Wednesday, June 8, 2011

An Interview with Tim Pawlenty

Last night I spoke with former Minnesota governor Tim Pawlenty about his blockbuster, Reaganesque, pro-growth economic plan. He wants to slash taxes, spending, and regulations. He blasted the cheap-dollar policies of the Bernanke Fed and said he would never reappoint him. He also told me that if you can Google a government service or asset, it should be sold. Think Amtrak and the U.S. Post Office. The Pawlenty plan is by far the most detailed economic prescription from any Republican candidate thus far. The former college hockey player caps it all off with a 5 percent aspirational growth target designed to lift the spirit of America:

KUDLOW: All right, topic A tonight, it’s the economy, stupid, and that’s going to decide the fate of the 2012 presidential race. Today in a speech at the University of Chicago, former Minnesota Governor Tim Pawlenty unveiled a blockbuster growth plan that cuts taxes, spending and regulations. Joining us now for a first on CNBC interview is former Minnesota Republican Governor Tim Pawlenty.

Governor, welcome back. Before we start, please take a listen to what President Obama had to say today about worries of a double-dip recession.

OBAMA: I’m not concerned about a double-dip recession. I am concerned about the fact that the recovery that we’re on is not producing jobs as quickly as I want it to happen. Prior to this month, we have seen three months of very robust job growth in the private sector and so we were very encouraged by that. This month you still saw job growth in the private sector but it had slowed down. We don’t yet know whether this is a one month episode or a longer trend. Obviously we’re experiencing some head winds.

KUDLOW: All right, there’s a real mouthful. Governor Pawlenty, do you see a double-dip recession? Do you agree with what President Obama just sort of basically said?

PAWLENTY: Well, the economy’s sputtering. And, you know, he declared last year in his administration the recovery summer, Larry, you remember that? How was your recovery summer?

KUDLOW: It was excellent.

PAWLENTY: Yeah? Did you use sunscreen? Did you use the appropriate SPF during the recovery?

KUDLOW: All right, Governor, well put.

PAWLENTY: All right. Well…

KUDLOW: But you–I take it you don’t see a double-dip recession. Is that your basic view?

PAWLENTY: Well, I’m concerned about the near term and intermediate term outlook for the economy. I think they’ve done a number of things that set us up, if not for a double dip at least a lot more bumps in the road. This is not over yet in terms of the challenges the country faces. We have to throw off the shackles of Obama’s declinist attitude and policies and get back on a pro-growth, positive, optimistic agenda. That’s what we did today at the University of Chicago. And, Larry, the marquee part of it is to say, look, we’re going to set a goal of 5 percent for growth in this country. We’re not going to accept the CBO, you know, 2 percent, anemic outlook for the country. We’re going to double that and more, and we’re going to talk about the specific policies to unleash the American entrepreneurial spirit.

KUDLOW: Well, I think the 5 percent growth goal is terrific stuff, but I want to ask you about another major figure who doesn’t see 5 percent growth. That being Ben Bernanke, who also gave a big speech today, Governor. Bernanke says the economic sputter is temporary, but he’s not worried about the dollar and he is going to keep Fed policy at a zero interest rate for as far as the eye can see. Let me ask you, sir, A, do you agree with Bernanke’s assessment that the sputter is temporary? And, B, would a President Pawlenty reappoint Ben Bernanke?

PAWLENTY: Well, as to the last point, Larry, I opposed his appointment last time, so it wouldn’t be hard for me to oppose his reappointment next time. And I would–don’t think that he should continue in that position. A strong dollar reflects a strong country and a strong economy, and we need to make sure that we get the–stop the practice of devaluing the dollar. Americans get paid in dollars. They buy groceries in dollars. Their 401(k)s are in dollars. And when you devalue the dollar, you’re devaluing the net value of this country and it’s a hidden tax on all Americans, and it’s going to get worse. They have flooded the money–excuse me, flooded the market with these dollars that they’re printing in the basement, as you know, and it’s devaluing the dollar. They don’t have a strong dollar policy. And it makes me wonder, Larry, if they’re even doing it intentionally. I wonder if part of their plan isn’t to purposely try to inflate their way out of this deficit. I hope that’s not true, but we have to return to a strong dollar policy.

KUDLOW: All right, a strong dollar. Let’s turn to your better deal speech today. First of all, 5 percent economic growth, a laudable, notable target. Is it credible, sir? Can the United States get a 5 percent growth rate?

PAWLENTY: Of course, and it has. And we got two examples in recent history from this country. One in the ’80s under President Reagan. One under President Clinton and the Democratic controlled Congress in the ’90s. We had nearly 5 percent growth rate in each of those decades. We can do it again for sure.

KUDLOW: All right. You’ve got what I would call a blockbuster tax cutting growth plan. I want you to walk through it briefly, if you will. First on the business side you’ve got a thorough going reform.

PAWLENTY: Yeah. It’s–a 35 percent rate at the corporate level now would be taken down to 15 percent, and then we’d clean out most of the crony capitalism in the form of the deductions, credits and exemptions and underlie that with just one or two exceptions, Larry. And then on the individual side, only two rates. Take the six current rates but collapse them down to two, 10 percent and 25 percent. The 25 percent rate would kick in at $100,000 of income. We’d keep the exemptions, deductions and credits under that. And small business owners in the pass-through entities, the LLCs, the Subchapter S and the like, they could choose which system they want to be in. They’d have a choice to toggle back and forth.

And then we also talked about what it’s going to take to get down the spending. So we’ve got a goal of 5 percent. A huge pro-growth tax plan, and then we also have a serious set of proposals to reduce spending and get the budget

KUDLOW: By the way, just to clarify. You do want to eliminate tax rates on capital gains, interest income, dividends and estates, is that correct?

PAWLENTY: Yeah, that’s correct. And that’s another huge part of the tax cuts, as well.

KUDLOW: All right. Let me go to the spending. You got a 5 percent spending impoundment for year, but it looks a little thin. There’s not a lot of detail in the spending side. By the way, Ben Bernanke told you today–I don’t know if he was addressing you personally–but he said this is not the right time to cut spending because it might upset the economy. There he goes again, you vs. Ben Bernanke. Now, first, is this the right time to cut spending? And second, what about your spending plan? Do we need more details there?

PAWLENTY: Well, the best time to cut spending would have been in the past and now we–is we have to do it, Larry. Should have done it before now. And, of course, we have to cut spending. We’re–the thing is out of control. They’re spending 40 cents of every dollar they spend is a deficit or debt dollar or so. So let’s do this, let’s be specific, let’s put no sacred cows to the side. Let’s put them put them up on the table. We got to reform the entitlement program, so we’ve got a specific set of proposals on Social Security, including gradually raising the retirement age for new people into the work force. Means testing part of Social Security. So if you’re wealthy, you won’t get your COLA in the future. We’ve got similar proposals for Medicaid and Medicare. I went to Iowa, told the truth to people there and said we can’t afford the ethanol subsidies and we also should get rid of all the other subsidies. I went to Wall Street and told them to get their snout out of the trough. We’re not going to do any more bailouts or carveouts or handouts there. We had a similar message for the public employees and the public employee unions and then down the list. But this is going to be the Jack Nicholson election from the movie “A Few Good Men.” He said famously when he was on the witness stand, “You can’t handle the truth.” Well, this is a going to be a referendum on whether the American people can handle the truth.


PAWLENTY: And we’re going to tell it to them and they can handle it.

KUDLOW: All right. But your critics are already out there today saying your broad-based tax cuts are going to blow up the budget deficit, and you don’t have the spending cuts to go along with that. What’s your reaction to that? You know how they’re going to hammer you. In fact, some Republicans are already expressing skepticism about your plan, much less the Democratic National Committee. What’s your response to that?

PAWLENTY: Well, my response to it is our plan, over a 10 year period, not only balances the budget but can leave you in the black. And if you had–reduced the federal spending by even 1 percent a year from today’s level over the next six years, you balance the budget in six years. But you add to that our tax cuts and the growth model and the spending cuts and the net of it, dynamically scored over the next 10 years, is the budget’s balanced and it leaves a surplus.

KUDLOW: So you’re saying growth is essentially to spending and deficit and borrowing restraint? Is that your message?

PAWLENTY: Well, growth is essential, first of all, to a successful country and opportunity for our citizens, but you can’t get to where we need to be without dramatically increasing growth. And President Obama’s policies don’t get it done. He doesn’t even have a plan. He won’t even address this= issues. I have a plan, we put it on the table and we got more to come in the coming months.

KUDLOW: What do you–where are you on the Paul Ryan Medicare plan?

PAWLENTY: Well, we’re going to have our own plan, Larry, and it’s going go be coming out shortly. It’s going to have some of the similar features, but it’s going to have its own features. We’re going to start paying for performance. So providers, hospitals, doctors and clinics won’t get paid just for volume. They’ll get paid for better results and better outcomes, and then we’ll leave Medicare as a choice, but it’ll be a choice that’ll be competing against a number of other choices, as well.

KUDLOW: Where are you on Mitt Romney’s stubborn adherence to government mandates for individuals and businesses in the state of Massachusetts, presumably any other states? What’s your take on Romneycare?

PAWLENTY: I’m one of the parties in the Florida lawsuit to have the individual mandate declared unconstitutional. It’s an issue that was presented to me formally several times when I was governor. I rejected it every time. And we took a different approach in Minnesota. We want market-based, consumer-based reforms in health care. We want to give people incentives to make wise choices in a marketplace, not centralized choices and have government mandates and takeovers.

KUDLOW: What’s your Google test? You’ve got this very interesting part about the Google test and you want to sell off a bunch of assets. Can you quickly tell us about the Google test in the Pawlenty plan?

PAWLENTY: Sure. The premise it, look, if you can go on Google and find a service or a product that’s available in the private sector, then government probably shouldn’t be producing or providing the product. Now obviously you have to apply a common sense and responsible lawyer of review on this. But, you know, do we–when you’ve got FedEx, how much longer do you need the post office, at least as a government entity? Do we really need all of Amtrak to be public? No, you don’t. I think the private entities could operate that. I don’t think you need the government printing offices and on down the list. But there are series of services that the government provides that I think you can have them compete or outsource it to the private sector.

KUDLOW: Do you really–you really want to sell off the “snail mail” post office? That’s in your speech. Do you really want to privatize the post office?

PAWLENTY: Yeah. I think that would be a great idea. And I also think privatizing Fannie and Freddie would be a great idea. They’re the culprits–one of the main culprits to the housing collapse and our economic crisis, and they got off scot-free in the abysmal Dodd-Frank reform.

KUDLOW: So if you sell off, all right, Fannie, Freddie, the government printing offices, you sell off Amtrak, you sell off the post office–I don’t think anybody else is talking about this–how much money would you raise? How much money would that go towards debt reduction, let’s say?

PAWLENTY: Well, there’d be some. Look, the truth of the matter is, Larry, if you want to look where the big money is for debt reduction in the future, it’s in entitlements, as you know, and it’s in defense spending. So you can add up all the Department of Agriculture, Amtrak, the post office, Department of Commerce, and will it help at the margins? Yes. But is it going to fundamentally solve the problem? No. The only way to do that is to reform entitlement spending.

KUDLOW: But you talk about a 5 percent budget impoundment as your spending plan. And as I said it, I understand about ethanol and so forth, but it isn’t all that specific. Are you talking about across the board, 5 percent spending cuts, including entitlements and defense? Is that your spending plan?

PAWLENTY: The proposal on that is as a last resort. We have a number of things that would precede that. First of all, pass a balanced budget amendment. Two, put specific spending caps into law as a percentage of GDP around the historic average of around 18 percent. And then, three, we can’t count on Congress doing what you and I have been talking about, so we have to have a fail-safe, last-resort measure. And what we’ve proposed is to give the president the emergency and temporary authority to impound up to 5 percent of any and all spending to his or her choosing until such time that the budget is balanced. Now I had a power like that when I was governor of Minnesota. It was called unallotment, and I used it. I unallotted more spending in my state in my eight years than all the previous governors combined in their 142 years combined.

KUDLOW: All right. So with this big speech, you’re basically taking a Reagan supply side economic growth approach to fiscal policy and the economy. Governor Romney is also laserlike on the economy in his announcement last week. He says because he was a successful businessman, he’s the most qualified Republican candidate to resurrect jobs and economic growth. You have a resume as a successful politician but not as a businessman. What’s your reaction to Governor Romney who says only a business guy can solve our problems and get us back to prosperity?

PAWLENTY: Well, two things. I travel the country every day and I talk to business leaders and they basically say the same thing, Larry, `Get the government off my back’ as it relates it taxes, permitting regulation, insurance and the like, litigation. And so I don’t want to say it’s easy but it’s not rocket science as to the things that we need to do to get this economy going. We know the answers. The question really is do you have the fortitude to actually do it? And I’ll put my record up as governor, A rating from the Cato Institute on these matters. I think it’s one of the best in the country. And, you know, when you–everybody talks about their records, whether it be private or public…

KUDLOW: Right.

PAWLENTY: …there’s some good things and then there’s also some bad things. So we all got to account for our records.

KUDLOW: All right. Governor Tim Pawlenty, great speech today. Great stuff. Powerful stuff. The incentive model of growth. Thank you for coming back on the show. All the best on the campaign trail, sir.

PAWLENTY: Thanks, Larry.

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