There seems to be a spirit of compromise in the new “Gang of Six” proposal. But the plan also raises a lot of important questions. Can it get done in time for the critical August 2 debt-ceiling deadline? Are the spending cuts real? There are lower tax rates and tax reform for personal incomes and businesses, although the capital-gains tax will go up. It appears IRAs and 401(k)s will be tax exempt.
On last night’s Kudlow Report, I spoke with key congressional members on all of the latest developments. Joining me were Sen. Tom Coburn (R., Okla.), a member (perhaps the ringleader) of the aforementioned “Gang of Six,” and Sen. Jeanne Shaeen (D., N.H.). Shortly thereafter I spoke with GOP maverick Sen. Rand Paul. He’s got the right spirit and the right vision to shrink government and grow the economy. He also believes the tea party is winning.
Here are the videos and transcripts for both interviews.
KUDLOW: So question is, will the revived Gang of Six debt talks really bring a bipartisan solution to stave off default? Here now we welcome to the show New Hampshire Democratic Senator Jeanne Shaheen, and we welcome back Oklahoma Republican Senator Tom Coburn. He’s a member of the aforementioned Gang of Six. Some think he’s the real ling–ring leader.
Senator Coburn, let me begin with you. Explain to us–before we get to the actual plan, which is very complex, how does this graphed on to the debt ceiling increase? Can you get it in time for August 2nd? Do you have to take a specific vote to raise the debt? How does this work, sir?
COBURN: Well, I–it’ll be difficult for us to do it in that time. I think it can be done. It depends on if the leadership in the Senate and the leadership in the House gets behind this, or something similar to it. I think the breaking of the log jam says is that you can revenues that come through economic growth that would enhance the government’s budget position. You know, there’s all sorts of ways that you could do it. You could set a timeline and have a vote based on what the hard pay amount–payments are 500 billion right now and allow a debt increase that would go to that amount. And then if we’ve done the rest of the work by then, go on and allow it to go on and increase. Or you could say the whole thing is contingent on us doing this at some time in the future and there will be a limited amount of debt limit increase.
COBURN: So I think it’s possible for it to happen, Larry. I don’t know if it will, but I think it’s certainly possible.
KUDLOW: Well, Senator Shaheen, I guess I ask you the same question. Is itpossible? Because the clock is ticking, this evening is July 19th. August 2nd is the drop dead day. The whole world is watching, as you well know. And do you think legislatively this can get done? You’ve got the House, the House Republicans. I don’t know what their view is on this, but it seems like this is kind of a Hail Mary pass, Senator Shaheen.
SHAHEEN: I–well, I think it’s an important bipartisan framework to get a deal done that would address our long-term debt and deficits, and the fact is we have a two-part challenge. One is how we’re going to deal with the debt and the deficits. And the second is what are we going to do to raise the debt ceiling so we don’t have financial catastrophe. And as Senator Coburn said, there are a number of different ways to do this, and hopefully we can get the leadership behind it and work it out so we can not just increase the debt ceiling and deal with the short-term concerns that we heard earlier from the businesswoman who talked, but we can actually put in place a long-term deficit reduction plan that will deal with this country’s debt.
KUDLOW: Senator Shaheen, just let me ask a follow-up, are you OK with closing down the long-term health insurance plan, the so-called CLASS Act that was embodied in Obamacare’s health act? Are you OK with that? Is that going to be a controversial point?
SHAHEEN: You know, I think there are going to be a number of pieces in any proposal that we can all agree to that individually we don’t like. But I think the question is, are we going to be willing to put everything on the table–discretionary spending, defense spending, mandatory programs and revenues–and are we going to be willing to work out a bipartisan solution that’s going to be in the best interest of this country? And that’s what I’m interested in doing.
KUDLOW: Senator Coburn, a lot of people, as you can well imagine, are worried about 1 to $1 1/2 trillion in revenues. I know you’re using the Bowles-Simpson marginal tax rate relief, but here’s some of the issues that are being tweeted as we talk this evening. What’s going to happen to 401(k)s? What’s going to happen to IRAs? What’s going to happen to capital gains? And is the AMT tax cut really real?
COBURN: The AMT tax cut would be completely eliminated. It’s real. Nothing will happen to 401(k)s at all. There–there’s no change on that. None of that is contemplated. The fact is is there’s plenty of room to grow this economy if you make really cuts in the rates. And we saw it during the Reagan–Larry, you know this. We have 4.9 percent average for four years of real economic growth when we did this same thing back in the ’80s.
KUDLOW: How about–how about IRAs, Senator?
COBURN: Same thing.
KUDLOW: You’re saying nothing will happen to 401(k)s.
KUDLOW: Nothing will happen to IRAs. How about the capital gains tax, sir?
COBURN: The capital gains will resume under what is considered the law. It’ll go back to 20 percent rather than be at the same rate–and the Bowles-Simpson, the capital gains was at the rate of what the new tax rates were. So we’ve actually made it better than what it was in the Bowles-Simpson, so it’ll be at 20 percent.
KUDLOW: All right. That is better. Senator Shaheen, also on the revenue side, it’s about 2-to-1, as I understand it, spending cuts to revenue increases. Will that pass muster on the Democratic side?
SHAHEEN: Well, again, I think the question is, do you want to put in place a long-term proposal that’s going to produce almost $4 trillion in cost savings, which is what everybody who’s looked at this in an objective way says we’ve got to do? And are you willing to put everything on the table to arrive at a compromise? And I think that’s what the framework that this proposal that three Democrats and three Republicans have been working on for about seven months, have come up with. And I think there are a number of us who are ready to say this is an approach that we think we ought to be following. We need to raise the debt ceiling. That’s critical to the finances of this country. It’s critical to every family out there who’s paying a mortgage or car payment or has a credit card bill, because we don’t want their costs to go up. But we’ve also got to deal with the long-term challenge of the debt that this country is facing, and we’ve got to do it in a way that’s going to be good for future growth in this economy. So I think we’ve got a framework here that will do that.
KUDLOW: Senator Coburn, can we talk about some of the spending cuts? I mean, I mentioned the CLASS Act from Obamacare getting taken out. OK. You’ve got a lack of detail, that’s what I’m hearing from a lot of different people. You talk about a $500 billion down payment–I’m not sure what that means–four years of capping the budgets of the various departments and agencies–I’d like to hear you on that–and you defer Social Security. And I’m going to ask you if you’re going to defer Medicare. And I guess the summary question, Senator Coburn is, is are these cuts real? Can they be relied upon?
COBURN: Well, I, Larry, I don’t kid around very much. I think the cuts are real. There’s 500 billion in health care mandatory cuts in this. Some of it will be used to pay–to respond to the SGR, the physician payment area. I think that you can count on the cuts being real. That caps are real. There’s a new enforcement mechanism the Senate’s never had. You have to actually pass
a separate piece of legislation and it has to be passed with 67 votes to ever get around any of the caps. That’s going to be highly unlikely. And you’ve got to do it for every one time. So if you want to violate the cap in one–more than one area, you got to pass another piece of legislation. So you have to have a real good reason for ever violating the caps.
KUDLOW: Senator, let me just…
COBURN: And that’s been–that’s been the problem in the past is…
KUDLOW: I don’t mean to interrupt, but I just want to ask a–just a–what spending to GDP share would you have in this bill?
COBURN: What is the actual number?
KUDLOW: What are you targeting? As–are you targeting 25 percent…
COBURN: Well, well…
KUDLOW: …20 percent…
COBURN: No, no, no, no, no.
KUDLOW: …18 percent?
COBURN: Well, I–what I target is under 20 percent. That’s the only way we can get healthy again. And that’s why–I was going to say, based on your conversation with Senator Shaheen, this is a start. Everybody knows we have to start and that–we also know that $4 trillion doesn’t solve all the problems, but it starts us down the way to send the confidence to the international financial community that we understand our problem and we’re working on it there.
KUDLOW: All right. Well, you had a vote of confidence from the stock market today, no question about it. All right. It’s great to see you, Senator Coburn. Ms. Shaheen, thank you for coming on. We hope you’ll join us again…
SHAHEEN: Thank you.
KUDLOW: …in the future.
KUDLOW: Here now for an exclusive CNBC interview is Kentucky Republican Senator Rand Paul. He’s one of the co-sponsors of the GOP’s Cut, Cap, and Balance proposal.
Senator Paul, welcome back to the show. First of all, your take, Cut, Cap, and Balance, it will pass the House. Is there any hope it’ll go through the Senate? Any hope at all?
PAUL: You know, what I’m seeing is a huge amount of resolve. I just came from a big rally with grassroots groups, congressmen, senators. They’re excited about this, that we can actually tell the American people what we’re for and what would fix the country, really. I don’t think there’s much hope to fix our country unless we do something to balance our budget.
KUDLOW: Senator, let me ask you, if the Cut, Cap, and Balance is replaced or superseded politically by Senator Coburn’s new Gang of Six proposal, is that to your liking? Would you accept the Gang of Six proposal? Senator Paul? I don’t know. Have we lost him?
PAUL: I think we’ve got you back now. Sorry.
KUDLOW: All right.
PAUL: Sorry. We lost the audio for a minute.
KUDLOW: I beg your pardon, Senator, let me just quickly repeat. If Cut, Cap, and Balance is replaced politically by the Gang of Six, would the Gang of Six plan–we just had Senator Coburn on–would that be to your liking? Could you support the Gang of Six plan?
PAUL: Well, the first problem is there is no Gang of Six legislation. There’s a rough outline that I don’t think could possibly be a bill for a month, and they don’t even say that they are going to have legislation. So it’s really not even on the table. The only thing on the table is the Cut, Cap, and Balance. The other problem I have with the Gang of Six is it doesn’t balance. It never balances, and I think the people who elected us want us to balance the budget. I figure it’s a huge compromise for me to wait five to 10 years to balance a budget, and I can’t vote for any plan that never balances the budget.
KUDLOW: When does Cut, Cap, and Balance balance? That doesn’t come, I thought, until the 2030s.
PAUL: Well, no. Cut, Cap, and Balance will require that the budget be balanced within five years of passage of the amendment. And we estimate it might take a year or two to go through the states. So it’ll be about a seven year plan, and this is similar to Pat Toomey had a budget that balanced in seven or eight years. I have one that balances in five years. The Republican Study Committee had one seven to eight years. So it does have at least a finite time that says to the American people we will be working steadily on this road; but it also requires it by the Constitution, which I think is the only way we’ll ever reform things in Washington.
KUDLOW: Senator, you know, you are a tea party leader, you’re a fiscal conservative, obviously. I just want to ask you about the tea party piece. The main idea was to cut spending, you know, stop the growth of government and help grow the economy. You’ve been in office now, I don’t know, two years or so. What’s your take on this? How–are you succeeding? Is the tea party message influencing policy in Washington?
PAUL: Absolutely. I think we’re winning the debate every day in the public arena. We’re not yet winning the battle in the legislative arena, but we’re winning the public debate every day. Look at this Cut, Cap, and Balance. A couple of us–it started with two or three of us in the Senate about a month ago, everybody was opposed to it on both sides of the aisle.
Now we’re going to have a vote and everybody’s for it, at least on our side of the aisle. So we think we’ve come a long way and that we are influencing the debate. And really, we think that time is short. We’re worried about–you know, people say, `What happens if you default?’ We say, `What happens if you drive a country into bankruptcy?’ And we think that that’s around the corner. You know, even the ratings agencies are now saying just raising the debt ceiling doesn’t stave off a downgrade.
PAUL: You could get a downgrade if we don’t look like we’re serious about tackling our nation’s finances.
KUDLOW: Well, I think that’s a very important point. I just want to ask you right now, knowing what you know, can you forecast? Will we have a debt ceiling increase or will we have a default on our interest expense on the debt?
PAUL: Well, you know, I’m really optimistic that we’re going to force a showdown on this, and I think really what we need is a statesman. If the president were a true statesman, tonight he would say he’s going to take default off the table and that he will always pay the interest, as he should, on the debt. There’s plenty of money. We bring in 200 billion a month and our interest payment is usually about 20 billion. Plenty of money. They’re playing a game of chicken, and he needs to take the country’s future and say, `I’m not going to play a game with this. I will not default.’ He should do the same with the senior citizens. We have plenty of money for the Social Security. We bring in 200 billion a month, Social Security is somewhere between 50 and 70 billion a month. We have the money.
KUDLOW: Well, but the reality is those numbers–I mean, I agree with you on those specific items, but you’d also have to cut about 44 percent of the budget to make ends meet. I mean, those are what the numbers look like.
KUDLOW: It’s a very dicey proposition, is it not?
PAUL: Well, what you would have to do is you would have to balance your budget immediately until we passed a plan. And, you know, I’m pretty much a moderate, so I’m willing to not balance it immediately, but I would force them to balance it immediately for a couple of months until we had a plan in place or as soon as they’re ready to accept a plan. You know, if the president tomorrow comes to his senses and says, `You know what? We need to balance it in seven years and here’s the plan and I’ll stick by it.’ But this is a president that’s going to add more debt than all of the other presidents combined.
PAUL: This is a president who’s going to add 11 trillion to the debt. He’s out of touch and I think he needs to admit it.
KUDLOW: All right. We’ll leave it there. Senator Rand Paul, thank you very much for coming back on the program.
PAUL: No problem, Larry.