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'Journal Editorial Report': Deficit Commission Defense

This is a rush transcript from "The Journal Editorial Report," November 20, 2010. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," President Obama's bipartisan deficit commission is coming under bipartisan fire. But can some good come out of it? We'll ask Wisconsin congressman and commission member, Paul Ryan.

Outrage grows over the TSA's new airport screening measures. Has our government gone too far or is this the price we pay for security in a post-September 11th world?

Welcome to the "Journal Editorial Report." I'm Paul Gigot.

When the co-chairs of President Obama's bipartisan deficit commission, Erskine Bowles and Alan Simpson, released their preliminary report last week, it was met with howls from both the left and the right, with some conservatives claiming it promotes a one trillion dollar tax increase.

Republican Congressman Paul Ryan of Wisconsin is a member of that commission. I spoke with him earlier and asked him what those conservative critics are missing.

(BEGIN VIDEOTAPE)

REP. PAUL RYAN, R-WIS.: Well, they're missing that Erskine Bowles, a Democratic appointee by President Obama, former Clinton chief of staff, is saying we need to lower tax rates. We need to lower tax rates in corporations, go to a territorial tax system, and lower taxes on individuals if we want economic growth and international competitiveness.

So, yes, there's part of this I would change clearly. I would have taken that extra trillion dollars and put it into lowering capital gains and dividends. And that's what I would have done and that's what I will continue to advocate. But what we have here is centrist consensus among Democrats, centrist Democrats, that we should not be playing class warfare, that we should not be raising tax rates, that we should broaden the tax base, lower the economic rates for economic growth and prosperity. That's a pretty cool thing, I think.

GIGOT: Yes, the goal of lower tax rates, and I think one of their proposals — in one of their proposals, they reduced the top rate to 26 percent.

RYAN: That's right.

GIGOT: That's been a goal of an awful lot of conservatives for a long time.

RYAN: Many of us.

GIGOT: Is this the basis, do you think, for potentially a bipartisan tax reform between Republicans and President Obama, the kind we saw in the 1980's, under Ronald Reagan and the Democratic Congress?

RYAN: Well, I don't know about that. you know, Alice Rivlin, Erskine Bowles, they're in favor of this lowering the tax rate, but I think the president really does believe more in economic redistribution, he's clearly a class warfare guy, and so I don't think he likes the idea of lowering top tax rates. Whenever we've had conversations with him, he bristles at the thought of it. He believes capital gains rates, dividends rates should be higher. He believes we should repeal the furl (ph) and do other things to corporate income taxes which makes us less competitive. So I don't know that if this is within the president's ability from just his own ideological perspective to do something like this. It's clear that there are Democrats who believe in this. I just don't know if President Obama is one of them.

GIGOT: OK, so, you think that perhaps the Republican presidential candidates going into 2012, some of them might — one or two of them might want to pick something like this out?

RYAN: Yes, we need to be a pro-growth tax reform party and so we're not the green-eye shade austerity party. That's what the Democrats are doing with this borrow-and-spend agenda, which will lead us to European- levels of austerity. We want to be pro-growth. We want to preempt the debt crisis by having real entitlement reform. And so tax reform is a key element, along with money, and we can get into that, a key element of a pro-growth policy. And so, yes, our presidential guys — and we'll be advancing these kinds of ideas as Republicans in the House as well.

GIGOT: But the flip side of lower tax rates, as you know, is broadening the base —

RYAN: That's right. That's right.

GIGOT: — which means doing away with some of the major loopholes. One of which is the home mortgage interest deduction. And the commission suggested no more mortgage interest deductions for second homes, for vacation homes, for —

RYAN: For more than 500 grand.

GIGOT: — for more than $500,000, for mortgages larger than half a million dollars. Do you support those proposals?

RYAN: Look, the question is, in what context. If this is in the context of lowering the tax rates, then the answer is yes. I mean, my own bill says you can choose. You can have all of these deductions if you want or you can get rid of those and have an extremely lower tax cut if you want to, $10,000 on the first hundred grand, and 25 percent above that, with generous standard personal and family exceptions, and then that's it. No capital gains, no dividends, no death tax. That's what my own bill does.

GIGOT: Right.

RYAN: So, yes, in order to get to a low tax rate system, you have to broaden the tax base. The way I look at this is, should we ask people to send all of their money to Washington and then we send them some of their money back if they engage in behaviors we approve of, or should we just let people keep their money in the first place? I mean, that's really what this is at the end of the day.

GIGOT: OK. The other thing that's striking to me about the deficit commission draft that the new chairman put out, and this something I'm critical of, is they do almost nothing on Medicaid and Medicare.

RYAN: No, they didn't touch it.

GIGOT: And, as you know, are two of the big cost drivers in the budget? Why aren't they touching those two programs?

RYAN: I don't think they touch it because the administration really didn't want them to touch it. I don't think the president's commissioners were going to go after his health care law. Alice Rivlin and I are offering a premium support plan and a block running (ph) of Medicaid. So we think one of the glaring problems in this plan is it doesn't touch health care, it doesn't do health care entitlement reform, so that's why Alice, a Democrat from the Brookings Institution, former Clinton OMB director, vice chair of the Federal Reserve, she and I are offering a plan that block grants Medicaid to the states and goes to a premium support system, which is not unlike the federal employee health benefit plan, for future Medicare retirees. And we're going to be offering that in a, you know —

GIGOT: I'm old enough, Congressman, to remember the last time the Republicans tried to block grant Medicaid, which was in the 1990's, after the Republicans took over Congress in 1994. They did it in 1995, tried also to make major changes in Medicare, and President Clinton just killed the Republicans with it, campaigning in 1996. And that whole effort stopped. So, what makes you think you can do that this time and succeed?

RYAN: Unfortunately, I'm old enough to remember that as well.

(LAUGHTER)

And so, I was there at that time, too, and not necessarily in this capacity. And look, you know what makes it difference? This debt crisis is right around the corner, Paul, and we had, according to GAO, as of yesterday, an $88.6 trillion unfunded liability. That went up from $79 trillion last year, and the figure two years was $69.2 trillion or $62.9 trillion. So the point I'm saying is we don't have much more time. We have to fix this thing. Let's do it on our own terms so it's graduate.

And also, we have all these governors out there making great decisions. We have Chris Christie. We have Scott Walker coming in Wisconsin. You have Mitch Daniels. These guys are out there reforming their systems. Let's give them the ability to do that. Let's cut the strings, give them the money so they can reform this. I think it's a new day. This is not the 1990s. We have fiscal pressures that are dictating these kinds of things. And let's let these governors experiment.

(END VIDEOTAPE)

GIGOT: We'll have more of my conversation with Congressman Paul Ryan when we come back.

Also ahead, the Wall Street Journal's Dorothy Rabinowitz and Mary Anastasia O'Grady square off over the TSA's new airport security measures. It's a debate you won't want to miss.

(COMMERCIAL BREAK)

GIGOT: Continuing now with my interview with Republican Congressman Paul Ryan of Wisconsin. When the 112th Congress convenes in January, he'll take over as chair of the House Budget Committee. I asked him what his one or two top priorities would be.

(BEGIN VIDEOTAPE)

RYAN: Pro-growth policy. Pro-growth tax policy, pro-growth economic policy and entitlement reform and budget reforms themselves, spending caps and things like that to get the budget process biased toward cutting spending and keeping taxes low instead of the opposite what it does right now. And —

(CROSSTALK)

GIGOT: So a real structural reform to make it harder to spend?

RYAN: Real structural — exactly, exactly. Structural reforms, because the '74 Budget Act, which governs us now, is biased in favor of taxing and spending and borrowing. Let's go in a different direction. And we have to start moving the ball on entitlement reform. So we have to start talking about that. You cannot address this issue if you do not address these entitlements, which are going out of control. And if we address them sooner, it's better. It's on our terms. You can grandfather the grandparents. Otherwise, it's bitter European-like austerity if we keep kicking this can down the road.

GIGOT: OK, now on the pro-growth side, one of the big issues, the 2001 and 2003 lower tax rates, which are set to expire at the end of December. The president is sort of hinting, the White House is suggesting they might accept a permanent extension of all of the lower rates on all income levels, maybe one year or two years. Is that adequate for you?

RYAN: No. We don't want to see these things decouple, because if you decouple some of the rates with other rates, that means those other tax increases are going to happen.

GIGOT: Right.

RYAN: You're going to have even more tax uncertainty. So, no, we are totally against decoupling. We want to see these things extended together. If we don't get them permanent, they've got to be extended together for as long as we can have

I was on the Ways and Means Committee when we wrote these tax laws. They were never meant to be temporary. They were always permanent. They were permanent when they left the House. It was because of Tom Daschle's filibuster in the Senate that made these things temporary.

GIGOT: But, Congressman —

RYAN: So it was never the idea to make these things temporary.

GIGOT: Right. But would you accept an extension of all — extending all of the rates for two years? Is that enough for you?

RYAN: Look, I don't want to get into the negotiating through the media what is enough. What is not enough is decoupling these rates. What is not enough is letting these tax increases occur in January. And what we can get to get further down.

Look, I believe in the Milton Friedman permanent income effect, so I think the idea that we're just going to have a couple of years and then a big tax increase just fuels more of this uncertainty. But that's not as bad as raising the taxes in January. So we want to get as much as we can, given that we're in a lame-duck that the Democrats control, so that's going to be a challenge.

GIGOT: Let me ask you about the Federal Reserve. You're one of those few members in Congress who actually knows a lot about monetary policy and follows it. There's a big debate over the Fed's latest easing policy, including —

RYAN: Right.

GIGOT: — the so-called dual mandate, which says that the Fed — and this is a law in Congress — says that the Fed has to keep stable money and promote full employment. You want to do away with that full employment mandate.

RYAN: I do.

GIGOT: Why?

RYAN: I've had a bill since 1999 to get away with this full employment mandate. There's one agency in charge of maintaining the value of our currency, the Federal Reserve. That's what they should focus on. We need, Paul, is sound and honest money. You're not getting that right now. QE2 isn't working. It was a bad idea.

What they're trying to do is bail out the fiscal policy. We have terrible fiscal policy. It's going in the wrong direction because of what Congress and the president have done. And so now they're leaning on the Federal Reserve to bail them out with stimulus to try to over compensate the fact that we have terrible fiscal policy. Let's get our fiscal policy fixed. Let's stop it — this collision course fiscal policy is on with monetary policy and focus on sound money.

I think the Fed is looking through the back window.

GIGOT: Right. Right.

RYAN: They're using indicators, like core inflation, that are lagging, they're not seeing the alarm bells that are out there, the dollar, the yield curse, commodity prices, which are straining inflation. So I just think we're not practicing sound money. The Fed driving the car with two feet, one on the brake and one the gas pedal, and it's a real bumpy ride.

GIGOT: All right, well, you've been a lonely voice on this. You're getting some converts lately, Mike Pence and Bob Corker, so we'll be watching.

Thanks so much for being with us, Congressman.

RYAN: You bet, Paul.

(END VIDEOTAPE)

GIGOT: Joining me now with reaction, Wall Street Journal columnist, Dan Henninger; and Wall Street Journal columnist, Mary Anastasia O'Grady.

Dan, do you think that Congressman Ryan is on to something here with his thinking that tax reform is possible, lower the rates, broaden the base?

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Absolutely. As you mention, Paul, this fellow is going to be chairman of the House Budget Committee.

GIGOT: Right.

HENNINGER: That's likes a miracle, OK?

(LAUGHTER)

The House Ways and Means writes the tax laws. It's been run for a long time by Charlie Rangel, who has been in the news lately.

(LAUGHTER)

The new chairman is Congressman Dave Camp of Michigan, cut from the same cloth as Paul Ryan, gave a strong speech this week in favor of lowering taxes and broadening the base. He's in charge of writing these laws. And there's a centrist in Washington, including this commission and another one, the Bipartisan Policy Center —

GIGOT: Right.

HENNINGER: — run by Pete Domenici and Alice Rivlin, released a report calling for lower taxes and flattening the base. There is a consensus building for doing this. I don't think it's going to happen during the Obama administration, but I would definitely point it towards 2012.

GIGOT: Well, that's the issues — I think one of the lessons of the 1980's, Mary, to do something like this. And it did get done in 1986 with a Democratic Congress and a Republican president, Ronald Reagan. But the lesson is it has to be bipartisan at least in some respect.

MARY ANASTASIA O'GRADY: Yes, and I think Dan's point about how the environment is really ready. I mean, Obama may be very much of a class warrior, as Paul Ryan said. I think that's true. But at some point, you know, the people on his side have to recognize the fact that, if you don't have growth, you don't have any revenues, right?

GIGOT: Right.

O'GRADY: And you have a capital strike right now. And they have to do something to get money — to get the economy growing again.

GIGOT: When you say capital strength, you mean people holding back, businesses in particular.

O'GRADY: In particular —

GIGOT: Not investing because of the environment.

O'GRADY: Yes. And in particular, people who pay the higher marginal rate. And that's the key point here, I think, that you have to start bringing those rates down for people who have money. And if you employ a tax increase after the first of the year, I mean, that's just going to kill growth.

GIGOT: Tax reform is the — maybe breaks the Gordian knot here. Because everybody is talking about the tax increases, and then — you can't — the bush tax cuts rather. And you can't just solve the problems with budget cuts alone.

HENNINGER: You know, I was so fascinated, Paul, by this Domenici/Rivlin group, whose report came out this week. And they say in there, they're doing this to create incentives to work, save and invest. Ronald Reagan said that.

GIGOT: Yes, we remember those words.

(LAUGHTER)

When we come back, just in time for your Thanksgiving travel, a growing backlash over the TSA's new airport screening measures. Has our government gone too far or is it the price we pay for security in the skies? We'll have a debate next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

JOHN PISTOLE, TSA ADMINISTRATOR: Do I understand the sensitivity of people? Yes. If you're asking am I going to change the policies, no. Because I think that it is what, being informed by the latest intelligence, the latest efforts by terrorists to kill our people in the air, no, I'm not going to change those policies.

(END VIDEO CLIP)

GIGOT: That was Transportation Security Administration head, John Pistole, on Capitol Hill, not backing down in the face of a growing backlash over the agency's new enhanced airport security measures. Those measures include full body scanners that see through a passengers clothing and more aggressive pat-downs by security personnel.

We're back with Dan Henninger and Mary O'Grady. And also joining us, Wall Street Journal editorial board member, Dorothy Rabinowitz.

Well, no question, Dorothy, there is this backlash. But is the TSA doing the right thing here?

DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: Yes, it's doing the right thing. And I might also say that Janet Napolitano distinguished herself for once this week by saying, if they don't like it, they don't really have to fly.

GIGOT: This is the Homeland Security secretary.

RABINOWITZ: Yes, indeed. And that was one of the nice things.

(LAUGHTER)

Look, this is not just a backlash. this is demagoguery having a field day. There are the obsessive "do not touch my body parts" people.

(LAUGHTER)

I remember watching on television a man saying, I don't want my wife touched this way, I don't want to be touched this way. Let me tell you something. In the unhappy day that his wife's body parts are flying across the sky because some terrorist has managed to get something aboard, we will see what we — we have here an insidiously spoiled nation by now, which has not absorbed what happened in 9/11 because they're Americans. and Americans have not lived under the threat. Try the Israelis, and then you have the demagogues.

GIGOT: OK.

All right, I want to get, I think, the opposite point of view, Dorothy, here.

But, Dorothy's point fundamentally is they're keeping us safer.

HENNINGER: You know, this adds a whole new meaning to the phrase "government intelligence." This makes absolutely no sense. First of all, from the point of view of Dorothy, saying that we're just a bunch of spoiled brats, I invite her to be groped at an airport —

(LAUGHTER)

— as I was coming back from Mexico City recently. I was shocked and, I have to tell you, pretty outraged. I think it's unbelievable what they think they're entitled to, just because they think you might be carrying plastic explosives in your underwear.

Now, as far as the scanners go, apparently, from all the science that I've read, there's no way that they can actually put together that the scanners keep— can identify these very thin plastic explosives that can be carried. So, first of all, they're ineffective. There's no proof that really they work. Secondly, they might be dangerous to people who fly a lot because you're getting these radiation waves. And third, you know, really the only way to make sure that no one is carrying explosives in their underwear or inside a cavity of their body is to do a more thorough exam. And I'm wondering when, you know, the federal government is going to invite us for at that if we want to fly.

GIGOT: Dorothy?

RABINOWITZ: Well, this is not a question I can answer. I can only say, they always have come up with the notion, hey, it doesn't work anyway. What we're really dealing with is a kind of psychological outrage. And that's the thing that we have been accustomed to. It's an indulgence. And the fact that one can say this is a violation of my rights, what has this to do with the genuine danger that people face? We — we are not a garrison state the way the Israelis are, the way that everyone puts up with that sort of thing, Mary. And it is an extreme example of the kind of entitlement that American citizens have, to say, hey, don't touch my — what is a loathsome phrase? "Don't touch my junk," that's now been elevated to a heroic moment?

(LAUGHTER)

GIGOT: I guess, Mary, we haven't had successful airline attacks since 9/11, so, maybe they're doing something right.

O'GRADY: Well, they did not catch the underwear bomber.

GIGOT: Right.

O'GRADY: He only failed. OK, so they weren't doing anything right. And what they're doing is always fighting the last war. So the next guy is not carrying the bomb in his underwear. He has another idea that we haven't gotten to yet. In the meantime, millions of people are being personally violated.

GIGOT: Well, what would be your alternative to keep us safe?

O'GRADY: I think we should be doing a better job on profiling and with intelligence. And, you know, the Israelis do not do the body grope that —

GIGOT: They've avoided the screeners as well. They have not effectively employed the screeners.

O'GRADY: Exactly. But they do employ better methods of screening for people who are suspicious characters. And, of course, we're not — now, there is a place where I think we have a certain self-indulgence because we're not allowed to do that. That would be a great violation if we see someone sweating and very nervous and everything.

GIGOT: And has the wrong ethic profile.

O'GRADY: Yes, you can't violate their rights.

GIGOT: I think that Dorothy agrees with you on that one.

RABINOWITZ: Absolutely.

GIGOT: You would agree on that?

RABINOWITZ: I agree with that.

GIGOT: But what about her point that this is fighting the last point. That we're fight — first, it was the shoe bomber, then we had shoes. And then it was liquids, and then the liquids. And now —

RABINOWITZ: This is theory. This is actually theory, the idea that we're fighting the last war. Every modicum of protection that we can get, we ought to get. And if you want to see the degree, rather, of strange demagoguery, I watched it on television, a television commentator yesterday, showing pictures of people being groped and him saying, this is a sexual crime. This — sexual crime. This is the entitlement people now have.

(CROSSTALK)

HENNINGER: If I could try to — if I could try to broaden —

(LAUGHTER)

It I could try to broaden that subject a little bit. Sure, it's all about the airports. But we haven't seen a football stadium blown up. We have not seen a train blown up. We all know that you could get in there with such a bomb. So it's the fact that it's focused on airport, doesn't mean we're safe. We're not going to have a garrison state for every venue that we walk into. The answer is to use more human intelligence, more eavesdropping, more wiretapping to catch them out there before they get to where they're trying to blow us up.

GIGOT: And on that note, I think we can probably all agree.

Happy Thanksgiving flying.

(LAUGHTER)

We have to take one more break. When we come back, "Hits and Misses" of the week.

(COMMERCIAL BREAK)

GIGOT: Time now for our "Hits and Misses" of the week.

Dorothy, first to you.

RABINOWITZ: Yes, well, Ahmed Ghailani, the self-confessed terrorist of the African bombings of the U.S. embassy was acquitted of virtually all of the charges against him in this murderous, but one. He was tried and acquitted by a civilian jury in a civilian court, which exactly the place where our Attorney General Eric "failure is no option" Holder announced that we would be holding KSM. In an ideal circumstance, he explained that failure is no option. That would be his — well, let me tell you what is no option. It is having an attorney general like Mr. Holder.

GIGOT: All right.

Mary?

O'GRADY: This is a hit for the ethics — the House Ethics Committee, which voted to censure Charlie Rangel this week. And I am very happy to see this because it was — it looked like he was only going to be reprimanded. And he was found guilty on 11 counts, including failure to report assets, failure to report taxes, a rent-subsidized apartment. He really should get more than a censure. He should consider himself lucky.

GIGOT: All right.

Dan?

HENNINGER: Paul, a hit to our old friend Bill Clinton who is giving us a speech next month in Dream Force Cloud Computing Conference, and has announcement that he is going to ban Twitter, Facebook and live blogging while he's giving his speech.

GIGOT: Good luck.

HENNINGER: We wish him luck.

(LAUGHTER)

We used to tilt at wind mills and we now tilt at tweeters.

(LAUGHTER)

GIGOT: Tweeters. Yes, I don't think that's going to succeed.

That's it for this week's edition of the "Journal Editorial Report." Thanks to my panel and to all of you for watching.

I'm Paul Gigot. And we hope to see you right here next week.

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