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February 20th, 2013
11:48 AM ET

Bowles on new economic plan: We're going to have to push both sides out of their comfort zone

This morning on "Starting Point," Erskine Bowles, with the Campaign to Fix the Debt, talks with Soledad O'Brien his new plan with Alan Simpson to avoid automatic spending cuts. Transcript available after the jump.

RUSH TRANSCRIPT

So what was going through your mind when the protesters, before you got underway, were already arguing about it? Did it make you feel like really dealing with this issue is going to be tougher than it has been, which has been very, very, very tough?

ERSKINE BOWLES, CO-FOUNDER, CAMPAIGN TO FIX THE DEBT: No. We know it's going to be tough. Look, the problems are real. The solutions are all painful. There's no easy way out and we've got to make sure that we're sensitive to the needs of all Americans. We've got to do this in the right way and that's what we tried to put forward is a balanced plan. Luckily, we got a chance to explain it to those people and I think they understand better now.

O'BRIEN: Why don't you walk us through it now. We know that this sort of version 2.0, as we can call it, is a total of $2.4 trillion from the deficit. Walk me through some of the provisions of it. We have it up on the screen as well.

BOWLES: Yes, it's $2.4 trillion of deficit reduction, that's in step one. A quarter of that comes from fundamental reform of the tax code, rolling the base (ph), just simplify the code and make us more globally competitive and hopefully therefore to create jobs and growth.

Secondly, a quarter comes from reforming our health care policies in the U.S. so that we can slow the rate of growth of health care to the rate of growth of the economy. And then a quarter comes from cuts into various domestic discretionary budget, plus the other mandatory part of the budget. And lastly, we do go to more accurate gauge of inflation, the changed (ph) CPI, and we have some interest savings as a result of this.

All of that combined together reduces the debt down below 70 percent of GDP and the good news is it keeps it on a downward path so it puts our fiscal house in order. It means my generation won't be the first generation of Americans to leave this country worse off than we found it.

O'BRIEN: Let's focus for a moment on that $600 billion in new tax revenue. Here's what John Boehner said in an op-ed that he wrote for "The Wall Street Journal." He said, "The president got his higher taxes, $60 billion from higher earners, with no spending cuts at the end of 2012. He also got higher taxes via Obamacare. Meanwhile, no one should be talking about raising taxes when the government is paying people to play videogames, giving folks free cellphones, and buying $47,000 cigarette-smoking machines."

So it doesn't sound to me that he's going to support and embrace that part one, $60 billion in new tax revenue.

BOWLES: Soledad, to get this done, we're going to have to - this was clear at the end of last year - we're going to have to push both sides out of their comfort zone. The Republicans are going to have to accept more revenue; the Democrats are going to have to accept more cuts in our health care spending. That's the only way we can reach a compromise that really makes sense and solves our long-term deficit problem.

If you look at the fundamental changes we want to make in the tax code, we have about $1.2 trillion worth of back door spending in the tax code every year. That's why we only net about $1.2 trillion in total income taxes coming into the country from individuals and corporations. What we want to do is to wipe as many of those out as possible, and to use the vast majority of them to reduce income tax rates but to use about $500 billion more to reduce the deficit.

If you think about it, you know, if we've got $1.2 trillion worth of annual spending in the tax code of these tax expenditures, over ten years that will add up when you add in inflation to $13 – $14 trillion and we only want to use $50 billion of it to reduce the deficit, that's a very good trade for people to make. That's a smart thing to do to put our fiscal house in order.

O'BRIEN: But as you mentioned, the Democrats are going to be out of their comfort zone when it comes to health care cuts, and you're mentioning specifically cuts to Social Security as well. You know, some people have described that as the third rail, that anybody who does that can expect to pay for it later down the line in any kind of re-election campaign.

BOWLES: Yes, I don't question the fact that it's politically difficult. But all we're doing is making Social Security sustainably solvent so it will actually be there for the people that need it. We do things in our plan like increase the minimum payment to 125 percent of poverty; we give people between 81 and 86 a 1 percent per year annual bump up so that - because, you know, that's when most private pension plans run out. But again, we've got to make some of the changes that we propose if in fact it's going to survive.

Let me give you one example, just show you how small the changes are. We recommend changing the retirement age one year 40 years from now, and one more year, 65 years from now. And we even take a portion of the people, about 20 percent of the people who still have these back- breaking jobs, and we give them a hardship provision that allows them to still get Social Security at 62.

By doing things like that, we can make Social Security sustainably solvent, but if we don't make those kind of small changes, we'll never get there and it will go broke, at least by 2031.

O'BRIEN: And by the way, eight days away from these massive spending cuts hitting. Erskine Bowles is a co-founder of the Campaign to Fix the Debt, and also the co-chair of the National Commission on Fiscal Responsibility and Reform. It's nice to have you with us this morning. We appreciate your time.

BOWLES: Thank you so much.


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