[Candy Crowley:] A week of a lot of heat inside a lot of meetings which produced no debt deal.
[Crowley:] Today, dodging default with White House Budget Director Jacob Lew and Republican Senator Lindsay Graham. Then, Rudy Giuliani on the president, the Republican field and gay marriage.
[Rudy Giuliani, Former Nyc Mayor:] And I don't know what the heck the Republican Party wants to do getting involved in people's sexual lives and personal lives so much for. Stay out of it.
[Crowley:] And the politics of red ink with former Biden Chief of Staff Ron Klain and former Republican Congressman Tom Davis. I'm Candy Crowley and this is "State of the Union." The president said he wanted a deal by Friday, so lawmakers met with him at the White House day after day after day. They took a break Friday, and the president pushed again.
[Barack Obama, President Of The United States:] If Washington operates as usual, and can't get anything done, let's at least avert Armageddon.
[Crowley:] Joining me now, White House Budget Director Jacob Lew. Thanks for being here this morning.
[Jacob Lew, Director, Office Of Management And Budget:] Good to be with you, Candy.
[Crowley:] We are told by Hill sources that since the last White House meeting on Thursday and this morning, there has been no progress. Do you concur?
[Lew:] I think quite a bit has been going on since the meeting at the White House on Thursday night.
[Crowley:] There has been activity, but has there been progress?
[Lew:] Well, there has been activity and progress I think on two fronts. First, there are substantial discussions going on in the Senate between the two leaders to make sure that at a minimum, Congress has a way to take action and avoid default on the U.S. debt. It's critical. We don't think it's enough. We think that the president said clearly we should do as much as we can to reduce the deficit, but we have to avoid the kind of chaos that would result from default.
[Crowley:] So you're talking about the McConnell-Reid-
[Lew:] Correct.
[Crowley:] way out of not having a it cuts 2.5 1.5 actually and then there's-
[Lew:] My understanding is what they are working on right now would simply provide a mechanism for extending the debt and provide for a committee, a joint committee of the Congress, to take action on the deficit. The president has been clear that we need to do more than that. We need to get as much done to reduce the deficit now, and the time to act is now. I think in addition to that, there have been a lot of conversations going on amongst parties. The president at the end of the meeting on Thursday said that each leader should go back to their caucus, they should talk to each other, they should be back and forth with the administration, and that has been going on since Thursday.
[Crowley:] So you have been talking to folks as well about the grand deal and the medium deal and the small deal?
[Lew:] There have been a lot of conversations going on, and they will continue to.
[Crowley:] Again, conversations aren't exactly progress. So where do you think you have made progress?
[Lew:] You know, I think it's not insignificant that all the leaders understand that it would be irresponsible to get to August 2nd and not extend the ability of the United States to pay its obligations.
[Crowley:] Do enough members of Congress understand that?
[Lew:] I think that as we approach it, more and more seem to be coming to it. There will be a fringe that believes that playing with Armageddon is a good idea, but I don't think that's where the majority will be.
[Crowley:] Any White House meetings today with any of the principals?
[Lew:] You know, I have not been to the office yet this morning. I think I will find out when I get there.
[Crowley:] When you get there, OK. So you seem fairly confident that at the very least there will not be default on the 2nd?
[Lew:] I have confidence that ultimately the responsible leadership in Washington will not fail to take an action where failure would mean interest rates that would amount to a tax on all Americans when they buy a home or a car, it would undermine our recovery, that would create chaos in the U.S. and world economy. I am confident that the responsible leaders of Congress know that that is not an option.
[Crowley:] More immediately, you would have to make some spending priorities, payment priority decisions. Social Security benefits, federal worker pay, defense contractors. What are your priorities should you not have the debt ceiling raised on the 2nd, when you have these bills that sort of immediately become due? Social Security checks, federal worker pay, defense contractors?
[Lew:] Our plan is for the Congress to do its work and for the president to sign into law legislation that will make it possible for the United States, as it always has, to keep the obligations. We will be ready to deal with whatever happens, but there is no plan other than meeting our obligations.
[Crowley:] Surely you must have discussed priorities, though, we have to pay this?
[Lew:] Well, the truth is that that this is a different situation than the United States has ever faced. We have never gone into a situation where we didn't have enough money to pay our bills. We borrow 40 cents on a dollar right now. If the time comes when we lose the ability to pay our bills, there will be a cash flow issue that is very real, and that's why it's critical that Congress take action before August 2nd.
[Crowley:] Would you actually allow it to happen, that those Social Security checks would not go out? Will you allow that to happen?
[Lew:] I think as the president has indicated, it's not a question of what we allow and what we don't allow.
[Crowley:] But you get to decide priorities. There will be some money
[Lew:] There won't be enough money to pay all the bills.
[Crowley:] Of course not, that's why I'm talking about priorities.
[Lew:] I think that once one gets into the business of trying to ask about setting priorities, it misses the fundamental question, which is that it's unacceptable for the United States to be in a place where whether it's a Social Security recipient or a soldier or somebody who is just owed money by the government can't be paid because we have not done our job.
[Crowley:] Let me play something interesting, talking about everything on the table. One of the things, as you know, that some Republicans are pushing is a balanced budget amendment, a constitutional amendment to require a balanced budget under certain circumstances. Here is what the president had to say the other day.
[Obama:] I think it's important for everybody to understand that all of us believe that we need to get to a point where eventually we can balance the budget. We don't need a constitutional amendment to do that.
[Crowley:] But apparently you do need something to do that, because we're facing a meltdown, you all keep saying, and yet there isn't a deal, and yet we don't have a deal that will raise the debt and forego a meltdown. What is so wrong with a balanced budget amendment?
[Lew:] Just to be clear, and as the president has said a number of times this week, if not now, when? Congress needs to act. It is a question of will. There is plenty of time to make decisions now.
[Crowley:] But to this constitutional balanced budget amendment?
[Lew:] What these these ideas do is say let's kick the can down the road so that others will deal with it. The challenge is for Washington now to do the job the American people sent us here to do. The form that this constitutional amendment takes is actually quite draconian. What these amendments do is not just say you have to balance the budget, but it puts in place spending limitations that would force us to cut Social Security and Medicare more deeply than even the House budget resolution did.
[Crowley:] What about the-
[Lew:] That's not what the American people want.
[Crowley:] principle of the balanced budget amendment?
[Lew:] You know, I think the principle that really should be governing right now is that Congress do the job that it was sent here to do. The president wants to work with Congress. He has shown a willingness to move substantially. We need a partner to work with. We need to get the job done. We need to get the job done now, and we need to as much as we can do, because the whole world is watching. This is not just a question of Washington politics. The U.S. credit rating is at stake. Our place in the world is at stake. We need to act now.
[Crowley:] Let me ask you something about what the debt most needs is a growing economy, and in that nature, I want to read you something, and our source here is Reuters. This is from a Goldman Sachs report that went out last night in which Goldman Sachs said, "Following another week of weak economic data, we have cut our estimates for real GDP growth in the second and third quarter of 2011 to 1.5 percent growth in the third quarter, 2.5 percent in the fourth quarter. We now expect the unemployment rate to come down only modestly to 8 34 percent at the end of 2012." This is higher unemployment and lower growth than you all were predicting. What that means, of course, is that you can't make a substantial effort towards the debt, as opposed to the deficit, with growth that low, can you?
[Lew:] Look, it has been a difficult few weeks in the economy. There have been some external factors from the nuclear accident in Japan to other things that made the growth slower. And there's still a consensus that we will return to growth, but it's not enough growth, and the president has made clear we need to stay focused on growing the economy and creating jobs.
[Crowley:] Do you agree that growth is going to be lower than you all thought?
[Lew:] I think that it's clear that recent weeks have been slower than have been expected. We are still confident, as are most forecasters, that we will return to growth, and that we will remain a growing economy. But the challenge is-
[Crowley:] But more than you had hoped, though, you think, now looking at it?
[Lew:] There are a lot of things that we can do now that would make a difference. We have done quite a lot in the first two years, with the recovery act. The president and Congress took action, that without which we would have millions more people out of work. We have pending proposals on the Hill which would do a lot to grow the economy and create jobs. Congress should pass the trade agreements that are up there. It should pass patent reform. The president has made clear that we need to take a look at extending the payroll tax deduction. The average American family has $1,000 in their pocket. There are things we can do and we need to work together to get them done.
[Crowley:] Thank you so much, Jacob Lew.
[Lew:] Pleasure to be with you.
[Crowley:] Director of Office of Management and Budget. We appreciate your time. Go to the White House and let us know what is going on. We appreciate it.
[Lew:] Thanks, Candy.
[Crowley:] Up next, we will talk to one Republican who says his party should consider negotiating with Democrats over tax increases or closing loopholes. Senator Lindsey Graham right after the break.