Q & A with Senator Pat Toomey

Matt Kleck

On a grey, cold Jan. 17, the junior U.S. Senator from Pennsylvania – Republican Pat Toomey – blew through Erie, meeting with local business and community leaders. He also took time out of his busy day to meet me at the Rose Garden Cafe, a small, oft-overlooked, schizophrenic shop that sells flowers, purses, creepy dolls, jewelry, greeting cards, knick-knacks, Pittsburgh Steelers paraphernalia, decent coffee, and damn good sandwiches.

Nestled snugly right next to the Warner Theatre on State Street, the cafe was empty and quiet when I arrived, but that soon changed as our intrepid photographer, Matt Kleck, entered and selected a suitable backdrop for his picture-taking. Not long after Kleck set the scene, Senator Toomey and his small entourage arrived. Toomey sat in a tiny chair with his back to the rough, red, exposed brick wall, creating a contrast that couldn't have been clearer in his crisp and sensible suit. A small crowd began to gather as we talked, over coffee, about the nation's ongoing fiscal troubles. It was shortly after 3 p.m.

Cory Vaillancourt: Tell our readers, in simple language, what this "fiscal cliff" business is all about.

Pat Toomey: The "fiscal cliff," referring to the Dec. 31 fiscal cliff – it's really a combination of a number of discreet things that were scheduled to change – in some cases by coincidence, in some cases by design. You had the expiration of the law that went in to effect in 2003, which established lower taxes for everyone who paid taxes. That was actually extended at the end of 2012, so the final expiration was Dec. 31, 2012.

So Jan. 1 would be the day when you had this massive, across-the-board tax increase. You also have sequestration that was scheduled to kick in, and that's just a fancy way of saying, "automatic spending cuts in a variety of categories."
There were also other provisions that were less famous that were set to expire, some of which routinely expire, unfortunately, which I think is bad policy. We have a lot of little individual provisions in the tax code - both personal and corporate tax codes – that get renewed for one year, every year. So every year, you wonder, "Will it get renewed again?"

That's terrible policy. If it's good policy, it should be permanent, and if it's bad policy, it should go away. We shouldn't be doing it this way, but that's what we do. And those are the main components of what came to be known as the fiscal cliff.

CV: And the solution, or the temporary solution that came about on Jan. 2, that wasn't satisfactory in your opinion.

PT: Well, the partial solution was far from ideal from my point of view. I've been on record for a long time and I still believe that it was neither necessary nor desirable to raise taxes on anybody. But the existing law would have the effect of raising taxes on everybody. And the president, there's no question that he campaigned very aggressively on raising taxes for some, and, he won. So, there was going to be a tax increase of some sort, and it was a question of how broad and of what nature, and on whom.

Although I would have preferred to spare everybody a tax increase, we were able in the end to spare 99 percent (roughly) of Americans from a tax increase, so that's what we did. The bill also postponed the sequestration by 2 months. I think in the end the sequestration is going to take effect; I think it has to. I think from an economic point of view, I think it's good for us to have a little bit of discipline. I do think it lands disproportionately on the defense budget, and that does concern me – the implications for national security, so I'd rather see it designed differently, but I'm not optimistic that it will be designed different; I think it will go in to effect pretty much as it's written.

CV: Assuming that stays in effect, what does this worst-case scenario look like over the next year, 5 years, or even 10 years?

PT: The worst-case scenario – I certainly hope it doesn't come to pass – but the worst-case scenario is that we don't solve the real problem. The real problem is that we're on a completely unsustainable fiscal path. The government is routinely spending way more than it can afford to spend, way more than is good for optimal economic growth, in my view.

If we stay on this path, we will have a full-blown fiscal crisis and we'll have a catastrophic meltdown. I don't know when and I hope we get off this path long before that happens, but we've seen what happens, looking over to Europe, when countries live beyond their means for too long – government gets too big and too bloated, and eventually a day of reckoning comes. And that day will come to us as well if we stay on this path.

CV: Let's talk about that day of reckoning. Our readers tend to be 25 to 44 years old, perhaps slightly more female than male, but we're a younger publication. When that day of reckoning comes, what does that look like for the average working Americans who read our publication?

PT: Again, I think there's a way to avoid this so I want to be really clear – I'm not predicting this, I'm just saying 'This is what we need to avoid.' If you don't avoid this, then the fiscal and economic collapse can potentially be calamitous. I mean, take a look at Spain – the unemployment rate in Spain is 25 percent. Among people who are 25 to 44, it's probably closer to 50 percent. There's massive numbers of people who are out of work; incomes drop like a brick, the standard of living plummets. Opportunity, you hope for a better future, is really grim if you allow this kind of crisis that they have in Greece, that they have in Spain, that they're close to in Portugal, we've seen how this plays out. That's what awaits any county that goes on indefinitely living beyond their means. Eventually it catches up to you, which is why you've got to get off this path soon.

CV: We published an opinion piece you wrote back in December in which you said, "The reality is that the federal government doesn't have a revenue problem. It has a spending problem." I think that's pretty clear. Aside from entitlements, where do you envision specific cuts?

PT: I introduced a budget that lays it all out in chapter and verse, two years in a row, so there's great specificity, but there's just a lot of areas.

Entitlement programs are growing too fast. Some of the welfare programs have grown enormously, and we've expanded eligibility in ways that are not affordable. One of the programs that I really find very objectionable is the huge, annual, systematic subsidy of big agriculture. Our farm subsidies are staggering, billions and billions of dollars a year, including to very large wealthy agricultural interests – why in the world are we doing that? It's terrible policy.

CV: Agriculture in this state is either the biggest or second-biggest sector of the economy. How are you going to sell that in Pennsylvania?

PT: As it happens, most of Pennsylvania farms are not the kind of farms that get a lot of these subsidies. They tend to go to the big five-row crops, grown large-scale in the Midwest and the Deep South. Now what the agriculture interests are doing, and of course, it's always expanding, the number of people who get these checks, because as long as you expand it, there's more support for continuing it, but we're much better off having a free market in agriculture, letting farmers grow what the market demands and having consumers benefit from the range of products and the terrific technology that has made it so much more affordable than it ever was. We don't need to be pumping tens of billions of dollars a year into this. And that's just one segment.

CV: We've just talked about, aside from entitlements, where those spending cuts lie, and agribusiness is one of those. Let's talk about entitlements. In that same opinion piece, you said that you wanted to "save our entitlement programs now by making them permanently solvent…slowing the rate at which some benefits grow." Can you elaborate on what exactly you think is expanding too fast?

PT: Here's a good way to think about almost any government program: if it's a substantial program, and it's growing faster than the economy, then something's going to give. The economy has to support everything the government does; the government lives off the economy, it always must necessarily be a subset of the economy, and so if a part of the government is growing even faster than the economy, then it eventually consumes everything in its path, so that's not sustainable and will cause a collapse.

Right now, Medicare and Medicaid are both growing much faster than the economy, so that's by definition not a sustainable situation. So before we get to the point where we have some kind of catastrophic collapse I'd like to make changes that look out into the future and slow down the rate of growth, so that it's manageable and sustainable.

Some changes you can make right away. Like in Medicare, I still can't for the life of me understand why we all subsidize Warren Buffet's health care. He can afford his Medicare, but yet he has subsidized Medicare. That's crazy. So I think above a certain income level… We have some means testing on Medicare now, where above a certain level, you pay a higher premium, for the health care you get than if you're below a certain level. But nobody pays full freight, and I think there's an income level above which people ought to pay the whole thing. And you could kick that into effect tomorrow without doing any harm to anybody, because the people who are affected can readily afford to pay for their health care.

Other things I would prefer to implement in the future, so that current beneficiaries wouldn't be affected, so young guys like you could plan. It's a long time before you're 65, so when that day comes you've had a long time for a Medicare that looks different. But would be affordable, and sustainable, and you wouldn't have to worry about whether it's there, and you've got plenty of time to anticipate its arrival.

CV: But all-in-all there's got to be some human fallout from things like that. If these programs are still growing faster than the economy and too many people are eligible or benefits are too high, there will be a person or a group of people that will end up falling out and not end up receiving benefits are needed. They're entitled to them, however, it's because of a need, not strictly because they qualify for it.

PT: Sure, yeah. But it's a subjective question as to what constitutes the need, and when you change the rules, that's not necessarily the case.

CV: But changing the rules doesn't change the need.

PT: For instance, let's take the food stamp program. When food stamps were first launched, America was a poorer country, income levels were lower, standard of living was lower, and food was more expensive as a function of people's wages than it is today. We decided then, decades ago, something like 4 percent of Americans were so poor they couldn't put food on the table and they needed help.

So now we've decided that when food is cheaper and the standard of living is higher, that it's 15 percent of Americans that need to get this. So people are eligible for this program that would have never been eligible for this program in the past. So we changed what we decided "need" means. I think we've got to re-look at that in some cases.

CV: There's two components to moving forward with this. One of them is decreasing spending, and the other is increasing taxes. And of course, no one wants to increase taxes on anyone, but is it really all that ridiculous to think that people who earn many, many times more than your average person shouldn't pony up and pay a little of their – here's this awful phrase – "fair share" in taxes?

PT: [long pause] Well…

CV: I mean, what is the ideal mixture for you between billions cut in spending and billions increased in revenue?

PT: That's a very important question. I think there's very strong empirical data that shows that a government that spends less and that is smaller allows for a society that is more prosperous, grows faster, produces more jobs, has higher wages, and a higher standard of living. I don't want to reduce spending just for the sake of reducing spending; I want to reduce spending so that people can have a higher standard of living, and I think the data is very clear – smaller government leads to prosperity and a higher standard of living. That's important. That's ultimately the reason why I'd like to see smaller government and limited government.

On the tax side, it's a question of what you think is fair. It is an objective fact that our tax code is more progressive now, meaning fewer people are paying a bigger share of the burden now than at any time before in American history, and we're more progressive that European countries, which we think of as being to the left of us on most matters.

So we've already done that, and most people want to go even further. Okay. So where does that stop? Right now, the top 5 percent of wage earners earn about 28 percent of the income, and pay about 60 percent of all the taxes, and now with the tax law change, that will be more like 65 or 70 percent of all taxes. What would make that fair? Should they pay 80? Ninety? Should they pay 100 percent of the taxes?

I think most Americans' sense of fairness is some reasonable distribution of the responsibility of paying for the government. It's not obvious to me that people who are paying a record amount are getting off light. So, I'm not interested in raising anybody's taxes; I'm interested in curbing everybody's taxes, more prosperity, and I'd be okay if we left the distribution of the burden where it is and just focused on having a bigger economy creating more wealth and thereby generating the revenue that we need to pay for that government that we do need.

CV: I believe it was Ross Perot who said something to the effect of, "If I ran my business the way the government runs theirs, I'd be out of business." Last year, something like 29 states, ran a budget surplus – 29 states plus the District of Columbia. Is it unrealistic to foresee a day in which the federal government can do that?

PT: [laughs] It shouldn't be; it shouldn't be. We almost had one in 2007, we had a tiny little deficit, and we did, in the 1990s, which was another time of divided government when we had a democrat in the White House and Republicans in control of Congress – of course Republicans controlled all of congress but now Republicans only control the House – but, the point is, with divided government we did have a balanced budget, modest surpluses for a few years, so there's no reason this can't be achieved and shouldn't be achieved. We're in a dangerous place now with the deficits of the size they are, and the amount of debt.