Distinguished career, rudy was the director of the Congressional Budget Office where he supervised marty regalia who didnt learn a lot from him and thats why im here but i remember those conversations and i hope i can do them justice today and he is deputy assistance secretary for Economic Affairs at hud and a senior staff economist at the council of economic advisors. And then finally last but not least, we have david walker, founder and c. E. O. Of the comeback america initiative. Davids formerly the comptroller general of the united states. He was also the head director of the of the u. S. Government Accountability Office for almost 10 years. He is widely read and authored numerous articles on the debt deficit and he has a new initiative which i think makes tremendous sense and may doom it obscurity where things sometimes dont get discussed but davids new group is looking at the efficiencies, the inefficiency, the duplications in the government to try and find areas where we can save money without cutting. And i think its a very Interesting Initiative and its one that you all should look into and see about supporting and i hope that he will mention it at least briefly in some of his comments today. So with that introduction, im going to turn to the panel and im going to sit down and were going to start discussion hopefully some of these issues. And ill start with david on the right side and well just move right across. Thanks for coming. First, there are challenges between the federal state and local levels. Some of the commentators are inadequate budget control, escalating health care costs, huge unfunded and to a great extent, off Balance Sheet retirement obligations and outdated tax systems. Other factors are relevant such as demographic, such as infrastructure, etc. With regard to the federal government, theres a lot of attention on the socalled fiscal cliff which i think everybody here knows what that relates to, the schedule expiration of tax cuts, the schedule expiration of spending cuts and other provisions. Thats really more the symptom, its not the disease and like washington, all typically does, it focuses on symptoms rather than disease. We need to avoid the fiscal cliff but we need to recognize reality that theres only so much it could be done, the balance of this year. We need to do a credible down payment and build a bridge to a grand bargain which would involve much more fundamental reforms that have to be achieved, budget controls. We had budget controls until 2002. They expired at the end of 2002. Weve had demographic spending policies and republican tax policy which is lead to large and growing policies and escalating debts. Were going to have to reform social insurance programs. Were going to have to reduce defense and other spendings. Were going to have to engage in comprehensive tax reforms and generate more revenues and that takes time. And it will have to involve extraordinary president ial leadership which we havent had in quite a while and hopefully well get. Frankly, bush 43 was terrible in this as well. The good news in that regard is i undertook a 10,000mile 34day bus tour focusing on swing state and a Representative Group of voters did the following after they heard the burning platform case about where we are. Number one, 97 believe that putting our finances in order should be a top priority. 92 agree on six fundamental values that we expose to them for guiding a grand bargain. Number three, 85 agree it was going to take a combination of reductions and revenues weighted towards spend reductions and at least 77 up to to 90 agreed on a range of fundamental reforms to budget controls, social insurance programs, health care, defense, taxes, business reforms and political reforms that are needed in order to put us on to a more prudent and saneable path. And the people ahead of the politicians, theyre disgust with the lack of progress. They want results, not rhetorics. Im in town this week for private meetings and hopefully sanity will prevail and it will do something reasonable in the short term and build a brad lidge to bridge to something that is transformative. We share a lot of commonalities. And we need to Work Together to create a better future. Thank you. Rudy . Well, the first thing i should say is i have no idea whats going to happen with the fiscal cliff and i have the uneasy feeling that president obama and Speaker Boehner dont know either. [laughter] its a huge possible fiscal shock. Its about 600 billion. It would be one of the biggest negative fiscal shocks that weve had since world war ii. The only thing thats comparable is when we had the vam vietnam surtax applied after military spending was already falling. So certainly falling off this cliff would mean a recession. I think it couldnt be much worse in c. B. O. Implies for two reasons. One, the economy is very fragile right now and vulnerable to us all. And secondly, i think it has a horrible psychological impact on the Business Community and on consumers with some justification would totally lose confidence in our governments ability to govern. I agree very much with data david that what we need right now is some kind of down payment making some progress. Down payment probably involves both the tax and the spending side and the pledge to do much more later. I think the important thing to know about the proposals on the street right now is that you could accept everything in the president s proposal and i admit some of its quite vague and you can accept everything in Speaker Boehners proposal and you would not solve the Budget Proposal for the longer run. In my judgment, you need about twice of what they have put on the table and im very troubled by the fact that we are giving the impression that we can solve this problem without imposing much pain on the middle class. The president has made that very explicit. He promised never ever to raise taxes on the middle class and of course, the republicans would back him up on that. But theres no way that you can solve this problem without everybody giving something. And that certainly has to involve the middle class because thats where all the money is. As for davids point about building a bridge to this bigger solution that i envision, i think we certainly have to. Im not clear how we do that. How do we pressure the congress into returning to the issue presuming we have we avoid the cliff right away . And thats very hard, i think. Weve had the megatrigger of this sequester. We thought that surely this Super Committee would avoid this dumb, totally irrational cut in spending and because well, they would avoid it and come up with something more reasonable but of course they didnt and thats what left us where we are today and it means that if this horrible trigger didnt work, what would work . And ive become very pessimistic that we become any action forcing mechanism. Rudy, thank you. Thank you. Im delighted to be here today. I want to talk about four basic themes for you to think about. The first one is the discussion that were having today is really not about the fiscal cliff at all and fiscal cliffs more than the massive tax increases and the spending cuts is also about a number of other things, including extended Unemployment Benefits and so there are a number of thing that really need to be addressed but this discussion really isnt about the fiscal cliff per se because if congress and the president , they could come together quickly and pass a bill very easily that would put off the fiscal cliff either for some large period of time or even indefinitely. It really is about making a down payment as both rudy and david had said, on closing deficits in the future, but i would say its also really about the president s campaign, not just this past election, but the first his first election to like hike taxes on the successful. I think we absolutely have to see some real leadership on our more longer term budget unsustainable issues. What we dont need is campaigning what we dont need is negotiating in the political theater. So when we see that stopped, then perhaps well know were going to be serious about whether were going to resolve the fiscal cliff or have some sort of down payment. When it comes to republicans and conservatives, i think theres three things to bear in mind that are important. One of which is the House Republicans were elected in essence for the opposite of what the president was elected for or one of the things that he was elected for and that were elected to cut spending and not raise tax. You see the tension that is playing itself out with regard to the fiscal cliff. And thats one of the reasons its so hard to move forward. The second thing is there are a number of revenues that would be acceptable to conservatives. And the first one is one that Speaker Boehner put out almost immediately after the election and that is revenues through fundamental progrowth tax reform and seemingly, that seems to be off the table, but this is a very acceptable new source of revenue to conservatives. Also acceptable would be ways to reduce subsidies. So you could see more premiums, through medicares. You could also see more premiums for things like flood insurance, Pension Plans and so forth. These are acceptable types of revenues to conservatives that are not getting a lot of discussion or substantive discussions. Also acceptable revenues are forms of privatizing. We talked a little bit about private partnerships and transportation and infrastructure. But theres also all kinds of what is that we could undertake a program of privatizing, involving asset sales and other kinds of shedding of services that would be absolutely acceptable to conservatives. In addition, we could open up access to Energy Sources and generate more revenues that way, but the key here for conservatives is those new revenues to the be used for more spending and that they really be used to reduce the deficit. How we lock that in when past experiments have been rather a failure, i dont have the solution to but it is important to note that there are absolutely revenues that are acceptable to conservatives and that leads me to the third point, which is our longterm issue as i think both david and rudy and marty as well, have explained are longterm concern is the spending issue. To the extent that we have tax revenues low today, its not because of the rates, its because the economy is underperforming. And the economy is quite weak right now. We should see much stronger growth and we should see unemployment much, much lower so we want to see policies put in place that both strengthen the economy and also begin to tackle this longer term spending issue that we have that has driven primarily through entitlement. So when it comes to those, there are a number of very broad bipartisan supported policy recommendations that are easily available should the president and speaker baner and other leaders want to come together and get serious about making a down payment on our fiscal future. And that leads me to the leaves me to the fourth issue which is it is possible to solve this without raising taxes and i know this because at the heritage foundation, we have done this as part of their project by the peter g. Foundation, we put together our longterm plan. I have it right here, shameless promotion, i know, but we did balance the budget in less than 10 years and we did this without raising taxes. Maybe its a Political Choice but its not an economic choice. And even Warren Buffett who has been a tireless champion of raising taxes on the wealthy to make sure they pay their fair share, whatever that is would not raise historical revenues over 18. 5 of g. D. P. So we do need to think about is it necessary that they dont go to more spending and why are we talking about taxes right now when we have a spending problem . So thats what i would like to offer up as rich and robust conversation. Thank you very much. Weve got a lot of different kind of crosscurrents going on here. I think its interesting that, you know, when you look at the exits for getting something done, it really is artificial and conjectle. We have a date that congress put out there. Im suggesting that there is hyperbole on both sides that look at this and say we have to act now. They see this as a date that shouldnt be wasted. A crisis that shouldnt be wasted. And im afraid that in sometimes in rushing to judgment over an artificial date that the policies get the short stick and i am not suggesting that we should go off the cliff. I do not think that is good policy, but these artificial zates that we have put in have never produced good results back in the deficit of the financial cry circumstances we put in a tarp program that some people said would cost 700 billion. Something that many people, including yours truly was very, very skeptical would ever occur. So in putting out these artificial dates and creating this, we sometimes give the policy short shift. Both all of the speakers alluded to the fact that we ought to have a down payment, a bridge to the future. I think that is a thats a recognition that we are probably not going to get a big deal in the very near future. While we know the pieces, the negotiation might take longer. Is there something out there that were missing that we should do or could do to ensure that whatever we decide to do in this very near period doesnt go to waste and doesnt get lost down the shuffle down the road . And ill run it through with david first. Is there something missing that we should do that we could do to hold peoples feet to the fire . We ought to talk about what might be realistic. Ok. And given the clock is ticking, we dont have a whole lot of time left. First, you have to look at what is set to expire and you have to separate the week from the things that should be allowed to expire and things that shouldnt. I would suggest that the payroll tax cuts should be allowed to expire. Its 127 billion. Its not needed at this point in time. Its a want, its not a need. In addition to that, as former trusty of Social Security and medicare, it set a terrible precedent for Social Security. Secondly, you clearly dont want all of the sequester to take place with regard to defense and discretionary. Weve got to patch a. M. T. And ultimately, we need to get rid of it. Weve got to do something pending more fundamental health care reforms. But other ideas. The president talks a lot about balance. I would respectfully suggest thats the wrong term. We need extensive solution and not a balance solution. Balance implies 5050 im a libra, with regard to revenue and spending and i dont believe thats the case. I believe it should be weighted towards spending. Its primarily a spending problem, not solely a spending problem. It involves some degree of balance. Number one, tax expenditures. Theyre back door spending. You reduce tax expenditures, even gear towards the quoteunquote wealthy, whatever that is, its not defined, then you reduce spending and you increase revenues. Secondly, 95 of people who voluntarily sign up for medicares voluntary programs b and d get a 75 taxpayer subsidy irrespective of their income. If you move towards means tested premium support, then that will generate more revenues but it will be sounded as a count as a spending reduction because premiums brought from Medicare Beneficiaries count as a reduction in spending. And if you look at indexing formulas and things of that nature that affects the spending and revenue side, you can do things that structural that will both slow spending and generate additional revenues. Now, we need to do a lot more than that and i think that what we also need to do is we need to recognize reality. Our goal is to not balance the budget and the states dont do it either. The way that they call it balance budget is that balance budget. Theyre using cash flow. What we need to focus on like a laser is debt to g. D. P. Which is a lot of a lot tougher to change with interim milestones with Enforcement Mechanisms if those milestones are not hit and realistically, whatever you dont let expire, you extend, lets say to the end of september, along with the debt ceiling limit, so you have all three things come together at once with a more realistic enforcement mechanism because the Nuclear Device didnt work. The Super Committee was a super failure committee and therefore, we have to recognize that those kinds of devices wont work. Youve got to have something thats more pragmatic. Thank you. Rudy . Well, i think the discussion over the fiscal cliff has gotten more pessimistic almost every day. But we really just cant go over it. Theres one thing that gives me a little hope and it does seem to me that there are three things that we almost absolutely have to fix. One, david mentioned the alternative minimum tax. Right now, we have to fix it retroactively for 2012. If we dont do that, theyll be over there will be over 25 million americans that will get a real shock when they do their tax return early this year and next year and they may not be able to do it early because im told the i. R. S. Is not prepared for the contingency of not fixing the a. M. T. s. So they have to reprogram their computers and do all sorts of other things. The other thing is i cant imagine that well allow doctors under medicare to experience a 27 cut in their re imburressments. There wont be many doctors serving the Medicare Program if you do that. Thirdly, we have to fix the state tafpblgts i recommend if we dont fix it, you dont die in 2013. I said that at an earlier meeting and the congressman responded but you should commit suicide in 2012. Watch what your kids feed you. Yeah. So i have the hope that if we could really concentrate on fixing these three things, maybe we can then broad then agreement to cover more areas on the revenue and spending side. David is right. We do have we do have these things that should encourage us to do something, the debt limit. I would add to that, you didnt mention the continuing resolution which we know expires march 1. So we have coming together of these things that should provide a very, very strong incentive to get something done in the longer run. Yeah, i guess i would echo just about everything you guys have said. I think that the fiscal cliff is sort of this, as you started out, mart