And if we dont start acting now while the sun is shining we will be in real trouble when the rain stops. The deficit is down a lot of people probably dont understand the difference so walk us through the numbers with different fiscal metric how much more we spend than what we take given in revenue that is afforded 50 billion range that sounds like a lot of money considering 34 years ago we were in the 1. 4 trillion range so it is a lot better than we were then. But that is just temporary and a couple of years that will go back up. If you add up the shortfall each year then you get the debt that is the total amount that we go. Think of the Household Budget if you run short this week, that is our deficit but if you run short every weekend take money out on your credit card than next week and alternately that is what you owe. So talk about the National Debt the National Debt consists of the debt held by the public that is said that that is in your portfolio if the of Government Bond or treasury bond, a of course, it is a part of the chinese gold and foreign governments but that is though one type of data that the economists talk about a lot. It is also called intergovernmental that with Social Security and medicare and Highway Trust Fund where the government opposed these programs a certain amount of money that adds up to 18 trillion. That is said National Debt that makes the headlines. But also a third kind of dead and dash a debt that is the unfunded liability like Social Security and medicare to make these benefits under these programs in reno pretty well what we will take didnt with tax revenue and there is a gap between the two and while that is not as solid as a government treasury bond that we know right now, it is still money we promised to pay and we dont have the revenue to pay its. Throw all of that in and we talk about a real debt between 70 and 120 trillion depending how you measure that. Host eyepopping numbers. Go to the debt held by republican and a shared economy is twice the average historically. What does that mean . What do people think it is on the unsustainable trajectory. The rest of the road is so messed up their willing to lend us money at absurd rates of interest we are not as bad as it might be but one thing which is close that growth so it could be more difficult or less willing to take the risk because they see that down the road to pay back so they are less willing to invest or take a rest. But bin to be level of the debt. That is 2,000 less you would be earning every year last. Guest our children because of the amount of debt we are carrying right now. Plus we have to pay interest that begins to crowd out other government spending. Eventually a lot of money is paid to Foreign Investors that youre not able to invest that you might want to whether you spend on defense or social programs but instead it seems like a waste of money. Host this is all abuzz looking at the budget is the silly thing to think it would fix it but if you bring down the cost that is the fastest part of the budget. If it is anything like the historic rates of interest, we will shovel money out the door but it doesnt do anything. It doesnt help poor people will simply money going that will lend us money. Think a bit like your credit cards. May be like the new flat screen tv but if you pay that interest it is the money or doing anything with but just money you pay the bank. Host the Interest Rates would go up one percentage point that would cost 130 billion additional dollars every year those are staggering numbers. For if and when they go that will increase the cost to for the most conservative to cut taxes one of the arguments is but keep the argument to ourself . Guest that is a classic keynesian argument we should not worry about that because we simply oh it to ourselves. We could argue foreigners holding it so it equals out in the end but the bigger problem is that from the debt today discuss benefits with you borrow money to go to college ted nugent that did you earn higher wages when you got out and use that to pay back the debt, you are no worse off because it to borrow the money to go to college. That is not to make our wages better to improve infrastructure with a higher Economic Growth in the future. And then to give it to somebody when it is gone. The second part is the person who will ultimately pay it back to pay back that college alone, and there you go. So there is the unfairness with the redistribution and people will think about that in the future that it has to be repaid to affect the decisions today so we may not see the benefit from higher wages may not necessarily be there from a business that will hire you instead to pay back the loan host talk about who is borrowing and who is spending. But we barrault it from ourselves as the intergenerational issue. For the next generation that is very different so talk about that intergenerational all impact with that unfair taxation of representation we can we did not get to vote on this at all. But to pay for consumption today like to have the party today they do not get to go to the party but in addition people dont realize how little investment we actually do only 13 percent is a lesson that is not even a broad definition like Human Resources like education not just to build roads and bridges talk about federal spending were not talking about investment talk about personnel a or person be that may not be justified to grow the economy for the future. Host talk about Discretionary Spending or mandatory spending or entitlements. People argue it is not an Entitlement Program i paid into it and i get back what i paid in plus the interest and it is not like a welfare program. The reality is wrong. Entitlements is a legal term for a mandatory spending that congress does not vote on every year there is no annual appropriation. But people are entitled assuming they met criteria then Congress Sends whatever is necessary to meet those benefits. That is all it means but with price support the traditional welfare is not because they appropriate the money on an annual basis so those are things that people mess. Host 1 3 of the budget goes to appropriations and twothirds, how do people decide which is mandatory for entitlement purses discretionary but how to determine which is which . Him and then enacted legislation for the program how it is legally defined in terms of the process so certain programs have five years or tenures like the farm bill or medicaid or medicare or Social Security have no vote at all. Those that are subject to domestic Discretionary Spending with the Commerce Department and another 16 percent in defense spending that is essentially it that is of Congress Talks about. That is what the budget bill is about with those two sets of programs while everything from Social Security and medicare and medicaid, interest of the debt all that is outside the vote. Host talk about the sequester. Basically it was day cap and about three years into it now that only affected the two types of Discretionary Spending. And designed to impose those each year that would be spent equally between discretionary in defense spending. So as to take money from defense Discretionary Spending to the war fighting portion but essentially there was no sequester reduction mandatory there was some things with medicare but that was outside the up your sequesters so it is largely responsible for the slowdown of spending over the last couple of years. Host bring up something that we do a lot is at oco the overseas Contingency Operation is a slush fund for all parts of the budget where the government talks about to put money into the emergency area than normal budgeting areas and then they spend more than they are supposed to. Budget gimmicks as a way to get around things. It is purely dishonest with defense spending simply designed to get out from under. Fell one to pay for getting rid of them. They are in a situation that the democrats would insist the wave caps on domestic spending so essentially they took money not overseas war fighting and took routine spending to put it in their. Congress does this all the time of the emergency spending with Natural Disasters those that have no where near the Natural Disaster that occurred or defense spending the iran and iraq for was off budget and it didnt apply to normal budget rules but congress does this all the time and makes honest budgeting very difficult. It also raises questions to promise into the future with the gimmicks that we will balance the budget 10 years from now. Not exactly a trustworthy. Widthwise those involve savings that are very mysterious. One of my favorites is they continue the save money by not invading a country. After we pulled out of iraq we would save money by not invading iraq. Host so a lot of those savings when they pass the budget over 10 years all the savings are back loaded that is the point you cannot trust it if they start in the future. Guest retested this with medicare that essentially medicare was required from the Bush Administration to reduce spending every year. It didnt actually ever do that from a but it did more than was necessary. The requirement for reimbursed without was not realistic. So everybody knew we would not do that every year but it did force them to come up with other ways than they did do some of that. But they got tired of having to play the games every year now with a permanent fix they got rid of the requirement that the payments be cut back and said dont worry. We will come up with an additional 200 billion to offset what we will not save a more. We will not say what that will be but someday they will think of them. Host then they pass the bill without paying for it and add more money to the debt. Guest it gets worse. They will fix it someday then at least it acknowledges the fact they have to come up with savings but they dont. Host then you have the republican budget that says it would not add more to the debt but at the same time they pass the bill and adding 100 billion or half a trillion dollars over two decades with significant borrowing. The was heralded as the big bipartisan success because the only time republicans and democrats could agree is when they borrow money. Guest that is one of the real problems we have got that Neither Party wants to balance the budget. Democrats are happy to tax and spend republicans are happy to borrow and spend but the common denominator is spent so the idea to reduce spending is what Neither Party seems to be serious about. Host one of the interesting things is a difference of opinion. What is a responsibility . I think of fiscal responsibility you pay for what you spent in bad times you barrault the but over a certain amount of time you pay for what you spend but you make the case, that it is less about bringing the deficit down but bringing down your spending so to talk more about of perspective from cato institute. Talk about that. Guest the real cost of government isnt if it is taxed or borrowed but how much you spent. They both take resources out of the economy and transferred to government where it is not invested. Putin and while the so they both take money out of the economy and transfer to the government. And they are both equally bad. Republicans and democrats because Different Actors are bored by which you choose. But in this book to try to make the point ultimately you can have a government that is simply so big that is so much of the economy a can function regardless of how you pay for it to. Cbo estimated we would end up spending 21 of gdp by the government but the federal level another 10 or 15 . Spending a little over onethird of the economy by the government. But well be spending 40 or 50 debt the government level under current projections even if you paid for it to pay for every penny of spending you still could not have a functioning economy spending half. Host what would you cut . Willing to cut across the board obviously had great deal of the usual suspects but they dont get you very far. If you listen to republicans of waste fraud and abuse and we will kill big bird or defund planned parenthood plan that will not get you anywhere. Host it is the size of the budget. We spend all this money on foreign aid so to keep going with big bird and planned parenthood are 11 1,000 of a percent your not balancing the budget that way so pure defense is on the table despite the current climate we pick up the defense spending for countries that spend less because we do it for them. There is a reason why we spend 4 percent of gdp on defense and europe by countries like britain where deer what we spend because essentially we are the army for them. But the big money is the Entitlement Programs we spend 47 on just those programs along. You cannot really do much of anything unless youre willing to take on those three programs. We will talk about those in detail but first lady looked at entirely on the spending side . Blood of the problems that i have seen with the proposals to raise taxes today and promised tomorrow and i dont trust that once we have that locked in we can talk about taxes need to be raised tonight not to necessarily opposed to any specific tax being raised as opposed to overall revenue certainly i think there are tax breaks out there that are a distortion very or discretionary. Those sorts of things dont benefit the economy but distort how many moves around i would rather see a den and a revenue neutral basis but dont think that any particular is sacrosanct. They are 1 trillion per year of lost revenue the to get rid of them to a broader the base for the tax code or to spend them on something else, that many people and myself included think they spend through the tax code more than number taxes. Guest alicia believe government owns all of many but that said with the mortgage Interest Deduction with the tax break you currently get for employer provided healthinsurance is the second biggest that harms the economy and i would be in the favor to a much flatter system then we talk about the proper rate. Host then you have a lot of people to stop. Than they are targeted to certain things then pushed up the price so if you have a home owner Interest Deduction it has not helped as much that is why they lobby so hard. It goes to use second homes and vacation homes and you are right to whether the tax breaks or direct spending to pass through the same thing is true in many cases with collegeage they just take the money and raise the tuition. Host talk about being a libertarian and how that affects your thinking. Guest a thing staying here in washington one of the big four in terms of our size with the Heritage Foundation that is conservative on the right, the Brookings Institution on the left, American Enterprise institute that i think all politicians go to paying out and tell the next administration but they are centerright. From our perspective. But we are libertarian did we take that idea very seriously. That government does not believe belong in your bedroom or business or medicine cabinet. So over all aspects of peoples lives europe the only think tank here in washington several sieges the ones to cut defense spending, domestic spending, legalize drugs, a favor increased immigration and increase free trade so we are across the board believers of individual liberty. Host what are the issues you think about the most . Guest as a senior fellow i generally work on the domestic side of the budget. The idea was social welfare issues, poverty, welfare programs, health care from the Affordable Care act to medicare and medicaid and at the local level and Social Security and all as it feeds into the overall budget deficit and indeed for Economic Growth. Host also looking at poverty and income inequality. That is a big issue we are working on right now. We have done a couple of books in the past but basically then need of a way to get people out of poverty it shouldnt make people more comfortable but how to lift them out of poverty permanently and we need to security taxes none of that money is put away. It has nothing today with you. And then you hope when you come to retirement there was another generation behind you that will pay into the system that will support you in retirement. In some way its loic a like a pyramid scheme. Each generation was getting bigger and bigger. 16 people were paying for any person that was retiring and getting benefits out. Today is about three or heading down to two or slightly less than two. Now, were making higher wages that off offsets a little bit of that. In fact, the tax burden on future generations is enormous, it would be about double in terms of payroll tax. Well, and so after that, were living longer. Thats correct. One reason is is that theyre living a lot longer. Thats the quite a bit of time that we have to collect benefits as oppose as to pay into the system. When the Program First started the retirement age was 65, life expect, 62. It has gradually moved up to 67. Many people are living in their 70s, 80s and 90s. I believe you have to raise it to 71 or 72 to bring the system into balance. Theres a couple of problems with that, one is political. Its the least possible. People feel like youre moving the goal post on them. They hate that taking away. It doesnt seem to fly. Hopefully that will change in the future. The other is more practical issue. For me if you raise a retirement age its not going to make a difference. And you say lets raise the retirement age to 72, thats a big deal. African americans dont live as long as white. Things like that. You already have about one out of three black men that pays Social Security and dies before they can collect taxes. Its not a practically easy to raise retirement age. They are probably going to have to build in some accommodations for people who are working and probably cant work till 67 in many of those fields. Thats right. You have a different retirement for every class, teachers are retiring at that age and farmers are retired at a different age. You have lots of fights of who gets to retired gets complicated. One of the problems in greek that hair dressers have retirement at 55, therefore they cant work as long. How do we address Social Security . We have more promises than we have revenues to pay for . Thats only going to increase every year. The money coming in from the payroll is more than enough to pay for benefits and we have now switched paying more than you have coming in. You dont have a whole lot of choices, if you have more money going out than coming in 25 trillion in the program. Its real dollars that we are going to find in one way or another. I dont believe you can bring it in and really being unfair for young people who are going to pay a lot and get less out. In the future, future are going to get less. It has to do with how you call cu calculate benefits. 30 years of that are adjusted according to to wage growth. That should be adjusted according to to inflation, instead. Can you explain that a little bit more . Its complicated. Sure. When you call call theres a very intricate formula so that lower income people get a greater portion than higherincome people. That formula, five years dont count, just 35 years. If you look back 35 years is worth a different amount of money than today. Theres been an inflation. You have to adjust what those wages were 35 years ago. Traditionally for most programs thats placement adjustment. Wages actually guy faster than inflation, so what it ends up that you get higher than inflation benefit throughout the 35 years or 30 years that are adjusted, five years are not, every year that retires actually gets a higher inflation benefit than the year they retired before them. And that seems to be a little bit unfair and it also is very costly within the system. If you simply change it to a inflation adjust, you can bring the system into balance in about 30 years or so. Okay. And then are there other things that you would want to do thats essentially, we are telling young people we lied to them. Were going to get them less than we promised. I think that what we ought to be able to do, we ought to give them a chance ice cream. We should allow them to take some of their current payroll tax and save that in some sort of personal account where its invested, stock bonds, something of that nature. Now that does increase the shortterm deficit. That money is not paying for current benefits. A bigger whole. Moves it forward in time while reducing ill. I would get me you wouldnt say, oh, my god, i justin incurred a 50dollar cost. You have a problem with the federal debt. Its going to be difficult to make that transition. Right. Its not an easy time to make the deficit worst in the shortterm . Thats right. We face the same problems with overall programs. You have to face one of those three dances no matter what you do. Lets jump to to government programs, medicare. Medicare is even in worst shape. Lets tell the difference between medicare and medicaid. Medicare is by 65 and older with some form of Health Insurance in their senior years. Theres issues with the more sick you get in medicare, the less it pays. It doesnt really take care of longterm care, which is one of the problems with medicare, its essentially a Healthcare Program for the elderly. Medicaid is a little tricky. People on welfare are on, medicaid. Provides for the poor. Reality, though, is that a lot of the money thats spent for medicaid is actually back on the elderly again, because particularly nursing homes, because you dont have that longterm care component to medicare, someone who goes into a nursing and is going to spend the next four or five years takes money from the Medicaid Program to pay for that. Theyre more interrelated . Right. Both program for the elderly than the poor. People think of medicaid for poor program but its also another program for the elderly. Medicare, talk about the problems they are facing. More people taking more benefits living longer incident collect a lot more health care. People that are elderly tend to be more expensive. Sure. Thats where expenses go. The net result is that we spent a lot of money and dont take in a lot of money to pay for it. Its estimated that for a middleincome couple over the course of their life, theyll pay Something Like 150,000 in medicare taxes, plus premiums when they get to 65. How do you finance medicare out of two different pots if you will. Payroll tax 2. 9 that individuals pay in terms of medicare tax rates for wealthier senior. 2. 9 tax, up to 3. 8 i believe for people over 200,000 a year. So you pay that payroll tax, when you get to retirement age you pay premium. That pays for a small portion. Simply taxes into the system and they pay for the short fall. And thats what i was about to get to. 150,000 in premium and payroll taxes which sounds like a lot of money, they are going to collect 350,000 in benefits out of the program and that gap they are taking more out of Social Security than they paid into it. Exactly. Again, a lot of people think they are getting out of the program than what theyre putting into it. The vast majority they paid for it but not enough for it. We are getting back more than paying in. Its a combination of more people collecting and the cost of Health Care Going up. We lose money on any transaction to try to make up in volume. Even though health care has slowed, still one of the faster growing areas of the budget; is that right . We have seen it flow over the decades. It goes back about ten years that we saw this slide in cost, we dont really know why. The experts are all over in terms of theories on it. A lot of has to do with recession that we went through. We dont know whats going to happen in the future. Different Government Agencies have different estimates. If it does, then medicare could really balloon in terms of its cost. Both sides tend to have the same target in terms of how fast they want to let medicare grow. For all the debate in washington, you see president obamas budget and paul ryans budget having the future target for medicare, 1 faster than the economy. They just want to get to that by different directions. The president wants to push that down. Its so weird that republicans and democrats agree on a goal. Thats got to be something. They want to destroy medicare. We all admit that you cant bend medicare is unfunded liabilities are some where 50 80 trillion depending on healthcare costs. They come to the same point as to where they want to go. The president wants to push it down from the top. What he would do is in various ways reduce reimbursements to doctors and hospitals, pay them less and encourage them to provide Less Health Care to people. If we didnt cover procedures at 100 , 80 , doctors wouldnt run as many tests. That would help reduce the overall cost. Paul ryan wants to do it from the bottom up. He doesnt like to call it voucher. It really is a voucher. You give people a certain amount of money. You want more health care than that, you will have to pay additional amount of that. People will choose not to get quite as much health care. They both end up in the same place, whether those decisions need to be made by a group of experts or individual consumers tat bottom. Thats the debate we have today. What do you think . I favor Consumer Health care. The reality is that we do health care. No such thing of a system that gives everybody all the health care they want. Whether europe, united states, the debate is who makes the rationing decision. One example i can give you, for example, if we had every american get a ct brain scan every year as part of the annual physical we could catch a couple dozen cankers early enough to save peoples lives. We are not going to do that. How do you make that decision on who gets that ct scan . You cant have a ct scan, you dont qualify under whatever set of qualifications. We only have one ct scanner but you might wait. It costs about a thousand dollars for a ct scan. If you dont want to pay a thousand dollars, you dont get one. The difference maybe for you, the chances of having brain cancer is very small. Maybe your father died of cancer, maybe you sleep better at night. To you it might be worth a thousand dollars. Allowing you to make the decision is the best answer. When we first me, youre a lot younger than i am. A computer cost a half million dollars, a size of a house. One i have in my cell phone and they give it to me for free when i get a twoyear contract. Consumers demand better quality at a better price. Same thing happened with medicare. Lets move to medicaid. Medicaid is complicated because it goes through the state, there are so many different actual Medicaid Programs. Medicaid is funded out of tax revenue. The rest of it is funded by the state government. Its a very complex formula as to how many states get. Poorer states get more money than richer states from the federal government. In reality states with big congregational delegations tend to get more than states that dont have that. Sort of mix between the two. The federal government sets a broad guidelines. They can make a lot of the determinations as to how many doctors or procedures will be reimbursed. Who is eligible and who is not. Theres a loft of state input as well. The state governments have to spend more and more. Most states medicaid is the fastest growing, if not the single largest item, they spend more on medicaid than school, roads and bridges and so on. Would you do some of the same solutions you talked about medicare and medicare . How medicare. How would you address that in. Have state control has not worked very well. I would turn back to the states essentially and allow with the federal money going into a grant. Let them excerpt. We we know that we talk about a lot of problems. One of the problems in the Medicaid Program is that it is very hard for people on medicaid to primary doctors. Thats why they end up at the emergency room for treatment. I think that thats going to have to simply allow the state to experiment with this. Thats something the state should be determining, not the federal government. So one of the questions i have, other lessons from other countries that they have done right as the u. S. Is struggling, i would say dysfunctional congress. Its very hard to get anything done, very hard to address any of these problems. Are there any lessons that would help us from other countries are going . We can learn about what is going on in europe which is not to do, run obligations, which is impossible to collect the taxes for because people are just seeing that going on in greece today. Essentially a greek system between a rock and a hard place. Theres no way to pay back the debt to the european bank. I dont know what theyre going to do. You cant sort of that year to year. I think you can they have the debt break which limits how much debt that they can run up. If they want to run up for debt that than or spend more money, they are going to raise taxes. They have tax breaks as well in order to raise taxes you have to get its hard to raise taxes as well. Thats actually sort of forced them to restrain their spending a long the way. You also see countries, responded very differently when the recipient had, they did a lot of cut backseat in backs in terms of spending. They made the recession worst for them. Yeah. Now they are coming out of it in ways that allow europe, sort of an l shape. They didnt go as deep but they havent come out as well. They did cut back. Now youre talking about stimulus. Also keep us from bouncing back to where we were. When we talk about spending we think about the magic money. It can print it, i guess, spends this money and all the good stuff. In reality, money comes from some place else. In the book i talk about the french economist. He talks about the seen and the unseen. The example he gave was that, you know, the french government there was a french governor who was going to irrigate his farm. The french government comes and takes the money from him, taxes the money that he was going to use to hire and they build a road with it, they hire those people, look at the fron french government. We didnt create new jobs. Now he cant irrigate his fields. So you have to look at the unseen consequences or taxing a great deal of money in order to great stimuls jobs. So that example is about raising taxes but you would say the same thing for borrowing too much . Same way the people that sometimes need to borrow money. Not zero debt as a rule. You can borrow yourself out of prosperity. A different point of view we disagree on pretty much everything. He is clearly in his current incarnation is that deficits and debts dont really matter. Hes a big believer, he argues that if we spend that money in ways that ultimately lead to greater productivity. I think i would disagree with him. If you boil that money and did something with it the reality is that most of that money was various form of consumption. A lot of that money was never targeted to that type of investment. Well, thats one that theres a lot of disagreement on. Weve been arguing about that an argument that will continue, im sure. We still have a few moments left. Whats a big take away . The problem hasnt gone away but its a lot bigger than what we think. Politicians are happy to ignore deficit. Thats right. So if they can somehow pay for that and someone else can take care of that we dont spend time looking at the longterm problem. The deficit is down. Now its down for probably because we stop spending it. But the reality is breathing room. A little bit of breathing room. If we dont take advantage of that, if we wait till the deficit start to climb again, the baby boom is collecting medicare and Social Security, its going to be very, very painful. Something that cant go on forever will eventually stop. If you look at europe and a country of greece and see hard landing, i dont think we want that. If we start now, ultimately we can soften the landing. We have a little bit of time. Hopefully we have politicians to make choices and help us on soft landing. Thank you for talking about your book today. Thank you. Pleasure. That was after words book tv Signature Program in which authors are interviewed by journalists and others familiar with their material. At 10 00 p. M. On saturday and 12 00 a. M. On monday. You can also watch after words online, go to booktv. Org and click on after words in the book tv series and topic list on the upper right side of the page. Book tv recently visited in capitol hill to ask members of congress what theyre reading this summer. Well, the books im planning on going through, so my staffer actually was going around in a book shop and he found a book by joe cannon. Its actually written in first person. Im going to look at that because its fascinating about what it was like the history of this lobby. Constitution on biography. It talks about the language that was used, what the words meant at the time. I saw him on an interview in cspan a while ago. Hes fascinating. Theres also another one that former senator who is in 90s now entitled saving country from itself. I still think is the principle that we are going to save the country, thats the principle that will do. Im a baseball fan. Theres one called the code, a concept in baseball about why rules, why there are unwritten rules and how they are enforced. Sometimes you can show up a player and sometimes retaliate against if you show up against a player. There are some things you do and some things you dont do and there are ways in which we selfenforce those rules. I think its going to be interesting for me. Tweet us your answer at book tv or postit on our facebook page. Next is author