Ganging Up On The Debt

A Georgia Trend Q&A with Sen. Saxby Chambliss.

Georgia’s senior U.S. Senator Saxby Chambliss, a Republican, is one of the leaders of the Senate’s so-called Gang of Six, a group he founded with Democrat Mark Warner of Virginia to try and tackle the problem of America’s $14.5-trillion debt. The gang itself has grown in stature and number, with upwards of 40 members now, about equally divided between Republicans and Democrats.

After months of study and deliberation, the group unveiled a 10-year, $3.7-trillion debt reduction framework that was patterned on the work done by the National Commission on Fiscal Responsibility and Reform, often called the Bowles-Simpson Commission. Its work was somewhat overshadowed by the bipartisan Congressional supercommittee that was formed as a result of last summer’s debt ceiling legislation.

But now that the supercommittee has failed in its attempt to reach accord on a long-term solution, the Gang of Six is looking like the best hope to resolve the debt crisis.

Chambliss and his colleagues are conferring again on what role they might play – a move that may actually harm the Georgia senator with some of his constituents and GOP hardliners.

Chambliss and Warner were honored by the nonpartisan Concord Coalition with its 2011 Economic Patriots Award for their efforts to find solutions to the nation’s economic challenges.

Chambliss talked to Georgia Trend’s editors in his Atlanta office last fall about the bipartisan effort. Following are edited highlights of the interview.

GT: You’ve been involved in a number of bipartisan efforts. Why?

Chambliss: When I got elected to the Senate, one of the first people I went to talk to was Sam Nunn, who gave me some very good advice. He told me, “What you’re going to learn immediately is that you can’t get anything done without 60 votes. That means Republicans and Democrats have to work together. You should reach across the aisle every chance that you have. Don’t compromise your principles, but be willing to find common ground with folks on the other side of the aisle.” You just look at every major piece of legislation that ever passed; it obviously requires Republicans and Democrats on the Senate side. That’s entirely different from the House side – if they’ve got the votes, they can pass whatever.

GT: How do your constituents respond?

Chambliss: I’ve tried to adopt a philosophy that says people sent me up here to solve problems; they didn’t send me up here just to vote no on everything. Where I have an opportunity to engage my colleagues on the conservative side with my friends on the Democrat side and we’re able to discuss and debate issues and find common ground, I’m going to do it.

GT: Tell us about the Gang of Six. How did it get started?

Chambliss: Mark Warner and I became good friends after he got elected. We were on the [Senate] floor in the summer of 2010 and started talking about issues of the debt and deficit. It was pretty obvious to us that nobody [else] was interested in addressing the issue. Our colleagues were more concerned about the upcoming elections. Nobody was really looking long term. So we decided to get together on a bipartisan basis and just begin educating our colleagues about the issue of long-term debt – not short-term.

GT: What is the long-term debt?

Chambliss: A lot of people confused our work with the deficit and the debt ceiling vs. the [actual] debt of $14.5 trillion. We’ve always been focused on the $14.5 trillion.

GT: What kind of response did you get?

Chambliss: Our group grew from two to four to eight to 10 members of the Senate. At the last meeting [prior to the group’s completing its work], we had 31 senators in the room; there were 16 Republicans and 15 Democrats. Over the course of six months, we brought in a lot of economists that know and understand the issue and the impact of debt. It was pretty obvious that we’ve got a window of opportunity, but nobody knows whether it’s one year, two years or 10 years. But the window is going to close at some point.

GT: What’s keeping the window open?

Chambliss: Our debt-to-GDP [Gross Domestic Pro-duct], which is what economists measure our health by, is at 63 percent of public debt to GDP. When you get to 90 percent of GDP, it’s kind of the point of no return. It’s where the Greeces and the Portugals are – either there or getting close to that. So when you look at the curve that we’re looking at now, it was going up at a steady pace and all of a sudden over the last several years that increased pretty dramatically because of the deficit we’ve been running.

GT: How did you get to be the Gang of Six?

Chambliss: Trying to get 31 senators to sit around the table and come up with a solution to anything . . . ain’t going to happen. Another group of four who served on the President’s fiscal debt commission, the Bowles-Simpson Commission, had just made recommendations that Mark and I quickly endorsed. [Tom] Coburn and [Mike] Crapo on our side, [Richard] Durbin and [Kent] Conrad on the other [Democrat] side had been through the same education we had been. [The group] said, why don’t you six guys sit down and see if you can come up with something you can recommend to us as a way forward on this issue. That was the genesis of the Gang of Six.

GT: Where did you go from there?

Chambliss: We started meeting in January [2011] and culminated in a proposal that we all came to agreement on, kind of adopting the Bowles-Simpson plan. It’s easy to say that you ought to take Bowles-Simpson and reduce it to legislative language. But there are some decisions that have to be made within that, so it became a lot more difficult than just reducing it to writing. But we pretty much followed that philosophy. Basically there is no silver bullet to finding a solution to being able to repay $14.5 trillion.

GT: Is there a solution?

Chambliss: You have to look at a reduction in spending. Washington has gone crazy over the last several years. Second, you have to reform entitlements. Forty cents out of every dollar of Social Security checks written is borrowed money, because it comes out of the General Revenue fund, and we’re borrowing 40 cents out of every dollar we spend.  We’ve got to reform Medicare – we’ve got to protect it, got to save it. Thirdly, we’ve got to look at revenue. As of Sept. 30, 2010, we spent 25 percent of our GDP; our revenues were 14.5 percent. We’ve got to close that gap. Historically we’ve been at somewhere in the 18 to 19 percent range of GDP on spending.  

GT: How do we get where we need to be?

Chambliss: What Bowles-Simpson says is if you totally reform the tax code on both the personal side and the corporate side, you can eliminate tax expenditures and tax credits totally and can raise revenue by about $1.2 trillion dollars a year. That’s what those tax credits and deductions cost us. We know, however, there are some you will never eliminate and shouldn’t. Home mortgage interest deductions shouldn’t be eliminated, charitable gifts shouldn’t be eliminated, deductions by corporations for healthcare costs shouldn’t be eliminated. But every time you add one of those back, you’re going to have to pay for it. That means when you take the lowest tax rate on the personal side that Bowles-Simpson recommended – 8 percent – every time you buy back a deduction, that 8 percent is going to be ratcheted up a bit. Still, at the end of day, you have the lowest personal tax rates and lowest corporate tax rates our county’s ever seen in modern times.

GT: Is there a precedent?

Chambliss: We modeled our proposal on what Ronald Reagan and Tip O’Neill did in 1986. You used to be able to deduct all the interest you paid on auto loans and personal or commercial loans. The ‘86 act changed that. When Reagan and Tip O’Neill eliminated all of those deductions, they lowered rates. The highest rate back then was about 70 percent on the personal side. They reduced it to somewhere in the range of 40 or 42 percent. We propose eliminating [some tax brackets]. Right now we have six tax brackets. We’re reducing them from six to three: an 8-13; 14-22; and 23-29. Every time you add back one of these exclusions, the lower level of that bracket may ratchet up a little bit; but still, going from a 35 to 25 or 27 percent personal rate – that’s huge. Same thing on the corporate side – going from 35 percent rate today to hopefully somewhere around a 25 percent rate, that’s where growth in the economy is really spurred on. This came from the experts – it’s not our summation.

GT: How hard was the process of coming up with a proposal?

Chambliss: That group of 31 charged us with the responsibility to come up with something on a bipartisan basis. It took us months and months and hundreds or thousands of hours of sit-down time and staff time to come up with a recommendation. That also happened to be a point in time [last summer] where we were approaching a vote on raising the debt ceiling.

GT: That was on everyone’s mind.

Chambliss: Even though we weren’t focused on that, we got caught up in the mix of the debt-ceiling vote. We convened a meeting in the Capitol on a Tuesday morning at 8:00   and sent invitations to all the folks who had expressed an interest. The excitement in that group – it was split about half Republican, half Democrat – the excitement was very evident from the first presentation that was made. All these senators started raising their hands, saying, “I’m in. This is the direction we need to go. I don’t like everything you said, but as a package this is the way it’s got to be done.”

Senators left the meeting that morning and went outside. There were all kinds of TV cameras and print media out there. Senators kept going out and saying, “These guys are on to something. We’ve told them this is something we can buy into.”

GT: But still you encountered resistance?

Chambliss: There was confusion about the debt ceiling vs. the debt. Some guys on the House side got upset because the day we had this meeting – we didn’t know it, but it was also the day the “cut, cap and balance” was coming up on the House side. Some of our Republican colleagues thought we had upstaged them. We had no intention of doing that. But the [news] that the Republicans and Democrats had agreed to address the issue of entitlement and also revenue really got our folks excited. We reformed our proposal a little bit and ultimately came up with a set of five principles.

We brought people together and got input from that group that was there that morning. We knew that the supercommittee was going to be formed, and our opportunity was to make a presentation through that supercommittee if we had any hope of our proposals getting traction, getting legs. We came up with a set of principles. What it basically says to that supercommittee is that we recommend that you go big, that you generate $4 trillion in savings and increases in revenue over the next 10 years to apply to that $14 trillion in debt.

[Editor’s Note: The supercommittee was unable to produce any recommendations.]

GT: How did this compare to the debt-ceiling legislation?

Chambliss: They came up with $900 billion, plus another $1.2 or $1.5 trillion. The maximum the committee was looking at was somewhere [around] $2.4 trillion. Every economist and everybody we talked to on Wall Street said, “Guys, if y’all don’t get to $4 trillion, the volatility we’ve seen in this marketplace since the first of August is going to continue because people don’t think policymakers are serious about retiring the debt.” So that’s the first principle that’s part of our proposal. We also say you ought to reform entitlements. You’ve got to reform the tax code.

GT: You voted against final debt ceiling legislation. What were your reasons?

Chambliss: No. 1, that bill, which is now law, does not mandate that entitlements be reformed. We simply can’t solve our problem without reforming entitlements. We know that if we do nothing about Social Security, that in the year 2032 every Social Security beneficiary is going to have to take a 22 percent cut. On Medicare – it’s going broke, and we need to save and protect it. Secondly, the enforcement mechanisms in the debt-ceiling package were simply not strong enough. What the debt-ceiling package said was that you will have $900 billion in spending reductions over the next 10 years. That $900 billion is to be achieved by putting into place what we call spending caps. You cannot exceed spending above a certain level.

GT: Tell us how the spending caps work.

Chambliss: I’ve seen this before. This is my 17th year in Congress. I’ve seen us operate under a “pay-go” system, which means you’ve got to pay for everything that you spend. The problem is you get 60 votes in the Senate and you can avoid pay-go. I knew that within the next two or three years – we’ve got these spending caps set – we’re going to have a disaster, going to have a flood, going to have a fire, going to have something that’s going to require federal spending. And under the bill proposed to raise the debt ceiling, what they said was you can’t bust the spending caps and not have sequestration [across-the-board budget cuts]. If [you’re] coming back with a package designed to generate support of everybody across the country, it only requires 60 votes to bust those caps. I just felt like the enforcement mechanisms were not strong enough.

GT: What was the third reason?

Chambliss: It didn’t go far enough. 

GT: Are you optimistic about progress on the Gang of Six recommendations and debt reduction overall?

Chambliss: We know this is going to get done. Either we figure out a way to do it within the window of opportunity we have or the folks like the Chinese who buy our bonds are going to dictate to us how we do it. Either we do it on our own, or if we go into the marketplace folks are going to say, “I’ll buy your bonds, but …” We don’t need for that to happen.

GT: But you’ve run into some criticism, haven’t you?

Chambliss: We got a lot of criticism coming out of the box. We knew that would happen. A lot of conservative talk show folks and what-not came out and started shooting arrows at it. Over the last couple of months, it’s become pretty obvious it’s going to require folks finding that common ground. I’ve had dozens and dozens of people who have written me, emailed me, called me, seen me on the street and said, “I was very critical of you. I apologize. You guys are headed in the right direction.” At the end of day, it’s been very rewarding. It’s been a team effort.