When will government decide to cut spending?

Former Reagan economic advisor Art Laffer weighs in


This is a rush transcript from "Your World," February 12, 2013. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Welcome, everybody. I'm Neil Cavuto.

And all it took was a report today out of Treasury of a surprising budget surplus for the month of January to apparently take the pressure off this president to cut spending this cold night in February.

Democrats quickly seizing on the data as proof the deficits are getting better, thanks to higher taxes. So, really, who needs to go hacking spending? Not the president, who apparently says that his debt slashing is all but done, that he has already come up with close to $4 trillion in budget cuts, so mission kind of accomplished this year.

Never mind that is $4 trillion over 10 years and it will still leave us $5 trillion more bucks in debt over the same 10 years. Are we really saying then that it could have been worse? It could have been $9 trillion more? Well, more or less, yes.

So, let's cut to the chase. Don't expect much cutting. Pity, because now is not the time to cut. You got to ask yourself, when is the time to cut? Both parties, when is the time to cut? If the economy is still too fragile to cut spending, why is it perfectly fine to raise taxes? So more revenue is good, less government bad? No, that's very bad.

It's time to seize the moment and seize the spending right now, but something tells me not this president, not now, because it's very clear that Barack Obama neither senses the urgency to cut spending or even the need to do, not when he, like Nancy Pelosi, doesn't really even see a spending problem, but still a revenue problem best satisfied by hiking taxes than cutting anything, because now is not the time to be cutting anything, which I think kind of says everything.

Now, he used the argument -- and I think well-reasoned argument -- coming into office four years ago because we simply couldn't afford to do it then. Six trillion dollars in debt and four years later, we can't afford not to now. Seriously, then, when is the right time to cut? When is the right time to get serious?

Cuts are never easy, but ignoring the need for them doesn't make the future any easier. Just ask Maggie Thatcher, who risked a revolt in her own party when she took a whack to government spending at a height of a recession and her own aides feared she would be history, only to weather that hit and end up making history.


MARGARET THATCHER, FORMER BRITISH PRIME MINISTER: (INAUDIBLE) if they care about this record that we have achieved that no other party can boast of, this record, then they will stay with us.


CAVUTO: Remember the boom that followed, the unprecedented boom that followed?

For seizing such a moment then, Maggie Thatcher forever became known as the Iron Lady. For likely punting on his big moment tonight, Barack Obama has little to fear he will ever be called the Iron Man.

Believe me, I hope that I am wrong, but, Art Laffer, I suspect that I am not. What say you?

ART LAFFER, FORMER WHITE HOUSE ECONOMIC ADVISER: I say that is the best monologue I have heard since Johnny Carson and way better than Jay Leno.


CAVUTO: Man, you are awful, you are awful. Go ahead.

LAFFER: You are great.


CAVUTO: You have 10 seconds. Finish your point.

LAFFER: I love the spending cut idea. I don't think Obama is going to do it, but I remember when Thatcher did it.

And it really did work. You're completely right. The reason we have a bad economy, Neil, is in large part because of the spending, not in spite of it.

CAVUTO: So, if it wasn't proper and not the ideal moment to cut spending in the midst of a recession four years ago, which I could argue there was an argument to be made for that, and then a year later, it was still kind of dicey, then another year after that, the recovery itself was still dicey, when is the right time to cut?

Now, Maggie Thatcher risked doing so in the midst of the worst of all economic environments, arguing that the longer-term gains would more than justify the quite, quite acute short-term pains.

LAFFER: The real serious thing is, Neil, government spending is taxation, it really is.

Government doesn't create resources, it redistributes resources. When you should cut unnecessary spending is in the middle of a recession. I know all these Keynesians will tell you that's not true, but it is true. The spending is taxation. And you can't tax an economy out of a recession. You just plain can't.

CAVUTO: Well, but they're hoping to boom their way out of it. And there is some --

LAFFER: I hope so too.


CAVUTO: I want to get with this into this with Sandra Smith and Melissa Francis in a second, but the flip side of this, growing out of it and whether that is going to help and whether the first report we got out of the Treasury indicates the whisperings of that, but you can't do that alone, right? You can't hang your hat on tax hikes and you can't hang your hat on hoping and praying for another Internet boom.

LAFFER: No, you can't.

But what you have to do is you have to do a low rate flat tax. You have spending restraint, sound money, free trade and minimal regulation and then get out of the way. The economy will get itself out of the recession-depression. That is what it is supposed to do. Governments aren't the job creators. Governments are basically to set the rules, set the stage and let the private sector handle it.

But that is unfortunately not what this guy is doing.

CAVUTO: All right.

LAFFER: And I hope somewhere along the line we have a boom in spite of all these bad policies and we probably will, maybe not a boom, but we will come out of it. But that is in spite of these policies, not because of them.

CAVUTO: We shall see. Art, thanks. Good seeing you again, my friend.


LAFFER: Neil, it's great seeing you.


LAFFER: It was, by the way, a magnificent introduction.

CAVUTO: Don't humor me now.


LAFFER: It was. No, I loved it, I loved it.

CAVUTO: That's fine. That's fine.


CAVUTO: Art Laffer, thank you.

LAFFER: Thank you.

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