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WALLACE: Let's start with the S&P downgrade.
Congressman Ryan, what do you think of the decision, if U.S. is forced to pay more in interest rates to borrow, to go further into debt, isn't that going to add tens of billions of dollars to the deficit?
REP. PAUL RYAN, R-WISC.: If we go up another point, it adds about $1 trillion or more over the 10-year window. So, yes.
Clearly, I'm not very surprised of this downgrade. We more or less saw this coming because we're on the wrong fiscal path. We'll find out tomorrow what kind of spike in rates we're going to get.
But, obviously, not only does it hurt the federal government in its ability to close the deficits, but it hurts people. You know, car loans, home loans, all these things are going to go up.
And so, it's because Washington has not gotten its fiscal house in order. To me, this is more vindications of our action. We passed a budget which according to somebody from S&P yesterday would have prevented this downgrade from happening in the first place.
We passed a budget that would make debt peak in two years at 74.5 percent GDP and it goes steadily down from thereon after. So, we put out a plan, very specific plan to address the situation, pay off the debt, balance the budget, reform the tax code to create jobs in the economy. You got to have two things, spending cuts and debt reduction, along with economic growth and job creation. And this isn't going to help us get that.
WALLACE: But, Congressman Ryan, I just want to follow up on that before I bring in Mr. Miller. Isn't that a little bit like a doctor saying, "I did the operation perfectly" but the patient died?
RYAN: Well, no, we haven't done the operation.
WALLACE: Sir, let me just finish. In its announcement S&P condemned the political dysfunction here in Washington, the gridlock here in Washington. Let's up what they said.
"The political brinksmanship of recent months highlights what we see as America's governance and policymaking being less stable, less effective and less predictable than what we previously believed."
I mean, what they seem to be saying, and there's no question that if they had pass your budget that would have solved the debt problem. But the chance -- well, they weren't going to pass your budget unless all the Democrats and the president simply killed over it (ph).
Isn't the failure to compromise, the two sides, isn't that part the problem?
RYAN: Let me first say, both political parties are responsible for the mess we have right now. This is not a Republican or Democrat only problem. This is both parties got us to where we are.
I would argue though that over the last couple years, we're going deeply in the wrong direction. The kind of compromise you need to actually fix the structure of our debt, just like the gentleman just said previously, our entitlements. And, unfortunately, our partners on the other side of the aisle, the president and the Senate, have always been unwilling to put a specific plan out there to address entitlements, specifically health care entitlements.
The president just created two health care entitlements, expanded Medicaid a third and then put this new rationing board in charge of Medicare. And so, they are unwilling to open up and restructure these entitlements which according to S&P are the primary drivers of this debt.
So, yes, we haven't been able to get the kind of compromise because our partners in the other side of the aisle have been unwilling to reform the programs out of the claws of our future debt problem, and the reason for this downgrade.
WALLACE: Let me bring in Bill Miller on this one.
How do you expect the markets to react to the downgrade? And do you think that the downgrade will cause interest rates to rise both for the treasury, our government borrowing debt and filtering down to somebody who wants a home mortgage or somebody who wants a car loan?
MILLER: The Tel Aviv Stock Market gives you a good early indication of at least the initial reaction of markets. The S&P downgrade injects further uncertainty into the markets. The markets hate uncertainty.
But contrary to what I think people may expect, I don't expect we'll pay more for interest rates. The downgrade was not an economic event. It was a symbolic and psychological event, an important one.
But, usually, what the S&P gentleman said about it's a meaningful indicator of credit risk -- the U.S. is not a worse credit risk now than they were two weeks ago. We have our own reserve currency. We can print money, and our fiscal situation has not changed in the last couple of weeks. We'd actually made a move to do it better, make it better.
WALLACE: I want to get back to the market side, though, because obviously, that's what people are really focusing on immediately. You predict a bad day on Wall Street tomorrow?
MILLER: The Wall Street had a bad week last week. There was a lot panic overall on the markets. So, I'd expect a lot of volatility. And again, it's all uncertainty, Chris. That's the big issue. We just don't know. We'll just see how the markets react.
WALLACE: All right. I want to get to the central question, which is, at a time when growth for the first quarter of this year was less than 1 percent in the first half of the year, what can Washington -- what can and should Washington do to boost the economy?
Mr. Miller, let me start with you. The debt deal that was signed this week -- and let's put it up on the screen, will cut $25 billion in 2012, $47 billion in 2013, and $59 billion in 2014. Will that put a drag an already weak recovery?
MILLER: Well, those numbers are not very large. So, that by itself won't put a drag on the recovery. The issue is the opposite, which is there is very little on the fiscal and spending side that the government can really do to stimulate the economy in the short run.
On the monetary side, interest rates are already zero. So, there's very little the Fed can do absent a new series of large scale asset purchase. That's what got market worried, which is the normal policy levers are not in place to stimulate economy, at least in the short run.
WALLACE: But the spending cuts don't worry you at this point.
MILLER: Not those levels of spending cuts. I do think there are some automatic triggers that may come in and will cause problems in fiscal 2013.
WALLACE: Congressman Ryan, let's talk about, you know, what fiscal leverage maybe left. The president wants to extend the payroll tax cut. He wants to extend unemployment benefits. He wants to put some seed money into an infrastructure bank.
I know the stimulus is a dirty word. But could you support any of those as a short term way to maybe give a little boost to the economy?
RYAN: I don't want to repeat the same mistake. This is the same economic reasoning, policies and logic that the president used to sell his stimulus. He said it would keep unemployment from getting above 8 percent. It didn't. It gave us $1 trillion in debt hang over. It would simply exacerbates our debt problems in my opinion. I won't go through every one of those individual issues like unemployment insurance and others. But I really think we should do tax reform.
See? Those things are all temporary. They are demand-sided. And they are proven not to work and they still facilitate uncertainty for businesses.
And so, what's plaguing our economy today, especially for the small businesses who create most of our jobs is this just increases the amount of uncertainty as to what the future holds for them on regulations, on taxes, on interest rates and all of those things. So, this exactly exacerbates those problems.
We think more certainty. More certainty on regulations, on taxes, on spending, on debt, on price stability with sound money are the key to this. And so, I really think the best thing we can do right now in divided government, I would love to see, is fundamental tax reform to get us a tax system that's internationally competitive and does not penalize businesses from making things in America and for hiring people.
We have a very uncompetitive tax code, riddled of special interest rates and loopholes. Let's deal with that and I think that would be a pro-growth strategy. It's what we propose in our budget. I hear talk from some Democrats that they are interested in taking look at this. So, I've always that tax reform is the best to go. And I do believe that getting a trajectory in place, real entitlement reform that shows the world and the country we are getting our debt under control. It will help take pressure off future tax increases and interest rate increases and will help the economy today.
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WALLACE: Congressman Ryan, in the next two weeks, congressional leaders are expected to name -- in fact, they have to name the members of the so-called super committee, which is going to have to try to come up with another $1.5 trillion in deficit reduction by Thanksgiving, talk about having a deadline.
Have you been told that you're on the committee? And do you to be on the committee?
RYAN: No, that's a good question. No, I have not been told. I haven't talked to the speaker. He hasn't made his selections yet. He has until August 16th to make his selections.
I would put this committee in perspective. I wouldn't call it super. It's a select committee, tasked with getting about $1.2 trillion to $1.5 trillion in savings and spending cuts as we see them. We proposed $5.8 trillion.
So, we obviously have shown plenty of ways of arriving at this kind of a number. We just have to find out whether our bipartisan friends on the other side of the aisle can get to that number. If we do, then we have another good down payment on debt reduction. We got $1 trillion in savings from government budgets with this deal. We want to get another $1 trillion or so in savings from entitlement spending. It is not enough to fix this problem, but it is a down payment on the problem.
And, look, Chris, we wouldn't talk about these savings, these spending cuts had we not taken the majority and gotten this kind of an agreement. The president started off with this debt limit thing, wanting a blank check just to raise the debt limit. Then the wanted tax increase, which will hurt the economy.
So what did we end up with? We ended up with cutting more of a dollar of what they're spending for every dollar of debt limit increase. And I hope that this select committee makes good on its word in cuts about $1.2 trillion to $1.5 trillion in spending.
WALLACE: Let me ask and this should be an easy question to answer. If Speaker Boehner comes to you and says, Paul, I want you on that committee, you're Mr. Budget, would you go on?
RYAN: Yes, I would if he did that.
WALLACE: You want to be on it?
RYAN: Well, look, I think --
WALLACE: You care about these issues.
RYAN: -- I'm not putting all my stock in this committee. I'm putting my stock on this committee. I just don't want to -- I think people are overemphasizing what this committee is going to achieve. I don't think this committee is going to achieve a full fix to our problems because Democrats have never wanted to put their health care bill on the table.
They have not wanted to address -- they haven't put a plan out. We haven't seen a budget passed in the Senate in two years. The president hasn't put out a specific plan to fix this problem, and they don't even want to go with structural entitlement reform which is what you have to do to fix this problem, prevent this downgrade and get this economy growing.
WALLACE: Let me --
RYAN: And so, I will this but I want to sure people understand that I don't think this is going to be that's going to fix all of our fiscal problems. I hope this is committee that's going to get another single or double, which is a down payment on our problems.
Ultimately, Chris, I really think you need to change in leadership in Washington if you want to fix this problem. Look --
WALLACE: Let me -- let me jump in here because, actually, you are bringing up a bunch of points I'm going to ask you about, because you talked about the lack of open-mindedness and production and not passing a budget by the Democrats -- all fair points.
WALLACE: I want to ask you about your open-mindedness. If you were on that committee and you get a deal, let's say $3 or $4 in spending cuts, in entitlement cuts, for every $1 in revenue increases, and the revenue increases came through tax reform where you lower rates but you also close the loop holes and some of the deductions and use some of that for revenue. And Speaker Boehner agreed to use 800 billion dollars of that at least temporarily, would you be open minded to including some of that revenue as part of the debt deal?
RYAN: It all depends on the spending side of the ledger. Here's what I mean when I say that, can you get higher revenues through broad based tax reform that gets more economic growth and therefore higher revenues. The answer I believe is yes.
The question really is, and we have yet see a response to this question, are we doing the things we need to do to get the spending line down, down to 20 percent of GDP. It's going to 40 of GDP by the time my kids are my age. And we have yet to see three to one, two to one, four to one, whatever you call it. We have yet to see any commitment to actually bring the spending line down.
So if you just raising revenues to chase ever higher spending that is not good policy. And I don't think that's a good agreement. If we are convincingly restructuring these entitlement programs and getting that spending line down to meet that revenue line, then can you have higher revenue growth through more economic growth and tax reform, yes -- the answer is yes.
But I don't see any agreement from the other side getting anywhere close to doing that.
WALLACE: Let me bring in Mr. Miller. And I have one last question for you. Mr. Miller, is this super committee, select committee a formula for another stalemate? Or do you see the chance, particularly with the pressure now from the downgrade that there could be a grand bargain in entitlements and tax revenues?
MILLER: I think it is a start -- at best it is a start. It's likely to be staffed on both sides by people that the leadership want to represent their positions, so it's probably a greater than 50/50 chance that they have a stalemate.
But I think that the issue here is that -- the key issue for markets is long-term entitlement reform. Discretionary spending doesn't matter at all in this thing, except that it will be a little bit of drive in the economy. It's pro-growth polices and fundamental entitlement reform especially on health care that are the key things to our long-term fiscal health and therefore, the long-term confidence of the markets in the country.
Finally, Congressman Ryan, you talk about changing of leadership in Washington. I've got 30 seconds left. And I have to ask you the obligatory 2012 question. You said recently you want to see how the GOP presidential field develops before you make up your mind. I know you say you've already got the best job in Washington. But it sounds like there are some circumstances under which you would consider running for president. What are they?
RYAN: My answer is still no. That question was, I misheard the question. I thought he was asking me who I was behind, supporting that is.
So, look, my answer is still the same as it always has been the last time you asked me.
And let me just conclude with this, I don't think a grand bargain is going to come out of this, because they're not put health care reform on the table. And that's why I'm hoping for just a decent down payment on debt out of this select committee.
WALLACE: Gentleman, we want to leave it there. Really, an interesting discussion. Congressman Ryan, Mr. Miller, thank you both. Thanks for joining us. And we'll be really watching this to see what the markets do tomorrow.
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