Blessings and have a picture of my grandson hanging in my office and it was so he got to sit on the floor with me. Host would you like to say one of your kids or grand kids run for office . Guest that is up for them. I dont know. My children i am kind of wondering whether my son he is 34 and an attorney with four children and knows the strain it puts on the life. I would be very proud but i dont know i would push them that way. Illinois of the 12th district in illinois, thanks for being with us. Thanks for having me. Coming up on cspan2, booktv features afterwards interview about books on economics. Next, Michael Tanner discusses going for broke deficits, debt, and the entitlement crisis then americans for tax reform president Grover Norquist book on end the irs before it ends us how to restore a low tax, high growth, wealthy america. Books about economics at 8 p. M. Eastern on booktv cspan2. Author of going for broke is interviewed by Maya Macguineas president of the committee for a responsible budget. This is an hour. Michael tanner, nice to be with you. So today we will discuss your book going for broke. Maybe you can start by talking about what prompted you to write this book. Guest one of the things that frustrated me is the fact people stopped paying attention to the deficit and the debt crisis thinking we beat it because the deficit is down a lot really in the last couple years. And people think that is sort of solving the problem. But the reality is this as a temporary lull and within a year or so the deficit will go back up. We are adding to the debt every year. We have not begun to hit the problem when medicaid, medicare and Social Security begin to start adding up. If we dont act now while the sun is shining we will be in trouble once the rain starts. Walk us through the numbers. The deficit is down and we are adding to the debt. What is the difference between the debt and deficit so start us there. Guest the deficit is this years shortfall and how much more we spend than take in. 450 billion range is what it will be which sounds like a lot but three our four years it was 1. 4 trillion range so we are doing better than then. That is a temporary thing and in a couple years we will see it go back up. If you add up each year, the shortfall each year, you get the debt and that is the total amount that we owe. And you can think of it with your house old budget if you run short this week that is your deficit. But if you run short every week, and take money out on credit card this week and week after that that is the debt you are ultimately going to owe. And so when we talk about the National Debt, that is what we are talking about. How much the deficit added up each year. The National Debt consist of both the debt held by the public, which is the debt that is in your portfolio with government bonds and Treasury Bonds you have debt held by the public. You are the public. It is the part the chinese and japanese and foreign governments hold about 45 of it. That is one type of the most solid and hardest debt and the debt the economist talk about. It is intergovernmental debt which is debt one part of the government owes another. Like the Social Security or Highway Trust Fund where the government owes these programs a certain amount of money and that adds up to 18 trillion and that makes the headlines. But there is a third kind of debt which is the intergenerationalal debt or the unfunded liabilities of these programs like Social Security and medicare. But we know how much we owe under current law in the fiche tour pay these benefits under these programs and we know what we will be taking in in tax revenue to support the programs and there is a gap between the two. While that is not as solid as say a government treasury bond we owe now. It is money we promise to pay and we dont have the revenue to pay it. That is a debt, too. Host what does the debt being twice it is historical . The deficit and debt being connected to daily lives is difficult. What should people think when the debt is twice the average. What does that mean for you . Guest the rest of the world is so messed up people are will to lend us money. We are not as bad as we might be. One thing that begins to slow the Economic Growth when it reaches the level we are at. People are less willing to take the risk of investment because they see the debt down the road. They are less willing to take risk and willing to invest and all of that slows the Economic Growth. It is estimated the children are going to be 2,000 a year poorer because of the level of debt. Host 2,0005,000 every year our children will be learning less guest that is right. We have to pay interest on the second is second. And that interest begins to crowd out other government spending. Eventually you end up with spending a lot of money you are paying to Foreign Investors that you are not able to invest in things you might want to whether you are republican or want to spend it on defense and or spend it on social programs instead we paying back money on investors. Host one of the areas you could make improvements is if you bring down the cost of the caring cost or the Interest Payments because i believe that is the Fastest Growing part of the budget. The Interest Rates. Guest that is right. And we are lucky the Interest Rates are low. If they go back to the historic rates we had to pay in the past we are going to be shoveling money out the door. It is not defending us, helping poor people, it is money going to people to pay them in essence to lend us money. It is a real waste of money. Think of it like your credit cards. Maybe you get something you have actually buy whatever it is the new flat screen tv but when you pay that 1518 percent interest that is not money you are doing anything with. That is money you are paying to the bank. Yeah, i think i saw this. Guest this is part of the argument saying we should not worry about debt because in the end we owe that debt to ourselves. We could argue foreigners hold debt and we hold their debt and it all equals out. The distribution of who holds the debt is not the same thing as who gets benefit from the debt today. To make the argument in a classic sense, if you borrowed money to go to college lets say, and you took that money and you went to college and earned higher wages when you got out and used that to pay back the debt, you are no worse off because you borrowed that money to go to college. The problem is that a lot of that money we are borrowing is not for any investment. It is not to make our wages better. Instead a lot of that is redistribution today. Essentially we borrowed that money to give it to somebody that spent it and it is gone so it is not being invested in. Host it is consumption . Guest that is right. The person who is going to pay it back in the future nature be the same one who benefited from it today. It may be like someone else had to pay back that college loan rather than you. Host it is my kids. Guest there you go. If it unfairness that need to be solved as well and people will think about that in the future and that is going to have to be repaid and that will affect decisions made today in terms of investment and growth but you may not see the benefit from higher wages for College Education nature be there if a business going to hire you has to pay back your loan. Host i think it is interesting about who is borrowing and who is spending. We hear we are borrowing it from ourselves and not to worry. It is an intergenerational issue for many ways. We are consumming and handing them to the next generation. Talk about the intergenerational issues. Guest it is unfair taxation without representation. We consume today and our kids vote on this. We are talking about generations not even born paying for our consumption today. It is like saying you will is a party today and send the bill to the kids but they did wantant go to the party. It is taking from person a or b but doesnt do anything to grow the economy of the future. Host talk about Discretionary Spending more mand tory spending or entitlement. Guest people say Social Security is not an entitlement program. I paid into the program when i was working and i get back what i paid in plus the interest or whatever. It is not like a Welfare Program where that is an entitlement. The reality is both are wrong. Entitlement is the legal or accounting term that refers to mandtory spending. It is spending that congress doesnt vote on every year. There is no annual appropiation bill for Social Security. People are entitled and the federal government spends whatever is necessary to meet those benefits. There is no vote on that issue. That is all entitlement means. By that definition, Social Security and entitlement are there. But traditional welfare is not because they approprirate the numbers. Host one third of the budget goes through the appropriation process and two thirds doesnt. How do people decide which program is which . How is mandatory versus entitlement . How is it determined . Guest essentially it specified in the original enacting legislation for the program whether it is subject to annual appropriation and how it is defined in terms of the budget process. Certain programs vote every five years like the farm bill or every ten years. Some programs have no vote at all. Essentially you can look at the programs that are subject to congressional votes or domestic spending which is everything from the fbi to the fda to the department of commerce and education all lumped in. It is about 16 of federal spending. Another spending is the defense spending and the nonwar fighting part of the defense. That is essentially it. That is all congress basically talks about. Everything from medicaid and medicare and interest on the debt and multi year programs outside of Congress Annual votes. Host and sequester. We put in place a sequester. Talk about that a little bit. Guest a sequester was a cap on how much could be spent each year for what is over the next ten years and three years into it now. But that only affected domestic and defense Discretionary Spending. It was designed to impose essentially a set of cost each year that was split evenly between defense and Discretionary Spending. We are seeing in the new latest republican budget they managed to take money from the defense Discretionary Spending and ship it overseas to the war fighting part. It doesnt apply to that portion of it. There was no reduction to the mandatory spending. That was outside of the pure sequester. So a cap on those two types of programs. It is larger responsible, i think for the slow down we saw in spending over the last couple years. Host you bring up something we do a lot in washington. Budget gimmicks. The overseas operations are becoming a slush fund for other parts of the budget where the government talks about putting more money into this emergency area than they do normal budgeting areas and put money into that and are able to spend more than they are supposed to. Budget gimmicks. We see that all of the time here in washington as way to get around. What do you think of those . Guest i think they are dishonest and what the republicans did with the defense spending was designed to get out of the sequester. Host they dont want to stick with the caps and pay to get rid of some . Guest that is right. If they waived the caps on one they would have to waive the caps on the other. They took money that wasnt emergency spending and took routine spending and put it in. Congress does this all of the time with emergency spending whether it is Natural Disasters which then stand up spending money on states that had nowhere near the Natural Disaster that occurred or defense spending is much of the iran and iraq wars was fought off budget. And was simply spending that didnt apply to norm leal budge rules because of that. Congress does this sort of thing all of the time. It makes honest budgeting difficult. It raises questions about how much you can trust and promises in the future whenever they come up with gimmicks that says we will balance the budget ten years from now in some way. They often involve budgets that are mysterious. They continuously save money by not invading countriesme. We pulled out of iraq and tined to save money by not invading iraq. Host when you pass a budget you see the numbers for ten years and a lot of times all of the savings are back loaded and that is the point you are maki g making. You are doing more bar borrowing sometimes. Guest medicare was required by a law factor in the Bush Administration to reduce spending every year. It didnt actually every do that. But it actually did a little bit more than necessary. The requirements that you would have reduced reimbursement to doctors and hospitals in ways that was not realistic. Host having them drop out of the system. Guest exactly. Nobo body knew we were not goin to do that. They did come up with other ways to save. Maybe not as much as they were supposed to but some of it. They get tired of the game every year and come up with a permanent fix and got rid of this requirement that physician payments be cut back. They said dont worry, we will come up with an additional 200 billion to offset the money we will not save anymore. They just havent said what the Additional Savings will be. Host and they passed the bill without paying for it. Guest that is right. It gets worse. They said dont worry we will fix it some day. And the new republican budget at least acknowledges the fact they will have to come up with savings they just dont. Host i think it is as odds. You have the republican budget assuming you would not add more at the same time they were passing a bill that would add half a trillion over two decades to the debt so significant borrowing and it was hailed as a bipartisan success because the only time the republicans and democrats agree is when they are borrowing money instead of paying for things. Guest that is one of the real problems we have. Neither party actually wants to balance the budget. Democrats are happy to tax and spend and republicans are happy to borrow and spend. The common denominator is spending. The idea of reducing spending is not something Neither Party seems to be serious about. One of the interesting things you write about is what is the fiscal responsibility. I think about fiscal responsibility as you pay for what you spend. In bad times you may need to borrow and balance the budget every year. You make the case is less about bringing the deficit down but more about bringing the spending down. From your perspective it is about the spending issue. Talk about that. Guest Melton Freedman use to say it is about how much you spend and taxation and borrowing take resources from the economy and transfer to government where it is not invested but consumed. While the distribution affects different people with taxes and in essence they are the same thing. I can you can have a government that is simply so big and so much of the economy that the economy cant function regardless of how you pay for it. Right now we spend 21 gdp by the government and 10 at the state level so a little over a third by the government. We are going up to a point where we will spend 4050 percent of the economy at the government level under the current projection. I would argue if you paid for it all, you could raise tax do is pay for the spending but the functional government cant work if they are spending half of everything they are producing. Host what would you cut . Guest we have to cut across the board. The usual suspects dont get you far. Host the usual suspects being . Guest you will hear the republicans say lets cut foreign aid or kill big bird or defund planned parenthood and that is not going to get you compare. The marital programs aside host the size of the budget of those is small. Guest foreign aid is 1 of federal spending. A lot of people believe we spend all of this money on federal aid. It is 1 and that includes foreign aid we want to keep going. Big bird and planned parenthood combined with 1 10,000 of a percent of federal spending. You are not balancing the budget that way. We pick up the defense spending for a lot of other countries that spend less on defense because we will do it for them. Europe is spending 1. 5 maybe 2 in the big countries like britain on defense. Nowhere near what we spend. We are essentially being their army. The fact is we spend 47 on three framprograms alone. Medicaid, medicare and Social Security. You cannot do much of anything unless you are willing to take on those programs. Host we will talk about those programs in details. Would you raise taxes . Would you fix the spending side or raise taxes . Guest i think i would focus on the spending first. They raise taxes today and promise to reduce the spending tomorrow. And i frankly dont trust that reduction in spending. I want to see the spending reduction locked in and then he could talk about taxes being changed. I am not supposed to specific taxes being raised as to overall revenue. There are certainly, i think, tax breaks out there that are distortionary. We have a special tax break for ethanol type of thing which those sorts of things dont benefit the economy but distort how the money moves around with the economy and i have no problem reducing those types of breaks. I would rather see it done on a revenue neutral bases. But i dont think any particular tax break is sacrificing. Host those tax expenditures are a billion a year. So rather you get rid of them to lower the rates to reform the tax code or use them to close the deficit there is a lot of money there. And many people myself included think they are spending through the tax code than lower taxes. Guest i would not argue they are not spending it unless you believe government owns the money and anything you dont keep they are spending on you. That said, i think many of th