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Hatchet Job; November Surprise

Aired December 8, 2012 - 09:30   ET


CHRISTINE ROMANS, HOST: Thanks, Randi. See you at top of the hour.

Going over the fiscal cliff doesn't mean your taxes go up, it means programs and services that touch virtually every aspect of American life are downsized.

Good morning, everyone. I'm Christine Romans.

America can't afford itself. We've got a long-term debt and deficit problems, and these are the folks who have to fix it. How close are they?


SEN. LINDSEY GRAHAM (R), SOUTH CAROLINA: I think we're going over the cliff.

TIMOTHY GEITHNER, TREASURY SECRETARY: What we can't do is sit here and try to figure out what works for them.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: We look forward to the time when they are specific.

SEN. RICHARD BLUMENTHAL (D), CONNECTICUT: They need to be more specific.

SEN. DEBBIE STABENOW (D), MICHIGAN: They have to be willing to come to the table with specifics.

REP. ERIC CANTOR (R-VA), MAJORITY LEADER: We've not had any discussion and specifics with this president about the real problem.

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: We need a response from the White House. We can't sit here and negotiate with ourselves.



ROMANS: Further apart than ever.

You've heard endless arguing about higher taxes on the rich. Let's set that aside for a moment, and talk about the sequester -- that budget wonk word for a thing that will touch every American -- $1.2 trillion in automatic budget cuts over the next decade, more $100 billion next year alone, half in defense and half in non-defense. Defense programs will be cut by 9.4 percent across the board, the domestic programs, 8.2 percent.

And this isn't abstract anymore, folks. Agencies are being told to identify the cuts.

How will you feel them? Well, first, your help -- fewer food safety inspections are likely. CDC budget cuts could make it harder to track food borne illness outbreak.

Care about cancer research, cuts to the National Institutes of Health, the National Science Foundation, National Cancer Institute means 2,500 fewer research grants.

Worried about clean air and water? The Obama administration says EPA budget cuts will, quote, "degrade its ability to protect the water we drink and the air we breathe."

Next, your safety. We could see fewer air traffic controllers, federal air marshals, FBI agents, border security patrols -- all those budgets would be cut.

Disaster relief funding also on the chopping block. The White House says that will undermine Federal Emergency Management Agency's ability to respond to terrorism and other catastrophes.

And education could be cut by more than $4 billion. A hundred thousand children could lose their place in Head Start. The White House says more than 25,000 teachers and aides could lose their jobs. The National Education Association, it puts that number even higher, closer 80,000 jobs lost.

Marc Morial is the president of the National Urban League, Will Cain is a conservative CNN contributor, and Jeanne Sahadi is a senior writer at CNN Money.

Now, Marc, of course, all of this -- all of this, is if they go over the fiscal cliff and they don't fix it, and they never fix it, right? The worst case scenario.

My question for you. So much talk about taxes for the rich. But isn't it true if the sequester goes into effect and isn't fix, this will disproportionately hurt the poor?

MARC MORIAL, PRESIDENT, NATIONAL URBAN LEAGUE: It would because it would be tax increases on middle and working class Americans, and hard cuts across the board in defense and domestic programs, including education and job training. So there's --

ROMANS: Almost 700,000 mothers and children will lose nutrition assistance, 80,000 fewer child care subsidies and 14,200 fewer homeless would receive assistance. This is what agencies are preparing for as they do these cuts.

MORIAL: Remember, Congress set this up. They set the cliff up in an effort to be responsive, to quote, "the need for deficit reduction." They set this deadline. They obviously have an option of pushing the deadline back and continuing to negotiate, but they ought to get together and flex their positions a little bit, and I think they can find common ground.

But here's the most important thing -- you know, many, many programs have already been cut before the fiscal cliff. Many Americans have already paid the ultimate sacrifice with the loss of their jobs and the loss of their homes. That's why there's so much of a focus I think on looking at those Americans who have done the best in the recovery and asking them to do a little more.

ROMANS: Is it austerity? Is the fiscal cliff sort of like austerity?



ROMANS: What we've been saying that Europe shouldn't have done so severely.

CAIN: And that's the point. Marc said maybe we can put this off, but you can't put off reality. You're going to pay the piper. The question is the creation of Washington of the fiscal cliff or is it a creation of your investors and bondholders across the world that look at you in the same light as they do Europe some day. We all know that day is not here yet.

Let me just suggest you this. This is a lesson for the Republican Party, and I actually think it's a lesson we should all take. Instead of when we look at all these programs, Marc, where are we going to make cuts and how terrible is this going to be, we need to judge our concern and empathy, not by the money, something Marco Rubio and Paul Ryan talked about, by the outcomes, right? Not how much we spend but what we get out of it.


CAIN: And if you look at everything, so how much money we throw at it -- we're always going to be suggesting more, more, more.


ROMANS: Government does such a good job of tracking outcomes, don't they? They can't even track.


MORIAL: Let's track the outcomes of tax loopholes, too. So if we're going to evaluate outcomes, I think it's important to evaluate the outcomes of tax loopholes, too.

ROMANS: Jeanne, how quickly will all this felt? If -- so, say they have some kind of a deal three weeks into the New Year, that doesn't help you if you're trying to run an agency budget, really, because you've got to make plans for January 2nd. JEANNE SAHADI, CNN MONEY: So, this is the -- the Office of Management and Budget, the White House Budget Office, finally told agencies, OK, now, you should really plan for these cuts. We still don't think it will happen, but we should have plans in place in case they do.

What people aren't talking about is that the OMB and even federal agencies themselves can sort of postpone the impact of these cuts for at least a few weeks into the New Year if we go over the cliff and if legislators are going to promise they're going to get a deal. So you may not feel these cuts at all.

I should also say we don't know where the cuts are really going to come from because all we have are percentages per agency. It's going to affect a lot of things we talked about probably, but to the extent we can't say.

ROMANS: Can you get the agencies that will (INAUDIBLE)? This is something I've heard from conservatives, that the only way to get efficiency and innovation from some of these agencies who have seen just budgets go up, up, up, up, up, is to cut back, make them do more with less. Is that fair? Is it right?

CAIN: Well, first philosophy I do believe. There are some conservatives and liberals and Democrats who believe this is all a contest about getting the right guy in place, the guy that knows how to run something efficient. I don't believe in the concept of efficient bureaucracy.

I believe that the only way you're going to make something smaller or better is to simply cut it. I just don't believe in efficient government.

MORIAL: What I've got a problem with the selective cuts -- yes, OK, if you're going to have and suggest cuts here, why not look at every aspect of government. So, that includes --

CAIN: Absolutely.

MORIAL: -- tax loopholes and the defense budget also. And that's really been the debate inside of the debate, inside the room. It's not just about cuts. It's a conversation about where you cut.

CAIN: That's a good point. Let's talk about the elephant in the room and that is the middle class. When we talk about government spending the vast majority is on the middle class through Medicare and Social Security and can't dance around and say we don't want to touch these because it's politically unfeasible. We have to talk about that as well, because that's the biggest portion of spending.

MORIAL: And there are inefficiencies there that can be yielded.

But let me say the bottom line, Christine -- nothing should be done that's going to retard economic growth. Nothing should be done that's going to cost us more jobs, because, quote, "You can fix the fiscal cliff and still send the economy downward."

ROMANS: The fiscal cliff, isn't it already having real impact in the economy now?

SAHADI: It's having real impact now. That impact will grow, the longer we take to come to a deal, some deal, any deal.

What everybody wants, individuals who are going to be paid in January, they don't know how much and businesses, so what's the deal? What are going to -- what do we have to plan on?

MORIAL: The best down payment would be to continue tax rates at the middle class for the rates they are now. That would be the best down payment. That's the best easy first step and I hope Congress will realize take a step and take it now and give the president something he can sign.

ROMANS: All right. That has to be the last word. Thanks, guys.

Coming up: from the downward slope of the cliff, to the upward climb on jobs -- a big surprise in the November jobs numbers. It's a step in the right direction, but Ali Velshi will join me with a look at why we need to do much more.


ROMANS: Hiring picked up last month despite the wrath of superstorm Sandy. Let's dig inside these numbers. You can you see that 40 percent of the unemployed have been out of work for six months or longer, that's something we still need to fix.

Something else we need to fix, the underemployment rate, 14.4 percent. Those are people who are out of work or working part time and would like to be working full time. Again, another number that we have to fix.

I want to show you where the jobs are. This is pretty important to look at. Fifty-three thousand retail jobs added, likely holiday hiring, no question. But some of these are going to be temporary jobs and not all of them are paying benefits or full-time.

Looking further within the numbers, you can see professional and business services, 43,000 jobs created there. The government pointing out the computer system analyst and related industries very, very strong job growth there. Another reason why stem pays.

This is the trend because we always look at these numbers in, you know, context for where we've been -- the recession, millions of jobs lost and here is what we've been doing month after month, putting together two full years now of job growth.

I want to bring in Ali Velshi, CNN's chief business correspondent, host of "YOUR MONEY".

Ali, since the beginning of the year job growth has averaged 151,000 a month.


ROMANS: Economists say we need at least that and more to keep up with the growth in population.


DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: We need at least 150,000 to 200,000.


ROMANS: How do we do better?

VELSHI: Look, we've got to fix the things that got broken in the recession. So, we do need the construction jobs back. We do need manufacturing jobs back.

And if Congress gets past the fiscal cliff, what you're going to start to see is -- there's been a groundwork laid for an economic renaissance in the United States. Gas prices, natural gas prices, have come down because we're finding so much of it, we're producing more oil, we know there's a housing boom and there's been a resurgence in manufacturing.

Now, the problem with manufacturing is not creating as many jobs. We are -- we have --


VELSHI: -- more manufacturing output.

But those are the areas we can concentrate on, energy, manufacturing and housing to create more jobs, and that's already kind of happening. Government can only stand in the way of this right now by not getting the fiscal house in order.

ROMANS: Yes, and that's what's so important here because you want to see things looking forward, grow better than we have this year. But you've got the fiscal cliff in the way.

You know, Republicans say if you raise taxes on the top 2 percent, that's going to hurt small business and it will kill jobs. I talked to the CEO of FedEx and he says there's, shall we say, mythology around that assumption. Listen.


FRED SMITH, CEO, FEDEX: The reality is the vast majority of jobs in the United States are produced by capital investment and equipment and software that's not done by small business.

ROMANS: Right.

SMITH: It's done by big business, and the so-called gazelles, the emerging companies like the new fracking oil and gas operations.


ROMANS: We've talked about this so many times. VELSHI: Yes.

ROMANS: It's demand that creates jobs.

VELSHI: That's exactly right, and I'm glad Fred Smith says that. We've gone from understanding that small business creates most of the new jobs generally in the United States, not all jobs. Now that doesn't mean we shouldn't do all we can for small business because they are going to be on the margins where the new jobs come from, but we have got to have an environment that creates jobs for everyone.

And you've done the studies yourself to show that increasing taxes on the top 2 percent, the portion of that that falls into small business owners who actually pass that through their personal income, is small and the portion of those that actually employs several workers is small.

So I'm not arguing that taxes should go up for the rich. That's somebody else's argument to have. My point is it's not going to crush the economy to do so.

ROMANS: So much heat of the conversation is just around the taxes for the rich.


ROMANS: Also these jobs numbers, these are rearview mirror. We need to be --

VELSHI: Absolutely.

ROMANS: -- talking about how we're going to fix it, how we're going to -- how we're going to buttress the recovery.

VELSHI: We're not in an election now. So, now, we look at the future.

ROMANS: Yes, that's absolutely right. Ali Velshi -- thanks, Ali.

VELSHI: All right.

ROMANS: Up next, America's oldest dictionary has announced the words of the year. Take a look. Can you tell it was an election year? Which of these words was the most popular search in 2012? The answer after the break.


ROMANS: Merriam Webster has announced its word of the year. And this year -- well, it's actually two years, socialism and capitalism. You got to wonder if those lookups were attempts to end some fierce family debates during this election -- socialism and capitalism.

Other top searched words of 2012, touche, bigot, marriage and democracy. Also on the top 10 list, malarkey. That word could be used to describe a lot of what's going on in Washington right now. We're 24 days away from beginning to go over the edge of a fiscal cliff, and seemingly no real talk. Just, well, malarkey.

There's one solution, of course, called compromise. It's a dirty word in Washington, sure, but most Americans, believe it or not, are in favor of it. According to a new Gallup poll, 62 percent of Americans would like to see lawmakers compromise on an agreement to avoid the cliff.

Just 25 percent want leaders to stick to their party's principles on the issues of spending cuts and tax increases, and it's a sentiment both parties share. A majority of both parties favor compromise, 71 percent of Democrats and 55 percent of Republicans.

So what's going to take to get lawmakers to grow up and come to a compromise?

CNN's Kyung Lah went outside the Beltway to find out.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We cannot afford to extend the Bush tax cuts for the wealthy.

REP. JOHN BOEHNER, (R-OH) SPEAKER OF THE HOUSE: Seven hundred thousand jobs would be destroyed.

KYUNG LAH, CNN CORRESPONDENT (voice-over): Two sides, ground into their positions but they can meet in the middle. Just ask tough negotiators outside the Beltway.

JACK TRIMARCO, RETIRED FBI HOSTAGE NEGOTIATOR: I'm the negotiator who knows how to deal with bad guys.

LAH: He's not talking about politicians, but crooks, literally. Trimarco was the FBI's negotiator in mutable high-profile bank standoffs. He says he peacefully freed dozens of hostages over his 20 years with the agency. He negotiated seemingly impossible deals and says he never lost a life.

(on camera): You have to plan for everything going wrong as a negotiator.

TRIMARCO: Yes. You've got to be ready for it, and to deal with it. And you've got to be flexible.

LAH (voice-over): But not too flexible.

The lawyer for Hollywood heavy weights like Harvey Weinstein, James Cameron and Tom Cruise knows about ugly divorces, public fights with studios and, yes, fair deals.

BERT FIELDS, HOLLYWOOD ATTORNEY: At what point is it better to have no deal than the deal that's being offered?

LAH (on camera): Do you have an appreciation for what Obama and Boehner are looking for? FIELDS: Oh, absolutely. I sympathize with both of them. It's not fun for these guys, because there's too much at stake. Fun for me, because the worst that happens is my client gets less money, not the end of the world. It may seem so.

LAH (voice-over): Maybe you can't please everyone, but even children know, you have to cooperate.

UNIDENTIFIED FEMALE: Maybe you can work together, build together? Maybe connect it? What do you think?


LAH: A daily lesson on the playground, working together sprouts even better solutions.

UNIDENTIFIED MALE: That's a great idea. Do you want to see my great idea?

LAH (on camera): Do you think that these lessons on the playground need to be transferred to D.C.?

PATTY LUDWIG, THE NEIGHBORHOOD SCHOOL OWNER: Absolutely. Absolutely. We need -- we need to find a way to work together, to figure out what's going to be acceptable to everybody. We've got to figure it out. Otherwise, I mean, we all lose.

LAH (voice-over): there's nothing surprising here, because maybe it's just that simple. So if they can do it --

(on camera): How old are you guys?



LAH (voice-over): Maybe the political playground can do it, too.


LAH: OK, these guys are 5 years old and they're able to do something that D.C. can't. It simply makes so much sense to people outside the Beltway. People are asking largely as we watch what's happening inside the Beltway, why can't Speaker Boehner and President Obama get on the phone and simply work it out -- Christine.

ROMANS: I guess you could argue if you've been in Washington for too long, you've been so far away from a real business deal or from kindergarten that you kind of lose that fundamental sense of how to fix it.

Is there a sense, Kyung, that -- frustration really outside the Beltway, that Obama and Boehner aren't talking more?

LAH: Yes -- oh, yes. I mean very simply put, oh, yes. Absolutely, because the sense is that if they were talking, then they would be able to work it out. People outside the Beltway -- and this is the reality here -- they're not in the weeds like D.C. is. They're not paying attention to exactly who gives and takes.

What they want to know is there's going to be a deal in place, that we're not going to drive over the fiscal cliff.

Something else that's resonating outside the Beltway is that House members decided to call it a week by Wednesday. So, what people are wondering is why aren't they spending the weekends working this out? Why are the people outside the Beltway having their financial future put in jeopardy because they can't work out a deal?

ROMANS: Kyung Lah, what a great piece. Thanks so much. Have a great weekend.

LAH: You bet.

ROMANS: If you think this fiscal cliff fight has been a low point in American politics --


CANTOR: The president seems obsessed about raising taxes on you.

OBAMA: We're not insisting on rates just out of spite or out of any kind of partisan bickering.


ROMANS: I'm going to tell you why it might seem downright friendly compared to the next legislative battle.


ROMANS: If you think the fight over the fiscal cliff is ugly, just wait until you see the battle over immigration reform. We've already had a little taste of what's to come with the fight over a bill recently passed in the House.


REP. HANK JOHNSON (D), GEORGIA: If it's not racist in its intent, it's certainly racist in its effect.

REP. DARRELL ISSA (R), CALIFORNIA: I'm personally insulted that anyone would use even loosely the term of racism as part of a statement related to merit-based advanced degrees.


ROMANS: That exchange came after the House passed a bill providing more visas for foreign graduates who earn advanced degrees in the United States. Sounds reasonable, right?

But it did that by eliminating 55,000 diversity visas. Those are visas doled out in a lottery system and they tend to go to underrepresented minorities.

Here's what we have to decide. Do we favor families or skills?

Last year, the United States granted more than 1 million green cards. Nearly 65 percent went to immigrants sponsored by a family member already in this country, only 13 percent were handed out based on specific in demand job skills.

Is the message we're sending "give me your tired, your poor, your huddled masses but not your PhDs"? Nothing is more important to this economy than having the right workers with the skills that fit our jobs. Yes, but you can't alienate a demographic that's now 10 percent of voting population. The GOP gets that.

Ironically, the almost invisible former President George W. Bush this week told this issue to reappear.


GEORGE W. BUSH, FORMER U.S. PRESIDENT: Immigrants come with new skills and new ideas. They fill a critical gap in our labor market. They work hard for a chance for a better life.


ROMANS: I'm making a prediction here. After we resolve the fiscal cliff, immigration reform will be the next big legislative push. Prepare yourself for the battle to come over comprehensive reform, as they call it.

Imagine you could reinvent the American immigration system. What would you do?

Canada, the U.K., Australia, Denmark, Singapore, Hong Kong -- they have a points system. Admission is awarded based on skills, experience, and education. Maybe that's the answer. Maybe it isn't. In a country that's always favored the underdog, we haven't really put much thought into this, have we?

This fiscal cliff fight is going to end one way or another and then the real work begins. Immigration reform is ahead.

Let's keep the conversation going. Find us on Facebook and Twitter. Our handle is @CNNBottomLine. My handle is @ChristineRomans.

"CNN SATURDAY MORNING" continues now with the top stories we're watching.