The Main Event: Agreeing on a Budget

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CENK UYGUR, HOST: Good evening. I‘m Cenk Uygur.

Ladies and Gentlemen, welcome to the main event.

The budget battle that almost shut down the government Friday night was just the undercard. This week we begin the real fight over the debt ceiling and cuts that are not in the billions, but in the trillions.

This is about the core governing philosophy. What do Democrats and Republicans think the government should and should not do? At stake in this battle, a government default, another financial crisis, and the fate of the safety net that‘s been helping Americans since the Great Depression.

On Wednesday, President Obama will unveil his plan to reduce a deficit, presenting an alternative to the Republican 2012 budget from Congressman Paul Ryan. The president‘s plan would repeal the Bush tax cuts for the rich and cut defense spending. It would also cut Medicare, Medicaid, and reform Social Security.

We don‘t know yet exactly how the president plans to do this. What does he mean by Social Security reform, for example? And we don‘t know yet how big those spending cuts will be. So we‘ll find out soon enough, on Wednesday, of course.

But we do know what the Republicans want.

(BEGIN VIDEO CLIP)

REP. ERIC CANTOR ®, MAJORITY LEADER: This budget deal that was cut, or the spending deal that was cut this week, is only the beginning. This is the first bite at the apple.

(END VIDEO CLIP)

UYGUR: Republicans, of course, want to take another huge chunk out of that apple by attaching a new round of devastating cuts to any vote raising the nation‘s debt ceiling. Now, without that vote, the government will hit its credit limit on May 16th, with potential disastrous effects to our economy.

(BEGIN VIDEO CLIP)

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: The consequences of failing to raise the debt ceiling would be Armageddon-like in terms of the economy. And we do not need to play chicken with our economy.

(END VIDEO CLIP)

UYGUR: Essentially, the Republicans are willing to hold the recovery hostage in exchange for more spending cuts. And much more importantly for them, more tax cuts for the top bracket.

Now, the GOP seems to be willing to shred Medicare and Medicaid to make sure that that top two percent get bigger tax breaks. The big question is, will the president let them? So far, presidential adviser David Plouffe seems to be focused on taking credit for spending cuts rather than fighting those cuts.

(BEGIN VIDEO CLIP)

DAVID PLOUFFE, OBAMA ADVISER: We cut spending, the biggest annual spending cut in the history of the country. These were some tough cuts. The president came together with Republicans and Democrats on behalf of the country in December, led an effort to cut taxes, and now we‘ve come together to cut spending.

(END VIDEO CLIP)

UYGUR: Cutting taxes and cutting spending. Just curious to see a Democratic administration boasting about that when that‘s what Republicans usually run on.

But the fight that Plouffe is referring to is just a warm-up for the title match. That‘s coming right now. How will the president position himself for that fight? Whatever he decides will likely define his presidency.

Joining me is now Congressman Peter DeFazio, Democrat from Oregon, and a member of the Progressive Caucus.

Congressman, first, are you encouraged or discouraged by how that undercard went, that first round?

REP. PETER DEFAZIO (D), OREGON: Pretty discouraged. Remember, we wouldn‘t have a record deficit this year if in one vote in December, we hadn‘t reduced the government‘s income by $400 billion when the president went along with extending all the Bush tax cuts. Then, suddenly, we have to—oh, my God, we have a record deficit. Yes, you reduce your income, you have a record deficit.

Now, Ryan proposes that we should reduce our income more and,

therefore, we‘ll get to a more fiscally responsible condition. How? And

even if the Ryan budget added up, he says, well, it wouldn‘t be balanced

until 2040. He carefully leaves a lot of the Republican pet things aside -

agriculture subsidies, paying people not to grow things—he‘s from an agriculture state.

Instead, we‘ll hit at kids, the WIC program, food stamps, things like that. You know, all tax cuts are sacrosanct. There‘ll be a whole new raft of tax cuts here.

No, I‘m pretty discouraged at where we‘re going. And I guess what I would say is, remember, this Republican class was substantially elected with a lot of help from folks on Wall Street, a lot of big money people through secretive giving, and through the U.S. Chamber of Commerce. And the people on the frontline, if they threaten the debt of the United States, are the people on Wall Street and are some of those big guys. And I would suggest they‘d be picking up their phone and call their friends here in Congress, the ones they just elected, to change things and tell them, don‘t mess with default for the United States of America.

UYGUR: Congressman, I appreciated your math in the beginning, because that really puts it into perspective for the American people. You know, they are bragging about this $38.5 billion in spending cuts that did hurt. That hurt a lot of people, right? But they added $400 billion.

So that means they added about 10 times as much to the deficit as they helped with the spending cuts. Now, it‘s amazing to me that Washington seems to think that that‘s perfectly normal.

So, how do you turn that conversation around, Congressman? Because like we said, the next fight is much, much larger, and it‘s critical that the conversation be different the next time around. How do you in Congress turn it around?

DEFAZIO: Well, I advocated in January to my colleagues, the Democratic Caucus. I said we‘ll have one point of leverage this year. That‘s going to be the debate over extending the debt of the U.S.

And we should say they don‘t get a single Democratic vote until they stop pretending that you can somehow achieve fiscal responsibility without revenues. You just can‘t do it.

I mean, today, if we eliminated the entire government, all of the Defense Department, everything else the government does day to day, we would still have a deficit. So you can‘t pretend you‘re getting there with cuts, and you can‘t keep cutting income, which is also called cutting taxes. And somehow, in their bizarre world, that‘s going to rectify the deficit.

UYGUR: Well, so, it seems to me again here, obviously, the White House is critical, because what you‘re saying obviously makes sense. There‘s two sides to this equation. There‘s revenue, and then there‘s spending. And it looks like we have got a massive problem with the revenue side of this equation, although Congressman Boehner keeps saying you don‘t.

So, are you sure the White House is going to be on your side? It looks like on Wednesday they are. It sounds like they‘re going to go back to the Bush—or take away the Bush tax cuts, I should say, for the tax bracket.

Are you encouraged by that? And are you sure that they‘re going to stay strong with that?

DEFAZIO: Well, that‘s a small step. Remember, the president did run on that, and he did cave on it in December. Now, whether he was blackmailed over the treaty over Russia, we‘ll never know. But he did cave just in December.

This would be a kick turnaround. And it‘s got to be actually more, honestly, than just the top bracket tax cuts.

You know, if we allowed all the Bush tax cuts to expire, own 190 years we would have cut the deficit in half. Now, that would have been a small increase on working families, a large increase on more wealthy folks, would have taken us back to Clinton-era tax rates when the economy boomed and we balanced the budget and had a surplus. We could cut the deficit in half if we just let them all expire. But we‘re headed the wrong way, I fear.

UYGUR: And look, as you see from that poll that we just put up, the American people are on your side. Eighty-one percent say raise taxes on millionaires. It‘s hard to imagine a better number in terms of politics, but you said something very interesting a little earlier on.

You said that that‘s a moment of leverage for you, whether we raise the debt ceiling or not. That‘s interesting, because that‘s what the Republicans say, too. Eric Cantor said the same thing.

So is there going to be a lot of pressure on the president in this case from both sides?

DEFAZIO: Yes, but it‘s time for him to call their bluff and to speak out more forcefully as we go into this debate. I mean, remember, they have a certain number of new members, Tea Party folks, who have signed pledges not to vote to increase the debt in the United States, despite the fact that the 14th Amendment says basically thou shalt not question the debt of the United States in any place or time.

They‘re going to do that, they‘re just saying they won‘t vote for it.

So they‘re creating an impossible scenario.

How many of those there are, I‘m not sure, but I think they‘re going to need some Democratic votes to get past this. And I think we could have a point of leverage here, and they could maybe get real. You can‘t get to fiscal responsibility with numbers this big without revenues.

UYGUR: One last thing, Congressman. Is it realistic to expect Democrats in Congress to actually pressure a Democratic president? Because a lot of times we‘ve seen some hints of that, and then when push comes to shove, the Democrats pull back and say, well, it‘s a Democratic president and we‘ve got to do what he says.

What‘s your sense of this time around? Is that going to be the same old thing, or is there going to be real pressure, saying no, no, we absolutely will not give votes if you go in the wrong direction.

DEFAZIO: Well, in my opinion, that‘s what the House did wrong in the last Congress, and in part why we lost, is we never pushed back. No matter how wrong he was or off base he was, we never pushed back.

There are a number of us in the caucus now whoa re pushing back very hard on our leadership. And I‘m just going to continue to do that. Who knows where they‘ll end up, but maybe we can take enough Ds with us to make them uncomfortable and to make them stick with making the president act like a Democrat.

UYGUR: Well, since he is a Democratic president, you would hope that he would do that, but we‘ll see how that turns out.

All right. Congressman DeFazio, thank you for your time. Really appreciate it.

DEFAZIO: Thank you.

UYGUR: All right.

Now let‘s bring in Ezra Klein. He‘s a staff reporter for “The Washington Post” and an MSNBC contributor.

Ezra, good to have you here.

EZRA KLEIN, MSNBC CONTRIBUTOR: Good to be here.

UYGUR: All right. Now, just real quick, let‘s score the last round so we can get on to the bigger round here. And tell me what you think it portends for the bigger round.

This budget battle, how did you see it coming out, and what do you think it means for the bigger match?

KLEIN: I think the central thing to know about this budget battle is that when it began, John Boehner had an opening bid that we should cut $32 billion from last year‘s budget. At the end, we cut $38.5 billion. So John Boehner ended up being in the center-left of the eventual compromise. I think that tells you pretty much what you need to know about how far right this ended up being.

UYGUR: So, Ezra, I think what everybody in the country is asking right now is, where is the president going to be in the next one? Right? Because he said to Chuck Todd, you know, who obviously works here, at some point that he was itching for a fight at some point, when Chuck pressed him on that a little while back, after they did the big tax cuts back in December. Right?

Obviously, based on what you‘re saying and based on what a lot of people are saying, this was not the big fight. The president gave more than Boehner originally asked for.

So, do we have any indication that the next time around is the time that when President Obama will fight, or do we not have an indication of that?

KLEIN: You can argue it both ways. We don‘t really have a strong indication.

The White House will tell you a couple things. They‘ll tell you they got good cuts mainly in this deal, that they did a better job than many people expected, getting a lot of those cuts out of what are called mandatory spending. It didn‘t all come from that non-defense discretionary bucket. The next time is the debt ceiling.

If you don‘t raise ceiling, the economy essentially goes into a tailspin. So, there are, on the one hand, much, much higher consequences for the Republicans to try and hold this hostage. On the other, the president may like the occasional fight. If he says so, I trust him on that. But he doesn‘t like to allow consequences to come to fruition.

He didn‘t want the Bush tax cuts to increase, even if that was the showdown he needed to get his preferred Bush tax cut compromise in there. He didn‘t want the government to shut down, and he‘s really not going to want the debt ceiling to expire.

So, one question for both him and for the Republicans is, if no one is willing to let this happen, then what is the nature of the negotiation that keeps it from happening? If no one, in the end, really has that leverage, if no one is willing to admit they have the leverage they want to say they have, then why should anybody listen to the other side when they say they‘re going to let the debt ceiling actually expire?

UYGUR: See, but I think that gets to a critical question, because who is going to blink?

Now, in reality, the Republicans are actually, in my opinion, controlled by the Chamber of Commerce. The Chamber of Commerce did not want to shut down, so they weren‘t really going to go for a shutdown, they were just playing poker. And the Chamber of Commerce certainly does not want us to not raise the debt ceiling, because that would have tremendous problems for the economy.

So I think you‘re right, the Republicans ultimately do want a deal, right? Because that‘s their main donors. The president wants a deal. But when we‘ve seen these showdowns in the past, am I wrong in thinking that the Democrats are usually the ones that blink? And again, any indication from the president that this time around he will not blink, he will force the Republicans to the table?

KLEIN: You know sometimes people say that in negotiations, so-and-so is an ace card. Boehner has a joker. Boehner has the Tea Party, Republicans, the freshmen, however he is referring to them this week. And he says listen, you know I don‘t want this shutdown, you know my donors don‘t want the shutdown, the people I care about don‘t want the shutdown, and I don‘t think the shutdown is a good idea. I‘ve been clear about that over and over and over again. But you also know I can‘t control these freshmen, these Tea Party conservatives, whatever it might be, so trust me when I say I would like to cut a deal with you, but unless you give my something I can give to them, I can‘t do it.

At the end of the day, the Republicans have the capacity to make a more credible threat that their people will let the government default on its debt. The Democrats, Obama, do not have that threat. So, the question then becomes whether or not the threat of what the Republicans would suffer if they allowed the Republicans to default on its debt, whether or not that outweighs their desire to try to negotiate a very large deal.

So far, Michele Bachmann and others have said this is going to be the big battle. Kay Bailey Hutchison called it Armageddon. So, I think it‘s going to be very difficult for Boehner to come to the table and not walk away with something very significant.

UYGUR: But Ezra—

KLEIN: At the same time, what they got in the shutdown deal was not that significant. And for Obama—and it‘s very unlikely, I think, that Obama is going to give up a whole lot more than that.

UYGUR: Right. Now, Ezra, final thing, real quick here, based on what you‘re saying, what Congressman DeFazio said just a little while ago is all the more important. If there‘s a real credible progressive caucus that says no to the president, which they haven‘t really effectively done yet, if they can do that, doesn‘t that give the Democrats something to go back to Boehner and go, well, I can‘t get my guys to vote yes, either, so sad day for you, we‘re really going to actually have to come to the middle here?

KLEIN: Arguably. I think these things are always difficult when they play out. And we saw some of this during health care reform.

And you have to balance out all sorts of different things about what would happen if, God forbid, we actually did default on the deficit and the economy went into a tailspin. At the end of the day, the problem for the House progressives is that they‘re actually too responsible to let that happen. So I don‘t know if that threat ends up being as credible as it sort of sounds at the beginning of a negotiation like this one, but what —

(CROSSTALK)

UYGUR: So, Ezra, though, but the bottom line is you‘re saying you‘re playing a game of chicken and the other side is crazier. So you‘re never going to win.

KLEIN: Well, that sometimes is a game you‘re playing. When you control most of the government and the other side is more willing to let things go bad than you are, you end up sometimes having to eat more than they do.

UYGUR: All right. Well, let‘s see how it turns out. It certainly is interesting.

Ezra, thank you.

KLEIN: Thank you.

UYGUR: We appreciate your insight into this.

UYGUR: All right.

About William Brighenti

William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
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