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The Plan, Day One: America's Way Back from the Brink

This is a rush transcript from "Glenn Beck," April 12, 2010. This copy may not be in its final form and may be updated.

GLENN BECK, HOST: America, welcome to the "Glenn Beck Program." This week, you got to roll up your sleeves because we're going to do some work. Americans have been saying for a long time, they just want to know the truth. They just want to know the truth, even if it's hard, and they're willing to do it. Well, OK, all right. Today, we're going to tell you the truth. We're going to tell you the truth. And all this week, we're going to show you how to slash the budget. But I warn you, I'm not going to have any friends left. There ain't anybody that's not going to be hacked off at me because when you see what we have to do — not to thrive, but to survive — Americans might change their tune. We'll see how you'll react. It's time to introduce you to "The Plan." Come on. Let's go!

(MUSIC)

BECK: Hello, America. It is a working week. We're going to kind of keep you informed with what's going on in the news, but we have some amazing guests that are coming on this week that have been working with me on slashing the budget. It's an idea that I want to lay out for you tonight. And then, please tell your friends, watch all this week, because somebody has got to tell you the truth. Somebody has to show you what's coming in the future. I saw — right before I went on the air, I looked at the Drudge Report. And can you bring this up, Tiffany, please? There on the Drudge Report here, I have not read the story, I haven't had time to read it. I'm just going with a headline. This absolutely sounds like John Holdren. "Obama science czar tells students we can't be number one indefinitely." The servers have crashed. You can't even get to that story. So, I can't verify this, but Drudge usually has it right. And that sounds like John Holdren, our science czar, who is the guy that wants to redistribute all of our wealth in America — not only between rich and poor here, but globally, to take our wealth and give it to other countries. And that's what's happening. Now, everybody in the news business — I mean, I don't know why we're — I don't know — honestly, America, I don't know why we're still listening to these people. They missed the housing crisis that was coming. But they're now telling us that everything is fine. Everybody in the White House is saying, nothing to worry about. The worst is behind us. Watch this.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: We can stand here today and say we prevented another depression. We broke the back of the recession. The economy that was shrinking by 6 percent a year ago is now growing by 6 percent.

(APPLAUSE)

OBAMA: So, the worst of the storm has passed.

(END VIDEO CLIP)

BECK: You're in the eye of the hurricane, my friend. Obama's multi-trillion health care plan has passed. The job should start pouring in at any time. The New York Times is also giddy about the economy. They ran this headline last week and this amazed me. "Why So Glum? Numbers Point to a Recovery." Really? Has The New York Times even looked around their own newsroom? It's practically empty. They just announced another 100 layoffs in the newsroom, which, what — brings that total to what, New York Times? Probably explains why we're getting articles about how great the economy is, because I think Jim from maintenance may have already taken over the business section at The Times. They also slashed salaries by 5 percent. Why so glum, New York Times? They've got former New York Times writers who are actually living now on the street. You should read the story about this guy. It's amazing. He's a panhandler now, used to work for The Times. Then The New York Times also built a giant skyscraper here in New York. Oh, this is going to work out well for you. Yes. Two words, New York Times: government takeover.

Every important economic indicator that is anybody is serious, not if you'll question with boldness and you just want the truth, it will show you the tough times are ahead. And it is becoming apparent that something more than just growth will be needed to restore America and stop the bleeding. This is what we're being told right now: transform — transform. We've got — quoting the president — "fundamental transformation." Into what? Into what? When you voted for change, did anyone bother to ask — change into what? Transform into what? I'm not married to these guys because oh, they're on our money. I'm married to these guys because they were right. These guys were right. These guys were right. And until somebody else comes up with a better plan, I say we stick with these guys. Let me rephrase that. I say we stick with these guys until somebody tells us what we're transforming into.

The leading economists now say the slump is going to be around for at least two more years. Moody's — Moody's says that we're walking a tight rope and that "preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that in some cases will test social cohesion." What does that mean? That's an incredible statement. They also added, "The severity of the crisis — the severity of the crisis will force governments to make painful choices that will expose weaknesses in society." Basically what they're saying to The New York Times, why so glum, they're saying we will start to eat each other. There's going to be a little civil unrest. That's Moody's. Maybe we should get them a subscription to the New York Times.

Former Congressional Budget Office head, Doug Elmendorf, said the nation's fiscal path is simply, quoting, "unsustainable." You know this and I know this. Last week, Federal Reserve Chairman Ben Bernanke said this. Watch.

(BEGIN VIDEO CLIP)

BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs, such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above. But unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor economic growth.

(END VIDEO CLIP)

BECK: Got it? We aren't going to have any stability in anything. Here's the chairman of the Fed bracing Americans that you're about to face drastic changes, or else. So, what is Congress doing about it? Nothing. Nothing. Now, normally, Congress doing nothing is a good thing. I celebrate. But they're screwing us up by not undoing the stuff they screwed us up with. They need to undo the damage they've inflicted on America. But where are the leaders there? Boy, I talk to Paul Ryan today. Thank God for Paul Ryan. First time I met that guy. He makes some sense. But most of the clowns in Washington, they jam health care through. They hope for the best on the economy. I don't think most of them even understand the economy.

They're actually set now to miss the April 15th deadline for completing next year's budget. They're not even considering a draft of it. They're skipping putting together a budget. They could put this together. They got this bill. They put this one together. Yes, they can do that — but not next year's budget. Why? Because they'll be able to avoid unpopular votes around election time. That's how stupid they think we are. Hey, if we just don't do a tax hike right around election time, we can do it later and nobody will remember. America, this isn't about elections. I don't care who's in Washington. Do they have some sanity? It's time to make a choice. And you have to choose. You have to choose who is right. Are they right — the worst behind us? Is The New York Times right? "Why So Glum?" Are the leading economists, Moody's, the former CBO director, Chairman of the Fed, Ben Bernanke — they now tell us we're in trouble, but weren't these the clowns who told us there is nothing on the horizon before? They're the same people that told us the housing mess — ah, we're fine. Are they right? Or is your gut right?

Look, if this was your house, if this was your budget, if this is the way you ran things in your house — you know — you'd know it's only a matter of time before they come and take everything you've got. Something has to be done. Even our own politicians will now admit that they're incapable of doing anything. Here is Congressman Tom Perriello. Watch this.

(BEGIN VIDEO CLIP)

REP. TOM PERRIELLO D-VA.: The only way to keep them out of the cookie jar is to give them no choice. Which is why, whether it's a balanced budget acts or pay as you go legislation or any of that — it's the only thing. If you don't tie our hands, we will keep stealing.

(END VIDEO CLIP)

BECK: We'll keep stealing. And that's what they're doing. The last thing that happens in any country before it goes away — they steal, they loot the treasury. They're stealing. I want you to know this is not an American problem. And, see, that's what keeps us yelling about politics. We think this is an American problem. It's not. This is a global problem. What people won't tell you is — it's all about to come undone. And we can get healthy. We can. We just have to have common sense and a spine. You see, all countries, all over the globe have been stealing from the cookie jar. All countries have decided that massive debt that you cannot pay back is just no big deal. We've all pursued bigger governments, socialization programs. We've all been shipping our jobs to India and China and think we can just always go this way. We can't.

I told you months ago to watch Europe. They're ahead of us. They are — they first tried all of the things that we're embarking on and they are ahead of us in everything. George Soros warned the world this weekend that Europe could be on the verge of disintegrating if they don't muster up the political will to survive. His solution? More bailouts, more spending. That's like — that's like telling a cancer patient, smoke some more. A couple of months ago I told you that the far-left and the far-right — the fringes of Europe — will come out of the woodwork and they will gain power. Well, Greece today is now on the verge of collapse.

Billions in bail-outs have only delayed the inevitable. The unrest there is growing and violence is growing as well. This far-left militant guerilla groups have been launching bomb attacks. And who's been helping them? Who's part of the riots? The Unions. Why? Because over in Greece — and see if this sounds familiar — they promised their pensions, they promised too big of pensions and now the government can't pay for it. And so, they're stirring up the trouble. The far-right now is gaining power after elections in Hungary. This was over the weekend. In South Africa, hundreds gave the Nazi salute. How can we not — how do we not remember? Swastika flags at the funeral of a prominent white supremacist. How do we — how do we with forget this so soon?

The world is on the edge. And I believe that there are people, like George Soros of the world, that are pushing it farther off that edge. There are profound changes coming right around the corner. It's what we do about those changes. The world, I fear, is about to make the same mistakes that were made in 1930s. America must be strong. I want to show you something. This was all done for the good of our country. But this is why you have to understand it's a global issue. It's not America. Barack Obama, George Bush — nobody can fix it with the old kind of thinking. No party. This is way beyond party. In the 1960s, we had mutually assured destruction. It was to stop us from bombing each other, OK?

We were all afraid of nuclear war. We were afraid the missiles were going to come over the pole and they were going to kill us from Russia and we were going to send our missiles over there and we'd vaporize each other. Well, Carroll Quigley announced in his book, I think it was in 1962, the tragedy was global war. The hope was, it will never happen again — because, as he announced in his book, what they did was they tied all of our economies together. So, now, if one country was destroyed or would destroy another, they would all collapse. They'd all go down the toilet, and so, they would have motivation to stop anybody. And he said in 1962, you'll never see a world war again. You'll never see one country go in and obliterate another. It won't happen.

Gee, think of all wars that have been fought by us since 1962. Is there any doubt in your mind that we could have finished in Pakistan? We could have finished in Iraq? Had we unleashed the full might and power of the United States of America? Ask yourself the question, why didn't we? Because we are all tied together economically. What's happening right now and the president says, "Oh, everything is fine." We're in the eye of the storm. It's a hurricane. We'd just been battered around. It's calm. But there is another wall of this storm coming and it is — we're out on the open waters. It's still gathering strength. The weathermen are telling everybody, "Oh, it's OK, go out." We have radar now. We can look at the numbers.

You know, I painted these paintings and the one with George Washington is hope. And I put George Washington here because he told the truth. He told the truth. The only way to have hope is to have the truth. If you go to a doctor and the doctor says to you, "You've got cancer," you don't say to the doctor, "Why are you engaging in the hate speech? Why do you hate everybody like me?" "I don't hate you. You have cancer. I'm trying to help you." No, no, no. You know, there are too many people now in America that don't even understand the truth anymore. It's been so long since they've heard the truth, they confuse it with hate. Don't confuse the truth with hate. If you don't belief this doctor, go to another doctor. But find one that engages in the truth. If they want to save your life, they'll tell you the same damn thing. A correct diagnosis gives you a chance at survival.

It's the same thing with our country. Radical steps need to be taken. But every day we deny that we have cancer, it's going to be harder and harder for us to cure. Somebody said to me, I don't know, a few weeks ago — people aren't going to do it. There will be civil unrest, because when they figure out that the treasury has been looted and there's a different future for their kids coming up, they're not going to sacrifice and they'll take the easy way. They won't give up entitlements. I think the greatest American generation is the one that is alive today, the one that just steps to the plate. The good news is, we've done this before. After America's first bout with radical progressivism in the early 20th century, we had chemotherapy and we rooted it out and we fixed it quickly.

There are three ways to fix the mess that we're in right now. There are three ways. First, you can cut spending. Second, raise taxes. Or three, print money, which is inflate the money. So far, we have done this one and this one. But instead of cutting spending, we've spent faster. How does that work? Look, there is no difference between the government and your house. In your house if you were in the situation, what would you do? What would you do? You would get another job. That would be raise tax revenue — I'll explain the Laffer curve with Art Laffer here in a second — raise tax revenue. And the second is cut spending. These people aren't interested in raising tax revenue. They're into redistribution of wealth and fairness. We must cut spending — significant, massive budget cuts all across the board, and we have to stop devaluing our dollar.

Now, right now, some of the viewers may be thinking, thank God, this idiot is not president. He'd destroy us. Half of the audience is cheering. First of all, I'd like to hear a better answer. Spending is not it. But for anybody who is cheering, I want to warn you — there is a good chance by the end of the week, when you see just the beginning of one plan that has been laid out by Cato, I have news for you: you're re not going to be cheering. Everyone is going to feel the pain on this one. The one thing said about socialism is that everyone is against it, until you get a hand-out. Right now, 70 percent of America gets more money and benefits from the government than they pay in. That has got to stop.

There cannot be any sacred cows. Everything has to be on the table. It's not just the turtle tunnels or pills for grandma or the bombs for defense — you name it and it has to be on the table. So, all week we'll do the heavy lifting. We'll start to look at the budget and we'll look at it unlike anything I've ever seen before, in recent memory, at least by government. We'll look at the budget the way any sane person would — the way you would in your home. But, first, I want to give you a little bit of hope. I want to stop with a forgotten lesson in American history. We'll do that coming up.

ANNOUNCER: Massive unemployment, expansion of government programs and sky-high tax rates — sound familiar? A look at the Forgotten Depression — next.

(COMMERCIAL BREAK)

BECK: It's going to be quite an amazing week as we decide whether we're going to transform into what, or restore. If we want to restore the country, it's going to take a lot of work. But here's the hope, we've done it before. And it stands as one of America's greatest economic achievements. And yet, there is a good chance you have never ever heard of it. Reams have been written about the Great Depression and FDR's colossal government expanding New Deal, but you'd be hard pressed to find even a mention in most history books that we have in our classrooms about this amazing turn-around 10 years prior. The year was 1920. The newly-elected Warren G. Harding was inheriting a mess from his predecessor Woodrow Wilson. He didn't give speeches about he inherited it. The country was in a depression, with record unemployment, massive debt, and a bloated and inefficient federal government. It was as bad as anything in 1929 or 1930. They didn't use a stimulus package or tax increases. What was the secret? How did we get out of it? Watch this.

(BEGIN VIDEOTAPE)

BECK (voice-over): The year was 1920 and America was in a crisis. Soldiers had returned home from World War I, to find that their jobs were gone. Unemployment doubled to nearly 12 percent; the stock market was on its way to losing half of its value; the gross national product was in freefall. Outgoing President Woodrow Wilson's decision to involve America in World War I and his dyed-in-the-wool progressive agenda left the country reeling. Wilson had used the war effort to grossly expand an already bloated federal government. And in an effort to redistribute the wealth, he raised the top income tax to 77 percent. The end result was a country deeply in debt with an economy that was on the verge of total collapse. This was the depression you probably never heard of, wiped clean from our history books. Why? It's called the Forgotten Depression. More on that in a minute.

Another key factor in this economic nightmare was the action taken by the Federal Reserve — another Wilson era progressive idea. As times got tougher during Wilson's last term, the Fed began to print money and make it easier to get credit. Even as America's 29th President Warren G. Harding took oath of office in 1921, the country was on the brink. He wasted no time. His plan was astonishingly simple. No bailouts, no stimulus package. In fact, just the opposite.

THOMAS E. WOODS, AUTHOR, "MELTDOWN": Between 1920 and '22, the federal budget was, in fact, cut roughly in half. They cut top marginal income tax rates and marginal income tax rates for all groups substantially throughout the '20s. After they cut marginal tax rates so substantially, they were also able to cut the national debt, not the deficit, the national debt by one-third during the 1920s.

BECK: The budget was cut in half. Tax rates reduced in all income brackets. The national debt reduced by one-third. In 18 months, America rebounded. The result: the "Roaring '20s."

JIM POWELL, SENIOR FELLOW CATO INSTITUTE: It was during the 1920s that millions of Americans bought their first radio. Millions of Americans bought their first refrigerator, their first car. The number of Americans who had telephone doubled.

BECK: President Harding died of a heart attack two years in his presidency, but his successor, Calvin Coolidge, continued what he started.

CALVIN COOLIDGE, FMR. U.S. PRESIDENT: I want the people of America to be able to work less for the government and more for themselves. I want them to have the rewards of their own industry. This is the chief meaning of freedom.

BECK: Limited government and free enterprise fueled one of the greatest success stories in American history. Again, you probably never heard of this.

WOODS: We never hear a thing about the depression of 1920, for obvious reasons, because we might draw the wrong conclusions. We might conclude that maybe these policies could be implemented today. We're not allowed to draw that conclusion. So, this episode is simply left off the table.

BECK: What the history books can't deny is just nine years later, in spite of all the country had been through, progressive presidents, Herbert Hoover, FDR, following Woodrow Wilson's progressive playbook of bloated government, massive spending and sky-high taxes led us back to the brink, the Great Depression. And, by the way, in another undeniable example of progressive revisionist history, you, me, our kids, have all been taught that FDR's New Deal proved to be the salvation of America. Nothing could be further from the truth. The New Deal expanded government to levels approaching a dictatorship. Taxes reached obscene levels and the era of government entitlements, many of which are still choking our economy today, was born.

The New Deal prolonged the Great Depression in America. As other countries around the world rebounded years earlier, America suffered through a full decade of hardship. And yet, surprisingly, unexplainable, is that very solution that serves as the model for our leaders today as America, once again, suffers through a crisis brought on by progressive leadership.

(END VIDEOTAPE)

BECK: The Forgotten Depression forgot no more. To know where you are, you've got to know your history, where we've been — and we'll be able to see the future. Get the history you never learned. We have produced a couple of documentaries on this for my Web site at GlennBeck.com. The full story on the Forgotten Depression and much, much more in documentary form; Insider Extreme available only to GlennBeck.com subscribers. Check out our many documentaries on the progressives, the Forgotten Depression, and "Doomed to Repeat." It will truly blow your mind. Check it out now. Right back in a minute.

(COMMERCIAL BREAK)

BECK: Check out our mini-documentaries on the progressives, "The Forgotten Depression" and "Doomed to Repeat." It will truly blow your mind. Check it out now. Right back in a minute.

(COMMERCIAL BREAK)

(NEWS BREAK)

BECK: Hello, America. This week, we have a special series for five days. Everybody always says, "Oh, just tell me the truth." OK, we'll tell you the truth. Now, the question is, once you have the truth, what will you do with it? Will you make the tough decisions?

America is a patient and the patient has cancer. When cancer is diagnosed, the doctor doesn't prescribe an aspirin and 24 hours of bed rest. If the patient got cancer from smoking, the doctor certainly doesn't try to cure cancer with more cigarettes. Nothing small is going to fix this. If it sounds too good to be true, it is. Our country is being transformed, but into what? What are we changing into?

This week, I'm going to show the path to restoration, but it will be a path that is drastic. We are all going to feel the pain of treatment. But if we do what we did in 1920, it won't last long. It will hurt, but it won't last long, and it will save the patient. The number one question or criticism we get is, "Oh, you're just the party of no. You don't agree with Barack Obama." It amazes me.

Does anybody notice that George Bush said when we were hit by people who flew planes in building, you're either with them or you're with us? And everybody went crazy in the liberal world. Does anybody notice that's what this president says to Americans who aren't flying planes into buildings? That you're either with us or you're with the tea-partiers? What?

Well, we contacted the Cato Institute. With their help and also with several other people who will be joining us this week, from "Freakonomics," Stephen Dubner, I'm going to show you how to slash the budget unlike any politician will ever tell you. We'll even feature a marketing expert later in the week to help us learn how to sell the message to the American people. Plus, Ben Sherwood will be here later this week to help us learn how to weather the storm should we decide to do this.

What should you prepare for if we do it or if we don't? Remember, this is only one idea to soften the ground. America has to talk about dramatic moves. I talked to this guy today on my radio program — Paul Ryan, he's a Congressman from the land of progressives. He's got a plan out, too. I have to tell you. He calls it roadmap for America's future. I don't know how I never met the guy. I don't know why we've never been on each other's radar. He sounds to me like he gets it. Take a look at his Web site. Hell, you have an idea? Great. Let's talk about it. But can we please start to have this discussion?

Now, before the Reagan tax cuts, the economy was choking on high inflation, high interest rates and high employment. Then along came a doctor, Dr. Art Laffer and the Laffer Curve. It sounds like something you'd see at, like, a comedy club, like milk through your nose but it's not. The Laffer Curve sets optimal income tax level to maximize the tax revenue. And that's why he said it earlier that — hi, doctor. How are you?

DR. ART LAFFER, FORMER REAGAN ECONOMIC ADVISOR: How are you? Good to see you, Glenn.

BECK: Show me the Laffer Curve here. I said earlier — we're not talking about raising taxes. We're talking about tax revenues, right?

LAFFER: Exactly. No, that's exactly right.

BECK: We don't need to raise taxes. We need to raise tax revenue. We need to get more dollars in.

LAFFER: That's right.

BECK: Explain this.

LAFFER: Well, you know, what this is, is these are tax rates here. Tax rates on this level, all right? And this is tax revenues down here — tax revenues. And the thing is fairly simple.

If I taxed you at 120 percent of everything you earned so every time you came into the studio, instead of getting a check, you got a bill. How much would you work?

BECK: I wouldn't work at all.

LAFFER: Obviously, it's zero if you get nothing. You have zero output of 100 percent tax rates. And you therefore have zero revenue.

Obviously, the zero tax rate, you'll have lots of output, but there will be no taxes so you have zero revenues. And as you start raising the tax rate, you can see that revenues start rising because even though there is a little less output, you will still be taxing at more rates.

And likewise, if you start lowering tax rates here, people will start coming back to work and there will be revenues. This maps out the relationship between tax rates and tax revenues.

And this whole range here which we call the prohibitive range - here, if you raise tax rates, you actually get less money. And in my view, in a number of the taxes that we face in the U.S., we are literally...

BECK: We're talking today — there is a study out — 77 percent in come tax. That's what you're talking about.

LAFFER: Well, that would clearly be in this range — I mean, and especially on upper income people. The more you raise their tax rates, they move abroad. They shift the types of income they get. They go out of business. They defer the income. They do all sorts of stuff.

And you just aren't going to get their money. You just plain aren't. So if you raise tax rates on the rich, I will guarantee you're going to get less revenue.

BECK: Isn't there something — I saw something else about five years ago. It saw a chart that shows that it doesn't matter what we do to the tax rate. You get about 18 percent.

LAFFER: Yes. That's the curve Hauser — if the Hauser Curve, which is a flat line which, no matter what taxes, you get 18 percent.

BECK: Shoot that full of holes.

LAFFER: It's not. It's right. It's basic.

BECK: How come we don't ever talk about that?

LAFFER: We talk about it all the time.

BECK: You talk about it. How come — I mean...

LAFFER: Because it doesn't fit their ideology, to be honest with you. They want to claim they can get the money they need from the rich people, from the top one percent, but they can't.

They can only get it from this group of people. You know, when you raise the lowest tax rates up, you will get more money. The boss who is working on a construction site — he can't defer his income. He can't change the form of his income. He can't change the location.

BECK: Is that why we went out — the first thing Barack Obama said after saying you won't get your taxes raised by a dime, not one penny, if you're under $250,000. First thing he did was go after smokers.

LAFFER: Smokers are easy to get because they're hooked. They can't change their behavior. They're addicted. And same thing with people down on this end. No, they don't have the opportunities that the other people do.

BECK: But didn't Reagan close all the loopholes for these people?

LAFFER: Oh, yes.

(CROSSTALK)

BECK: Seventy-seven percent we've had before, but we had them with tons of loopholes. There are no loopholes now. You pay it.

LAFFER: They should. You know, what you want is a low rate, flat on some of the broadest base.

BECK: Yes, yes, yes. You don't want to pay 77 percent. That's obscene.

LAFFER: That is ridiculous. That is ridiculous. We lowered the rate to 28 percent. Can you imagine...

BECK: What could we — what could we if — what could we operate on? What could the government really truly operate on that would be shocking enough to — did you see this?

LAFFER: Yes, I did.

BECK: OK. This was the mutually-assured economic destruction. This was mutually-assured destruction. But they tied all of the economies together. We have to spit ourselves out of the system because all of the economies will are going to go down, correct?

LAFFER: Yes. I agree.

BECK: So what could we — I'm getting a wrap sign. What could we get a flat tax down to and actually survive, that would be something shocking to the rest of the world to spit us out of this?

LAFFER: Eleven percent on business net sales and 11 percent on personal unadjusted gross income and we would match the total revenues we collect today with no Laffer Curve at that, Glenn. We would match the total revenue...

BECK: Where does that start?

LAFFER: That starts at zero.

(CROSSTALK)

Yes. Everyone pays 11 percent across the board.

BECK: That's FICA. That's everything.

LAFFER: Everything.

BECK: That covers everything.

LAFFER: Capital gains, estate tax, FICA, Medicare, Medicaid and...

BECK: One tax?

LAFFER: One tax.

BECK: What did you make this year? What did you make this year? Deduct 11 percent.

LAFFER: That's it. And then, businesses do the same 11 percent on their value-added. So you have the two 11 percenters. And you can match all the — Jerry Brown ran on this as a presidential candidate in 1992 and almost took Clinton out.

He ran — the Democrats love this one — Jerry Brown. Now, his number was 13 percent because he wanted to have a little bit of a surplus to pay off the debt.

BECK: All right, Art. Have a seat.

LAFFER: Thank you, sir.

BECK: OK. More with Art Laffer. I want to bring in Chris Edwards. He's here. He's the director of tax policy studies at the Cato Institute. We're going to look at the budget and show you what's coming this week, next.

(COMMERCIAL BREAK)

BECK: We have Art Laffer with us today and Chris Edwards is here. He's the director of tax policy studies at Cato Institute and the author of "Downsizing the Federal Government." Is this your Web site, too? Downsizing...

CHRIS EDWARDS, DIRECTOR OF TAX POLICY STUDIES, CATO INSTITUTE: "DownsizingGovernment.org."

BECK: It is a great Web site.

EDWARDS: Thank you.

BECK: I didn't know it was yours. Great Web site. In this — so you know, this week, we're going to spend some time talking one topic, making sure the mutually assured economic destruction doesn't happen.

And as all the globe starts to come down and reboot, we want to be a place where everybody rushes and pours their money from the rest of the world. We can be the safe haven. We can turn it around quickly. We just have to be sensible.

In your book, you talk about the taxes. And they all seem to be the former Soviet Union countries that all have flat taxes now.

EDWARDS: We talked about flat taxes, folks like Art and I. And people say, oh, that's unrealistic. But the reality is, there are 25 countries around the world now that have adopted flat taxes. The average rate is 17 percent. Countries like Russia have done fantastic under a flat tax, yes.

BECK: Didn't Georgia get into a flat tax war with Russia? Russia was trying to put Georgia — punish them. And so they had a flat tax and they kept dropping it and Georgia won.

EDWARDS: That's right. All those Eastern European countries are competing against each other to lower their rate. For example, Slovakia cut their flat tax rate to 19 percent. All the big German corporations like the car companies moved to Slovakia. So...

BECK: We're talking now about a VAT which would be crippling on top of everything else, would it not?

LAFFER: It would be.

EDWARDS: The average VAT rate in Europe is 20 percent. So think about — every time you go to the store. You buy a car. You buy a new piece of furniture — 20 percent government sales tax on...

(CROSSTALK)

LAFFER: That's federal, by the way. You have state and local as well.

EDWARDS: Yes. That's right.

BECK: Who are these economists that think — I mean, I just can't imagine that people actually think these things would work.

EDWARDS: I think people — some economists just believe that if more resources are channeled through the government, somehow it helps society. But I think it profoundly damages society as we found over and over.

BECK: If they push these things through, they keep spending like this, they do a global carbon tax. We have to pay for the health care bill now. All of the things — how much time — I know you're a sunny, optimistic guy. How much time do you think we have?

EDWARDS: Well, things start spiraling out of control. We've got trillion-dollar deficits now under Obama. He plans to run trillion-dollar deficits as far as the eye can see. You can't do that, though, because federal interest cost accelerate faster and faster.

So under Obama's current budget, I mean, we pay $200 billion a year in interest now. And he even admits that's going to jump to $800 billion. It's going to quadruple just in 10 years.

LAFFER: And that's unfunded liabilities which are just enormous.

EDWARDS: Right.

BECK: OK. We're going to go into that here in just a second. We're just kind of showing you what is coming this week. We'll be right back.

(COMMERCIAL BREAK)

BECK: All this week, we're going to tackle the federal budget. Back with me now, Chris Edwards of the Cato Institute, Art Laffer former Reagan economic advisor.

Guys, we only have a few seconds here so I just want to go over this and correct me where I'm wrong. The problem we have right now is, from here to here, nothing can be touched. Correct?

EDWARDS: No. We can reform entitlements.

BECK: Yes. Yes. But...

EDWARDS: We have to.

BECK: Yes, we have to. But generally speaking, you need an act of Congress to do...

EDWARDS: Yes, it's much more difficult.

BECK: OK. So — and this at seven percent, we are currently at the lowest interest rate we've had.

EDWARDS: And even Obama says that's going up 15 percent. So that's twice — that's twice — it's doubling in size in 10 years under Obama.

BECK: So we are here, in 10 years, without even the interest rate going up.

EDWARDS: That's right.

BECK: We're up to here. The interest rate, if they were as high when you got into office with Ronald Reagan, it would probably be this much.

EDWARDS: It would go up — if we had 10 percent interest rate, it would go up to 30 percent. One-third of the budget will be interest.

LAFFER: No. When we came in office, the prime interest rate was 21.5 percent, just so know you remember. I know you guys weren't around because you were so young. But it was 21.5 percent. Can you imagine the U.S. economy?

BECK: What happened?

LAFFER: It would be around this twice.

(LAUGHTER)

BECK: We'll be back in just a second.

(COMMERCIAL BREAK)

BECK: Tomorrow, we're going to roll up our sleeves and begin. We're going to cut healthcare. Right now, Medicare, Medicaid and social security are 40 percent of our budget. They're going away.

It's going to be ugly, a lot of crying, but America needs a cure. And don't confuse the truth with hatred. By the way, use truth as your anvil, as Gandhi said, non-violence as your hammer. And anything that doesn't stand the test, when brought to the anvil of truth and hammered with non-violence, reject it.

See you tomorrow. From New York, good night, America.

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