DAVID GREGORY INTERVIEWS ALAN SIMPSON AND ERSKINE BOWLES

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September 14, 2012 -- In this week's "Meet the Press" PRESS Pass conversation, David Gregory sat down with Alan Simpson and Erskine Bowles, co-chairs of the president's fiscal commission, to discuss their proposal for tackling the fiscal crisis.

Simpson and Bowles, widely hailed as serious thought leaders on dealing with the country's economic problem, had strong criticisms for both men vying to be President of the United States for the next four years.

Bowles, a former Chief of Staff to President Bill Clinton, chided Romney's economic plan saying "the arithmetic just doesn't work." When asked if Romney could justify his tax cut proposals, Bowles said "I don't think he can and the math is easy to prove."

Simpson, a former Republican Senator from Wyoming, handicapped the race saying:"Romney's chance will come from Obama fatigue. ... Don't forget the great axiom of politics -- people don't vote for anybody, they vote against. And I think people are going to vote against Obama, which will be to Romney's advantage."

A full transcript is below and embeddable video of the complete interview is online here:
http://nbcnews.to/ONauvG
Still photos are available online here: http://on.fb.me/Pjdvow

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Full Transcript: PRESS Pass: Fmr. Sen. Alan Simpson (R-WY) and Erskine Bowles
Co-Chairmen, National Commission on Fiscal Responsibility and Reform
Mandatory Credit: NBC News

DAVID GREGORY: I'm David Gregory and this is PRESS Pass, your all-access pass to an extra Meet the Press conversation. This week, the two men who tried to tackle the country's fiscal crisis last year: Former Senator Alan Simpson and Chief of Staff to President Bill Clinton, Erskine Bowles. Their Simpson-Bowles Plan is back in the Decision 2012 spotlight now. Gentleman, welcome to you both. I said as we are coming in, it's like going to the mall with Justin Bieber hanging out with the two of you --

SIMPSON: We don't even know who he is.

GREGORY: But Senator, there's something to that. You go around the country, you talk in great detail about what you propose, what is the reaction you get?

ALAN SIMPSON: People are thirsting, thirsting for somebody not to give them B.S. and mush. And Erskine and I give them numbers. We just say, 'Look. Pull up a chair, we're here to talk to you about math. We don't have Power Point, we don't have charts; we just tell you where your country is.' The trajectory of debt, deficit, and interest is the same as the "PIG" countries, Portugal, Iraq, Iran --

BOWLES: Italy --

SIMPSON: Poland is still -- no I won't go there. It's just sad. And we talk and we take questions, we don't filter the questions; they can ask anything they want. They can be from the unions, the AARP, the seniors, the teachers -- and they'll give us a standing ovation. They're thirsting for someone to tell them the truth about where their country is going. And see a Republican and Democrat do that who really care about each other.

GREGORY: But, you don't think we're getting that in this debate? In this campaign season?

ERSKINE BOWLES: No, I don't think there's nearly enough substance. To me, it's a real disappointment.

GREGORY: Why not? Why isn't there the substance?

BOWLES: Because it's hard. You know, the problems are real. The solutions are painful. There's no easy way out, and I think the candidates are afraid to stand up and say, 'Look, we've got to make some tough choices. We've got to have some shared sacrifice.'

GREGORY: Bottom line this: Simpson-Bowles proposed a way to deal with the debt crisis, and what did it call for?

BOWLES: Basically what we want to do is, we want to reduce the deficit by 4 trillion dollars -- we didn't make up four trillion because the Number Four bus passed us on the street -- 4 trillion is the minimum amount you need to reduce the deficit over the next decade. Not the maximum amount, not the ideal amount -- the minimum amount you need to reduce the deficit over the next decade to stabilize the debt and get it on the downward path as the percent of GDP. We got 3 trillion from reducing spending, and 1 trillion from reforming the tax code by broadening the base, simplifying the code, eliminating this backdoor spending in the tax code, and using about 90 percent of that money to reduce income tax rates.

GREGORY: So all tax rates would come down?

BOWLES: All --

GREGORY: People would pay less taxes.

BOWLES: People would have lower tax rates. People wouldn't necessarily pay less taxes.

GREGORY: They would pay more by eliminating deductions, other loopholes and what not.

BOWLES: Deductions, credits, special deals that have been cut with various members of Congress. But if you eliminate all of those, we have 1.1 trillion dollars of annual spending in the tax code and if you wipe those out and take 92 percent of the money to reduce income tax rates, and you can reduce them to 7 percent up to -- 8 percent up to 70,000 dollars, 14 percent up to 210,000, have a maximum marginal rate of 23 percent, you can take the corporate rate to 26 percent, so we are globally competitive, and you can pay for a territorial system so that 1.5 trillion that's captured overseas can be brought back to the U.S. And, most importantly to us, not only have you created I think a very pro-growth tax structure and a globally competitive tax structure, but we have about a hundred billion dollars a year to reduce the deficit over ten years, that's 1 trillion dollars. That's where 1 trillion of our 4 trillion dollars of deficit reduction comes from.

GREGORY: If you cut taxes, does that lead to economic growth? Does that put people back to work?

SIMPSON: I don't know. Well, all I know is -- (hits table) whoop, boy that's a gong -- all I know is that you don't have to quote 'raise taxes, so that you face the ire of Grover Norquist, who's wandering the earth in his white robes. You don't have to do that, you go into that tax code and take out those tax expenditures. I have never been of the opinion -- it's just my personal -- I would not have voted ever on a reduction of taxes when we were fighting two wars, when we were having a pharmacy bill, where people don't even know what that baby's costing yet, but --

GREGORY: This is prescription drugs under Medicare?

SIMPSON: Yeah. And then they said, 'Well, the AARP helped with that.' Well, why wouldn't they? They're the largest pharmacy in the world. So, it's tough to watch the movement, and the clobbering that politicians are taking from every one of these groups -- I mean the realtors, I mean, a million dollar home mortgage interest deduction. What's that about? Give them five hundred thousand -- who's using up a million -- then give everyone else a twelve and a half percent non-refundable tax credit, which helps the little guy. If everybody would quit talking about the little guy and do something for the little guy -- and the worse thing will happen to the little guy is going to do nothing because inflation will kick in and interest rates will go up and they're the guys that get hosed.

GREGORY: I want to get your reaction of this very specific point. The argument is, for Mitt Romney in this case: We cut taxes, that leads to economic growth, that's the Reagan model, that's what should be employed here when you have 23 million people out of work.

BOWLES: What I believe is that we should cut tax rates, that we should get rid of the backdoor spending in the tax code, and we should use thevast majority of that money to reduce rates, broaden the base, simplify the code, and use part of that money to pay down these deficits. If we have these deficits going forward, the overhang will be enough to slow the rate of growth. Most, almost any economist will tell you that when your debt-to-GDP ratio gets to 90 percent, the adverse effect on economic growth is somewhere between one and two percent. That's why we've got to bring this debt down, and to do that, you got to have a balanced approach. If you try to do it all with spending cuts, what will happen is you'll end up hurting the truly disadvantaged. I think you'll disrupt a very fragile economic recovery. Or, you'll have to cut things like education, infrastructure, high value-added research, so deeply that America won't be able to compete effectively in what is today a knowledge-based global economy.

GREGORY: So let me talk about the President and Governor Romney. I interviewed Governor Romney this weekend. I made it clear to him, as I pointed out, he wants to extend the Bush tax cuts, cut tax rates 20 percent beyond that, he wants to increase defense spending, he also has rejected a ten-to-one spending cut to tax height ratio. You've made it very clear, his math doesn't add up; he can't balance the budget with that set of beliefs.

BOWLES: I don't believe he can, and I think the math is easy to prove. But let's give him his due. You know, we also want to reform the tax code. You know, we want to broaden the base, simplify the code, and get rid of the tax expenditures. He's only getting rid of the tax expenditures, or so he said so on your show last week, you know for the the top income tax payers. You know, that doesn't, if you just eliminate those tax expenditures and it don't affect the middle-class, then you're not going to generate enough money to reduce income tax rates by 20 percent, especially when you also make at the same time the argument that you're not going to touch tax preferences for capital gains. The arithmetic just doesn't work. You do have -- when you broaden the base and simplify the code, you got to get rid of these tax expenditures, for all taxpayers. To claim it's just from the upper-income people -- just not enough money there.

SIMPSON: Let me tell you the real one. If anybody thinks we're hollowing out the defense budget, the only thing being hollowed out is your brain. Because we are now at about 750 billion in defense, and the top 15 countries on earth, including Russia and China combined, are 540 billion. Who is -- where are we? We asked the Defense Department, 'How many contractors do you have?' And they said, 'Well it's quite a range.' What is it? It's between a million and 10 million. You won't find a guy on the street anywhere in American say 'What do you do?' 'Well I'm a defense contractor.' And these are the guys knocking down 300 now or 500, or military -- I'm a military guy, was in the military, I've done mine. But this is madness. You still have Department of Defense schools, 61 of them in America, sitting a bus ride away from public schools. Who is kidding? They have the health care plan for only 2.2 million people, and the premium is 470 bucks a year, and no co-pay, and takes care of all their dependents and costs 53 billion a year. And you mess with that -- I'm a member of the VFW, lifetime member -- in the American legion you will be cremated.

BOWLES: David, you know, I've got plenty of problems with President Obama's plan. But to stick with Governor Romney's for a second, if you -- the very reason that having a balanced plan was at the core of our commission's recommendations: that if you have a revenue-neutral plan, like Governor Romney proposes to have, and you generate no revenues for deficit reduction, no money for deficit reduction from revenues --

GREGORY: That's what revenue-neutral means.

BOWLES: Yeah that's what revenue-neutral means. And you're going to increase defense spending by 1.8 trillion dollars, and you're going to reduce the deficit by 4 trillion over ten years, that means you have to cut everything else by 5.8 trillion dollars. That's the arithmetic. And therefore, the cuts you have to make in the income support programs, that really take care of the truly disadvantaged, and the cuts you have to make in education, and infrastructure, and high value-added research, that are so important for America to be competitive in this global economy, are just too deep. And unnecessary. That's why we wanted to have a balanced plan that took 1 trillion from revenue, and we were very clear, we wanted to make the cuts across the board -- whether it was defense, non-defense, or entitlement programs. You know, we wanted to have everybody have a stake in the game. A real shared sacrifice.

SIMPSON: We want to make sure we've irritated everyone in the U.S., and there's still some pockets out there that we haven't hit but we'll get to them.

GREGORY: But talk about President Obama. He's taken a lot of flak for not really taking Simpson-Bowles and running with it, leveraging support in the country for it and using against opponents, Democrats and Republicans alike. There seems to be more momentum around reviving Simpson-Bowles in some fashion. But talk specifically about what President Obama proposes, and where you think it doesn't add up.

SIMPSON: Well, it wasn't surprising to us -- I think it was a little surprising to Erskine -- that he walked away from our proposal, just stepped away. And the reason he stepped away, his base would've sheared him like sheep. They would've said, 'Look, you didn't do Guantanamo, you said you were going to do that, you said you were going to do this, and now you're talking about doing something to precious seniors and entitlements.' Well let me tell you: unless you deal with health care -- and forget what you call it -- it's the single largest driving force of where we're headed, over the cliff and that's it. And if he had voted for that his base would've ripped him and more importantly at that time, December of 2010, the Republicans would have voted against to en masse. They would've said, 'My God, Obama voted for this thing, and so we'll just now, to show him, we'll all vote no.' So on we go. And President Clinton's been a big help to us. I know that he would've agreed if Erskine said, he just said, 'you've got five Dems and five Republicans, one Independent, 60 percent of the commission I would've wrapped my arms around it and taken it right into my heart.'

BOWLES: There are three problems that we have with President Obama's plan. You know, again, he meets our challenge of at the core being a balance plan. But, on the revenue side, we think there's a better way to generate that revenue rather than raising rates. We believe getting rid of this backdoor spending in the tax code and using --

GREGORY: Explain what that means to people who don't really follow this.

BOWLES: Getting rid of these deductions, these credits, and these special interests deals that have been made to reduce the revenue, the taxes that people have to pay. I'll give you an example: We take in 1.3 trillion dollars in income tax -- 1.1 from individuals, 200 billion from corporations. And people wonder 'How can it be so relatively small? We're spending 3.6 trillion, and, you know, how can it be so low when our nominal rates are so high?' It's because we have all these deductions and credits in the tax code that add up to 1.1 trillion. So we're only taking in 1.3, because we've given away 1.1. What we said is: Wipe those out, and then use 92 percent of that money to reduce income tax rates, and 8 percent of the money -- or about 100 billion dollars a year -- to reduce the deficit. That's where we get to 1 trillion over ten years. We think that's a better way to raise the revenue.

Secondly, we don't think President Obama has gone far enough in his reduction on entitlement spending. He's got about 275 billion dollars worth of cuts to Medicare and Medicaid. I give him a lot of credit for actually standing up and saying 'I'm going to make these cuts.' But, if we're going to slow the rate of growth of health care to the rate of growth of the economy, or to GDP plus one, which some people want to get to, you know, then we're going to have to have much higher cuts. We had 475 billion dollars in our plan, we too would have to go further -- we're the first to admit that. Secondly, neither the President nor Governor Romney do anything about Social Security. Social Security is 900 billion dollars cash-negative over the next decade. You know, what we said is 'we have to make Social Security sustainably solvent.' And neither one of them addressed that in their budget. And therefore, you know, when you look at those problems in President Obama's plan -- both on the revenue and the spending side -- we think he's going to have to make some compromises to get us to the promised land.

SIMPSON: You think what we have to do with Social Security is bizarre, and we're saying give the lowest 20 percent 125 percent of poverty, kick 'em up; give the seniors older than 85 a kick up; do something with the cost of living allowance; and do something when you've got, you know, 10 thousand a day turning 65 and you've got to get in there. We have a situation now which is so absurd; by doing nothing the trustees, who are very vital Republicans and Democrats of good intellectual capacity, are saying if you don't do something, in the year 2033, which is 21 years away, you're going to waddle up to the window and get a check for 25 percent less. And when we said you've got to raise the retirement age to 68, by the year 2050 --

BOWLES: 40 years from now.

SIMPSON: The AARP said, 'How will people able to prepare for that?' And I said 'I think they can make it, I know they will. They've got brains, and they'll figure that out.' I mean, it's nuts. Absolutely nuts.

GREGORY: Let me ask you both: the advantage of your tackling this issue is that you are both above the political fray - and probably happily so because of how dysfunctional Washington is - but you've both been in the partisan trenches as well. So Senator, let me start with you. Handicap this presidential race for me because that's going to be critical to the outcome of what you care about getting done here.

SIMPSON: Well, first just let me say that I'm the only living politician who, while he was in office, had a hearing on the AARP. They never forgot that, they said, 'We're just a genial group of people living in a little shack down here.' Their lease is 17 million a year; they won't let people in the building because it's got too much mahogany and brass in it.

Handicap the race. I think that Romney's chance will come from Obama fatigue. I quoted -- I made that little statement months ago. He's on all the time, he's saying the same things, he's saying it to a chosen audience, Axelrod and the guys are telling him what to say, and when he doesn't say it, Axelrod says it, or Plouffe, whoever, it's a real organization. Man, give them credit; they've got cells in every precinct in America. So, I think people -- don't forget the great axiom of politics -- people don't vote for anybody, they vote against. And I think people are going to vote against Obama, which will be to Romney's advantage. And then of course Karl Rove is out there, and he's got a lot of scratch, he's got about 400 million bucks, and he's going to throw that stuff on the screen like a great big blob.

GREGORY: And does a President Romney, Senator, does a President Romney stand up to conservatives the way you think he should to hammer out a compromise, to get closer to the ideal of Simpson-Bowles, a balanced approach to balance the budget?

SIMPSON: Put it this way: he was governor of Massachusetts, so I think he can figure out anything. That's the one state that voted for him to govern out of all the 40-, 50.

GREGORY: Mr. Bowles, handicap this race for me.

BOWLES: There are not many things that Al and I disagree on, but I think it's now become a choice election, I think the Obama campaign has done that, and I don't think Mitt has given the American people the substance in his response to convince them that they ought to make a change today, that he can do a better job in managing the economy. And I think the President has more paths to victory than the Governor does. So I think the President will be re-elected.

GREGORY: What is your level of confidence in a second Obama term or a first Romney term that these issues get dealt with in a way that really begins to resolve this crisis that we're in?

BOWLES: Well, first of all, I'm frightened that we're going to breach this fiscal cliff, and we're going to --in what I would call -- really bet the country, and take that high a risk. And I think that could lead to really horrible economic results. I met with the President and I've met with --

SIMPSON: He wanted to take you to the woodshed, and you took the axe.

BOWLES: Yeah I did take the axe. And you know, as you said, I don't have any political fear, I don't want any jobs up here. I don't want to, you know, Alan and I are not looking to feather our nest. And I'm confident that after the election he's prepared to negotiate with the Republicans and come up with a plan that falls within the framework of what we've talked about.

SIMPSON: I believe that too.

GREGORY: Do Republicans change their view about opposing him en masse if he prevails for a second term?

SIMPSON: If they don't begin to deal honestly with things without the hysteria and using emotion, fear, guilt, and racism, and everything else, they will be a party that won't make it through. I mean, when you have 82 guys in the Congress who didn't come to limit government, they're there to stop it. I mean, I always say it to them, especially to guys who are over 65, you know, holding up with their fragile -- and I say, 'first thing we want to get rid of is your Medicare, because you see that's a government program,' --'This is nuts, get rid of the garbage collection for God's sake.' What do they think the world runs on? It runs on taxes. But you can't get there by taxing people, you can't get there by cutting spending, you can't get there unless you use a balanced approach. If they don't, you know, the word "compromise" does not mean you're a wimp. You learn to compromise an issue without compromising yourself, and if you haven't learned that, you're not human. You've got to compromise in marriage, you've got to compromise when you're dealing with a car dealer -- everything you do in life is a compromise, a negotiation -- that's madness!

GREGORY: Tough words for your own party, including using racism against this president. You think there's a real part of the Republican Party that does that?

SIMPSON: No, I think there are people from either party who use it. That is out there, and anyone that thinks, you know -- because of political correctness -- I have a definition for that which I'll not share with the general public -- but political correctness is madness. So you have people who say 'Me, racist?' Let me tell you, I know Democrats and Republicans who are seriously racist, but they don't want to be tagged like that, so they say 'I've never had a thought like that.' I think half the rage in the world comes from screwballs like that because that stuff just comes to the surface like a fissure through a volcano. So don't blame Republicans for the racism. We've been traveling the South and the West -- let me tell you, it's out there, and it is not --

GREGORY: But you said that the Republican Party is using a lot of things, including racism --

SIMPSON: They all use it. I should have clarified: every party uses a deft blend of emotion, fear, guilt, and racism to pass or kill a bill. That's what you do. That's how you operate. That's how you pass a major bill. Immigration, anything, you name it. Emotion, fear, guilt, racism. No, don't tag it with the Republicans.

GREGORY: Alan Simpson, Erskine Bowles, the fight continues. Thank you both very much.

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