reform, and to get rid of these earmarks in the tax code and realize that's what they are. They're earmarks, just like the earmarks that you all focus on on spending, except they're $1.1 trillion a year, as opposed to $16 billion a year. MONITOR BREAKFAST: But permanently extending the tax cuts, whether for the middle class or for everyone, does it make it more difficult to enact tax reform in the next Congress, or in future Congresses? MR. BOWLES: I think we're going to have to enact tax reform. I don't see any way around it. MR. COOK: Jim Angle. MONITOR BREAKFAST: You answered some of my questions about Medicare, but let me just ask it this way. Social Security doesn't pull any money out of tax revenues, but Medicare does. How big a part of the problem in the future -- I mean if we're in a deep hole now, how much deeper will that hole be if we don't do something about Medicare? How big a portion of the problem you're trying to solve is Medicare funding out of the future? MR. BOWLES: I don't know the arithmetic quite between Medicare and Medicaid. I'm kind of fuzzy on that. But we have unfunded liabilities today of about 88 trillion dollars, and I think health is the vast majority of that. So you know, we dont have -- again, it's like I say, you know. Pay me now, pay me later. Face up to it now face up to it later. But we're going to face up to it, and the longer we wait, it's going to be devastating. Again, I think the markets will react before we ever get out to pay the trillion dollars in interest. SENATOR SIMPSON: I think even if you listen to what the President is saying, that this reduces the deficit over a certain period and that may be true. But in the out-years, because of demographics and age and medical science, this baby is unsustainable. We couldn't even wrap our arms around it as to 20 years from now. It would be impossible. It's just got to have -- it's got to have a trigger or a cutoff, and then it has to have ammunition in the gun to pull the trigger. MR. COOK: Laurie Montgomery. MONITOR BREAKFAST: Alice Rivlin and Pete Domenici the other day said that their package had to be taken as a whole. You couldn't take it apart, because to do any piece alone would not solve the problem. I'm wondering do you all feel the same way about your package, or is it more likely that, I mean barring the miracle that you actually get something on the floor and we raise the retirement age before Christmas, that pieces of this thing can be moved on separately, and if so, what do you see as the most likely? Is it something like tax expenditures or -- MR. BOWLES: I think you should tell them the jockey story, because -- SENATOR SIMPSON: Ahh, I could. It takes six to eight years to pass a major piece of legislation in this place. I learned that the hard way, because everybody in America has to participate, and you have to have six or eight years to let every single person get in the game. But I had a peculiar view. On a piece of legislation that you know is going to go somewhere some day, you want to get a horse on the track. That might not much, and then the next session you want to put a blanket on the horse. Nobody's paying attention then. Then you put some silks on the horse. Then you clean the outfield and the infield and then you put a jockey on the horse in the sixth year and you can win it, because the toughest part is to do the initial thing. So it's usually so watered down that its just gum, you could gum it. Then you begin to build it the next year, the next year, and then you get it done. That's what I see. If nothing else, there's no way to avoid; this horse is on the track. MR. BOWLES: And if, you know, if we put -- if we do something like we recommended, you know, we did put those principles out there and we do want to protect the most disadvantaged, but we also said we didn't want to disrupt a very fragile economic recovery. So none of our recommendations take place in 2011, not a dime, while the economy's still going through its recovery, and in 2012, we have $69 billion worth of cuts. That sounds like a lot, but we'll be spending about $4 trillion then, and we'll have about $15 trillion economy. I don't think $69 billion is going to disrupt a very fragile economic recovery, but what it will do is send signals to the market that America is serious about dealing with this deficit. That's why we didn't postpone it longer than that. We've got to start doing something serious. So I think the real answer is we're going to put it out there as a package, but Congress will probably in the long term deal with it in pieces, would be my bet. MR. COOK: Morton. MONITOR BREAKFAST: So you just brought to us the devastation. I mean what is going to happen if and when, if nothing happens, if Congress can't do this? You're talking about devastating consequences the market's going to do. What are they going to do? Just describe a scenario of the disaster? SENATOR SIMPSON: You're the old businessman. Tell them what will happen, then I'll give my jaded report. MR. BOWLES: Well, your cost of capital just goes out of the roof, and all of the projections that we show and, you know, a trillion dollars in interest go to multiples of that. You have hyper-inflation. I mean the picture is not pretty. But when you describe it just in terms that people understand, Admiral Mullen is right. I mean our national security, you know, its biggest threat is the buildup in this debt, you know, because we won't have the capital to fund our military. You know, I guarantee you as a business guy, you know, if I can't get money to grow my business, I'm out of business. MONITOR BREAKFAST: So interest on the debt accounts for what then percentage of GDP that you can't use for other purposes? MR. BOWLES: Well, interest on the debt today is about $200 billion, and just staying as is doing nothing, with very aggressive rates of interest, this is based on the economy growing at over 3.4 percent, which is faster than any ten year period in the last 50 years. So it's not like it's -- then it grows to a trillion dollars in just ten years, and that's keeping interest rates at a very modest level. You know, you can just see what one or two or three or four or five percent in interest cost does, and pretty soon you have no money left for anything else. Then you have to go through -- MONITOR BREAKFAST: And you think interest rates, I mean your interest rates are going to rise to what? Are they going to rise to Carter levels or -- MR. BOWLES: I don't know. Mort, I'd give you an answer. I don't know. You should talk to people in the markets. But you would, because I'm -- MONITOR BREAKFAST: But you're -- now wait a minute. If you're going to sell this plan, you've got to tell these people -- wait a minute. MR. BOWLES: We will. MONITOR BREAKFAST: You've got to describe the disaster in vivid terms or nobody's going to do it. I mean to say unsustainable and all these things, which we've been hearing for years, I don't think brings to the -- to people's attention how bad it's going to be. SENATOR SIMPSON: It won't. It never will. Never has. I've been around here 32 years one way or another, never been a lobbyist. Let me tell you. It won't the old slippery slope crap that we read about. It will be very swift. It will be very swift and very dramatic like in Greece or Ireland or Portugal or Spain or wherever. The difference is that this isn't like it was in my day or three years ago. This is a global thing. There's puzzlement going on. There's currency manipulation. There's fun and games for the big boys and little guys, bonds going sky high. I don't know where this is going, but I'll tell you. It won't take long. It won't be a year to prepare to -- it will be "whoosh," like that. MR. BOWLES: People say well, what would happen, gosh, if the Chinese started selling our debt? Stop and think if they just stopped buying it, you know. 50 percent of the debt that we sell today is being sold to foreign countries. You know, that's a big change from previous times. Half of that is being sold to the Chinese. They're going from an export economy to a consumption economy, and they're not going to have the need for our capital. MONITOR BREAKFAST: Why haven't the markets reacted at all to any of this, given that this is all -- MR. BOWLES: Because we're the best looking horse in the glue factory right now, and -- (Laughter.) SENATOR SIMPSON: I never heard you use that. Best-looking horse in the glue factory. MR. COOK: We've got about two minutes left. Lynn Sweet, real quick one. MONITOR BREAKFAST: What tax earmark, do you think, could be repealed? MR. BOWLES: Look. We were willing to say we'd like to see them all go away. SENATOR SIMPSON: All. MR. BOWLES: And then, you know, again if you look at what we recommended, Lynn, we said get rid of all of them, you know, and then you take the rates down to eight percent up to $70,000, 14 percent up to 210,000 and 23 percent above that. Then if you want to add some of them back, like the earned income tax credit or the child tax credit, things that I like. SENATOR SIMPSON: Tell us. MR. BOWLES: Then you'd have to increase somebody's taxes. If you want to add back the mortgage interest deduction or you want to treat it like Alice and Domenici do, by making it a credit, or you want to make the charitable contributions a credit like they do, then tell us who's going to pay for it. Who's taxes are we going to raise? That's a much better position for American to be in, talking about who, you know, what we're going to add back, then trying to get rid of all this $1.1 trillion that I think is just spending by another name, and is not even effective spending in large part. MONITOR BREAKFAST: Do you think you have to lower the corporate rate if you get rid of all the loopholes? MR. BOWLES: I want to lower the corporate rate. I want American to be the best place to start and grow a business, and we tried to get it down. We got it to 26 percent to the average of the OECD countries, is what we tried to do. MONITOR BREAKFAST: Secretary Gates said a couple of days ago that the cuts you guys proposed for defense would be catastrophic to national security. MR. BOWLES: And Admiral Mullen said if we don't do something about the debt, it's the greatest national security problem. You know, you can't have your cake and eat it too. SENATOR SIMPSON: Pick your poison. We'd like to feed them the spinach before we give them the dessert. MR. BOWLES: We started by taking his $100 billion that he was going to get over five years, and we used that. Instead of to reinvest it, we used it to pay down the debt. SENATOR SIMPSON: And we've talked with him and he's a great guy. He was on the Iraq study group with me until he went into this new post. He knows what's going on. He has to do these things. MR. COOK: And on that note, thank you both very much for doing this. We really appreciate it. (Whereupon, the interview was concluded.)