Alison Fraser, Director of Thomas A. Roe Institute of Economic Policy Studies, joins the Boss Business Brief to discuss the impact the house change will have on policy decisions. She believes the coming tax hike is the #1 agenda item for lawmakers. Listen in to her thoughts on what agenda items will be first to get attention and the direction the legislature will head.

Who is Alison Fraser?

As Director of the Roe Institute for Economic Policy Studies, Alison Acosta Fraser oversees Heritage Foundation research on a wide range of domestic economic issues including federal spending, taxes, energy and environment, retirement savings and regulation.

One of the Roe Institute's priorities is reform of the federal retirement programs – Medicaid, Medicare and Social Security. Under Fraser's leadership, Heritage research has helped define and communicate the long-term fiscal threats from spending and taxes and identify solutions and proposals for reforms.

Fraser is a member of the Fiscal Wake-Up Tour, designed to educate Americans about the nation's true long-term financial condition and large and growing fiscal imbalance and to encourage Americans to demand action. The tour conducts of town hall forums, business roundtables and editorial board briefings across the country. By uniting with analysts from across the political spectrum on the Fiscal Wake-Up Tour, Heritage hopes to encourage the spirit of bipartisan honesty and discussion that will be necessary to preserve the strength of the American economy for posterity. Unless Congress fundamentally recasts Medicaid, Medicare and Social Security, Americans within two generations will be saddled with European levels of taxation and economic stagnation.

Sponsored by the Concord Coalition, the tour features experts from Heritage, the Brookings Institution and U.S. Comptroller General David Walker. The tour of budget and fiscal experts has visited nearly two dozen cities in since its inception in the fall of 2005. Fraser is one of those touring fiscal experts and she carried that same message direct to journalists in 2006, highlighting two National Press Foundation budget seminars for West Coast reporters.

Following Hurricane Katrina, she took the lead in preparing Heritage's comprehensive special reports on disaster recovery. These reports were the first and only such policy works published in the weeks following the disaster, making Heritage a leader in solutions on Capitol Hill in the media.
Fraser has appeared on all CNBC, CNN, FOX and MSNBC news channels, Bloomberg, PBS and the BBC. Her commentaries on fiscal issues have appeared in the Atlanta Journal-Constitution, the Philadelphia Enquirer, National Review Online, Washington Times and USA Today.

Before joining Heritage in 2003, Fraser was Deputy Director of the Oklahoma Office of State Finance where she directed economic research and developed tax and fiscal policy recommendations for then-Gov. Frank Keating. Prior to that, she was a budget manager for Orange County, Calif., where she developed recommendations for bankruptcy recovery.

Transcript:

Siegel: Folks, welcome in, good to have you with us. Alison Fraser is with us from the Thomas A. Rowe Institute for Economic Policy Studies at the Heritage Foundation. This is all about the question of the agenda of the policy direction that will be taken now that there has been a change in midterm elections with respect to the republican party gaining considerable amount of clout, to say the least, and what the impact will be on the small business community, which is what this program is all about here at the BOSS Business Brief. My name is Mike Siegel. Ms.Fraser thanks for being with us. How are you today?

Frasier: My pleasure. I am great. How are you, Mike?

Siegel: Very well. This change is not complete, because obviously the senate is still democratic, which means we could have what we call gridlock, that the republicans will stop the Obama agenda in the House but will not be able to get anything done on the other side to speak of. So, what are we looking for here in terms of the next two years?

Frasier: Well, it is very interesting to listen to Speaker Elect, I guess we are calling him Speaker Elect Boehner on the House side and still minority leader Mitch McConnel, who was just speaking at Heritage this morning, as well as the president, and see them sort of in how they are thinking through where they are going to go. I think both Boehner and McConnell have both indicated that this was about listening to the people of America, about listening to businesses, and about creating jobs. I think they are certainly prepared to work with the president on the right kinds of issues. So, what does that mean? That means not preventing a massive tax hike when the Bush tax relief is due to expire at the end of this year. I think that is one of the first items that we are going to see up. You even heard the president making reference to that in his press conference yesterday, Wednesday, about negotiating on the tax package. This has to be, in my mind, one of the very first things that gets resolved. We cannot afford to have a massive tax hike at any time but especially when we have a recovery that is wobbly at best. So, we need to have certainty as to our tax policy on small businesses, on employers, and on investors, because all of those kinds of activities are the things that grow jobs. I think that is one of the first things that we will see right out of the shoot. I think then that the republicans in the House will turn very, very, quickly to looking at the spending agenda. I believe that they are going to look at ways to reduce the massive runaway growth in federal spending, and this is, as you know, very important, to get our spending in line, because we simply cannot go on the borrowing path, racking up huge debt and deficits as has happened in the last two years.

Siegel: Well, one of the problems, Ms.Fraser, that I see is that in 1994 that election took place and republicans did very well. They got a lot of things done, no question about that, but on the other hand over time they kind of folded in to the program in Washington D.C., which is don't rock the boat so to speak. Now, we have got now I think about a 9 on the Richter scale of an earthquake here with respect to politics at least, given what has happened with the tea party and the very intense standards that have been set about fiscal responsibility, about free markets, and about constitutional compliance, which are the three mantras of that series of groups, the grassroots movement, but I am not sure how much impact, for example Rand Paul in the Senate is still the minority party, and some of these others who have been elected as so-called tea party-type candidates, how much impact will they have in trying to change the culture of D.C. Because after all, George Bush had huge deficits, bigger than anyone since Lyndon Johnson, who had the problems with guns and butter with Vietnam and social programs, but he had big deficits. So, he wasn't a conservative fiscal/conservative spender, so how are we going to change that culture so quickly?

Frasier: Well, you know, I think that what you hear, certainly Boehner and McConnell are saying, is that it is not about republicans, it is about listening to the American people. I think that this is a totally different environment than it was back in 1994 and I think that they are being very, very careful to think about the things that got them booted out and to be listening to the American people to keep those three touch stones, because I think that is absolutely right on the top of the agenda. You know, you are right, there is different control in each of the chambers, the Houses and the Senate, and that is going to be really a question of leadership and how they decide to work together or if they are going to be doing things that are going to be viewed and portrayed as obstructionist. So, I think they do need to be careful, certainly the make up of the Senate will change significantly as they get closer to having in the high 40s votes rather than 40-41 votes. That is a significant change, because it means that the democratic leadership will need to work with the republicans to get things done. I think ultimately, if we remember some of the good things that Bill Clinton and the republicans did together like reforming welfare, like reigning in spending growth. They did that by working together and there is a positive lesson that can be learned on this, and I think the change in leadership, you know, they are thinking a lot about that and how can they accomplish that with the goals that they feel the electorates sent them.

Siegel: The only thing I would say, Ms.Fraser, is that Bill Clinton refused the welfare reform package twice, signed it the third time. The other thing I would mention is that there was an impound of money and he blamed the republicans for the gridlock in government and the monies not being released for those 13 large budgets that are produced by the congress; they didn't put those together. So, he played politics, too. There wasn't friendly relations between Newt Gingritch and Bill Clinton to say the least.

Frasier: That is very true. They had some very, very ugly early years there, but the end result is that they did pass very important tax relief and I believe it was 1997 when they lowered the capital gains tax rate, absolutely important to our free markets, to our small businesses, to our investors, and to growing jobs. They did reign in spending and they did pass ultimately welfare reform. So, there were a lot of mistakes that happened along the way, but there were some also good results. You know, so when did the problems happen in Washington for the GOP? Well, did it happen in the late Clinton era? Did it happen at the beginning of the Bush era? You know, I don't really know that answer, but what I do believe is that republicans have had somewhat of a wake up call. We are certainly at the Heritage Foundation really doing everything we can to make sure that they focus on what we believe is important. Freezing and cutting federal spending, repealing Obama Care, stopping the Obama tax hikes, maintaining a strong defense, and taking back control of our government, looking at those constitutional issues that you mentioned. We released a comprehensive check list of things we believe the new congress needs to work on just yesterday.

Siegel: We only have two minutes left and I know your time is short, so I want to kind of pick your brain here before you leave for another interview, but 2 or 3 points that would help small business, which is the driving engine of our economy, what should they do about small business?

Frasier: Number one, they need to stop the tax hikes that are looming right now from happening. We need to keep the current tax relief that was passed in 2001 and 2003 on the books. I would argue we need to make that permanent. Most important are the top rates for income taxes. Also important are those tax rates on dividends and investment. Keep dividends and interest income, keep all of those very low including capital gains. Next thing to do is to reform the corporate income tax rate, one of the highest rates in the industrialized world, that is keeping us from being competitive. That is a little bit more out there, but I think it is a very important reform to make. They have got to cut spending. Because while spending continues to runaway as it is, it is going to threaten higher interest rates and higher taxes in order to close the deficit. The problem is spending and the new congress must get to work immediately on that, because it threatens so many other things including small businesses.

Siegel: Not only that. When you have big deficits that means the government has to borrow money, so it takes money out of the private sector and that leaves less money for the private sector to borrow itself and the government basically absconds with the money that would have been in the private sector.

Frasier: That is exactly right, and that is why the stimulus was an abject failure. As part of cutting spending, one of the first and easiest things they need to do is to cancel the unspent stimulus package dollars. I think they need to take a serious look also, and this is especially important to small businesses, at repealing Obama Care. If they cannot repeal it, because the president after all would not sign legislation like that, they need to look at lots of ways to deconstruct it. There are many, many tools that they are looking at in order to do that.

Siegel: Well, I have said it on this program in the last couple of segments, I would get the House to pass a repeal, try to get the Senate to do it with a few democrats realizing that if they don't go along with it they might lose their seat in two years when they are running for reelection, those 35 or 37 members in the Senate, you get enough democrats to support it, send it to the president, force him to veto it, and then make him a one term president because he did that.

Frasier: Well, I am not going to comment on elections. That is well beyond what I do. However, I absolutely think it is imperative that they work together to overturn this hideous piece of legislation.

Siegel: I think it should be sent to him and let him do what he wants with it. That would be my point. Anyway, wonderful to talk to you today. I know you have to leave us. Allison Fraser is the director of the Rowe Institute for Economic Policy Studies at the Heritage Foundation. Great to have you on the program, Alison. Thanks for being with us.

Frasier: Thank you very much. I really appreciate.

Siegel: Have e great day, too. That does it. My name is Mike Siegel, here at the BOSS Business Brief.