MS. KATTY KAYThanks for joining us. I'm Katty Kay of the BBC, sitting in for Diane Rehm. Congress ended months of political haggling and passed a bill, cutting more than $38 billion from the budget to keep the government running for the rest of the fiscal year. But the battle begins again as the House votes on proposed cuts for 2012. And, this morning, the Labor Department said higher prices for food, gas and rent have caused the consumer price index to rise 0.5 percent in March. Joining me in the studio for the domestic hour of our Friday News Roundup are Chris Cillizza of The Washington Post, Julie Hirschfeld Davis of Bloomberg News and Greg Ip of The Economist. Thank you all for joining me.

MS. JULIE HIRSCHFELD DAVISHi, Katty.

MR. CHRIS CILLIZZAGood morning.

KAYThe phone number here is 1-800-433-8850. The email address is drshow@wamu.org. We will, of course, be opening the phones in just a while, so do call in with your questions and comments. And you can find us on Facebook and on Twitter as well. Julie, was there any chance that this budget plan might not have passed?

DAVISThere was obviously a chance, but I think that the Republican leadership in the House was pretty, pretty certain that it would. I don't think that anyone expected, up until yesterday, that they would lose quite as many Republicans on the spending bill as they did.

KAYFifty-nine.

DAVISFifty-nine, a quarter of their conference. And it's -- it was definitely a wakeup call for Speaker Boehner going forward into this next round of haggling over the 2012 budget and, ultimately, the debt ceiling increase that he's going to have to really find a way to work with his right flank to figure out a way to make that happen.

KAYOkay. We'll talk about politics more in just a second. Greg, we better look at actually what's in this plan because there was some negotiation, right up until the very last minute, with Republicans saying, hold on a second, we thought we were cutting more than we actually are.

MR. GREG IPYeah, it's interesting, you know? After all the Sturm und Drang about just how severe these cuts were going to be the largest in history, we're told, of the discretionary side of the budget, it turns out there's less than meets the eye. The headline figure is $38.5 billion. As it turns out, when you look at the fine print, a lot of that money was money that had been authorized but never actually spent and was probably never going to be spent. For example, $6 billion for the census, but the census is already done. It's highly unlikely they're going to find something to spend $6 billion on.

KAYOkay. How does this happen? How do we go from saying that we're going to cut $38 billion to actually saying that we're going to cut, what, in reality, something like $350 million? That seems like a massive jump.

IPYeah, and actually if you include the likely spending on emergency military operations, there will actually be an increase in spending. Part of it has to do with just the odd way we do budgeting in this country, the difference between what we authorize and what actually gets spent. Now, Speaker Boehner has actually made a point, which I think is a legitimate one, notwithstanding the sort of less-than-meets-the-eye cuts this year. It does establish a lower baseline for future years, so there is a sort of an austerity there that kicks in over time. But the other point there is that, you know, at the end of the day, this was still a political agreement, and one of the ways you get to an agreement is finding cuts that seem worse than they actually are.

KAYOkay. Chris Cillizza, I mean, I'm still very confused about this. And I don't know if I'm just feeling particularly dim with allergies this week, but the numbers are just...

CILLIZZANo.

KAYIs this smoke and mirrors? Is -- understandably, the American public is going to look at this and think, hold on a second, we thought we were getting one thing, and we're getting another. And how on earth...

CILLIZZAYeah.

KAY...did this happen?

CILLIZZAI mean, I think Greg hits the nail on the head, which is these negotiations and even the budget fight that I know we're going to talk about in 2012 -- I mean, the other thing that we have to always remember is, we're talking about the 2011 budget. It only goes till Sept. 30 of the fiscal year. The fight over this amount of money, the period of time which it's being covered is all so amazing, given the entitlement reforms, things that we have to tackle that are far larger both in terms of political challenges but also in terms of money. But, I think, to Greg's point, these are political documents. You know, everyone wants to cut, including President Obama.

CILLIZZAIt's -- the devil is always in the details when you talk about the budget, which is everybody likes the idea of cutting. Everybody thinks our national debt is too high, and we need to do something about it. But when it comes to the program that protects you or the program that is important in your district, people don't want to cut. And it's why -- I don't think you're in any kind of haze, Katty. I think that it is, in fact, less than meets the eye, certainly, in this year. I mean, the idea that Greg points out, the idea that we're going to actually spend more money this year is a remarkable thing and shows, I think, to the average person, why they're so kind of confused and, in a lot of ways, disdainful the way that Washington works.

KAYOkay. Julie, judged by what we've seen this week -- and I know that John Boehner says we've now set a baseline, and we're moving in the direction of accepting that cuts have to happen, and the president has said the same sort of thing during his speech -- this week, the IMF said the U.S. is not taking its deficit seriously. Is it? I mean, judged on what you've seen this week, do you really think that America is now tackling its debt problem seriously or not?

DAVISWell, I think that even Speaker Boehner, who worked so hard to get this bill passed yesterday, would acknowledge that this was not the big step that they needed it to be. He changed the conversation. Now, we're talking not about should we cut, but how much should we cut. But at the same time, I think that that everyone acknowledges, in the White House and in Capitol Hill, that this next round about, you know, what are we going to spend in the 2012 budget, what is the entitlement picture going to look like, how are we going to change things so that we slow the growth of the real drivers of the deficit, is where the meaty cuts are going to come.

DAVISAnd it's where, frankly, the much more violent political struggle is going to be over, you know, what can we get done, what can get through Congress. And they don't have very much time to deal with this question because, you know, the more -- the closer we get to the date when treasury says that the country is going to head up against the debt ceiling, the, you know -- the more markets are going to be looking to see, is Congress really coming towards some sort of conclusion here to be able to get an agreement on debt reduction, or aren't they?

KAYGreg, what's the politics out of -- Julie mentioned earlier -- the test that John Boehner faced over just getting this budget passed? How's your reading of the politics coming out of that vote yesterday?

IPIt's interesting. You can actually make a case on both sides of the argument. You could say that this shows the weakness of John Boehner because he cannot count on holding his caucus together because the Tea Party people, the ones who voted against it, are clearly of a mind to do as they wish. On the other hand, you could say that this actually makes Boehner look like a true dealmaker because he put together a deal that actually involved a significant number of Democrats and Republicans voting for it. So if you're sitting in the White House, you might actually be looking at this vote and saying, there's a guy we can actually work with.

KAYAnd you've got Republicans, also, who did vote for the bill saying, listen, we did come here. We feel that some people are going to say we cut too much, and we realize this is what divided government looks like. So you've got Republicans coming down on both sides of this argument.

IPYeah, and, in fact, it will be interesting to see whether today, when we're scheduled to have a vote on the much more aggressive 10-year budget resolution, which begins in the coming fiscal year, how many Republican vote against that for the opposite reason, which is that it does too much.

KAYLet's talk a little bit about the president's speech on Wednesday. He laid out his own budget proposals, Chris, and, you know, it struck me that that was as much a political speech as it was an economic speech.

CILLIZZAI think that would be a kind reading. I think it was primarily a political speech. Look, the president has announced -- well, he has announced he is planning to start raising money for re-election, which amounts to the same thing in the world we live in as announcing that he is running for re-election. I think it was very much a political speech. I think it was very much a speech given in response to the budget that Paul Ryan, the Wisconsin Republican -- the 2012 budget that Greg mentioned, that they'll be voting on today in the House -- put out.

CILLIZZAAnd, yeah, I mean, I think -- it seems to me, if you look at what President Obama said in that speech, as well as what he said at several fundraisers that he did last night in Chicago that sort of kicked off the campaign -- what he is saying and the case he is making is for -- that this budget speaks to what kind of America we want to be. He repeatedly, in both, in his speech on the debt as well as fundraisers last night, used the word compassion, that we can be competitive and compassionate.

CILLIZZAAnd, I think, in a lot of ways, that's how he views the budget, that this is about who we are and, as importantly as it relates to 2012, Katty, who we want to be as a people. You know, he made a very pointed argument against the Ryan proposal in that debt speech, essentially saying that it, you know -- it rewards the rich. It disenfranchises people who are already disenfranchised. So, yes, a very political document and a very political speech that I do think we will keep coming back to as a touchstone as we get further down the road in the budget fight. And, of course, the further down the road we get in the budget fight, the closer we get to the 2012 election. I think we'll keep coming back to it.

KAYAnd, Julie, listening to the president on Wednesday, you know, it struck me, the tone of it, as Chris was suggesting, that he was actually talking to the liberal base of the Democratic Party much more forcefully and trying to woo them in a way that he hasn't done recently. They felt they didn't have a champion in the White House, and perhaps they came away from that speech feeling, well, actually, yeah, this is somebody who's more in line with our broad economic and political philosophy.

DAVISThat's absolutely true. And, I think, you know, he has drawn a lot of fire, particularly in his last go around with the spending bill for this fiscal year about -- that he has not been standing up for the priorities that his base champions, that he's sort of been co-opted into this discussion of we need to cut, cut, cut, cut, cut. And they've wanted him to step forward much more strongly and say, we want to cut, but we don't want to cut the things that make us what we are. We don't want to, for instance, cut Social Security. We don't want to cut Medicare and Medicaid -- at least not to the degree that Paul Ryan has said in his budget. You know, Obama invited Paul Ryan to his speech and sat him down in the same room while he...

KAYBut Paul Ryan came out furious, saying, I don't know why I was invited. I felt like I was going there for a ticking off by the school headmaster there.

DAVISYeah, he sort of sat there stone-faced. And -- but I think, actually, that's important for the president to show to the base, to Democrats, that, listen, I'm coming into this conversation on -- I'm acknowledging that we need to do something about the debt. We're going to have to cut. We just have to figure out a way to do it, but, at the same time, I'm with you. I'm not going to abandon our priorities. I'm not going to be Republican-light, and I'm going to draw the lines, you know, some place at, you know -- at cuts that I consider Draconian and say that, you know, that's as far as we can go.

KAYOkay, Greg, David Brooks in The New York Times today was outlining the differences in philosophy and principle between President Obama and Paul Ryan, saying the two actually haven't sat down for proper lunch. They should do. Perhaps they might not agree, but at least they would understand each other. Give us a quick breakdown of how the president's budget proposal differs from that of Paul Ryan in economic terms.

IPSo -- sure. Well, in broad numbers, Paul Ryan purports to cut the deficit by a cumulative $4 trillion over the next 10 years, relative to what Obama's February budget would have done. Obama claims to cut it by $4 trillion dollars, but he would do it over 12 years. So that, actually, is a less aggressive target than what Ryan has. The truth of the matter is neither of these is a budget in the true sense of the word. They are not thick with detailed policy proposals that the Congressional Budget Office can therefore say this will raise this much money or cost this much money.

IPThey're much more visions. They're almost like dueling magic asterisks. You know what I mean? You have Paul Ryan saying, revenue will be 19 percent of GDP because I say so. And you have Obama basically saying, we're going to do much tougher action to control health care cost. But their -- the substantial differences, as I think, you know, Chris was referring to, was about the visions of the country that these different budgets entail. In the case of Ryan, he's saying we have a huge health care problem, and we're going to limit the federal government's exposure. In the case of Obama, he's saying, we're going to get -- tackle health care inflation directly.

KAYOkay. Greg Ip of The Economist. You're joining us for our domestic hour of the Friday News Roundup. We're going to take a quick break. Stay with us.

KAYWelcome back. I'm Katty Kay of the BBC, sitting in for Diane Rehm. You've joined us for the domestic hour of our Friday News Roundup. In the studio with me, I have Chris Cillizza, author of "The Fix," a Washington Post politics blog. I have Julie Hirschfeld Davis here, congressional correspondent for Bloomberg News. Greg Ip, U.S. economics editor of The Economist and author of "The Little Book of Economics" is with me in the studio. A lot to talk about in terms of the budget.

KAYWe've been talking about the different plans that President Obama and Paul Ryan have put out. The president's speech, of course, on Wednesday night, in which he really did take it to the Republicans and laid down his vision of how he wants America to be, and it was substantially different from that of Paul Ryan's. But, actually, then, afterwards, Julie, he sounded a little bit more conciliatory on Thursday. He had -- he said he'd call a meeting with Bowles and Simpson, and that he wanted to solicit their ideas. Is he rowing back a little bit from what might have sounded like, right here is the Democratic position and it's very different from the Republican position?

DAVISWell, I think he had to do that first, right? He had to sort of set up the markers and say, you know -- and give the contrast of what his vision is versus the Republicans' vision so that he then gives himself room to do what he and, you know, Democrats on Capitol Hill as well acknowledge has to be done, which is to find some way to come together with Republicans on some measure that would do something about debt reduction and, frankly, you know, reach some agreement on the 2012 budget because they're going to have to do that.

DAVISSo, yeah, that is going to involve, you know, looking at what the Bowles-Simpson commission did and seeing how much of it can fly on Capitol Hill and, you know, what he can get Republicans and Democrats to really agree to. That process is going to be very difficult because there's a bipartisan group on the Hill that's been working for months on this. And they're -- you know, they tell -- the Gang of Six, they're called in the Senate, three Republicans and three Democrats. They tell us they're getting close, but they're still hung up on, you know, some pretty contentious issues. And those little details, those last hang-ups, are sort of the big enchilada when it comes to figuring out what this deal is going to look like, what are they going to do on entitlement cuts and what are they going to do on taxes.

KAYYou know, Chris, my sense is that the Bowles-Simpson plan is buried under about five foot of dust right now. And the prospects for any kind of bipartisan resolution -- whether it's Bowles-Simpson or the Gang of Six -- have been scuppered slightly by the very partisan tone that we've had over the last week.

CILLIZZAI think it certainly set it back a bit. Remember, when Bowles-Simpson came out with their recommendations late last year, the criticism -- certainly from Republicans and even from some Democrats and some of the media -- was that the president essentially ignored it. You know, this was his commission to address what is widely agreed upon as the biggest problem facing the country, and he said very little about it. In the run up to the debt speech, we heard -- the kind of leaking outs was that he was going to embrace the Bowles-Simpson commission, which, you know, I'm not sure that he entirely did. So it is -- the Bowles-Simpson commission recommendations are, in fact, not a political document. You know, we're talking about...

KAYRight.

CILLIZZA...political documents and non-political documents. That is not a political document because both of Erskine Bowles and Alan Simpson have a very important thing before their names, former -- former White House chief of staff and former senator -- and that allows you to make honest recommendations outside of the political view.

KAYBecause you're not running for re-election.

CILLIZZABut, of course, we are then trying to wedge it into the political process. You know, the House and Senate, all these people are running for re-election. The president is running for re-election. I think that's to Julie's point. That -- this -- the Gang of Six has taken months and months and months. We're close, and we're getting closer. We're getting closer. But, ultimately, there's either going to have to be a proposal or not. And, you know, in the immediate aftermath of the president's debt speech, what did we hear? Well, this probably won't get resolved until after the 2012 election. I mean, you know, we're kind of back to where we started.

KAYOkay. Sandy writes to us from Alexandria, Va. "The Democrats consistently lose the tax arguments with the Republicans. I don't understand why they don't constantly put out that we are now waging three wars and have lowered taxes -- an unprecedented occurrence. They need to make the argument that we all need to sacrifice to pay for these wars, and simply cutting spending won't touch the deficit or debt as the Republicans claim." Greg, we did hear the president say some of that, didn't we, on Wednesday?

IPOh, absolutely. In fact, he said more strongly than I've heard him say before that he absolutely will not countenance another extension of the tax cuts for the wealthiest 2 percent of households. That's pretty strong stuff, and I think it puts down a pretty important marker for coming negotiations. The problem he's had up until now is that, much as he would like to only extend the tax cuts for the 98 percent of the middle and lower part of the spectrum, is that the Republicans don't want to cooperate with that. And last December, when we were weeks away from the expiration, which would have caused all those tax rates to rise, the administration basically crumbled because they were afraid that that would induce severe damage to the recovery.

KAYOkay. Let's talk a little bit more about other news, and a lot of it is economics this week. This morning, the Labor Department reported a 0.5 percent rise in the consumer price index. Julie, is this more than just high oil prices that are driving prices up?

DAVISWell, I think so. And I think, you know, this is going to be -- we're going to increasingly see -- you know, the Fed has said that they are beginning to see improvement in the economy. But as gas prices go up, and we're entering the summer driving season now...

KAYWith improvement comes inflation.

DAVISYes. And, you know, any recovery is obviously going to be slow with these increases. So this also becomes something -- it's become a theme on Capitol Hill. We hear more and more about gas prices. Now, Republicans are blaming President Obama, saying he needs to allow more production. And President Obama, in his budget, said that he wanted to end tax subsidies for oil companies, and so Republicans have branded that the mini-van tax. So this becomes, you know, a real sort of political hot potato, but certainly a very...

KAYThe soccer mom is back in the political field again.

DAVISRight. But certainly a substantive problem for the -- any economic recovery that might be taking hold.

KAYDo Americans need to start worrying about interest rates going up?

DAVISI don't know. I mean, the Fed has basically not changed its position on this. And I think that, you know -- that gas prices have not been high enough or long enough for them to say that that's going to -- that it's going to have that influence. But it's definitely something that everyone has to keep an eye on, given that everyone acknowledges that whatever recovery is going on is still very fragile.

KAYChris.

CILLIZZAI was just going to say, you know, with the economy particularly -- and Julie gets at this -- the numbers almost matter less than the perception.

KAYRight.

CILLIZZAAnd that's the difficult thing that the Obama administration has ran into, is, you know, it's so perception-driven. People forget when Ronald Reagan was re-elected overwhelmingly in 1984, the unemployment rate was still over 7 percent. The issue that worked for him was the trend line was trending downward. So I think part of this is it's a self-fulfilling prophecy. If people feel better about things, then they go out and spend money. So these mixed signals are difficult for an Obama administration that's really hoping to push that unemployment number down, down, down as we get closer to November 2012.

CILLIZZAAnd if gas prices do rise, as we expect this summer, that will be a difficult hurdle for them, not because anyone, I think, blames Barack Obama for the fact that they pay more at the pump. But when you pay $50 or $60 to fill up your tank of gas, it is harder to believe the economic recovery has begun in earnest.

KAYRight. And, Greg, the relationship between gas prices going up and unemployment coming down, which is the number that is going to sway politics more? Or are the two so inextricably linked that you can't separate them?

IPWell, they are linked because one of the things that's been happening is that gasoline has now risen roughly a dollar per gallon in the last three or four months. That can actually wipe a full percentage point off of household incomes. By way of comparison, that's almost as big as the tax cut we got in December. We now know that the economy probably only grew around 1.5 percent in the first quarter, which is a painfully slow rate. People were actually thinking it might be growing 3 or 4 percent. So that rise in gasoline is directly dragging the economy back and will make it harder for the unemployment rate to come down. Both of those things are going to be big barriers to Obama.

KAYAnd the prospects for gas prices coming down anytime soon?

IPVery poor because, essentially, what's happening is you have both supply being constrained by problems in the Middle East -- Libya's export's almost completely shut in -- and continued rampant growth in demand in countries like China, which is still growing very rapidly.

KAYOkay, let's talk about the story on the front page of The Wall Street Journal about the banks being near a deal with the SEC. The journal is reporting that securities regulators are in talks with several major Wall Street banks to settle fraud allegations. According to the journal, these expected settlements could mark the biggest attempt by enforcement agencies to hold Wall Street accountable for its role in the subprime mortgage bust. Julie, what do you make of that?

DAVISWell, I think we're still sorting through the sort of wreckage of the meltdown of a few years ago. And we saw in Capitol Hill this week a big investigative report came out about the investment banks' role in the whole mess and misrepresenting -- at least the congressional committee said -- what they knew to be the case about these securities that they were dealing in and having a direct hand in the housing collapse and, indeed, the entire financial meltdown. I mean, I think that this is going to be an increasing issue as we see -- whatever the details of that settlement might be -- just how...

KAYAre we going to see big fines? I know Goldman's already paid fines last year. Do you expect any of these banks to be paying fines on those sorts of levels?

DAVISI think it's hard to say. You know, we've seen some fines assessed, as you said. I think it's hard to say what we're going to see in the future in terms of fines. But, I mean, I think one of the bigger issues is whether we're going to actually see any criminal charges. I mean, the Senate committee that put out its report this week said that they're going to refer their recommendations to the Justice Department and to the SEC to see, you know, what could be done about them. And so, you know, I think it'll be -- it remains to be seen whether there'll be criminal penalties, but there could very well be some steep financial penalties for what went on.

KAYChris?

CILLIZZAYou know, what's difficult here, I think, is that -- Julie mentioned this -- that we're still trying to -- I feel like we're still trying to untangle the web of what led us to the subprime mortgage crisis. When we do that, it is human nature -- certainly, American -- the way that we do things in America is we want someone to blame. We want a scapegoat. Goldman Sachs is a scapegoat, certainly, just because of the amount of money that they made off of it. The banks broadly are. But, you know, I think, in reading about it, in doing some reporting on it, it just -- it seems to me, this doesn't mean that we won't scapegoat the banks. Let me put that -- it's -- this was a very complicated thing in which a number of people at a number of levels could have helped cut it off and did not.

CILLIZZAAnd so, I think, again, it's always the policy versus the political. The political is searching constantly for a scapegoat. The banks clearly, you know -- we're talking about a 640-page report that basically excoriated the banks for their role in this. I don't know if that ultimately -- if doing that will ultimately keep us from going down this road in the future because I think it's too easy a solution to too complicated a problem.

KAYYeah, I wonder if many people listening both to the fact -- the news that the federal regulates the talking to the banks and also looking at the investigation by the state's attorneys generals, whether they're going to think, how does this affect me? Does this make any difference to the rate of foreclosures in the countries? Is it going to make it easier or harder for people to stay in their homes? And that's really the bottom line that people want to know now. I think, to some extent, you know, they're kind of, who shall we blame for the financial crisis? I feel like the political wind has kind of gone out of that, but I do think people are very focused on whether this is going to make a daily impact to them.

IPRight, and, in fact, there's actually two separate sets of talks going on. The stuff that the Senate and the SEC are talking to the banks about has to do with bad stuff that they allegedly did before the crisis began. The more important thing going on is a settlement this week between the federal bank regulators and the largest servicers of residential mortgage. It has to do with screw ups on foreclosures since the crisis happened. And that's very much ongoing. If you recall, we had allegations of robo-signers, you know, people that were basically signing documentations that were foreclosing on people without actually ever reading it. We had banks supposedly throwing people out of their homes while they had, on the other hand, already promised to modify their mortgage.

IPThe settlement says basically the banks can't do that any longer. If you've already offered somebody a modification, you may not proceed on foreclosure. If you hurt somebody, you have to pay them back, and you have to hire all these extra staff to deal with the huge backlog you have. Now, interestingly, the state attorneys general, which are also investigating the banks for exactly the same problem, have decided that they actually are not satisfied with that settlement, and they could yet, you know, reach something even more sweeping that might involve the banks having to put up money to write down the mortgages some people are struggling to pay.

KAYI'm Katty Kay of the BBC. You're listening to "The Diane Rehm Show." And if you'd like to call us, do join us on 1-800-433-8850 is the number. Or send us an email to drshow@wamu.org. We are going to go to the phones now, to Greg in Northern Virginia. Greg, you've joined "The Diane Rehm Show." Greg, can you hear us?

GREGYes. Hi. I'd like to make a couple of quick points for you guys to consider, and I'll take the answer off the air. First off, it seems to me that revenue and spending has to be approached in this mess, or we're not going to get anywhere. And it seems to me that since we all acknowledged that we want to cut, but the devil is in the details, why is it not realistic to simply say we are going to cut across the board 2 percent, 3 percent, 5 percent? Everybody gets to share the pain. Everybody gets to share in the glory. Everybody gets to say to their constituency, I did my best for you. And it seems to me that it's more important that we cut than what we cut.

GREGThe second point I wanted to make is that, on the revenue side, I don't think -- I don't understand progressive and regressive taxation. But, I guess, I don't understand why the most regressive tax we seem to have is the Social Security tax 'cause we only tax up to a certain dollar value of our salaries. And it seems to me that if we just make this tax for this particular amount all the way through the year, that we would create a significant new revenue stream that would come all from people who had money. And, I guess, I don't even understand what justification for not doing it. What...

KAYOkay.

GREGAnd...

KAYOkay, Greg, I'm going to put those two points to our panel. Let's see. Interesting thoughts there from Greg. Greg, you start with the idea that it's not really what we tax specifically, but the fact that we need to cut tax, that we need to cut across the board.

IPWell, it's an interesting point, actually, because, in theory, you don't want to just take this meat-axe approach and cut everything the same amount because some things may deserve to be cut 2 percent. Some things should be cut more than that, perhaps...

KAYThis is the president's point, isn't?

IPExactly, yeah.

KAYYou want to take the scalpel and cut carefully?

IPWell, frankly, that's the point of all politicians, really. But because politicians have so much trouble agreeing on what they should cut, one of the most important proposals in the president's speech was that, if Congress fails to agree on what they should cut, they will have these failsafe triggers, which will exactly -- will do exactly what the caller has suggested, impose across-the-board cuts in spending and increases in taxes.

KAYBut these triggers, historically, don't have a very good track record, isn't it?

IPI would call it a mixed track record. The most was the Gramm-Rudman-Hollings Balanced Budget Act, which did not actually balance the budget, but did get deficits down. In the '90s, we had things like discretionary spending caps, Budget Enforcement Act -- it did help. I think, though, the significance of this is really -- and, by the way, this is an idea that the Gang of Six has been working on, and that, I think, is where Obama got it. I think the idea, really, here is political. It's -- this is the thing that, perhaps, the Republicans and the Democrats can agree on and, therefore, pave the way to raise the debt ceiling, as Julie was talking about earlier.

KAYOkay. Julie, what about Greg's point on the simplifying the tax codes so that we can increase revenues that way?

DAVISWell, I think -- I mean, everyone is talking about simplifying the tax code, and that's...

KAYNot necessarily in Greg's way?

DAVISNot necessarily in Greg's way. And, politically, that could be difficult for a variety of reasons. But, you know, what we heard President Obama talk about in his speech was tax expenditures. This idea that there are elements of the tax code that are actually -- that he characterizes as spending really because they're directed toward a specific industry or a specific practice that government had, you know, decided to incent in some way. And so there are all these -- and it makes the tax code obviously much more complex, and the idea that the Simpson-Bowles Commission came up with was to sort of take a wholesale look at the tax code and see if we can get rid of some of those, and in the process, bring the rates down.

DAVISBut, politically, it's very difficult because when you take away some of those things, it's a tax increase. And we've seen, you know, the Grover Norquist from Americans for Tax Reform, who's a very strong force in the Republican Party, just sort of write that off absolutely a non-starter. And it's going to be very difficult for Republicans to agree to anything like that.

KAYOkay. Julie Hirschfeld Davis is congressional correspondent for Bloomberg News. We're going to take a quick break now. Lot on the economy and the budget, clearly, to talk about. I want to get to the 2012 campaign as well, (unintelligible) on air traffic controllers. We may even swing by Wisconsin and what's happening there. 1-800-433-8850 is the phone number. Drshow@wamu.org is our email address. Do stay with us. More on our News Roundup after this.

KAYWelcome back. I'm Katty Kay of the BBC, sitting in for Diane Rehm. You've joined us for the domestic hour of our Friday News Roundup. I'm joined in the studio by Chris Cillizza of The Washington Post. Julie Hirschfeld Davis is here from Bloomberg News. Greg Ip is with us as well from The Economist. He is also the author of "The Little Book of Economics." Let's go back to the phones now to Hamish (sp?) in Sycamore, Ill. Hamish, you've joined "The Diane Rehm Show."

HAMISHYes. Good morning.

KAYGood morning.

HAMISHMy comment is that the Republicans and the Democrats have had 100 years to get this job done and get it done right. This isn't a fraternity fight. We're the ones that are taking all the suffering. They need to figure out what -- how much money they have coming in. The -- in 2009, there were 97 people who made over $500 million for the year. Thirty-one of them paid zero in tax. Big companies like GE is paying no tax. We need to get income and then start cutting. We need to find out how much we're making, and then we can cut accordingly.

KAYSo, Hamish, you're saying deal with the revenue side as well as dealing with the spending side. And, of course, we've seen, Julie, some of that this week. You know, it is interesting that there's always this perception, I think, that Americans have an allergy to raising taxes. But when you look at the poll numbers on this, actually two-thirds of Americans say that they want a combination of cutting, spending and raising taxes.

DAVISThat's absolutely true. And, you know, people do say that they want to see spending cuts, and they want to see Congress do something about the debt -- and the debts, that they want to see the White House and Congress come together on that. When you ask them about the specific cuts that you would need to get there, they're less enthusiastic. Almost across the board, any of the moves that, you know -- if you look at the results of polls, people say, no, I don't want to cut Medicare, I don't want to cut Social Security, I don't want to, you know, do any of those things. Foreign aid spending is definitely a big, you know, applause line among the public in terms of cutting, but it's 1 percent of the federal budget. So you can see where the difficulty is there.

DAVISOn taxes, you're right. You do see big majorities who say, at least for the wealthiest, we would be willing to tolerate higher taxes. But, politically, I think, it's still very difficult for members of Congress to wrap their arms around that. And you will -- you've seen some, obviously, Republicans are against it. You've seen some Democrats, in-cycle Democrats who are also very wary of raising taxes in any way, particularly individual income taxes because they don't want their constituents to -- they don't want to be branded as a tax-and-spend liberal. And that's sort of the wrap that they'll always get by -- from Republicans in a political context on this.

KAYAnd it's kind of interesting, isn't it, Chris, that, you know, when the news comes out that GE doesn't pay taxes and that there are, as Hamish was pointing out, a certain number of people who are extremely wealthy, who are actually paying very low tax -- I think the real rate is something at 17 percent for the top 1 percent of the country -- that there isn't more suggesting that perhaps they could shoulder a bit more of the burden. And I noticed the very careful language, which the president -- that we're not trying to bash the rich in any way at all, but this is a question of providing the American way, of providing for people who are the poorest amongst us.

CILLIZZAYou know, I tend to think, Katty, that most politicians who are, by their nature, cautious -- by and large -- tend to be lagging indicators of where the public is on almost everything. They kind of come late to two things that are changing within the culture. I wonder if taxes is one of them. I think Julie is right. There is a huge resistance. Before President Obama spoke on Wednesday, John Boehner came out and said, if there are tax increases included in this, it's a non-starter in the president's budget. That was it. So there is a huge resistance, particularly among Republicans -- but more broadly, too -- to trying this in the political class. Now, the question is, is if you took that first step, would the American public congratulate you?

CILLIZZAWould they believe in the skin-in-the-game argument that Mark Warner, Saxby Chambliss, the members of the Gang of Six are trying to make, that everyone has to have something that they're going to be unhappy about in order for us to get the deficit down? There's -- the political calculation, there is huge fear. There is huge fear of going anywhere near taxes. Particularly Democrats worry about it because they don't want to be branded tax-and-spend liberals, which is why, to your point, Barack Obama went out of his way to say, you know, we -- this isn't taxing -- these are -- these people need to pay their fair share, et cetera, et cetera. So it' just so fraught politically, but I wonder whether the country has moved beyond where the politicians are on the issue.

KAYYeah, that's very interesting, whether there is a lagging indicator issue there. Okay, 2012. Time for a bit more of pure politics. Greg, you wanted to talk about this. In fact, you wanted to talk about the Donald. Before we talk about the Donald, let's talk about Rick Santorum, who has also suggested -- I love this earlier -- that you suggest that you might suggest that you might explore the possibility of jumping into the race.

IPRight. How many steps you'd have to go through before you actually do jump into the race.

KAYHow can we take all of the drama out of this?

IPYeah, so Rick Santorum, you know, he's forming his so-called exploratory committee. We also had Mitt Romney, you know, the least surprising nominee of all, you know, forming his committee. I actually kind of feel sorry for Tim Pawlenty, who is sort of first out of the gates of this group, but he doesn't seem to be doing well in the polls. The stunner this week is that you have Donald Trump, of all people, tied for first place in some polls.

KAYAnd you were writing about Tim Pawlenty this week, Chris, about his making his moves and hiring pollsters...

CILLIZZAYeah, I mean...

KAY...and sounding more serious about it, although, as Chris says, not doing particularly well on the name recognition front.

CILLIZZAWhat I always say about a presidential race, especially, Katty, is that it's like an iceberg. Ninety percent of it is below the surface. Ten percent of it is what people actually vote -- see. We're in the 90 percent phase at the moment -- these exploratory committees, fundraising, hiring staff. You know what? Tim Pawlenty is doing his systematically, building organizations both with the national level as well as Iowa, New Hampshire, South Carolina -- these early states -- that, on paper, should make him competitive. Now, what we've learned and keep re-learning is that candidates ultimately do matter. You know, I think it's easy to forget that -- sometimes if you're like me, who's focused so much on the infrastructure and the strategy and all this -- candidates matter.

CILLIZZAOn paper, Mitt Romney should have been the presidential nominee in 2008. He had all the money, he was positioned roughly right. But he got beat by a guy who had no money and no organization in Iowa, Mike Huckabee. Why? Because Mike Huckabee was a very good candidate, in fact, a better candidate than Mitt Romney. So I always try to take a step back. It's easy to get lost in the minutia, to stand too close to the picture, but you really have to take a step back, say, it's still very early on.

CILLIZZAWe're still operating underneath the surface as it relates to voters. And so I tend to give these guys a little bit more leeway in that, you know, things that we may blow up as, oh, this is a huge mistake. I use the my parents test. If my parents haven't heard of it, it's probably not a huge mistake because it hasn't penetrated even the casual political observer.

KAYJulie, I mean, it's too early to say who exactly is going to be the lineup clearly, and some candidates are very late getting in. Does somebody like Rick Santorum getting into the race change the equations for the others who might be thinking of getting into the race at all?

DAVISI think it's difficult to say. You know, Santorum, a former senator from Pennsylvania, he's staked a lot of his career and his reputation on his pro-life stance. He talked about it when he announced that he was forming his exploratory committee. It's hard to know in this kind of political environment whether a candidacy like his could really catch fire with all the focus on fiscal issues, the economy and jobs. It's just not something that he's really known for or has talked very much about publicly.

DAVISAnd I would mention that -- as Chris' point about all the sort of below the surface operating that's going on with the people who we know are thinking about being candidates are -- and are being taken seriously as perspective candidates -- you do also have the Donald, who has said that he may -- in the season finale of his show, "The Celebrity Apprentice," announced what he's going to do or whether he's going to jump into the fray or not. So you have these very attention-grabbing people who are not necessarily seen as serious contenders who actually are kind of mixing up the fray quite a bit.

KAYOkay, we're all loving the fact that the Donald might run, and it's kind of, you know -- here we are. We might have a fun race. And thank God for American political campaigns 'cause they always provide a bit of color, but is there something serious that we're overlooking here, Chris?

CILLIZZAHere's what I would say. I do not think he is a serious candidate for president, and I know that may sound crazy, given that there's polling that suggests he is tied for first place. But my guess is and my strong belief is the best day Donald Trump would have as a presidential candidate is the day before he announces for president because once he becomes a candidate, this -- the level of scrutiny that the -- I just don't think he can stand up to it. I do think there is something to be -- something important to be taken from the fact that he is as high as he is in polling, Katty. And that, to me, is that -- there seems to be either a dissatisfaction or just a lack of excitement among Republican voters for the field that they do have.

KAYRight, for the other candidates.

CILLIZZALook, Donald Trump would not move into 17, 18, 19 percent of the vote on name identification alone if there was a strong frontrunner. There is not a strong frontrunner. I think people are still looking around. It's why any time I talk to any group of people about the presidential race, they always say, who might get in late? You know, they want to know about Chris Christie, the governor of Jersey -- New Jersey. They want to know about Jeb Bush, the former governor of Florida. Now, I don't think those people are running. But it's that belief that they're just -- the field just isn't of a certain level yet. Not that Donald Trump would make it of that level, but people are just interested in whatever the new thing is, and he happens to be the new thing at the moment.

KAYRight. And it's worth remembering that whoever does get the nomination instantly becomes more recognizable, gets the party machinery behind them and starts to be taken more seriously just de facto by being the nominee. We're getting several emails in, like this one from Gayle in Seattle who writes to us, "Americans are not looking for a scapegoat in the financial crisis. We're looking for accountability, justice, punishment and reform. In the savings and loans scandal, hundreds were indicted. Investigations should be thorough and ongoing." Julie.

DAVISYeah, think that's a -- you know, that's a prevailing view. People are still very angry about what went on. And, you know, this report that we saw this week didn't really have anything new in it that people didn't already suspect happen, but it was just more evidence of what had gone on and what everyone suspected have been going on. And, I think, you really haven't seen the kind of -- you haven't seen criminal penalties. We haven't seen people go to jail. It's not like the Enron situation, and I think people crave that.

DAVISWhat you have seen is financial reform. You have a law in place that Republicans in Congress are now trying to dismantle pieces of. They were trying to stop funding for pieces of it. So there is going to be a political struggle over that. But I think that, in general, people really do want to see more accountability than they're actually going to get at this point.

KAYOkay. Let's go to Donna in Brattleboro, Vt. Donna, you've joined the "The Diane Rehm Show."

DONNAGood morning. Thanks for taking my call.

KAYGood morning.

DONNAFirst comment is that I believe that all of our elected officials are not in the same wage earning category as most Americans, and I think that that is a problem, in that it's theoretical about how Americans spend their money and what's best for Americans. They all earn well over $100,000 a year, and it takes a lot of money for them to even think about running for office. So I think they're out of touch. The other thing I'd like to tell you is about -- I have a small business here.

DONNAAnd every year in Vermont, we have a 6 percent sales tax holiday, and that holiday generally produces more revenue for small businesses which we have in Vermont than any other day of the year. And that includes Christmas. It's not true across the board, but it's generally true. And the big joke among us small businesses is that when we run a 10 percent sale or we run a 15 percent sale, we never have the amount of traffic that that tax holiday generates. So I think it's something the Republicans understand about public not wanting to pay taxes. The tax word is bad, and I think that the tax holiday kind of proves that.

KAYDonna, that's a really interesting point. Greg.

IPI actually don't think politicians are really as out of touch as the caller suggests. I think the issue is that the people that they hear from are often themselves quite divided on what they want, and I think that it actually proves it quite nicely. The Republicans are very attentive to the concerns of small business people such as the caller, and that's one reason why they're so adamant that there should be no tax increases at all. Whereas the Democrats are much more in tune with people who want to maintain the social safety net as it is, and, therefore, they're more willing to consider higher taxes to pay for it.

KAYWhat do you think about her comment about the tax holiday?

IPWell...

KAYThat seems she means that you have a tax holiday, and traffic comes into your shop. But you have a sale and less traffic comes into your shop, even though people might be saving more.

IPWell, think about it. A tax holiday is obviously very highly advertised because it's going on across the entire state, whereas a sale may only be in one store. What we know from these holidays is that they don't actually cause sales to be higher. They just actually burrow sales from a later period as people rush in to take advantage of it.

KAYOkay. I wanted to quickly -- we have a few minutes left on the program. Chris, air traffic controllers, is this a big problem?

CILLIZZAI...

KAYI mean, it made to the headlines this week.

CILLIZZALet me say this, Katty...

KAYAnd I have to say as somebody that flies around the country, I'm a little nervous.

CILLIZZAAnd I was going to say, as someone who was on a flight yesterday and the day before, yes. It's a big -- of course. I mean, I think we were all shocked to learn that there in Washington National Airport, there was one air traffic controller at night. You know, I mean, that's a stunning fact. You know, I think we've seen a head roll. The head of air traffic control for Federal Aviation Administration has been removed. They are moving to shore it up, to have more people in the towers. Plane travel in this country -- look, anytime there is even a plane spinout, a landing gear doesn't go down, it is at the top of the news, and it is on cable all day. We are fascinated by plane travel, fascinated/frightened by plane travel.

CILLIZZASo, I think, it will continue to kind of play a role in our emotional psyche, and I think that's why we're so drawn to the story. Hopefully, this change -- I say this as a flyer. I mean, hopefully, these changes will take effect quickly. I think everyone was amazed to find out the staffing issues that were present.

KAYOkay. And just before we end the program, I wanted to talk a little bit of Sidney Harman, who died this week at the age of 92. He is, of course, the co-owner of the newly-merged Newsweek Daily Beast Company. He died suddenly. He was 92, but he died fairly suddenly. And, Greg, does this make a difference to the media landscape now that Sidney has gone?

IPWell, let me just say on a personal note that long before I had ever heard of who Sidney Harman was, 30 years ago, my brother, as a teenager, bought his first stereo receiver -- it was a Harman Kardon -- and to that to me, for years, symbolized the leading edge of high fidelity sophistication. And so, to me, it's...

KAYAnd certainly a wonderful philanthropist in Washington...

IPYeah, a wonderful philanthropist.

KAY...putting the arts and theater here in town.

IPAnd his company continued to be very successful. But, I mean, also from what we noticed, just an incredible polymath, you know, interested in the arts, you know, served under Jimmy Carter in the commerce department. And then late in life, you know, into his 90s, getting in as a media mogul.

KAYLet's hope that we're also fabulously active at the age of 92, Chris.

CILLIZZAYou know, just in terms of Newsweek and Daily Beast, Barry Diller, his co-supporter in this adventure, said that Sidney had made very clear in his last month of life that he wanted to continue on with it. And they expect no interruption in terms of their march to becoming kind of a news magazine online venture hybrid.

KAYAnd he has designated his son, I understand, to be the heir apparent, his 29-year-old son Daniel, a student who's at Columbia Business School. Sidney Harman who died this week at the age of 92. Chris Cillizza, author of The Fix, a Washington Post politics blog and managing editor of postpolitics.com. Julie Hirschfeld Davis, congressional correspondent with Bloomberg News. Greg Ip, U.S. economics editor of The Economist magazine and author of "The Little Book of Economics." Thank you all so much for joining me.

CILLIZZAThank you.

DAVISThanks.

KAYYou've been listening to the domestic hour of the Friday News Roundup. We're going to have the international news hour coming up next. I'm Katty Kay of the BBC. I've been sitting in for Diane Rehm. Thank you all so much for listening.

ANNOUNCER"The Diane Rehm Show" is produced by Sandra Pinkard, Nancy Robertson, Susan Nabors, Denise Couture, Monique Nazareth and Sarah Ashworth. The engineer is Tobey Schreiner. Dorie Anisman answers the phones. Visit drshow.org for audio archives, transcripts, podcasts and CD sales. Call 202-885-1200 for more information. Our email address is drshow.org, and we're on Facebook and Twitter. This program comes to you from American University in Washington. This is NPR.