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Ted Kauffman on the Fiscal Fist Fight

The battle brewing within the Republican Party is being closely watched by the markets and the Democrats alike. The budget tug of war between the Tea Party and the GOP getting so heated that many of my DC sources and corporate officials are worried that Paul Ryan's 2012 budget may not be tough enough for the ultra-conservatives in the GOP caucus.

I decided to get the perspective of former Delaware Senator and Congressional Oversight Panel Chairman Ted Kaufman on this fiscal fight.

LL: We're facing a fiscal trifecta: 2011 budget, 2012 budget and the debt ceiling. In the center of this triangle is the Tea Party. Will the GOP be able compromise within their own party to tackle these issues?

Kaufman: Yes, those are big. I think the Congress is going to start getting into some very serious issues. Its is bizarre to have a 1.4 trillion dollar deficit and we are arguing if we are going to have a 20 billion dollar cut or a 10 billion dollar cut. And we are cutting domestic discretionary which is like 630 billion dollars.

We could eliminate all of the domestic discretionary and we would end up with a 700 billion dollar deficit. So when you start talking about cutting domestic discretionary spending you need to do more to cut the deficit. You have to do something about taxes as well as entitlements. We did it before the 1990's. We know what it takes to do it and we'll get there.

LL: Do you think the Tea Party will be happy with Rep. Paul Ryan's budget?

Kaufman: Passing CR's is not going to do it. At some point you will need to have people sit down in a room and get to business. Bush Forty-One put in pay go but broke his pledge on taxes. President Clinton came in 1994 and passed the largest tax increase in history and by the end of the 1990's we had a surplus. And then in 2000 Congress passed the Bush Tax Cut because one of the arguments was its bettering American's pockets than the government and there were surpluses as far as the eye could see.

This is not rocket science. We have done this before. And the only way you will get deficit reduction is if you do something about taxes and expenses. Meaning you have to get into what Willie Sutton the bank robber said: Why do you rob banks? And his reply was because that's where the money is. The money is in entitlements, in taxes. To a lesser extent the money is in defense and last but not least it is in discretionary. And what we are doing in this country is debating on 10 percent of discretionary monies which is the smallest chunk in the budget.

LL: While everyone agrees something needs to be done do you think Congress has the political will to get it done?

Kaufman: I think because Congress and even businesses for that matter are short term oriented. There is a saying, "How can I be worried about draining the swamp when I'm up to my eyeballs in alligators?" and most people in the United States are like that.The deficit problem is becoming an incredible short term problem. We can not sustain our debt at this percentage of our domestic product. We have to do something now.

LL: Deficit Commission came up a lot of deficit cutting solutions.

Kaufman: The deficit commission is definitely a piece of the puzzle. I think it was good because is shows that people understand we need to do something. Congress needs to address both revenues and expenses. It was a great first step. The fact they got 11 votes is really quite extraordinary. And they had Republicans, Democrats, Liberals and Conservatives on that panel.

People are ready to tackle this. Frankly the only people who don't want to deal on the tax issue are the Republicans. Their argument is the Democrats don't want to deal on entitlements. The Democrats will deal on entitlements. I guarantee that. But you don't see the Democrats writing letters to the committee saying you can't do anything about entitlements. Like you have the Tea Party writing to the committee on tax cuts. We somehow have to get beyond this tea party fight on "we can only cut taxes." We have to get beyond that and once we do, we have to sit down around the table and get to work.

LL: The President right now has been letting Congress dual out the budget, debt, deficit fight. Will we see the President take a more public role in this?

Kaufman: Right now Congress is made up of people who have spent a lot of time and work on this project. They have a lot of ideas and there needs to be the will to implement. I think the President will step in once both sides are in the ball park. I don't know but I believe there are a lot of things going on behind the scenes just like we had during the lame duck.

After the lame duck it turns out the President was very involved in what went on. I'm sure the President and Vice President are very involved now. Its a funny thing about leadership, every university in this country has a leadership center. There is no single school on followership and what we need on this issue is followership. We need some people to come up with ideas, implement and follow through.

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."

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