You say the "goal of the book is to get Americans to wake up in time to avoid a financial crash that could bring our great country to its knees." What's this mess all about?
We have several things going on. One, we're running a record federal deficit. This year, Bush projects a $521 billion deficit, and that does not include the money he's borrowed from the Social Security trust fund. If you put that in there, it's closer to $700 billion. That's one of the largest deficits as a percentage of our economy that we've ever run. In fact, it could be the largest.
Do you think the Bush Administration is using fuzzy math?
It's doing what all the politicians have done. It's not just a Republican thing. It's a Republican and Democratic thing. The politicians are unwilling to face up to the fact that the two major entitlement programs, Social Security and Medicare, are not funded properly. Within four years, the first Baby Boomer qualifies for reduced Social Security; they'll turn 62. In eight years, they start to retire in force, and they've been asked to pay into these programs all their lives, and what they're going to discover is that the money that they've paid into those programs has already been spent.
Back in 1992, you co-wrote, with Harry Figgie, the best-selling Bankruptcy 1995 in reaction to the highest national deficit in U.S. history. What happened to prevent fiscal calamity in the mid-'90s?
One, President Bush Sr. broke his promise. He said, "Read my lips: No new taxes." And he actually did raise taxes because he was concerned about the size of the deficit. In '93, Clinton had the largest tax increase in the history of our economy. In '94, we elected a mixture of Republicans and Democrats who signed a Contract With America. They vowed to slow down the rate of increase in government spending. With the combination of some additional tax revenue and a very major reduction in spending growth, we went from running huge deficit to, in the end of the 1990s, running huge budget surpluses.
So how did we end up back in trouble now?
Our percentage paid in taxes of GDP is the lowest it's been since World War II. It's 15.8 percent of GDP. It has averaged, since World War II, somewhere between 18 and 20 percent of GDP. So we've pretty much said we're not going to pay for as much government as we used to. Some people can say that's fine, but if you're going to cut taxes, you have to have the courage to cut expenditures to offset the loss of revenue. We didn't do that. Not only did we have major tax cuts, but in the last few years, domestic spending has increased by 24 percent.
Are tax increases the automatic economic disaster that many politicians make them out to be?
I'm not a fan of taxes, but when I was writing this book, I saw that Bush Sr., at the end of his administration raised taxes, and then I found that Reagan had cut taxes when he was initially elected and then raised them almost every year after that during his administration. And Clinton raised taxes in 1993. The economy, from 1994 to 2000, in all sectors--not just the dot-com bubble--was spectacular. So I'm not sure that taxes are the curse that everybody says. I guess as an economist, I would prefer to have taxes on a broad base, as opposed to on the margins where they do influence people's decisions.
What's the smart fiscal strategy at this point?
What we need to do is stop this incredible growth in spending. Everybody seems to think it's defense spending. We have increased record spending in nearly every segment of the government. Once we started asking for money for defense, they loaded every other issue they could into those budgets because they knew they were going to pass. At some point, we'll have to revisit the idea of readjusting taxes and admitting that, "You know what? If you're going to provide government services, somebody's gonna have to pay for them."