Skip to main content
Part of complete coverage from

Can Obama, GOP really cut the deficit?

tzleft.fareed.zakaria.cnn.jpg
STORY HIGHLIGHTS
  • Fareed Zakaria thinks it's doubtful the two parties can reach deal on cutting the deficit
  • Americans can't have low taxes along with the big government programs they enjoy, he says
  • The government has a budget deficit of over 10 percent of GDP
  • Zakaria: Spending cuts should be phased in to avoid harm to the economy

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) -- President Obama has invited Republicans and Democrats in Congress to a meeting to discuss how "to move the American people's agenda forward," but analyst Fareed Zakaria says he sees little prospect the two sides will reach a compromise on key economic issues.

The president invited leaders of both parties in the House and Senate to the White House Nov. 18, after his party lost control of the House and suffered losses in the Senate in Tuesday's election. The economy figured heavily in the election, with Republicans focusing on opposition to rising federal spending. In the lame duck session of Congress, members will have to decide whether to extend the Bush tax cuts.

"I think frankly things look very bad in terms of America's ability to solve some of its problems," Zakaria told CNN. "We have very serious problems that are going to require a kind of set of comprehensive solutions. There are compromises out there to be made, Republicans have to concede some on taxes, the Democrats have to concede some on spending, and you could put together a package, in which both sides would get something, but not everything.

"The problem is the political system right now doesn't seem to function in a way where either side can accept compromise. If that produces gridlock and paralysis the problem is we really move into a fairly unsustainable fiscal situation."

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

CNN: In your column for TIME, you raise the question of whether the Republicans are serious about cutting the deficit this time after earlier failed attempts to do so. What do you think?

Fareed Zakaria: I think it's going to be pretty doubtful; the reality here is that the American people want a certain level of government. It's something of a fantasy to believe that they really want a radically smaller government than the one we have.

The Arena: How to fix the economy
Obama plans talks with party leaders
Parker Spitzer: Obama too eager to deal
RELATED TOPICS

The American government, the federal government, has roughly been between 20, 21, 22 percent of GDP [Gross Domestic Product]. That includes Social Security and Medicare and the interest deduction on mortgages and all that stuff -- it costs a lot of money. The money is all in the big popular programs and Americans seem to want them and there seems to be very little appetite for cutting them.

What Americans seem to want is to have this very large government but also to have even lower taxes then we have now, or very low taxes in general. That's the part that's very difficult to make work. I mean that's the part where they are asking for magic because you can't have the size of government they seem to want with the level of taxes they want. We've pretended otherwise for a generation and the result is nearly $14 trillion in debt.

CNN: Do you see any sign that anyone in Washington is willing to tell Americans the truth about this?

Zakaria: Well [Rep.] Paul Ryan in the Republican party has made an effort to present a kind of an alternate system of a different kind of tax structure, different kind of entitlement structure, it's useful. I think it's a very important conversation starter, but there are a couple of things one would have to point out. Partly, there's a kind of fantasy element here about what the American public would be willing to accept in terms of a radically different health care system, which is really more voucher based, a radically different tax system.

I hope we can get the conversation going, but I think there is an element there which seems a bridge too far. You can see this in the fact that there is not a single Republican in any senior position in the party who has accepted it. Many of them will vaguely say there are some good ideas there, but they never actually even specify one good idea they agree with. It leaves you feeling somewhat disheartened.

By the way ... some of the numbers [in Ryan's plan] don't add up, but all that said, it is an interesting starting point and if you can't get anyone to even be willing to begin that conversation it is very difficult to see how it's going to happen.

CNN: What are the details of Ryan's plan?

Zakaria: It raises revenues using a different mix of taxation with a consumption tax, but much lower individual and corporate income taxes. It does some kind of voucher system for Medicare, it has individual retirement accounts, which would be part of reforming Social Security. So, it's quite ambitious, I think that many of those ideas are steps in the right direction.

The whole thing may be too revolutionary to take place and it may also short-shrift seniors on health care, so I have some concerns about it. But basically it gets us thinking about how do you create a more rational, more simplified tax and entitlement structure that is sustainable in a world in which you have many, many more retirees then you had when this whole system was set up. But, the key is there are no Republicans who support it. Paul Ryan is pretty much out there on his own.

CNN: What about on the Democratic side? Is there any likelihood that we will see some innovative proposals from the White House or Democratic leadership?

Zakaria: I doubt it, I think the Democrats, if the past is to be any guide, will tend to cling to the idea of preserving Social Security, preserving Medicare, and sort of try to paint the Republicans as the cruel heartless people who want to cut all this stuff. So if the Republicans are frankly, totally in a stubborn fantasy land on taxes where they simply cannot conceive of any possibility in which they would need to raise taxes to raise revenues, the Democrats are in a stubborn fantasy on cutting entitlement spending.

So, given that reality, it's difficult to see how you are going to get much serious compromise .... The other thing of course is that this is all happening at a terrible time because it is not even clear right at this moment that you should be cutting government spending -- because the economy is fairly weak, the consumers aren't spending, the private sector is not spending, the only player in the economy that is spending right now is government.

I think there is a strong case to be made that in the short term you shouldn't be doing any spending cuts. But I'm really just holding the Republicans to their promise in saying that if you say you are going to cut government spending, you can't talk about the National Endowment for the Arts, that's 0.01 percent of the deficit. That is not a serious proposal to cut spending.

CNN: Now if you look at the concern over government spending, it seems to have arisen largely out of the concern about the economy overall and the slow recovery from the Great Recession. How do these two issues get mashed together?

Zakaria: I think it came out of the recession, but then also the government's response to the recession which was the stimulus bill, the tax cuts that came along with it, all of which widened the deficit substantially. The largest part of the deficit widening of course was the collapse of tax revenues because of the recession.

When you have a recession, people lose their jobs, if they lose their jobs, they stop paying taxes. I think that it was the recession, but then the government's response to it which [widened] the deficit that has sort of scared people and made them think, oh my God, we are on an unsustainable path...

Unfortunately in the short run you have to be willing to tolerate some deficit spending because the government is the only player in the economy spending, but I don't think you can just say the government can keep spending like this forever. Government spending has to be a bridge to the private sector and the consumer eventually beginning to spend again.

CNN: What makes the deficit unsustainable?

Zakaria: The government at this point already has a budget deficit of over 10 percent of GDP, so the question you've got to ask is not: Is government spending and the deficit OK? It is how much is OK on top of where we already are, and I think that's what's scaring people.

So, I understand the fear, the problem is we're in that kind of counterintuitive moment in macroeconomics where you would actually worsen the economy if you were to cut government spending too dramatically.

I do think the concerns of people about the deficit are grounded in reality and that's why my own view is that you have to start getting serious about the deficit.

You probably want to phase in these measures, with spending cuts, tax increases, whatever they are, over a period of time because to do it all suddenly would begin to have the effect of taking an already fragile economy and delivering another blow to it.