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SEN. JON KYL, (R) ARIZONA: Thank you.
COSTELLO: So if you guys do have to come out and tell the American people that you have failed, how do you make failure sound remotely good?
KYL: It's not good. First of all, there will be an announcement toward the end of the day one way or the other. We are still talking, and hope springs eternal. It is late in the day. That's for sure.
I think the other thing people should realize is there still will be $1.2 trillion in deficit reduction. It's just that it won't be done through what the committee might have recommended but rather in across-the-board cuts. And those aren't as -- those could be more difficult for the defense department, for example, and for some domestic programs.
KYL: But the cuts will still occur.
COSTELLO: So I guess that would be one way to spin it, if I can put it that way.
KYL: I'm not trying to spin it.
COSTELLO: I understand. But not being able to come to an agreement, how does that feel for you?
KYL: It's very disappointing. We tried a lot of things. We tried the bigger packages. We tried the smaller packages, entitlement reform, tax reform. Finally, more in desperation than anything else Republicans said last week, look, if we can't agree on those things why don't we agree on what we essentially agreed on. There are a lot of places where the government has surplus property we can sell, where we can raise fees on Fannie Mae and Freddie Mac. We can ask federal employees to go without a salary increase for a couple years. That would include members of Congress, for example. We agreed on those things and it added up to big dollars, $640 billion.
COSTELLO: But not nearly enough. Of course the big elephant in the room --
KYL: Can I make a point?
COSTELLO: The elephant in the room was raising taxes on the wealthy.
KYL: Exactly so. (CROSSTALK)
KYL: Our Democratic friends said we won't cut one dollar more without raising taxes. I think that tells you a lot about the ethos in Washington. We went into the exercise to try to reduce federal government spending. When we get from the other side is, no, we won't make more cuts unless you raise taxes.
COSTELLO: A lot of voters, though, see that, you included, all the Republicans on the super committee, signed this tax pledge by Grover Norquist's group. You went in there and couldn't negotiate, you know, on a level playing field because you had already made this pledge and you weren't going to budge on it, and you knew that issue was important to the other side -- Democrats.
KYL: But we did budge on it. And Grover was very disappointed in what Senator Toomey and the Republicans offered, which was tax reform which would have resulted in the upper two income brackets paying a higher marginal rate because their deductions and credits, the so-called tax expenditures, would have been greatly reduced in value. That's what all the experts recommended. They said make the tax code flatter and fairer. Get rid of the loopholes. You can raise revenue that way. And we did, $250 billion worth. So Grover was not happy with that, obviously.
COSTELLO: But a lot of people said that wasn't enough. You didn't raise enough revenue. You could have raised more by doing other things. I'm not going to convince you. I realize that.
KYL: Your job isn't to convince me.
COSTELLO: No, it's not.
KYL: Let me make this point to you. Why do Republicans not want to raise taxes more than that? Because it will kill job creation. The best way to get out of the deficit situation we have is for economic growth to produce more wealth that can then be taxed. That has the benefit of creating a lot more jobs.
Even President Obama said you don't raise taxes in a recession. And that's precisely where we are. So that's why Republicans said don't raise taxes right now. This is the time for economic growth and that's what the Pat Toomey proposal would have done.
COSTELLO: This is philosophical for Republicans, way different than, you know, what the Democrats think philosophically. And the bridge is -- I mean, it's such a wide philosophical difference that I think people just sit back in this country and they're not exactly angry that the super committee didn't come any agreement. They were sort of expecting this.
KYL: Frustrated. Yes, they're frustrated. Some philosophy is not different here. I quoted the president who said you don't raise taxes in a recession.
COSTELLO: President Obama also wants to raise taxes on the wealthiest Americans in this country. He's also said that.
KYL: Well, last year he extended all of the current tax rates, the 2001 and 2003 tax rates. They applied to the wealthier and the less wealthy.
COSTELLO: He compromised.
KYL: He did that -- yes. He did that because he recognized that this was not the time to raise taxes on anybody. And the people in the upper brackets are the ones who create the jobs. And he understood that. Well, the situation is no different today. That's why we have resisted raising taxes on small business people who need to create jobs.
COSTELLO: I think that, voters, though don't look at small business people and taxes raised. They look at these like giant banks sitting on tons of money and they have the money to spend and they are not spending it. So that when they hear you saying that, and I'm talking Democratic and maybe some independent voters, when they hear you saying that, they say, where are the jobs? It's not like the giant corporations aren't making money. They're just sitting on the cash.
KYL: Right. And the fact is coming out of a recession most of the jobs are created by small business. In fact, since 1980 all of the net job creation has come from small business.
COSTELLO: And they are hiring now, small business people.
KYL: No, they are not. That's the problem. We have over nine percent unemployment in this country. The small business folks will be creating the first jobs as we come out of the recession that we are in. So that's why we don't want to raise taxes on them now.
Incidentally on the corporate side there was agreement by both Democrats and Republicans that we should have corporate tax reform that would take the top corporate rate down to perhaps 25 percent if we can get it there so that our country can be more competitive internationally. On that there was agreement.
COSTELLO: Senator Jon Kyl, thank you for being with us. We'll talk to Senator John Kerry now. We appreciate it.
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