Earlier today, I had the pleasure of interviewing former Speaker and now House Democratic leader, Nancy Pelosi. We’ve had several interviews down through the years. And while we’ve disagreed on a number of topics, I do have enormous personal respect for her. She’s a very strong lady with a subtle sense of humor. Always good copy. And while she still wants to tax oil companies, she did have some interesting thoughts regarding pro-growth tax reform and spending and entitlement cuts. Of course, trust but verify. But I thoroughly enjoyed this interview.
Kudlow: Speaker Pelosi, former Speaker Pelosi, House Democratic Leader. Thank you. Welcome back to CNBC.
Rep. Pelosi: Thank you. My pleasure to be here.
Kudlow: Before we get to the debt in the financial issues I want to get your reaction to this Dominique Strauss-Kahn, IMF chief, brought in on these awful sexual charges. Your first thought.
Rep. Pelosi: My first thought is it gives new definition to moral hazard. What a shame at a time when the IMG is center stage for what's happening in Europe and Greece etcetera and the world, financially, to have this disruption. I know they moved immediately to put someone in his place. But really so unfortunate. I feel very sad for the victim.
Kudlow: Absolutely. On the policy stuff, it seems to me both Democrats and Republicans down through the years have been very critical of the IMF. United States owns about 18% and, therefore, we are a party to the various bailouts of Greece and so forth. What are you hearing or what are we likely to hear? Is there going to be an oppose IMF reform movement? Are people going to get up on the floor and propose legislation?
Rep. Pelosi: I don't know if that will happen in relationship to this particular incident. But, for a long time now, we have been saying we should subject any number of our international financial institutions, whether it's a world bank or the regional development banks or the IMF, to scrutiny as to what their original purpose was, how they are fulfilling it and let's just take a look because there are important resources put there and we want to make sure we're getting the best for it and how we choose the leadership and the rest. I think it all should be subjective.
Kudlow: I mean, the guy, I don't know if he paid it, but the guy stayed in a $3,000 hotel room. I don't know if the IMF paid it. I don't know if he paid it. We're going to find that out. But what I do know is that the IMF is into Greece for $20 billion and as I said about 18% of that is the United States because we own that amount in terms of capital. What about bailout nation in Europe? Is there going to be another wave of opposition to that coming from Washington?
Rep. Pelosi: Again, it is always about the scrutiny we subject it to. Certainly, there will be questions about how the funds are put to use. We've been through this. Whether it was in our own hemisphere, whether it was in Asia, as you know, the moral hazard issues that were brought up at that time. But again I think we have to take a step back and say what was the original purpose of the International Monetary Fund? What is the original purpose of these regional development banks? Are they serving that purpose and many of us who have been involved for a long time, the creation in fact of the European Bank for reconstruction and development and also on the committees that make our contribution to it, look to all these things in terms of what is it that, what is your purpose, are you fulfilling it, there's a better way to do this. Should there be better coordination and let's -- there are many people who have been very concerned about how these international development banks or the monetary fund do their job.
Kudlow: Okay, the $14.3 trillion debt ceiling expires today. The crunch may not come for a couple of months, but today is the expiration date. First let me ask you, Speaker Boehner last week put down a marker. He said first of all no tax increases, and second of all, the most interesting part for negotiations, any dollar increase in the debt ceiling must be accompanied by a dollar reduction in spending. Your reaction to Boehner?
Rep. Pelosi: Well what I would like to know is did he say then that the Republicans would vote for avoiding the default that would follow if we don't move forward? Here's the thing. Here's the thing we all know we must reduce the deficit. We've been in this place before. And we have reduced the deficit and came on to the path of surplus coming out of the Clinton years. We are back into the deficit mode we must reduce the deficit. We must put everything on the table. We've got to look at cuts for sure. Waste, fraud, abuse, duplication, you name it.
Kudlow: Is Medicare on the table? Entitlements?
Rep. Pelosi: Yes. I think Medicare is on the table. I think Social Security is probably on its own table because we have to have it be solvent. It has to be strong and we have to deal with it in its own mechanism in my view, but the fact is all the money is fungible and at the end of the day, the deficit must be reduced.
Kudlow: Is there Democratic support in the House and/or Senate for these budget cuts? I've not heard it so far.
Rep. Pelosi: There's a reality check on even about what Speaker Boehner says. First of all, you are never going to reduce the deficit if you're just looking at this much of the budget. There aren't enough cuts you can make to reduce the deficit. You also must look for growth. Are these cuts harmful to our growth? Whether it's cuts in education, R&D, clean energy jobs for the future. You also have to look at the tax code. You have to make it simpler and fairer. The Bowles Simpson commission has suggested we close what they call revenue loopholes.
Rep. Pelosi: Revenue earmarks.
Kudlow: Expenditures, actually.
Rep. Pelosi: Well they call them tax expenditures, earmarks, whatever you call it, how you shut them down so you can lower the corporate rate. How you shutdown a lot of these things so you so you can lower the rates for individuals.
Kudlow: Do you favor the business tax overhaul. You favor that?
Rep. Pelosi: For a long time. I don't know that we can do it in time -- in the 11 weeks that remain to do this -- default, voiding default, but I do know this. We must do the simplification and fairness. We have to put it all on the table, see what works. And that's why we are in New York here this week, meeting with some of my colleagues, two who are at present at the table on negotiations -- Peter Clyburn and our lead on the budget, Chris Van Hollen, to talk to some of the leaders in finance here about putting ideology and all the rest of this aside. What will work to reduce the deficit?
Kudlow: Is there any doubt in your mind that we would risk defaulting on U.S. Treasurys?
Rep. Pelosi: Well, the fact is, the Republicans have the majority in the House of Representatives. That's why I led with the question. It's interesting what the speaker has said, but did he also say and if that happens, his members will vote for it because we went through this on TARP. The Democrats worked with President Bush on TARP. It was his solution by and large to a problem that happened in his administration and while he was still president. We voted to protect the taxpayer. We changed the bill in that way. We had very a hard time getting Republican votes for the TARP.
Kudlow: Let me switch gears to the price of gasoline, maybe on the way to $5 in some states. Over $4 in California -- way over $4. President Obama, over the weekend in his speech, opened up a lot of potential for more drilling. In Alaska, off the Atlantic coast of the US. off the gulf. Do you agree on this? Is this something we ought to be doing to relieve gas prices?
Rep. Pelosi: Well, this is what we've been for for a long time. He's articulating it. We have to have increased domestic production of everything. We have many other resources in addition to oil. But there are many people, many places, where drilling is not only allowed, it is permitted. That is permits have been written for it, but the oil companies aren't drilling there. So we're saying, use it or lose it. You have permits, drill.
Kudlow: The government put a halt though on all the licenses and permits. As I understand the President is saying he is going to speed it up again.
Rep. Pelosi: No, well, there is some off shore but there have been permits that have been given even there, but what we have to do is maximize what our domestic production is. We have to also invest in renewable energy sources. We have to recognize the role in transition that natural gas will play. I surprised you a couple of years ago when I said nuclear as an alternative.
Kudlow: You're surprising me now.
Rep. Pelosi: Well it isn't that you're used to how other people characterize our position. Thank you for asking what it is.
Kudlow: Yes, of course.
Rep. Pelosi: Because again, we will transition to a place we must reduce our dependence on foreign oil. That's a national security issue.
Kudlow: Why the insistence, this is the part I don't get. Okay, you're going to open up drilling; you are going to open up production. We are all agreed on that it seems to be you're saying the same thing. And yet we want to tax the oil companies. The government wants to tax oil companies.
Rep. Pelosi: Definitely.
Kudlow: It's like saying, okay, produce more, but we're going to raise your taxes so you can't produce more. Is there an inconsistency there?
Rep. Pelosi: No
Kudlow: Have I fingered a contradiction?
Rep. Pelosi: No you haven't. In fact, thank you for calling it to everyone's attention once again. In our proposals to reduce the deficit, one of the provisions is to remove the subsidies, the tax breaks for big oil. Over ten years, that will save about a little more than $30 billion. Almost the exact figure that the oil company, the big five, made in the first three months of this year. They'll make a trillion dollars. They do not need these tax breaks.
Kudlow: But they'll pay a 45% effective tax rate on that. And they get a lot of the same.
Rep. Pelosi: But this has nothing to do—
Kudlow: They're deductions are the same as all the manufacturing companies.
Rep. Pelosi: So why do they need- yeah, they shouldn't be. They shouldn't be.
Kudlow: Why not?
Rep. Pelosi: Because manufacturing, you're making something in America. They are -- this was, shall we say, a special case for the oil companies to say we are actually not manufacturing companies, we wanted to be treated like that and that's one to have things we want to reverse. But you can't tell me that a company over ten years, the big five, they're going to make a trillion dollars more than a trillion dollars over ten years. $32 billion.
Kudlow: But they're paying huge taxes. Some of these guys pay more in taxes than they make in profits. I don't want to defend the oil companies.
Rep. Pelosi: Nobody's going to cry over the oil companies having $32 billion. My colleague, you won't be amused by this, my colleague Ed Marky has an oil derrick drilling down on a Medicare card. We're saying to seniors, you're going to pay at least $6,000 more for fewer benefits so that we can to give tax cuts to big oil.
Kudlow: Let me just stay with that for a minute. Medicare, it's going broke five years ahead of schedule because the economy's been so lousy. But Medicare is broke now on a cash flow basis. The benefits exceed the revenues. Doesn't this put the heat on to do something about Medicare? Right now in this deficit deal?
Rep. Pelosi: And one of the first things we should do is reverse is Medicare give away to the prescription industry done in the Bush years. This Congressional Budget Office says the three biggest contributors to the deficit are two unpaid wars, tax cuts for the wealthiest in America and Medicare Part B prescription drug bill. Which gives away the steward to the pharmaceutical industry when we should reverse that and should subject every federal dollar to the harshest scrutiny.
Kudlow: So it is on the table?
Rep. Pelosi: Definitely.
Kudlow: I wish we had more time. House Democratic leader, Nancy Pelosi. Thank you for coming back on CNBC.
Rep. Pelosi: My pleasure.
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