Fareed Zakaria's interview of Simpson and Bowles

This is worth a look if you haven't watched it. Some of people get more conservative as they age. Others seem to loosen up a bit. Alan Simpson was a conservative for as long as I can remember. He doesn't seem it in this interview.

Full Transcript: The former Republican Senator, Alan Simpson, and the former Clinton White House Chief of Staff, Erskine Bowles may forever be remembered for their great idea that was never put into practice.

In 2010, President Obama challenged the bipartisan duo to chair a commission to develop policies to bring America back to fiscal sustainability and they did. Many powerful Washingtonians on both sides of the fence applauded the proposal from the two chairs, but nobody ever did anything about it and this week, the dangerous carping over the debt limit began anew.

Who better to talk about this than Alan Simpson and Erskine Bowles who are joining me now from North Carolina?

Thank you so much for joining me, folks.

ALAN SIMPSON, FORMER WYOMING SENATOR: It's a pleasure.

ERSKINE BOWLES, FORMER WHITE HOUSE CHIEF OF STAFF: Great to be here.

Senator Simpson, you've seen what's been going on these last few months. The House actually voted on the Simpson-Bowles proposal and it went down decisively.

Paul Ryan, the leader of the House on fiscal issues, I suppose, said that Simpson-Bowles was the wrong way to go because there weren't enough spending cuts and there were too many tax increases.

What was your reaction? That's your party.

SIMPSON: Well, I think my party and I have different views on a lot of things. I guess I'm known as a "rhino" now, which means a Republican in name only because I guess of social views perhaps or common sense would be another one which seems to escape members of our party.

Abortion is a horrible thing, but, for heaven's sakes, a deeply intimate and personal decision and men legislators shouldn't even vote on it. Gay-lesbian issues, we're all human beings. We're all God's children. What is that?

And for heaven's sakes, you have Grover Norquist wandering the Earth in his white robes saying that if you raise taxes one penny, he'll defeat you. He can't murder you, he can't burn your house, the only thing he can do to you, as an elected official, is defeat you for reelection.

And if that means more to you than your country when we need patriots to come out in a situation when we're in extremity, you shouldn't even be in Congress.

ZAKARIA: But talk about Ryan particularly, because what I'm struck by is the Simpson-Bowles plan calls for an awful lot of spending cuts and, yet, those weren't enough.

SIMPSON: Well, Erskine can tell you we don't call for -- You can't cut spending your way out of this hole. You can't grow your way out of this hole and you can't tax your way out of this hole "Put that in your pipe and smoke it," we tell these people.

This is madness. If you want to be a purest, go somewhere on a mountain top and praise the east or something, but if you want to be in politics, you learn to compromise and you learn to compromise an issue without compromising yourself. Show me a guy who won't compromise and I'll show you a guy with rock for brains.

ZAKARIA: Erskine, you're hopeful. You think that some of the ideas gaining fraction and, you know, there's a kind of inevitability if you're going to do this, there has to be some approach that's pretty close to what you're describing.

BOWLES: Fareed, I believe the markets will force us to. I've spent my life in the markets, as you know, and look at what's happening at the end of the year.

We have about $7 trillion worth of economic events that are happening. We have expiration of the Bush tax cuts, we have the patch that's been placed on the alternative minimum tax that'll affect so many middle-class taxpayers, we have the payroll tax deduction that's expiring.

We have these senseless, mindless, across-the-board cuts that come from the sequester that comes as a result of a failed super committee. You know, all of those are hitting at once and the economic effect of those just next year, about 2 percent of GDP.

If we have a negative effect of 2 percent of GDP, we'll be right back in recession and you better believe that the people of America will be calling on these members of Congress to do something.

So we think something will happen in the lame duck session. We believe it'll probably be a two-step process where we end up setting up a framework with a time-frame in order to get something done.

ZAKARIA: Boy, that's pretty optimistic.

BOWLES: And don't forget it doesn't have to be exactly what the Simpson-Bowles plan has, but it's got to be a balanced plan. You've got to have some small amount of revenue that comes from reforming the tax code and there's broad agreement that the tax code needs to be reformed.

So I believe that you will find -- if, in fact, we can get the right kind of momentum going, I think I'll find strong support. We've been working with 47 members of the Senate, an equal number of Republicans and Democrats, the same kind of group in the House of Representatives.

And I believe these -- this group will come together during the lame duck to put forward a plan like this. Now, I don't think the plan itself will be implemented during the lame duck, but I think there will be an agreement that we have to do some kind of balanced plan.

If we don't, then I think you will see the markets really take a really adverse look at the country and I think you'll see us lose another downgrade in our credit and I think you'll see interest rates pop up and, before long, you'll see the availability of credit lessen. So I think we could have a real problem if we don't do something and do something relatively quick.

SIMPSON: And you know who will get hurt the worst in that process when interest rates go up and inflation kicks in, the little guy, the one that everybody on their hind legs talks about, "We're doing this for the little guy, the most vulnerable, the unfortunate." Well, Merry Christmas, those guys are going to get eaten when interest rates and inflation kicks in.

ZAKARIA: Gentlemen, stay with us. When we come back, we're going to ask Senator Simpson and Erskine Bowles what they think of President Obama's leadership on this issue, what they think of Mitt Romney and there'll be a few other things as well.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Erskine Bowles and Alan Simpson, the authors of the Simpson-Bowles plan for a rare opportunity to have a conversation.

Senator Simpson, I want to ask you -- I want to ask both of you, but I want to ask you what you think of President Obama's embrace of your plan or lack thereof.

And I'm going to start by asking you -- just bear with me because I talked to him in January, mostly about foreign policy, but I did ask him about Simpson-Bowles. And he probably got -- this got him more agitated than at any point in our conversation.

This is what he said. He said, "I've got to tell you most of the people who say it if you ask them, "What's in Simpson-Bowles," they couldn't tell you. First of all, I did embrace Simpson-Bowles. I'm the one who created the commission. If I hadn't pushed it wouldn't have happened because the Congressional sponsors, including a whole bunch of Republicans, walked away."

"The basic premise of Simpson-Bowles was we have to take balanced approach in which we have spending cuts and we have revenue increases. And although I did not agree with every particular thing that was in it, what I did do is take the framework and present a balanced plan of entitlement changes, discretionary cuts, went ready to make a deal."

"I presented this plan three times to Congress. The core of Simpson-Bowles, the idea of a balanced deficit reduction plan, I have consistently argued for, presented to the American people, presented to Congress."

Is that fair?

SIMPSON: Well, he does get a little testy and we all get a little testy, but the president -- I wouldn't have done this if I didn't regard him as our president. I accept that. He's my president, too. And it's ugly stuff out there.

There's a lot of hatred in the world, hatred toward politicians, hatred toward the president, hatred toward Democrats, hatred toward Republicans, but I can tell you this. If he had embraced our plan, he would have been ripped to shreds.

Erskine can tell you a little more. He visited with him personally alone for an hour-and-a-half, but he would have been ripped by the Democrats saying, "Why you rotten -- you're digging into the precious, precious Medicare."

And the Republicans would have rejected -- if he'd embraced the Republicans, en mass, in the House would have rejected it. So, either way he's going to get hammered so he's playing the waiting game.

ZAKARIA: Erskine, a lot of economic experts say, look, the right solution for the United States right now is obvious, which is you need some stimulus now, particularly given the very low interest rates, the very high levels of unemployment in the construction sector.

The government should spend some money repairing and rebuilding the infrastructure, but that would only be viable and particularly something the markets would celebrate if it was tied to a long-term deficit reduction plan like Simpson-Bowles.

Do you buy that basic idea that if your plan were adopted as a ten-year plan, it actually gives the U.S. government some leeway to make some necessary investments now?

BOWLES: Yes, I truly believe that the only thing standing between the U.S. and sustainable growth is having a sensible, responsible, long-term fiscal plan. I believe if the world believed that we were going to put our fiscal house in order that you would see substantial economic growth in the future.

But, again, I got back to what's happening at the end of this year. We have $7 trillion worth of economic events that are going to hit the fan in December.

And if we don't set up to them -- if we don't stand up for them and we don't do the right thing, if Congress doesn't act, it doesn't put this partisanship aside and doesn't make some compromise, you'll have a negative impact on GDP next year of at least 2 percent. That doesn't make any sense.

ZAKARIA: Alan, what do you make of Mitt Romney? Romney's first ads are out and when he says, on day one what is he going to do and he says he's going to approve the Keystone Pipeline, fine. But then he says and, then, we're going to have tax cuts.

This has, of course, been the, you know, kind of a Republican strategy for a while. Do you think -- given what you're describing, I can't imagine you think day one what a Republican president should do is propose tax cuts?

SIMPSON: Well, I wouldn't have voted for him if I'd have been in Congress. How could you vote for a tax cut when you were doing two wars on the cheap? You had two wars you were fighting. You had things that were -- the government -- all the income from the government was only taking care of Medicare, Medicaid and Social Security and you do a tax cut.

Every time there was a surplus and the last time was when this fine gentleman was doing it in '96, you can't get there. But you don't have to do a tax cut, get that out of your gourd. You go into the tax expenditures and start knocking that stuff off and that's where you get your revenue.

BOWLES: Fareed, we have the most inefficient, ineffective, globally anti-competitive tax code that man could dream up and what we need to do is broaden the base, simplify the code, use -- get rid of this spending in the tax code and use about 90 percent of the money to reduce income tax rates for everybody and use about 10 percent of the money to reduce this deficit.

You know if you think about the debt today and the interest on the debt, it's kind of -- you know and put it in relationship to something else, we spend about $230, $240 billion a year on interest on the debt today even at these current low rates.

Fareed, that is more than we're spending today at the Department of Commerce, Energy, Education, Homeland Security, Interior, Justice and State combined. And if we don't do anything, if we just, you know, put our heads in the sand and hope things will get better, we'll be spending over a trillion dollars on interest by the year 2020.

That's a trillion dollars we can't spend on this country on education or infrastructure or high valued-added research. And worst of all, it's a trillion dollars we will be spending principally in Asia to educate their kids and to build their infrastructure and to do high value-added research over there so that the next new thing is created there and the jobs of the future are there not here. That's crazy.

ZAKARIA: All right, final question. Erskine, there are rumors in Washington that President Obama has asked you whether you would be interested in being the Secretary of Treasury. Do you have a comment?

BOWLES: He hasn't asked me to be Secretary of Treasury for sure.

ZAKARIA: If he were to ask you, would you accept?

BOWLES: No, I'm living in North Carolina and that's where I want to live. I'm the happiest in my whole life, Fareed.

ZAKARIA: Gentlemen, pleasure to have you.

SIMPSON: I would just say we -- all we do, Erskine and I, is math. We don't do Power Points. We don't know charts. We do math, but we don't do BS or mush so join us.

ZAKARIA: Maybe what we should try and get -- and do is for the first time in the history of the republic, have co-Secretaries of the Treasury, one Republican and one Democrat. SIMPSON: Boy, if we could get our hands on that script.

BOWLES: I don't want a job, thank you.

ZAKARIA: Thank you very much, gentlemen.

SIMPSON: Thank you.

BOWLES: Thank you.