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Transcript: Peter Orszag and Sen. Judd Gregg on 'FNS'

The following is a rush transcript of the July 19, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: It's been a tough week for health care reform. There are new questions about the cost, and moderate Democrats have raised new objections to proposed taxes to pay for it.

We're joined now by President Obama's budget chief Peter Orszag.

And, Mr. Orszag, welcome to "FOX News Sunday."

PETER ORSZAG, DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET: Good to be here.

WALLACE: President Obama says health care reform must bring down spending and not add to the deficit, but Douglas Elmendorf, the head of the non-partisan Congressional Budget Office, say that the plans the Democrats are considering would do neither.

Here's what he said this week about controlling costs. Let's watch:

(BEGIN VIDEO CLIP)

DOUGLAS ELMENDORF, CONGRESSIONAL BUDGET OFFICE: We do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount and, on the contrary, the legislation significantly expands the federal responsibility for health care costs.

(END VIDEO CLIP)

WALLACE: You had Elmendorf's job till last December. He says federal spending on health care in the Democratic plans would be unsustainable.

ORSZAG: Well, let's look at the facts here. President said yesterday he will not sign a bill that expands the deficit. Look at the report that came out from the Congressional Budget Office on Friday night with regard to the House legislation.

Once you take into account the — just maintaining current payments for Medicare doctor — for doctors under Medicare, that bill is deficit neutral.

Third point is the legislation does not include some important things that we'd like to put in place with regard to the fiscal trajectory after the first decade. For example, we have a proposal for an independent commission made up of doctors to help bring down costs over the long term.

WALLACE: OK. When you were the head of the CBO, politicians said you were wrong. He says it's unsustainable. Are you saying that the bills in their current forms the president will not sign?

ORSZAG: No. What — president has said that the bill has to be deficit neutral. If you actually look at the CBO score that came out on Friday night — and again, take off the table just maintaining current payment rates for physicians under Medicare — that bill is deficit neutral.

WALLACE: Well, wait, because there's that little caveat in there. In fact, what the CBO said on Friday is that the bill the House is now considering and rushing to pass, in fact, would add $240 billion to the deficit by 2019.

Now, there's talk — as you say, there's a dispute about Medicare payments to doctors. That's not in the legislation.

ORSZAG: No, the Medicare — the payments to physicians is in the legislation, and that is the only reason that the bill shows a deficit. Once you take that part out, the bill is deficit neutral.

WALLACE: That's what I'm saying. But the — but the reform you're talking about — the cut in payments is not in the bill.

ORSZAG: The bill prevents that cut in payments, but no one ever thought that you'd have a 20 percent reduction in Medicare in reimbursement rates for doctors. That was going to happen regardless. It so happens they added that to this piece of legislation, but that's sort of already baked in to our fiscal trajectory.

We're looking at what's happening with regard to new policy. And with regard to new policy, this is deficit neutral over the first decade. There are additional steps that are necessary to make it even better than that over the long term, and I think the single most important thing is this proposal that we have for an independent commission to help bring down costs over the long haul.

WALLACE: Which is also not in the legislation.

ORSZAG: Not yet.

WALLACE: Let's talk about taxes. The House would raise a half a trillion dollars to help pay for its health care program by imposing a surtax on top earners. As a result, combined with other Obama tax policy and local taxes, 39 of the 50 states would have tax rates over 50 percent.

I want you to take a look at this. The top rate in Denmark is 60 percent. It would be over 57 percent in Oregon, almost 57 percent in New York and California. That's higher than Sweden and Belgium.

Is the president prepared to say that it is unacceptable to raise taxes that high?

ORSZAG: Well, first, look. You were — you were adding in state and local taxes in those calculations.

WALLACE: Well, that's what people are going to have to pay.

ORSZAG: Secondly, that affects a very small percentage of the population, 1 or 2 percent. But let's talk about the bill itself.

Again, we have insisted that the bill be deficit neutral. We put on the table a revenue proposal that we think is better that would limit the rate at which you could itemize deductions. The House has...

WALLACE: But no one's considering that, Mr. Orszag.

ORSZAG: Well, no, I think it's still in play in some modified form, and...

WALLACE: Is the president prepared to say that that kind of a surtax that would make top tax rates 58 — 56 percent is off the table?

ORSZAG: No. What we have said is this bill has to be deficit neutral. We think there are better ways of obtaining additional revenue, and we have to let this legislative process play out.

WALLACE: All right. You say it would only hit a small number of people. In fact, according to studies, two-thirds of small business profits would be hit by those taxes. And I want to take a look at what Christina Romer, the head of the President's Council of Economic Advisers, said a couple of years ago when she was a private economist. "Tax increases appear to have a very large sustained and highly significant negative impact on output."

Mr. Orszag, wouldn't raising taxes that much on small business profits be a job killer?

ORSZAG: No, and I — I don't know where you got your two-thirds number from. The vast majority of small businesses would not be...

WALLACE: That's the National Federation of Independent Businesses.

ORSZAG: ... would not be affected. I would be happy to refer you to credible...

WALLACE: It's not the two-thirds of businesses. It's two-thirds of profits.

ORSZAG: I understand. And again, what we are trying to do here is a fiscally responsible health reform. I've actually run a small business. I'd be happy to — to speak to folks about this. The most important thing...

WALLACE: Would you be happy to pay 57 percent?

ORSZAG: No, look. The most important thing for small businesses is getting the economy back on its feet. That — the key driver of small business activity is demand for their product, and that is what we are trying to do, getting the economy back on its feet. That's far more important than other factors.

WALLACE: Let's do a lightning round — quick questions, quick answers — on some of the key issues on health care reform.

The head of the CBO says one good way and an effective way to cut costs is to tax health care benefits at some point, at some level. But the head of the Senate Finance Committee, Democrat Max Baucus, says the White House has already ruled that out. Is that true?

ORSZAG: It's something the president doesn't favor.

WALLACE: And is that because the big unions don't want taxing of their health care benefits which they've gotten — the UAW, police unions, firefighters?

ORSZAG: No, I think it's also because he's concerned about the impact that — on employer-sponsored insurance, on the coverage you already have.

WALLACE: The president says no rationing of health care costs, but you've mentioned a couple of times he wants this commission of doctors and medical experts to oversee medical practices.

In the end, aren't they going to be telling private and public insurers what treatments are allowed and what treatments aren't?

ORSZAG: This is the biggest canard that is floating throughout this debate. The fact of the matter is right now politicians and insurance companies are making decisions. We're saying we want doctors to be making decisions. And I think that will lead to a higher-quality, lower-cost system over time.

WALLACE: But when you say they're making decisions, they would be saying, "You can have this treatment. You can't have this treatment."

ORSZAG: Do you think that politicians are currently rationing care? Are insurance companies currently rationing care? There is no set of decisions that this commission would have that is not currently resting with either members of Congress or insurance companies.

WALLACE: So they would be rationing care.

ORSZAG: No, I — because I don't think we're rationing care today. And similarly, they would not be in the future.

What they would be doing is setting reimbursement rates and moving towards a higher quality system.

WALLACE: Are you prepared to say that in a government public-funded, taxpayer-funded public health insurance plan that no taxpayer money will go to pay for abortions?

ORSZAG: I think that that will wind up being part of the debate. I am not prepared to say explicitly that right now. It's obviously a controversial issue, and it's one of the questions that is playing out in this debate.

WALLACE: So you're not prepared to rule out...

ORSZAG: I'm not prepared to rule it out.

WALLACE: Will both the House and Senate meet the president's deadline and pass separate health care measures before they go on August recess?

ORSZAG: That is the goal.

WALLACE: And what do you think are the chances?

ORSZAG: I think the chances are high.

WALLACE: Let's turn, in the time we have left, to the economy. When Congress passed the $787 billion stimulus, the White House said that it would keep unemployment a little over, at the top, 8 percent. It's now, as you well now, at 9.5 percent.

And I want to put up the projections this week from the Federal Reserve. They forecast it may hit 10.1 percent in the fourth quarter of this year and will still be 9.5 to 9.8 percent at the end of next year. Do you agree with those numbers? And why were all of you in the White House so wrong?

ORSZAG: Well, look. If you look back last December or so, everyone - - almost everyone — thought that the economy was not as weak as it actually was.

You can't go from job losses of 700,000 a month, which is what was happening in the months leading up to January, to job growth like that, you know, just instantaneously. It is going to take some time to work our way out of this.

The situation in December and in January was worse than most people thought.

WALLACE: But you passed...

ORSZAG: But we are working our way out.

WALLACE: ... the stimulus in February. You knew how bad the situation — I mean, the president kept saying that it was a catastrophe.

ORSZAG: No, no, but it was even worse than people thought. If you look back at the majority of the Blue Chip forecasts and the other forecasts, including from the Federal Reserve, late last year, which is what we were basing our projections on at the time, they were all somewhat too optimistic because the economy was weaker at that time than anyone anticipated.

What we're trying to do is focus on how we can — and also remember, that sense of free fall, minus 6 percent on GDP growth — that is attenuated. There's still a lot more that needs to be done.

WALLACE: But just...

ORSZAG: But we're not — we're not in the same position that we were then.

WALLACE: But just quickly, in the 30 seconds we have left, the Fed says 9.5 to 9.8 percent at the end of 2010.

ORSZAG: It's going to take time to work our way out of it.

WALLACE: So you wouldn't dispute those numbers.

ORSZAG: I'm not disputing those numbers.

WALLACE: Mr. Orszag, we're going to have to leave it there. We want to thank you so much for coming in. Please come back, sir.

ORSZAG: Thank you.

WALLACE: For the Republican view of health care reform and the economy, we turn now to Senator Judd Gregg, who joins us from New Hampshire. And, Senator, welcome back to "FOX News Sunday."

SEN. JUDD GREGG, R-N.H.: Thank you, Chris. Thanks for having me on.

WALLACE: I'd like to get you to react to what you just heard from Peter Orszag. First of all, he says that what the president ends up signing, one, won't add to the deficit and, two, will cut health care costs.

GREGG: Well, he disagrees, obviously, with the CBO director on the second point. The issue of whether it adds to the deficit will be a determination of how much they're willing to raise taxes.

But the real question here — and I think it was — the nail was hit on the head by Mr. Elmendorf, who's head of CBO — and who is, by the way, appointed by the Democratic leadership of the House and the Senate — and he said that this bill as proposed — or the bills as proposed would significantly aggravate the health care cost situation, that the cost of health care would go up significantly, and that it would raise significantly the burden on the federal government as to what it had to pay.

And as a very practical matter, it did nothing in the out years to contain the rate of growth of health care costs. Those were pretty damning words, to be very honest with you, and they should make us step back, pause and take a look at the — what's going forward in the Congress and say, "How can we do this better?" And there are ways to do this better.

WALLACE: I want to follow up on a couple of more points that Mr. Orszag said. He — while not endorsing it, he defended the House idea of a surtax on top earners, and he basically ruled out any tax on health care benefits.

GREGG: Well, I'm not sure that he ruled it out. I think, in fact, he did the opposite in a letter that he sent to myself and Senator Conrad, chairman of the Budget Committee — Senator Conrad's chairman of the Budget Committee; I'm not — and that letter said there are two ways to address health care in a substantive way that will address reform and reduce the rate of growth in the out year.

The first is to control the deductibility on high-end-cost plans, so that if you're getting a plan that's worth $17,000 a year, the amount of that — that that plan exceeds $17,000 — let's say it goes up to $20,000 a year — that wouldn't be deductible.

That has two effects. First, it creates revenue. But secondly, it reduces overutilization.

The second thing he said that had to be done is you have to change the way we reimburse for health care, especially in the Medicare arena, where you reward quality and not just simply people doing procedures.

He said if you do those two things, you can get some significant out- year restraint on costs. Regrettably, neither of the proposals that are now pending in the Congress do either of those things.

WALLACE: Also, Mr. Orszag left wide open the possibility that the public health plan will give taxpayer dollars to pay for abortions. That's going to create a lot of heartburn on Capitol Hill, won't it?

GREGG: Well, of course it does. The abortion issue always does. And I — and you know, I mean, no matter what your views are on abortion, you shouldn't ask people to use their tax dollars if they think that abortion is taking a life — to use their tax dollars for those purpose — for that purpose.

So hopefully, that issue can be addressed. I would hate to see the health care debate go down over that issue. We do really need health care reform, and it has to be substantive, and it has to bend that out-year cost curve, and it has — and we've got to get a — and we have to have a system that covers everyone.

So hopefully we won't get ourselves wrapped around the wheel of abortion in this debate.

WALLACE: All right. You say that we do need health care reform. But the fact is, Senator, that in every vote that's been taken in the various committees in both the House and the Senate, every Republican has voted unanimously against health care reform. Is your party really saying...

GREGG: Well, that's because it's not reform.

WALLACE: Well, if...

GREGG: That's because it's not reform, Chris.

WALLACE: ... if I may just ask, are you saying, though, that the — that the current system, with 47 million people uninsured and with health care costs running way above inflation, is better for the country?

GREGG: No, that's unacceptable. And in fact, you'll — in the Senate, at least, there are three major health care proposals from Republicans. I have one, Senator Burr — Senator Coburn has one, and then there's a bipartisan one — Senator Wyden, Senator Bennett — which would get where we need to go, which is cover everybody and bend the out-year costs of health care without going down the road of this massive expansion of the government role in health care and the massive increase in costs which are proposed in the two bills that have been voted on.

Remember, the two bills that have been voted on so far are the Kennedy bill coming out of the Health Committee, which I serve on, which — yes, it was a party-line bill, because that bill is basically your old-fashioned expand the government, let's take over the system approach, and the House bill, which was even worse.

And basically, both of those bills lead to putting the bureaucracy between you and your doctor, and I believe they lead to delay and rationing in the end.

WALLACE: Well, you say that you would like to see the 40-plus million — there are arguments about specifically how many there are, but the 40- plus million uninsured get coverage.

Under your idea, how would they get it? How would the government help them get it? And how would you pay for it?

GREGG: Well, first, it's not a monolithic group. About 20 million of those folks earn more than $75,000. They're basically young people who opt to spend their money on something other than health care insurance.

The way we would cover those folks is we would require them to buy health care policies for catastrophic events. They would have to self- insure under that. But they would not be a burden to the system if they, unfortunately, contracted a serious disease or were seriously injured in an accident.

The balance of those folks, 27 million, are also non-homogeneous. They are basically a group of different people. Illegal immigrants make up a big section. Big section of those folks who could be covered by Medicaid already or SCHIP — what we would do is incentive, with subsidies, those folks to purchase health insurance in the private sector, giving them options of various plans to choose from which would best fit their needs, and...

WALLACE: Well, how much is that going to cost, Senator?

GREGG: ... that's what my plan does.

WALLACE: How much is that going to cost?

GREGG: Well, that's going to cost money. That's going to cost money, and the way we pay for it is by limiting the deductibility of high-end health insurance premium plans.

So we do pay for it, and we do cover everyone, and we put in place a replacement of the reimbursement system so we reimburse doctors on the basis of quality and outcomes rather than on the basis of the number of procedures.

The problem we have in this debate is that we've all sort of locked into our position here. It's unfortunate. The president's saying anybody who disagrees with him is wrong, and other people are saying anybody that agrees with the president is wrong. That's not the case.

We can solve this problem if we would just simply maybe listen to what the CBO proposed and proceed on a plan of addressing the problem rather than addressing the politics.

WALLACE: You say that you believe that something — that's your word, something — will pass this year. Why do you believe that?

GREGG: Because the president has made this his number one priority, and they have — and the Democrats have super majorities in both the House and the Senate. And therefore, they have the capacity and the political capability of passing something.

WALLACE: And do you think that what's going to end up passing is basically the president's plan? Or do you think that there's enough moderate Democratic and moderate Republican votes against it, particularly in the Senate, that you can block the president's plan and force him to go some of the way in the direction that you're talking about?

GREGG: Well, the irony, Chris, is the president doesn't have a plan. The only two plans are the Kennedy plan and the House plan. The president has thrown out where his lines are drawn in the sand. Unfortunately, he's drawn — hopefully he hasn't drawn a line.

I was interested to see Peter Orszag say maybe it's not as hard a line as people are saying on the issue of deductibility and — of insurance. But clearly, the president — the goals the president set out I agree with — you know, cover everybody, bend the out-year cost curve, make sure if you have your own insurance you get — and you like it, you get to keep it.

Those three goals are things which I'm 100 percent for, as is the Republican caucus in the Senate. We just think you get there not by moving towards a system that essentially nationalizes health care and creates massive expansion of the size of government, but by using a more practical approach of giving people more choices in the market and changing the payment system to the health care community to encourage better utilization.

WALLACE: Senator Gregg, thank you. Thanks for joining us. Please come back, sir.

GREGG: Thank you, Chris. Pleasure. Thanks.

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