Here is the transcript of Steve Inskeep’s (NPR) interview of President Obama yesterday regarding the tax deal with Republicans, and the controversy surrounding it.

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Transcript: Obama On Taxes, Economy And START

December 10, 2010

PRESIDENT OBAMA: All right, fire away.

STEVE INSKEEP: OK, we’ll jump right into it here. Mr. President, what do you intend to do about the House Democrats who have said that they are not going to bring your plan to a vote in its current form?

OBAMA: Well, here’s what I’m confident about: that nobody — Democrat or Republican — wants to see people’s paychecks smaller on Jan. 1 because Congress didn’t act.

And I think that the framework that we’ve put forward, which says not only that people’s taxes don’t go up on Jan. 1, but also that we extend unemployment insurance for a year, that we make sure that key provisions like the college tax credit, the child tax credit, the earned-income tax credit are included — that that framework is going to serve as the basis for compromise.

INSKEEP: But Democrats have said they’re willing to let that go if they don’t get some changes to this plan.

OBAMA: Well, what I suspect is that there’re going to be some discussions both between the House and the Senate. My understanding is that the Senate’s going to vote on the package over the next several days and that at the end of the day, people are going to conclude we don’t want 2 million people suddenly without unemployment insurance and not able to pay their rent, not able to pay their mortgage, not able to pay their house note.

Well, here’s what I’m confident about: that nobody — Democrat or Republican — wants to see people’s paychecks smaller on Jan. 1 because Congress didn’t act.
I think that people are also going to understand that the single most important thing we can do for all of our constituencies is to make sure that the recovery that is taking place right now gets stronger.

And over the last 48 hours, a range of independent economists — both left and right — have concluded that this package would, in fact, increase potential economic growth by as much as 1 percent and could end up meaning an additional million and a half jobs.  And that, I think, has got to be the highest priority for everybody.

INSKEEP: When you negotiated with Republicans, or after you finished, you compared the situation to negotiating with hostage-takers. Now that your fellow Democrats, some of them, seem to be the hostage-takers, are you going to be able to give some ground to them?

OBAMA: The bottom line is for everybody to act responsibly and to think not in terms of abstract political fights here in Washing — here on Capitol Hill, but to think about those families that, in the middle of the holiday season, are trying to figure out — are they still going to have unemployment benefits at the end of this month?

INSKEEP: But can you accept some changes to this plan or is it the kind of deal you cannot change —

OBAMA: I think —

INSKEEP: — or will not change?

OBAMA: My sense is, is that there’re going to be discussions between both House and Senate leadership about all the final elements of the package. Keep in mind, we didn’t actually write a bill. We put forward a framework. I’m confident that the framework is going to look like the one that we put forward.

INSKEEP: Meaning maybe you could add something to it, but not subtract.  That’s what I’m hearing you say.

OBAMA: No, that’s — that’s not what I said.

What I’m saying is, is that I’m confident that we’re going to be able to get this resolved by the end of the month.

INSKEEP: Let me ask you about something that we heard from one of our listeners.

We told our listeners we were going to have this conversation today. We got many questions for you. One came from a man named Tom Pluck of Montclair, New Jersey — a man who describes himself as a supporter.

The question that we got was: “Please ask him how keeping the tax rate for the richest the same as it has been for a decade creates one single job.”

OBAMA: It doesn’t, which is why I was opposed to it — and I’m still opposed to it.

The issue here is not whether I think that the tax cuts for the wealthy are a good or smart thing to do. I’ve said repeatedly that I think they’re not a smart thing to do, particularly because we’ve got to borrow money, essentially, to pay for them.

The problem is, is that this is the single issue that the Republicans are willing to scotch the entire deal for. And in that circumstances — in that circumstance, we’ve got, basically, a very simple choice: Either I allow 2 million people who are currently getting unemployment insurance not to get it, either I allow the recovery that we’re on to be endangered or we make a compromise now, understanding that for the next two years this is going to be a central battle as part of a larger discussion about how do we reform our tax code so that it’s fair and how do we make sure that we actually are dealing with the deficit and debt in an intelligent way?

The payroll tax provision that is included in this package is going to help spark economic growth that will help. Now, it doesn’t solve our medium- and long-term problems, so we’re going to still have to make some very tough decisions — and these, too, are going to be unpopular.

INSKEEP: You mentioned having to borrow money to do this. Let me ask you about something that both Democrats and Republicans have raised. If you’re going to allow these tax cuts to continue, if you’re going to approve the other tax cuts, why not make corresponding spending cuts to finance it so they do not add so massively to the deficit?

OBAMA: Well, we’re going to have a long discussion next year about spending.  I put together a fiscal commission — over the resistance, I should note, of a number of Republicans who originally had supported it.

I think that Bowles-Simpson did a good job of sparking a conversation about how we need to move forward to deal with our medium- and long-term deficits. There have been other commissions that have been put forward over the last several weeks.

And I’m going to have to put a budget up that shows how I think we make some — a serious dent in our debt and our deficit. I think every economist — and by the way, the commissions who looked at this as well, realize that because we’ve got a recovery that is still not as strong as we’d like it to be. [Interview interrupted by coughing.]

The vast majority of economists, as well as both the chairman of the Bowles-Simpson commission, as well as other commissions, have suggested that because the recovery is just taking off and is still not producing as many jobs as it needs to, that it actually makes sense for us not do anything that contracts the economy right now because the single most important thing we can do for deficit reduction is actually expand economic growth.

That 1 percent of additional economic growth brings in a whole lot of revenue even with no changes in the tax code.

INSKEEP: That’s what they’re saying the payroll tax will do — is 1 percent.

OBAMA: And so the payroll tax provision that is included in this package is going to help spark economic growth that will help. Now, it doesn’t solve our medium- and long-term problems, so we’re going to still have to make some very tough decisions — and these, too, are going to be unpopular.

And I promise, I’m going to get criticism from Democrats and Republicans throughout the year in terms of the choices that I am going to be forcing Congress to take a square look at. Because, look, the fact of the matter is that for a decade now, we have had the tendency to think that we can keep on having all the services we want and we keep them — can keep cutting taxes as much as we want and that somehow things are going to magically balance out.

The American people understand that’s not the case, and so we’re going to have to be responsible about thinking: What are the programs we don’t need, that don’t contribute to growth, don’t contribute to competitiveness, don’t make sure our kids are — aren’t contributing to making sure that our kids are learning and able to compete in this 21st century economy, and which things are vital investments that we have to make?

And that conversation is going to be one that can’t just happen in Washington; it’s going to happen all across the country. And I’m looking forward to leading that conversation.

INSKEEP: Won’t Republicans argue — and, in fact, won’t reality argue that any cuts will have to be even deeper because this package that you’re pushing for now will mean there’s even less government revenue?

OBAMA: Actually, I think that if you talk to economists, both conservative and liberal, what they’ll say is the problem is not next year. The problem is, how are we dealing with our medium-term debt and deficit, and how are we dealing with our long-term debt and deficit? And most of that has to do with entitlements, particularly Social Security and Medicaid.

We’ve made some progress as a consequence of my health care bill in identifying areas where we can start bending the cost curve on health care. But we’re going to have some more work to do across the budget.

I think there’s going to have to be a fundamentally different approach to things. And I described earlier what I think that approach has to be. It’s not an issue of big government versus small government. It’s an issue of smart government.
But there are very few people who think that we would be better off if we’ve got a contracting economy or economy that’s growing very little over the next year — that that somehow is going to be good for our deficit.

INSKEEP: Let me ask you about two or three years out. I’m thinking of the 1990s when President Clinton famously said, “The era of big government is over.”

Because of the medium- and long-term need to restrain or cut spending, are you going to be in a position where the era of big government is going to be over again; there’s going to have to be a fundamentally different approach to things?

OBAMA: I think there’s going to have to be a fundamentally different approach to things. And I described earlier what I think that approach has to be. It’s not an issue of big government versus small government. It’s an issue of smart government.

You know, when — when families sit around the kitchen table, they say to themselves, what are the things we have to have? College education for our kids. Paying our mortgage. Getting the roof repaired. A new boiler. What are the things that would be nice to have? A vacation. Eating out. Some new clothes. And if they can afford it, they’d buy things that they’d like to have. But the first thing they do is take care of the things that we have to have.

And under that category, I’d put things like research and development, education, making sure that we’re sending our kids to college, rebuilding our infrastructure to compete on the 21st century, making sure that this country is safe.

The other stuff, then, we have to debate and figure out, can we get by with a little bit less in some of these other spending categories? And that’s going to be a tough discussion, but it’s one I’m confident we can have.

You’ll — when — when we look at the deficit and the debt, I — I think it’s important to understand this doesn’t need to be Armageddon. This — this is not a situation where we’ve got to slash and burn everything. It does mean we’ve got to make choices. And it means that discussions have to be serious and they’ve got to be based on fact.

We — we’re not going to be able to deal with our deficit just by eliminating foreign aid, for example, which some people suggest. Well, you know what? That only accounts for 1 percent of our budget. It’s not going to happen just because we eliminate earmarks. I happen to think that that’s a bad way of doing business, but earmarks account for 1 percent or less of the federal budget.

We’ve got to look at a whole range of things — where the money goes.  And that includes entitlements; that includes defense; that includes a whole host of discretionary spending where we can probably do more and do it smarter with less money, if we are actually making some tough choices.

INSKEEP: Mr. President, let me come back to taxes here. Because this plan projects extending the Bush tax cuts for two years, it’s been widely presumed that in two years or less, you’re going to have another big fight over whether to extend these tax cuts.

What I’m saying is, is that the general concept of simplifying [the tax code] — eliminating loopholes, eliminating deductions, eliminating exemptions in certain categories — might make sense if, in exchange, people’s rates are lower. That may end up being a more efficient way of doing business.
This week, my colleague Scott Horsley asked you if there was a different possibility here. He asked if you were going to use this two-year window to push for a broader overhaul of the tax code. You said yes. I want you to expand on that “yes.”

What do you plan to do to the tax code in the next couple of years?

OBAMA: Well, I think we’re going to have to have a conversation over the next year. And if you think about the last time we reformed our tax system back in 1986 — it didn’t happen right away, by the way. It required a lot of conversations among a lot of different parties. But people of good will came together and realized that if we eliminate what happens to the tax code every decade or so — loopholes get built in, special interest provisions get built in — the nominal rates end up high, but the actual tax rates that well-connected folks or people who have good accountants pay end up being a lot lower. Ordinary people end up getting squeezed.

So typically, the idea is simplifying the system, hopefully lowering rates, broadening the base — that’s something that I think most economists think would help us propel economic growth. But it’s a very complicated conversation.

So what I believe is, is that we’ve got to start that conversation next year. I think we can get some broad bipartisan agreement that it needs to be done. But it’s going to require a lot of hard work to actually make it happen.

INSKEEP: So that everybody understands what you’re talking about, your deficit commission talked about lowering everybody’s tax rate and eliminating deductions, such as changing the home mortgage deduction and many other deductions as well. That’s the kind of plan you’re talking about.

OBAMA: Well, I have not specifically endorsed that plan. What I’m saying is, is that the general concept of simplifying — eliminating loopholes, eliminating deductions, eliminating exemptions in certain categories — might make sense if, in exchange, people’s rates are lower. That may end up being a more efficient way of doing business.

INSKEEP: Does that completely change this debate over the Bush tax cuts?  Everything goes away. The tax code is just completely different than it was before.

OBAMA: Here’s one thing that I don’t think will change. And that is that people like myself who have been incredibly blessed and who have a lot more income and wealth can afford to pay more than we currently are paying. I strongly believe that. I believed that during the campaign for president. I believed it when I was campaigning during these midterms. I still believe it.

And so the fight about what the top 1 percent or 2 percent of America should be contributing as part of our contribution to rebuilding America and putting it on a competitive footing — that basic principle is one that I continue to believe in and I will be fighting for over the next two years.

INSKEEP: Final thing, Mr. President. By making this agreement with Republicans on taxes and on the economy, is it your understanding and do you have any understanding with the Republicans that if you’re able to act quickly on that agreement, you will then get a vote on many other things you’re hoping to get by the end of the year, particularly the START nuclear treaty — the arms deal with Russia?

OBAMA: Well, the START treaty is something that I absolutely think has to get done before Congress leaves for Christmas vacation. It is good for our national security. It allows us to verify what’s going on with respect to nuclear weapons in Russia.

Every secretary of defense, national security adviser, secretary of state of previous administrations — Democrat and Republican — have said it’s the right thing to do. George H.W. Bush put out a statement saying it’s the right thing to do. We’ve got, you know, commentators from the left and the right saying it’s the right thing to do. So it needs to get done.

My understanding with [the Republicans] is that START is going to be called. And I am urging them to vote for the … treaty.
The reason we need to get the tax issue resolved is to give some security and confidence to ordinary families who are listening to me right now who are wondering, what’s going to happen to me on Jan. 1?  And we need to make sure that the recovery that we’re on right now continues and grows stronger.

INSKEEP: But what understanding, if any, did you get from Republicans in these talks that you’ve had regarding START and other issues? Is there any understanding whatsoever with them?

OBAMA: My understanding with them is that START is going to be called. And I am urging them to vote for the bill, and my expectation is — vote for the treaty, rather.

And my understanding is, is that we have a number of Republicans, starting with Richard Lugar — somebody who, by the way, on my first trip abroad, I accompanied to Russia to talk about nuclear proliferation issues. He’s been a great champion of this treaty. We’re going to keep on working the numbers. And hopefully, we’re going to be able to get it done.

INSKEEP: Mr. President, thanks very much.

OBAMA: Appreciate it, Steve. Thank you.