What Happens on August 3rd?

Transcript from CNN’s Your Money aired on July 16,2011

ALI VELSHI, HOST: No one can say for certain what would happen if the debt ceiling is not raised, but the consequences are likely to be severe.

Welcome to YOUR MONEY. I’m Ali Velshi.

August 2nd is the day that the Treasury Department says it will no longer be able to pay all of our nation’s bills and the United States will default on its debt. Now, Republicans are going to vote on their own plan this week, complete with spending cuts. But President Obama says he won’t support deep cuts without increases in taxes.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If you’re trying to get to $2.4 trillion without any revenue, then you are effectively gutting a whole bunch of domestic spending that is going to be too burdensome and is not going to be something that I would support.

VELSHI: David Gergen is CNN senior political analyst. David, there was a time when Republican House speaker John Boehner and President Obama both talked of doing something big to change America’s unsustainable economic path. What do you think? Do you think that opportunity’s lost?

DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: Well, a week is a long time in politics, can be a lifetime, as you know, Ali. I think the — I think what’s now clear is that the big deal, the grand deal, the grand bargain of $4 trillion over 10 years — that’s dead. That’s gone. I think the chances of getting a deal at $2.5 trillion or $2 trillion, the middle-level deal, very, very unlikely because the president does not want to go that high without tax increases or Republicans are not going to do it.

Here’s the hard question, Ali, I think that’s coming up. And that is the House Republicans are now pushing a very, very tough deal through the House. Over on the Senate side, the Republicans and Democratic leaders are working together on a version of the McConnell plan. And the president will accept that, as he said in his news conference Friday. But whether the House Republicans would accept that or not is a big, big question. It seems to me that’s the lead horse. That’s the lead solution right now, is a version of the McConnell plan, with throwing in the spending, which I think would be a good idea, of at least $1 trillion or $1.5 trillion worth of spending cuts. But whether the House Republicans — they’ve been sending some signals they won’t accept that —

VELSHI: Right.

GERGEN: — in which case, we are really at loggerheads.

VELSHI: That’s exactly right. Diane Swonk is the chief economist at Mesirow Financial. Diane, Ben Bernanke called it calamitous not to increase the debt ceiling. S&P and Moody’s have both warned that it could downgrade the stellar, always stellar U.S. AAA credit ratings.

Forget the politics for a second and let’s talk about consequences from an economist’s perspective. If the U.S. fails to raise its debt ceiling on August 2nd, what does it mean for our already struggling economic recovery?

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, it’s incredibly bad news. I mean, it could be enough to push us into another recession, depending on how far. Immediately, they’d have to do 40 to 45 percent cuts in spending just right off the top of the board. Now, how long that would last? My — my plan would be I would first stop paying Congress for not doing their job.

But I think the real issue is this is broad-based. You can’t escape these. I know the American public doesn’t like the fear-mongering that’s going on around this issue, but it is real. It’s a very real issue. The thought that we would all have to pay higher interest rates, the thought that we would allow the freedom of choice in this country to choose our future, which we still have within our grasp, leave to it the rest of the world to determine our future with higher interest rates and changes in the — in spending cuts that are forced upon us and thrust upon us is just unimaginable to me.

But unfortunately, it’s getting to be more worrisome as each day ticks on.

VELSHI: You economists are not given to broad statements like that. When you’re doing it and Ben Bernanke’s doing it in the same week, I think it means we’ve got something to worry about.

How might a U.S. government default affect you and your family? Tom Foreman is here to break it down for us — Tom.

TOM FOREMAN, CNN CORRESPONDENT: Ali, “breakdown” is the right phrase because what we’re talking about here, in theory, is a shock wave that would go through houses all over this country. And it would start with the value of your house itself. If the cost of borrowing money for the government gets higher, that would mean probably the cost of borrowing money for all of us would get higher. Interest rates would rise. That could mean many, many thousands more on mortgages for many people out there. Things like your car — the rates could rise there. Gas prices could rise as a result of that. And of course, your roads might be in poor quality if the government can’t afford to take care of them.

What about the people who earn the money for the house? Let’s say you have a small business father (ph) up there. First of all, if he works for a small business, he could wind up unemployed because the business can’t afford to operate that way anymore. He can lose money in his savings account, and he could have a difficult time getting a loan if he’s trying to run his own business because money would tighten up all over.

Let’s say that mom works for the government — immediate impact. She could wind up furloughed. She could also see credit card rates rise because, again, one of the keys to this is the way the interest would ripple throughout this country.

Let’s look at the kids over here. Here’s a son. He wants to go to college. Student loans could become harder to obtain for the same reason, interest rates. Restrictions on financial aid could be put into place.

What about the daughter over here? Let’s put her into the military. Her salary could be limited or delayed. She could possibly get IOUs, and you know how well those spend (ph) at the grocery store.

And private contractors — really important here — the people who supply everything for the government and the military and all these people — they could be left hanging out on a limb simply because the money was not there.

And of course, what we heard this week, what about Grandma? Social Security could be delayed. Retirement benefits could be reduced.

All of this is just a theory. We don’t really know where all of this would hit. But the simple truth is, this is not just a concern for Capitol Hill. It could be a concern for real homes across the country.

VELSHI: All right, Tom, there’s a lot of “would have, should have.” There’s a lot of theory there. But David, the bottom line is, we don’t know. You and I were together — so were you, Diane — after Lehman Brothers collapsed, and you know, a lot of smart people thought markets would take that in stride, and they didn’t. This is a lot bigger than Lehman Brothers collapsing.

David, you have been in the White House. You understand how people think. Why are some people so concerned, particularly those who are concerned with scoring political points — why is it this fealty to lower taxes overtaking the idea that this actually could have broader and more devastating effect, to not raise this credit limit?

GERGEN: Well, I think, ultimately, the Republicans — at least I hope — will agree to go and lift the debt ceiling. Certainly, Speaker McConnell (SIC) has agreed to that. Certainly — I mean, Speaker Boehner has certainly. Mitch McConnell has over on the Senate side. But there is a strong sentiment among Republicans that the cuts that are on the table now are illusory, that there are some gimmicks in there, that just as we saw at the end of last year, we had this announcement about great, big budget cuts — when you really broke it right down, it didn’t turn out to be very much.

VELSHI: Right.

GERGEN: You remember that. Turned out to be peanuts. There’s a strong feeling that what they’re being asked to do is to agree to cuts that are not actually — that are actually quite modest, and then increase taxes, and in effect, to pay for the welfare state, a bloated welfare state. And they would like to shrink the size of the welfare state.

This is ultimately a conversation, a debate, a debate, you know, a food fight over how big the American government should be. And you know, that’s why they’re not — that’s why they’re not doing it.

But I — the question becomes — I cannot believe, at the end of the day, House Republicans will be so recalcitrant that they’ll take us into default. It just — I — I — that would be so much beyond what I think we’ve ever experienced, Ali, knowing we’re on the edge of Niagara Falls, knowing we’re on the edge of a precipice, I can’t believe they’ll take us over.

VELSHI: You would think so and you would hope so. I don’t know.

Diane, David, stay right there.

Let’s talk to one of the most powerful voices in the debt ceiling debate. I think you’re going to enjoy this. He’s not an elected official. He’s not a government employee. Grover Norquist is the president of Americans for Tax Reform.

Grover, your lobbying group has gotten more than 230 House Republicans and nearly 40 GOP senators to sign a pledge never to support an increase in taxes. And you warn those who break your pledge will pay a political price. Are you the reason that we don’t have a debt ceiling increase right now?

GROVER NORQUIST, PRESIDENT, AMERICANS FOR TAX REFORM: Well, as you know, the pledge, the “taxpayer protection pledge,” is a pledge that candidates for office and House and Senate members and presidents sign to the voters of their state and to the nation. The pledge isn’t to Americans for Tax Reform. It isn’t to me. The American taxpayers have asked and elected a majority in the House of Representatives and 41 members of the Senate who ran committing not to raise taxes.

VELSHI: Right.

NORQUIST: Our friend, President Obama, has said he won’t try and solve the problem he created with his spending unless people —

VELSHI: Oh, wait, wait, wait, wait a minute.

NORQUIST: — give him more money.

VELSHI: He created with his spending? You didn’t just suggest that our budget problem is because of President Obama, did you, Grover?

NORQUIST: Well, let’s see. On August 2nd, which is the new date that Geithner gave us —

VELSHI: Right.

NORQUIST: He gave us a may date. Now there’s a new absolute date — VELSHI: Right.

NORQUIST: — that he wasn’t —

VELSHI: You know, Grover, Grover —

VELSHI: Let’s have a true conversation here. You know better than what that is. You know that we hit the debt limit on May 16th, and you know that the treasury secretary said —

NORQUIST: August 2nd —

VELSHI: — I can move things around until August 2nd. Let’s — let’s have a real conversation, Grover.

NORQUIST: The new day — why are we hitting August 2nd? Why are we —

VELSHI: Because he’s moving things around.

NORQUIST: — hitting August 2nd?

VELSHI: You know that as well as I do. OK, let’s just get back to the point —

NORQUIST: Because Obama spent — we’re at this —

VELSHI: Are we in this debt situation —

NORQUIST: — debt ceiling because Obama —

VELSHI: — because of the Obama administration, Grover?




VELSHI: — because that’s an unreasonable position. Let me just ask you something. What is wrong with electing —

NORQUIST: $800 billion on the stimulus?

VELSHI: What is wrong —

VELSHI: Our debt problem is far beyond $800 billion, Grover. What is wrong —

NORQUIST: That’s why —

VELSHI: — with electing people, as we do, to represent us in government and get to Washington and say, This conversation is a whole lot more nuanced and complex than it was when I was running for office in Iowa or in Arkansas or in New York, and I might have to compromise. Why is preserving the inability to increase taxes more important than the overall health of the economy and the danger that it’s putting us into right now?

NORQUIST: Because not raising taxes is important to the health of the economy because the president wants to spend the money, he wants to raise taxes and spend more money, and the answer to that is no.

The most important thing to turn the economy around — we’ve been losing jobs since Obama started spending more money, dramatically increased — the Bush spending was bad and too high.

VELSHI: Right.

NORQUIST: Obama’s spending is a trillion dollar more this year than when Bush left office, $1 trillion in one year. He’s going to add another $10 trillion to the debt during his presidency. That’s what we need to pull back. He wants to raise taxes. The American people and the people they elected say, Don’t raise taxes, cut spending.

That’s the argument. Obama wants to spend more and raise taxes. The Republicans want to spend not as much money as Obama does and not raise taxes. Why would you have them go to the American people and say, Because Obama wants to spend more money, you’re going to have to pay for it? The answer to that’s no.

VELSHI: OK, Grover, hold on right there because I want to ask you whether or not there are any taxes in this country that you need to see increased to make things a little more fair. Grover Norquist is standing by. We’re going to be right back after the break.

VELSHI: We’re back with Grover Norquist. He’s the president of Americans for Tax Reform. Grover, you’ve gotten so many Republicans in Congress to sign a pledge to never raise taxes. A lot of people are wondering if it’s appropriate that you hold so much power in the Republican Party. You’ve never been elected to public office. But you certainly are influential.

What’s the consequence, if somebody who has signed one of those pledges, one of those pledges of remarkable inflexibility that you forced them to sign, goes against you?

NORQUIST: Well, people take the pledge because they speak to their voters. The pledge is not to me. Can we make this clear?

VELSHI: Right.

NORQUIST: The pledge is to the voters of Oklahoma if your name is Tom Coburn. It’s to the people of your state who elected you. They —


VELSHI: They didn’t ask for the pledge. You provide the pledge. You write it. You get everybody to sign it. It’s your pledge. Let’s not mince words, Grover. Tell the truth. You want to make sure people don’t increase taxes. This isn’t — the voter in Iowa didn’t write that pledge.

NORQUIST: We offer that pledge to all candidates for office. Some choose to say to their constituents, Vote for me, I won’t raise taxes.


NORQUIST: Obama said, Vote for me, I will raise taxes.

VELSHI: Right.

NORQUIST: So different people take different approaches. That vote, that pledge is put to the voters of their state —

VELSHI: Right.

NORQUIST: — and then they get elected. It’s important that people can trust their elected officials not to lie their way into office.

VELSHI: Is it not more important, Grover, that people can trust their elected officials to make the right decisions in their interest than to be loyal to Grover Norquist so that they get reelected again?

NORQUIST: OK, are you not listening?

VELSHI: I’m listening very clearly.

NORQUIST: The pledge is not to me. The pledge is to their constituents.

VELSHI: I’m waiting for you to tell me why —

NORQUIST: The pledge —

VELSHI: — what you do makes America better.

NORQUIST: — is to their constituents. Well, raising taxes does not make the economy stronger, it makes it weaker.


NORQUIST: Spending money you don’t have does not make us stronger, it makes us weaker. We ought to spend less and not raise taxes. That’s what people take the pledge to do. VELSHI: You want — and you believe —

NORQUIST: Obama wants to spend more.

VELSHI: I’ll give you this —

NORQUIST: I’m going to repeat it —

VELSHI: I’ll give you this, Grover. You were into this long before it was majority opinion. But right now, you’ve seen the Quinnipiac poll. You’ve seen the Gallup poll that says most Republicans — not most Americans, most Republicans agree with the fact that there need to be spending cuts and some corresponding tax increases.

Do you think that there is not a tax in America on the wealthy or on corporations that needs to be increased? There’s just no tax anywhere that you think needs to be increased?

NORQUIST: Well, the “Taxpayer Protection Pledge,” which any of your viewers can go read on Americans for Tax Reform’s Web site, atr.org, makes it very clear. Tax reform — if there’s a credit or a deduction that’s inappropriate, get rid of it —

VELSHI: Right.

NORQUIST: — just reduce rates so that it’s not a hidden tax increase. We’re Americans for Tax Reform. We were founded to pass tax reform in ’86. We want lower rates and a broader base. We want tax reform but not hidden tax increases.

VELSHI: And I’ll save — I’ll save the viewers, by the way, from going to your Web site. The pledge reads this, “I, the undersigned, pledge to the taxpayers of the state of undersigned and all the people of this state that I will oppose and vote against all efforts to increase taxes.” That’s accurate, Grover?

NORQUIST: Pretty simple.

VELSHI: All right, so —

NORQUIST: No net tax increase. No net tax increase.

VELSHI: And you continue — OK, good, no net tax increase. You continue to counsel those who have signed this pledge not to negotiate at all with anything that will increase the debt limit if it involves increasing taxes.

NORQUIST: And take a look at what’s happened across the country and the states this year. Governors who signed the pledge have won that fight. They’re not raising taxes. They are reducing spending. The healthy states are not raising taxes. They’ve elected people who’ve taken the pledge. The unhealthy states like Illinois and Connecticut are raising taxes and damaging their economies. The pledge has saved Americans hundreds of billions of dollars —

VELSHI: Are you OK with the fact — NORQUIST: — that would have been tax increases.

VELSHI: — that the pledge may cost Americans when this debt ceiling is not increased? It will cost Americans a lot of money when it’s not increased.

NORQUIST: I hope that President Obama will not stick to his ideological left-wing guns and demand more spending and tax increases, that he will come to the table and actually put something in writing, which he hasn’t done yet. There is no Obama plan in writing —

VELSHI: Wow. Grover —

NORQUIST: — that he’s negotiating from.

VELSHI: — it is remarkable to hear you suggesting that President Obama does not stick to his ideological guns when your entire —

NORQUIST: I hope he won’t.

VELSHI: — (INAUDIBLE) is about sticking to your ideological guns.

Grover Norquist, thanks for coming on the show. Grover Norquist is the president of Americans for Tax Reform, a name that doesn’t entirely represent what he’s doing.

David, Grover Norquist is remarkably committed to what he’s talking about. But he — there is a problem here. There’s an underlying problem that politicians in America cannot do something that risks their seat because their voters won’t let them. And pledges like this contribute to a great deal of inflexibility in Washington.

GERGEN: Well, Ali, listen, let me put my cards on the table. And Grover knows this. I have supported the Simpson-Bowles plan all along. I do believe that taxes need to go up as part of an effort — overall effort to get the deficits under control.

But you know, in fairness, you know, Grover does have a point. And Simpson-Bowles itself said — it wasn’t one-to-one, a tax increase versus $1 in spending cuts, it was two-to-one in spending cuts versus tax increases.

The Simpson-Bowles commission recognized that the — more central than taxes is the question of how much we’re now spending. We’ve taken the level of spending in this country from about 20 percent of GDP at the federal level up, as you well know, to 24 to 25 percent over the last two years, another year in sight for 25 percent.

And what Republicans are saying is you got to sweat that down. And I believe that taxes ought to go up as part of this package, but I think it’s unfair to villainize the Republicans when, in fact, there is a very real possibility that the Senate will present a plan which will have $1 trillion to $1.5 trillion dollars in cuts and no tax increases, and that’s what the president is ultimately going to accept, and that may be where we come out at the end of the day.

VELSHI: The problem —

GERGEN: I just — I think —

VELSHI: The issue is more political, David.

GERGEN: I think to say that default versus tax increases is — is — it misstates the problem somewhat.

VELSHI: Yes, well, I’m not sure why the two are in the same discussion. I would have really preferred that they deal with the debt ceiling, and they deal with spending and taxing entirely separately. But we’re not in that position, David.

The reality is, in part because of people like Grover Norquist, we’re not in that position. A lot of people who otherwise would vote for an increase in the debt ceiling can’t do so because they are not in a position to compromise.

NORQUIST: Well, yes and no. I — it comes back, Ali, to what people fundamentally believe is the problem. And Republicans fundamentally believe that this underlying problem is we’ve allowed spending to go higher and higher, and they don’t want to raise taxes to pay for that. They would rather see it shrink down.

The Democrats — I — you know, who — and I’m not trying to villainize Democrats, either. I think that they come from a very sincere place of really wanting to provide a stronger social safety net. They want to provide, you know, far more services to the country. And they believe that the rich ought to pay a lot more to get there to — to get there.

VELSHI: Diane Swonk, is there any way to reduce our debt, to get into a situation where our deficits are not as big in a meaningful way to the tune of $2.4 trillion that we’re talking about without increasing some taxes?

SWONK: Oh, there’s a way to do it. It’s whether or not that’s really going to be politically acceptable to the American public. The kind of pain that that would induce — and I agree completely with David on this one. The kind of pain that that would induce is not something that we’re really ready to swallow. There’s a balance in this country between spending and tax cuts. And it is more. We do need to cut spending more than raise taxes.

VELSHI: David Gergen, thanks very much. David Gergen is CNN’s senior political analyst. Diane Swonk is a chief economist with Mesirow Financial.

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