Earl Ofari Hutchinson's take on the politics of the day
The Hutchinson Report
American Urban Radio Network
Al Sharpton Show
Monday 10:00-11:00 AM PST 2:00 to 3:00 EST
Streamed on http://tunein.com/radio/WURD-900-s23419
KPFK Radio Los Angeles 90.7 FM
Saturdays Noon to 1:00 PM PST
Streamed on http://www.kpfk.org/programs/181-hutchinson-report.html
In an exclusive interview on The Hutchinson Report Newsmaker Hour with host Earl Ofari Hutchinson on KTYM 1460 AM Los Angeles on April 22, William G. Gale, Co-Director of the Tax Policy Institute.
Transcription by Annette Lockett, McAl Typing Service 323-293-3244 * FAX 323-293-0404 * E-Mail firstname.lastname@example.org
EOH: Can you tell us what the debt ceiling is, how it applies to congress and what it means overall to spending and finance?
WGG: The first point is that the debt ceiling is a separate issue from the medium and long term deficit. What the debt ceiling involves is the fact that the government can not spend money or borrow money unless it has authorization from Congress. Congress has authorized spending and tax cuts over the last several years that have created a situation where the government now has to authorize them to get the money that they need to pay the bills. It’s kind of like you had a party, you put all the bills on your credit card, and now the credit card bill is due and you are trying to decide whether you should pay it. The responsible thing to do is pay the bills you already have accumulated, and that would require Congress to raise the debt ceiling. In the long term it’s the right thing to do and the last thing you want to do is force the government to default on its own debt.
EOH: How big a role does politics play?
WGG: The reduction issue is really basically a good government issue. If our government were set up correctly, Congress would authorize the borrowing to pay for the spending, then it would authorize the spending. But for a variety of reasons that didn’t happen. The bigger issue of how we solve the deficit issue is completely political in the sense that the parties are going to hash it out, and also in the sense that there are value judgments involved and different people may have different views about what the right thing to do is in a situation like this.
EOH: How do you reconcile deficit reduction and cutting corporate tax?
WGG: It can be mind-boggling. On the corporate side, I think GE did not do anything illegal, they just minimized their tax liability and it turned out they didn’t owe anything because they were able to take advantage of particular features of the tax system. What people want to do is remove a lot of the loopholes that enable companies not to pay taxes. I think ultimately what we are going to need are new types of taxes to plug some of these revenue holes. I don’t think, given the nature of the debate on corporate tax we will be able to raise a whole lot more revenue from corporate taxes itself.
EOH: Will this continue to be a major political battle between President Obama and the GOP?
WGG: I think this will be the central economic issue in the 2012 election. We need to recognize that the vast majority of federal spending goes to Medicare, Medicaid, Social Security, the Military, and interest payments. If we are talking about spending cuts, we really need to be talking about changes in those things. We are at a 60 year low in the share of GDP. They will recover a bit in the next few years as the economy recovers, but I firmly believe we’re going to need new tax measures. I believe that we will see significant tax increases over the next decade and significant spending cuts.
EOH: How did the US Government get into this fiscal mess to begin with?
WGG: There are two separate paths; Social Security and Medicare that we knew would come home to roost as the baby boomers started to age and health care costs continued to rise. The other cause is the policy taken from 2001, serious tax cuts and increases in defense and Medicare spending over a decade cut the bottom out of the short term budget situation. Then in 2008 and 2009 we were starting from a base much weaker than it would have been had we been more credit ready during previous years.
EOH: How big a role did the bush tax cuts play in getting us into the predicament we are in now?
WGG: We would be better off right now, our debt would probably be 20% of GDF if we had not enacted the Bush tax cuts over the past decade. They are a big part of the issue; certainly not the only part and certainly not the biggest part, but a big part of what is happening today. In the long term, Medicare and Medicaid take over as the biggest problem.
EOH: How important is Medicare reform and would the Ryan plan solve the problem?
WGG: Medicare can’t be separated from healthcare reform. The two biggest issues in health care are access to coverage and the cost of coverage. The big factor in the cost of coverage is the expense of procedures used which are not necessarily medically warranted or called for, [used] to either make the patient feel better or the doctor is worried about preventive medicine, etc. There are two approaches to Medicare reform. One is to cut down on the system so that the unnecessary procedures get squeezed out. The other is to simply reduce the government cost of Medicare and shift it onto the private sector. Basically you are saying the governments’ costs are going to be limited and the patient will pick up the tab for the additional costs. It doesn’t, in a direct measure, do anything to reduce healthcare costs; it just shifts them back from the government onto the individuals. The hope is that this would cause doctors and insurance companies to reduce the use of unnecessary procedures.