The Difference Between Spending Freezing and Cutting

Is President Obama's spending "freeze" too little, too late or misdirected? (AP)

This is a rush transcript from "On the Record," January 26, 2010. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Tonight: Well, you know it! There is a big difference between freezing and cutting. Now, the president is freezing. He now wants a three-year freeze on some discretionary government spending. Gimmick or solution?

Let's ask Governor Tim Pawlenty of Minnesota, who joins us. Governor, first I must say my condolences to you and to your state for the Vikings loss yesterday. It was close.

GOV. TIM PAWLENTY, R- MINN.: Well, we're in mourning here in Minnesota. Our beloved Vikings beat themselves. But hopefully, number four will come back and you and I can cheer him on again yet another year, Greta. Thanks for thinking of us, though.

VAN SUSTEREN: Well, I actually think number four will be back and -- you know, and he'll dazzle the fans as he always does.

All right, Governor, now, you wrote an op-ed piece on January 11th in which you said it's not too late to turn things around. What do you mean? What would you do?

PAWLENTY: Well, Greta, the freeze that the president announced a day or so ago, or earlier today -- leaked out, I guess -- is kind of like somebody eating three Big Macs and then deciding they're going to control their weight by ordering a Diet Coke. It's an acknowledgement of the problem. It's at least a small step in the right direction. But for all the reasons you've been talking about, it's really not a freeze.

So if you want to get this country back on track, focus on the economy, focus on jobs. Don't freeze spending, cut it. Don't raise taxes, cut them. Come back to the table, cut a bipartisan solution on health care that contains costs, doesn't just expand access. And then pass a constitutional amendment that forces the United States federal government to balance its budget, with certain exceptions.

VAN SUSTEREN: So you know, that's not going to happen, I mean, at least as far as we can see. We're not going to have this constitutional amendment, at least not in the near future, and we're going to have a freeze, we're not going to have a cut. So if you and I are talking a year from now, what's the conversation going to be? Where is the country in a year?

PAWLENTY: Look, Greta, for all the moneys that they've spent -- the federal government, all sources, all revenues, takes in $2.2 trillion. If you add up the stimulus, the TARP, all the stuff they did through the Federal Reserve and monetary policy and the bail-outs, they could have given all taxpayers from all taxes a one-year tax holiday. They could have ignited the economy with a complete holiday on taxes.

There's a lot of great ideas, but we got to be focused on jobs. I'll give you one. Don't discontinue the Bush tax cuts. In other words, allow the tax cuts to stay in place permanently. And if you want to put money into people's pockets, you can do quick, simple things, like cutting the payroll tax for employers and employees. Those are some easy things to do. But we also, in the long term, have got to get control of the spending. The United States federal government mathematically, setting aside right or left, can't pay its bills. It's just a matter of math.

VAN SUSTEREN: Well, here's one of the growing problems, Governor, is that we have an unemployment rate of 10 percent -- actually, it's remarkable higher if you count the people who have just given up or who -- looking for a job and have quit, they're so demoralized -- is that because the unemployment is so high, we don't have the tax revenue. And that, of course, creates entire problems on this government. And then we have the situation where we're spending the money, the stimulus bill -- we still have -- according to our numbers, the $787 billion that was set -- that we intended to spend on stimulus, February of '90, we have only spent $264 billion, which leaves $523 billion left.

Would you stop the -- would you say that the stimulus program or the bill has failed? And would you say, Let's stop that one?

PAWLENTY: Yes, it's not working. It's mostly sending money out to bureaucracies. It's not effective. They promised that if you pass the stimulus bill, we'd have unemployment at 8 percent or lower. It's up at 10 percent. I think most credible economists say it's not working.

So we can redeploy that money by drawing down the deficits or through tax cuts, things that would more quickly and better ignite the economy. Remember, government doesn't create any wealth, it just extracts it from the private economy, brings it into the bureaucracy, makes political decisions and sends it back out. So the notion that, you know, government is going to create a new increment of wealth or economic activity is a flawed theory to begin with.

And by the way, the spending issue is just so concerning. We have a Web site. It's called Stopthespendingbinge.com. People can on there and learn more about how to help this fight.

VAN SUSTEREN: And you, of course -- you assign the responsibility for this growing debt to both the Republicans and the Democrats, right? You don't just assign it to this one administration.

PAWLENTY: Well, if you go back -- the Obama administration and this Congress have exploded it exponentially. But if you go back over the recent decades, both parties have had a hand in getting us to this point. Again, Greta, they take in $2.2 trillion, all revenues, all sources. We've got a $12 trillion debt. We've got $65 trillion of unfunded liabilities from the federal government. Those unfunded liabilities grew just last year $8 trillion.

That's obscene. It's reckless. It's irresponsible. And the United States federal government in the not too distant future is not going to be able to meet and pay for those obligations.

I jokingly say the most effective thing that we should do, is once they reach the point of spending money they don't have each year -- in other words, exceeding their revenues -- they should circulate the rest of the spending in Chinese currency because that's who's basically subsidizing and paying for so much of this debt. That would be a very dramatic lesson for our government officials and for our country about the dangers of what they're doing.

VAN SUSTEREN: You know, it's remarkable how different the perspective is on the economic crisis between those who have served as governors, current or former, and even those who are in the Senate who are ex- governors, and the United States Senate -- I mean, and the House. I mean, those people, they're -- they don't quite have the attention on meeting the bills every month. It's so different, isn't it?

PAWLENTY: Well, they play Monopoly, many of them. And governors have to balance their budget. Forty-nine of the fifty states have a balanced budget amendment. It's difficult. It leads to a lot of hard decisions. But every two years, it gets done. And so our federal government could easily benefit from that. As you said, it may not happen in the near term. But these chickens are going to come home to roost.

But we have to have people who take this seriously, Greta. We are putting our nation at great peril. This is not just about, you know, being the green eyeshade accountants for the Democrats. This literally puts the security of our nation at risk if they don't change what they're doing.

And I give President Obama at least some credit because the first step on the road to recovery is acknowledge the problem. And even though he's mostly dealing with it symbolically, at least he's acknowledged the problem. So if he'd take the rest of these steps, we could make some real progress.

VAN SUSTEREN: So is what -- is the freeze, though -- is it a gimmick on the eve of the State of the Union because he knows that all eyes are going to be on him tomorrow night and this unemployment rate is -- you know, has been nagging his administration, certainly nagging those who are unemployed -- is it a gimmick that it's simply a freeze, it's not a cut, it's not across the board, and that it -- it is not a solution to our problems?

PAWLENTY: It's not really a solution, but it is a small step. Look, they got their cans kicked in New Jersey, Virginia. They got embarrassed in Massachusetts in a stunning defeat. I'm sure his advisers are saying, My goodness...

VAN SUSTEREN: But should they be motivated by that? Yes, but I mean, like, I mean, they should be motivated by the fact that win or lose -- I mean, this is a -- I mean, you know, I'm all for the whole idea of politics. It's fascinating. It's interesting. It's challenging. It's a little bit of a game, sort of like sports. But this is a little different when we're talking about all the unemployed in the nation. And when you look at sort of the numbers statistically, is unemployment going down? Is -- you know, are people's standard of living going up? Are -- is there housing sales? Like, those are the things that they -- you know, that I would assume would be guiding many of our decisions and our strategy.

PAWLENTY: Yes, but if he's been on the wrong course and he's willing to take a step back to the right course, that's at least one small step, Greta. So I don't want to rain all over his parade, but it clearly is mostly a gimmick. It's not going to fundamentally change the outlook.

Like I said, we got to be talking about not freezing spending symbolically, cutting it, cutting taxes, not raising it, bipartisan health care reform and get our spending house in order. You cannot meet $65 trillion of unfunded liabilities total on $2.2 trillion of revenue. It is a Ponzi scheme, Greta. It's going to come crashing down. We're going to have the federal government financial equivalent of the subprime mortgage crisis. It is going to be horrific for our country. And the jobs that we need to grow in this country are not going to be provided by things like "cash for clunkers," they're going to be provided by giving the private economy, private sector the encouragement, the incentives and the lessening of burdens that they get to the point of saying, I'm willing to invest again.

VAN SUSTEREN: Governor, thank you, sir.

PAWLENTY: You're welcome, Greta. Thank you.

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