Friday, December 19th, 2014

In Context: Bill Clinton on extending tax cuts

Former President Bill Clinton was interviewed on CNBC
Former President Bill Clinton was interviewed on CNBC

Republicans have seized on comments by former President Bill Clinton about the extension of the Bush tax cuts. Here's an excerpt from his CNBC interview with Maria Baritiromo. (You can find the full CNBC transcript here.)

MARIA BARTIROMO: So what about this upcoming fiscal cliff? Because a lot of people are worried and the markets certainly have been reacting to the-- to the idea that these Bush tax cuts will expire at year end along with the spending programs that will expire. Should those programs and those tax cuts be extended?

PRES. BILL CLINTON: What I think they should do is find a way to keep the expansion going. And I think the-- as weak as it is here, you know, unemployment in the euro zone I think is 11%. And-- Germany's doing well but the-- and a lot of the smaller countries are doing extremely well, many of which are not in the euro.

But they're trying to figure out a way to promote growth. And what I think we need to do is to-- find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now, and then deal with what's necessary in the long-term debt reduction plan as soon as they can, which presumably will be after the election.

MARIA BARTIROMO: So does that mean extending the tax cuts?

PRES. BILL CLINTON: Well, I think what it means is they will have extend-- they will probably have to put everything off until early next year. That's probably the best thing to do right now. But the Republicans don't want to do that unless he agrees to extend the tax cuts permanently, including for upper income people.

And I don't think the president should do that. That's going to-- that's what they're fighting about. I don't have any problem with extending all of it now, including the current spending level. They're still pretty low, the government spending levels. But I think they look high because there's a recession. So the taxes look lower than they really would be if we had two and a half, 3% growth. And the spending is higher than it would be if we had two and a half, 3% growth because there are so many people getting food stamps, so many people getting unemployment, so many people are Medicaid.

But-- the real issue is not whether they should be extended for another few months. The real issue is whether the price the Republican House will put on that extension is the permanent extension of the tax cuts, which I think is an error.

MARIA BARTIROMO: Something's going to give, though, right? I mean, if we don't deal with this by November then you probably don't deal with it by 2013. And in the meanwhile, sort of the markets and the economy hang in the balance.

PRES. BILL CLINTON: We don't want to do anything to roil the markets any more than they already are. And the Europeans, in defense of them, they're trying to move away in a sensible way from the perception and the reality that they've been too austerity driven.

And you can see it separately. And if you look at what happened in the U.K., 'cause they're not in the euro zone, and I like the prime minister and the current government and I admire Mr. Clegg. But they tried to do this austerity first. And what happens when there's no private demand is that no matter how much you cut spending, the revenues drop more and the deficit goes up because the economy slows down.

And that's what we have to avoid here. But what I think the president is right about is not wanting to make any commitments that will constrain our ability to have a long-term debt reduction plan because two years from now, three years from now, five years from now, we need to be bringing this deficit down when the economy grows because then you'll have the private markets needing capital.

And if the government's taking so much of it to finance the debt, interest rates will go through the roof. So the trick is to promote growth now while they're literally zero interest rates for American securities because we're perceived as a safe country with a sensible economic policy and to keep your options open to deal with a deficit in a responsible way going forward.