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. Yo