Spotlight on national debt ahead of first debate

This is a rush transcript from "Your World," October 2, 2012. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF "YOUR WORLD": To former Reagan economic adviser Art Laffer, who remembers how Bill Clinton did that and how Ronald Reagan did that.

You do not have to necessarily change things immediately. You just have to give a plan that makes people think and hope and pray that you've started the process, right?


You know, you need to get growth, Neil. You just have to get growth. You can't balance the budget on the backs of the unemployed and the poor. So, that is where a flat tax comes in. It will also attract the capital from abroad.

Sam Nunn was exactly correct as well. You've got to cut government spending. That has to happen, especially entitlements, where you pay people not to work. But there are lots of other ways of bringing that national debt down, Neil, some really cool ones.

For example, how about a federal, state, and local tax amnesty program? There are a lot of people that are in the underground economy that would be brought above ground with an amnesty program. My estimates are that a federal, state and local tax amnesty program would raise about $800 billion in 90 days.


LAFFER: You can also sell some assets off. I mean, Camp Pendleton, goodness knows how much that is, but its 500 square miles on California's southern beach property. You've got all that gold in Fort Knox. No one has even seen it since 1933. Why don't we sell it?

CAVUTO: But, you know, Art, you bring a good point -- no, you raise a good point.

My point is this, that when you say it's too big to handle, you're missing the point that you're right, you cannot cut a $16 trillion debt.

LAFFER: No, of course not.

CAVUTO: But you can boom your way from it.

And I think what we are losing sight of here and what Bill Clinton learned in 1993, 1994, was that if you present a plan that looks credible, like you want to reverse the direction...

LAFFER: Exactly.

CAVUTO: ... sometimes that creates a boom in and of itself and it inspires confidence in the markets that have little confidence right now.

LAFFER: Exactly.

CAVUTO: And I blame both parties, by the way. But if you give them a guidepost and show that you have now planted guideposts...


CAVUTO: ... you will be off to the races. I hope and I want to see that tomorrow night. Will I?

LAFFER: You're exactly right.

I don't know if you will or not. I've been waiting for Romney to really come hitting the growth agenda and low rate, flat tax and spending reductions and some of these other ways of bringing the national debt down. I haven't seen him be forward.

When that 14 percent tax rate came out, Neil, I thought he said I'm proud of paying 14 percent and everyone else should pay 14 percent too. I shouldn't be the only one. And I'm proud of that.

CAVUTO: Right.

LAFFER: But he didn't do it that way. But I hope this time he does. If he does the growth message, a la Ronald Reagan, he could win the election.

But it's to be truly credible. It can't appear as though he's apologetic for his positions.


CAVUTO: Well, that's a very good point, Art.

But the one thing I learned on Fox Business talking to these two retired senators is that they recognize how surprisingly easy it is just to talk about a Democrat in Sam Nunn's case talking about slowing the growth of entitlements is not throwing granny off the cliffs, a reminder to the Democrats. Another reminder from Senator Bennett to Republicans closing loopholes and credits that allow some not to pay any taxes at all, Ronald Reagan would tell you is not a tax hike. But we get so dogmatic about this and so fixed in our positions about this that we're not moving the ball on this. Hence, we're piling up $4 billion a day to the debt because of this.

LAFFER: Exactly.

And Sam Nunn didn't even mention -- he just talked about the trajectory. But if we get the tax rate reductions and the broad-based, let's say, Simpson-Bowles, you're gonna get so much faster grown that people will get jobs and be taken off welfare because they have good, high-paying jobs. They will go to the tax rolls, instead of being on the welfare rolls.

And when people moving to the tax rolls instead of the welfare rolls, then you can reduce tax rates -- I mean, welfare spending and bring it back even faster.


CAVUTO: You know it's all about inspiring confidence. Ronald Reagan did that, Bill Clinton did that.

LAFFER: Exactly.

CAVUTO: It's a fair and balanced approach.

But this idea that we can't do it and certainly when pundits say neither candidate should even touch it tomorrow night, I think gets to the core of the problem and a pox on both parties' houses if that's the case.


LAFFER: That is exactly correct.

This is the issue. All the issues that we're talking about in the economy are encompassed inside the national debt argument. You can answer those things. You can get rid of the unfunded liabilities as well, just the way we did with Social Security under Ronald Reagan by extending the age of retirement, by reducing benefits, by subjecting half of them to the income tax.

There are lots of things you can do to really bring this economy back and fairly quickly. In two terms, you could bring it back just the way Reagan did.


CAVUTO: Well, the fact is, you can't cut your way out it. You've got to boom your way out of it. But it is possible.

LAFFER: Always.

CAVUTO: Art Laffer, you're living proof of that. Thank you, sir, the former Reagan economic adviser, who has not really aged a day in all that time.

LAFFER: Thank you very much.

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