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. treasuries?
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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