This is a rush transcript from "On the Record," July 18, 2012. This copy may not be in its final form and may be updated.
GRETA VAN SUSTEREN, FOX NEWS HOST: You've heard the warnings, we could be headed over the so-called fiscal cliff. So what is Congress planning to do? Burn the midnight oil? Well, not exactly. Try this one -- going on vacation. That's right. Next month both the House and Senate will take a one-month recess. They will put off dealing with tax rates and spending cuts until after the election.
So do lawmakers have any other plans to actually fix the budget? Senator John Thune is on the budget and finance committees. We spoke with him a short time ago.
VAN SUSTEREN: Senator, nice to see you, sir.
SEN. JOHN THUNE, R-S.D.: Nice to see you, Greta.
VAN SUSTEREN: This week chairman of the Federal Reserve board Ben Bernanke was up here and he warned everybody up here that we are in deep trouble and we need collective action. I hear many people say that we're going to hit a fiscal cliff. What are you going to do about it?
THUNE: I think there are two things we need to do to avoid going over the fiscal cliff. One is to extend the tax rates that are set to expire at the end of this year, which would result in a massive tax increase on people, Americans all over the board next year, and, secondly, to do something that would avert the defense cuts that are going to just devastate our national security priorities and replace those with cuts elsewhere in the budget. Those are two things we could do.
I think right now the fiscal cliff, as it's been described, consist of really those two elements. And the concern is, according to the congressional budget office, if we don't take steps to address that, then in the first six months of next year it could cost our economy 1.3 percent in economic growth, which, according to the CBO, would probably result in a recession.
VAN SUSTEREN: This is troubling, at least I think it's a bit troubling, is that last November the super-committee couldn't come up with anything to handle the sequestration, the budget cuts. And then after they couldn't do it, it seemed like everybody gave up. All what anyone did was talk about it and it still isn't fix.
Now Senator Murray is saying how important it is to move fast and do something about it even though nothing has been done since November on either side. Coming up in August there's a recess. Everybody goes out, nobody is doing anything about it. And the first time we are really going to hear anything about it is when the heat is put on all of you after the election, the lame duck, when people are making decisions who have been voted out of office. That's a problem.
THUNE: Which is a bad time to make that decision. The House of Representatives is going to act next week. They are going to extend the rates and pass legislation to extend the existing tax rates for a year so you don't have the big tax increase on January 1st.
And I think the thing that's concerning, though, you saw it perhaps and Senator Murray made a speech earlier this week and there was a story in the "Washington Post" over the weekend which said that the Democrats threatening to go over the fiscal cliff if Republicans won't raise taxes. And I think it's terribly alarming and irresponsible on their part to suggest that they would throw the economy into a recession, risk higher unemployment than we already have, simply to make a point about raising taxes on the people who create jobs in this country.
So we want to do something about t we want to do something now has opposed to after the election you get into the cloud of a lame duck session. And that's not a good time in which to legs late and not a good time to get good fiscal policy.
VAN SUSTEREN: And the grenades are fired back and forth between the Republicans and the Democrats. And in the meantime the business community is just sort of sitting there saying, what are you going to do? We don't know what to do. We don't know if taxes are going up or down and we don't even know how to run our businesses. They are all put on the sideline waiting, at least they have been since last November, waiting for an answer, are they going up or down. And it's stifled the economy by the fact there's been inactivity here.
THUNE: Right. And I think that's the problem. You have too many people in this country, too many businesses who are making decisions predicated upon what's happening in Washington D.C. And we need to eliminate that. We need to eliminate the uncertainty by providing at least a year of certainty with regard to tax rates and then we ought to get into a debate next year about how to reform the tax code and make it more simple, more clear, more fair, lower the rates and broaden the tax base. Until that time businesses need certainty.
And that's why I believe that the Senate ought to do what the house is going to do next week and that is to extend the rates for a full year. We are saying we can't already to go over a fiscal cliff. It's too dangerous to the economy. The economy is fragile. We've seen sluggish growth this year. The president said two years ago when we had over three percent growth that it would strike to blow to the economy to raise taxes. Well, today the economic growth is considerably less than that. It's about two percent or a little under and now all of a sudden he wants to have this tax increase.
So it's a mistake to raise taxes when you've got the kind of economy we are dealing with today. Republicans want to do something about that. The House Republicans will next week and I hope the Senate will follow suit. But it will require some Democrats to be willing to work with us on that.
VAN SUSTEREN: That's a substantive argument, that's the position, but we don't even get to that because there is so much time where nobody does anything. I mean, the fact that the super-committee last year, when it didn't meet it's deadline, there was nothing to stop them from continuing to meet. There was absolutely nothing.
VAN SUSTEREN: They could have met in December, January, and if they came up with something it could have come back to Congress. Now everybody gives up and waits for the next deadline, some horrible crisis, pushed up against some deadline.
THUNE: That's by and large true. They did deadlock and our folks were willing to put some revenues on the table in exchange for entitlement reform. That's something the Democrats weren't willing to accept. The consequence of that now is we get these draconian cuts to our national security at a time when we can't afford that, and we've got a lot of concerns about how that is going to impact our ability to defend America's interests around the world. The defense secretary said the cuts would be devastating.
And so we need to do something about both. To replace those, to find the cuts elsewhere in the budget so we aren't taking a disproportionate amount out of the defense budget, and, secondly, to do something on the tax rates so there's certainty. Those are the two issues that compose the fiscal cliff. And that's when chairman Bernanke said yesterday.
VAN SUSTEREN: And I should add and make an admission that it's Senator Harry Reid who can put the ball in play.
VAN SUSTEREN: He's the one who can -- he's the one that runs the Senate and can at least, whether or not you can agree, at least there would be some action if you put the ball in play.
THUNE: That's right. And right now most of what we are doing in the Senate is all these political exercises. We are doing these sorts of showboats that are designed to -- the Senate right now has become an extension of the presidential campaign.
VAN SUSTEREN: That's the unfortunate thing for the American people. That's where the responsibility is for the leader, for Senator Harry Reid. Instead of playing the game and gaming everybody leading up to the election, underlying all of this are Americans with real problems and want the issues to be resolved and right now the votes of shelved.
THUNE: And I think for them to say that we are willing to go over the fiscal cliff, again, that's terribly reckless, in my opinion. That's what some of the leaders on the Democrat side have said. So far the president has not walked them back from that.
Now, I think in order to get this fiscal cliff addressed, it's going to take leadership from the White House as well. And I hope we will get that. But right now we are getting show boats on the floor of the United States Senate and we aren't dealing with the problems and challenges that face our economy and the job creators and the American people.
VAN SUSTEREN: So the president can make the call to Senator Harry Reid, gets get action and get away from the show votes?
THUNE: Absolutely. I think if that happened to you would see some action probably tomorrow.
VAN SUSTEREN: Senator, thank you.
THUNE: Thanks, Greta.