BRIAN LAMB: Allan Sloan, you and Geoff Colvin in the early part of September in Fortune Magazine did a piece that was transferred to the Washington Post and had a big headline on it, ”Enough Already.” Was that a good headline for what you wrote?
ALLAN SLOAN: I think so.
LAMB: What was it?
SLOAN: Jeff and I, who are as opposite as people could possibly be, have both been endlessly annoyed at watching no sign of progress anywhere in Washington on anything; on fiscal tax, on anything.
And our boss, Andy Serwer who runs Fortune decided that since there wasn’t going to be anything resembling intelligent economic conversation that he would commission the people he calls Fortune’s ”odd couple” to propose solutions. So, we just sat down and wrote it.
LAMB: Geoff Colvin, how did you go about it?
GEOFFREY COLVIN: It was pretty simple. Allan and I decided the smart thing here is get off the premises. The two of us went a couple blocks down 6th Avenue, New York and had lunch, just by ourselves. And we just went through the big issues here.
And, we found that, you know what, even though we don’t agree, and as Allan said, you know, we come from opposite perspectives here. We were able, in a short time, to reach a general agreement on a few principles that were the biggest and most important ones.
And, you know, the larger point here is that within Washington a lot of people know it but a lot of people don’t. Within Washington there is broad agreement on what the financial problems of the country are, broad agreement on the solutions, and there seems to be broad agreement that nothing can be done.
It’s the most insane situation you can but that’s seems to be it.
LAMB: All right. How do you two differ? What’s your background?
COLVIN: Well, we may as well come out here we didn’t we didn’t do it in the piece. It’s carefully written so you can’t tell which one leans which direction. But, let’s just put it this way.
The way we’re seated here is pretty much the opposite of the way we actually are. I am not to the left of Allan and believe me; he is not to the right of me. It’s pretty much the reverse.
LAMB: What about on economics? What are your basic thoughts on how do you get to your own position?
COLVIN: Well, I’m a recovering English major. And, I never studied economics and I was cast out into the world to write about business and economics by accident. So, I just went out and tried to learn, with no preconceptions, with no anything, with no courses, with no graduate degree.
But I can add and subtract. I mean, I’m not trying to steal a line from Clinton, but I can add and subtract. And it’s not that hard if you just do that. And I don’t have preconceptions. I don’t love people. I don’t hate people.
I don’t hang out with the Federal Reserve people or the opposite of the people. I just wander around through life trying to figure it out.
LAMB: Well, are you a Keynesian? Are you a follower of Hayek?
COLVIN: A couple important points here. First of all, what economists will tell you is that for the most part they agree on 98 percent of economics. And I think that’s correct. It’s the two percent that they don’t agree on where all the, you know, important policy decisions have to get made.
Frankly, I am not much of a Keynesian, I’ll tell you that. There are certain means
yes, for those who are not paying a lot of attention to economics, which is fine. You know, it means I am something closer to the what we used to call the Monetarist view, something closer to the Austrian school, although I’m not all the way in that camp. But, it is it’s not the Keynesian.
LAMB: But, if you’re
COLVIN: Oh, you mean, what’s it mean? What’s the practicalness? Well, look, it has a very strong practical meaning right now, which is, was was the $700 and X billion dollar stimulus program a good idea because the Keynesian’s would say, ”Yes. Absolutely. It wasn’t enough.” The other side, the Austrian’s or the Monetarists would say, ”No. It was not a good idea and it’s just not going to work.”
And so, my view would be I don’t think it was a very good idea. Allan and I would disagree violently on this I assure you. But, that’s the practical meaning of it in today’s environment.
LAMB: How do you disagree?
SLOAN: Well, I think we needed to do something to stimulate the economy. I don’t think we needed to do what we did. I would have done it you know, if you had made me king and also given me power to just do what I wanted, I would have done instead of subsidizing public employee jobs, not that there’s anything wrong with that. Many of my friends are public employees. But, that was the big part of the stimulus.
I would have started all sorts of construction. I would have tried to finish that tunnel from New Jersey where I live, the rail road tunnel, into New York, which would be of huge value all over the region.
I would have done it differently. And again, since I don’t have a degree in economics and don’t want one; wouldn’t take it if they gave it to me. I mean, I was just trying to apply common sense. And common sense was we needed to do something to shock the system, which is what I call pragmatic economics.
But, I don’t think we did the right thing. But, it was better than nothing. And Geoff probably disagrees, but we weren’t writing about stimulus.
LAMB: We have a long article on our website so that people can access the Fortune piece. But, let me just start out the first set the mood. As you write, ”America’s leaders aren’t leading and the damage is mounting.”
”Citizens have complained for years about Washington’s squabbling children who’d rather stamp their feet and hold their breath than resolve mom momentous issues.” I can’t even say it. We got us all babbling. ”Momentous issues” thank you ”of economic policy.”
”The games are childish but the resulting suffering is serious.” Pick it up from there. What did you try I named nine things that you wanted to change after the election.
COLVIN: Yes. That’s exactly right. We are in a situation that we really haven’t been in before, which is, we are facing fiscal disaster, and that’s not an over dramatic term. You can look at these charts. They’re easy to find online. I encourage people to just do a little search; Congressional Budget Office, Treasury. You don’t have to go to extremist groups.
We are facing fiscal disaster. The debt of the United States, the budget of the United States, on its current trajectory is going to bankrupt the country if we don’t do something.
LAMB: What’s the worst thing that could happen?
SLOAN: Well, the worst thing that could happen is what almost happened last summer when the idiots primarily I have to say the Republican idiots, decided that, ”Well, we can have the country default on its debt. That’ll be fine.”
And, if you’ve ever been a banking reporter, which I have, and if you know how the banking system works, if there’s anything resembling a default on U.S. debt it is a disaster worldwide. And, I thought we had learned something from that a year ago.
But, apparently we haven’t. The worst thing that happens is the U.S. defaults on its debt. I mean, it would be catastrophic for no reason; for idiotic political reasons. It’s crazy.
LAMB: What results from that?
SLOAN: Well, first what happens is every bank in the United States, every major bank, is bankrupt. I mean, because suddenly its capital is gone because there’s a lot of capital tied up in government securities.
LAMB: So, what happens if I go into the bank and I want my money?
SLOAN: Well, you know, the FDIC might or might not still be there. But, I mean, it’s not like the banks would all close. But, they wouldn’t be able to lend. It’s the same thing we had four years ago where you’re facing massive bank failures.
And, you know, you would still get your money from the FDIC but you wouldn’t be able to get a loan. Your company might not have been able to pay you because it wouldn’t be able to borrow. Companies couldn’t the soundest companies in the world couldn’t borrow money.
LAMB: But there’s not enough money in the FDIC is there?
SLOAN: Well, no. Of course not. Of course not. We’re talking trillions of dollars. I’m not saying that if the United States defaulted tomorrow Bank of America and Citi and Wells Fargo would all and would all JP Morgan would all close their doors and go out of business.
But, it would be a serious, serious hit to commerce, or what remains of commerce and lending and economic activity. It’s crazy.
LAMB: Geoff Colvin?
COLVIN: Yes. And, the sort of larger problem here is, we need to make very substantial changes in the tax and budget regime we have in the United States; very serious changes that are going to hurt. And so, nobody wants to do it.
And, the worst thing that could happen is, we don’t do any of them until we have a crisis; a really horrible crisis. And defaulting on the debt would be pretty bad if it were allowed to happen for more than a day or two. But, a horrible crisis could happen in other ways as well.
For example, and this is something we really have to pay more attention to. The previous 10 leaders of the Council of Economic Advisors, maybe it was more than 10, from both parties, last year jointly signed a letter, an open letter to Congress and the administration saying, ”Look, if we don’t get this situation under control what’s going to happen is, one day, and no one knows when it’s going to be, but for sure, one day the bond market, all the people and institutions in the world that lend those billions of dollars to the United States, are going to start demanding a higher interest rate.”
It’ll go up and up and up. And when it does, what they said was, ”We will have a financial crisis that will make the 2008 financial crisis look small.” And that’s the real danger.
LAMB: One quick thing. Allan Sloan took a whack at the Republicans, is that fair?
COLVIN: Well, look, in these negotiations you always have to give the impression that you’re willing to go right up to the edge and over it. It’s the same in labor negotiations or any other kind of negotiations.
What you’re willing to do, no one ever knows until the final moment. And in this case of course, when it came to the final moment, the default was averted. So, I tend not to blame either side. It’s a negotiation and I blame them both because they couldn’t come up with a solution earlier.
LAMB: Let’s go to some of the solutions you have. You proposed a number of changes that could occur after the election. To start off here you say, ”We could restrict the end of life care that Medicare will pay for.”
LAMB: How can you restrict the end of life care?
SLOAN: You just adopt rules and that’s just what you do. I’m not going to tell you specifics because I don’t know them. But I can tell you that I and Geoff and I suspect many of the people watching this, and I’m guessing from your age you, have seen what happens when people you love get old and sick and end up in the hospital using vast amounts of money.
You know, because hospitals are expensive and it’s the end of life and they’re not going to make it and they’re not going to have a life, but an enormous amount of money is expended. It’s huge and it’s the thing everybody knows and nobody will talk about because who wants to talk about that?
LAMB: Why do you go for that Geoff Colvin?
COLVIN: Same reason. It accounts for a huge proportion of total Medicare spending. And by the way, one reason it’s the first thing in our article here is getting Medicare costs under control is the number one priority and it’s the most untouchable thing.
But, that is going to cause more trouble than any other problem we’ve got fiscally in the United States. Getting Medicare costs under control is the number one thing.
LAMB: You say, ”We’d also surcharge smokers and the obese for their Medicare coverage.”
LAMB: Where’d that idea come from?
SLOAN: Well, it came from us. I mean, I’m the person who put it in the memo. But, I didn’t have to fight very hard for it. Also, I had a I ran into this in something I ran in the Washington Post where, instead of calling people morbidly obese I called them mega fatties.
And I was rebuked for this by the Washington Post ombudsman for being insensitive, which I guess I probably am. But, this is another thing where everybody knows this to be true and someone has to pay for it. I’m not saying you should bankrupt people if they’re too heavy.
But, you know, there should be penalties. I mean, I’m not really a Democrat, but I’m a certainly a Democrat compared to him. But, you have to be responsible, to some extent, for your personal behavior. And if you’re not going to and someone’s got to pay for it.
COLVIN: Quite right. And we should point also that we’re not the only ones making arguments like this. There have been these other bi-partisan commissions and so forth the task force that was headed by Alice Rivlin and Pete Domenici, Democrat and Republican, also said that with regard to Medicare we need to do something about the obese and smokers.
And they also had a proposal, which was more complicated than ours, for restricting the spending on end of life care. By the way, these are difficult, painful decisions. But, we’re going to have to face them.
LAMB: Well, take the obese thing. Would you say that if you weighted X pounds over what the normal weight is for your size that Medicare will cut it off?
SLOAN: This is why the Lord created experts. I am not an expert. I am not going to draw the line. I am skinnier than I was but I’m no sylph. I’m not going to say what it is because I don’t know.
COLVIN: Yes. A way to think about this is, insurance companies manage to handle this kind of thing. In other words, it is feasible, you know. They will give you a medical exam before they’ll sell you certain kinds of insurance.
And they’ll look at your weight, your heart rate, your blood sugar and a million other things and use it to set your rate. Well, OK. We can do this. I mean, it’s feasible.
LAMB: You say that Social Security should be a pay as you go system, wiping out the deceptive Social Security Trust Fund. What’s that?
COLVIN: Yes. Any time here’s something to keep in mind, just in general. Any time anybody mentions to you the Social Security Trust Fund, unless they’re telling you that it’s meaningless, which it is, then they’re probably leading you astray.
LAMB: Why is it meaningless?
COLVIN: It’s meaningless because the Social Security Trust Fund, by law, must be invested in U.S. Treasury securities. So, it means that when the Social Security trustees go to the Treasury to redeem one of their Treasury bonds, they hand it to the Treasury and say, ”We’d like our money please.”
The Treasury gives them the money and then goes out into the world to borrow it because otherwise they don’t have it. So, it’s just more government borrowing.
LAMB: So, Allan, what would you do about it?
SLOAN: Well, what I would do is what we proposed in there. And I have spent years covering Social Security. I have angered any number of people by writing what Geoff just said, and I’ve written it for 10 years that the Social Security Trust Fund has moral significance but no financial value.
And what I would do is what we proposed in there. Basically, pay out over maybe 25 or 30 years, the balance in the Social Security Trust Fund to Social Security recipients and in 25 years you’d have a system that the money coming in would about equal to the out go, which is the way it used to be before 1982.
And I don’t want to bore you with the details because we’ll lose what remains of the audience. But, it is a pay as you go system and it’s got this trust fund, which is a weird economic thing having to do with Social Security’s rules, but has no economic value and has led people astray.
COLVIN: So, let’s just get rid of it as a distraction. It’s already a pay as you go system. Let’s just call it what it is and then make it work on that basis.
LAMB: Let’s see if we can get some advice from both of you. For people who are watching this election, what is absolutely going to happen after November the 6th? Absolutely going to happen; no matter who’s elected, that will have to do with people’s pocket book and the money.
COLVIN: It’s a great question.
LAMB: No matter by the way, no matter what the candidates say.
COLVIN: That’s a very good question. I think what we can say with confidence is that the winner, whoever he may be, is going to have to do some stuff that will make him very unpopular. And the reason I say that is that we face this debt and deficit situation that is simply unsustainable.
And frankly, next year is the big window we’ve got; right after the election. You know, the first year it’s either going to be Romney’s first year or it’s going to be Obama in the last thing he’ll never run for re-election again so he won’t have to worry about it.
This is going to be their window to cut the budget in some significant way, or at least have an outline for cutting the budget, and reform the tax system in some kind of significant way. The question is, will it be the big picture reforms we need or is it going to be a 12 month solution? But, they’re going to have to do something that’s going to hurt. I hate to say that.
LAMB: Hurt everybody?
COLVIN: Yes. Darn near. It may be that and will it hurt the upper income people? Probably so. In fact, I think that’s inevitable. The only reason I would hesitate is that probably at the very bottom of the income scale, care will be taken to make sure they are not hurt.
LAMB: What would you say to somebody watching the election, listening to the candidates; they all promise, ”You elect me and everything’s going to be fine.” That happened, what, four years ago? It happened two years ago.
SLOAN: And it happened 8 years ago and 12 years ago and 14 years ago. And the answer is, everyone isn’t going to be fine. What I hope is going to happen is that we’ll have, what I’ve been calling again for 15 years, shared sacrifice. Everyone will sort of suck it up and grow up.
You know, enough already. And, we’ll cut some of these programs, cut the growth and we’ll increase the tax revenue to the government. And we’ll act like a civilized society with sharing the pain instead of this fantasy that, ”I can have what I want and everyone else is going to pay for it.”
LAMB: All right. Let me just knock down another one of your ideas here. Not knock it down, but bring it on the table.
COLVIN: Yes. Cross it off.
LAMB: The largest element of spending, after social insurance is defense.
LAMB: Its budget can and should be cut. Now, you’re a conservative.
LAMB: And, I think I’ve heard Mr. Romney talk about the fact that we’re not going to cut.
COLVIN: Right. Right. Here’s the reality, again, that has to be faced. And, you know, if you’re running for office I guess it’s one of those things you can’t say, but it still needs to be said. Yes, the Defense the Defense budget is large and it needs to come down.
Here’s the and again, if you’re not running for office then you can say all this stuff. Alan Simpson, a Republican, will be happy to tell you that it can and must come down. He points out that the U.S. Defense budget is larger than the combined Defense budgets of the next largest 14 largest countries in the world.
What really struck me this year was, the House, in May, passed an appropriations bill for defense. Were they looking to cut? No. In fact, they passed an appropriation that gives $3 or $4 billion to the Pentagon more than what the Pentagon asked for.
The Pentagon specifically wanted to cut back, or reduce, a drone program, a tank program and a submarine program. The Defense Department said, ”We don’t listen, we don’t want these things. We don’t need them.” The House put them back. OK, this is about, frankly, sending pork back to the district rather than addressing the country’s fiscal needs.
So, yes, the Defense budget can be cut. And frankly, the Defense Department knows that and is ready for it. They just want it done in an intelligent, planned, orderly way.
LAMB: Allan Sloan, the word sequester I have had people say, ”What in the world does that word mean?” And people suggest it’s sequestering the Defense budget over the next 10 years will be a disaster for our national security.
SLOAN: Well, again, I don’t pretend to know showing you by the way, some of the dynamics here. The social the cutbacks in Social Security and Medicare, those were things I threw into the pot the first thing.
Geoff is the guy who threw in the Defense budget, which frankly, I probably wouldn’t have even thought of because it’s so untouchable. I mean, what will happen? I don’t know. Do you understand how the military works? Do you know where the money goes? I mean, I don’t know.
I don’t know anything about Defense, except we have to have it. But, like Geoff, I think we’ve got to be spending too much money for what we have, given what the rest of the world spends.
LAMB: Let me just take a brief pause there and ask you what you think of the elected officials in this country, from your position. What do you think of them?
COLVIN: Well, I think you know, some of them are wonderful. A lot of them, frankly, are trying to do the right thing and wish they could. I think an awful lot of them feel trapped by the forces at work in the society that force them to disdain compromise, to treat politics as warfare, which honestly it didn’t used to be.
It’s always been a rough and tumble sport. But, I think most of them, not all, most of them would, in their heart of hearts would be willing and happy to compromise. But, they don’t feel that they can if they want to get re-elected.
LAMB: Allan Sloan?
SLOAN: I agree with him.
LAMB: Everything he said?
SLOAN: At least on this topic; yes.
LAMB: One side better than the other?
SLOAN: I mean the question isn’t, ”Is one side better?” The question is, ”Is one side worse?”
LAMB: Are they different?
SLOAN: Yes. They’re different. But, you can argue it either way. And, I’m not here to talk about the infamy or the problems of all this. It’s not what I want to talk about. I’m not into politics. I’ll just ride with Geoff. I mean, otherwise I would get myself in serious trouble; serious trouble.
LAMB: Well, let me go back to the list then. Geoff Colvin and Allan Sloan, Fortune Magazine, you said this, ”Our tax code is dragging the nation down. Here’s how to stop the damage. Our mantra is,” this is in quotes, ”Broaden the base and lower the taxes,” or, ”lower the rates.”
COLVIN: Yes. That’s it. And, the great thing about this, in my view, is that this is, as a general principle, a dead center, middle of the road idea. This is something that both sides, in principle, can agree on, and, they’ll fight over the details. But, look, we had the Simpson Bowles Commission.
The Chairmen, Mr. Simpson and Mr. Bowles jointly said exactly this, ”Broaden the base. Lower the rates.” We had the task force with Alice Rivlin and Pete Domenici, which I mentioned earlier, again, bi-partisan. They said exactly this, in those words, ”Broaden the base. Lower the rates.”
LAMB: But, what does that mean?
COLVIN: What does it mean? Very simple. It means we get rid of all kinds of deductions, exemptions, credits, special breaks that are in the tax code today. We just get rid of a lot of them. And by doing so, we can then lower the tax rates that are applied to everybody else.
LAMB: What are the chances?
LAMB: In reality.
SLOAN: Well, reality is, if we have what I half expect will happen, which is a big crisis that scares everybody, including the zealots on both sides. Though again, I would argue the real zealotry is coming from the Republican Party but many of the Democrats are no prizes; maybe everyone will grow up and do this.
It’s not our job to predict what will happen. That’s not what we did. We wanted to say what should happen. And these are things, as Geoff says everybody knows who has studied this seriously but nobody wants to say. Whether it will or won’t happen; I don’t know. It should happen.
COLVIN: And I think Allan gets to a very important point, which is fundamentally, how bad a crisis will it take before the leaders in Washington can agree on a big compromise in this town.
LAMB: People have been predicting, in your line of work, around the world, that there is going to be a catastrophe. I mean, serious people with a following, that we are headed toward a catastrophe. Does that is that possible?
SLOAN: Of course it’s possible. But, the question is, is it likely and what kind of catastrophe is it. Look, Brian, I’m 67 years old. I’ve worked my whole life. I’ve saved. I’ve been thrifty. I’ve been a good boy and no matter what happens, you know, I will survive. And my wife and I will survive financially.
LAMB: No matter what happens?
SLOAN: Well, all right. If a meteor comes and kills everybody on Earth I’ll be dead.
LAMB: I mean, people are suggesting that we’re I mean, our money’s not going to be worth anything if a catastrophe hits us.
SLOAN: Well, I mean, you see, that’s the advantage to being 67. I mean, I’ll take it with me out of spite. It’s you know, a lot of it you know, I’m not into apocalypse. I’ve studied religion. I’m not into apocalypse.
I don’t know what’s going to happen. I think, just like 4 years ago, where people got scared enough to do something, you can argue about whether we did the right thing to save the system from collapse. They’ll save the system from collapse the next time around as well.
The but, the only way to fix the thing and not have these recurring problems is to do the kinds of things that Geoff and I are talking about.
COLVIN: The catastrophe is certainly possible. My own view is that it’s unlikely. It’s possible, but I think the probability is pretty low. And the greater probability is that we just go nowhere for a long, long time, that unemployment remains at a fairly high level, kind of like it is today, that economic growth remains at a slow rate, like it is today, that living standards don’t rise for some years into the future, as they have not for the past several years.
It’s not a nice scenario. But, frankly, I think it looks fairly likely. And it could be improved, though not completely avoided. But, it could certainly be improved by some bold, big picture actions.
LAMB: I want to come back to this in a moment. But, first I want to find out where you two are from and how you got to where you are. Geoff Colvin, where did you start in life?
COLVIN: I was born and raised in Vermillion, South Dakota, a wonderful place to be born and raised. I still say I was incredibly lucky to have grown up where and when I did. The family moved a little bit, but we were always Midwesterners.
LAMB: What did your parents do?
COLVIN: It was interesting. My father owned a business, a printing business in South Dakota. And then in the middle of his career he decided to change his career completely. He sold the business. Went back to school. Got a PhD in Clinical Psychology and the second half of his career was on the faculty of a medical school in Illinois.
And my mother similarly, mostly worked at home until the kids were out of college, at which point she went to law school. And the second half of her life was spent working as a lawyer. She practiced law.
LAMB: When did you leave South Dakota?
COLVIN: We moved away from there when I was 14 years old and I finished high school in southern Illinois; Carbondale, Illinois.
LAMB: Southern Illinois University?
COLVIN: Yes. Absolutely. That’s where my father was on the faculty. And, then I went off to college. Went to Harvard. Majored in Economics and came down to New York. And I worked briefly for William S. Paley, the founder and chairman of CBS. That was a wonderful experience. And then I went to Fortune and I’ve been at Fortune, virtually my entire career.
LAMB: And, how much do you do for CBS radio?
COLVIN: I’ve been on CBS radio for what, 26 years now, doing short reports that are carried on the CBS radio stations, wonderful stations all around the country and I’ve been you know, these are small reports like everything on talk radio these days, or news radio. It’s short. But, I do a couple of those every day.
LAMB: And Allan Sloan?
SLOAN: I really am the polar opposite of Geoff. I didn’t realize this. I grew up well, I was raised, it’s not clear if I ever grew up, in Brooklyn, New York, which is not really like Vermillion.
COLVIN: No, it’s not.
SLOAN: I went to Brooklyn College because it was free. My father, may he rest in peace, worked primarily for non-profit organizations.
LAMB: What about mom?
SLOAN: She worked before they were married and after my father and she worked she did business out of her home, or out of our home when the kids were there. And that’s, by the way, when I learned how to count and learned to do all sorts of things because I helped her.
It was very heavy clerical stuff. And I got to the point where I did everything in my head because that was so much faster because there were no calculators. And, that’s been of great help to me journalistically because I can do numbers in my head. It’s my secret weapon.
LAMB: And, how many years were you at Newsweek?
SLOAN: Well, I was at Newsweek for 12 years. I bounced around all over before that. I was in Charlotte writing sports badly, then writing business. Then I was in Detroit for 7 years, so all of our children, all 3 of them, have Michigan birth certificates. Then, I ended up at Forbes a couple of times. I’ve ended up here and I’ve ended up there.
Then I ended up at Newsweek and I thought I’d be there forever. But of course, that didn’t quite work out. So, 5 years ago I went to Fortune. And again, I’m the polar opposite of Geoff. I’ve knocked around. I went to a public college. I was raised in a big city. And, it’s really sort of fun.
LAMB: Let’s go back to this article of when did you first start talking to one another about this? How long ago?
COLVIN: It wasn’t long ago, really, because I don’t know. We can look in the calendar but there was some day in August that
SLOAN: It was the last Thursday in July.
COLVIN: The last Thursday in July.
SLOAN: Because I was going away for the month of August on vacation and Thursday, our boss Andy comes to me and says, ”You and Geoff are going to do this.” And, on that Friday, we had lunch and we started working on the thing.
LAMB: Has there been, so far, any reactions, strong reaction, and if there has been, what is it?
COLVIN: Well, we’ve had a tremendous amount of reaction. In fact, I can’t remember getting a reaction, anything like this one, in many, many years. We’ve just heard from a huge number of readers, most of whom were very laudatory.
They said, ”Thank heaven. This needed to be said.” Some of them, of course, didn’t like the proposal and we heard from them too. But, for the most part, what we’ve heard is from, just lots and lots of readers. Have you too?
SLOAN: Yes. Yes.
LAMB: Where did you have this picture taken that was in the magazine?
SLOAN: Well, that was I guess it’s crossing 6th Avenue. Oh, I’m sorry, Avenue of the Americas, at 51st Street.
COLVIN: That’s exactly right.
LAMB: Now, both of you have straw hats on. One has a nice suit and tie and you’re dressed in your khaki’s and whatever else. Does that say something?
SLOAN: Well, it the first thing it says is, I had no idea they were ever going to take my picture because I was at the beach in a place called Southold, New York when this request comes to, you know, have the picture taken.
And I said, fine, send a car, pick me up at the beach, take me to my house in New Jersey so I can get a suit and then take me to Fortune and then take me back to the beach. And the answer comes, ”Well, we don’t think we want you wearing a suit.”
So, I was trapped. And, my wife, who is a nice, rational, normal person, was mildly annoyed. But, the only choice was the chambray shirt because that was the best thing I had at the beach.
LAMB: So, you know at least one person reacted strongly is your wife.
SLOAN: No, but it is a nice picture. The picture came out very well. My outfit well, you see today I’m not wearing a chambray shirt.
BRIAN LAMB: Let me go back to this article before we run out of time. This is the one I labeled ”the Sixth Suggestion.” ”The exclusion for employer sponsored health insurance.” Millions of people have that.
COLVIN: That’s exactly right. And it is, as we said, I think, the weirdest tax expenditure, as the wonks say, in the whole tax code. It makes no sense. It’s a hugely valuable benefit that, everybody who gets health insurance at work receives, but unlike the other things you get at work, like your salary, it isn’t taxed.
LAMB: You say it’s $177 billion last year.
COLVIN: That’s how much it costs the Treasury, that’s right, in lost tax revenue because of that provision in the tax code. And it’s very unfair because it means that health care benefits, medical insurance, costs much more for people who don’t have a job and have to buy it on their own than it costs for people who do have a job.
LAMB: Do you buy this Allan Sloan?
SLOAN: Well, again, this is one when Geoff put it on the table, I gulped. And I thought for a while. And I said, ”As part of an overall deal I can accept it.” When McCain was running around suggesting this years ago I criticized it. But, as part of an overall package I can accept it.
LAMB: The next one though
COLVIN: The next one. You’re right. The next one is probably the hardest of them all.
LAMB: That’s number seven on my list here; ”The tax deduction for mortgage interest.”
SLOAN: Well, yes. Again, left to my own devices, if I were in charge, I might not want to do that. But, as part of an overall package, I think you have to do it. And, it’s the same thing with state and local taxes.
Which, I live in a very high cost place; very high tax. Housing prices are enormous. People’s interest bills on mortgages are huge. We’re talking about a lot of money.
LAMB: $105 billion.
SLOAN: Yes. We’re talking about a lot of money for a lot of friends of mine. This is not abstract. And, normally, I would say, ”I don’t want this.” But again, as part of a package I would take it.
COLVIN: And that’s critical because we’re not just saying, ”Eliminate the tax deduction for mortgage interest.” We’re saying, ”Eliminate it. But, also we’re going to lower tax rates over all.”
So, it isn’t immediately clear to a given person whether his tax would go up or down under this. It might be that they’d go down. And, in any case, it’s just as a matter of logic, it makes no sense.
LAMB: How long have you felt that way?
COLVIN: Oh, I can’t even remember. For many, many years. Once you really focus on it and think about it you realize there is no logical reason for that to be a tax deduction.
And let’s remember, in other countries, such as Canada, they don’t have a tax deduction for mortgage interest. And we might point out that Canada didn’t have a housing bubble and a housing bust.
LAMB: Going back to the earlier one about health insurance, did you consider this whole business of exchanges in the state that are coming about because of the Affordable Care Act and it would chase I mean, business would drop insurance and chase their employees to these exchanges?
SLOAN: Again, I have a daughter who’s a doctor. I know more about the health insurance business than I want to know and the finances of it, for reasons we won’t go into.
And, I don’t know how and I had real problems with the Obama thing where I thought it could have been done much simpler by just setting up some government company to compete with the insurance companies instead of trying to regulate the world.
I mean, I don’t understand the workings of the Affordable Care Act. I don’t understand them. I don’t think anybody understands them. And I don’t know enough about it to have an informed opinion. So, rather than say something completely stupid I’ll say nothing.
COLVIN: I think the point you’re making is all the more reason to end this tax break for people who get their insurance through work. Because, just as you say, it’s pretty certain that fewer and fewer people will get their insurance through work.
They’re going to have to buy it on their own. And look, there’s stuff in the Affordable Care Act to try to help those who have to buy it on their own and don’t have all the and can’t easily afford it. But, we say, ”Let’s make it across the board.”
LAMB: OK. Go back to the mortgage interest. I can hear it we’re in New York. I can hear the lobbyists, all those different companies that benefit from this back in Washington. Right now I can hear them. They’re yelling.
COLVIN: They’re already yelling; yes.
LAMB: And, they’re powerful.
SLOAN: There are already limits on how much you can deduct. And I don’t know if this made it into the Washington Post’s version, but in the Fortune version, we said it should be phased out over time, the deduction, so as not to disadvantage everybody who bought on the basis of this deduction.
Which, I know when I first bought houses, I took the I calculated the deduction by figuring you know, to figure how much I could afford as a payment. And you can’t just change the rules and hang people up because, A, you’ll cause them trouble and, B, they’ll never get out of their houses, financially, alive, you know, because the price’ll drop.
But, if you phase this in and do it over time, it could be made to work. And there already are restrictions on how much interest you can deduct.
LAMB: It’s in this piece. It said you said basically here that it should be done over time as well.
SLOAN: It’s the only fair way to do it.
COLVIN: It’s the only fair way.
LAMB: By the way, we’ve got a couple to go excuse me. Was there any one of these that you got the most reaction about; health insurance, mortgage, social security?
COLVIN: I can’t say that there was any one that we got the most reaction to. I think you’ve hit the ones you’ve touched so far are the hottest buttons for sure. Medicare is the hottest button.
The mortgage interest, yes. Oh, and by the way, later on we say we should eliminate the deduction for charitable deduction or, charitable contributions.
LAMB: ”The tax deductions for state and local taxes and for charitable gifts.” Explain what that is if somebody hasn’t ever thought about it. They just go to a tax preparer and all of a sudden
SLOAN: Well, if you make out a check to your church or to the school you went where you went. It can be if you itemize your deductions, that’s a deduction. So, you write out a check to a religious organization or any sort of non-profit
LAMB: All those contributions to universities would no longer be tax deductible?
SLOAN: Yes. That’s right. Well, again, we’re talking stop looking at me like that. You know
LAMB: I’m just wondering how you’ve survived this.
SLOAN: That’s the only itemized deduction I get the benefit of anymore because I’m in the accursed alternative minimum tax and that’s the only clear deduction I have. But again, as part of an overall thing, I’d be willing to, you know, throw that in there.
And remember, my father worked for non-profits. I mean, if he were still alive, he would kill me for even suggesting this. But, you know, as Geoff said there are real problems in this country and we need to think about them differently than we thought.
And again, this isn’t something I like, but I’d hold my nose and accept it, just like I would on healthcare. And one of the things we proposed that you forgot to mention was eliminating the special treatment that invest income firm investments get relative to income from work. And that’s something Geoff had to swallow. You swallow it all and you sort out rationally.
LAMB: Are you talking about capital gains?
COLVIN: Yes. Capital gains and dividends.
COLVIN: Yes. It’s only like a sentence or something in the article I think. It’s a fleeting mention.
LAMB: Tie that into this fiscal cliff.
LAMB: Do you like that term by the way?
COLVIN: It’s a perfectly good term in my opinion. It makes it sound dramatic, and that’s good because it is dramatic.
LAMB: Part of that would be capital gains would go from 15 up to 20 if the Bush tax cuts were allowed to expire.
COLVIN: Were allowed to expire. That’s exactly right.
LAMB: Based on watching Washington, what do you think will happen with the tax cuts?
COLVIN: What I think will happen is, a short term solution will be adopted by the lame duck congress. And, it’ll solve the problem so that the cliff doesn’t happen.
And, if there’s anybody if there’ still anybody that doesn’t know what the cliff means, it means that taxes will go up on the first of January and a whole lot of government spending will be required to come down; a combination of higher taxes, lower government spending. A lot of people believe would tip the country back into recession.
LAMB: Do you think that’s a good idea to increase taxes?
COLVIN: No I don’t, as you would expect from somebody like me. I’m sure I don’t think it’s a good idea. So, I think the cliff will be averted, but in a very unsatisfactory, short term way that does not help business make plans. And that’s a large part of our financial problem.
LAMB: What’s your guess? We’ve listened to President Obama all through the campaign say that the rich people ought to pay more. If he’s re-elected what will happen? Because the one side or the other’s going to have to cave.
SLOAN: I suspect that if he’s re-elected, taxes will go up on upper income people. And by the way, his definition of rich includes me, which sends me into gales of laughter. You know, because, I’m not sure what rich means, but he is.
I think taxes that I pay should rise, but they should be more rational. I now, actually pay, not 15 percent on capital gains, if I ever had any. But, I pay 22 ½ percent. I pay
SLOAN: Because of the crazy workings of the alternative minimum tax and my accountant, with great glee, informed me once that something I had written was wrong about what my tax rate was. And he told me I’m in the Phase Out bracket of the alternative minimum tax.
And if I could only get $150,000 more income, my tax rate would drop. Now, I presented this to our boss, Andy, who somehow was not sympathetic.
LAMB: He didn’t want to give you
SLOAN: He didn’t want to give me the $150.
COLVIN: That’s so not nice.
SLOAN: But, you know, I don’t understand. I’ve written about this stuff forever. I don’t understand my own taxes. I have to have an accountant. I can’t understand the return when I get it. It’s completely crazy.
And you know what, 20 percent on capital gains isn’t going to kill anybody. I mean, given my druthers, I’d treat capital gains and dividends the same way I treat income from work. But, I would lower the rate on everything by broadening the base.
LAMB: What do you think? Excuse me. I can’t get my throat clear. What do you think will happen and is it better is the country better off that everybody is elected from the same party, both the House, Senate and Presidency? Or, are we better off having it
COLVIN: That’s a real good question. In the current situation, I say we’re better off with divided government. And the reason I say that is that when you get legislation that passes only because one party controls everything, it isn’t stable.
And the great example in this is the Affordable Care Act; Obama Care as some call it, which was enacted without a single Republican vote. It was enacted because Democrats controlled both houses of Congress, plus of course the White House. Now, the problem with that is, business people who have to make plans look at that and say, ”OK. If it only passed because the Democrats had total control, then if, after the election, the Republicans have control, well, they’ve all promised to repeal it.” Now, this is the largest ever regulation of the largest sector of the largest economy on the planet. OK?
The idea that it’s either going to stand as the law of the land, or, depending on the election results could disappear completely is paralyzing for businesses in this country. It’s so much better if we can have divided government and have them agree on something; which they may finally be forced to do.
LAMB: Did you have any trouble getting your editors at Fortune Magazine, which obviously appeals to people in business, to accept this article?
SLOAN: No. No.
COLVIN: No. No objections at all, I have to say.
SLOAN: And I have to say I was surprised. But, you know what, they basically the boss trusts Geoff and me to have some idea of what we’re doing. And we just did this. If you look over our conversation if you think of our conversation we’ve had today, there is something in here to annoy everybody and that was the whole point.
LAMB: Now, there’s a last point I want to ask you about in the article. And, I said it was number 9 on my list. But, the biggest corporate tax expenditure, by far, is the deferral of tax on income earned by multi-nationals abroad.
LAMB: Explain. How does it work?
GOEFF COLVIN: Go ahead.
SLOAN: The way it works, to the extent I understand it is, if you’re say, General Electric and you you make money in Germany, you don’t pay U.S. tax on those German profits until you bring the money back to the United States. Which again, sounds like very rational and OK.
But, what’s happened is, things are so complicated now, that companies invent you know, big multi-national companies, who can afford to hire lawyers and accountants invent subsidiaries in other parts of the world and Apple does this and I think Google does it and Cisco.
They invest the subsidiaries where the profits are supposedly made in some tax haven where the company has nothing but a law firm and the you know, no one pays you don’t pay any tax. And, I think that this is the only thing that Geoff and I could not reconcile.
And I think that if you adopt the idea that you can continue to defer taxes earned overseas that no American company will ever report earning a penny in the United States because they’ll set up all of this crazy stuff.
LAMB: Geoff Colvin?
COLVIN: Well, and the further problem, as Allan suggests is, they would pay U.S. taxes if they brought the money back into the United States, and the U.S. tax rate on corporate profits is the highest in the world, then they don’t bring the money back into the United States.
And so, they are constantly of being accused of doing their investing and hiring and so forth in other countries. Well, part of the reason, it’s certainly not the only reason, but part of the reason is that they are hugely disincentivized to bring that money back into the U.S.
It’s funny; we both agree that the current system is nutty. The question is how to fix it. And we have different views on that, which get to be somewhat technical. But, we’ve got a bad situation the way it is now.
LAMB: I know that this was not meant to be a political article, but let me ask you this as kind of a guide to people that are trying to figure out who to vote for.
Will it make a difference, in your opinion, and what will that difference be if you elect Mitt Romney or Barack Obama? What’s a definite difference and about in relation to this conversation we’ve been having.
SLOAN: I’m not going to go I’m just not going to go there.
LAMB: I don’t mean right or wrong.
SLOAN: I need to live. Also, tell me, who’ll be in the Senate, who’ll be in the House. You’ll tell me all of these things.
LAMB: That’s why I asked that question. Because I don’t think if we discussed this election, nobody ever factors in the House and the Senate. They always talk about the President.
SLOAN: Well, and I don’t. In fact, I’m working on something about how little power the President actually has compared to what people think the President has. It’s really not a question of who wins. It’s a question of whether people grow up.
And, maybe they’ll grow up because they know they should grow up and both parties will not that I want to get into a fight with Geoff will restrain the zealots and grow up and act like grownups. It has nothing to do with who wins or loses. It has to do with behavior.
LAMB: Are you talking about the voters also in that growing up?
SLOAN: Voters voters are going to elect these guys. The guys, or the people, excuse me. The people are the ones who are going to do this. The voters don’t do it. The people do it. The elected officials do it.
LAMB: But, are people saying to these elected officials, ”This is what we want you to do?”
COLVIN: Yes. There is a large element of that, I fear. And we do want some of the definitely some of the voters to grow up as well and just realize that someone who’s willing to go to Washington and compromise is actually what we need. Now, when you ask what’s going to be different, depending on who wins.
Well, one thing we can say for sure, and it may be the only thing is, if the Republicans sweep, which seems highly unlikely at this point. But, if they sweep White House, Senate, House of Representatives, then apparently Obama Care would be repealed because Mitt Romney and the leaders of both Houses, in all the Republican side, have pledged that they would do that.
And if the Republicans sweep they would have the votes and they could do it. So, presumably that would happen. Beyond that, all we can say, with regard to the presidential election is, what would change is what is proposed by the President to the Senate.
But and that certainly shifts the direction of the debate. But, what can actually get enacted, assuming we have divided government, which I do believe is the likeliest outcome; I wouldn’t even venture to guess.
SLOAN: If I could violate amity for a second.
GOEFF COLVIN: Yes.
SLOAN: I think, even if what you say happens, unless the Republicans have 60 votes in the Senate.
COLVIN: That may well be.
SLOAN: If they don’t have 60 votes in the Senate, the Democrats are going to (INAUDIBLE) Republicans and you won’t repeal Obama Care. It won’t happen. You’ll have gridlock in the other direction because now it’s no longer, ”Well, the other people have the majority. We need to respect them.” It’s, ”What can we get? What can we extort?” I mean, the whole system is just nuts.
LAMB: Let me ask you both about a question about a tax that doesn’t seem to get much discussion in the Affordable Care Act. There’s a 3.8 percent increase in tax over $200,000 on a single or $250,000 on a couple.
There’s an additional .9 percent on your Medicare tax. When does that and we’re getting into the numbers, but, when does that that, if you combine it is almost 5 percent increase without the reversing of the Bush tax cuts.
COLVIN: Yes. It’s a substantial tax increase.
SLOAN: For people like us who have substantial incomes.
COLVIN: Right. And, the part of that that I and here I am. I’m the tax cutter, but the part of that I would endorse actually, is the increase in the Medicare tax. It’s unpleasant and it’s unpalatable. But, something that’s sort of step one in getting Medicare under control.
LAMB: When does that going ahead in the near future, without changing anything with the Health Act being passed, what will people the average person pay for their Medicare tax a month, for how long and when do you get the .9 percent added?
SLOAN: I think that that’s next year isn’t it?
COLVIN: You know, it’s a good question.
LAMB: Is it added after the $125,000 or after the $200,000?
SLOAN: I think it’s added after $200 or $250. I’m just not sure. I just don’t know the workings because right now the Medicare tax is what, 145?
COLVIN: I think it’s 1.45.
SLOAN: 1.45 percent.
COLVIN: On all salary income.
SLOAN: On all your salary income. So, it would go to, what, 2.35?
COLVIN: Something like that.
SLOAN: I think that’s right.
LAMB: Either one of you explain both sides talk about the $700 billion savings in health care. But, who’s right?
COLVIN: The problem you can see we both become just incredibly frustrated by this. It has to do with the way these things are talked about in Washington which has nothing to do with the way real people talk about real money in their real lives.
So, in other words, the current projection is that Medicare spending would increase by X hundreds of billions of dollars over the next 10 years. And so, the Obama plan said they would bring that figure down. They would bring the growth down by $700 billion.
Now, only in Washington is that called a cut, all right? The amount spent would still be more than is being spent today. But, it wouldn’t be it wouldn’t be as much more as previously forecast.
SLOAN: And there’s also no guarantee that the cut would ever actually happen. It’s just a projection. So, we’re having an argument so, the Obama people, to make the Affordable Care Act look better say, ”Here’s all this money the Congressional Budget office says we’ll save.”
And it’s not that they’re proposing to cut Medicare. They’re just saying, ”The things we’ve done will cut it.” Who knows if that’s true.
COLVIN: What they’re saying is, ”We will spend less than we believe we would have spent otherwise. But, it’s still going to be more than we’re spending today.”
And people’s eyes glaze the minute I mean, this is why you can’t talk it’s one reason you can’t talk about this issue. People’s eyes glaze over; understandably so.
LAMB: The graphic in the Washington Post and we’re about out of time, shows the elephant and the donkey back to back there in the ring.
COLVIN: In diapers in a sand box.
LAMB: What item could not go in your article because you couldn’t agree on it?
COLVIN: Well, that’s a good question. I don’t know if there was one. We didn’t agree on the corporate tax reform, and we just said we can’t agree on it. And, I think that was it. Now, if we tried to get more detailed, then, who knows.
We don’t have a staff and we didn’t have 500 pages. So, we didn’t get very detailed and that’s where we might have disagreed. But, as it is, I don’t think we did.
LAMB: Allan Sloan, if you were running for office, would you say all this?
SLOAN: Yes. And it’s one of the reasons I’d never win. Of course I would say all of this. I’m not going to say something in public
LAMB: Yes. But, what does this really say about I mean, you both have alluded to the fact there’s a lot of people running believe this has to happen one way or another. But, what does it say about our system?
SLOAN: It says that people on all sides of the political thing pander and aren’t telling people the truth because they think people aren’t ready for the truth. And if they tell people the truth they aren’t going to win.
COLVIN: It’s a problem in the culture. Fundamentally, that’s what it is. You can’t fix this with a law. It’s a problem in the culture that, you know, that compromise is now a synonym for treason.
LAMB: You close this article by writing, ”As the economy cries out for help, for adult supervision at last, just maybe the moment has arrived.” What chance do you give it, on a percentage basis, that the moment has arrived?
COLVIN: I’ll tell you. The chance that we’re going to get big, long term, big picture reform in the next Congress, the next two years; 20 percent.
LAMB: What’s the right way to pronounce your last name?
LAMB: Colvin. Geoff Colvin Colvin of Fortune Magazine. Allan Sloan, what are the chances in your opinion that we’re going to get that this moment has arrived?
SLOAN: Again, Geoff has thought about this more than I have though. I’ll take his number. I’m a good guy. I compromise.
LAMB: That’s the first time I ever heard that. Oh, you’re talking about yourself. Allan Sloan and Geoff Colvin; thank you very much.
People can find your article on the C-SPAN website or they can go to Fortune Magazine or the Washington Post. And this was published in early September. Thank you very much for joining us.
COLVIN: Thank you Brian.
SLOAN: Our pleasure. Thank you.