BRAD SMITH: Good morning. Thanks to all of you for coming this morning. I think it’s a really interesting hour that we have the opportunity to spend together. And I’m just thrilled on behalf of Microsoft to have the privilege this morning of welcoming Erskine Bowles to be here with us.
Microsoft as a company has been a supporter of the Campaign to Fix the Debt. Steve Ballmer is on the CEO [Fiscal Leadership] Council. I’m on the Business Leaders Council. And Bill Gates has been actively engaged as well, really because of the importance of this problem for the company, for every company, for everybody who lives in the country, and for the country as a whole.
We’ve sought as a company to join lots of other companies in our industry and across the country, principally to be a voice for the importance of people coming together. We’re not trying to answer every specific answer, or provide every specific answer, to every specific question. But we are trying to be part of the business community’s voice, encouraging people to come together, work in a bipartisan way, think about the long-term, and do what it takes to compromise.
There literally, I think, is no one better in the country to talk about this issue than our guest this morning, Erskine Bowles. As you may know, he has had a distinguished career in business. He worked at Morgan Stanley, in New York, and then helped launch and lead investment firms in his home state of North Carolina. He has had a distinguished career in the government. He led the Small Business Administration, and then worked as deputy chief of staff. And then in the second Clinton term, as chief of staff at the White House.
He has had a distinguished career in education. He served as the president of the University of North Carolina system. In 2010, two years ago, President Obama asked Erskine and Senator Al Simpson to come together and lead the National Commission on Fiscal Responsibility and Reform. What has become known since as either the Simpson-Bowles Commission, or the Bowles-Simpson Commission, depending on which name you prefer to put first. But it was a bipartisan group that put together a set of recommendations to address our fiscal situation.
That obviously did not lead to a negotiated conclusion last year. But this year, this month, it’s more important than ever. And so, without further ado, let me turn it over to somebody who, as you will see, understands the problem, has clear ideas about the solution, and as much as anything else, knows the numbers that matter. Join me in welcoming Erskine Bowles.
ERSKINE BOWLES: Thank you very much.
Wow, this is some group. Thank you for coming. I have three things to tell you before I start. Because once I start, you’ll be like me, you’ll wish this was vodka for sure. (Laughter.) First of all, if you want to know whether it is Simpson-Bowles or Bowles-Simpson, it is for sure Simpson-Bowles. And the reason is everything in Washington is known by its initials. (Laughter.) We’d rather be Some Bitches, you know.
Second, I have to say two things about my introduction. And one thing about it is an old classmate of mine from this old school I went to in Virginia. I don’t know which one to do first.
But I’ll tell you, listening to an introduction like that is unbelievably wild for somebody like me. And it reminds me of when my uncle Sam in Greensboro, North Carolina, passed away. You could probably tell I wasn’t from out here.
And the obituary editor of the Greensboro Daily News called up to ask my aunt about him. And she kind of went on and on, like Brad did about me. And after a few minutes the obituary editor said, now, Mrs. Bowles, you do know that we now charge? We charge $5 a word for every word in the obituary. She said, oh, no, no, I didn’t know that. She said in that case just put in there, “Sam died.” (Laughter.) Here’s a true story.
That’s not even the funny part. And he said, well, Mrs. Bowles, we can’t do that. He said, we have this five-word minimum. And she said, in that case put in there, “Sam died. Cadillac for sale.” That’s a true story. That is – I have a 1:20 flight. If I’m not out of here, my wife is going to do the same to me tomorrow.
The second one was I got asked what was it like to be president of a university? And I’ll tell all of you, because I love this, it’s really true. Being president of a university is like being CEO of a cemetery. It really is. You’ve got a lot of Ph.D.s in here. You’ve got lots of people underneath you. But ain’t nobody listening. It’s really true.
All right. Now I’ve got to go to the vodka. When Al Simpson and I – and Al Simpson is an American treasure for sure. He is unbelievably great. And if he were here, he would be saying the same thing I am. So, this is like zero partisanship in this. But when President Obama asked us to head up this commission, we thought we were doing it for our grandkids. I’ve got nine. And he’s got six. By the way, my nine are all under six. So, you can imagine what my life is like now. It’s wonderful. But it’s wild.
I sometimes think – I’m on the Facebook board. I sometimes think I’m dealing with my grandkids when I go to Facebook.
But the more we look at the problem and the more we studied the arithmetic, the more we came to understand we weren’t doing it for our grandkids. We weren’t even doing it for our kids. We were doing it for all of us. The problem is real. The solutions are going to be painful. There’s no easy way out.
I think if we can’t get these people in Washington to put this ultra-partisanship aside and to pull together rather than pull apart, we face what is clearly the most predictable economic crisis in history. Fortunately for all of us, it’s also the most avoidable economic crisis in history. But arithmetic will tell you that the fiscal path that the nation is on is just simply not sustainable.
And, as an analogy, I would tell you these deficits are like a cancer. And it’s a cancer that will destroy America from within. Let me give you the basic arithmetic. If you take the operating statement of a country from last year – not 20 years ago, not 20 years from now – last year. One hundred percent of the revenue that came into the country last year, every nickel from every source, was spent on what’s called our mandatory spending and interest on the debt. Mandatory spending is principally what we spend on entitlement programs – Medicare, Medicaid and Social Security.
So what does that mean to you all? It means every dollar we spent last year on these –two wars, on national defense, Homeland Security, education, infrastructure, research – every dollar was borrowed. And half of it was borrowed from foreign countries. That is crazy. It’s crazy if anybody is doing it. I don’t care if you’re from the right or the left. It’s nuts.
And when I’ve got time to take like a zillion questions, one of the questions I always get is: Why do you do this? What are we spending this money on? This is crazy. And it’s kind of funny, but everybody always says the same three or four things. And I used to say four, but I don’t want into get one of these Rick Perry deals, you know. (Laughter.) You can tell I’m a Democrat.
But the first thing they say is you’re spending that money on waste, fraud and abuse. And then somebody will say no, no, you’re spending it on foreign aid. Then somebody says, no, no, you’re spending it on Nancy Pelosi’s airplane, or oil subsidies. And you could take all of those things and you could put them in a thimble compared to what we’re really spending money on, and where our challenges are going forward.
So let me just tell you, if you don’t remember anything else: there are five principle challenges that America faces. And I don’t care if you’re a Democrat or a Republican. If Patty Murray, who I like; or Cathy McMorris Rodgers, who is the No. 4-ranking Republican in the House from Washington, comes and asks you for money or asks you for support, you find out where they stand on these four big – five big issues.
The first is healthcare. We spend twice as much on healthcare in America as any other developed nation in the world. And that’s true whether you talk about it on a per capita basis, or as a percent of GDP. And for me that might be all right, if our outcomes were twice as good as any other nation. But they’re not.
If you look at the outcomes in the U.S. we rank somewhere between 25th and 50th in such important measures as life expectancy, or preventable death, or infant mortality. And any of you in this room who are so lucky to have a job, think that those 35 million Americans who don’t have healthcare insurance don’t get healthcare, you’re wrong. They get healthcare, they just get it at the emergency room at five to eight times the cost it would be in the doctor’s office. And that cost doesn’t go away, it gets cost shifted and it gets cost shifted to you in the form of higher taxes and higher insurance cost.
In 1981 we spent 10 percent of the budget on healthcare. Today we’re spending 25 percent of the budget on healthcare. By the end of the decade we’ll be spending over one-third of the budget on healthcare. And it won’t be long before all we can afford to do in America – and I’m not exaggerating – is to take care of a couple of old coots like me and Al, and buy a few tanks. Really, that’s how fast healthcare costs are growing. They will simply consume the entire budget.
The second biggest challenge is defense. We spend more on national defense in this country than the next 17 largest countries combined. Do you hear that? The next 17 largest countries combined. And that includes both Russia and China. I believe that we’re bearing a disproportionate responsibility for global world peace. And I don’t think America can afford to be the world’s policeman. And I think you take a guy like Admiral Mullen, who was chairman of the Joint Chiefs of Staff under both President Bush and President Obama. I think he got it right when he said – he was asked – what’s our nation’s greatest national security problem. He didn’t say, these terrorists. He said, it’s these deficits. Because they will consume every dollar of resource that we have.
Let me just give you one kind of humorous example. We have a treaty here in America now with Taiwan. That we’ll protect Taiwan if they’re invaded by the Chinese. There’s just one problem with that. We’ll have to borrow the money from China to do it. It’s crazy. I rest my case.
No. 3, we have in our tax code, we take in $1.3 trillion in taxes now, 1.1 from individuals, $200 billion from corporations. And I would dare say we have the most inefficient, ineffective, globally anti-competitive tax code that man could dream up.
I told somebody, I could ask our finance department at Chapel Hill to design a new one. And they couldn’t even design a stupider one than we have. Really it’s insane. And people ask me how can we have nominal rates so high and net such a relatively small amount of money. And the reason is we have this $1.1 trillion of back-door spending in the tax code. Many of the things that are in there you all like. I like. But, what we said is, look. We said, let’s broaden the base, simplify the code. Let’s get rid of the start by just getting rid of all that spending in the tax code. And let’s use 10 percent of the money to reduce the deficit. That’s about $100 billion a year. And $100 billion a year over 10 years is $1 trillion. And that’s where $1 trillion of our $4 trillion of deficit comes from.
And let’s use 90 percent of it to reduce income tax rates. What could we take rates to if we did that, you could take rates to 8 percent up to $70,000, 14 percent up to $210,000, and have a maximum marginal income tax rate of 23 percent. You could take corporate taxes to 26 percent. And you could pay for a territorial system, so that that $1-1/2 trillion that today is captured overseas in big corporations like Microsoft could actually be brought back to the U.S. to create jobs over here.
Now, my Democrat friends always say, Erskine, gosh, if we do that these big corporations like Microsoft, all they’ll use it for is to dividend it out, or to buy back stock. And I say, great, at least that money will be circulating here, rather than stuck over there. And we’ll have a chance to use it in these communities to do something about our schools and our roads.
The fourth biggest issue we face, really controversial, Social Security. I don’t want to deal with Social Security to balance the budget. But I do want to make Social Security sustainably solvent. So it is a real promise. So, it’s a promise that will be there for the next generation. Today Social Security is $900 billion cash negative over the next decade. And what we tried to do was make proposals to make it sustainably solvent. This Roosevelt guy was a very smart guy. When Roosevelt created Social Security, average life expectancy was 63. You got Social Security at 65. That is a very, very smart guy. Today average life expectancy is 78. You get it at 62. We have an arithmetic problem. We have to face up to it.
So, we made proposals that would close that gap, and they are very controversial. One of the proposals we made was to raise the retirement age. We said we would raise it one year, 40 years from now. We want to give you all a chance to get ready. And one more year, 65 years from now, when my grandkids are available. But, if you make small changes like that, you can actually make small changes like that you can actually make Social Security sustainably solvent so it will be there for generations to come.
The fifth biggest problem is our old friend compound interest. Even at today’s low interest rates we’re spending about $230 billion on interest. If interest rates were at their median level they were in the 1990s, or the first decade of this year, we’d be spending about $650 billion on interest. But, even at the current levels, that’s more than we spend at the Department of Commerce, Education, Energy, Homeland Security, Interior, Justice and State combined.
And if we do nothing by 2022 we’ll be spending over a trillion dollars a year on interest. You think about that. That’s a trillion dollars we can’t spend in this company – country –to educate our kids, to build our infrastructure, to do research. And worse, it is a trillion, we will be spending in those countries we’re borrowing money from to educate their kids, to build their infrastructure, to do the research in their universities so that the next new thing is created over there, not here. And the jobs of the future are there, not here.
I think it’s nuts. And don’t let any of these politicians come and tell you, “Don’t worry about it. We can grow our way out of this problem.” I can do arithmetic. We could have double-digit growth for decades. And that alone won’t solve our problem. And don’t let any of my Democrat friends tell you that we can solely tax our way out of this problem. You can’t. Raising taxes doesn’t do a darned thing to change the demographics of a country. Or to change the fact that healthcare is growing at a faster rate than GDP. And don’t let anybody in the other party tell you that we can solely cut our way out of this problem. You can’t cut your way out of this problem without disrupting a very fragile economic recovery; without hurting the truly disadvantaged; or without cutting what we’re spending in education and on infrastructure and research so deeply that America won’t be competitive in what is today a knowledge-based, global economy.
So, what we did is we made a recommendation to reduce the deficit by $4 trillion over the next decade: $1 trillion from revenue, $3 trillion from spending cuts. And we made that recommendation of $4 trillion not because we just made up $4 trillion. It sounded like a good thing. Or a No. 4 bus was passing us on the street. But, we made it because $4 trillion is… It’s not the maximum amount we need to reduce the deficit over the next decade. It’s not even the ideal amount. It’s the bare bones minimum amount you need to reduce the deficit to stabilize the debt and get it on a downward path as a percent of GDP.
We’ve got a majority Republicans, a majority of Democrats, a super-majority of our commission to vote for it. What made me really proud was that the diversity of viewpoints of people who voted yes at the end, after we built up some trust. We had six sitting U.S. senators. Five of the six voted yes, all three Republicans, two out of the three Democrats. And it was everybody from Dick Durbin, who is as liberal a senator as you’ll find, from Illinois, to Tom Coburn, who is as conservative a senator as you can find, the Republican from Oklahoma. And why did they do it? They did it, because they thought it was the right thing to do for the country.
And today we face this fiscal cliff. Let me tell you what this fiscal cliff is. It’s $7.2 trillion worth of economic events that are going to hit America right in the gut on December 31st. I think, what, 25 days from today. Five hundred billion of those will take place next year. It’s the expiration of the Bush tax cuts. It’s the expiration of the payroll tax. It’s the expiration of that patch that’s been put over the AMT, the Alternative Minimum Tax, so it won’t hit the middle class. It’s the expiration of the unemployment benefits. It’s those mindless, senseless, across-the-board cuts that came about in the sequester because of the failure of the super committee.
And I guarantee you here at Microsoft – at least I hope not – it doesn’t make any sense to make cuts across-the-board. You try to go in and you surgically do them where you have the least adverse effect on economic productivity. And we’re going to do them across-the-board. A kind of stupid way to balance a budget.
The economic effects, if this takes place, if we go over this cliff, what will happen? Almost every economist on the right and left says that about two million more people will lose their jobs. Unemployment will go back to 9 percent. And economic growth will slow by about 4 percent. And since we’re only growing at 2 percent that puts us by definition back into recession.
If we go over this cliff and nothing happens, Moody’s and Fitz will downgrade our credit joining the S&P. That has real consequences. It’s cost us a billion dollars this year. It will cost us, even at these low rates, about $18 billion over the foreseeable future. And when they join it will be a lot more. Your kids, your grandkids will pay for our credit rating going down.
Something you all should focus on is, the equity markets are going to get killed because in no way have they priced in that we’d be stupid enough to go over this cliff. Why in the world would you bet the country?
I’m frustrated about it. I’m furious about it. And we’ve got 25 days to get this thing fixed. And they’ve known about it for a year-and-a-half. If you all had in any one of your groups something this big on a relative scale, here at Microsoft, you all would have every hand working on it for the whole year. Every analyst, every associate, every technician, every engineer, everybody would have been working on it.
But do you know what they’ve been doing in Washington? Nothing. Nothing. Hubert Humphrey got it right when he described Washington as 26 square miles surrounded by reality. (Laughter.) It is. I’m telling you. It’s gone crazy.
OK, so where are we? I think we’re at, what I would call, the magic moment. You know, this is the best time we will ever have to solve this problem. We have a second term Democrat in the White House who understands the state of play. And has said, OK, I’ll put entitlement cuts on the table. And he has put $350 billion worth of cuts in Medicare on the table.
And we have a Republican speaker who gets it, who understands the gravity of the problem we face. And he said, we’ll do revenues.
And we’ve got well over half of the members of the Senate – both parties – who have said we’ve got to approach this in a balanced way: with revenues and spending cuts.
And we have this crisis. And it takes a crisis to get anything big or important done in Washington.
So I’m not worried that Geithner went over and made an offer to Boehner and Boehner said no. I mean, like big surprise, come on. And then Boehner made an offer, which by the way he called the Bowles plan, which I was very flattered. (Laughter.) It wasn’t my plan but he called it that, so what else could I have thought. But he made an offer to President Obama, and they said no.
I mean, that’s the kabuki theatre that all of this stuff goes through, every deal. If you’re buying your home or selling your home, you know, you’re not going to make your best offer. That’s just, you know, that’s doing the deal.
But we – you know, I think the kabuki theatre is over now, and they’re starting to tango. And that’s good, I like tango time. You know, that’s when they’re getting together in a room and they’re really talking about how do we get this done.
There are three big sticking points that you all ought to look for as you think about are we actually going to get a deal done.
The first is on the revenue side how much revenue and in what form will that revenue come. The president’s insisted that it come in the form of raising tax rates on the top 2 percent, and the reason he’s for that is he wants surety that that income will come in. He’s been very candid in saying that he’s willing to discuss tax reform next year that would broaden the base and simply the code and reduce rates from there.
The second big issue is spending cuts, the amount, and where that will come from. And the big question is, how much are we going to be willing to cut the healthcare entitlements. And again the president’s put $350 billion on the table. That’s not going to be enough to get the Republicans to come onboard.
And the third biggest item is, do we want to once again put the full faith and credit of the American government out to – in question. And again I think that was – that’s nuts to do that.
I think there’s a one-third probability we’ll get something done during the lame duck, which ends by the end of the year.
I think there is a one-third probability that we’ll go over this cliff and get something done immediately thereafter. And that’s OK. And the reason that might work is it just shows you how silly Washington is. It’s like dealing with a bunch of children.
But if we go over the cliff, all the Bush tax cuts expire. That generates $3.9 trillion. We only need at most $1.6 trillion of revenue. And so it allows the Republicans to vote for a tax cut, rather than a tax increase. You get to the same exact place – (laughter) – but they can call it one thing. It’s like crazy. I hate to admit it but it’s really true. So that’s another one.
And then we’ve got one-third probability that we’ll have chaos. And that’s what I’m talking about: betting the country. And why would you do that, when you’ve got lots of alternatives that you could turn to to get it done now?
I’ll close by just giving you an analogy. When I was at Chapel Hill the other day, greatest university in America. (Laughter.) I’m sorry most of you all couldn’t get in. (Laughter.)
Anyway, I’m at Chapel Hill, and, you know, they’re not getting it. So I said, let me give you an analogy of where we are as a country. I said, think about Ernst Rutherford. Some of you all probably know who he was. He was this great Nobel Prize-winning scientist in chemistry. And his Nobel project was running out of money. And he turned to his team and said, “Hey, we’re running out of money. Now we’ve got to start thinking.” (Laughter.)
But that’s where America is. We are running out of money. Now we’ve got to start thinking. You know, we’ve got to make the choices, the tough choices, the hard political choices.
If we make these choices, the future of this country is very, very bright. And we are going to be able to compete with the best and brightest, wherever they are. And if we don’t, we are well on our way to becoming a second rate power.
So, that’s why I’m here today. What this Fix the Debt campaign is all about is bringing people together, Republicans and Democrats, and putting some real pressure on these members of Congress – whether it’s Patty Murray, who’s the No. 4-ranking Democrat in the Senate who I’m very close to and really like, but she’s also head of the Budget Committee, or whether it’s Cathy McMorris Rodgers, who’s the No. 4-ranking Republican, who’s also from Washington state. But giving them enough pressure and enough freeboard that they’re willing to say, “Yes. I’ll compromise. I’ll do this. I won’t bet the country. I’ll do this, to put America on the path to prosperity.”
We’ve got a CEO Fiscal Leadership Council, which Microsoft has played a real part in. We’ve got a Small Business Leadership Council, and I talked to a bunch of the small businesses here this morning. And we also have a petition that I hope you all will think about signing. And we have them over there. You can also get them online at FixtheDebt.org. That just encourages these members of Congress to put politics aside and to pull together and let’s solve this and let’s solve this now in a balanced way.
And we need your help. So that’s why I’m here, to ask you to help us, to do it, you know, for your kids. Do it for yourself. But most of all do it for the country.
Thank you very much. (Applause.)
BRAD SMITH: Thank you, Erskine. That was terrific. You’ve covered a lot of ground, which creates a lot of opportunity for questions. We have a little bit of time for questions. I know we have two microphones. Why don’t we start with the one on the left, and then we’ll go next to the one on the right. So fire away.
QUESTION: Thank you very much.
The situation is certainly dire, but we have some maneuvering room today. And a lot of the questions we’re facing today are about how much we should cut expenditures versus how much we should raise revenues.
How far are we from the point where the maneuvering room is gone, we have no more choices, and the only thing we can do is cut services and investments to the bone and substantially raise taxes?
ERSKINE BOWLES: You’re asking where the tipping point is. And, look, nobody knows where the tipping point is. I mean, nobody has that kind of crystal ball.
But what I can guarantee you is if we go to this cliff, and the markets look at us and decide that we can’t govern, then the markets will crush us. And when the markets crush us, these – I’ll almost called them something – these guys in Washington, you know, they will overreact. And they’ll do something really stupid.
So what we want to do is to do this in a thoughtful way. And now is the time to get that done before we go to this cliff.
And those guys are meeting now from Speaker Boehner’s office and from the president’s office. And I hope with all my heart that they come up with a reasonable compromise.
QUESTION: Thank you.
QUESTION: With regard to all the deductions, the kind of historic deductions that all have fierce lobbyists defending each and every one of them –
ERSKINE BOWLES: You bet.
QUESTION: – if we were to set a fixed cap on deductions that was not indexed to inflation, would that create a way that over time the distortion effect would be reduced without any politician ever having to vote against a specific deduction?
ERSKINE BOWLES: Yeah, kind of two things I’ll say. You know, all these deductions and what are called tax expenditures, you know, everybody is always the same. They’re just like my momma, who is 92. My momma says, “Erskine, I’m so proud of you. You’re doing all the right stuff. You’re just cutting out all this spending. Your daddy would be so proud of you. I want you to keep doing it, but don’t mess with my Medicare.” (Laughter.) And that’s the way we all are. You know, we’ve all got something that we don’t want to do.
You know, you can do it with a cap. Like one of the proposals I’ve looked at a lot is placing a $50,000 cap on deductions. That creates about $750 billion, which is not far from the 950 that the president wants from raising income tax rates.
And you could get it in a very progressive manner. A $50,000 cap, I think about 6 percent of it affects people between 100 and $250,000, and the rest, 3 percent, people less than $100,000. But 91 percent of it would come from people making more than $250,000, and actually that’s the top 2 percent. And actually 80 percent of it would come from people in the top 1 percent. And 48 percent would come from people in the top 1/10th of 1 percent. So it’s very progressive.
But you take a high-tax state or a high-cost state – where real estate costs a lot, where you have high state and local taxes or where you have a community like this where people are encouraged to make charitable deductions – you can eat up that $50,000 pretty quick. So your argument will always come from, in that case, people who are the recipient of those benefits.
And so I think doing it that way is harder than doing something like capping your value of your tax expenditures at 28 percent, as opposed to the 32 percent you might be in now. That means you get less value for each one of your capital expenditures, your charitable deductions, but I don’t think the difference between 28 and 32 are probably enough to make you not make your charitable contributions. So I think that’s probably a more practical way to see it done, in a capped type of environment.
QUESTION: First off, I’d like to thank you for being here today with us, and taking the time to share your thoughts.
ERSKINE BOWLES: Thank you.
QUESTION: Unfortunately, I’m not very optimistic about this resolution given the timeframe. This is not a situation that I think we can solve in 30 days. Actually it’s 20 I think now.
ERSKINE BOWLES: Yeah, 25.
ERSKINE BOWLES: And it makes me sick they haven’t been working on it all year long.
QUESTION: Well, it makes me frustrated that it hasn’t been worked on for years. And, obviously, elections do have consequences. And when we look back and talk about regrets being not having immigration reform versus dealing with this issue, it disappoints me. And I personally don’t see there being top-level leadership, or will, to seriously deal with this situation.
ERSKINE BOWLES: What’s your question?
QUESTION: My question is, you mentioned Patty Murray as one of the players in this discussion saying she doesn’t fear the fiscal cliff. And this is an insane situation that we face. And simply raising taxes on the top 2 percent will net us about $80 billion I believe per year in additional revenue.
ERSKINE BOWLES: It doesn’t solve the problem.
QUESTION: So me personally I would like to see us move back to something where we do have tax rates that affect all who receive cuts, and reduce our spending to 2007 levels. I want to know how do you feel about that sort of discussion? Because given the numbers there’s just no way we convert this easily in a 25-day period to figure out a plan.
ERSKINE BOWLES: There are a couple things I’d say because you brought up a lot of important subjects.
First of all, I can’t let somebody talk about immigration without saying I am – you know, it is nuts that we don’t have comprehensive immigration reform. And it is even nuttier that we don’t do something about these H-1B visas. This is just crazy.
And I can tell you in our universities, we could fill them up with people from foreign countries, and we ought to staple a green card on the back of every one of them to keep people here. (Applause.) I mean, we desperately, desperately need these smart people. We’re just not producing enough smart people here at home right now. (Laughter.) And we’re not, you know? I could give you – and if you want this country to go and you want us to be able to meet our obligations, we also have got to have this comprehensive immigration, too. I mean, it is just plain simple economics if you don’t want to talk about the moral part.
And the bad thing is if we don’t get this debt thing fixed so they can turn to another issue, we’ll never get to immigration, to the H-1B problem. We’ll never talk about it, because they’ll just be at war. So that’s another reason why you ought to be for us actually getting something done here.
Secondly, you’re going to have to deal with the entire tax code and with all the spending cuts. Everything has to be on the table. And if it’s not on the table, you’ll never get – you’ll never solve this problem. The problem’s just too big now.
QUESTION: So again going back to the pre-tax cut rates –
ERSKINE BOWLES: OK, let’s go to the next guy.
BRAD SMITH: The audience rules in this room, doesn’t it? There you go. (Laughter.)
QUESTION: So one of the elephants in the room I think is the controversial no-tax pledge to Grover Norquist that many Republican congresspersons have signed. And so my question is, what can we do collectively to make our voice heard loud and clear by these congresspersons that cooperation and oath of office trumps obstructionism and inaction and a pledge to a Washington insider? Thank you.
ERSKINE BOWLES: Yeah, that’s a perfect question – (applause) – and you could have asked it either one of two ways. You know, Grover’s walking around in his white robes there in Washington and it’s an enormous problem.
But I tell you the truth, the AARP is a problem, too, on the left. (Applause.) You know, we have to have additional revenues, and we have to cut spending. And unfortunately now the way the congressional districts are divided up, you know, the elections are no longer in November. They’re in the primary. And if a Republican is running and they are willing to do revenues in any form, you know, Grover is going to not only run somebody against them to the right of them, but fund them. And if you’re a Democrat and you’re willing to talk about doing entitlement reform that we have to do, the AARP will run somebody against them and they’ll fund them. And they’re probably going to win, particularly in an off year.
So what we’re trying to do is to provide people permission to say yes. And the way you do that is people like you sign this petition, write letters to your members of Congress telling them that you want them to do a balanced approach. And oh by the way, if they do it, we’ve got their back.
And we’re going to use some of this money. If Patty makes those tough decisions and she gets a primary opponent because the AARP is mad about it, then we’re going to have her back. And the same thing with somebody like Ms. McMorris Rodgers. If she gets a primary opponent and she’s willing to stand up and do what’s right for the country, we’re going to help her in her primary. We’re going to have her back.
But having you all out there is probably more important than anything else. You can’t believe it. You’ll sign this petition. You get your friends to sign this petition. And it goes viral. We’ve got about 300,000 people who have signed it. The most people who have signed any petition, the biggest one ever is 1.3 million. You guys could get 1.3 million. And if you did, the impact that would have on these members of Congress is unbelievable. So that would be an enormous help.
QUESTION: First, thank you so much for your service to the country.
ERSKINE BOWLES: Yes, ma’am.
QUESTION: And I can’t – I don’t think there’s a single thing you said I don’t agree with.
One issue that I haven’t heard discussed, Hedrick Smith brought up that the cap on the FICA and the Social Security taxes, that that’s regressive –
ERSKINE BOWLES: It is regressive.
QUESTION: – and it caps out at 106. And I don’t ever hear that on the table.
ERSKINE BOWLES: Yeah, we put it – actually if you read our report you’ll see it’s on the table. We took it from – that’s based on 86 percent of average wages. And we took it to 90 percent. And that means by the year 2020, on the natural, it will grow to like 168,000. By going to 90 percent it grows to 190,000. And we felt people could afford to pay $22,000 more FICA taxes than they’re paying now.
And again you could take the cap off. You could do lots of things. What I’m telling you is to fix it so it is actually sustainability solvent, you don’t have to do many things. And we did one of the really good things. We raised the minimum benefit to 125 percent of poverty. We gave people between 81 and 86 a 1 percent annual bump-up, because that’s when every Republican and Democrat economist told us it would run out of money.
You know, so we tried to do the things to take care of the truly disadvantaged. We increased the rate of growth of the benefit for people at the bottom quarter, and we slowed it. We didn’t cut it. We slowed the rate of growth for people in the higher brackets.
You do those kinds of things, you can make it sustainably solvent, and it will be there for everybody. But right now just – and again it’s just arithmetic. When somebody waddles up to the window in 2031 under current law they’re going to get 25 percent less, and it’s just going to go down from there. It is $900 billion cash negative over the next decade. It’s got a trust fund of $2.1 trillion.
QUESTION: Thank you.
BRAD SMITH: We have no shortage of questions. We do have a shortage of time. So we should make this the last question. Sorry.
QUESTION: So the follow-up on that last question –
ERSKINE BOWLES: I’ll give you my email, though, and I’ll answer the emails on the plane.
BRAD SMITH: He’s got many hours to do that, too.
ERSKINE BOWLES: I’m not rushing off. I don’t want to get divorced. (Laughter.)
QUESTION: A follow-up on the last question. When you – if you remove the cap on Social Security and reduce the Social Security rate from 14 percent, you probably get a lot more Democratic support for broadening the base overall, because, heck, I’m making right around $110,000 a year, and I’m paying 14 percent. But on that tax cut on that amount that the next – that wouldn’t be paid on the next like – the next – well, however many million dollars a year. So without broadening the base on that one I don’t see you’re going to get Democratic support to broaden the base on everything else.
ERSKINE BOWLES: Yeah. Look, I’m certainly not opposed to raising the cap, or, by a substantial amount. All I was telling you is in order to fix it you don’t have to do – the changes you have to make are so small it can be so far out.
QUESTION: Right. But if you also cut the tax rate on that while you – while you remove the cap – then you’d have a genuinely broad base rather than people getting cut off, whether it’s $200,000 or $300,000. It’s still the guys that are making a million dollars are paying a much lower tax rate.
ERSKINE BOWLES: That’s 100 percent right. You’re fair to say that. I agree.
BRAD SMITH: Well, in conclusion, let me thank you again on behalf of all of us. (Applause.)
We appreciate your being here with us this morning. We obviously and definitely appreciate all of the work you’re doing now, the work you’ve done over the last two years to try to put all of us in the country in a position to make some real progress.
There is a clear call to action for anybody who wants to help. You just go to FixtheDebt.org. There’s a very easy petition to sign. Just enter in your email address, your zip code. You press sign. You can use your Surface to do it. (Laughter.) And encourage your family, your friends. People who want to learn more about this, the website FixtheDebt.org has plenty more.
So thanks to everybody. (Applause.)