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AEI Research Fellow Alex Brill on the potential economic consequences of the fiscal cliff negotiations.
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The future of rock country hinges on our gridlocked congress.
And if -- better.
So far the fiscal plans put forth by the president and speak -- simply won't cut it.
A new report out finds neither proposal reduces our debt enough to solve -- economic crisis.
Putting the country at well further risk for yet another downgrade.
And I want talk about August last summer and what really take to get our house in order let's ask Alex -- -- -- at the American enterprise institute and former chief economist for the house Ways and Means Committee.
-- so Alex here's -- thing it's basically pox on both plants.
Well.
To go to -- you're opening remarks you're definitely right what we've facing.
It both a short term crisis where taxes are set to skyrocket on January 1.
And a long term challenges that cannot be met with tax increases -- mathematically impossible.
We've got health care spending simply growing faster than the overall economy there's no tax policy that can rectify that situation.
-- why are we talk about spending.
Why hasn't anybody brought spending entitlements to the table.
Well I think we have that's speaker is talking a lot about the need.
To -- -- not only with the expiration of the bush tax cuts.
But to look beyond the next few weeks you have and -- and the looming fiscal challenges and talk about.
More structural changes and -- -- the host of policy options out there I'm not sure which ones he's he's advocating but with regards Social Security or Medicare.
The eligibility age those are all policies will help.
-- bring -- federal spending on on health care and -- -- but it doesn't seem like they're getting much traction at this point you know this new report also says that a debt to GDP ratio above 70% puts us in danger of you know grease all over again.
Look Greece's debt to GDP ratio is like a 162%.
To were not near that.
But do you worry that and this could basically bring us there -- some day.
Well that's exactly the right metric to think about how much debt we have relative to how big we are that's how we think about how much -- we can afford on an individual.
Level and that's how the government should think you.
You don't.
How much -- US government can sustain in terms of debt to GDP you know luckily we don't know could we haven't been there.
You know seventy -- we could probably survive in terms of the sense that we won't be spiraling out of control.
But the higher that ratio is than the more that future generations -- -- taxes will go simply to service the debt.
For the services are at their parents and grandparents enjoyed my so it's the right way to think about that problem we gotta get that number down.
I -- and you know what the problem is the answer will continue to be let's just continue to raise taxes to make those interest payments which is totally secular and arguably stupid at the end today let's talk about re doing this tax -- how do you do it.
It is it big all -- -- favors it is a door stop at this point it's so big do you just throw it out and start Omer.
Well it's interesting you know for a long time.
In the 1990s -- -- early part of the 2000.
There was a lot of chat about throwing it out and starting over my and I think that conservatives note that if we did that we would start over with -- system much more efficient than the one we have with -- with a consumption tax system right that the dialogue has moved away from from that framework altogether.
And now we're talking about reforming the system that we have income tax reform.
But they're still radical ideas -- and that structure.
And you're right it's filled with favors and -- distortions and by closing us down we're gonna have a better tax code of.
Well but you know good luck with that -- got lobbyists at a very powerful that are gonna want their little deductions -- kingdom come.
Quickly let's talk about the corporate tax.
We are rank sixteen ninth in the world to -- as a plate good place to do business because well our tax code is so onerous and we tax them to Jesus patio.
If we get that corporate tax down we repatriate some dollars back into this country come -- Google in Starbucks actually start to bring it home again.
-- why isn't that being discussed.
Well it's a good point -- -- -- there's a lot of interest isn't in corporate tax reform we've got they basically the highest rate me in the industrialized world 35%.
Everything easily be 25 if not lower in order to put us it just on a level playing field track with the kind of tax systems that European countries have.
And that's at that you're you're talking about downtown what lobbyists think history that a lot of interest in the business community for that -- -- Politics on energy takes a look at of of political capital to make those kind of changes that that -- that a trade -- between dealing with the cliff.
And the immediate tax increases that are coming on individuals.
And the capacity to.
Yeah but you know and then I'll I hear corporate -- shouldn't be a trade off because we knew all this was common.
And we see different the last -- it's much like you know people taken laxatives -- they lose the last -- -- before our wedding it doesn't bark.
Alex Brill former Ways and Means Committee chief economist at frustrates me -- thanks for being here.
It's however -- -- in on in the birth parents back again next.
