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Will politicians take deficit cutting seriously?

  • Chairmen of presidential panel have suggested a wide range of deficit cuts
  • Fareed Zakaria says the plan is a test of America's political system
  • He says discussion must start now to avert drastic cuts, tax hikes in the future
  • Zakaria says left, right need to find common ground for nation's sake

Editor's note: Fareed Zakaria is an author and foreign affairs analyst who hosts "Fareed Zakaria GPS" on CNN U.S. on Sundays at 10 a.m. and 1 p.m. ET and CNN International at 2 p.m. and 10 p.m. Central European Time/ 5 p.m. Abu Dhabi/ 9 p.m. Hong Kong.

New York (CNN) -- Will America's political leaders grasp the chance to begin taming the long-term budget deficit offered by the recommendations of a presidential commission? Analyst Fareed Zakaria says the deficit-cutting proposals by the panel's chairmen provide an excellent place to start.

Erskine Bowles and Alan Simpson, co-chairmen of President Obama's federal deficit commission, put forward on November 10 a package of proposals that would cut the deficit by $4 trillion over the next decade, including both deep spending cuts and tax increases that would eventually bring both expenditures and revenue to 21 percent of gross domestic product.

Speaker Nancy Pelosi, who will be the House Minority Leader in the new Congress, quickly called the plan "simply unacceptable" and some conservatives ruled out the idea of increasing taxes.

In a TIME column and an interview with CNN, Zakaria offered a different perspective. He says, "There are two scenarios. One is that we use it as the big launching pad for discussion, the president takes it as a centerpiece of what he wants to do in terms of demonstrating that he is concerned about these issues and that he does want to try to bring the two parties together, essentially the kind of things he campaigned on in his election."

"Or what we can have happen is that it will get torn apart by the left and the right, it will get demagogued, and then we will just drop the whole thing, decide it's a political hot potato and somehow magically hope things will work out. But of course they won't. The long-term trajectory is completely unsustainable -- over the next 75 years the expenditure on entitlement programs exceeds government revenue by $40 trillion. I mean that is the problem and so we have got to solve it."

The author and host of CNN's "Fareed Zakaria GPS" spoke to CNN on Wednesday. Here is an edited transcript:

CNN: What do you make of the recommendations of the two chairmen?

Fareed Zakaria: I think first of all people should realize that this is not the recommendation of the commission. It is proposals that the two chairmen have sort of floated really to get the conversation going and I think they've done an admirable job, because there are two things that you realize when you take a look at these.

The long term trajectory is completely unsustainable -- over the next 75 years the expenditure on entitlement programs exceeds government revenue by 40 trillion dollars.
--Fareed Zakaria
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One is that the problem is solvable. People look at America's fiscal situation and it seems such a mess and so many things seem un-reformable and what they point out is that a series of adjustments on both the tax and the expenditure side could bring the United States into comfortable fiscal balance and in fact we would still have reasonably competitive tax rates, we would have generous entitlement programs for the elderly and for the poor, we would be able to maintain an adequate defense, but obviously you are going to have to make some sacrifices.

They point out that this is all doable if we are willing to be bold about some fairly significant measures.

And the second thing I think they've done by floating a series of proposals, a series of options, what they are emphasizing is that everything should be on the table, there should be no sacred cows. They've taken on defense spending, they've taken on the interest deduction of mortgages, they've taken on farm subsidies, they've taken on all the tax loopholes. So in that sense I think it's a very bold proposal and I very much hope it begins a national conversation.

CNN: What do you think of Nancy Pelosi's dismissal of it?

Zakaria: I think it's very unfortunate, because this is a test of our political system; this is clearly a proposal that is somewhat down the center. So if liberals are going to dismiss it as dead on arrival because it has too much by way of cuts of entitlement and too little by way of new taxes -- and if conservatives are going to reject it because it has too many tax increases, and too many eliminations of tax deductions -- then we are going to end up where we have been with all these kinds of compromise proposals from immigration reform to energy policy reform to Social Security reform, which is to say we do nothing and we kick the can down the road.

The appropriate response should be, I would have thought from somebody like Nancy Pelosi, 'there are some very interesting ideas in its proposals, there are some I disagree with and we look forward to trying to begin a conversation where we present our alternatives.' The fact that you have people dismissing it out of hand tells you something about the political system, which is that there is much more energy in taking strong extreme positions that will appeal to the base of your movement rather than trying to find some middle ground where you can work with the other side.

CNN: And what about the challenge now for President Obama, how does he react to this?

Zakaria: He has so far reacted very sensibly. The White House said we think this is a good start; we look forward to beginning the conversation. That's exactly the way I think it should be presented and you've got to try and take control of this conversation so that it becomes really about -- first of all there are going to be a more substantive set of recommendations that the commission as a whole endorses.

The best way to approach it is to take what you have here, which is proposals put forth by a very serious Republican and a very serious Democrat and try to find a way to bring the rest of the country around someplace in the middle, and naturally people on the left are going to want to make adjustments and people on the right are going to want to make adjustments in another direction and that's frankly as it should be. This is a country of 300 million people and not everyone agrees and so the only possible solution is that you come up with some piece of legislation that has enough in it that appeals to both sides.

Of course, the longer we wait the more difficult and painful the adjustment will be to the point where at some point it becomes essentially impossible to do. So while the changes that we need to make now are bold and significant, they are actually a series of incremental adjustments. Changes that we would have to make [if nothing is done now] 25 years from now would be like 70 percent tax hikes and 60 percent expenditure cuts, which are just not going to happen in a democracy -- so this is our moment.

CNN: Some of the liberal critics have said that the plan calls for a limit of 21 percent of GDP allocated to government spending, suggesting there is nothing magical about that number. Do you think that makes sense, that potentially government spending should be envisioned as being a higher number?

Zakaria: I think that's fine, or it should be 23 percent, again this is a starting point. I do think however that we are living in a much more competitive global landscape and you do have to maintain some sense of competitiveness, when we have the highest income taxes in the industrialized world.

When countries in Asia have significantly lower corporate and income taxes, when increasingly countries in Europe have lower corporate and personal income taxes, these are things that you have to take into account. I don't think there is anything magical about the number 21, but I think having some kind of disciplining mechanism that says there is some limit to the expenditures of the government forces you to make choices.

It forces you to make tradeoffs and makes it more difficult to have the kind of steady upward creep that you've had over the last 30-40 years, which is, the worst part of which it is often unintended and never discussed.

I think if we want to significantly expand the role of the state in society, fine let's have a discussion about it. I would guess that the last election would count as what the American people feel about that, but in any event let's have a conversation about it.

Again, the fact that the commission chairmen have a proposal that suggests this should not automatically rule out every idea that they have had. For example they suggested eliminating all tax loopholes, which is a wonderful idea. Why throw out all these good ideas just because of one or two ideas that you disagree with?

CNN: That brings up the issue on the conservative side, the people who are opposed to the higher gasoline tax or eliminating the whole mortgage deduction.

Zakaria: Conservatives I think are just living in an alternate universe where they believe that somehow you can solve this fiscal problem just with spending cuts -- and then what is even richer is that they won't even explain what spending cuts. [Future Republican House Speaker] John Boehner [of Ohio] was on the Sean Hannity program, the radio show, and declared that he was going to reverse all of Obama's cuts in Medicare.

They're going to close the fiscal gap entirely with cuts and with no tax increases, but of course they can't find a single government program that they would cut, certainly not one which would yield any substantial savings.

There you have a basic mathematical problem. You cannot solve the problem of the deficit if you do not put tax increases on the table -- and remember the elimination of tax deductions and loopholes are tax increases, we may like them, but what it means is that the government gets more tax revenue. You can do it any way you want, I would myself prefer a value added tax or a national sales tax as a principal new form of revenue.

But after you've made serious and deep cuts in all the government programs being proposed you still need new revenue. That has been our fundamental problem, that our appetite for government has been substantially larger than our appetite for taxes and we have been unwilling to face that reality for a generation. What we've done instead is borrowed, borrowed and borrowed and tripled the national debt.

CNN: What will be the biggest determinant of whether this problem gets solved short-term?

Zakaria: Well the short-term question is can the two parties find a way to come together, to try to find the 10 things they can agree on that will allow for the crafting of some kind of compromise proposal, because at least that gets the ball rolling and that makes it possible to conceive of further movements in this direction. If you can't get the politics right then nothing else matters.

The long term determinant is of course health care costs, and on that issue, frankly the commission has been a little too tame. In the long run the vast majority of this fiscal gap is accounted for by spiraling health care costs, and unless we face the reality that we cannot pay for everything people want and as medical costs increase and as people get older that pressure is going to get even stronger. We will simply not be able to get our fiscal house in order.