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Harvard University Economics Professor Martin Feldstein on Obama’s role in the debt ceiling debate.
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Tomorrow again to talk about that the debt -- -- But you know what do you make of the information out there that the president has been foot dragging on the debt ceiling I mean he's taking a lot of shots he's taking a lot of criticism.
But the idea that he you know we he kicked the can took commission -- -- -- -- have been ignored it.
And then buried did information or any talk of the about the debt in his state of the union -- only got two and a half hour and and that they actually did in the past support that tax breaks for businesses saying.
You want -- you know basically.
Keep the demand at the business level and don't take the demand -- the economy and put the if you do -- tax -- and this is as you put them further in the holdings -- that in the past.
So we have to distinguish from -- between them the debt ceiling and the longer term fiscal deficit.
The commission that he appointed the -- Simpson commission was supposed to deal we've.
Deficits and a debt not with the debt ceiling which is.
Short run technical.
Issue and he did ignore that.
And then when he submitted a budget it was a budget that the Congressional Budget Office said.
Was gonna lead to larger deficits.
And a larger national debt at the end of the decade -- was only after the Republican budget.
Was passed that he came back into at all okay I'll try again and here's a new budget but again it's a budget that.
Taking our debt to GDP ratios.
Way out of sight of anything we've experienced since the end of World War II.
The macro economic picture everybody's talking about the fact that we've hit a soft patch the number on Friday for jobs was just.
Pathetic I mean 181000 jobs created lot of people say oh it's a rear view indicator that was Japan that was a whole bunch of other issues that are now in the rear view is it.
No I think there are a whole bunch of indicators.
On how the economy is performed in the last six months.
Which tell us that it's not going anywhere does that mean -- of back to recession or continue -- be really slow here well I think slow is optimistic.
I think the forecasts of the Fed and others that we're gonna have 33 and a half percent growth in the second half of this year.
To me look.
Very -- what -- I guess what I am -- very lucky if we end up with a a number above two for this year and I think the risk of another downturn.
Every time we get another number it raises the probability.
Of another downturn.
-- -- -- recession when you -- downturn not -- a -- remain recession so what happens that the president gets his way and he gets his debt deal enacted.
Do you think that will tip the economy into recession.
No I don't think it's gonna you know again it depends on exactly you what's in it and and what happens in the short run and what have.
Here's sort of worst outcome we don't do enough.
To really change anybody's expectations.
Of where the economy where the debt is going over the next ten years and beyond.
So people still level only uncertainty -- tale of.
Do you think continue but to supplement do you think we're gonna get -- -- revision to GDP.
Where one quarter is negative at least one quarter is negative because we are so -- thin ice with such slow growth subtle like what we saw 2002001.
And then if you say yes so we will get a negative read on for one quarter and we wouldn't have big one trillion dollar tax hike -- whatever the figure is.
-- that really hurt the economy in my little.
Trillion is not this year or next year it's over ten years so a lot depends on the timing.
Of how it's done.
If you had -- major.
Plan of the sort that there throwing around numbers like four trillion dollars.
That might give market's confidence and be helpful.
The danger is we'll get a smaller number of no confidence but enough short run damage of the sort you're talking about to push the economy in the wrong what's.
What's the answer to your doctor Feldstein because people are looking at this and and Americans are saying.
While that nobody wants to see tax hikes if they are going to see massive cuts in spending on programs for example the argument is.
Programs that the middle class and the poor he's way more than the wealthy.
-- should it not be balanced with cuts in some of the benefits that the rich get -- if you look at the number of millionaires in this nation.
They've actually grown since President Obama became president so it.
The current situation.
Has actually in a strange way the number of new edition -- Is actually growing -- and maybe that's the the extension of the bush tax cuts nothing wrong with that but should it not -- be balanced if you were sitting in the White House.
Helping to negotiate helping get the two sides together what would you say.
What I would saying is that there's this debate about whether it's to be taxes -- spending mrs.
The importance of so called tax expenditures all these.
Really spending programs that are built in to the tax cut -- five by any.
Solar panel from my house I get a tax break.
Well that's the same as the government writing me checked for doing it took action become so I think we ought to put a cap -- that and wouldn't private -- what the president talks about the amount of money involved in -- is trivial they're gonna change the depreciation rules for for private jets I don't think that's a big deal one way or the other.
But these tax expenditures.
Putting a limit on them saying that yes you can have all of them but only up to some share of your total income.
That could raise the three or client Saturday right tax breaks -- well it's not you know whether you call it pork or not we have.
We'll get the mortgage deduction room there -- tax deduction or the exclusion of employer payments for health now nobody wants to give those up.
But I think we could put a limit on them.
And raise revenue and raise a lot of -- and when the president talks about doing it his idea -- -- -- is what will limited for people who make.
Or in the top brackets people in the 30% plus bracket.
But I think we need to do it more generally.
To say those are spending programs and that's what we can cut back doctor Martin Feldstein thank you for being here we appreciate your perspective very much thank you.
