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I.O.U.S.A. Solutions: America's Debt Crisis

Aired April 10, 2010 - 13:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


(BEGIN VIDEOTAPE)

DULE HILL, I.O.U.S.A NARRATOR (voice-over): In the fall of 2008, the critically acclaimed documentary film "I.O.U.S.A." was released in theaters nationwide. The film warned of America's rapidly growing national debt and its implications for the country. No one could have predicted how much worse the situation would become in just 19 months.

Consider these facts, in 2008 our federal budget deficit, which is how much money the U.S. government needed to borrow to pay all these bills, rose dramatically to $459 billion. Last year, due to extraordinary economic conditions, our budget deficit exploded to $1.4 trillion. That's over $4,500 for every American. And the total projected deficit over the coming decade will be $16 trillion.

What about the national debt?

In September of 2008, the national debt was $9.6 trillion. Today, it's almost $12.7 trillion, a 32 percent increase. That's nearly $41,000 for every American.

(END VIDEOTAPE)

CHRISTINE ROMANS, CNN HOST: $41,000, what every single person watching this program white (ph) - right now would owe if we were to pay off the national debt.

Hello, and welcome to the special program I.O.U.S.A SOLUTIONS: AMERICA'S DEBT CRISIS. I'm Christine Romans.

We put together a panel for you covering all the angles of this debt debate, and it's - it's a big debate, it's a big problem and a big panel. So I'll introduce you to them as we go along.

But I want to start with David Walker, former U.S. Consular General and president and CEO of the Peter G. Peterson Foundation, sponsored this film.

David, last year in the I.O.U.S.A. documentary, that number was $32,000 for every man, woman and child in America. The number has grown, the challenges have grown. It's - a lot has changed in a year.

DAVID WALKER, PRESIDENT AND CEO, PETER G. PETERSON FOUNDATION: Dramatically. In the last three years, the deficits have almost gone up 10 times. But it's important for people to understand that the threat to our future is not the short-term deficits, it's the deficits that will exist after the economy is recovered, after unemployment is down, after the wars are over, after we pass the crises. These so-called structural deficits threaten our future, both internationally and domestically, and we need to start doing something about it.

ROMANS: We'll get to everyone else in a minute, but first, let's rewind just a bit and pick up where we left off.

(BEGIN VIDEOTAPE)

HILL (voice-over): In September of 2008, the national debt was $9.6 trillion. Today it's almost $12.7 trillion, a 32 percent increase. That's nearly $41,000 for every American.

And our budget deficits and national debt are only part of the problem. If you were to add up all of our nation's total liabilities and unfunded promises in Social Security, Medicare and other programs, you would get over $62 trillion, $6 trillion more than in the fall of 2008.

This is how much money our federal government would need invested today to pay for our nation's major liabilities and promises. How much of this $62 trillion do we have today? Zip. That's over $200,000 for every man, woman and child in the United States.

For decades, our leaders have warned of the dangers of our large and growing national debt.

UNIDENTIFIED MALE: Part of our trouble is that we have been self-indulgent, and now the bill has come due.

HILL: And yet, today, the situation is more dire than ever.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Understand, if we don't take meaningful steps to reign in our debt, it could damage our markets, increase the cost of borrowing and jeopardize our recovery. I refuse to pass this problem on to another generation of America.

HILL: We didn't create this problem.

UNIDENTIFIED FEMALE: We weren't the ones who spent the money.

UNIDENTIFIED MALE: We weren't the ones who left the bill for someone else.

UNIDENTIFIED FEMALE: We didn't ask for this problem, but we are the ones who will have to pay for it.

UNIDENTIFIED MALE: A great nation cannot stay great if it can't keep its economy strong. Let me talk to you about a way forward.

REP. STENY HOYER (D), HOUSE MAJORITY LEADER: Doing nothing is not an option. It's not an option for our generation, and it's certainly not an option for future generations. HILL: There are many possible solutions to our fiscal problems. We will discuss some examples to illustrate the kinds of changes that should be considered. Many combinations are possible, but what is critical is that we get started.

UNIDENTIFIED MALE: The failure to make the choice now of how to pay for the government we want is to dump the choice on our kids who will have no choice. So one of the calculations we need to make is, is that OK? Are we OK with that?

UNIDENTIFIED MALE: This time, rather than talking about the problem, we're talking about solutions.

(END VIDEOTAPE)

ROMANS: You heard President Obama say he will not pass our debt onto the next generation. We've heard the same in past decades from Presidents Ford and Reagan.

Joe Johns, it seems that every president says he's going to do something about it and then political realities get in the way and that bill keeps getting pushed forward.

JOE JOHNS, CNN CORRESPONDENT: And they seem so impassioned about it, don't they? Each president really believes that this is the most important thing and really makes you believe. And it's not just presidents, it's members of Congress. Both parties, it doesn't make any difference.

But the reality is this is very tough to do, and that's one of the biggest problems. You say cut defense spending. People don't want you to cut defense spending. Social programs? No way. Taxes? Forget about raising taxes.

And then, when it comes to entitlement, Congressman Dan Rostenkowski of Illinois, who is the chairman of the Ways and Means Committee, used to tell a story of the discussion over cutting Social Security or Medicare or Medicaid, and he said that a senior citizen in his district climbed up on the hood of his car and screamed at him, "Don't cut my Social Security!"

So you see how hard it is, and it's a question of priorities. Where do you start? Who do you start with? You almost need a kamikaze Congress that says, we're going to cut all these things and then we're going to leave because we wouldn't be reelected.

ROMANS: And that's some - but elections are -

JOHNS: Everything.

ROMANS: Elections are - Dan Rostenkowsky. That's a colorful character in his own right, right? All right. Joe Johns.

So who is paying the tab? It's the next generation who will have to pay up, and, you know, what? They're not happy about it.

(BEGIN VIDEO CLIP)

SALLY WESTCOTT, BERKELEY, CALIFORNIA: It's kind of being handed to us on a plate and said, "Here you go. Have fun with this. Congratulations. This is your problem."

So there's this pressure to figure it out.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

HILL (voice-over): Chicago, Illinois. One hundred and fifty members of the Millennial Generation are meeting to discuss the financial challenges they are facing.

This meeting falls on the heels of 80 Million Strong, the inaugural gathering of millennials. They focus on the economic condition of their generation.

MAYA ENISTA, CEO, MOBILIZE.ORG: I'm Maya Enista and I'm the CEO of Mobilize.org.

The Millennial Generation definitely shares a sense of urgent need to take action to improve the economic state of young America and put all Americans on a sustainable path.

NICOLA MOORE, WASHINGTON D.C.: It's very difficult for our generation because the debt situation, we're the one inheriting that. We're the one paying it off.

DECKER NGONGANG, V.P. OF PROGRAMS, MOBILIZE.ORG: Yes. I think the important thing about bringing all these young people together with - with different ideas for solutions is that we learn from each other.

RYAN SCHOENIKE, CO-FOUNDER, WE CAN'T PAY THAT TAB.ORG: Hi everyone. My name is Ryan Schoenike and this is Brandon Aitchison, and we're presenting our project, We Can't Pay That Tab.org.

BRANDON AITCHISON, CO-FOUNDER, WE CAN'T PAY THAT TAB.ORG: The national debt represents the government's inability to live within its means.

SCHOENIKE: So I don't think that it's a Republican or Democrat issue. It's really - it's an issue for everyone.

DREW NAVOLIO, CHICAGO, ILLINOIS: I think the solution to it is going to be multi-facetted. It's going to have to be fought on multiple fronts.

UNIDENTIFIED MALE: We can't afford to (INAUDIBLE).

WESTCOTT: I think the really scary part for us is it's kind of being handed to us on a plate and said, "Here you go. Have fun with this. Congratulations. This is your problem."

So there's this pressure to figure it out.

HILL: The national debt, or total federal debt, includes money that the government owes to programs like Social Security and Medicare and debt it owed to the public. Because public debt has direct impact on the economy, it's the number we pay closest attention to. By the end of the year, the federal government will owe an estimated $9 trillion to the public.

So just how much money is $9 trillion? With a number this large, it helps compare it to the size of our overall economy, our gross domestic product.

Our GDP is estimated to reach $14.6 trillion by the end of 2010. This ratio is known as our public debt to GDP and is the number most experts use when discussing our national debt, because it is a way to determine how much we have borrowed relative to our national income.

By the end of this year, our public debt to GDP will be approximately 62 percent and growing quickly.

As with any loan, the more we borrow, the more we have to pay back, with interest, and, therefore, cannot spend in other areas. Within 12 years, interest will be the largest item in the budget if we don't change course.

Since 1789, the year our federal government was formed, we've had our ups and downs with the national debt. Wars and the Great Depression created high debt levels, but we've always been able to bring that back down to manageable levels, even after World War II, which is when our debt to GDP was at its highest point ever.

Then, beginning of the 1980s, the national debt began growing quickly, despite the fact that our country experience relative peace and prosperity throughout that time. Except for a period in the late '90s and early 2000s, when our government was running budget surpluses, our federal budget has consistently been in the red, and the national debt has been on an upward path as a result.

At the rate we are going, we will pass the debt levels we saw at the end of World War II in just 10 years.

REP. JIM COOPER (D), TENNESSEE: Well, the debt crisis we face is entirely of our own making. We have chosen to borrow so much money and now we've borrowed more and more from foreigners.

SEN. KENT CONRAD (D), NORTH DAKOTA: Last year, of the money that we borrowed, 68 percent of it came from foreign sources. Those foreign sources are warning us that they're increasingly impatient with our inability or unwillingness to tackle this debt explosion.

If they would decide to not continue to loan us the money, we would then be in a very tough situation. We would either have to raise interest rates dramatically or cut spending sharply or raise taxes dramatically. HOYER: This is what debt does. It constrains you and puts you in a position where you're not going to be able to respond to crises that may confront future generations.

HILL: If we stay on our present course, in a little more than 20 years, estimated spending levels will be twice as large as projected revenues, and debt held by the public will exceed 200 percent of GDP. Life in America, especially for younger people who will be left to pay these debts, will be much different than it has been for their parents and grandparents.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

CONRAD (D), NORTH DAKOTA: Last year, of the money that we borrowed, 68 percent of it came from foreign sources. Those foreign sources are warning us that they're increasingly impatient with our inability or unwillingness to tackle this debt explosion. If they would decide to not continue to loan us the money, we would then be in a very tough situation.

(END VIDEO CLIP)

ROMANS: So if China, among other countries, our bankers, and China is key partner for foreign policy, Joe, at some point it starts to feel like we lose choices on the domestic policy or the foreign policy front when you owe someone else so much money.

JOHNS: Right. You lose clout, you lose the ability to determine your own future, and you either got to raise taxes or you got to let your currency devalue. Something bad is going to happen.

There was really no consensus in the Green Room on that question, but - and we did throw it around a bit.

ROMANS: Bill Bradley?

BILL BRADLEY (D), FORMER U.S. SENATOR: Well, China is the world's greatest saver, we're the world's greatest consumer. So they lend us money to buy their goods. They get jobs, we get debt, and the debt gets bigger and bigger and bigger.

And so, if we want to control our own destiny, we're going to have to save more, and the quickest way you can save more is by reducing the federal budget deficit. And that's what the American people have to understand. Every time they pay taxes, the first place their tax dollar goes is not for defense or for health care or education, it goes to repay those lenders who've given us money over the years.

ROMANS: And Maya Macguineas, you point out something that just happened recently in the past week that shows how our fiscal relationship with China can also be very tight into our foreign policy relationship with China. MAYA MACGUINEAS, DIRECTOR, FISCAL POLICY PROGRAM, NEW AMERICA FOUNDATION: Absolutely. When we are that dependent on any one country for borrowing, they start to have more clout other - over other areas, our budgets and our foreign policy, even.

Just this week, the White House said that it's going to postpone coming out with its document about currencies where they would have to decide whether to say China is a currency manipulator.

Most people think they are, but suddenly we don't want to be picking fights with somebody who we're very dependent on, and right now we have an economic situation of mutual unhealthy dependency. That's not what you want. You don't want us to be dependent on them for borrowing, and that's where they're putting all their savings.

They need our currency to stay strong, but this is not two countries being strong, it's being dependent in an unhealthy way.

ROMANS: Jeanne Sahadi, since the whole financial crisis happened, you've been hearing a lot about imbalances, fixing global imbalances. This is - these big deficits we're looking - these are the - these are the global imbalances that have to be fixed.

JEANNE SAHADI, SENIOR WRITER, CNNMONEY.COM: That's right, although I am a little bit curious what people on the panel think about those who say China cannot afford to mess with us in terms of our debt because they are dependent economically on us. And so, if we're not going to be their consumers, what happens to them?

So I'm - I'm a little curious how that's going to play out. That seems to be the other side of it (ph).

AMY HOLMES, INDEPENDENT CONSERVATIVE: Well, there - there is a flip side to that. I mean, you know sort of the adage that if you owe the bank a little, it owes you, but if you owe the bank a lot, you owe them?

ROMANS: Right.

HOLMES: So in this relationship, there is this co-dependency. But, as you say, it's an unhealthy one.

ROMANS: All right. Amy Holmes.

We're going to get to more of this as we continue to explore all of these angles, America's debt.

It's not just some academic arm's length economic problem. Our debt affects American living standards, and it hits families on a very personal level.

Meet one family you might just relate to, next.

(COMMERCIAL BREAK)

ROMANS: Nearly $12.8 trillion. That's where our national debt is headed. It's a big, impersonal - I mean, it's nothing to me. It's a big number out there in the ether.

So let's break it down to something we can all understand. That big number impacts how society functions and how families function.

We're going to talk to the Navolios in a minute, but first, here's their story.

(BEGIN VIDEOTAPE)

D. NAVOLIO: We came to this for some personal reasons and some more idealistic reasons.

My parents did everything by the book. They tried to be in a position where when they retired that they wouldn't be any type of a financial burden on their children.

MARGARET NAVOLIO, CHICAGO, ILLINOIS: Well, if you told me a year ago that 40 percent of our net worth, our retirement wouldn't be around, I wouldn't have believed that that was going happen, that's for sure. We thought that was (INAUDIBLE).

HILL (voice-over): In the past year, Drew's parents, Margaret and Stephen, downsized twice, from a large home in the suburbs to a large apartment, and then to a smaller apartment in the city.

STEPHEN NAVOLIO, CHICAGO, ILLINOIS: Well, I'm glad I'm not a parent right now. See, when I was a young parent, everything was up, all right? Your career, your - the possibility for making money, you know, six-figure salaries were the minimum, you know?

That's not the case today. They'll be lucky to make $80,000, and, you know, their whole lifestyle's going to be very different.

It's the reality of life. My parents grew up with the Depression. They didn't expect anything and they were always grateful what - for what they got. We were trained to expect. You know, we're the first generation where everybody went to college.

We expected the world, and it turned out we got large chunks of it. But now that's - it's - I think it's probably receding back to a more realistic world, but they're going to have to deal with that, and I understand it, and I think they understand it, too.

(END VIDEOTAPE)

ROMANS: As a parent, you always want more for your children. You want them to have things that you didn't have, that you didn't think were possible. You want them to have just as easy time, if not easier, achieving and staying in the middle class.

How do you feel about that, Steve?

S. NAVOLIO: Well, I think, you know, the middle class is going to be redefined. What we thought the middle class was going to be, it grew and it grew, and everybody had money, and we chased after it. I don't know that the middle class is going to be as large nor as well off.

But I think what we've done, or hopefully what we've done, is given them enough tools to survive and to cope with the world as it comes to them. You can't change that. You have to deal with the day to day and - and plan for the future, and hopefully, you know, they have the tools and the experience to accomplish what they need to accomplish in their lifetime.

ROMANS: You know, Drew, you're of the Millennial Generation and part of a group raising awareness about our national debt. We're going to talk to you more about that later, but, you know, how do you feel about having to work harder to be part of the middle class? Do you think that your generation is going to have to work harder to be part of the middle class, harder than your parents and maybe even your grandparents?

D. NAVOLIO: Yes, and I think kind of to echo what my dad said in terms of what the middle class is, I think we're going to redefine that, and, you know, our generation is going to be real interesting in terms of, you know, what we - what we set as standards as success and what we find joy in.

And that, I think that's going to redefine what - what makes up a middle class, and I don't think, you know, I agree with the statistics and the research that show we may not be as well off as our parents were.

But we are going to have to work harder, and, you know, I think we're equipped, without a doubt. I mean, we are going to be the most educated generation in this country's history, and I think that's going to help us.

But, at the same time, even that education has a cost, and that's going to kind of prevent us from, you know, being what we're accustomed to having, which is, you know, the big home and two cars and - and that - that American dream is going to be modified a little bit with our generation, I think.

ROMANS: Stephen, you've downsized twice - twice now, and you make a - a really interesting point in the film that this is the first generation with so many people graduated from college. How is it - with all of this education have come all of this debt and all of this concern about how we're going to pay for it.

S. NAVOLIO: Well, you know - you know, the debt is huge, and how you're going to pay for it - I mean, when the kids graduate college and they have anywhere from $10,000 to $20,000 of instant debt at the age of 22.

I owed nothing. You know, my first credit card I didn't get until I was, like, 30 because they weren't available. Now they have credit cards, they have the debt, they - I mean, their - their whole life is built around debt.

You can't expect them, then, to go out and achieve, you know, the American dream, own a home, and do this, do that, and, you know, when you start off with $25,000 in the hole, you know? When I - we bought our first condominium, we didn't owe $25,000.

So, you know, it's going to be a real different world, and I think it's going back the right direction, quite frankly.

ROMANS: Right.

S. NAVOLIO: Stay away from being too far in debt and don't spend everything today, because while we'll make more tomorrow, that may not be the case.

ROMANS: Margaret and Cristen, I want to ask both of you sort of this idea of downsizing and trying to cut your own budget and - and living within these new means. Margaret, you first. I mean, how has that been for you after being part of a generation that has seen such great prosperity for this country?

M. NAVOLIO: Well, at first it was exciting because we could get rid of a lot of things we didn't need, and it was sort of a new adventure.

But it's a combination of exciting and I'm a little wistful because there are things, I can't do that I used to be able to do. You know, I don't get manicures and my hair done the way I did. Those are extras.

But I think it's mostly the extras that we've kind of taken out of our life. We're very lucky in that we were sensible, we didn't use our home as a piggy bank, we've saved money, we saved for retirement and things like that. So the downsizing for us is a practicality of losing a lot of our net worth, yes, certainly, because it changed how you can live. But it also always was a goal of ours to reduce our lifestyle a little as we got older so that we wouldn't be a burden to our children and that we would be able to enjoy life with fewer pressures than what we had.

There is a lot of pressure to maintaining a certain kind of a lifestyle, and I think to Drew's point that this might not be necessarily a terrible thing for America to sort of get more sensible about our money and to enjoy other things in life, that's kind of what we've been doing.

ROMANS: Well Cristen, that's a very optimistic way to look at it, that it's time to get back to basics and the like. But so you live and operate under the assumption that it's going to be a little bit harder for the younger generations because they're paying off some of that prosperity still from the generation before?

CRISTEN NAVOLIO, FEATURED IN IOUSA SOLUTIONS: Yes and no. I think I did more before, THE everything that happened last fall, I think I was more focused on how I was going to attain what Ii needed to be able to have the house in the suburbs and the two-car garage and the 2.5 kids and pay for the college. And now I think I've re- evaluated what I need and what I want, and I've -- I think I've done a good job, as has Drew, of figuring out how to take what we have and make that be what we want and then re-evaluate, OK, how can we make that better? What are the steps to take to do that? ROMANS: The Navolio family in Chicago. Thank you so much. And Drew, we'll talk to you again when we talk more about your generation and some of the hopes and solutions from that perspective.

Cutting the budget, it's an important step in getting out of debt, whether you're an American family like the Navolios, or the United States government. How to make tough choices and which choices to make, next.

(COMMERCIAL BREAK)

UNIDENTIFIED MALE: Let's look at the 2010 budget of the federal government to get a sense of where to begin. On the spending side, we have Social Security, Medicare and Medicaid, Defense, all the other programs of the federal government, including law enforcement, education, agriculture, space and science, energy and homeland security, to name just a few. And finally, interest on the national debt. That's everything. These programs, along with interest payments on the national debt, are known as mandatory spending. Mandatory spending is currently 62 percent of all federal spending and is the fastest growing part of the budge. These are all the other programs in the federal government and are called discretionary spending. They make up the remaining 38 percent of the federal budget.

OK, now how do we pay for all this? Taxes. Let's look at our different revenue sources. Personal income taxes, payroll taxes, corporate income taxes, and other revenue. The rest? This is our budget deficit for the year. It's how much money America will need to borrow to pay for everything on the other side of this coin.

When you're in a hole that you're trying to get out of, the first thing you need to do is stop digging. Serious budget reform is a first step in the right direction. The current budget process is not designed to address our overall fiscal challenge.

ROBERT BIXBY, THE CONCORD COALITION: I think there's broad agreement in a time of real deep recession that it's OK to run budget deficits, even big budget deficits. When the economy begins to recover, we really need to do something to be sure we don't keep running even bigger budget deficits and adding to the debt.

UNIDENTIFIED FEMALE: The problem is really quite simple. Americans want lots of services for their government, and they have made promises in law that will mean higher federal spending in the future.

UNIDENTIFIED MALE: When we've had budget problems in the past, our leaders have done a better job of working together and enacting. During the 1990s, for example, tough budget controls, along with a growing economy, help make fiscal responsibility a reality.

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: In a few moments, I will sign into law the first balanced budget in a generation. UNIDENTIFIED MALE: Those budget controls helps take us from large and growing deficits to large and growing surpluses. But these controls expired in 2002, and we were recovering from a recession. The budget situation in Washington has been out of balance ever since.

ROMANS: Welcome back to IOUSA Solutions. Back to the film in a minute, but first let's get back to a graphic here. Mandatory versus discretionary spending. It's nice that you want to balance the budget, right, but how do you do that? You can either raise taxes, cut spending or a little from column A, a little from column B, a combination of all of these things. Let's look at this area in purple here. That's mandatory spending. We'll have to pay Social Security, Medicare and Medicaid as well as interest on the national debt. So the yellow area, that's discretionary spending, things like social programs, educations, or we can cut defense spending. That's a tough sell too these days.

Bill Bradley, you spent many years in Washington. You were elected to serve the people, and it's very difficult to make some of these tough choices and also continue to run in the election cycle, isn't it in.

BILL BRADLEY, FORMER U.S. SENATOR: Yes, it is, unless there is a freight train coming at you that concentrates the mind. For example, in the early 1980s, Social Security was about to go bankrupt. And we had to act. And so Congress did act.

And the way I always look at it, you go where the money is, and if you have this gigantic budget deficit, you go to programs for the elderly, you go to health care, you go to defense, and you go to interest. And those are, by 2016, going to be about 88 percent of the total federal budget. And so I look at this and I say, the key thing is to begin and to take action in those areas.

Just for example, if we cut defense spending 10 percent, we would still spend twice as much as the following countries spend on defense combined: Russia, China, India, Germany, Britain, France. Now, I think we can have a fairly secure world and a secure society and not spend as much as we're spending on defense.

ROMANS: And you say we can cite modern battles without a Cold War kind of military. You're talking about making some different lines of thinking in defense spending.

BRADLEY: Adjusting the floor structure and the technology to the current threat as opposed to the Cold War threat. If we did that, we could save money. Under the guise of the Iraq war in Afghanistan, the defense budget on weapon systems going very high up, and it's not all for those areas.

ROMANS: The campaign trail is played by the opponent as soft on national security, and look, you know, we're going to be less safe because who wants to cut spending, you know. It starts to get tricky when around the corner, the freight train that's coming at you is your election, not this crisis. BRADLEY: Well, the key thing is you can't do only defense. You have to also do the so-called entitlements, Social Security, Medicare, health care, civil service pensions, things like that.

If you distribute the pain broadly, what we found in the early 1980s was that people signed on for lengthening the age of retirement, having taxes to cutting some benefits because it saved the larger system. That was Social Security then. Today it's our whole economy that's at stake.

ROMANS: Diane Lim Rogers from the Concord Coalition, the chief economist there, he said disperse the pain broadly, but we've kind of been dispersing the wealth without getting anything back. We've had lots of tax cuts, we've had a lot of programs, Medicare Part D for example, which was unfunded. We've been sort of spending prolifically, haven't we?

DIANE LIM ROGERS, CONCORD COALITION: We've been giving away a lot of stuff without paying for it, and that's been the problem, is that we've been on an unsustainable spending path. And, you know, our largest components of the federal budget, the biggest challenges on that unsustainable path happen to be entitlement programs that we're quite fond of, and we're not quite willing to talk about ways to ratchet down that spending that don't sound just like cutting waste fraud and abuse.

And unfortunately even if we control defense spending better and even if we cut all the waste, fraud and abuse that's in the budget, it's not going to help our situation. So it doesn't prevent us from having to make tough choices, and there's a whole other side of the federal budget that we forget that we do a lot of spending on, and that's the tax side of the budget.

The tax system is actually not just there to raise the revenue to pay for our spending but it's actually there as a different way of spending the money. So we have a lot of tax preferences in the tax system, and we have to decide, are those preferences worth their cost? Just like other ways that we directly spend money in the federal budget.

ROMANS: It's not impossible. It's been done before. We've had budget surpluses, we have cut the national debt. What our current leaders and policymakers can learn from the past to get us on a more sustainable path. That's next.

(COMMERCIAL BREAK)

ROMANS: So cut spending or raise taxes, both very unpopular choices in Washington where there is an election cycle around every corner. The last time we cut the debt was in the '90s under former President Clinton. That was the last time we actually had a budget surplus, and some say the economy was going in the right direction to help that along. The reason tough spending rules also requiring Congress to pay for things as they go, also known as PayGo.

MAYA MACGUINEAS, CMTE FOR A RESPONSIBLE FEDERAL BUDGET: There are two different types of categories and budget tools that can really help fix the situation. There is one category of tools that enforce budget deals.

UNIDENTIFIED MALE: For mandatory programs and taxes, there is pay as you go, or PayGo. For discretionary programs, there are spending caps. Let's look at PayGo first.

KENT CONRAD, SENATE BUDGET CMTE: I have long been an advocate for PayGo. If somebody is going to propose a tax cut, they have to pay for it. If someone is going to propose an increase in mandatory spending, they have to find a way to pay for it.

OBAMA: Our fiscal challenge is too great to be solved with any one step alone. We can't wait to act. That's why last week, I signed into law the PayGo bill. It says very simply that the United States of America should pay as we go and live within our means again, just like responsible families and businesses do.

UNIDENTIFIED MALE: Unfortunately, compared to the PayGo rules of the '90s, this is a weak version. A strong PayGo would not exempt so many tax cuts and spending increases and would apply to all mandatory programs. The other category of budget tools is discretionary spending caps, which would apply to 38 percent of the budget.

MACGUINEAS: That limits how much the growth of discretionary spending can go forward each year. Those have been really effective in the past in limiting budget growth and keeping deficits from becoming a greater problem.

UNIDENTIFIED MALE: PayGo and spending caps are positive measures, but they only help to keep the problem from getting worse. Many other steps will need to be taken.

JUDD GREGG, SENATOR: Congresses by nature are good with the next election, but they're not good for the next generation. And as a result, Congress for a long time has been ignoring our long-term problems. And the long-term problem is that we're putting so much debt on the books, that our kids cannot survive it. During the Bush years, there was not adequate fiscal discipline. For example, the Part D drug benefit which was an $8 trillion unfunded mandate that shouldn't have gone on the books unless it had been paid for.

JIM COOPER, CONGRESSMAN: More and more when Congress gets involved with the program, it ends up making it worse.

UNIDENTIFIED MALE: The estimated cost of the Medicare D prescription drug bill was $395 billion over 10 years, which was the only cost that was debated and considered. The cost of the program exploded beyond 10 years, adding between $7 and $8 trillion in unfunded promises.

COOPER: When we should have been digging our way out of the problem, we dug deeper.

GREGG: If you don't have an attitude within Congress that wants to limit spending, you're not going to limit spending. And basically, Congress wants to spend money because it's easier to get votes if you spend money than if you don't spend money.

UNIDENTIFIED MALE: One of the solutions to help our annual budget situation is to set a target for the nation's debt levels.

MACGUINEAS: We should talk about something like stabilizing the debt at say 60 percent of GDP. That's a reasonable amount to shoot for. It's higher than we've historically been at, but it still would require an aggressive amount of debt reduction to get there. So it's both tough to do, but politically realistic. That's the kind of goal we need to think about.

UNIDENTIFIED MALE: The European Monetary Union sets a public debt to GDP target of no higher than 60 percent for countries using the Euro. Countries who exceed the target must take action to reduce their debt or face sanctions. That level is intended to reassure creditors while still allowing room for new borrowing if needed to address emergencies or respond to other events, like a recession.

GREGG: If you wanted to get into the European Union, you couldn't have a public debt that exceeded 60 percent of your gross national product. Within two years, we will have a public debt that is around 70 percent of our gross national product. So we basically couldn't get into the European Union. Lithuania could get in, but we couldn't get in because we have such a problem with our deficits and our debt.

UNIDENTIFIED MALE: If we set this goal for ourselves, we'll have a realistic benchmark to shoot for when considering major reforms.

ROMANS: We just heard Senator Judd Gregg say Congress is by nature great with the next election, but not good with the next generation. So, how do we convince a politician to make our deficit reduction a priority? Do we have to convince the voters first?

Pete Peterson, what really -- who is really behind this documentary and what's really behind this is awareness. You want to go straight to the people and tell them this is the problem, we've got to get our policy makers to start thinking about it.

PETE PETERSON, PETER G. PETERSON FOUNDATION: At the present time, it's safer for the politicians to do nothing. We have to change this so that it's safer for them to do something about the problem. Only when the public understands the problem and puts pressure on our political system are we likely to get reforms. Let's hope to god that it doesn't take a huge crisis because as Senator Bradley was pointing out, if the foreign lenders lose interest in the United States, and you have very high interest rates and a big fall on the dollar, it has enormous impact on foreclosures, on inflation, on standard of living and so forth.

So we have to educate the public about the seriousness of the problem. And one of the problems we all have is these numbers you've been hearing are so unbelievably large, you know $60 trillion and $10 trillion, that people have trouble identifying with them. And part of our education job is to say what does this mean to you? For example, when Dave Walker and I talked to groups on behalf of the foundation, when people understand, particularly young people, that their taxes would have to double, and they understand for example payroll taxes are the biggest tax paid by 80 percent of the public, they begin to say, hey, this has got something to do with me.

ROMANS: You make a very good point, David Walker, about how some of the choices our have leaders made in the past that we're not following today. Tell me about that.

DAVID WALKER, PETER G. PETERSON FOUNDATION: We can learn from history. And leadership starts at the top with the president of the United States. Let's learn first. President Bush '41 and President Clinton did three things in common. They broke campaign promises on taxes, they imposed tough statutory budget controls and they didn't expand entitlement programs.

Guess what? President Bush '43 did exactly the opposite. And so far it's early for President Obama. President Obama needs to learn from President Bush '41 and from President Clinton. There is a way forward.

HOLMES: But Christine, if I could jump in, I actually think this fall elections is very much about this very issue, about the deficit. You actually see in polling data, it's the number one issue for voters. Voters are fearful and they are educated. They getting even more educated by this show.

And as a conservative, I would be remiss if I didn't mention the Tea Party. That grew up as an anti-tax and an anti-deficit movement. And we see it only gaining strength and adherence. There have been studies done on Tea Partyers, 17 percent of them are Democrats. So I think that people are actually very aware of this and if they are going to be going to those same politicians who want to give them bennies and tell them actually the election issue I'm concerned about is you cutting government spending.

ROMANS: Bill Bradley, specifically the near-term issue, the near-term crisis that's inspiring the Tea Partyers is tangential to but slightly different than the longer-term crisis, too. I mean, the near-term crisis is all the spending on the banks and all of this stuff that people don't like going on. How are they related?

BRADLEY: Well the spending that is taking place and the skyrocket in the last 18 months is really spending to get us out of where we are, get us away from a depression. Then you have the spending that you have over the long term and that's what you have to reduce.

I think that politicians are ready to do that when the people are ready to do that. And you mention the Tea Party movement or whatever movement this year is going to do it. The point is, the point of this kind of program is to say, Mr. and Mrs. America, this is a problem that affects you directly. You make some of the trade-offs, too. Don't wait for a politician to tell you an answer and then criticize the answer. But you decide how much are you prepared to sacrifice on Social Security or Medicare? How much are you prepared to spend less on defense in order to get the budget deficit down and secure the economic strength of America for the next generation.

ROMANS: All right, let's talk about the sacrifices and what kind of solutions we need to make and how sacrifices and solutions go hand in hand here. The United States spends a tremendous amount of money around the world. Next, is it time to reel in the spending and at what cost to the nation's national security?

(COMMERCIAL BREAK)

GREGG: As a government, we haven't disciplined generally. We have allowed the government spending to basically exceed our ability to pay for it for year in and year out for a long time.

UNIDENTIFIED MALE: First, let's look at our defense and other spending. Outside of the three major entitlement programs, Social Security, Medicare and Medicaid, the federal government operates many other programs. Of these, national defense is the largest. This year, including spending for operations in Iraq and Afghanistan, defense represents more than one-fifth of non-interest spending.

DEAN BAKER, ECONOMIST: I think we do have to look at military spending. Debt's been a very large cost and is projected to continue to be a very large cost for the country. And I think that has to come explicitly into the budget debate.

UNIDENTIFIED MALE: Since September 2001, lawmakers have provided $1.1 trillion for operations in Iraq and Afghanistan, and for other war-related activities. That figure could if additional appropriations are acquired later this year to support the planned increase in troop deployments to Afghanistan.

There is tremendous uncertainty regarding future Military spending. At some point, efforts in Iraq and Afghanistan will phase down and Military spending will once again hit pre-war levels of funding, which will have a significant impact on our long-term financial goals.

We should also engage in a range of defense planning, procurement and other reforms. This includes reviewing weapon systems relative to anticipated current and future threats, making procurement and acquisition programs more effective and economical and making sure Military compensation and benefits programs are affordable and (AUDIO GAP) the rest of the discretionary budget, which in recent years has been growing at approximately the same rate as the overall economy. Diligent reviews of Federal programs and elimination of those that are ineffective, outdated, or no longer meet current needs will help. That goes for smaller entitlement programs, too.

ROMANS: Once you have spending in place, history shows it's hard to reel it back in. We've been talking about tough choices. Amy Holmes is co-host of Talk Radio Network's "American Morning News." Amy, do we have to stop playing global cop and start talking about cuts in defense?

AMY HOLMES, CO-HOST, TALK RADIO NETWORK, "AMERICAN MORNING NEWS": Those are two different questions. There's the foreign policy question in terms of where do we deploy our troops to confront and face what conflicts? And 77 senators voted to give George Bush the authorization to go into Iraq. That's something I think a lot of people tend to forget.

But in terms of looking at defense spending, everything is on the table and reviewing all our defense programs. And under George Bush, Secretary Don Rumsfeld did try to change the nature of our spending and nature of our forces -- more small tactical things. Not the large standing armies you saw with World War II.

I think everybody across the board or at this panel, anyway, can agree we want to cut out waste, fraud, and abuse, and we want effective military.

ROMANS: Diane, We talk about cutting out waste, fraud, and abuse whether in health care or Social Security and Medicare, whether in the military and defense. I think American people say I don't trust what these bureaucracies will be able to cut the waste and not the programs.

DIANE LIM ROGERS, CHIEF ECONOMIST, THE CONCORD COALITION: I think the problem in making these tough choices is politicians are willing to talk about fiscal discipline and the need to start living within our means. But once they come to getting more specific with the American people, they are very reluctant to actually get specific about things that don't sound like waste, fraud, and abuse.

ROMANS: Specifically, what are the things we should be doing?

ROGERS: Well, I think that specifically we have to start attacking or disciplining some of the broader benefit programs. And so instead of being able to just say we are going to cut wasteful Medicare spending -- unfortunately, some of that wasteful Medicare spending isn't going to sound so wasteful to the people that benefit from those programs currently.

ROMANS: That's right. And one person's wasteful program is another person's very important project that must be continued that creates jobs.

DAVID WALKER, PRESIDENT AND CEO, PETER PETERSON FOUNDATION: And throughout the government, we need to be more future-focused and results-oriented. If you take defense, the way we go about planning and budgeting for defense is not focused on current and future threats. In fact, by law, the defense department is not allowed to consider affordability and sustainability coming up with their requirements.

So as a result, we need to be much more disciplined about what do we really need versus what people want, what can we afford, and defense should not be exempt. ROMANS: And this last part of that screen said review and eliminate effective programs. One person's ineffective program is another person's sacred cow.

JOE JOHNS, CNN ANCHOR: It's like pork. Congress and --

ROMANS: Sacred cow, pork.

JOHNS: Yes. You look at a state, look at the state of West Virginia for a long time had a huge problem with roads. There were so many pot holes in the roads. So Senator Robert Byrd came up with the idea of rebuilding the road system in a lot of ways in that state.

And it's gotten to the point now, though, he's considered one of the kings of pork in the Congress even though if you ask people in West Virginia, they like those roads. They need those roads. It's a question of priorities and everybody agreeing this is a priority in the interest of the nation.

ROMANS: How is America going to pay for these promises already made? Can we keep our promises on Social Security? That's next.

(COMMERCIAL BREAK)

ROMANS: How is America going to pay for the promises that it's already made? Can we keep our promises on Social Security? This document is called "IOUSA Solutions," but it could just have easily been called "Tough Choices."

Let's talk about some of these choices -- raise the retirement age, tax the rich, have the rich pay more in taxes but get fewer benefits. Maya, what among these is the right approach here?

MAYA MACGUINEAS, DIRECTOR, FINANCIAL POLICY PROGRAM, NEW AMERICAN FOUNDATION: Probably doing a little bit of everything. The place you start is certainly the retirement age. Everybody recognizes when they look at the demographics of the situation we are living longer than we used to and that we are still retiring early and spending a lot of our living years collecting money from the government.

We just can't afford that. And a lot of people want to work longer and should. So you raise the retirement age gradually and index it for growing life expectancies.

You understand some people will collect disability because they won't be able to work at long because of the nature of their job or their abilities, and you restructure the program accordingly. That makes a lot of sense. It's the not going to close the gap on its own so you have to do other things.

The next place you look is changing the structure of benefits for people who need them the least. You want to keep them strong for people who depend on the program but slow the growth for people at the high end who don't need it as much.

If you look at revenues, you have different ways to do it. Raise the payroll tax cap or have more people put more money into private savings to augment their Social Security.

In the end, and I think this is true for the budget problems, you have to create a basket of everything. There are constituencies who to protect all programs, don't want to raise taxes or cut spending. The reality is we have to deal with some or all of those, and that applies to Social Security. I think retirement age and working longer is the key to this problem.

JEANNE SAHADI, SENIOR WRITER, CNNMONEY.COM: So people don't get scared, when they say do it gradually, they mean a month every two years and then adjusting it for life expectancy. They really do mean gradual. They don't mean it's going to be 67, 68, 69, then 102.

JOHNS: It's so funny. We talk about all these things in the abstract, but we still do know the reality is that Social Security is considered the third rail of American politics. And it is, I think, still a tough haul.

Senator Bradley, we've been talking about this, and you say you can do it. I just wonder if this age of baby boomers retiring is different from the last age of people retiring?

BILL BRADLEY, (D) FORMER U.S. SENATOR: That's the basic rap, you can't do anything. My reflection in the early '80s, Social Security was going to go bankrupt. I would conduct town meetings, 400, 500 people, the majority seniors. I would have a professor from the university lay out the options, and we would discuss it.

And seniors would say, well, I don't want my children to pay more taxes, so maybe I'll cut a little bit of my benefit. Someone else would say, I would work longer. You ended up with a proposal I felt comfortable with because I'd already done the work with my constituents and realized they could buy a retirement age increasing from 65 to 67, which it did. Some increased taxes and some changes in benefits on the CPI.

And that's where we are now. We have to stop demagogue-ing the issue and focus on the real facts and what's at stake.

Social security is the best program the federal government's ever passed. It's a compact between generations. There is now a generational compact that needs to be made in terms of reducing the budget deficit overall so that we don't burden young people.

If you take a look at domestic nonelderly, nondefense spending, it is at the lowest point since 1940 as a percentage GDP. So let's keep in mind where the spending takes place. That's where we are going to help solve the problem.

ROMANS: I wanted to quickly jump to you. You said something interesting at the break. You said be careful about talking about cutting waste, cutting fraud, even these two wars eventually ending. All together, that still is a small part of the problem. That's why you think Social Security should be the first thing to go after.

PETERSON: It's hard to avoid the entitlements if you do simple math. If you got rid of all the Bush tax cuts, which not many people are proposing, if you got rid of all the earmarks that people keep talking about, if you got out of both wars, you would only solve somewhere between 10 percent and 15 percent of the problem.

So it is absolutely essential you get where the money is. It's very important on the entitlement.

ROMANS: We'll leave it there for the moment and move on to the next hottest topic, that's health care. Why health care plays a huge role.

(COMMERCIAL BREAK)

BARACK OBAMA, (D) PRESIDENT OF THE UNITED STATES OF AMERICA: Put simply, our health care problem is our deficit problem. Nothing else even comes close.

UNIDENTIFIED MALE: With the adoption of health care reform legislation, it is more important than ever that we find ways to reform our health care system. Otherwise, costs of health care, including the cost of newly enacted benefits and subsidies, will continue to rise, putting our fiscal outlook at greater risk.

UNIDENTIFIED MALE: If I were to worry about how we are going to have a sustainable financial future for the United States, health care would be at the top of the list of things I would worry about.

UNIDENTIFIED MALE: Well, I would say long term the story is overwhelmingly historic health care. Our health care costs are way out of line with the rest of the world, and the projections get even more out of line in coming decades.

UNIDENTIFIED MALE: We have a Medicare cost crisis, but it's more true that we have a national health cost crisis. We cannot solve the Medicare cost problem unless we solve the problem of cost for all of our nation's health care.

UNIDENTIFIED FEMALE: People want health care, and the average cost is rising very, very rapidly.

UNIDENTIFIED FEMALE: This country spends more per person on health care than any other country, and by no metrics are we getting the most for our money, so there's clearly a problem of what we're getting for all the money we're spending.

UNIDENTIFIED MALE: As educated as I feel like I am, I still feel disenfranchised from the conversation.

UNIDENTIFIED FEMALE: The health care conversation?

UNIDENTIFIED MALE: Yes. Don't get it.

UNIDENTIFIED FEMALE: There is a feeling of all these benefits that we used to get are getting harder and harder to come by because of the costs. And I don't know where the costs lie. Is it the fault of the insurance companies or is it the fault of the medical providers because they're doing unnecessary things? It's kind of hard to sort it out.

UNIDENTIFIED MALE: We ought to be trying now a number of strategies that will slow the growth of health care costs.

UNIDENTIFIED MALE: The passage of the health care bill is just the beginning. Now the real work begins. We must address the rapid growth in health care costs, which is absolutely essential to our economic and fiscal future. To do this, we will need to make a number of changes in the way health care is delivered, financed, and consumed.

UNIDENTIFIED MALE: We have to look at the way we pay our doctors and our hospitals.

UNIDENTIFIED MALE: The current way we pay for most health care in the United States which is an individual fee for a specific service, referred to as fee-for-service medicines. We pay hospitals that way, by and large, and we pay physicians that way.

That rewards physicians for doing more services regardless of whether they're beneficial to the individual patient or not. It rewards hospitals for keeping their beds full even if it's better for the patients not to be readmitted.

UNIDENTIFIED MALE: And one of the most important things for the public and for the profession to understand is that more is not necessarily better when it comes to health.

UNIDENTIFIED MALE: We basically have a delivery system which rewards quantity over quality and does not tie quality to value.

UNIDENTIFIED MALE: So we need to move away from fee-for-service payment.

The second issue is that we have a fragmented delivery system where hospitals, physicians, nursing homes, each are working independently with no coordination among them.

So the fragmentation in the U.S. health care delivery system is one of the problems we think is so important to a he dress. Electronic medical records have tremendous benefits. So by providing a common record that all physicians taking care of you could see would markedly improve coordination.

If you have a chronic illness, you need your care taken care of over months and years. And we have no accountability in the system to improve your care as an individual.

Putting those things together -- better payment systems, better information systems, and ways of holding physicians accountable with hospitals -- then we could drive improvement in the health care system.

UNIDENTIFIED MALE: Some other ways include enacting malpractice reform, reducing administrative processes, reducing medical errors, and creating smarter health care consumers. In the current health care insurance system patient are unaware of the true costs of medical tests and procedures. When you purchase something from a store, it comes along with a clear price tag. The same should be true of health care services.

UNIDENTIFIED MALE: With respect to health care, a large fraction of it is not paid out of pocket, but rather paid by insurance, so we are insensitive to prices.

UNIDENTIFIED MALE: One way to change this is to show the total cost of compensation, including the employee's share of the health care insurance, on pay stubs. This way employees can see how much of their compensation is in health care, not just cash.

Finally, we need better decisions about end of life care. About 30 percent of all Medicare payments are on behalf of people who will die within a year. We should encourage compassionate ways to handle difficult health decisions at the end of life that will lead to appropriate level of care.

These and other steps could help slow the rate of growth throughout our entire health system.

(END VIDEOTAPE)

ROMANS: Of all of these proposals, which ones save the most money and which ones can actually work?

SAHADI: The efficiencies they want to put in the system, end of life care, those could be big savers. The thing about the health reform law, Congress needs to stick to what it wrote. If it doesn't, the cost reduction potential is lost.

Two things in the health care reform law that deficit experts around this table and elsewhere like are the reducing, imposing an excise tax on insurers which basically reduces the tax benefit we get and the Medicare payment advisory board, which would advise Congress in a way Congress would have to listen about how to control spending, excess spending in Medicare. If they weaken those, we are in trouble.

ROMANS: We are not close to being done on health care and health care reform and how that fits into this whole debate.

Lys, why a change in your taxes could play a big role in the securing the future of your country.

(COMMERCIAL BREAK)

ROMANS: Before the break, we talked about ways to reduce the growth rate in health care costs.

Two other options -- prevention and wellness as well as Medicare reform, again tough choices. Seniors are a pretty powerful and vocal voting block. Amy, prevention and wellness might be tough in a country where the worst food is the cheapest.

HOLMES: Right.

ROMANS: How does prevention and wellness fit into this?

HOLMES: I think it's a very large piece of this. I worked for Senator Bill Frist, a medical doctor and heart-lung transplant surgeon. I was a speechwriter, and I used to write speech after speech about this. He passed the prescription drug plan in part because it did have that preventive and wellness feature to it.

So you could take a pill instead of an expensive surgery down the road.

We haven't mentioned medical malpractice, which is another issue he tried to go after, and that's defensive medicine where a doctor is giving you test after test because he doesn't want to get sued. That drives up the cost of health care and drives doctors out of the profession.

You see OB-GYNs are not serving rural communities because their medical malpractice bill is so high.

ROMANS: You say health care will still be the thing to bankrupt this country is we don't get it right. We talked about expanding coverage, but not about containing costs, and that's still the problem.

DAVID WALKER, FORMER U.S. COMPTROLLER GENERAL: The single largest challenge to our fiscal future is health care cost. If one thing could bankrupt America it's out of control health care costs. The last health care reform was about coverage expansion, not cost- reduction.

Medicare is underfunded $38 trillion already. The Medicare prescription drug added $7 trillion to $8 trillion in underfunding. We need to start dealing with that.

ROMANS: I want to go back to that. We didn't pay for that, right?

AMY HOLMES, INDEPENDENT CONSERVATIVE: Right. It's controversial. It did get bipartisan support, but it adds -- I agree.

WALKER: Hurray, we didn't pay for it.

HOLMES: This is an issue and topic we have to address head-on.

ROMANS: How does health care fit in your view here?

DIANE LIM ROGERS, ECONOMISTMOM.COM: We've gone through this very tortured health care reform and didn't get a lot from it in terms of the long-term challenge we face. David is right that it's more about expanding coverage than containing cost and addressing our current, the challenge we already had before we started this reform process.

I think it's going to be a really difficult and long road to containing health costs. It is our number one challenge. We don't know the solutions yet. We are sort of learning as we go along, and it's going to take a long time for those policy choices and the possible solutions to materialize.

So in the meantime, I think we have to be looking at the easier parts of the budget.

ROMANS: There are easy parts of the budget?

ROGERS: Social security used to be the third rail, but I'm not so sure. There are so many other third rails around now that may look worse.

ROMANS: Let's talk about health care reform. I want to stay on the subject, Maya. All of these different things that the film brings up, moving away from fee for service, better coordination throughout the system, adopting electronic medical records, increasing physician and hospital accountability, malpractice reforms -- yes to all of them?

MAYA MACGUINEAS, NEW AMERICAN FOUNDATION: Yes to all of them. And many are all in the bill that passed.

And health care is the biggest problem facing the budget. We just went through a painful process to reform health care, and we just didn't get nearly enough in terms of medium or long-term cost savings.

Yes, it will reduce the deficit very slightly over ten years, but compared to the overall size of the problems it contributes, it's a drop in the bucket. And nobody wants to have to go back and do this again. Unfortunately, we do.

And I think we are going to have to look at other pieces of this. More of what's in the bill in terms of controlling costs, more in terms of the excise tax making this Medicare commission stronger and being able to have greater say how to generate savings, savings and Medicare overall. Medicare is unsustainable.

I also do think we strongly have to look at the side of consumers, where there is a problem where in a sense we have, in the country we have a sense health care is free, because when you go to the doctor, you don't pay much money and you don't know how much it costs. So we need to improve transparency.

The bottom line for the government is when you're budgeting, you're supposed to make a budget. We don't have a budget for health care. We kind of have this open-ended promise, no matter how quickly costs are going up, we cover them. We need to put a strict budget on health care and other pieces of the budget and therefore, live within our means.

That's going to mean tough choices in terms how much people pay, how much you can get, different things that qualify. We only have to pay for what works instead of what might work. We have to do a lot more on the health care front as well as other parts of the budget.

ROMANS: Maya MacGuineas says the health care issue is not settled just yet.

The calendar says it's April. That means taxes are on everyone's minds. Up next, like it or not, we'll tell why you taxes could play a big part in securing the future.

(COMMERCIAL BREAK)

UNIDENTIFIED FEMALE: Here's the situation we face. Over the long term, the real budget problem is that of growing government spending. Spending cuts are going to have to be part of the solution and a big part, but there's no way we can close the budget gap that we face without also raising taxes.

UNIDENTIFIED MALE: The political system is clearly broken in fixing this problem, but our political system is really a reflection of our own personal preferences as a society.

We believe that we are entitled to ever-lasting prosperity with increasingly large government benefits from the cradle to the grave, but we equally feel like we don't have a responsibility to pay for it. We are socialists when it comes to spending and libertarians when it comes to taxes.

UNIDENTIFIED MALE: We are going to have to decide which of the Bush tax cuts should be expended in whole or in part and which ones should be allowed to expire or otherwise scale back.

UNIDENTIFIED MALE: If the 2001 and 2003 Bush tax cuts are extended, the revenues of the federal government would decrease significantly.

UNIDENTIFIED FEMALE: The cost of Bush tax cuts is about $2 trillion over ten years, and to put that in perspective, that's double the cost of expanded health care coverage that everyone's complaining we can't afford.

GEORGE W. BUSH, (R) FORMER PRESIDENT OF THE UNITED STATES OF AMERICA: Not only do I think we ought not to raise them, I think we ought to make every tax cut we pass permanent.

UNIDENTIFIED MALE: One of the things that I noticed in the past several years is that you can't even discuss revenue increases or tax increases. Taxes can only go one way. They can go down.

UNIDENTIFIED MALE: Recent estimates by the Congressional Budget Office conclude by letting the Bush tax cut expire, federal tax revenues would go up by average of 1 percent GDP per year, or about $2.6 trillion over the next ten years. But that's not enough to solve our problem. Finding other revenue sources may be unavoidable.

UNIDENTIFIED MALE: We're going to have to look at consumption taxes like a value added tax or some form of national sales tax as a mechanism for maintaining some of the benefits that we are promised through our entitlement programs.

UNIDENTIFIED FEMALE: All the industrial countries have a national sales tax of some sort.

UNIDENTIFIED MALE: Consumption taxes would do more than just raise revenues. They would make consumer spending more expensive, and could help encourage people to save more of their incomes. That, in turn, would increase domestic savings and reduce our reliance on foreign lenders.

Another way to close our long-term gap is to modernize the tax system.

UNIDENTIFIED MALE: The current tax system is deeply flawed. It's been amended over many years and has become a monstrosity.

UNIDENTIFIED MALE: The United States tax code is made up of over 10,000 different sections. Much of the system is confusing, outdated, and filled with loopholes. There are many tax preferences that result in almost $1 trillion in lost revenue every year.

The special tax treatment of employer-paid health care and home mortgage interest payments are the two largest examples. Furthermore, our complex and burdensome corporate tax system puts American companies at a competitive disadvantage internationally.

UNIDENTIFIED MALE: I think our tax system has gone awry in the last ten years.

UNIDENTIFIED FEMALE: Streamlining and eliminating many of those tax loopholes could bring in a lot more revenue for the government.

UNIDENTIFIED MALE: I think it's going to require us to write a new tax system, one that's more fair.

UNIDENTIFIED MALE: The world has changed many times on taxes over the years. There have been a lot of swings in both public opinion and activities in Congress. The one thing I can promise you, it will be different 20 years from now.

(END VIDEOTAPE)

ROMANS: There is no other way around it. There are two ways to make a dent into our national spending, raise taxes or cut spending. David Walker, is it time to eliminate the Bush tax cuts?

WALKER: Not all of them. But not all tax cuts are equal. Very few tax cuts pay for themselves. We ought to focus which of the tax cuts Bush had promote economic growth, savings and investment. There are some that don't do that in a measurable way, so we need to reconsider those.

ROMANS: Amy?

HOLMES: I agree with that entirely. As Keith mentioned earlier, if you did and eliminated the wars and earmarks, that only gets to 15 percent of the problem. I think we need a tax code that encourages entrepreneurship. You were saying during the break if we made every congressman sit at his own kitchen table with a ball point pen and calculator and do it without H&R Block, you would get reform in a year.

(LAUGHTER)

ROMANS: Diane.

ROGERS: There are two questions. One is, are we raising enough revenue to cover our bills? Right now it's obvious we are not. We don't have a sustainable federal tax system.

A separate question is once you decide what the right level of revenue is, how do you raise it? There is nothing says we have to stick with any combination of the Bush tax cuts, in fact, current law says they are going away at the end of this year.

So Congress and the administration are going to have to decide what they want to do. Do they want to continue Bush tax policy or replace it with something new?

ROMANS: Bill Bradley?

BILL BRADLEY, (D) FORMER U.S. SENATOR: You have to think about the structure of the income tax system. Let's take two principles. One is equal income should pay equal taxes. That is not what the current system is. Those who use loopholes pay less than those who don't and push the rate up for the rest of us.

Second, it should be the lowest rate for the greatest number of Americans, thereby stimulating savings, investment, et cetera.

It is possible to have an income tax system that raises additional revenue at the same time it drops rates and closes loopholes. Closing loopholes are the means by which you drop the rates and also increase the progress toward reducing the budget deficit.

ROMANS: There's an overwhelming feeling that America's debt crisis is going to be the problem of the next generation. We're going to talk to three members of that generation next.

(COMMERCIAL BREAK)

ROMANS: Three millenials are joining me now, Sally Westcott, Nicola Moore, and back in with us, Drew Navolio. You guys seem strangely optimistic. Where does that mentality come from, Sally?

SALLY WESTCOTT, FEATURED IN "I.O.U.S.A. SOLUTIONS": Well, I think that comes from being challenged so early. A lot of people we talked to, senators, congressmen, women, have been giving us this challenge since we started talking to them, saying, hey, it's up to you.

This is a really big issue we need to deal with. So I think we're just confronting it head-on and saying, look, we need to start early and we need to start now. It's just the challenge of it that's making us optimistic, I think.

ROMANS: And Nicola, a challenge, but also talking a lot in this hour about sacrifices. Do you feel as though you and your generation are going to have to make sacrifices? What are you willing to make to fix this problem?

NICOLA MOORE, CO-CREATOR, UOMEGAME.COM: I think we'll have to make sacrifices. One of the things that will be absolutely crucial is to have an intergenerational dialogue with our parents and grandparents about the sacrifices they are willing to make, as well.

If I have to pay higher taxes, maybe my grandparents will have to take a slight benefit cut. They probably are not going to like me saying that on national television. But I think all those different types of sacrifices need to be made collectively and together.

ROMANS: You just got less money from your birthday check this year from grandma and grandpa. They will tell you to put that toward your own future.

(LAUGHTER)

Drew, what about sacrifices from your point of view? We are all talking about higher taxes, cuts in spending. We are talking about dramatically remaking the health care system.

Maybe your generation, you are going to have to work longer before you're able to retire. Maybe if you, god willing, make a ton of money in your lifetime, you'll pay higher taxes in exchange for those Social Security benefits. What are you willing to accept?

DREW NOVOLIO, FEATURED IN "I.O.U.S.A. SOLUTIONS": I think that's pretty much inevitable. I don't think those sacrifices are things we have a whole lot of choices about. I think our generation is going to grow up and things are just going to be different. We have to live in a different environment economically, socially, and politically.

Those sacrifices, we are making them now. And as our generation gets older and we come to the work place and are starting to get an understanding of what it means to have a paycheck and invest for retirement, we understand the scope of things.

And we are a smart generation. This isn't a conversation that's just internal with our generation. We have to get advice and the information from those generations that came before us, because they've seen tough times, too.

This is tough, but I don't doubt there is any question we'll be able to get through it and be better in the long run.

ROMANS: All right, part of that intergenerational dialogue. Thank you guys so much.

When we talk about the debt, we talk about how it affects the future, our living standards. What should be done right now? What should we be doing right now? The solution, next. (COMMERCIAL BREAK)

ROMANS: A special thank you to the Peter G. Peterson Foundation film director Patrick Creadon and producer Christine O'Malley for allowing us to show this documentary.

On America's debt crisis, I have two questions for our panelists. Can we fix it? And what is the one thing we can we do right to get started?

MACGUINEAS: We can fix it. It's a political challenge. The problem is do we have the political will?

We talked about a lot of things today. the honest truth is the fiscal challenges are so big all of them have to be part of the solution. And we need leadership that puts out more than waste, fraud and abuse. It's more than a few earmarks you don't like. We have to fundamentally restructure our budget. And then we can get ahead of the problem that threatens our well being.

ROMANS: Bill Bradley?

BRADLEY: As long as we tell people the truth and put country ahead of party, I think we'll be able to solve this problem like we've solved many problems in the past.

The key thing is truth. The key thing is letting citizens know they're part of the solution. They have to participate. They have to know what's in the budget. They have to make the trade-offs themselves. To the extent they don't, it will be much more difficult. To the extent they get involved, it can happen.

MACGUINEAS: I would add to that the same thing applies to law makers who are the front line of this problem. They really need to stop defending their party and their place and decide we have larger problems to address.

JOE JOHNS, CNN ANCHOR: Having studied this for a long time, it seems to me it's grassroots issue. People have to get their heads around the idea of what it means in practical terms to them.

What you're talking about here is you have to bite the bullet. It's about the mortgage deduction and getting rid of that. It's about perhaps getting rid of fee-for-service health care. It's about a whole lot of different things that affect people's lives very personally, but it's for the kids.

ROMANS: David Walker?

WALKER: We can solve the problem if we get truth and leadership, and if the first three words of the constitution come alive, "We the people." We the people are responsible and accountable. We have to push our elected officials. The sooner we do that, the better, because the clock is ticking and time is not in our favor.

HOLMES: I agree with that. I think it's a also philosophical question. The citizen has to ask what is the role of government? What should the government do?

I am so optimistic. We are an entrepreneurial, optimistic country. Those young people who were here earlier, I am so inspired by them. It's about the citizen holding our elected leaders' feet to the fire, and they can do it this November.

ROGERS: I'm also very optimistic. And that's because just as we heard from that family, when you have to live within your means, when constraints get tighter, you learn to prioritize. And sometimes in prioritizing you learn what's important to you.

ROMANS: Pete Peterson, you said you were worried we hadn't talked enough about savings.

PETE PETERSON, FOUNDER, PETER G. PETERSON FOUNDATION: Well, I think there are few things we need to do more of to increase savings. In the first place, it makes us much less dependent on foreign capital. In the second place, it provides money for R&D and investment that we need to be competitive.

And it seems to me the tax system should go in the direction of increasing savings, which is disincentives on consumption. We can't consume and save the same dollar.

In terms of optimism, I remind you of what happened after the Second World War. Our public debt was twice as it is now, 122 percent of the GDP. The American people, as Dave suggests, were told the truth. There was great leadership.

And what did the American people do? They reduced the debt to something like 20 percent, 25 percent of the GDP by the '80s. They paid for the biggest infrastructure program in history -- highways. They paid for the Marshall Plan. They paid for the G.I. bill. Why? Because they understood as Dave says by virtue of the leadership what the truth was.

ROMANS: And embarked on a great period of prosperity. So I guess the moral of the story is don't count the United States out.

This debate is not going to end any time soon. Thank you to our panelist for taking the time to talk to a very serious issue facing the country. And it's an issue we are committed to following here on CNN.

Join me every morning on "AMERICAN MORNING" at 6:00 a.m. You can catch Ali Velshi and me Saturday at 1:00 with on "YOUR MONEY."

Thanks for watching us this afternoon. Have a great weekend.