The following is a rush transcript of the September 12, 2010, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.
CHRIS WALLACE, ANCHOR: The political battle lines are now drawn over what should be done to shore up the nation's economy. We'll talk with former Republican House speaker Newt Gingrich in a few minutes, but we begin with the first interview of the new chair of the President's Council of Economic Advisers, Austan Goolsbee.
And, Mr. Goolsbee, congratulations on your new job, and welcome back to "Fox News Sunday."
AUSTAN GOOLSBEE, CHAIRMAN OF THE PRESIDENT'S COUNCIL OF ECONOMIC ADVISERS: Thank you very much for having me, Chris.
WALLACE: Your council is exactly what it says, the economic advisers to the president. What is your latest forecast of the unemployment rate at the end of this year?
GOOLSBEE: Well, the -- there is a forecast in the economic report of the president.
WALLACE: Which is a 10 percent average for the entire year.
GOOLSBEE: Yes. And there will be a further update through the -- what's called the Troika process, but the OMB, Treasury and the CEA together come up with a forecast that we update periodically.
But I think it's fair to say that after this recession that began in 2007 put us very deep in the hole, it's going to be a long battle to get out of that deep of a recession. So we've had positive private sector job growth for eight months.
WALLACE: Well, I'm going to -- I'm going to get to that.
GOOLSBEE: But I don't think the unemployment rate will be coming down significantly anytime in the near future.
WALLACE: Do you think it will -- you'll be -- it's now 9.6 percent. End of this year?
GOOLSBEE: I don't -- look, I try to stay out of the specific forecasting games other than our official forecast. I think it's clear that the labor market is significantly weakened, has been for some time. We have to do everything we can to try to create jobs and get people back to work.
WALLACE: Could it be 10 percent by the end of the year?
GOOLSBEE: Look, as I say, I'm not going to speculate. We have official forecasts and we'll release them when they come out.
WALLACE: But you don't expect...
GOOLSBEE: We need to do everything...
WALLACE: ... it to go down appreciably from...
GOOLSBEE: I don't expect it to go down appreciably. That's what -- our forecast, and most of the private forecasts say the same thing.
WALLACE: Your report predicted that the economy, or GDP, would be 3 percent growth this year. But in the second quarter it already dropped to 1.6 percent. What is your forecast now for the second half of this year?
GOOLSBEE: Well, as I say, the forecasts comes out -- there are official forecasts and they come out on a -- on a periodic basis. And we will make those updates at each time.
WALLACE: But you must be...
GOOLSBEE: I think the...
WALLACE: ... briefing the president...
GOOLSBEE: ... blue chip...
WALLACE: ... all the time...
GOOLSBEE: Yeah, we brief him, and I think the best thing to do is if you look at the blue chip average of all the leading private forecasters, you see that they still expect positive growth.
It has come down a bit in their expectation, because we had a significant headwind that came from the crisis in Europe at the end of the spring and into the summer...
WALLACE: But it's now...
GOOLSBEE: ... and that's cutting into growth.
WALLACE: ... 1.6 percent. Do you think it's going to stay there, go up, or go down?
GOOLSBEE: As I say, I don't want to speculate off of what the official forecasts are. It is something that -- in positive growth that is not as fast as we would like it to be, and that's why we need to focus on to policies that are going to get the economy growing faster and get people back to work.
WALLACE: The president and vice president said this was going to be the summer of recovery. But let's take a look at the actual numbers. The economy lost 175,000 jobs in June, then 54,000 each of the last two months, for a total loss this summer of 283,000 jobs.
WALLACE: Some recovery.
GOOLSBEE: ... I think that's unfair on two dimensions. First, the vice president was talking about the summer of recovery in reference to the Recovery Act, that you would see the creation of a series of infrastructure and other projects ramping up over the summer, and you did see that.
WALLACE: It didn't mean economic recovery?
GOOLSBEE: And second, in the numbers that you're citing there, there are big negatives from the people temporarily working on the census, which led to huge positive in the hundreds of thousands job additions earlier in the year followed by negatives as the census workers stopped taking the census.
If you look at private sector job growth, we've had eight straight months of private sector job growth. Now, it's not enough. We want it to be more. That was the sound of job creation right there. The -- we want it to be more. We want more projects. We need the private sector to stand up.
And what the president is outlining now, as you've seen in his announcements this past week, are ways that the government can catalyze and facilitate the private sector to increase its investment in factories and equipment, in R&D, in hiring people in this country. That's what we need to do.
But -- so I think it's a little unfair of you to characterize the vice president that way.
WALLACE: Well, I must tell you, I think most people thought, when the vice president talked about the summer of recovery, he wasn't just talking about, quote, recovery jobs. I think he was talking about the economy was going to recover.
Let me ask you about that, though, because you say that the stimulus has saved or created millions of jobs, correct?
WALLACE: But the fact is...
GOOLSBEE: It's not just we who say that. The nonpartisan Congressional Budget Office and most private forecasters say we would have millions more people out of work if we did not have that.
WALLACE: But the fact is you -- and I -- by "you," I mean the administration -- hasn't counted those jobs. That's simply an economic model where you have taken the amount of money spent and multiplied it by the historic numbers as to what an amount of money creates in terms of jobs.
The only actual...
WALLACE: If I may, and then you can answer my question.
WALLACE: The only hard number we know is the fact that the economy has lost a net of 2.5 million jobs since the president signed the stimulus.
GOOLSBEE: Well, I don't agree that that's the only hard number we know. And there are various kinds of data that we get. One of them are the reports of people who receive Recovery Act money. And we can and have added up how many jobs is that, and we report it. But then the critics say, "Oh, well, you can't trust what people say who receive the money."
So we try also to compare against private forecasts and say, "Here is what people thought the economy would be at this moment, and here is where we are. And where we are is significantly above where they thought we would be."
And that is an exercise that is not just being done by the administration but the private sector forecasters and the Congressional Budget Office found something similar.
I think the -- rather than argue about the past, I think what's relevant is that we expected to have significant recovery. We got a strong headwind from the financial crisis in Europe which affected really the world's recovery, not just the United States, in a negative way throughout the summer.
And we need targeted jobs policies that are going to help stand up the private sector and get the growth rate higher and get people back to work. That's what -- that's what we need.
WALLACE: I'm going to get to those in a second. I want to focus on the centerpiece of the economic debate and the political debate this fall, which is likely to be the Bush tax cuts.
The president says that Republicans want to hold the tax cuts for the middle class hostage until they get also the tax cuts for the so- called rich. But I want you to take a look at some numbers that we've put together.
Fifty percent of small business income -- and this comes from the Tax Policy Center and the Joint Committee on Taxation -- 50 percent of small business income would be hit by raising taxes on the so-called wealthy. That's 900,000 small businesses that employ millions of workers.
Question: You don't think that a 13 percent hike in the taxes of small businesses is going to slow them down?
GOOLSBEE: Look, Chris, that number you just cited is highly misleading. So the first is what is the definition of a small business. Ninety-seven percent of small businesses are totally unaffected by raising...
WALLACE: But I didn't talk about...
GOOLSBEE: ... the top marginal rate.
WALLACE: ... the number of small businesses. I talked about...
WALLACE: ... the amount of income. It's 50 percent of the income.
GOOLSBEE: If a lobbyist sets up shop, or a lawyer, in which they're receiving income through what is something like a tax loophole so that it's not counting as corporate income, that is what this is counting as a small business.
The president's small business assistance bill would cut taxes eight different times for 4 million real small businesses. In this circumstance, I do not believe that having the personal income tax go up on people, the majority of which -- the majority of that income has nothing to do with small business.
I do not believe that having those rates go back to what they were in the 1990s is devastating to small business.
WALLACE: But -- but...
GOOLSBEE: If you want to help small business, pass the president's bipartisan small business bill. It would give credit to small business, would cut taxes eight different times for them. Eliminating capital gains for millions of business owners...
WALLACE: But, Mr. Goolsbee, it is...
GOOLSBEE: I'm sorry.
WALLACE: ... it is for the small businesses that are affected -- you would agree it is a 13 percent tax hike. And the fact is...
GOOLSBEE: The rate for people...
WALLACE: If I may...
WALLACE: ... it's their money. What you're saying is the government's going to decide if you do this activity, you're going to get a tax break. If you don't do this activity, you won't. Why not leave it to the small business man to decide, "It's my money. I'll spend it the way I want to?"
GOOLSBEE: We ought to give assistance to small business in the most direct and most effective way we can, and that is through the president's small business bill, which is bipartisan and everyone ought to agree on.
You saw Senator Voinovich, a Republican, this week saying, "Let's stop the political game-playing and pass this small business bill." It would cut taxes for 4 million real small business owners eight different ways and give them access to credit.
WALLACE: I -- I want to...
GOOLSBEE: Cutting taxes for very high income people an average of more than $100,000 a year for people that make more than a million dollars a year is not an effective way to get the economy going.
WALLACE: I -- I...
GOOLSBEE: It's concentrated on a tiny number of small businesses.
WALLACE: There are two aspects to this and I want to address both, and we're beginning to run out of time.
Your former colleague, Budget Director Peter Orszag in the New York Times this week in which he said this, "The best approach is a compromise: extend the tax cuts" -- he's talking about the Bush tax cuts -- "for two years and then end them altogether."
This is the president's former budget chief, your former colleague as of a couple of weeks ago, saying, "We can't afford to raise taxes on anyone in the short term and we can't afford not to in the long term because," if I may, "the tax cut for the middle class is going to blow a $2 trillion hole in the deficit over ten years."
GOOLSBEE: OK. You got two parts to that. The president strongly believes that you cannot, after the decade of an astounding squeeze on the middle class that was followed by the worst recession in our lifetime since 1929 -- that is, you -- we cannot afford to raise taxes on the middle class. We should make that permanent.
Now, there is broad agreement...
WALLACE: Even if it's going to cost $2 trillion...
GOOLSBEE: Even though it's going to cost money.
WALLACE: ... and you're so concerned about the debt?
GOOLSBEE: Even though it's going to cost money. We can all agree to do that. What we cannot afford to do is pass $700 billion additional dollars of tax cuts for millionaires and billionaires at a time where we're going to just borrow that money. And all objective observers say that is the least effective...
WALLACE: You're also going to be borrowing...
GOOLSBEE: ... form of stimulus.
WALLACE: ... the $2 trillion for the middle class.
GOOLSBEE: Now, so...
GOOLSBEE: ... one side is what should be on the middle class. Yes. What the -- the second side is Peter Orszag did not say we can -- we should -- when he said we should extend the Bush tax cuts for high-income people for two years, it was a strictly political argument.
It was not about economics at all. It was not that we can't afford to raise that. It was that he said if we give a two-year extension, the Republicans would be willing to get rid of them after that.
GOOLSBEE: I believe he's wrong. The Republicans have shown they aren't.
WALLACE: I want to -- I want to go back to the other question which you raised, which is the effectiveness of these new targeted tax credits that you and the president are suggesting. I guess I should say the president and you.
The president proposed a new plan this week, $180 billion new infrastructure spending and targeted tax credits.
I want to show you an analysis -- let's put it up on the screen -- that says that business tax credits have little effect on real investment. For policy makers interested in using tax policy to stimulate investments or especially to smooth business cycle fluctuations, the results are not promising.
You have a smile on your face. Do you know why you have a smile on your face?
GOOLSBEE: Yes. Somebody went back and...
WALLACE: Yeah, you wrote it in 1997.
GOOLSBEE: ... pulled (inaudible) out of my dissertation. Yes, look...
GOOLSBEE: ... I appreciate -- that was work done 15 years ago.
WALLACE: It's 13, but who's counting?
GOOLSBEE: If whoever -- well, that's when it was published.
GOOLSBEE: The work was done more than 15...
WALLACE: But you said at that time that business tax credits...
WALLACE: ... have little effect.
GOOLSBEE: No, no, no, no. Now, the thing is the -- and I'm smiling because I already looked into this. For anybody at home who has my paper from the Quarterly Journal of Economics...
WALLACE: I'm sure they're all looking at it.
GOOLSBEE: ... go look at table six which clarifies that is a statement of why, when there are capacity constraints in an industry, and you're already close to capacity, if you try to pass a subsidy, it tends to drive up prices instead of giving more investment.
GOOLSBEE: But we're not nearly at capacity. So it totally did not apply to this circumstance.
WALLACE: Finally, you are something of an amateur comedian and, in fact, you won D.C.'s Funniest Celebrity Contest last year. I can -- you're looking at me with fear and loathing.
GOOLSBEE: Yes, I am -- not loathing, just fear.
WALLACE: Because here is a taste of your performance. Here it is.
(BEGIN VIDEO CLIP)
GOOLSBEE: Let's just sort it out and start from the fundamentals. How do we throw money at this problem? And the thing is most of the lessons aren't recent. I mean, it's been a long, long time since things were this bad, so we kind of had to go back and look at the old textbooks. Karl Marx, Trotsky.
(END VIDEO CLIP)
WALLACE: Did the president know about this performance before he appointed you chairman of his council?
GOOLSBEE: No, it was a joke -- obviously, everything I said in there was a joke. I disown any -- there was no intention of offense in -- on either side of the aisle.
WALLACE: Mr. Goolsbee, thank you. Thanks for...
WALLACE: ... giving us your first interview as chairman.
GOOLSBEE: Yes. Thank you for having me.
WALLACE: Always a pleasure to talk with you, and please come back, sir.
Content and Programming Copyright 2010 Fox News Network, LLC. ALL RIGHTS RESERVED. Copyright 2010 Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.