Daily Rundown   |  February 01, 2010

Fixing the economy

Former CBO Director Douglas Holtz-Eakin talks about whether the White House will be able to convince Americans that its $3.8 trillion budget will boost the economy, even if it sends the deficit to record levels.

Share This:

This content comes from Closed Captioning that was broadcast along with this program.

>> of ronald reagan .

>>> a tough sell for the white house , convincing americans that its $3.8 trillion budget will boost the economy, even if it sends the deficit to record levels.

>> the president plans to roll back the bush tax cuts for the wealthiest americans , but cut the taxes of the middle class . conventional wisdom is that that helps the economy reducing the deficit. joinings now, douglas holtz-eakin, a top economic adviser to john mccain during the presidential run. you love the day, budget day.

>> it's the best day of the year.

>> recognizing that you haven't gotten to curl up with your budget book yet, because it really just got delivered to capitol hill , we're going to have a record deficit this year, $1.6 trillion. how much of that is president obama 's fault and how much of that is just this built-in deficits and could they be doing more than they are doing to try to rein them in?

>> i think this year, you simply have to give the administration, by and large, a pass. it did inherit a very weak economy, it inherited programs that were intended to compensate for that, they're very expensive. the thing they own is the next ten years. so any administration can put whatever it wants in a budget . it controls it completely. so when you see this budget and look at 2020 and see a big budget deficit still ten years from now, when the economy is supposed to be recovered, when you see debt rising at remarkable levels, that's the part they own.

>> they're trying to get it down to the 3% of gdp, which is apparently sustainable. that's just the service of the debt that's left at that point. but then it gets bigger and bigger in the outyears. why is that?

>> they're running into the retirement of the baby boom , which makes social security , medicare, medicaid all more expensive and that spending is the heart of the budget problem. people love to talk about taxes, washington's all about taxes. this is a spending problem.

>> let's look at the deficit number a minute in this respect. it does seem to be -- it is more sensitive. as much as everyone wants to talk about taxes and ending in washington, it seems to be more sensitive towards the economy. so if there's job growth and economic growth , well, then, all of a sudden revenues into the government are going to go up, so is basically this deficit problem part of the economic problem ?

>> the near-term deficit problem is very much an economic problem . they go hand in hand . because last year revenues were at their lowest level since 1951 . spending was as high as it's been since 1952 . the deficit's as large as it was since world war ii . that's all driven by the economy. once that part hopefully goes away and quickly, you're left with real structural problems. and this budget will never balance unless we get big changes on both the tax and spending side.

>> but going into this, this was part of the whole deficit commission. at the end of the day, you talk about the politics of this. i know you don't want to get into it. your former boss was actually in the middle of this with john mccain , but at the end of the day, politically, the cost controls on entitlements don't go down unless, quote/unquote, everything is on the table at the end -- as far as you're concerned?

>> we've seen a variety of efforts to fix this through the regular process in congress. hasn't worked. so the reality is this. we have an enormous spending problem in the federal government . we need to take it and get it under control. even this budget , which has revenues going well above their norms, 19.6% of spending under control without pretending you can tax your way out of the problem? that becomes the political difficul difficulty.

>> to take a giant step back here, everybody talks about deficits. we know deficits are bad. but just explain to folks at home why running deficits like this is so dangerous to our economic well-being.

>> if you do this in the way we do in the united states which is chronically and getting larger going forward, you have the government taking money that could be available to schoolchildren, to build skills in workers, to invest in the latest technologies and, by and large, we're borrowing overseas. so you see both a better economic future and control of the economy to people outside the united states .

>> very quickly, we've seen the headlines about record deficit, record deficit. could a president mccain have unveiled a budget that wasn't also going to create a record deficit as well considering the economic climate?

>> president mccain would have done some things differently. he would have done something far more targeted.

>> are you saying there wouldn't be a record deficit?

>> we would probably still have a targeted deficit but we're going up this year not down. that wouldn't have happened under a president mccain .

>> thank you so much. i hope you come back in the room with us. appreciate