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Will the deficit cutting proposals work?

Marketplace Staff Nov 19, 2010

Will the deficit cutting proposals work?

Marketplace Staff Nov 19, 2010


JEREMY HOBSON: Well turning now from monetary policy which the Fed is involved in to fiscal policy which is decided by our elected leaders.

We’ve been talking about a couple of deficit cutting proposals that have emerged since last week. And we’re going to bring in someone who’s been digging into the details of both of them. Peter Coy, the economics editor at Bloomberg BusinessWeek magazine. He joins me here in our New York Studio. Thanks for joining us.

PETER COY: Thank you.

HOBSON: We’ve got the Simpson-Bowles report, and we have the bi-partisan policy center report. We’ll probably see some more reports. What are the major differences between these two?

COY: If I had to point out the principle difference it’s that the Bi-Partisan Policy Center one, that’s Alice Rivlan and Pete Domenici, emphasizes more the revenue side. They’re the ones with this debt reduction sales tax — 6.5 percent. Both of them emphasize on the tax code, trying to get rid a lot of the deductions and credits and so on in order to broaden the base income that gets subject to taxation.

HOBSON: Would both of these plans solve our debt problems?

COY: On paper — yes they would go a very long way to solving it. But if you look closely both of them are highly contingent on the assumption that past 2020, the government will somehow be able to get a handle on medicare and medicaid. If that doesn’t happen we’re off to the race. The debt will just sore to the percentage of GDP.

HOBSON: Because medicare and medicaid add up the biggest share of our budget.

COY: By far.

HOBSON: Now, there’s a new NBC/Wall Street Journal poll out this week that says that 70 percent of people are uncomfortable with making cuts to programs like medicare, social security, and defense. Even in order to balance the budget. How can they get these things done if nobody wants to do it?

COY: America has to grow up. We’ve seen that happened to Greece, Ireland, Iceland, when they let their finances get out of control. The market’s can turn very quickly from supportive to bond market vigilantes on the loose. I talked to Pete Peterson the 84-year-old guy who’s contributed a billion dollars of his own money to try to sensitize people about this. He said that he thinks his job is to change the public’s attitudes. Once the public gets more receptive to this, then it will be possible for politicians to do the right thing.

HOBSON: Peter Coy, he’s economics editor for Bloomberg BusinessWeek and he’s just done a big story about the deficit-cutting plans that are out there. Thanks fo much for joining us.

COY: Thank you.

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