• With: Austan Goolsbee, former White House Council of Economic Advisers chairman

    NEIL CAVUTO, HOST OF "YOUR WORLD": Austan Goolsbee joins me right now, the president’s former top economic adviser. You never like to be the guy under whose watch a milestone is hit. What do you think it means if and when we do?

    AUSTAN GOOLSBEE, FORMER CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS: Well, I mean the milestone of the government debt has virtually nothing to do with the reasons that the deficits have been large in the last two years.

    The long-run fiscal challenge facing the country, as you've highlighted many times, are associated with the aging of the population, the rise of health care costs and the choices we have made about tax rates.

    CAVUTO: All in all, though, $5 trillion added under this president's watch, virtually a third of it under his watch, there are ways to explain it, and quite right, but it's not something you want to see showcased at your convention.

    GOOLSBEE: Yes. The fact that the Congressional Budget Office is saying that deficit's going to be record-breaking before Obama has ever even gotten into office is I think a little indicative of what the true reasoning of the increase in the deficit is, which is we had the worst economic downturn of our lifetimes.

    (CROSSTALK)

    CAVUTO: But are you surprised?

    (CROSSTALK)

    GOOLSBEE: The question is how do you address it? And the answer to that is in some balanced ways.

    (CROSSTALK)

    CAVUTO: Since you have left Washington, a couple of trillion more has been added and maybe this is just the inexorable direction and Mitt Romney cannot slow or stop it, but do you think Democrats should tackle this issue head on and not hide from it?

    GOOLSBEE: I don't think that they have hidden from it.

    CAVUTO: Well, there's no debt clock here. There's no reminder here. It's not on anyone's platform here.

    (CROSSTALK)

    GOOLSBEE: Rather than engaging in gimmickry, let us engage on what should be done.

    (CROSSTALK)

    GOOLSBEE: What should be done is Bowles-Simpson.

    CAVUTO: All right, I don't want to interrupt you. The Treasury has just made this official, and it does seem a bit ironic on this, the number nerdy show, that we have, according to the United States Treasury, eclipsed the $16 trillion debt level collectively, what we owe as a nation now going over $16 trillion.

    Now, Republicans were actually itching for this last week, no doubt in Tampa. I think politically they';re just as happy to see it happen as the Democrats kick off their convention here in Charlotte.

    But to be fair -- and as Austan points out -- I will go back to him -- but just for those of you who are tuning in, $16 trillion, a new milestone, just the put that number in perspective, it is a huge sum as Austan has reminded me many, many times. But it would be like spending $907,000 every hour since Jesus Christ was born, and you still wouldn't come quite up to $16 trillion.

    Now the question, Austan, is what you do to get that under control.

    GOOLSBEE: Yes.

    Look, and there the Mitt Romney plan they have outlined would make that substantially worse is $3 to $5 trillion of tax cuts that you try to pay for, in addition to whatever deficit reduction you have.

    CAVUTO: You are not a part of the Ronald Reagan School that this spurs economic activity, brings a lot of revenue into the government?

    GOOLSBEE: Tax cuts do not pay for themselves. We've got decades of evidence on that fact.

    CAVUTO: But they do spur growth. They do spur growth, do they not?

    GOOLSBEE: Look, depending which rates they are, they can spur some growth. They do not in any way create a Laffer curve that generates its own revenue and pays for itself. Trillions of dollars in tax cuts...

    (CROSSTALK)

    CAVUTO: If you were the president, how would you -- would you talk about it and say a lot of people are making a big deal of this and not a big deal?

    GOOLSBEE: I would do something like the grand bargain that the two parties almost did last year. And I hope that they can revisit that and do it in 2013.

    And I think, to do that, you will have to have some revenues and you will have to have a lot of spending cuts, and you'll have to address entitlements and discretionary, and whole a bunch of things.

    (CROSSTALK)

    CAVUTO: But they abandoned the debt commission. What makes you think?

    GOOLSBEE: Not true. Not true.

    (CROSSTALK)

    CAVUTO: Well, the president just left it to collect dust. And, by the way, Republicans were no better.

    GOOLSBEE: I believe that, in reality, the Republicans were far worse. He didn't do everything...

    (CROSSTALK)

    CAVUTO: But the president didn't stand behind it, Austan. I mean, it was his commission.