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Special Report

America on Wrong Economic Track?

This is a rush transcript from "Special Report," June 22, 2011. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

DOUGLAS HOLTZ-EAKIN, FORMER CONGRESSIONAL BUDGET OFFICE DIRECTOR: There are two ways to get a headache. One is to read the CBO report. The other is to look at the Greece and recognize this is the trajectory we're on.

REP. CHRIS VAN HOLLEN, D-M.D.: Certainly were at crunch time. The CBO is one more indicator of why it's important for to us come together in a bipartisan way.

SEN. DICK DURBIN, D-I.L., SENATE MAJORITY WHIP: We can't get our deficit under control with 14 million out of Americans out of work. Let's do everything we can to put America back on the payroll and then deal with this deficit.

(END VIDEO CLIP)

BRET BAIER, ANCHOR: Senator Durbin, Congressman Van Hollen. Here's another Democrat, the Senate, the chairman of the Senate budget committee Kent Conrad today, quote, "We must address the projected explosion and federal debt. If we fail to act, it will have devastating consequences for our economy and for the future well-being of the American people." Here is what they are concerned about. The CBO, the nonpartisan Congressional Budget Office issued these sobering projections today, showing the U.S. debt soaring in coming years, hitting 70 percent of the total U.S. economy this year, if nothing is changed, exceeding 100 percent of the total economy in 2021; there you see 2023 at 109 percent. And then 190 percent of GDP by 2035. For comparison, Greece's debt is at 150 percent currently. And obviously, the country's economy is collapsing there and there's protests in the streets in Greece. Let's bring in our panel, Steve Hayes, senior writer for The Weekly Standard, A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer. A.B., this of course comes with the backdrop of the vice president's negotiations as we move closer to this debt ceiling vote. How does this affect all of that?

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: Well, it has emboldened Republicans who don't want to vote on a debt increase at all, and some Democrats. But if they do, they're looking for very, very significant structural changes, long-term, not short and medium-term. Structural changes that will begin to get us out of this mess. And if-- without that, they are not going to vote to increase the debt ceiling. So unfortunately, from my reporting, the parties are very far apart.

The Biden commission continues to look at about a trillion in low-hanging fruit. And they're not -- and they are looking at some discretionary freezes and they're not getting at the big numbers. And so, that would only get you a temporary -- until next spring, but not through the election -- raise, increase in the debt ceiling. So this -- the CBO numbers are dismal. And everyone is more afraid. But this has not made them want to take that vote any more.

So we are gonna be looking to see if the Democrats are scared by these numbers and if the White House comes forward with some kind of willingness to deal with Medicare and entitlement reform to get at the big numbers.

BAIER: Charles, here are a couple of other numbers that are not positive for the administration -- Bloomberg, new poll out today asking this question, living standards for American children compared to their parents today, 55 president saying that the children's living standard will be lower. There you see the other numbers, and AP has a new poll out, would you describe the nation's economy as good, poor, or neither, this poll has 80 percent as the economy being poor. That's kind of the backdrop for all of this happening.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, I think that people obviously have a correct sense of where the economy is and where it's headed and there is one other number in the poll where they found that 66 percent of Americans think we're on the wrong track. And the wrong track, right track number has always been a terrific indicator for re-election. At 66 percent, Obama loses.

But I think the CBO numbers ought to make people alarmed and they ought to alarm the Democrats who are the ones who are holding out on real changes in entitlement reform at the Biden level, at the Biden commission, which is where the money is. It's not only the absolute amount numbers as you showed them, but it's the rapidity at which they are getting worse. I'll give you one example, in last year's CBO projection of this same projection into the future, a year ago, the projection was that in 2021 we would be at 91 percent of debt as a percentage of the economy. This year the same projection for the same year, 2021, has gone up 91 to 101 percent. So in one year, we're already looking at a 10 percent increase of what's gonna happen in the same year in the future, which means that unless we act quickly now, it becomes utterly unmanageable.

BAIER: Democrats, however, Charles, would point to the Fed chairman today, and his comments, that if you cut too heavily too quickly, that it would be a negative on growth. And that's what they point to. You have to do it on a long-term projection. How do you respond to that?

KRAUTHAMMER: Well that's why you have to do entitlements. We're not gonna cut off the elderly on Medicare today and tomorrow, but you have to begin bending of that curve, which the Democrats are resisting. Also, on Social Security you can do very easy stuff. You raise the retirement age gradually. You means-test it gradually, you change the inflation index.

But Harry Reid says you don't have to do anything on Social Security until 2036. These people are whistling in the dark and pretending it doesn't exist.

BAIER: Steve?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: Well, and to pick up on the CBO numbers, I mean there was an interesting report out today. As part of the CBO numbers that the healthcare spending under Obamacare will almost double as a percentage of GDP between now and 2035. And if you look at the numbers it's 5.6 percent to 10.4 percent.

And in the report, the authors of the report, you picture these budget wonks, these guys with the calculators, propeller heads doing all the math, coming up with their grave and serious projections. And in the report they seem to just stop and throw up their hands at one point, where they said, talking about the rates of growth. If they continue indefinitely, they would account for all of the country's economic output. An implausible outcome. I mean it's more than an implausible outcome, I mean that can't happen. That's crazy.

And it's like you have these guys doing the math, figuring out that this doesn't work or we're looking at collapse. And they're talking about 2035. But everything in the report today suggests that it's sooner than that.

BAIER: Now we always talk about the CBO. And when we were talking about healthcare we referred to it as a calculator. The numbers you put in depends on how you get the numbers out. Depending on what side you are looking at on the CBO projections, do you think that this is going to get attacked by folks who say this is a little bit too dire a projection?

HAYES: Well, I don't think so. You know, you could make the argument that the numbers that we put up earlier actually don't include some unfunded liabilities. You have economists who are talking about our real debt, properly understood, being ten times what these projections are. So you know, you could make an argument that it may too dire, that the calculator worked the way that people set it up to work. But you can also make an argument, I think, a better argument that we are not, in fact, including all of our debts when you're talking about Social Security and Medicare.

STODDARD: Well this -- I think Charles is right. That if you look at the change in the growth of these numbers, we're on a glide path to Greece. I think it frightens everybody. I don't see any resistance, so far, to the CBO report, but I will say, the Democrats are still looking to raise taxes on the wealthy, Republicans refuse, saying it's a bad time in this economy to raise taxes. The Democrats don't want to cut spending in this tough economy. So that's -- that's still the fundamental disagreement about how to deal with unemployment in this troubled economy. It really continues to keep them so far apart. They say, you can't threaten entitlements during these troubled times. Republicans say you can't tax. And we're not making any progress on that.

BAIER: We'll follow it. Next up, the president's drawdown in Afghanistan.

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