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BURNETT: It's crazy? Betting the country? Well, according to the Congressional Budget Office, Bowles has a good reason for saying what he did. If we don't pause the cliff, the economy would go back into a recession, according to the CBO.
Economic output would drop by half a percent and unemployment rate would go back up to 9.1 percent by the end of next year. Now, the clock is ticking. John and Harry, get out of the sand box.
Thirty three days are left. Democratic Congressman Peter Defazio of Oregon is OUTFRONT tonight. Sir, really appreciate your taking the time. First, let me just get a response from you about Timothy Geithner's plan that he put on the table.
A $1.6 trillion in revenue, $400 billion in cuts, I'm a little confused because the president said he will give $2.50 in spending cuts for every dollar in revenue. This is -- this is the opposite.
REPRESENTATIVE PETER DEFAZIO (D), OREGON: Well, finally, the White House has learned not to negotiate with itself, but with the opposition, which is the Republicans. Remember, there is no real cliff. On January 1st, the only thing that goes away is the Social Security tax holiday and nobody is seriously talking about continuing that.
All the other tax increases don't take place until sometime around March. Gives Congress plenty of time to revisit them, but that's $4 trillion of additional revenues. So OK, we're going to cut that more than in half, $1.6 trillion. That will probably mean Reagan era rates on capital gains.
It would mean Clinton era rates on dividend taxation. Clinton era rates on higher income people and you're getting close to $1.6 trillion. So I don't think it's that unreasonable and the key thing he put forward today and I'm pleased because I've been raising this for more than a month.
A third of our deficit is due to high unemployment. We need to put people back to work in this country and if we funded a robust transportation infrastructure bill as part of this package and put a couple of million people back to work, a lot of the deficit goes away.
BURNETT: But didn't they say that last time we put some of that?
DEFAZIO: I didn't vote for that and this word stimulus is totally discredited. It did not -- 7 percent of that bill was investment and infrastructure, 42 percent was tax cuts. We've been trying tax cuts for more than a decade. They don't put people back to work. Real investment does. We have report after report, economist after economist, real investment will put millions of people back to work.
BURNETT: Right. Those were tax cuts though of the vast middle in this country. Exactly what you want to extend and so did the Republicans want to extend, right? I'm still though, sir, a little confused. If the president wants $1.6 trillion in revenue and he is going to do his math of two and a half, that's $3 trillion in cuts. Why is he only putting 400 billion out?
DEFAZIO: Well, he's probably leaving himself a little room to negotiate.
BURNETT: A little.
DEFAZIO: -- is reasonable on Medicare. If he just started negotiating lower drug prices that saves Medicare $230 billion over 10 years and then you deal with some of these high cost private insurance plans under Medicare. And a couple of other minor changes that won't hurt average American, won't make them wait until 67 to get Medicare, we could get the 400 billion there.
BURNETT: Now, let me follow up on that one point though. Because when the president earlier had talked about Medicare, not today via Tim Geithner, but before, he has said, yes, I support raising the age on Medicare from 65 to 67.
You know, Simpson-Bowles talked about raising the age. I mean, most people do and say that's really going to be the only way to get out of this. Medicare is going to be insolvent in the year 2024. You really think we don't have to make real changes or is that just, I understand your constituents don't want you to say anything.
DEFAZIO: That doesn't deal with the cost of prescription drugs.
DEFAZIO: It doesn't deal with overpriced and unnecessary medical care and finally, if we did extend the age to 67, guess what? Everybody between 65 and 67 can't buy private insurance. They'd have to go to the Obama exchanges with low incomes.
And they would all get subsidies there to buy private insurance which probably in the end would be more expensive than Medicare, so actually, you would just move from here to here and you might even increase the deficit.
BURNETT: All right, interesting point, but I still find it a little bit hard to believe. I know no one wants changes in Medicare. It's not popular, but when you say we don't have to make substantive changes to a program that's going to consume all of our federal spending if we keep going the way we're going over the next decade or so, we do need to make substantial changes. It's going to hurt.
DEFAZIO: I didn't say that, Erin. I mean, I'm part of the quality health care coalition. We want to move to outcomes space medicine. We want every state to be as efficient as my state and 16 other states who are low cost providers who provide care at about a third of the cost of Florida for the same procedures.
A quarter of the cost of New York for the same procedures, we need to rationalize the system across the country and go to those states that are wasting a bunch of money and make them more efficient providers.
We need to negotiate the prescription drug prices saving a quarter of a trillion dollars and you know, we need to reign in these private health insurance plans that are living off Medicare. Those are real changes.
BURNETT: All right, let me ask you this though. You said there is no cliff. CBO says there's a cliff. Erskine Bowles passionately believes there's a cliff. I get your point. It doesn't all hit on day one.
But the fact of this country and you guys in Washington not being able to get a deal done just the atmosphere, the frustration and the fear that could create, how can you say that's not a cliff?
DEFAZIO: Well, a lot of hysteria out there, but again, the fact is only the Social Security tax holiday goes away. The withholding tables don't change. No one's taxes go up in their first month or their first two weeks paycheck in January.
The cuts through sequestration, which is a stupid way to cut the budget, by the way, across the board don't go into effect immediately and I would hope Congress would revisit those and make discreet cuts instead of stupid across the board cut, which hit good programs as much as they hit unnecessarily programs.
So we would have time to get to work on January 3rd and deal with restoring tax benefits to middle income and working families and deal with a more discreet way of reducing spending.
BURNETT: And you'd be willing to take it if the market reacted incredibly negatively. You had sharp selloffs. Companies were afraid to hire, you think all that's manageable?
DEFAZIO: I'm not sure why that would happen because you know, Wall Street's very good at manufacturing hysteria. I opposed the TARP bailout. I remember how they crashed the markets 600 points the next day and they got a bunch of my colleagues to come back and change their votes. They can only manipulate it so far and then there's real value there that will come back.
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