'Meet the Press' transcript for Jan. 25, 2009

MR. GREGORY:  Let me get to the--that spending piece and the tax cut piece. This is an area where conservatives, Republicans, have been critical.  Let's go through them.  There has been a concern about the spending side, that it's not all stimulative, that it's not going to create jobs.  This is how The Washington Post editorialized about it this morning:  "Some in Congress and the new administration apparently see the country's present recession as an opportunity to change the federal government's spending priorities more generally or simply to reward loyal political constituencies.  ...  Helping" dire, equip--helping "hire," rather, "equip and pay police, a $4 billion item under the bill, might be a good idea, but writing checks to individual households for the same amount would do more to stimulate the economy.  Ditto for $16 billion in Pell Grants for college students, $2.1 billion for Head Start and $50 million for the National Endowment for the Arts.  All of those ideas may have merit, but why do they belong in an emergency measure aimed to kick-start the economy?" If the size of the package is important, if the deficit picture this year, projected to be at $1.2 trillion, is a concern, why not put some of that spending off until later?

DR. SUMMERS:  David, respectfully I would disagree with The Washington Post. There are cops being laid off across the country.  Saving their jobs is saving jobs, it's helping the economy, it's protecting our neighborhoods.  I used to be a college president.  There are kids across the country who are losing the chance to go to college, whose families are being forced to put their houses on the market to sell kids--to help those kids go to college, further putting downwards pressure on the economy.  I think spending to respond to the extra burdens on financial aid, putting money into the economy for financial aid for college students is a good investment, just like saving the jobs of cops is a good investment.  Yes, we do have to provide tax cuts to households, and this program is doing it.  What the president has done, and it's really something that he stressed in the inaugural when he talked about responsibility, and it's really integral to his style of leadership, is try to craft a balanced program.  There's some in his party who'd like to see this be much more about spending, there are others who don't want to see anything, even preserving the jobs of cops.  The president's taking a balanced approach.  He's indicated he's open to ideas from any, anywhere.  No doubt the precise composition of the package will change as it works through Congress, and the president's very open to the best ideas of all kinds.

MR. GREGORY:  Let's talk about tax cuts.  About a third of his package is made up of tax cuts.  Republicans want more.  Specifically there's a question about the Bush tax cuts which, of course, expire next year.  Does the president want to actually repeal those tax cuts this calendar year?

DR. SUMMERS:  I don't think there's any question they have to be repealed. The country can't afford them for the long run.

MR. GREGORY:  So repeal them this year?  Because they expire next year.

DR. SUMMERS:  What the timing--what the--they expire, expire at the end of next year, and they have to be allowed to expire.  What the timing will be, that's something that's going to have to get worked out.

MR. GREGORY:  Because the House speaker says do it this year.

DR. SUMMERS:  That's something that's going to have to get worked out through the legislative process.  MR. GREGORY:  All right.

DR. SUMMERS:  There's no question that the president's been very emphatic about this, as he was very emphatic during his campaign, that they can't be part of...

MR. GREGORY:  OK, but timing is important.

DR. SUMMERS:  They can't be, they can't be part of the long-run budget picture.

MR. GREGORY:  Well, understood.  But...

DR. SUMMERS:  And it's a timing--it's something that's going to be--that's something that's going to be worked out in the course of the...

MR. GREGORY:  But what's his position, repeal them this year?

DR. SUMMERS:  ...in the course of the legislative, legislative process.  The president has made clear they--that the question of timing is one we're going to have to reach as we see how the economy unfolds...

MR. GREGORY:  Yeah.

DR. SUMMERS:  ...as Congress reaches its judgments.  But they're not going to be with us for long.

MR. GREGORY:  Why not?  Why not?  Conservatives make the argument, why would you want to raise taxes--if you repeal those tax cuts, taxes do go up on upper-income Americans, primarily.  Why would you want to raise taxes right now?  Why not put that expiration date off into, say, 2013?  Why is that a bad idea?

DR. SUMMERS:  Put the expiration date off into...

MR. GREGORY:  2013.

DR. SUMMERS:  ...2013?  First, it's a bad idea because we simply can't afford it.  The president's inherited a trillion-dollar deficit, and a deficit with a baseline that is terrible as far as the eye can see.  We've got to spend money now while we have a recession, while we've got this serious economic crisis, but as soon as the economy recovers we are going to have to find ways of getting the government's finances under some kind of control.  Second, we have to focus on, frankly, the parts of the economy that need help.  If you look at what's happened over the last 10 years, the incomes of middle-income families have barely or kept up with inflation, or in many, many cases fallen behind inflation.  The people who are the beneficiaries, the small minority, a little over 1 percent of the population that are the beneficiaries of those tax cuts have actually seen their incomes rise much more, much more rapidly.  And so I think it's a pretty clear question of priority as to where the, where the assistance needs to be channeled.

MR. GREGORY:  But you say...

DR. SUMMERS:  But understand this, the president has vowed that there will be tax cuts for more than 95 percent of Americans, for all working families with incomes below $250,000.  They will see their taxes cut, they will not see tax increases.

MR. GREGORY:  Well, let me just press you on this point.  You say we can't afford to let those Bush tax cuts expire later, but we can afford to, to spend up to $700 billion for the tax cut that you like?

DR. SUMMERS:  We can--we--it's a good question.  We certainly can afford to do what is necessary now to stimulate this economy, to put money--frankly, when you put money into the hands of middle-class families, history and experience suggest that they spend a substantial part of it, pushing the economy forward.  When you put money into the hands of those with very high incomes, only a much smaller fraction of it is spent and so you derive much less benefit in terms of pushing the economy, in terms of pushing the economy forward.

MR. GREGORY:  We have a few minutes left.  I want to talk about the banking crisis in this country.  First question, $700 billion has been dedicated to shore up the country's failing banks.  Will more money be needed down the road?

DR. SUMMERS:  We're gratified that Congress has given the president the authorization he needs to unlock that $700 billion that the Bush administration had worked with Congress to create.  The president's financial recovery program's going to be very different than what we've seen so far. It's going to emphasize transparency, it's going to emphasize accountability; perhaps most importantly, the focus isn't going to be on the needs of financial institutions.  Of course we need to stabilize financial institutions.  Without a stable financial system, the economy can't work.  But the priority has to be getting credit flowing again so that people can buy cars, so that people can get mortgages...

MR. GREGORY:  Right.

DR. SUMMERS:  ...so that the economy will operate.  Secretary-designate Geithner we expect will be sworn into office very soon, and when he is, soon after he will be laying out the plans and principles behind our approach.  We believe we can make important progress...

MR. GREGORY:  All right, but I want, I want to get to this point.  Do you think we'll need more?  You know the state of the finances of these banks. Will more money be needed?  Do taxpayers have to expect that we're not done paying yet?

DR. SUMMERS:  We can make important progress and get started with the support that has been provided.  What ultimately will be necessary is something that will play out over time.  The president has made clear that our administration is going to be leaning forward, that we're going to be proactive and that he is prepared to do what is necessary, but only to do what is necessary in the context of responsibility...

MR. GREGORY:  So it's possible.

DR. SUMMERS:  ...in the context of trust...

MR. GREGORY:  Right.

DR. SUMMERS:  ...things we've seen too little of in recent years.

MR. GREGORY:  How do you get the--there's a lot of questions about what they've done with the money, what the banks have done with the first $350 billion.  The government is effectively the owner of most of America's banks. If they're not lending, why can't you just make them lend?

DR. SUMMERS:  Government's much more--it's ironic, frankly, that the previous administration, with all of its emphasis on free markets and all of that, brought the country to a point where the government was much more heavily involved with the banking system, much more involved with companies in general than government ever has been before under any administration since the second World War.  But it's, it is really not right, David, to say that the government is the owner, in any sense, of the banks.  The government has bought what's known as preferred stock, the government has lent money in various ways.  But with the exception of a very few institutions where the FDIC has intervened, the government doesn't have ownership rights.  One...

MR. GREGORY:  But it has the ability to affect how much capital they keep on, on their balance sheets, it has the ability to say to them, "This is how you should operate." And it could, in effect, make them lend if it wanted to.

DR. SUMMERS:  Sure.

MR. GREGORY:  No?

DR. SUMMERS:  Sure it does.  Who knows what it could do.  It wouldn't be...

MR. GREGORY:  Right.  But why not do that, if that's the concern?

DR. SUMMERS:  It wouldn't be, it wouldn't be responsible for an institution that can't contain confidence, can't maintain any confidence right now to raise its, raise its lending without having capital.  Frankly...

MR. GREGORY:  So they need more money.

DR. SUMMERS:  ...that's why we need--frankly, that's why there needs to be more capital in the system.  That's why this...

MR. GREGORY:  Right.

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