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CNBC TRANSCRIPT: FIRST ON CNBC: FORMER U.S. SENATOR ALAN SIMPSON (R-WY) SPEAKS ON CNBC’S “CLOSING BELL” TODAY

WHEN: Friday, August 17, 2012

WHERE: CNBC’s “Closing Bell

Following is the unofficial transcript of a FIRST ON CNBC interview with Former U.S. Senator Alan Simpson (R-WY). All references must be sourced to CNBC.

Video: Simpson on US Debt: Who Is Kidding Who?

MARIA BARTIROMO: WELCOME BACK, PAUL RYAN PUT THE DEBT AND DEFICIT BACK IN THE FOREFRONT, BUT IT WAS MY NEXT GUEST WHO REALLY GOT THE CONVERSATION GOING ON AMERICA’S DIRE FISCAL SITUATION. ALAN SIMPSON IS THE FORMER REPUBLICAN SENATOR WHO CO-CHAIRED, ALONG WITH DEMOCRAT ERSKINE BOWLES, A PRESIDENTIAL COMMISSION CHARGED WITH CUTTING THE FEDERAL DEFICIT. THE PRESIDENT NEVER EMBRACED THE PLAN, HOWEVER AND IT WAS LEFT TO TWIST IN THE WIND. ALAN SIMPSON JOINS US NOW, FOR A FIRST ON CNBC INTERVIEW. SENATOR, GOOD TO HAVE YOU ON THE PROGRAM. THANKS FOR JOINING US ON THE PHONE. WHAT DO YOU MAKE OF MITT ROMNEY PICKING PAUL RYAN AS IT RELATES TO AMERICA DOING SOMETHING MEANINGFUL TO BEND THE CURVE ON THIS DEBT?

ALAN SIMPSON: FIRST, IT'S ALWAYS NICE TO BE PART OF YOUR PROGRAM. RYAN WILL ADD A GREAT DEAL TO THE TICKET. ERSKINE AND I FOUND HIM TO BE A GUY WHO DOESN'T NEED TO SIT DOWN WITH A BIG PILE OF PAPERS INFRONT OF HIM WITH SOME STAFFER TELLING HIM OR HER WHERE TO GO. HE BRINGS HIS OWN BRAIN TO THE GAME. HE IS VERY INTELLIGENT, VERY SHARP, HE DOES THINGS TO HIM THAT ARE QUITE REALISTIC. THEY WILL BE DRAMATICALLY DIFFERENT FROM OTHERS, NOBODY LIKES OUR PLAN BECAUSE THEY ALL SAY IT'S A GREAT TEMPLATE AND IT IS A MARVELOUS THING TO LOOK AT, BUT, YOU KNOW THEY'RE TALKING ABOUT REVENUE, OR THEY’RE TALKING ABOUT ENTITLEMENT REFORM. OBVIOUSLY, IF YOU GO AROUND JUST SEARCHING FOR THINGS IN EVERY PLAN THAT ARE GOING TO ENRAGE A CERTAIN PART OF THE PUBLIC WE'LL NEVER GET ANYTHING DONE.

BARTIROMO: WELL FIRST OF ALL, WHY DO YOU THINK AFTER YOU CAME UP WITH A PLAN THAT MOST PEOPLE IN BUSINESS AND ON BOTH SIDES OF THE ISLE FEEL IS INCREDIBLY CREDIBLE, AND MAKES A LOT OF SENSE. WHY DO YOU THINK THE PRESIDENT BLEW OFF YOUR PLAN, NUMBER ONE. AND NUMBER TWO, YOUR PLAN WAS A MIX OF CUTS AND TAX REVENUE. RYAN’S PLAN RELIES ONLY ON CUTS, IS THIS REALISTIC?

SIMPSON: WE DID EVERYTHING. WE DEALT WITH DEFENSE – YOU CAN’T LEAVE DEFENSE OUT. YOU CAN'T LEAVE THE SOLVENCY OF SOCIAL SECURITY OUT. YOU CAN’T LEAVE MEDICAID OUT. YOU CAN’T LEAVE MEDICARE ON AUTOMATIC PILOT, IT WILL SUCK UP EVERYTHING IN THE FEDERAL GOVERNMENT, AND THE REASON THE PRESIDENT DUMPED IT IS EASY. HIS LEFT, HIS PALS, WOULD’VE SAID WELL YOU DIDN'T DO WHAT YOU SAID YOU WERE GOING TO DO ON GUANTANAMO, AND YOU DIDN’T SAY THIS, AND YOUY DIDN’T KEEP YOUR PROMISE HERE OR THERE. AND NOW YOU'RE TALKING ABOUT ENTITLEMENT REFORM AGAINST POOR OLD SENIOR CITIZENS. AND THE RIGHT WOULD HAVE SAID, YOU KNOW, YOU SAY OBAMA VOTED FOR THIS? WELL LET ME TELL YOU, THE ATMOSPHERE ON DECEMBER 1st OF 2010 ISN'T MUCH DIFFERENT FROM NOW. IF HE VOTED FOR IT THERE WOULD HAVE BEEN A UNANIMOUS VOTE AGAINST IT. THAT’S WHERE HE WAS.

MARIA BARTIROMO: BUT DON'T YOU THINK MOST PEOPLE RECOGNIZE THAT AT THIS POINT WE CAN'T AFFORD ALL OF THE PROMISES THAT HAVE BEEN MADE TO FOLKS? YOUR PLAN CAME UP WITH A REALISTIC WAY OF CUTTING THINGS, AT LEAST A LITTLE, LIKE DEFENSE LIKE YOU SAID. SO HOW COME YOUR PLAN WAS BLOWN OFF, WHAT HAVE YOU HEARD FROM THE PRESIDENT?

SIMPSON: WELL THE PRESIDENT, YOU HEARD WHAT HE SAID ABOUT RYAN IN THAT SPEECH AT GEORGE WASHINGTON UNIVERSITY MANY MONTHS AGO AND CHOPPED HIM TO BITS. THAT POISONED THE WATER PRETTY WELL. IT DOESN'T MATTER WHAT YOU'RE GOING TO DO HERE. NOBODY IS GOING TO TALK ABOUT ANYTHING AT ALL TO DO ANYTHING ABOUT THIS BEFORE THIS ELECTION. AND BETWEEN NOVEMBER 6th AND DECEMBER 31st, THERE WILL BE A WHIRLPOOL OF $5 TO $7 TRILLION FLOATING AROUND WHERE IF YOU GO TOO FAR, YOU GO INTO RECESSION. IF YOU DO IT TOO LITTLE, YOU’RE GOING TO GO INTO RECESSION. NOW IF YOU WANT TO JUST PLAY THE GAME OF EMOTION, FEAR, GUILT, AND RACISM, YOU'RE NOT GETTING ANYWHERE. AND IF YOU WANT TO PLAY ONE PARTY, THAT ISN’T GOING TO GO ANYWHERE. AND IF YOU CAN'T STAND THE WORD COMPROMISE, AND YOU CAN'T COMPROMISE AN ISSUE WITHOUT COMPROMISING YOURSELF, YOU'RE IN DEEP TROUBLE AS A LEGISLATOR.

BARTIROMO: WELL, IS IT FAIR TO SAY THAT GIVEN THE FISCAL CLIFF ISSUE AND THE DEBT ISSUE AND UNEMPLOYMENT IS ABOVE EIGHT PERCENT WHERE IT IS, THAT WE WILL SEE A RECESSION IN 2013? ARE YOU EXPECTING THE ECONOMY TO DIP BACK INTO RECESSION NEXT YEAR?

SIMPSON: I WAS THERE IN CONGRESS IN THE SENATE FOR 18 YEARS AND NEVER SAW ANY KIND OF STATISTIC OR ANY KIND OF PROJECTION TURN UP. I WOULD NOT PLAY IN THAT MESS FOR ANYTHING IN THE WORLD. I HAVE NO IDEA. I DO KNOW THIS, WE OWE $16 TRILLION, AND WE BORROW 41 CENTS FOR EVERY BUCK WE SPEND, AND WE BORROW THREE BILLION SIX HUNDRED BUCKS A DAY AND SOMEBODY IS GOOFY, THAT'S ALL I KNOW.

BARTIROMO: WHAT DO YOU MEAN SOMEBODY IS GOOFY? WHAT DO YOU MEAN BY THAT?

SIMPSON: IF YOU’VE GOT THAT KIND OF A HOLE AND YOU'RE DIGGING, QUIT DIGGING. WHO IS KIDDING WHO? MEDICARE? HOW CAN THAT WORK? IT DOESN'T MATTER WHAT YOU CALL IT, IT'S ON AUTOMATIC PILOT, THERE'S NO COST CONTAINMENT IN IT, EXCEPT DOWN THE ROAD. AND WHEN IT GETS THERE, BE LIKE THE DOC FIX. OH YOU’RE GOING TO DO A DOC FIX? YEAH, BECAUSE THE LAW SAID YOU'RE GOING TO CUT DOCTORS SO YOU DO IT AND BOY HERE THEY COME, IT'S THE SAME WITH EVERY BIT OF SOCIETY. INTEREST DEDUCTION, A MILLION BUCKS? WHO IS KIDDING WHO?

BARTIROMO: WELL WHO IS KIDDING WHO? THAT’S RIGHT. LET ME ASK YOU THIS SENATOR, IT'S BEEN REVEALED TODAY THAT PAUL RYAN ACTUALLY SOUGHT STIMULUS MONEY FOR HIS DISTRICT WHILE PUBLICLY DERIDING IT. DOES THAT UNDERCUT HIS CREDIBILITY AS A FISCAL HAWK? WHAT DO YOU THINK?

SIMPSON: I SURELY DON'T THINK SO, THERE'S NOT A PERSON IN CONGRESS THAT HASN'T DONE THAT. I LOVE THE ONE THE OTHER DAY. I THINK IT WAS SENATOR KYLE WHO GOT SOME KIND OF NASCAR OPERATION INTO ARIZONA, AND THEN VOTED AGAINST THE PACKAGE. EVERYBODY DOES THAT. THEY DO IT WITH THE DEBT LIMIT. THEY DO IT WITH THE HIGHWAY BILL. IF THAT'S GOING TO BE THE CAMPAIGN ISSUE DESTROYING HIS INTEGRITY, THEN THE LAUGH IS ON ME.

BARTIROMO: SEEMS LIKE THE LAUGH IS ON ALL OF US, ACTUALLY. FORMER TREASURY SECRETARY PAUL O'NEILL WAS ON "SQUAWK BOX" THIS MORNING. YOU KNOW, THE TEAM ASKS HIM WHAT HE WOULD DO ABOUT THE DEBT. LISTEN TO WHAT HE SAID. I WANT TO GET YOUR REACTION, SENATOR. LISTEN TO THIS.

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(TAPE FROM PAUL O’NEILL INTERVIEW)

JOE KERNEN: WHAT ABOUT SIMPSON-BOWLES OR GANG OF SIX? WHAT ABOUT EITHER ONE OF THOSE PLANS?

PAUL O’NEILL: WELL, THEY WERE BETTER THAN WHAT'S ON THE TABLE RIGHT NOW, BUT THEY STILL DIDN'T GET WHERE WE NEED TO GET. CUT TO THE CHASE, THAT I WOULD BE OUT IN THE STREETS FOR A CANDIDATE WHO SAID WE'RE GOING TO CREATE A SENSIBLE, PROGRESSIVE, REFUNDABLE, VALUE-ADDED TAX OR SOME VARIANT OF THAT. AND IN THE PROCESS, WE’RE GOING TO GET RID OF CORPORATE TAXES, THINK ABOUT THAT. WE’RE GOING TO GET RID OF THE INDIVIDUAL INCOME TAX SYSTEM, WE’RE GOING TO GET RID OF PAYROLL TAXES. SO WE GET RID OF THE DISINCENTIVES TO HIRING PEOPLE, BY GETTING RID OF THE PAYROLL TAXES.

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BARTIROMO: WOW, PAUL O'NEILL WANTS TO GET RID OF A LOT OF TAXES, WANTS A VAT TAX. WHAT DO YOU THINK, SENATOR?

SIMPSON: WELL I THINK THERE IS A LOT OF MERIT ON THAT. THE PROBLEM WAS WE DIDN'T DEAL WITH IT BECAUSE THE U.S. SENATE, WHILE WE WERE JUST GETTING STARTED, PUT IN THE SENSE THAT SENATE RESOLUTION, I DON'T REMEMBER WHO THE CO-SPONSORS WERE, A LOT OF REPUBLICANS, SAYING THAT IT'S ESSENTIALLY THE SENATE THAT THERE NEVER BE A VALUE-ADDED TAX, THE VAT TAX. AND THE VOTE WAS 84 OR SOMETHING LIKE THAT TO 14. IF YOU WANT TO DO A VAT TAX, THAT'S FINE, BUT YOU’VE GOT TO GET RID OF THE PRESENT SYSTEM. IT’S WHAT TERRIFIES PEOPLE. IS WHEN YOU TALK VAT TAX ON TOP OF THIS RUPTURED DUCT OF A SYSTEM WE HAVE NOW. THAT WILL NEVER WORK. BUT LET ME TELL YOU, THAT'S WHAT PAUL SAYS IS ABSOLUTELY TRUE AS LONG AS IT'S A SINGULAR THING AND THE REST OF IT IS OUT THE WINDOW.

BARTIROMO: WELL IN TERMS OF TAX REFORM, SENATOR, WE HAVE BEEN TALKING ABOUT THIS A LONG TIME, THAT ALL THESE LOOP HOLES ARE REALLY WHAT’S MUDDYING THE WATERS. HOW COME NOTHING HAS BEEN DONE ABOUT IT IN SO MANY YEARS? IF WE WANT TO DO A FLAT, CORPORATE TAX OR 25% CORPORATE TAX, TO LOWER THE RATE BUT BROADEN THE BASE, HOW COME WE HAVEN’T DONE IT YET? WHAT'S THE PROBLEM?

SIMPSON: WELL, IT’S VERY SIMPLE. ONCE YOU GET THAT STUFF INTO THE TAX CODE, THERE'S NEVER ANY OVERSIGHT HEARING ON THAT, AND YOU HIRE THE BEST PEOPLE AND PAY THEM THE MOST MONEY TO GO GET THAT INTO THE TAX CODE, AND THOSE TAX EXPENDITURES AND THERE ARE ONE TRILLION, ONE HUNDRED BILLION BUCKS WORTH OF THEM, AND WE SAID GET RID OF THEM ALL. WELL, THERE'S 180 OF THEM, YOU TALK ABOUT PAIN, AND BOY THERE IS STUFF IN THERE THAT TWANGS MY HEART, I’LL TELL YOU THAT. AND WE SAID, YOU DO THAT AND THEN WE'LL GIVE YOU SOMETHING YOU'VE REALLY BEEN LOOKING FOR. ZERO TO 70 THOUSAND BUCKS, YOU PAY PERCENT TAX. 70 THOUSAND TO 210, YOU PAY 14. ANYTHING OVER THAT, YOU PAY 23 AND THEN GO TO A CORPORATE RATE OF 26, THEN 36, AND THEN GO TO A TERRITORIAL SYSTEM. NOW THERE IT IS, AND WE PUT IT IN THERE. IT'S VERY EASY TO LOOK AT, BUT LET ME TELL YOU, ONLY ABOUT 10% OF THE AMERICAN PEOPLE USE THOSE TAX EXPENDITURES AND THEY'RE THE WEALTHIEST PEOPLE, OR THE BEST WELL OFF, BECAUSE THEY CAN HIRE THE BEST GUYS TO GET THE BEST DEAL KNOWING ONCE YOU GET IT INTO THE SOCIAL ENGINEERING TAX CODE IT WOULD NEVER COME OUT. AND REMEMBER, ONLY 24%, 27% OF THE PEOPLE ITEMIZE. THE LITTLE GUY HAS NOT EVEN HEARD OF THIS STUFF. WHO IS KIDDING WHO?

BARTIROMO: WELL LOOK, ANYBODY IS GOING TO TRY TO HAVE THE BEST POSSIBLE SCENARIO, AND IF IT'S ALL LEGAL, YOU’RE GOING TO TRY TO ENSURE THAT YOU'RE GETTING THE BEST DEAL WHETHER YOU'RE BUSINESS, OR CORPORATE, OR AN INDIVIDUAL. BUT LET ME ASK YOU THIS, SHIFTING GEARS SLIGHTLY HERE, YOU'RE NO DOUBT AWARE OF THIS WHOLE DUST UP OVER MITT ROMNEY'S TAX RETURNS, RIGHT? ROMNEY SAYING NOW HE'S ALWAYS PAID AT LEAST 13%. LEAVING ASIDE THE WHOLE POLITICAL CAT FIGHT ON RELEASING THE RETURNS, WHICH YOU KNOW, IS DEBATABLE WHETHER THAT IS ACTUALLY IMPORTANT. IS THE 13% RATE A GOOD RALLYING POINT FOR CLOSING SOME LOOPHOLES, DOING TAX REFORM TO ACTUALLY SIMPLIFY THE SYSTEM?

SIMPSON: SURE, DON'T FORGET THE GUYS THAT HAVE GOT THE MOST BUCKS GET THE MOST TAX EXPENDITURES. IT’S VERY SIMPLE. SO YOU CAN PICK A LEVEL, AND YOU CAN GO TO, LET'S JUST SAY YOU SHOULD JUST CONFISCATE ALL OF THE WEALTH AND ANYBODY WHO MAKES OVER A MILLION BUCKS A YEAR, LET'S JUST TAKE AWAY EVERY YACHT AND EVERY OVERSEAS THING, EVERY LITTLE BIT. THE EXTRA HOME, THE WHOLE WORKS, THAT MONEY WOULD RUN THE COUNTRY FOR NINE MONTHS. WHO IS KIDDING WHO? OUR DEFICIT IS ONE TRILLION, ONE OR TWO OR THREE WE'RE NOT THROUGH YET. SURELY, THERE MUST BE SOME PEOPLE WITH THEIR HEADS SCREWED ON RIGHT AND THEIR BRAIN FUNCTIONING TO KNOW THAT WHAT WE'RE ON IS TOTALLY UNSUSTAINABLE AND TOTALLY PREDICTABLE. I MEAN, WHO IS FOOLING WHO?

BARTIROMO: YEAH, MEANWHILE, CONGRESS GOES ON A FIVE-WEEK VACATION, THEY’RE NOT DEALING WITH THE FISCAL CLIFF. IS IT GOING TO BE ENOUGH TIME TO DEAL WITH THIS STUFF, WHEN AFTER THE ELECTION, WE’VE GOT ONE MONTH AND A HALF BEFORE THE YEAR ENDS OR WHAT?

SIMPSON: WELL, WE WILL FIND OUT. BECAUSE THEY WILL BE MUCKING AROUND IN IT. MY HUNCH IS THE GUYS WITHOUT THE GUTS, WHO ARE NOT GOING TO DO ANYTHING, AND GIVE THIS BS AND MUSH ALL DAY LONG, ARE GOING TO GET CAUGHT NEXT YEAR, THEY’RE GOING TO GO UP TO THEM AFTER THE MARKETS CALL THE SHOTS. THEY DON'T CARE ABOUT DEMOCRATS AND REPUBLICANS OR PRESIDENTS, THEY CARE ABOUT THEIR MONEY. AND THEY'RE GOING TO SAY WE WANT MORE MONEY FOR OUR MONEY. AND AT THAT POINT INFLATION WILL KICK IN, AND INTEREST RATES GO UP, AND THE LITTLE GUY IS THE GUY WHO GETS STUNG. AND THOSE GUYS ARE GOING TO SAY, YOU COULD HAVE SAVED ME AND YOU DIDN'T, AND I'M GOING TO GET YOU ON THE NEXT GO AROUND. THAT’S THE ONLY THING I SEE. THAT’S CALLED DEMOCRACY. RAW DEMOCRACY.

BARTIROMO: ALRIGHT WE WILL LEAVE IT THERE. SENATOR, ALWAYS NICE TO HAVE YOU ON THE PROGRAM. THANKS SO MUCH.

SIMPSON: YOU BET.

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