Enough already. Is that a good headline . I think so. What was the geoff and i who are opposite of people obviously can be. Are annoyed of watching anywhere in washington on anything. And our boys who runs fortune since there wasnt going to be resembling he would commission the people to propose solutions to we sat down and wrote it. Host how did you go about it . Guest it was pretty simple. We decided the smart thing get off the premises. Two of us went a couple of blocks down six avenue new york had lunch by ourselves. We went through the big issues here and we found that, you know even though we dont agree, as alan said, we come from opposite perspectives here. We were able, in a short time to reach general agreement on a few principles that were the biggest and most important ones. You know, the larger point here is that within washington, and look, a lot of people know it. At love people dont. Within washington, theres broad agreement what the financial problems of the country are. Broad agreement on the solutions, and reement thae nothing can be done. Its the most insane situation you can imagine. It seems to be host how do you different . What is your background or thinking . [laughter] guest we may as welcome out here. We didnt do it in the piece you know, its carefully written so you cant tell which one leans one direction. Lets put this way. The way we see is the opposite of the way we are. Im to the left of the and hes not the right me. Host what about on economics . What are your basic thoughts . How do you get your own position . Guest im a recovering english major. I never studied economics. I was cast to the world to write about business and economics by accident. I went out and tried to learn with no preconception, no anything, no courses, no graduate degree and whey can add and subtract. Im not trying to steal a line from clinton. Its not that hard if you do that. And i dont have preseptions. I dont love people or hang people or hang out with the Federal Reserve people. I Wander Around through life try ugh to figure it out. Host are you a follower of hayek . Guest a couple of points here. First of all what economists will tell you is for the most part, they agree on 98 of economics. I think thats correct. Its the 2 they dont agree on where all the you know important policy decisions have to get made. Frankly, you know, im not much of a that. Ill tell you that. Host which mean [inaudible] for the guest for those not paying a lot of attention to economics which is fine. You know, it means im something closer to the monetary what we used to call the monitorrist view. Something closer to the you know, u. S. A. Austrian its not. Host what does it mean . The practical guest it has a strong practical meaning now. The 700 and x billion stimulus product a good idea. They would say absolutely. The other side would say it was not a good idea and just not going work. And so, you know, my view would be i dont think it was a good idea and allan and i would disagree violently on this. I assure you. [laughter] thats the practical meaning of it in todays environment. Host how do you disagree . . Guest i think we needed to do something to stimulate the economy. I dont think we needed to do what we did. If you made me company and given me pown. I would instead of subsidizing Public Employee jobs not that theres anything wrong with that. My friends are Public Employees. It was a big part of the stimulus. I would have started all sorts of construction and tried to finish that tunnel from new jersey where i live within the railroad tunnel to new york which would be a huge value all over the region. I would have done it differently. Again, since i dont have a disagree in economics and dont want one. Wouldnt take it if they gave it to me. I was trying to apply common sense. Common sense we needed to something to shock the system. Which is what i call pragmatic economics. But i dont think we did the right thing. It was better than nothing and geoff probably disagrees. We werent writing about stimulus. Host we a long article on the website so people could let me start out with the first set the mood as you write, americas leaders arent leading and the damage is mounting. Citizens have complained for years about washingtons scabbling children, they would stamp their feet and resolve moment momentous issues. Host momentous issues. The games are child issue but the resulting suffering is serious. Pick it up from there. What did you i named nine things you wanted to change after the election. Guest thats right. We are in a situation we havent been in before. We are facing fiscal disaster. And thats not an overdramatic term. You can look at these charts theyre easy to find online. I encourage people to do a little search. Congressional Budget Office treasury. You dont have to go extremist groups. We are facing fiscal disaster. The debt of the United States, the budget of the United States on the current trajectory is going to bankrupt the country. If we dont do something. Host what is the worst thing that can happen . Guest the worst thing that happened is what happened last summer, the eye yachts, primarily, the republican idiots decided we can have the country default on the debt. Thats fine. If you have ever been a banking reporter which i have and you know how the Banking System works. If theres anything resembling a default on u. S. Debt its a disaster worldwide. And i thought we had learned something from that a year ago but apparently we havent. The worst thing that happens is the u. S. Default on the debt. It would be catastrophic for no reason. Idiotic reason. Host what results from that . Guest i mean first that happens, every bank in the United States with every major bank is bankrupt. I mean because capital is gone because the capital tied up in government security. Host what happens if i got went to the bank and want my money . Guest the fdic might be there. Its not like they would close they wouldnt its the same thing we had four years ago where youre facing massive bank failures, and you know you get your money from the fdic you wouldnt be able to get a loan. Your company, you know your Company Might not have been able to pay you. It couldnt borrow. The soundest companies in the world couldnt borrow. Host theres not enough money in the fdic. Guest of course not. Were talking trillions of dollars. Im not saying for the united defaulted tomorrow bank of america and citi and wells fargo would end and jpmorgan would close the doors and go out of business. It would be a serious hit to commerce and what remains of commerce and lending economic activity. Guest yeah. And the sort of larger problem here is we need to make very substantial changes in the tax and budget regime we have in the united. Very serious changes that are going hurt. And so nobody wants to do it and the worse thing that can happen is we dont do any of them until we have a crisis. The really horrible crisis. And defaulting on the debt would be pretty bad if it were allowed to happen for more than a day or two. But a horrible crisis could happen in other ways as well. For example, this is something we really have to pay more attention to the previous ten the leader of the counsel of economic advisers, maybe it was more than ten, from both parties last year jointly signed a letter and open letter to congress and the administration saying, look if we dont get the situation under control what is going to happen is one day no one knows when its going to be. For sure one day the bond market, all the people in institutions and the world that lend those billions of dollars to the United States are going start demanding a higher interest rate. It will go up and up and up. When it does what they said was we will have a financial crisis that will make the 2008 financial crisis look small and that is the real danger. Host one quick thing. A wack at the republicans. Guest yes. Host is that fair . Guest look in the negotiations you always have to give the impression that youre willing to go right up to the edge and over it. Its the same in labor negotiations or any other kind of negotiations. What youre really willing to do no one ever knows until the finally moment and in this case, of course when it came to the final moment the default was averted. So i tend not to blame either side. Its in negotiation. I blame them both because they couldnt come up with a solution. Host lets go to some of the solutions you have. You proposed a number of changes that could cur after the election. Start off easy. We could restrict the end of life care that medicare will pay for. Guest right. Host how can you restrict the endlife care . Guest thats just what you do. Im not going tell you specifics because i dont know them. I can tell you that i and geoff and i suspect many of the people watching this. Im guessing from your age you have seen what happens host thank you. Guest people you love get old and sick and end up in the hospital using vast amount of money. Its the end of life and theyre not going make it. An enormous amount of money is expended. Its huge. Its the scene Everybody Knows and nobody will talk about. Because who wants to talk about it . Host where do you go for that . Guest same reason. It accounts for a huge proportion of total medicare spending. By the way, one reason is the first thing in our article here is getting medicaid costs under control is the number one priority. Its the most untouchable thing tbhaw is going to cause more trouble than any other problem weve got fiscally in the United States. Getting medicaid cost under control is the number one thing. Host you say we surcharge smokers and the obese for the medicare coverage. Guest right. Host where did that idea come from . Guest it came from us. I mean im the person who put it in the memo. I didnt have to fight very hard for it. I ran in to this its something i ran in the Washington Post instead of calling people obese. I called them mega fatties. I was called out for being insensitive. I probably am. Everybody knows it to be true and someone has to pay for it. Im not saying you should bankrupt people who there should be penalties , i mean im not really a democrat but im certainly democrat compared to him. You have to be responsible for some extent for your personal behavior. Host quite right. We should point out were not the only ones making arguments like this. There are other bipartisan commissions and so forth. The democrat and a Republican Task force also said with regard to medicare we need to do something about the obese and smokers, they also had a proposal which was more complicated than ours for restricting spending on end life care. These are difficult painful decisions, but were going have to face them. Host take the obese thing. Would you say if you weighed x pounds over what the normal weight is for your size medicare would cut off . Guest this is why the lord created experts. Im not an an expert or control the liner. Im skinnier than i was but im not im not going say because i dont know. Guest a way to think about this, Insurance Companies manage to handle this kinds of thing. In other words its feasible you know, they will give you a medical exam before theyll give you certain kind of insurance theyll look at your weight, hart rate and million others to set the rate. We can do it. Its feasible. Host you say Social Security should be a payasyou go wiping out the Social Security trust fund. Guest any time sheer something to keep in mind. Any time anybody mentions the Social Security trust fund unless theyre telling you its meaningless, whichs will theyre probably leading you astray. Host meaning . Guest because the Social Security trust fund by law must be invested in u. S. Treasury securities. So it means that when the Social Security trustees go the treasury to redeem one of their Treasury Bonds they hand that to the treasury say we would like our money please. The treasury gives them the money and goes out to the world to borrow it because otherwise they dont have it. So just more government borrowing. Host what would you do about it . Guest what i would do is what we proposed in there. I have spent years covering Social Security, i have angered any number of people by writing what geoff said. I have written it for ten years. The Social Security trust fund has moral significance but no financial value. What i would do is what we proposed in there. Basically pay out other twenty five years the balance of the trust funds and recipient. In twenty five years you have a system that the money coming in would be about equal to the outgo, which is the way it used to be before 1982 and i dont want to bore you with the details, well lose what remains of the audience. [laughter] but it is a pay as you go system. Its got the trust fund, which is a weird economic thing having to do with Social Securitys rules, but has no economic value and lead people astray. Host right. Lets get rid of it as a diaster. As already a pay as you go system. Lets call it what it is and make it work. Host lets sphee we can get advise from both of you for people who are watching this election. What is absolutely going to happen after november 6th . Absolutely going to happen. No matter who is elected that will have to do with peoples pocketbook and the money. Guest its a great question. Host no matter [inaudible] guest yeah y yeah. Thats a very good question. I think what we can say with confidence is that the winner, whoever he may be is going have to do some sthawf will stuff that will make him very unpopular. The reason i say this, we face a debt and deficit stwhaition is situation that is simply unsustainable. Frankly, next year is the big window weve got right after the election, you know the first year its either going to be romneys first year or obama, you know in the last thing hell never run for reelection again. We wont have to worry about it. This is going to be their window cut the budget in some significant way or at least have an outline for cutting the budget and reform the tax system in some kind of significant way. The question is, will it be the big picture we forms we need or is it going to be a 12month solution . But theyre going to have to do something that is going i hate to say that. Host everybody . Guest darn near. It may be that and, you know, if you up hurt the upper income people . I think so. The only reason i hesitate probably at the bottom of the income scale care will be taken to make sure they are not hurt. Host what would you say to somebody listening to the candidates and promise that you elect me and everything will be fine. Guest yeah. Host that happened, what four years ago . Two years ago . Guest and it happened eight years ago and twelve years ago and fourteen years ago. The answer is everybody isnt going to be fine. What i hope is happen. What ive been calling for 15 years shared sacrifice. Everyone will suck it up and grow up. Weve been yelling enough already and well cut some of these programs or, you know, cut their growth, and well increase the tax revenue to the government, and well act like a Civilized Society was sharing the pain. Instead of this fantasy that i can have what i want and everybody else pay for it. Host let me knock down another one of your idea here. Not knock it down bring it on the table. Guest cross it off. Host the largest element of spending after social insurance is defense. Its budget can and should be cut. Now, youre a conservative. Guest yes. Host and i think ive heard mr. Romney talk about the fact were not going cut. Guest right. Right. Here is the reality again that has to be faced, and, you know, if youre running for office, i guess its one of those things you cant say but it still needs to be said. Yes, the defense Defense Budget is large and needs to come down. Again, if youre not running for office. You can say all of this stuff. Alan simpson, a republican will be happy to tell you it can and must come down. He points out that the u. S. Defense budget is larger than the combined Defense Budget of the next 14 largest countries in the world. What really struck me this year was the house in may passed an appropriation bill for defense. Host okay. Guest were they looking to cut . No, in fact they passed an appropriation that gives 3 or 4 billion to the pentagon more than what the pentagon asked for. The pentagon specifically wanted to cut back or reduce a drone program, a tank program and submarine program the Defense Department said we dont listen, we dont want them. We dont need them. The house put them back. Okay. This is about, frankly sending port back to the district rather than addressing the countrys fiscal needs. So, yeah the Defense Budget can be cut, and frankly the Defense Budget knows that and is ready for it. They just want it done an intelligent plan orderly way. Host allan, the word sequestered. What in the world does the word mean . And people suggest its sequestering the Defense Budget over the next ten years will be a disaster for our national security. Guest again, i dont pretended to know. Showing you some of the dynamic here, the social the cutbacks on Social Security and medicare. Those were things i threw in to the pot the first thing. Geoff is the guy who threw in the Defense Budget. Frankly i wouldnt have thought of because its so untouchable. Host right. Guest what will happen . I dont know. Do you understand how the military works . Do you know where the money goes . I mean i dont know. I dont know about defense except we have to have it. But like geoff,ic we have to be spending too much money for what we have given the what the rest of the world spends. Host let me just take a brief pause and ask you what you think of the elected officials in this country. From your position. What do you think of them . Guest well i think that you know, some of them are wonderful. A lot of them, frankly are trying to do the right thing and wish they could. I think an awful lot of them feel trapped by the forces that work in the society that force them to disdain comprise to treat politics as warfare which honestly didnt used to be. Its been a rough and tumble sport. I think most of them, not all most of them would in their heart of hearts would be willing and happy to comprise. But they dont feel they can if they want to get reelected. Guest i agree with everything he said. At least this time. Host one side better than the other . Guest i mean, the question is one side worse . Host are they different . Guest yeah. They are different. You can argue it either way. Im not here to talk about the infaa my or the problems of all of this. This is not what i want to talk about. Im not in to politics. Ill just otherwise i would get myself in serious trouble. Host let me go back to the geoff colvin and allan sloan. You said the tax code is dragging the nation down. Here is how to stop the damage. Broaden the base and lower the rate. Guest yep. Thats it. And the great thing about this in my view, is that this is as a general principle a dead Center Middle of the road idea. This is something that both sides in principle can agree on. Theyll fight over the details. But, look we have the simpson bowls commission. The chairman, mr. Simpson and mr. Bowels bowls said this. We had the task force with alice and pete that i mentioned earlier. Bipartisan. They said exactly this. In those words. What does it mean . Guest very simple. It means we get rid all of kinds deduction, exception, credit, special break that are in the tax code today. We just get rid of a lot of them and by doing so we can then lower the tax rates that are applied to everybody else. Host what are the chances . Guest well reality. Reality is if we have what i have expect will happen, which is a big crisis that scares everybody including zealot on both sides. Again, i would argue the real is coming from republican party. Many of the democrats are no surprise prizes. Maybe every will grow up and do this. Its not our job to predict what happened. We wanted to say what should happen. These are things that geoff said Everybody Knows who who studied this seriously but nobody wants to say whether it will or wont happen. I dont know. It should happen. Host i think allan gets to an important which is fundamentally how bad a crisis will it take before the flared washington can agree on a big comprise. Host they have been predicting in your line of work around the world. Theres going to be a capacity. Guest yeah. Host serious people. We are headed toward cat fee. Is categories catastrophe. Is it possible . Guest of course its possible. Im 67 years old. Ive worked my whole life ive saved and been thrifty. Ive been a good boy. No matter what happened my wife ander will survive financially. Host no matter what happens . Guest if a meteor kills everybody ill be dead. Host people are suggesting a money wont be worth anything. Guest thats the advantage of being 67. [laughter] ill take it with me out of spite. [laughter] , you know im not in to apocalypse. I studied religion. Im not in to apocalypse. I dont know what is going to happen. I think just like four years, people got scared enough to do something. You can argue about where we did the right thing to save the system from collapse. Theyll save the system from collapse the next time around as well. The only way to and not have the recurring problem is to do the kind of things geoff and are talking about. Guest the catastrophe is certainly possible. My own view is unlikely. Its possible. But i think the probably is pretty low. The greater probability we just go nowhere for a long long time. That unemployment remains at a fairly high level, kind of like it is today. That Economic Growth remains at the slow rate like it is today. Living standards dont rise for some years to the future as they have not for the past several years. Its not a nice scenario. We frankly, i think it looks fairly likely. It could be improve but not completely. But certainly can be improved by some bold big picture action. Host i want to come back in a moment. I want to find out where you are from and how you got here. Geoff, where did you start in life . Guest i was born and raised in south dakota. A wonderful place. I was incredibly lucky to grow up where and when i did. The family moved a little bit. We were always mid westerners and host what did your parents do . Guest it was interesting. My father owned a printing business in south dakota then in the middle of his career he decided to change his career completely. Sold the business, went back to school, got a ph. D. In clinical psychology, and the second half of his career was on the faculty of a medical school. In illinois. My mother, similarly mostly worked at home until the kids were out of college. At which point she went law school and the second half of her life was spent working as a lawyer. She practiced law. Host when did you leave south dakota . Guest we moved away when i was 1 years old i finished high school in southern illinois. Carbon dale, illinois. Host illinois university. Guest absolutely. My father was on the faculty there. I went off to college, went to harvard, majored in economics. Came down new york and worked briefly for the founder and chairman of cbs. That was waferl experience. I went to fortune and have been there virtually my empire career. Host what do you do for cbs radio . Guest ive been on there for 26 years now doing short report carried on the station around the country. You know these are small reports like everything on talk radio these days or news radio. Its short. But i do a couple of those every day. Host and allan sloan . Guest i had the polar opposite of geoff. I grew up raised. In brooklyn, new york, which is not really like south dakota. Guest no. Guest i went to Brooklyn College because it was free. My father, may he rest in peace worked primarily for nonprofit organizations, and my mom she worked before they were married and after my father she worked she did business out of her home our home when the kids were there. Thats, by the way, when i learned how to count and do all sorts of things. I helped her. It was very heavy collar clerical stuff. I did everything in my head because it was faster. There were no calculators. Its been a help journalistically. I can do numbers in my head. Host how many years were you in newsweek . Guest for twelve years. I bounced around all over before that. I was in charlotte writing sports badly. Then writing business, then i was at detroit for seven years. So all of our children, all three have michigan birth certificates. Then i ended up at forbes a cup the of times and ended up here and there. Then i ended up at newsweek and i thought i would be there forever. That didnt quite work out. Five years ago i went to fortune. Again, im the polar opposite of jeff i knocked around. Went a public college. I was raised in big city. Sister sort of fun. Its sort of fun. Host when did you first Start Talking to one another about . How long . Guest not long ago. There was some day in august. Guest it was the last thursday in july. I was going away for the month of august on vacation. Guest right. Guest thursday our boss comes to me and says you and geoff are going do this. On that friday we had lunch and we started working on it. Host has there been so far any strong reaction . If there has what is it . Guest weve had a tremendous amount of reaction. I cant recall getting a reaction like this one in many many years. We just heard from a huge number of readers. Most of whom were very they said thank you it needed to be said. Some of them of course didnt like the proposal. We heard from them too. For the most part what we heard from lots and lots of readers. Guest have you too . Yeah. Host where did you have the picture taken . [laughter] guest that was, i guess, its im sorry. At 51st street. Guest exactly right. Host with the hats . Guest a suit tie and dressed in khakis . Whatever else. Does that Say Something . Host i didnt know they were going it take my picture. I was at the beach in a place called south new york when the request comes to, you know, have the picture taken. I said, fine send a car pick me up at the beach and talk about me to my house in new jersey so i can get a suit and take know fortune and back to the beach. And the answer comes, well we dont think we want you wearing a suit. So i was trapped and my wife, who is a nice person was mildly annoyed, but the only choice was the chambray shirt. It was the best thing i had the beach. Host your life guest its a nice picture. The picture came out very well. My outfit well, you see today im not wearing a chambray shirt. Host right. Let me go back to the article before we run out of time. This is the one i label the sixth suggestion. The exclusion for Employer Sponsored Health insurance. Guest right. Host millions of people guest thats exactly right. As we said i think the weirdest tax expenditure in the whole tax code. It makes no sense. Its a hugely valuable benefit that everybody who gets Health Insurance at work receives but unlike the other things you get at work like your salary, it isnt taxed. Host you say its 1 77 billion last year. Guest thats how much it costs the treasury. Guest thats right. Guest in lost tax revenue because of the provision in the tax code. Its very unfair because it means that Health Care Benefits medical insurance costs much more for people who dont have a job and have to buy it on their own than it costs for people who have host do you buy this allan . Guest this is one where geoff put it on the table and i gulped and thought for awhile and said, you know as part of an overall deal. I can accept it. When mccain was suggesting this years ago, i criticized it but its part of an overall package i can accept that. Host the next one though, guest the next youre right. Its hardest of them all. Host its number seven on my list. The Tax Deduction for mortgages. Guest yeah. The it can. Its part an overall package. You have to do it. Same thing with state and local taxes. I live in a highcost place. I would say i dont want this but again its part of a package. Right. I would take it. Eliminate it but also lower tax rates over all. So it isnt immediately clear to a given person whether the tax go upanddown. It might be they go down. And in any case as a matter of logic, it makes no sense. Host how long have you felt that way . Guest i cant remember. For many years. Once you focus on it and think about it. You realize there is no logical reason for that to be a Tax Deduction. Lets remember, you know in other countries such as dan they dont have a Tax Deduction for mortgage interest. We might point out canada didnt have a housing bubble. Host going back to the earlier Health Insurance. Did you consider this business of exchanges and the state that are coming about because of the horrible Affordable Care act and drop insurance and do the exchange . Guest yeah. Again. I have a daughter who is a doctor, i know more about the Health Insurance business than i want to know and the finances of it for reasons we wont go in to. And i have real problem with the obama thing i told it could have been simplet leer by setting up with the government instead of trying to regulate the world. I mean words i dont understand the workings of the Affordable Care act. I dont think anybody knows enough about it to have an informed opinion. Rather than Say Something stupid ill say nothing. Guest ic the point you are making is the end the tax break who get the insurance through work. As you said, its pretty certain fewer and fewer people get it through work. Theres stuff in the Affordable Care act to try to help thement buy on the own. We are we saylet make it across the board. Were in new york. I can hear the lobbyists all the Different Companies that benefit from this in washington. I hear them they are yelling. Guest they are already yelling. Host they are power really. Guest there are limits on how much you can dededuct. I dont know if it made it to the Washington Post. We staid should be phased out over time the deduction. As not disadvantage everybody who bought on the basis of the deduction. Which i first bought houses i calculated the deduction to figure how much i could afford as a payment. You cant just change the rule and hang people up. Because they you cause them trouble. Theyll never get out of the house financially alive. The price will drop. But if you face this and do it over time it can be made to work. There already restrictions on how much interest you can deduct. Host its in the piece. You say basically it should be done over time. Its the only fair way to do it. By the way. We have a couple of excuse me. Was there any one of these you got the most reaction about . Mortgage, Social Security, guest i cant say there was any one we the ones you touched solve are the hottest buttons for sure. Medicare is the hottest button. The mornlgt interest yes. By the way, later on we say we should eliminate the deduction for charitible contributions. Guest Tax Deduction for state and local taxes and charitible gifts. Explain what it is. Somebody never thought about it. They go to a tax preparer. Guest if you make out a check to the church or the school you went to where you went it can be if you itemize your deduction thats a deduction. You write a check to a religious organization or any sort of nonprofit. Host all of guest yeah. Thats right. Again, were talking stop looking at me like that. You know im host im wondering. Guest the only itemized deduction i get the benefit of anymore because im in the minimum tax. Thats the only deduction i have. But again as part of an overall thing i would be willing to you know, throw that in. Rep, my father worked for nonprofits. I mean, if he was still alive. He would kill me for suggesting this. But, you know, the real problems in this country. And we need to think about them differently than we have thought. Capital gains and dividends. Its only like a sentence or something its a perfectly good term. It makes it sound dramatic. Thats good. It is dramatic. What i think will happen is a short Term Solution will be donted by the lame duck. It will solve the problem so the cliff doesnt happen. If theres anybody that doesnt known what it means. It means taxes will go up on a first of january. And lo the of Government Spending will be required to come down. I think the cliff will be averted in a unsatisfactory short term way that doesnt help business make plans. Host we listened to president obama alter the campaign say the rich people ought to pay more. If hes reelected, what will happen in one side or the other has to cave. I suspect taxes will go up on upper income people. His definition of rich includes im not sure what rich means. I think taxes that i pay should rise, but they should be more i actually pay not 15 on Capital Gains if i had any. I take 22. 5 . I pay host why . Guest the crazy workings of the alternative minimum tax. My accountant would greatly inform me once something i written was wrong about the tax rate. He told me im in the phaseout bracket of the alternative money mum tax. If i can get 150,000 for income my tax rate would drop. I friended it to the boss who is not sympathetic. He didnt want to give me the 150. Its not nice. I have to have an accountant. I cant understand the return why get it. Its crazy. 20 on Capital Gains isnt going to kill anybody. I treat it the same way as income from work. I would lower the rate on everything by broadening the base. Host what do you think . Guest what do you think will happen . Is it better off as a country better off that everybody is elected from the same party in the presidency or better off having guest thats a good question. In the Current Situation i say were better off with wided divided government. The reason i say that is when you get legislation that passes only because one Party Controls everything, it isnt stable. And the great example in this is the Affordable Care act obamacare, as some call it. Which was enacted without a single republican vote. Okay. It was enacted because the democrats controlled both houses of congress, plus of course, the white house. Now the problem with that is Business People who have to make plans if after the election the republicans have control. They prompted to repeal it. This is the largest ever regulation of the largest sector of the largest economy on the planet. Guest okay. Guest the idea it stands as the law of the land or depending upon the Election Results could disappear completely is paralyzing for businesses in this country. Its so much better if we can divide government and have them agree on something which they may finally be forced to do. Host did you have any trouble getting your ed for editor at fortune frn magazine to accept the article . And that was the whole point. Cspan theres a last point i want to ask you about and i said it was number nine on my list but the biggest Corporate Tax expenditure by far is the deferral of tax on wealth income earned by multinational and abroad. How does it work . Guest the way it works to the extent i understand it is if you are say General Electric and you make money in germany conquer you dont pay u. S. Taxes on the german profits until you bring the money back to the United States. You know which again sounds like very rational and okay but whats happened is things are so complicated now that companies the Big Multinational Companies who can afford accountants apple does this and i think google does it, cisco. The subsidiaries the profits are supposedly made is a tax haven where the company has nothing but a law firm and you know you dont pay any tax. And i think that this is the only thing that jeff and i cant reconcile and if you adopt the idea that you continue to do for taxes earned oversees that no American Company will put a penny in the United States because they will set up all this crazy stuff. Guest the problem is as alan suggests if they would pay u. S. Taxes if they brought the money back into the United States and the u. S. Tax rate is on corporate profit highest in the world then they dont bring the money back into the United States so they are constantly being accused of doing all they are investing in and so forth in other countries. Part of the reason and certainly not the only reason the part of the reason is that they are. Cspan let me ask you this for people who are trying to figure out who to vote for her. Will it make a difference in your opinion and what will that difference be if you elect mitt romney or barack obama . Whats the definite difference and admiration shipped to this conversation. Guest im just not going to go there. Cspan right or wrong. Guest who will be in the senate and who will be in the house and you will tell me all of these things. Cspan that is why asked that question because as we discuss the selection nobody ever factors and the house. Guest in fact im working on something that the president has compared to what people think the president has. Its really not a question of who wins. Its a question of whether people grow up and maybe they will grow up because they know they should grow up in both parties we will restrain the zealots and grow up and act like run ups. It has nothing to do with who wins or loses. It has to do with behavior. Voters are going to like these guys. Or the people, excuse me. The people want to do this. If voters dont do it if the people do it. Cspan are you saying to these elected officials this is what we want you to do . Guest there is a large element of that i fear and we do want some of the voters definitely to grow up as well and just realize that someone who is willing to go to washington and compromise is actually what we need. Now when you ask whats going to be different depending on who wins one thing we can say for sure and maybe the only thing is if the republican sweep which seems highly unlikely at this point that if they sweep White House Senate and house of representatives then apparently obamacare would be repealed because mitt romney and the leaders of oath houses on the republican side have pledged that they would do that and with the republican sweep they have the vote and they could do it so presumably that would happen. Beyond that all we can say with regard to the pleasant president ial election what would change is what is proposed by the president to the senate. And that certainly shifts in the direction of the debate but what can actually get enacted assuming we have divided government which i do believe is the likeliest outcome i wouldnt even venture to guess. Guest if i could for a second. I think even if what you say happens unless the republicans have 60 votes in the senate. As they well may. Guest you want repeal obamacare. It wont happen. Youll have gridlock in the other direction. Because now its no longer the other people have the majority and we have to respect them. Its what can we get and what can we extort . Immutable system is just. Cspan attacks doesnt get much discussion in the Affordable Care act. Theres a 3. 8 increase in tax over 200,000 on a single or over 200,000 on a couple an additional. 9 under medicare tax. We are getting into the numbers but bad if you combine it is almost a 5 increase without the reversing of the bush tax cuts. Guest is a substantial tax increase. Guest for People Like Us who have substantial incomes. Guest part of that and i am a tax cutter but the part of that i would endorse actually is the increase in the medicare tax. Its unpleasant and its unpalatable but that sort of step one. Cspan going ahead in the near future without changing anything with the help thats being passed, what will people conquer the average person paid for their medicare tax and month for how long and windy get the point per nine. 9 added . Guest a think thats next year. Cspan is that added after 105,000 . Guest i think its added after 200 or 250. Im just not sure. I just dont know the workings because right now the medicare tax is 145. 1. 45 . On all your salary income. So it would go to 2. 35, Something Like that. Cspan can either one of the explain, both sides talk about the 700 milliondollar savings. [laughter] in Health Health care but who is right . Guest you can see that we both have become just incredibly frustrated by this. It has to do with the way these things are talked about in washington which has nothing to do with the way real people talk about real money in their real life so in other words the current projection is that medicare spending would increase by x hundreds of billions of dollars over the next 10 years. And so the obama plan said they would ring that figure down. They would bring the growth down by 700 billion. Only in washington is that called a cut. The amount spent would still be more than is being spent today. But it wouldnt be as much more as previous. Guest also whatever would happen is just a projection so the obama people to make the Affordable Care act look better say heres all this money and the congressional Budget Office says well safe. Its not that they are proposing to cut medicare. Theyre just saying the things we have done will cut it. Who knows . Guest what they are saying is we will spend less than we believe we would have spent otherwise but its still going to be more than we are spending today. This is why you cant talk one reason you cant talk about this issue. Eyes glaze over and understandably so. Cspan at graphic in the washington in the the Washington Post shows in alpha and anna donkey backtoback in the ring. Guest in diapers in a sandbox. Cspan i did not go into your article because guest we didnt agree on the Corporate Tax reform and we just said we cant agree on it. And i think that was it. Now we tried to get more detailed than who knows. We dont have a staff and we didnt have 500 pages so we didnt get very detailed. That is where we might have disagreed. Cspan allen sloan if you are running for office would you guest yeah. Of course i would. Im not going to Say Something in public. Cspan what does this really say . You both have alluded to the fact that a lot of people running believe this has to happen but what does it say about her system . Guest it says that people on all sides of the table think they are telling people the truth because they think people arent ready for the truth and to tell people the truth they arent going to win. Guest its a problem in the culture. Fundamentally that is what it is. You cant exist with a law. Its a problem in the culture that compromise is now. Cspan you close this article by writing is the economy cries out for help for adult supervision just maybe the moment has arrived. What chance do you give it on a percentage basis . Guest i will tell you the chance that we are going to get big longterm big picture reform and the next congress in the next two years 20 . Cspan whats the right way to pronounce your last name . Guest colden. Cspan jeff colvin and allen sloan will what in your opinion are we going to get when this moment arrives . Guest guest geoff has thought about this more than i have. Cspan thats the first time i ever heard that. [laughter] allen sloan and jeff colvin thank you very much. People can find your article on the cspan web site or vote Fortune Magazine or the Washington Post. Thank you very much for joining us. Guest thank you. Guest our pleasure. In a few moments on the communicators the president of the National Association of broadcasters gordon smith. Host this week on the communicators gordon smith communicators gordon smith who is president and ceo of the National Association of broadcasters our guest reporter paul kirby of telecommunications report. Senator smith you started at n. A. B. Four years ago. How have these issues changed in the four years . Guest it seems like the issues just keep on coming and they tend to be very major issues affecting both radio and television but clearly on the radio side the whole issue of performanperforman ce rights, performance tax whatever you want to describe it as is an ongoing challenge and hopefully the day will arrive when both the digital and the platform role ,com,com ma but the model that works for both. But right now one has an unsustainable Business Model and the other one works for radio but on the other hand we need it to work or the performance too. If you provide a rate that simply destroys local radio that is a bad thing. We cant stand idly by for that. But a lot of contractual negotiations are going on with some of our major members like Clear Channel doing deals with labels so a market is starting to develop in that regard. On the Television Side obviously the other big issues are spectrum which is now out of congress and into the hands of the fcc. Retransmission consent and must carry and ownership restrictions. These are all things are of enormous comfort plans that affect Television Broadcasters large and small and bearing gauge and all of them. My Biggest Surprise is how many big issues keep coming. Host speaking of the fcc and it looks like theres going to be a new chairman of the fcc. I want to get your views on tom bleiler and moving ahead with him. Guest we support the confirmation of tom wheeler. I personally do not know him. I believe i met him on one occasion but what i know of him from people whose opinions i value they hold him in high regard. He is both politically savvy and business experience than he has run two trade associations so he will certainly have an idea of the job that n. A. B. Has to do for our members so we respect his resume and look forward to engaging with him. But having served on the Senate Commerce committee he wont be confirmed until there is a republican to pair him with. Thats just the way it works their than i can imagine that changing. Sometime this fall hopefully before christmas we will have a fully staffed fcc commissioner. Guest one of the major issues at the fcc is the incentive auction. First of all the fcc wants to hold an auction next year. Is there concern to rush things and not look at things carefully enough . Guest it may sound cliche but we said from the beginning lets do it right and not just right now and that really has a lot of meaning to us. We have great sympathy for the fact that this is enormously complicated process that they are going through. What we have asked of the fcc commissioner is more transparency the more engagement. It might be conventional wisdom that of broadcasters want to stop this actually i think its in our interest to accelerate this to the degree possible while still living up the right. This has enormous consequence to the nation that there is a dedicated and healthy broadcast band dedicated to broadcasting if we are serious about preserving video on a large scale that is free and is local. These things are hugely important. People in the information age, people still care about that and run the big screens and watching their sporting events are getting emergency information or staying up with the news. It comes from broadcasting and a very significant way. So we gave up a lot of spectrum when we went from lr to digital. We are being asked for more but i think its important to understand the Broadband Community has twice as much spectrum as we do. They want more of ours. At the most this option will add 10 to their Current Holdings but it will require roughly moving 60 of television power. Thats an enormously and you cant underestimate the potential for disruption to the American People. If this is not done right. We asked for transparency and more engagement. We actually have at the n. A. B. Some of the brightest minds in the physics of spectrum in america and a lot of the problems we could help resolve if we were included at the ground level so the Software Works out right and isnt put out and then have to go back and put out and go back we could resolve a lot of these things together with the coalition we have formed with the Broadband Community. Theres a community of interest here to get it done as quickly as possible and to get it done right with the least amount of disruption. Guest is that why n. A. B. Said at a recent hearing about the incentive auction some have described it as a win, cowen when. And maybe does not see a win for broadcasters. At this point we would settle for a win, cowen tied. Why is that . Guest because spectrum is a finite resource. Spectrum is the seed corn of anybody that has it. If you dont get that you dont have a crop and if you want to talk about corn feed we can talk about that. I know something about that. Women talk about spectrum we are actually really talking about the very significant Public Policy. Should this nation have a dedicated dry casks band and the answer is clearly yes. If we are interested in a medium that does video like no one else can. If you took all of our spectrum and try to do all that video through broadband candidly there is not enough spectrum to do video 121 versus one for everyone technology which again is live in its local. Its free. Its importance. You cannot do the super bowl on a one to one basis. You have to have broadcast so thats why we think its important to do it right. Not right now but do it as soon as we can do it right. Host senator from your former seat on the Commerce Committee and as is the head of n. A. B. Now what about the use of averments spectrum and utilizing some of that unused spectrum for commercial purposes . Guest well i mein kompf of the government has have to spectrum out there. Its used obviously by the Defense Department and on the Commerce Committee when we asked if we could get some of his to put into commercial use the answer was always jokingly they have got guns. And they have to give it up and they dont want to give it up anymore and i suppose any of our broadband friends. And you know but it takes the administration to tell the military to surrender some of that. There is an effort now to get them to relinquish them. Unless you think theyll would crowd the government. They went as we did from analog to digital which created efficiencies which enabled rochesters already to return 108 megahertz of binary spectrum real estate. They went to digital. They got excess space and dedicated to the commercial purposes well. We think there is a lot that the government could do to solve this problem for our broadband friends. Guest the department of defense has a proposal that would involve giving up most of one band but they would share with broadcasters and others that 20 to 25 and 2110. Broadcasters use that that for newsgathering and other things. Your reaction to that plan . Guest we are open to considering but i would simply note that i think it was a year ago that the Defense Department said it wasnt possible but that hand is important because that is what broadcasters use particularly in emergency circumstances. That is the band that allowed president obama during the boston bombing when he was getting his news via cable but we were told get me a live broadcast feed. It was on that very band that he was able to watch live what was happening in boston. So again go when these ideas are floated its really important to get into the details and find out the consequence of the suggestions that are put out there. Again, good something is changed by the see the tests that say can work now where it couldnt have a year ago. Guest looking at some of the complaints how was the fcc not in transparent . They said that they met with n. A. B. Folks. Guest understanding at all is really what they want us to do. We will that you see what we are working with. What we could do with them if they wanted to get us and our broadband colleagues together in a room we could tell them what we think works and what doesnt and then if we are all in the same boat getting this right onto i think we could have a lot fewer starts and stops in this process. For example, called one of the major things that has to happen is these new agreements with mexico. These are very confiscated international relationships. Spectrum airways dont own the difference between the u. S. Or the Canadian Border and if the auction is going to be successful in sufficient quantity, this has to be resolved with canada or you will literally disenfranchise broadcast tv from all of our northern and southern states. I dont think thats something that the fcc would want to let us be a part of that. Let us know in the beginning the part of the creation instead of responding to their best guess at this point. Host gordon smith we recently had chet kanojia on this Program Founder of aereo. We asked him to respond to people saying that they are stealing socalled stealing broadcaster signals and heres what he had to say. At some point you have to call it what it is. Its namecalling because with three federal courts expressing an opinion that its Illegal Technology and its consistent with what congress intended its difficult for me to look at it any other way except as namecalling or mischaracterization. The fact of the matter is that this content is paid for by the consumers and advertising spectrum that the broadcasters have. Guest i would respond it is true, then the Second Circuit and not a lemon area injunction against broadcasters. Yesterday in the ninth circuit case called aereokiller the ninth Circuit District Court held that it was in fact identical fact they held was not in violation. That happened yesterday. Ultimately this will have to be decided i suppose by the supreme court. The principle is simply this. If you want to put out our stuff and you want to charge someone for it then there is the copyright issue. If aereo doesnt want if they just want to provide the service and not charge for it i think they have a better case but ultimately when you take someone elses property and you resell it you owe them for it. You should negotiate for it. Thats the requirement of copyright law and eventually the courts will decide this and certainly the market will. As Television Broadcasting becomes more and more mobile. It used to be ubiquitous broadcasting with a big tv in your living room. Now its pretty much on every device you can have. Thats going to create a Real Investment problem a return on investment problem for aereo. Guest another new Technology Creating problems for broadcasters is hopper and broadcasters recently lost their attempt to get a preliminary injunction there. If that goes forward it allows basically consumers to skip commercials. Some folks say perhaps broadcasters will have to figure into the retransmission fee request if they lose that case. Can you give us your sense of where you think thats going . Guest yeah, i think if it does not violate copyright than it probably and most certainly does violate contract and so it then becomes an issue of the hopper is just aimed at broadcast content not cable content. And so its something of real concern to us. Its not for the consumer. Its for them. Its ford because they dont allow people to block out their ads. So you now at the end of the day i think all of my members when it comes to doing content deals with dish they will have to either as to past actions they probably have damages that they can see but for the future means you better have a Different Number in mind when you want to negotiate retransmission consent with dish. Guest another incentive option question. You have said in the past that they dont know broadcasters that are willing to give up spectrum but theres a coalition of more than seven broadcasters led by a former executive in the industry who say they are willing to consider it. Do you know yet if any that are willing to consider it and do you think they are just outliers . Guest i think they are outliers but they are free to do this and if that Coalition Wants to play then play. We will adjust accordingly and again i think its really important to understand how consequential this repacking will be and the size of the broadcast band. Its important to america and a matter of Public Policy to have a healthy broadcast industry because what we have, our architecture cannot be replicated. Guest the opponents say the recent video competition for the fcc says that about 10 million or 11 Million People rather watch broadcast exclusively over the air compared to over 100 million who use the service of the other side would say okay fine maybe broadcast issues still get spectrum but its not as critical as it was because your people are using over the air. Guest we are just glad that people get our content however they want to get it. But i would note that there are three different ones. Gary shapiro put out that it was 7 . That was their own internal workings and was certainly biased against us. Nielsen has it at 11 and another independent unrelated to anything that anything he does gfk media. They did an independent study and they said that number now has climbed to 19. 3 of households in america. And thats just as to exclusive use of television over the air. Most homes have either cable or satellite and then they have several other tvs that are on antenna. But lets just say the number is 19. 3 . Who are those people . They tend to be the economically underprivileged and the Minority Community and now increasingly the young who are either cutting the cord are never hooking up the court because they have found that with with the combination of broadcast and the internet they have all the tv they can watch and all the time they have to watch tv that satisfies them. So broadcasts direct overtheair viewership is growing. Its not shrinking and those constituencies and minorities and economically underprivileged and rural and young and often elderly they shouldnt be excluded from the world of Television Just because various dueling statistics are out there. Host senator smith when you think about the future of television five, 10, 20 years what do you see . Guest i think multicasting for example with digital made possible one of the reasons why people are cutting the cord. They find out unlike cable or satellite you can go to channel 4 and get four channels off of that now. This tremendous new content coming in that you can get only through over the air. Mobile is an issue that im very ingested in and concerned in and pushing my membership to adopt. There are probably 150 cities in the country that have stations lighting up mobile transition transmission so people can get broadcast signals. They are not built. Its free to them on the ipads and other devices. Thats the future and one of my really exciting things that i have seen recently in tokyo at nhk labs is the coming 4k in hk and this is Incredible Television visually. Its better than 3d and you dont need glasses. These things all take spectrum and they certainly take investment i broadcasters in what you would know of as a new standard. Your viewers may understand the difference between the atfc and the ofdm standards. The rest of the world is on ofdm standards which has far greater efficiency and ability and penetration capacity for purposes of mobile. I think eventually that is for broadcasters will end up and that will provide video any time anywhere on any device for all people at all times. That is an exciting future because especially as it relates to video. There is no substitute for broadcast. One to everyone. Host are we going to continue to see retransmission fights and disagreements . Guest i think you will. Obviously we hate it it when there are any disputes because retransmission consent is hugely important to my television members. There are two ways you pay for localism. Local content. You pay for it through advertising model which is the historic waddle of Television Broadcasting or now in a growing trans transmission. It will find its level like any market. Right now cable pays itself far more for its content than it pays the broadcaster and the truth of the matter is our content is the one that people watch the most. If you look at the shows 100 top shows in any given week 94 of them are broadcast. Candidly calm to its vital that the Congress Wants us to continue to foster localism and provide all of the things that we do to earn our licenses every day. We have got to have a way to finance it. Advertising and free transmission. Host your former colleague senator mccain has reintroduced reintroduced his a la carte cable bill. As a senator where do you stand on that issue and you have a dog in that fight today . Guest out of respect for cable friends when i was on the Senate Commerce committee i did not vote with john mccain because i felt like eventually this is something that a market would take care of and it seems to be doing that. The cable guys are coming up with more kinds of offerings. But if they go too hard at it it pushes against the wall and i start arguing for well when theres a blackout and we can agree why dont you refund your subscriber for lost programming to cut our programming is the stuff that sells their cable subscriptions. Guest we talked about tom wheeler earlier. Tom was for 11 years the head of the cef. Is there concern that his sympathies will not he with you all as much when you set the fcc because of his experience and background and knowledge of wireless . Guest i suppose on the surface there is reason to be concerned but im not worried because what i know if tom wheeler he is a smart guy and understands the duty that trade associations have to represent figures have to represent vigorously remembers and he will respect that. Im told his wife used to work at n. A. B. So hopefully there is some residual allegiance there. But im not worried about it. He has run a trade association and succeeded in business and has a good understanding apparently have politics and processes. He will no n. A. B. Very well and hopefully he will work with us in a way that makes him successful and leaves for the American People a bio industry in broadcasting. Guest two new commissiocommissio ners coming on at some point would you expect that another reason the incentive auction would take a little longer than the fcc hoped because folks have to get up to speed with some of the details. Guest idled think that necessarily slows it down. Chairwoman clyburn has done a wonderful job in the full commission. There is staff below the eighth floor that is working very hard on this and i think tom wheeler certainly has the gray matter and the republican whoever it may be will be able to get up to speed in this way. Guest on the incentives auction one more thing. You mention software layer. The fcc is looking at new software that will help them analyze the Coverage Area and population area of the station. This is important because it helps determine what is harmful in appearance and not harmful in appearance. Tell us why its bad what they are doing and planning changed is the software . Guest the software has to be done right because it will affect the repacking in the repacking will ultimately drive the success or failure of the auction whether people are going to participaparticipa te or not. One of the things we thought for foreign legislation is protecting our because when you change the contour of a broadcast reach your changing the economics of that broadcast station. So getting the software right is really sort of around zero and a concern for us. If we are part of the creation of that along with our broadband colleagues then this is going to go a lot more quickly than if they put it together and put it out its wrong, its got to go back. This could take a long long time. When you think that on the analog to Digital Transition that didnt affect all that much repacking. This will affect 60 perhaps of the broadcast stations in this country. Its a huge job, big job so its important to get it right. Host finally senator smith last week on this program senator mark pryor who is the chair of the subcommittee we asked him about whether or not the 96 telecom act needs to be updated and overhauled and he expressed some reservations about that. Does it open this can of worms etc. From the n. A. B. s point of view . Guest i never voted for a love. They were always the product of compromise and tradeoffs and there is nothing that couldnt be made better but he is right in that once you open something up the old pandoras box and lots of unintended consequences could come out of that slander stand the reluctance of senator pryor to even want to open it up but it doesnt mean there arent some things that couldnt be updated in order to fit with the dramatically changing telecom environment. Host senator gordon smith presidency of the National Association of broadcasters and paul kirby is the Senior Editor at telecommunication report. This is the communicators on cspan. We are standing inside hard travel which is a twostory log cabin that grant built for his family in 1856. She lets us know she does not like it one bit. She founded crude and homely but true to her nature she made the best of it. As a young married women she wanted to be the mistress of her own home. She just thought that he should have built something is nice as as and her father had talked grant into building a log structured. Julia would have brought with her the finer things because as a privileged child she would have had fine china or she would have had Fine Furniture that would have been, pulled chairs and a broad table because you had at this point she would have had five People Living in this dining room. What is important about hardscrabble for them and even though they do not live in it for very long is that this represents their very first home together. Julia would gain a great deal of confidence as a wife and mother and it starts at hardscrabble