INTERVIEW TRANSCRIPT

C-SPAN’S “NEWSMAKERS”

Guest: Congressman John Spratt (D-SC) Chairman, House Budget Commitee

Reporters: Ashley Roque, CongressNow & Mike Soraghan, The Hill

Moderator: C-SPAN

TAPE DATE: Friday, October 26, 2007

AIR DATE/TIME: SUNDAY, October 28, 2007 at 10 a.m. and 6 p.m. ET

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PETER SLEN, HOST: This week on the “Newsmakers,” the chairman of the House Budget Committee, Congressman John Spratt, a Democrat of South Carolina, to talk about some of the issues facing his committee, including government spending, war tax and war funding.

Here to question him: Ashley Roque of CongressNow, which is a Roll Call publication; and Mike Soraghan of “The Hill” newspaper.

Ashley Roque, first question to you.

ASHLEY ROQUE, STAFF WRITER, CONGRESSNOW: This week the Congressional Budget Office delivered its estimate of what the war is going to cost. There were some different figures in there. One was $2.4 trillion.

Can you talk about some of the concerns you have? And that estimate didn’t even include fixing military equipment when it comes back from Iraq and Afghanistan.

U.S. REP. JOHN SPRATT (D-SC), HOUSE BUDGET COMMITTEE CHAIRMAN: Well, it includes fixing military equipment to the extent that it’s included in the supplementals that have come to us.

There’s a big account in the latest supplemental called reconstitution. We used to call it reset. Reconstitution has a little bit different meaning and a much bigger price tag – over $40 billion for one year to reconstitute the equipment that has been broken, worn out or needs to be discarded and replaced with brand new equipment.

So, that is in the base of their estimate. But you have to emphasize that what they have done is an estimate.

We asked them to do two things that we typically don’t receive from DOD. Look into the out years – five, 10 years – and tell us at certain levels of troop commitment, what’s the cost going to be between now and 2017, 10 years from now?

We gave them two scenarios in particular. One is, let’s assume that we draw down to 30,000 troops in about two years in theater – not necessarily in country, but in Iraq and Afghanistan theater. Then what would the cost be?

And they said, for a 10-year period of time, about $570 billion on that assumption.

We then said, let’s go to a bit more robust assumption. There’s a drawdown by 2013 to 75,000 troops in theater, and the troop level remains at that level for the next five years, through 2017.

They said, in that case the cost will be about $1.055 trillion.

We also said to them, since we’re borrowing, running a big deficit and borrowing all of the costs for both wars, Afghanistan and Iraq, what is the imputed interest for what we appear to be borrowing?

And they came back and said, in the first scenario at 30,000 troops, the imputed interest is about $590 billion over a 10-year period of time – over the full period of time, from 2001, when we started in Afghanistan, through 2017.

They have not in the past included interest, so that increased their total under that scenario to $1.7 trillion.

They also ran the numbers and the interest for a troop level of 75,000 troops. The interest on that is more, $705 billion. The total is $2.4 trillion.

So, the brackets in those two scenarios of all-up costs, including interest, run from $1.7 trillion to $2.4 trillion.

MIKE SORAGHAN, REPORTER, “THE HILL”: Mr. Spratt, if I could jump in there. The two scenarios that you laid out to the Congressional Budget Office to run numbers for, what are the policy, real-world ideas you have there?

Is 30,000 what you would expect to be in theater, as a maximum, say, if we really withdrew and followed a Democratic policy? And is 75,000 sort of a minimum of what we need to pursue President Bush’s course? Is that how you view that?

SPRATT: Well, I think 30,000 is probably too low, given the fact that we are talking about the theater, and we’re talking about Afghanistan as well as Iraq.

We’ve got right now about 30,000 troops in Afghanistan, and I don’t see us drawing well below that number in the foreseeable future. So, that’s probably the all-time best case for the time being.

The 75,000 troops is more realistic – maybe more robust than some would like to assume. But you need to bear in mind, probably half of those would be in Afghanistan, and the other half would be somewhere in the region, not necessarily in Iraq.

We can’t purport to foresee what the future holds. But heretofore, CBO has chosen an in-between number, 50,000 to 55,000 troops. We said, let’s take a lower number on the one hand and a higher number on the other hand, and see what the results are.

ROQUE: How are you planning on using this analysis as you go forward with legislation? Just as a base or especially dealing with the interest …

SPRATT: Well this …

ROQUE: … aspect of it?

SPRATT: First of all – and I’m glad you asked that question, because we’re not saying that cost is the determinant of what we do in Iraq or Afghanistan. But we are saying that, when you get to the level of this level of expenditure in the aggregate – cumulative cost of $2.4 trillion – that’s a consequential set of numbers.

That means tradeoffs somewhere. In order to do this, to maintain that level of effort in that region, those theaters, it will mean – I’m not trying to forward (ph) what it’ll mean – but something will have to give.

And we all know that the baby boomers are retiring next year; 78 million of them are on a march to their retirement as we speak here today. It’s going to change the demographics of the budget dramatically. And while defense is the first obligation of the federal government, the obligation we have to Medicare and Social Security beneficiaries is a compelling obligation, too.

So, there are going to be some tradeoffs down the way, if these numbers do indeed obtain.

ROQUE: When can we start to see some of these tradeoffs? In the ’08 – or, sorry – the ’09 budget?

SPRATT: Not yet, I don’t think so. But we are seeing them, if you look at some of the things we’re doing at the margins.

For example, everyone would agree that we need to have a robust, dramatic energy program that concentrates on renewals, new fuels, dramatic fuels like hydrogen, incentives for building nuclear plants – this whole thing. And we have passed two energy policy bills, one in 2005, one recently in the House that went a bit farther.

And while they are constructive – particularly the latest bill I think was a good piece of legislation – it really is rather minimal at its level of funding. And that’s part of what you’re seeing in the budget, is without a direct confrontation between that and defense, the weight of the defense budget is holding back our efforts to do what would be dramatic things in areas like energy efficiency, energy conservation and new fuels.

SORAGHAN: Mr. Chairman, as you mentioned, basically all the money that the U.S. has spent on Iraq has been borrowed. Generally it’s been funded as a supplemental. There’s been discussion of asking or forcing the president to include the war costs in the next regular budget. That would demonstrate either the budget being out of balance or cutting other priorities to make it balance.

Do you think that the Congress can get the president to submit his budget that way?

SPRATT: I think we did the better thing last year, and it’s reflected in the way the president presented his budget this year, to some extent. And that is, we’ve said to the president, we want the supplemental for the war broken out as a supplemental separately. But we want it to come with the base budget, so we know overall, including both budgets, how much total spending will be for Iraq, Afghanistan and the global war on terror – enhanced North American security included.

If you integrate the two, it’ll be hard to identify exactly what the incremental costs for those separate engagements is. As it is, we have some definition of what the additional cost imposed on the budget is.

And if you include them with the base budget, with the regular defense budget, if and when – and let’s hope soon – these costs begin to diminish and we begin to redeploy our forces and to reduce our costs to some extent, it will be easier to figure out what costs should be reduced and cut, without being prey to the argument that you’re now coming after the basic defense budget.

So, I think it’s a good idea to have them in parallel, but not to integrate the two so that you can’t separate out and identify easily the incremental cost.

ROQUE: When talking about the supplemental and the base bill, a lot of lawmakers are concerned that the supplemental and funding for the wars is going to begin eating into the Pentagon’s key modernizations programs, such as the Future Combat System.

What concerns do you have about the wars impacting the military’s modernization effort?

SPRATT: Well, it’s a good point. One of the consequences of the level of expenditure we’ve got now and in the foreseeable future, one of the major consequences is the effect on the defense budget itself.

Partly because of cost, but also because of resources, we’re buying 180, 183 F-22s. That’s our premier air superiority fighter. Originally we were buying several times that number. We are now reduced to just over 180.

The same is true of the F-35, which will be the air-to-ground, basic warhorse for some years to come. In our Air Force there’s supposed to be, I think, 1,065, and now it’s down to 800 or 900 airplanes.

Those marginal changes are subtle effects of the additional cost we are incurring for the engagements we’ve got in Iraq and Afghanistan. That’s one of the consequences. That heavy spending elsewhere is affecting modernization and transformation, which is what the Bush administration came to office saying that they were going to do.

You have very little accomplished in the way of transformation. The Army Future Combat System, like the F-22, has been cut way back. And once again, one of the reasons is the extraordinary cost that we are committing to the Persian Gulf war.

ROQUE: Are you predicting further cost in moving forward in the next few years? And what impact do you see that having on military readiness?

SPRATT: Well, it’s a slow impact. It’s not anything dramatic. But across the board, in different programs – education, fuel efficiency and fuel research, alternative fuel research – and the defense budget itself, we’re seeing a shrinkage in commitment, a diminution of resources that would be used for things we really need to be doing.

These are consequential numbers, and they are squeezing out other things that we probably could do that would enhance our security, as well.

That’s one reason we get the numbers together and say, without passing judgment on what they mean or on how much we should be spending as a normative amount, we simply say, this is the cost or the consequence of the path we’re now on.

We leave open the question as to whether or not it’s sustainable, or whether or not this path is preferable to the other things that you might be able to buy, the opportunity costs that you are foregoing, because of the enormous commitment we’ve got to this engagement.

SORAGHAN: Chairman Spratt, there’s a lot of discussion now about the supplemental budget and basically when it will be debated, and how long the president should have to wait for the supplemental, for the Iraq money, if he gets it at all.

When do you think that will come up? Will it come up before Christmas?

SPRATT: Well, I think it will come up before Christmas, no doubt about it, because we like to adjourn by Christmas, at least this first session of Congress. So, it’ll probably come up in the context of the negotiation over the appropriation bills as a whole.

The president has told the Congress that he will veto domestic, non-defense appropriations in six or seven different bills, equal to about – I think it’s $21 or $22 billion.

Those negotiations have yet to begin. We really haven’t gotten identification of the numbers he’s talking about. We basically know what he is aiming at.

But the defense bill will be one of the issues in contention. Not that it’ll be cut significantly, but the question may come as to when we pass it, do we use it as leverage in trying to extract some kind of reasonable compromise from the president on these other issues.

ROQUE: So, moving forward right now, are you planning on holding off on the defense appropriations bill and sending some of the other spending bills forward?

SPRATT: I can’t say that for sure, because I don’t think anybody has developed the set of tactics we plan to use.

And let me say one thing very emphatically. We are not going to do anything that jeopardizes our troops in the field. So long as we give the troops the work (ph) that they’ve got to do, the mission they have to undertake in places like Iraq and Afghanistan, they deserve our unstinting support. And we’re not going to do anything that would undercut their ability to defend themselves and carry out their mission.

SORAGHAN: So, do you – Mr. Obey, the chairman of the Appropriations Committee, has said he’s not sending a bill, a supplemental – an Iraq supplemental spending bill – to the floor unless the president changes course.

Given that the president probably won’t change course before Christmas, do you disagree with the idea that …

SPRATT: Well, David is a super guy. And he’s an important member of the leadership, but he’s one of several in the leadership. And I don’t think the actual tactics have yet been devised.

Among several things, we haven’t sat down for the first round of negotiations with the administration to find out what it is they are actually targeting. Are they going after earmarks? Are they going after education programs?

Are they going after veterans’ programs? I think not.

We increased the veterans’ programs above the president by $3 to $4 billion. He could go after that incremental amount, but I don’t think he’s going to take us on on that particular issue.

Education is an embarrassing thing for him to have to do in a year that he’s asking for his signature program to be renewed. And everybody recognizes the money has not come with the mandates on No Child Left Behind.

Is he going to persist in seeking cuts in education? His budget request sought a $1.5 billion cut in education – not below the cost of living, but an actual cut of $1.5 billion.

And then job training and employment services and education – the broad account we call function 500, which is education broadly based – he seeks cuts of $3 to $4 billion. We simply don’t think at this period in time we should be making cuts like that at the federal level. We should be telling the rest of the country, this is really something we’ve got to have a national commitment to.

And so, this will be a – if the president really wants to go to the mat with us on issues like this, then I think that no holds will be barred. We’ll see where the negotiations come out. But we’re going to stick to our principles when it comes to things that we really think are important, like SCHIP, for example.

ROQUE: Chairman, on the supplemental, many Democrats – one of the reasons for holding off on taking the actual bill into consideration to begin with is not to give the president a blank check, so to say.

But if you attach bridge funding to the appropriations bill, isn’t that similar to a blank check? And how do you determine how much money to use to put towards the bridge fund at this point?

SPRATT: Put towards the …

ROQUE: Bridge fund to attach to the defense appropriations bill.

SPRATT: Well, we will have determined that based on what we’ve already done with 302(a) allocation and our budget resolutions. We have a concurrent budget resolution. In passing it, we set an overall level of discretionary spending, 302(a), and then the committee itself allocated that among 11 or 12 subcommittees, 302(b) process. And that’s the sum total that we will be beholden to.

The president wants to reduce it below that number. He actually – we have a difference between us and him of about $7 billion over and above the cost of inflation, what we call current net (ph) services – certain programs in the aggregate of about $7 billion above current services. That’s the kind of spending he’ll probably go after.

But it’s for the Department of Education. It’s for energy research and things of that nature.

Then he’s got about $15 billion in cuts below inflation – true cuts, that are less than what inflation requires to keep up purchasing power. That’s where you get seven plus 15 equals 22 – the difference between us.

ROQUE: Let me rephrase it.

I mean, how much of the supplemental – it’s a $196 billion request right now – how much of it will you put to attach to a bridge fund to get you until you take up the supplemental after the new year?

SPRATT: How much will be put for taxes?

ROQUE: No, no, no, no, no. For the troops.

SPRATT: Oh, for the troops.

ROQUE: For the supplement – yes, the defense supplemental.

SPRATT: Well, it’s probably – the amount that goes to the troops is likely to be pretty close to the request. There’s enough money in the defense budget and in the C.R. that we’re operating under right now in the continuing resolution, to fund the troops well through the month of January.

Now, to some extent, DOD – the Department of Defense, the Pentagon – has to borrow from Peter to pay Paul. They take out of one regular activity account for operations and maintenance, and put it into the war activity account for operations and maintenance. And then when they get funded for the incremental cost of the overseas engagement, they switch the accounts around again. They pay themselves back.

And that kind of process can go on for several months before they’re really crimped. And that could happen if we can’t come to an agreement.

We’re not really that far apart. There’s been a lot of rhetoric about the standoff between us and the president. But when you look at this and compare it to previous years and look at what the items are, we’re not really that far apart. If we – if we in earnest, if we want to resolve a problem and not simply have an issue to kick around, this is not that difficult of a problem to settle.

SORAGHAN: Mr. Chairman, you mentioned that you’re not going to do anything to jeopardize the troops. And you’re saying that you think you could get a supplemental taken care of this year.

Are you of a mind that it is either not a good political or a good policy idea to make the administration wait for that supplemental funding, make the Pentagon wait for that? Is that – do you think it’s too …

SPRATT: Well, the policy idea would be that we’ll settle everything or nothing. We’ll put everything into, onto the table that’s a bone of contention.

SORAGHAN: All the appropriations bills and …

SPRATT: This is always the way we do a conference agreement, particularly on the Armed Services Committee, where we have the biggest authorization bill of all. We simply say, as conferees, not anything is agreed to until everything is agreed to.

Now, that would be the policy basis for leaving defense aside or putting it into the same pool or pot that everything else is.

But as I said, if it becomes a problem, I simply cannot see us withholding funds that would in any way affect the troops, their defense or their operations.

SORAGHAN: Can I jump to a different topic?

Chairman Rangel introduced his, I believe he calls it the mother of all tax reforms, this week. How does that fit into your budget proposal? And how do you think it will fare within the Democratic Caucus?

SPRATT: Well, it’s revenue neutral, as I understand it.

The effects of what he’s doing to the AMT will affect revenues by about $850 billion. But he has a host of other tax expenditure type items that he’s proposing, which would make up for that loss of revenues. And at the end of the day, over a 10-year period of time, the revenue effect would be virtually neutral on the bottom line.

Now, I’ve only sat down myself and looked at that today, this morning, since Mr. Rangel announced it yesterday.

I’ve always said to Charlie, I think what we should do is go to the administration, go to the Treasury, and get them to put their counterpart tax proposal on the table, because I have a sneaking suspicion, if they did that, they would be going after many of the same tax expenditures or tax concessions that you are in order to correct or fix the Alternative Minimum Tax on a revenue-neutral basis.

And three times, Treasury have come before our Budget Committee and told us with respect to the Alternative Minimum Tax, “No sweat. We can fix it. And we will fix it within the whole tax code – that is, changing deductions, credits, exemptions and preferences, these tax concessions – such that it is revenue neutral, whatever fix we prepare.”

They’ve told us that repeatedly, but they’ve never put their proposal on the table. If they did, I think there would be a pretty good bit of overlap between what they’re proposing and what Charlie is proposing in his initiative.

You can look at what he’s done and see that he’s given a lot of time and attention to putting this package together on a balanced basis, so that some taxpayers might have to pay a bit more. And corporations in particular that do business overseas might have some tax concessions denied them.

But on the whole, 90 million people, according to Charlie, would get a tax cut. This tax package would be favorable, according to Mr. Rangel, for everybody who makes $200,000 or less, and even for some who made more than $200,000.

So, will it be easier to sell a package like this? There are lots of hits. Whenever you start taking away these deductions and credits, you find that they’re in the code for a reason. Somebody sought to put them there, or somebody is favored by them. They’re not just in there incidentally and have been forgotten about over the years. And they come out of the woodwork.

So, it won’t be easy to pass, but the Alternative Minimum Tax won’t be easy to sustain either when it starts affecting middle-income taxpayers who get hit out of the blue by this thing called AMT, and they say, “Hey. Why am I not getting the posted tax rate? Why am I paying this surcharge on my income?”

You tell them the AMT – and also tell them it was never intended for them – they want to know, why haven’t you fixed it?

SORAGHAN: As I understand it, when Mr. Rangel rolled this out – as a fellow committee chair, you weren’t at the press conference – as I understand it, he was pretty much alone. The speaker’s comments on it were pretty minimal.

There doesn’t seem to be a big groundswell of support among House Democrats to cheer Chairman Rangel on.

Do you think it will be supported and popular in the Congress?

SPRATT: Well, I don’t think that you should infer too much from the fact that nobody was there. I think Charlie had played this pretty close to his vest, knowing that it would be a very sensitive issue. And rather than trying to trade it out with other Democratic members, he sent (ph) off (ph) his staff and developed something that he regards as principled and good policy, and he is now putting it on the table – putting it in play, really – with his members and with the Republicans, as well.

So, it was not for lack of support. It just happened to be something that the chairman of the committee, the chairman of the Ways and Means Committee, has largely developed on his own, probably for tactical reasons. But he will have members rallying to support, I’m sure.

ROQUE: Chairman, you’re also a member of the House Armed Services strategic forces panel.

Over the past few months, Russia has kept up its opposition against a third missile defense site and Eastern Europe. More statements have come out this week.

What will we see in the defense authorization bill pertaining to this site? Will the administration be able to go forward and start construction next year – this year?

SPRATT: I think that the money put forward for the most (ph) supply funds for site construction, not for building the radar yet, and not for putting the missiles, the intercept missiles.

It could be that we’ll defer it even more. Certainly the funding, due to the bills in both the House and Senate, will take a hit. How big a hit, I can’t say. But it will probably defer the program for some time – for at least the next year.

Secretary Gates was saying last week that what he would like to do is get an agreement as to how it should be done. And then, when and if the threat appears to be rearing its head, then we would move forward with the installation of the intercept system, the radar, the X-band radar, as well.

So, given his position on it, I think that supports where the House and Senate sort of stand right now. There’s a bit of a difference between us. But I would expect to see some sort of a temporizing posture until we can better define what the threat is.

SLEN: And finally, Mr. Chairman, given the fact that the House and the president are a little apart when it comes to budgetary matters, is there a chance of a government shut-down due to a budget impasse?

SPRATT: For those of us who were here and endured the first shut-down, I think the answer is emphatically no.

I don’t think Mr. Obey is looking for it. I know the speaker is not looking for it. We don’t intend for that to happen – not, at least, because of some action or position we’ve taken.

So, we will continue to support a C.R. in hopes that we can resolve the differences between us. As I said, we’re not that far apart. If we have mutual goodwill between us, if we really want to settle this problem, it can be resolved, I believe.

So, we don’t need to shut the government down. Nobody gains from the. One experience taught all of us that this is not something that the American people appreciate.

SLEN: Chairman John Spratt of the House Budget Committee, thank you for being our guest on “Newsmakers.”

SPRATT: Thank you. My pleasure.

SLEN: We’ll be right back with our reporters.

(BREAK)

SLEN: Ashley Roque of CongressNow and Mike Soraghan of “The Hill,” the continuing resolution for the budget expires on November 16th. We’re talking about supplementals for war spending.

Are we talking about government by continuing resolution and supplemental?

ROQUE: It sounds like that.

I was looking to hear a plan moving forward. A majority of the spending bills have already been completed in the House and Senate, and now conference is going on.

But he still didn’t lay out a plan of how to proceed, if the president does in fact veto several of the spending bills, because there is a $22 billion overrun.

SORAGHAN: Well, and he is making a claim that people of goodwill can come together. We certainly have not seen a lot of goodwill being exchanged between the parties and the Congress and the White House.

What I thought was interesting was saying that he thought that the Iraq spending issue could come up before Christmas, before they leave on their Christmas break. And I’m not sure if it’s clear whether he’s talking about actually finishing the supplemental – or at least on the House side – or some sort of bridge fund.

But if he’s talking about finishing the supplemental before Christmas, that would be a pretty big departure from what a lot of the other Democrats are saying. And as he said, Mr. Obey – who has advocated not sending a supplemental at all until the president changes course – it’s a pretty big difference from Mr. Obey, if that’s what he’s talking about.

SLEN: What else did you hear from the chairman of the Budget Committee?

ROQUE: Just a lot of concerns about military spending and in Iraq, how that’s going to end up shaping some of the other departments. Energy was the one that kept coming up.

So, it’ll be interesting to see how that plays out in the coming years and impacting some Democrats’ priorities.

SORAGHAN: He also seemed to be kind of throwing down the gauntlet on education, saying that – indicating maybe they would be able to tee-up (ph) the president looking like he is vetoing education funding – sort of the same way they’ve managed to position him – the president – as vetoing health care for kids; that at the same time the president will be pushing for a new education authorization, authorizing his signature No Child Left Behind program, the Democrats will be highlighting that he’s cutting funding for education, or he’s demanding less spending on education.

SLEN: But if there is a budget impasse, what happens? He was very emphatic that there would not be a government shutdown. So, if the president vetoes a bill, what happens? What’s their power?

ROQUE: Sounds like C.R. after C.R. until they can reach some kind of agreement. And Democrats haven’t seemed to want to budge on the $22 billion, and neither has the president. And Democrats are now using this $196 billion supplemental to leverage that against just the $22 billion difference.

SORAGHAN: There doesn’t seem to be an appetite for a government shutdown on either side of Pennsylvania Avenue, at the White House or Congress, because neither side really knows after that explosion where all the shrapnel is going to land. And given the risk that it might land on them, neither side wants to do it. They don’t know who wins.

SLEN: Now, you both brought up issues different – or related to the budget, but different.

You brought up a potential tax bill, and you brought up missile site funding. Why?

ROQUE: Well, missile defense just seems to be a hot topic. I mean, it’s gotten pushed a little bit to the side, because of the ongoing war. But it’s just a jousting match right now with Congress.

Congress doesn’t want the administration to go forward and build this missile defense site if they don’t have NATO’s blessing, and if they don’t have some kind of formal agreement with Poland worked out yet.

Where the administration wants the money right now, Congress wants to take a step back and examination the situation a little bit more.

SORAGHAN: Taxes are a signature issue for anybody. It’s one of our main ways we interact with the federal government.

Mr. Rangel’s tax package is kind of long-awaited. People have been speculating about what would be in this package for weeks, if not months.

Mr. Spratt, a few months ago, was bringing forward his budget plan, which they call – which the Republicans called – the biggest tax increase in American history. Now they’re calling Mr. Rangel’s tax plan the biggest tax increase in American history. In part it’s because they dovetailed together, in dealing with the Bush tax cuts, when the tax cuts were passed they sunsetted, they expired. And those are still set to expire. And so, that issue is still hanging out there.

What will we be paying in taxes? How much taxes will we be paying in 2010, or whenever?

SLEN: Mike Soraghan was raised in St. Louis, a graduate of the Miami University of Ohio, worked for several years for the “Denver Post.”

Ashley Roque is from Tampa and a graduate of Florida State. She works for CongressNow, which is a Roll Call publication.

Thank you both for being on “Newsmakers.”

ROQUE: Thank you.

SORAGHAN: Thank you for having us.

END