Sen. Barack Obama, D-Ill., answers a question during the first Democratic presidential primary debate of the 2008 election hosted by South Carolina State University in Orangeburg, S.C., Thursday, April 26, 2007. (AP Photo/J. Scott Applewhite)
J. Scott Applewhite
Sen. Barack Obama, D-Ill., answers a question during the first Democratic presidential primary debate of the 2008 election hosted by South Carolina State University in Orangeburg, S.C., Thursday, April 26, 2007. (AP Photo/J. Scott Applewhite)


WHERE: CNBC’s "Investing in America: A CNBC Town Hall Event with President Obama"

Following is the unofficial transcript of a CNBC EXCLUSIVE town hall with President Barack Obama today, Monday, September 20th at 12PM ET. Hosted by CNBC’s Chief Washington Correspondent John Harwood, President Obama discusses the economy and answers your questions.

All references must be sourced to CNBC's "Investing in America: A CNBC Town Hall Event with President Obama."


Live from the nation's capital, Investing in America, a CNBC Town Hall Event with President Obama.


JOHN HARWOOD: Good afternoon, from Washington, D.C. I'm John Harwood. It's noon on the East Coast, the Dow-Jones average stands around 10,700 points, 15 million Americans are out of work, and we're spending the next hour talking about how to fix the troubled American economy.

Please welcome the President of the United States.

PRESIDENT OBAMA: Thank you, everybody.


Thank you, thank you. Thank you very much.


Thank you, thank you. Thank you very much. Thank you, guys. Thank you.

JOHN HARWOOD: Mr. President, thanks for being here.

PRESIDENT OBAMA: That was quite a lead-in, by the way.

JOHN HARWOOD: Wasn't it? We have done a cross section of people from around the country: CEOs, union workers, teachers and students.

PRESIDENT OBAMA: A very loving group, I have to say.

JOHN HARWOOD: Every one of them has a stake in the American dream, and they got some good news over the weekend. The National Bureau of Economic Research, as you know, has said that the recession ended in June 2009, a few months after you took office, and yet here is the problem you find yourself with. Many leaders in business think you and your policies are hostile to them, and many ordinary Americans think your policies are helping Wall Street and big business. How did that happen?

PRESIDENT OBAMA: Well, first of all, even though the economists may say that the recession officially ended last year, obviously for the millions of people who are still out of work, people who have seen their home values decline, people who are struggling to pay the bills day to day, it's still very real for them. And I think we have to go back to what was happening when I was first sworn in as the 44th President of the United States. We went through the worst recession since the Great Depression, nothing's come close.

In fact, if you look at the consequences of the recession in the '80s, the recession in the '90s, and the recession in 2001, you combine all three of those, it still wasn't as bad as this recession that we went through. So the month that I was sworn in, we lost 750,000 jobs; the month after that, 600,000; the month after that, 600,000. This was before any of our plans had any chance to take effect. The financial markets were on the verge of meltdown and the economy was contracting about 6 percent, by far the largest contraction we've seen since the '30s. You combine all that, and what that meant was we had to take some steps very quickly just to make sure that the financial system was not collapsing, that people could get auto loans, could get student loans, that businesses large and small could get some financing to keep their doors open and to keep their payrolls on track. And in addition, we had to make sure that we didn't slip into a great depression.

Now we've done that. Those programs that we put in place worked. So now you've got a financial system that is stable. It's still not as strong as it was back in 2006, 2007, but it has stabilized. You've got now eight consecutive months of private sector job growth. Businesses are able to borrow again, they are investing again, making profits again. That's all the good news. The challenge was the hole was so deep, a lot of people out there are still hurting and probably a lot of folks here in the audience are still having a tough time.


So the question then becomes what can we now put in place to make sure that the trend lines continue in a positive direction as opposed to going back in the negative direction.

Last week we got some good news. After fighting for several months we finally got a small business tax cut bill in place so that we're eliminating capital gains for small businesses, and startups, making sure they can get loans; because small businesses are the ones that have been hardest hit in terms of not being able to get capital. We have put forward proposals, for example, to accelerate investment here in the United States instead of overseas in research and development and plants and equipment that can put people back to work.

So there are a lot of plans in place that can make improvement. But it's slow and steady as opposed to the kind of quick fix that I think a lot of people would like to see. But that the thing I've got to remind people of is the fact that it took us a decade to get in the problem that we're in right now.

The Wall Street Journal came out with a report based on census information that the years from 2001 to 2009, the middle class actually saw their wages decline by 5 percent. This is before the financial crisis. So these have been some long-term trends of the middle class having a lot of problems out there. What we've got to do now is reverse it. But something that took ten years to create, you know, is going to take a little more time to solve.

JOHN HARWOOD: Now, I've heard you give that turnaround message you just gave many times.


JOHN HARWOOD: Let me ask about your assessment of the challenge and the problem in communicating that to the American people. We all identify with people like ourselves.


JOHN HARWOOD: Do you think it's possible that because of your style or the unusual things about your background, the racial heritage, where you grew up, Ivy League education, that the fearful voters who are about to go to the polls in November think, yes, I hear him, he may get it intellectually, but he isn't feeling what I'm feeling.

PRESIDENT OBAMA: Well, here is my suspicion. I think when the unemployment rate is so high and people are having a tough time, it doesn't matter if I was green, it doesn't matter --


-- if I was purple, I think people would still be frustrated. And understandably so. Look, I think I can describe what's happening to the economy overall, but if you're out of work right now, the only thing you're going to be hearing is, When do I get a job?


If you're about to lose your home, all you're thinking about is when can I get my loan. So I don't think those are the issues.

By the way, I think most people understand because I spent two years running around the country talking about my life and while I was running for President, they understand that I was a kid of a single mom and I got my education through scholarships, and I lived in a small apartment with my grandparents; and they were helped by the GI Bill and FHA in terms of being able to climb into the middle class.

The whole reason I ran was because my life is a testimony to the American dream. And everything that we've been doing since I came into office is designed to make sure that that American dream continues for future generations. I think the challenge right now is that I'm thinking about the next generation, and there are a lot of folks out there who are thinking about the next election. If I were making decisions based on November, then I wouldn't have done some of the things I did, because I knew they weren't popular, but they were the right thing to do.


JOHN HARWOOD: Let's go to the real jury and they will decide whether they were the right things to do, with audience question right here.

AUDIENCE MEMBER: Thank you very much. And quite frankly, good afternoon, President Obama. I'm deeply honored to be in this forum and so grateful for CNBC for making the forum available so you can speak to American citizens just like myself. I'm a chief financial officer for a veterans service organization and that's here in Washington. I'm also a mother, I'm a wife, I'm an American veteran, and I'm one of your middle-class Americans.

Quite frankly, I'm exhausted. Exhausted of defending you, defending your administration, defending the man for change I voted for, and deeply disappointed with where we are right now. I've been told that I voted for a man who said he was going to change things in a meaningful way for the middle class. I'm one of those people and I'm waiting, sir, I'm waiting. I don't feel it yet. While I thought it wouldn't be a great measure, I would feel it in some small measure. I have two children in private school, and the financial recession has taken an enormous toll on my family. My husband and I joked that we thought we were well beyond the hot dogs and beans era of our lives. And quite frankly, it's starting to knock on our door and ring through that that might be where we're headed.

And quite frankly, Mr. President, I need you to answer honestly, is this my new reality?

PRESIDENT OBAMA: First of all, I think you describe exactly what is the bedrock of America. A veteran who is working for veterans, somebody who is a CFO, and I am sure knows how to manage their money, has made good decisions. I'm not saying once in a while you don't want to get a new pair of shoes.


So the life you describe, one of responsibility, looking after your family, contributing back to your community, that's what we want to reward.

Now, as I said before, times are tough for everybody right now. So I understand your frustration. But I would just -- when you say there are things that you would like to see happen or you're hoping to see happen that haven't happened yet, let me give you a couple of examples. I, right now, have two children -- sounds like you've got kids as well.


PRESIDENT OBAMA: Two girls. You're going to be thinking about college soon.


PRESIDENT OBAMA: Part of what we did over the last year and a half is make sure that billions of dollars that were going to subsidize financial service industries under the federal student loan programs are now going to be going directly to students so that millions more students are going to be able to get loans and grants and similar scholarships to go to college.

Now that's going to have an impact on a whole bunch of kids out there, including maybe yours.

If you have a credit card, which I assume you do.


PRESIDENT OBAMA: See, now you're showing how responsible you are. But if you have a mortgage or a credit card or any kind of financial dealings out there, as a consequence of the changes we made, the credit card companies can't increase your interest rate without notifying you and they can't increase your interest rate on your previous balances. In terms of getting a mortgage, you can't have a mortgage broker steer you to a mortgage that ultimately is going to cost you more money because maybe they're getting a financial incentive to do so. Those things are now against the law.

So there are a whole host of protections in there.

You are a parent who has children. If your child, heaven forbid, had a pre-existing condition, before I took office you were out of luck in terms of being able to get health insurance for that child.

Now insurance companies have to give you health insurance for that child. And by the way, that health insurance company can't drop you if you get sick.

So there are a whole host of things that we've put in place that do make your life better. But, the bottom line is, if your 401(k) is still down substantially from where it was a while back, if you haven't seen a raise in a long time, if your home value went down, depending on where you live, all those things still make you feel like, gosh, I'm treading water.

And so my goal here is not to try to convince you that everything's where it needs to be. It's not. That's why I ran for president. But what I am saying is that we're moving in the right direction. And if we are able to keep our eye on our long-term goal, which is making sure that every family out there, if they're middle class, that they can, you know, pay their bills, have the security of health insurance, retire with dignity and respect, send their kids to college, if they're not yet in the middle class, but there are ladders there to get into the middle class if people work hard, get an education and apply their selves, that's our goal, that's the America we believe in, and I believe we are on track to do that.

JOHN HARWOOD: Mr. President, let me go at this from a different direction, from a direction of psychology, business confidence. You just mentioned things that credit card companies and health insurance companies used to do.

There are some people in business who think, to use a phrase that you used recently about your critics, was that you talk about them like dogs. Let's listen to Ken Liddell (sp), a billionaire.

(video) ... what should they stop doing? I think one thing to do is not make people in business feel like we're villains or criminal, not doing something wrong, any time we can create a job ... we're better served. There's got to be a need to understand that America, our democracy, is based on a strong, vibrant private economy.

JOHN HARWOOD: Are you vilifying business?

PRESIDENT OBAMA: Absolutely not.

Look at the track record here. When I came into office, businesses, some of the same commentators who were on CNBC, were crying: Do something! As a consequence of reckless decisions that were being made, the economy was on the verge of collapse. Those same businesses now are profitable, the financial markets are stabilized. We haven't increased taxes on businesses. Actually, we have instituted about 50 tax cuts. Many of them going to businesses large and small. And so the only thing that we've said is that we've got to make sure that we're not doing some of the same things that we were doing in the past that got us into this mess in the first place.

So when I mention, for example, changes in the financial services industry, it is very important for us not to find ourselves in a position in which banks get too big to fail, and if they make bad decisions, taxpayers have to bail them out. Or we let the entire economy collapse. That's not a choice that I want any future president to have to make. And we instituted those changes.

And the fact is, when FDR put in place deposit insurance in banks, banks said at the time, "This is going to destroy capitalism." When Medicare was instituted, there were a whole bunch of people who said, "This is socialized medicine."

Now we take it for granted. But there's oftentimes this response that somehow these modest reforms that make the free market work better for consumers and for workers, as well as for businesses, on the front end are resistant.

JOHN HARWOOD: Let me take it to a lot beyond policy and goes to what you value and don't value.

I think some of those in business may think that deep down you think that working for profit is morally inferior to the kind of work you used to do as a community organizer. Is that how you feel?

PRESIDENT OBAMA: No, it isn't. Look, in every speech, every interview I've made, I've constantly said what sets America apart, what has made us successful over the long-term is I've got the most dynamic-free market economy in the world. And that has to be preserved. We benefit from entrepreneurs and innovators who are going out there and creating jobs, creating businesses. Government can't create the majority of jobs. And, in fact, we want to get out of the way of folks who have got a great idea and run with it.

JOHN HARWOOD: Maybe we have one of those people right here.

AUDIENCE MEMBER: Good morning. Mr. President. My name is Ted Brassfield. I'm 30 years old, I recently graduated law school. I went back to law school to pursue a life of public service, like you have. And what I found is that I simply -- there aren't jobs out there right now. I took advantage of the loans that you were just speaking about, but I can't make the interest payments on those loans today, let alone think about getting a mortgage, having a family, having even a marriage -- all the expenses.

PRESIDENT OBAMA: I'm not going to comment on that.


Let me just say whatever the expense is, it's worth it. I want that on record.


AUDIENCE MEMBER: Like a lot of people in my generation, I was really inspired by you and by your campaign and message that you brought, and that inspiration is dying away. It feels like the American dream is not attainable to a lot of us, and what I'm really hoping to hear from you is several concrete steps that you're going to take moving forward that will be able to reignite my generation, reignite the youth who are beset by student loans. I really want to know, is the American dream dead for me?

PRESIDENT OBAMA: Absolutely not. Look, we still have the best universities in the world. We've got the most dynamic private sector in the world. We've got the most productive workers in the world. There is not a country in the world that would not want to change places with us. For all the problems that we've got, as tough as things are right now, we are still the country that billions of people around the world look to and aspire to. I want everybody to always remember that.

Now, as I said before, what we saw happening during 2001 to the time I took office was wages actually declining for middle-class families, people treading water, young people having more trouble getting their foot in the door in terms of businesses, and so we are now having to go back to the fundamentals that made America great. And that means we've got to improve our education system, that means that we have to make sure that our markets are working in a way that is good for a broad base of people and not just a narrow base of people.

It means that let's say you use the example of student loans. One of the things that I just mentioned was that we put billions of dollars more into student loans -- this was paid for now, we took this out of financial service industries that were getting essentially unjustified subsidies. They are now going to students so your debt would be lower. By the way, part of that law also capped your debt at 10 percent of your income so you knew that you could actually afford to take out this debt and pay for it even if you had a modest salary.

So we are taking these steps. The most important thing we can do right now is grow our economy. That's the single most important thing we can do. Some of the measures we put forward and I'm fighting for are doing exactly that. We said let's accelerate business investment in the year 2011 to give a further jump-start to the economy.

That's something, by the way, that doesn't necessarily add to the deficit necessarily long-term because this is depreciation that can be taken in the out years. We're just saying, you invest now, you can take it now. That gives businesses incentives to do it now. We want to give tax breaks to companies that are investing in research and development in the United States because the key to our long-term growth is technology and innovation. If we can get more of those investments here, that's going to boost. The reforms we've made on education, which by the way have received bipartisan support, are designed to make sure we've got the best engineers and scientists in the world right here in the United States.

So if we're doing all those things, I am confident that the American dream will continue for the next generation. What we can't do, though, is go back to the same old things that we were doing because we've been putting off these problems for decades. That's something I refuse to do.

JOHN HARWOOD: Mr. President, let me ask you something about course correction. Sometimes a leader -- even in you think you've done the right things, but if the people you're trying to lead don't think so. You have to accommodate that. Just like in a relationship. You were talking about marriage.

As you go forward, is there any way which you want to signal to the American people that you're going to change your approach? And specifically we're coming up to the midterm election. Have you asked your Treasury Secretary Tim Geithner and your top economic advisor Larry Summers to stay with you through the end of your term or make some changes?

PRESIDENT OBAMA: I have not made any determinations about personnel. I think Larry Summers and Tim Geithner have done an outstanding job, as well as my whole economic team. This is tough, the work that they do. They've been at it two years and they're going to have a whole range of decisions about family that will factor into this as well. But the bottom line is, we're constantly thinking is what we're doing working as well as it could, do we have other options and other alternatives that we can explore?

I think a lot of things on people's minds right now is obviously the issue of deficits and debt. That has fanned a lot of people's concerns, because we had to take a lot of emergency decisions last year that cost money. Now, they were the right things to do. Had we not taken them, the economy would be in a much worse position. Even John McCain's former economist during the campaign has said that if we hadn't taken these steps, that we might have lost another 8 million jobs and we would be in an even deeper hole.

JOHN HARWOOD: Well, we know you have a commission that reports in December. But I think a lot of Americans may wonder how serious you are about what that commission is --

PRESIDENT OBAMA: Let me tell you. We've already identified $250 billion in cuts on the discretionary side of our budget. We've identified $300 billion worth of loopholes in our tax code that are not helping economic growth. If we do those two things, as I've already proposed, that would make a huge difference. We've proposed to freeze discretionary spending for three years, to start whittling down some of debt that I inherited.

JOHN HARWOOD: Peter Orszag, as you know, your former budget director, says we can't afford to extend the Bush tax cuts for anyone after a year or two. Is he right?

PRESIDENT OBAMA: I want to make sure I get this gentleman's question in. But I will say this. The debate that we're having about tax cuts right now I think really speaks for the choices that everybody here is going to be facing as we go forward. I think all of us are concerned about the deficit, all of us are concerned about the debt.

Now, what we've said is that we should extend tax cuts, tax relief for middle-class Americans, like most of the audience here, because first of all, you're the ones who didn't see your wages or income rise. Second of all, you're the folks who are most likely to spend it on a new computer for your kids or, you know, in some other fashion that would boost demand in the economy.

Everybody agrees that this should be done. All we said is that you get those tax breaks up to $250,000 a year. After that, if you make more than $250,000 a year, you still get a tax break; it's just that you only get it up to 250,000.

JOHN HARWOOD: House Speaker Pelosi --

PRESIDENT OBAMA: Let me finish this, John. I think it's important that everybody understand this.

What the Republicans are proposing is that we, in addition to that, provide tax relief to primarily millionaires and billionaires. It would cost us $700 billion to do it. On average, millionaires would get a check of $100,000. And by the way, I would be helped by this. So I just want to be clear, you know, I'm speaking against my own financial interests. This is -- it is an irresponsible thing for us to do. Those folks are the least likely to spend it --


-- and --

JOHN HARWOOD: I think Nancy Pelosi said actually you can get 80 percent of the revenue if you simply take away tax cuts for people over a million dollars. Are you open to any sort of compromise that will capture that revenue but those people between 250 and a million would get to keep --

PRESIDENT OBAMA: Here is the basic principle. Here is what I can do as President. I think I've worked pretty hard and I have a pretty good grasp of the challenges that --


-- but here's what I can't do. I can't give tax cuts to the top 2 percent of Americans, 86 percent of that money going to people making a million dollars or more, and lower the deficit at the same time. I don't have the math. I would love to do it.

But anybody in elected office would love nothing more than to give everybody tax cuts, not cut services, make sure that I'm providing health and student loans, make sure we're keeping our roads safe and bridges safe, make sure we're paying for our veterans who are coming back from Iraq and Afghanistan. At some point the numbers don't work.

So what I've said is very simple. Let's go ahead and move forward on what we've agreed to, which is relief for 97 percent of Americans, in fact, everybody would get tax relief, but just up to $250,000 a year more, and let's get the economy moving faster, let's get it growing faster. At some point in the future, if we want to have discussions about further lowering tax breaks, let's do so at a time we can actually afford it.

JOHN HARWOOD: We've kept this gentlemen waiting long enough.

PRESIDENT OBAMA: Thank you very much.

AUDIENCE MEMBER: It is an honor to be in front of you. My name is Walter Allen (sp). I am a small business owner, I'm a third generation business owner in Pennsylvania. We are actually celebrating our 100-year anniversary, because we were founded in 1910.

PRESIDENT OBAMA: Congratulations. What is your business?

AUDIENCE MEMBER: We do monogrammed glassware. If you pick up Williams and Sonoma catalog. The monogrammed glass, you're getting the stuff from me.

PRESIDENT OBAMA: And your grandfather started this?

AUDIENCE MEMBER: My grandfather and his brother started the business. Three generations. Two World Wars, one Great Depression, and a lot of economic recessions. So we've been through a lot.

What I have learned in running a small business over that period of time is to succeed, to survive, you have to reinvest in your business. It simply is imperative. The single-greatest economic challenge I face today is a public that is fearful and negative.

When you first came into office, your stimulus package actually funded a very ailing financial system which was essential for small business people. You turned around and invested in the auto industry, and I believe saved millions of jobs, and I think you're actually going to make a profit on that.


And yet, and yet, your critics continue to paint you as a dramatically anti-business president.


AUDIENCE MEMBER: I believe you are investing in this country as small businesses invest. And yet for some reason the public just doesn't get it.

I need you to help us understand how you can regain the political center, because you're losing the war of sound bites, you're losing the media cycles. I have a son that just graduated from college. He was just commissioned as a second lieutenant in the Army. He wants to make a career of the Army. I want to have a business for him to come back to when he gets out of the Army.

PRESIDENT OBAMA: First of all, let me say to your son, thank for you your service to our country. We want to make sure we have a strong economy when you get out.


As I said before, I think that if you look at what we've done over the last two years, it's very hard to find evidence of anything that we've done that is designed to squash business as opposed to promote business.

You mentioned the auto industry. This is a great example of something that we did. We knew it wasn't popular. I mean, people just -- you know, the last thing people wanted to see was us helping the auto industry. Keep in mind the previous administration had been helping them, giving billions of dollars and just asking nothing in return.

But we were at a point where two of the Big Three auto makers were about to liquidate in the midst of this huge recession, and we would have lost an additional million jobs as a sequence, but also lost what is a signature manufacturing industry in this country. I mean, we built the world auto industry.

So we said to the auto companies: We are going to help you, but you've got to make some changes. You've got to make sure that we see a restructuring of how you do business.

And by the way, some of the folks who made the biggest concessions were actually the workers there. It wasn't -- they took huge cuts in terms of pay and benefits because they understood that their wage structures could no longer support the auto industry in a competitive era.

We are now seeing the top three U.S. auto makers making a profit for the first time in a long time. They are hiring for the first time in a long time. And that has huge ramifications because there are suppliers, and the restaurant next to the plant that's open. So it has provided a lot of confidence in a lot of these communities. But it wasn't popular at the time.

Now there were some folks in -- on CNBC who were unhappy with our decision partly because they had made -- they had made bets essentially against the auto industry, or they had senior debt, and we said, You know what? If the workers are giving up something, if management is giving up something, if the federal government is giving up something, and taxpayers are giving up something, you're not going to get 100 percent of what you bargained for in terms of some of the investments you made here. You're going to have a take a haircut, too. And they got very mad about it. I still remember some of the has been ating that was taking place on CNBC about it. We didn't do that because we were anti-business; we were doing it because we wanted to make sure that these businesses would continue.

By the way, some of the same folks who complained were the same folks who if we didn't make those actions on Wall Street would have lost everything they had. They didn't mind us intervening when we were helping them, but they minded us helping some other folks.

So the point I'm making is this. I think that American businesses like yours are what makes this country go. We have passed eight tax cuts for small businesses so far. We have made it easier for you to invest in plants and equipment, we have already taken down your capital gains and we want to reduce capital gains for small businesses down to zero. All of these things are what historically have been considered pro-business agendas.

Even on healthcare. A lot of small businesses couldn't provide healthcare. We are now saying we're giving you a tax break if you provide healthcare to your workers, and 4 million small businesses out there are in a position to potentially take advantage of it.

But what is absolutely true, and this goes to the point you were making earlier, John, about midcourse corrections -- the rhetoric and the politicizing of so many decisions that are out there has to be toned down. We've got to get back to working together. And my hope is, and this is part of my job as leader, not just a matter of implementing good policies, but also setting a better tone so everybody feels like we can start cooperating again instead of going at loggerheads all the time. And I'm going to have to be --


JOHN HARWOOD: One of my colleagues, Rick Santelli, was one of those who complained about your policies early, some of the government interventions, and here is a question that he submitted on the issue of spending.


RICK SANTELLI: Mr. President, if I was to ask an investor would he invest in a company that for every dollar spent it had to borrow 42 cents, I think that investor would think long and hard. Now if you look at the amount of money the government takes in and what we are spending, those are pretty much the numbers for our government right now.

Does it bother you that 42 cents of every dollar we are spending is borrowed, even understanding that we have the debt spending () in tough times, how long can the U.S. continue to spend in that fashion without potentially hurting our long-term financial health?

PRESIDENT OBAMA: Well, it bothers me a lot. It bothered me when I was running for office and it bothered me when I arrived and I had a 1.3 trillion-dollar deficit wrapped in a bow, waiting for me at the Oval Office.

So the answer to Rick's question is we're going to have to do something about it, we've got to do something about it fairly rapidly. The first thing you do when you're in a hole is not dig it deeper. That's why this tax debate is important. We can't give $700 billion away to America's wealthiest people. We have to make sure we are responsible stewards for our budget. That's point number one.

As I said before, I already instituted a budget freeze for three years on non-security discretionary spending. That can make a difference. We've identified over half a trillion dollars in changes to the budget that could make a difference.

The one thing I do have to say, though, to the public is that about 60 percent of our budget is entitlements: Social Security, Medicare, and Medicaid.

And a lot of the discretion that I have is somewhat limited on some of these programs. Now part of the reason, for example, that healthcare reform was so important is because the biggest driver of our long-term deficits is Medicare. It -- if our economy is growing at 2 or 3 or 4 percent but healthcare costs are going up 6 or 7 or 8 percent, then the budget would blow up no matter how many cuts --

JOHN HARWOOD: So everybody in this room needs to buckle up and be prepared for lower Social Security benefits and lower Medicare benefits in the future?

PRESIDENT OBAMA: What we have to do is make sure we take in -- the amount of money we're taking in, the amount of money that we're going out matches up. And all of us have to have a conversation. If we think it's important, for example, to treat our veterans fairly after they've served us, and they've come back with post traumatic stress disorders --


-- then obviously everybody here does, well, it costs money. If we think it's important for us to invest in research and development, R&D spending in this country had flat-lined, flat-lined over the previous decade. If we think us being at the cutting edge in science and technology is the key to your future, we've got to make those investments.

On infrastructure, I've proposed that we expand infrastructure. Europe spends 5 percent of their GDP, their gross domestic product, total economic output, on infrastructure. China spends 9 percent on infrastructure. We are spending 2 percent, which is why our bridges fall down and our roads are messed up and our sewer systems and our airports. All these things are in a bad way.

So there's no such thing as a free lunch. We've got to make long-term investments, and we've got to do so at a time when the economy is in a tough situation. We've got to identify those things that don't work, programs that aren't working the way they're supposed to, tax loopholes that aren't encouraging economic growth and we've got to eliminate those. And we've got to do it -- and here is the biggest challenge. We've got to do it in a way that doesn't risk the current recovery. So we've got to think medium and long-term, and look at these long-term projections and say to ourselves, Are there some changes we can make that may not take effect this year but will take effect five years from now or ten years from now so we've got a better budget situation?


AUDIENCE MEMBER: Good afternoon, Mr. President. Thank you for coming to speak with us today. My name is Andy Conte. I'm a full-time MBA student in Georgetown right here in the district. My question is to those individuals who feel that federal government is getting too large, specifically the Tea Party Movement.

My dad and I were talking about the midterm election just last night and he was asking who he should vote for. The question was, what will the administration do if these activists are elected?

PRESIDENT OBAMA: Well, let me say this about the Tea Party Movement, which your friend Rick helped to name. I think that America has a noble tradition of being healthily skeptical about government. That's in our DNA.


Right? We came in because the folks over on the other side of the Atlantic had been ... oppressing folks without giving them representation.

So we've always had a healthy skepticism about government. I think that's a good thing. I think there's also a noble tradition in the Republican and Democratic parties of saying that government should pay its way, that it shouldn't get so big that we're leaving debt to the next generation.

All those things I think are healthy. The problem that I've seen in the debate that's been taking place in some of these Tea Party events is I think they're misidentifying sort of who the culprits are here.

As I said before, we had to take some emergency steps last year, but the majority of economists will tell you that the emergency steps we take are not the problem long-term. The problem long-term are the problems I talked about earlier. We've got -- we had two tax cuts that weren't paid for, two wars that weren't paid for. We've got a population that's getting older. It's -- we're all demanding services, but our taxes have actually substantially gone down. And so the challenge I think for the Tea Party Movement is to identify specifically: What would you do?

It's not enough just to say: Get control of spending. I think it's important for you to say: I'm willing to cut veterans benefits or I'm willing to cut Medicare or Social Security benefits. Or I'm willing to see these taxes go up.

What you can't do, which is what I've been hearing a lot from the other side, is saying: We're going to control government spending, we're going to propose $4 trillion of additional tax cuts and that magically somehow things are going to work.

Now some of these are very difficult choices. We were talking earlier about the business community and how it feels. We haven't raised corporate tax rates since I've been in office. People keep on saying that I might, but we haven't. We haven't proposed it.

JOHN HARWOOD: They want you to cut them.

PRESIDENT OBAMA: And what I've said is, if you can lower corporate tax rates by eliminating loopholes so it's tax neutral, I'm happy to work with you.

We've said, for example, that we don't want -- right now dividends are taxed at 15 percent. They used to be taxed at 39 percent. Under the current administration. What we've said is let's take them up to 20. That would be a reasonable position that would still be pro business but wouldn't be so draining on the Treasury.

So we got a bunch of these decisions that have to be made. I think that we can all have a reasonable argument and we're going to have some differences in terms of how do go about it. Some of us may want a few more cuts. Some of us may want higher revenues. But understand that there are facts and a reality there that go beyond the political rhetoric. We're not going to be able to solve this problem just by yelling at each other.


JOHN HARWOOD: Let me ask you one more thing about --


-- there are some in the Tea Party who argue that the Constitution has been perverted in a way that gives government license to get involved in any activity, the commerce clause. You're a former Constitutional law professor. What is your analysis in that?

PRESIDENT OBAMA: Well, look, the truth in the matter is that the federal government is probably less intrusive now than it was 30 years ago.

Our tax rates are lower now than they were under Ronald Reagan. They're much lower than they were under Dwight Eisenhower. It's true that there are some areas that we regulate more, but you know what? The truth is everybody here probably thinks it's a pretty good idea that we regulate the food industry, for example, so we don't get E-coli and salmonella. Well, that requires somebody overseeing businesses, most of who are trying to do a good job but some of them may not have the safety provisions in place to do that.

I think most people here think it's a good idea to make sure that you're not cheated if you are seeking a mortgage. Well, that requires some oversight. So we're always going to try to balance regulation with making sure that people can go about their business and go about their lives without a bunch of people meddling in it.

JOHN HARWOOD: Having enacted a lot of stimulus and realizing you could have bought the tighter strings, are you prepared now to say that in terms of getting the economy going, the era of big government is over and it's time to stand up the private sector and that's the focus of your policy?

PRESIDENT OBAMA: My entire focus right now is to make sure that the private sector is thriving, is growing, is investing. As I said, that's why we haven't increased taxes on corporations. We are not proposing dividends to go up, taxation on dividends to go up 20 percent. I think we've been very responsible stewards. I do believe that we've got to make sure that basic rules are in place, and that consumers, workers, ordinary folks out there, aren't taken advantage of by sharp business practices. I don't think there's anything in that inherently anti-business. Some of the business owners that we heard today, you know, they are making a profit by offering a good service at a good price. And that's who we want to see rewarded.

JOHN HARWOOD: Let's go to Anthony Scaramucci, who is familiar to some viewers of our network because he appears on CNBC as a hedge fund manager.

ANTHONY SCARAMUCCI: And I also went to law school with you with Brian Nap (phonetic).

PRESIDENT OBAMA: It's great to see you.

ANTHONY SCARAMUCCI: At the end of the day.

PRESIDENT OBAMA: You've done very well.

ANTHONY SCARAMUCCI: If I fouled you on the hoop court, it wasn't intentional.

PRESIDENT OBAMA: I remember that.

ANTHONY SCARAMUCCI: You would remember if I fouled you. I've got a low center of gravity.

The question I have, sir, and this something I really -- you know, a lot of my friends are thinking about. Listen, I represent the Wall Street community. We have felt like a pinata. Maybe you don't feel like you're whacking us with a stick, but we certainly feel like we've been whacked with a stick.

So I certainly think that Main Street and Wall Street are connected. And if we're going to heal the society and make the economy better, how are we going to work towards that healing Wall Street and Main Street? Question Number 1.

And Question Number 2 has to do with job growth. I was doing a calculation. I run SkyBridge Capital. It's got $7.4 billion of earned management, and I'm thinking about hiring new people. A $50,000 worker in New York City, if I want to pay the full freight on healthcare, plus the FICA and all the other stuff, it's about $90,000, sir. That man or woman is going to take home about $35,000. It seems very, very disconnected. I think that's one of the major reasons we don't have any job growth.

Two questions. When are we going to stop whacking at the Wall Street pinata, and how are we going to fix that arbitrage so that we can create jobs in our society?

PRESIDENT OBAMA: On the first issue --

ANTHONY SCARAMUCCI: And I promise not to foul you if we play again.

PRESIDENT OBAMA: On the first question, I think it would be useful to go back and look at the speeches I made, including a speech I made back in 2007 on Wall Street before Lehmans had gone under, in which I warned about a potential crisis if we didn't start reforming practices on Wall Street.

At the time I said exactly what you said, which is Wall Street and Main Street are connected. We need a vibrant, vital financial sector that is investing in businesses, investing in jobs, investing in our people, providing consumers loans so they can buy products. All of that is very important and we want that to thrive, but we've got to do so in a responsible way.

I have been amused over the last couple years, this sense of somehow us -- me beating up on Wall Street. I think most folks on Main Street feel like they got beat up on --


-- and there is probably a big chunk of the country -- hold on a second. There is a big chunk of the country that thinks I have been too soft on Wall Street.


That's probably the majority, not the minority.

Now what I've tried to do is just be practical. I'm sure that at any given point, over the last two years, there have been times where I've been frustrated. I will give you some examples. When I hear folks who say that somehow we're being too tough on Wall Street, but after a huge crisis, the top 25 huge fund managers took home a billion dollars in income that year -- a billion! -- that's the average for the top 25, you know.

ANTHONY SCARAMUCCI: Forbes put on their cover a story saying he has anti-colonial attitude or Steve Schwarzman, a big figure on Wall Street, says, their approach to the financial regulation and taxation is like Hitler invading Poland.

Where does that come from?

PRESIDENT OBAMA: I don't know where that comes from. That's my point, I guess. This is a two-way street. If you're making a billion dollars a year after a very bad financial crisis, where 8 million people lost their jobs and small businesses can't get loans, then I think that you shouldn't be feeling put upon. The question should be: How can we work with you to continue to grow the economy?

A big source of frustration, that this quote that you just -- this was me acting like Hitler going into Poland had to do with a proposal to change a ruled called carried Interest, which basically allows hedge fund managers to get taxed at 15 percent on their income. Now everybody else is getting taxed at, you know, a lot more.

The secretary of the hedge fund is probably being taxed at 25, 28, right?

And these folks are making -- getting taxed at 15.

Now, there are complicated economic arguments as to why this isn't really income, this is more like capital gains and so forth, which is a fair argument to have. I have no problem having that argument with hedge fund managers, many of whom I know and went to school with. And I realize their business acumen. But the notion that somehow me saying maybe you should be taxed more like your secretary, when you're pulling home a billion dollars or $100 million a year I don't think is me being extremist or me being anti-business.


And that's --


I do want to be fair about your other point which is the costs of workers. One of the things, one of the laws that we passed this year was the Hire Act, which said we will give you a tax break if you hire a new worker, to try to reduce some of those costs.

In some high-cost places like New York City the cost for the average worker may be even higher than it is if you are in some other places.

JOHN HARWOOD: What about a payroll tax holiday for the exact same issue?

PRESIDENT OBAMA: This is something we've examined. We are going to be working with businesses to see does it make sense for us to initiate some additional incentives in order to hire.

The one thing I want to make clear about, though, is our healthcare bill didn't substantially add to employer's healthcare costs. It exempts from any kind of cost for employers, folks who have 50 employees or less. What we've said is if you've got more than 50 employees, then you should be able to give them healthcare. And we will give you tax incentives. Basically we will give you a break that's as much as a third of your cost for their healthcare premiums. And the reason we're doing that is because if you're not paying for that, then taxpayers are paying for it. We're all paying for it, because on average these emergency room visits for people who don't have health insurance add up to an extra $1,000 on each of our premiums who do have health insurance.

JOHN HARWOOD: Did I understand you to say a moment ago that you're continuing to examine the payroll tax holiday and may be open to that as a way of spurring hiring?

PRESIDENT OBAMA: John, here is what I think you can rest assured. We are willing to look at any idea that's out there that we think will help. But we've got to do so in a responsible way. We've got to make sure that whatever it is that we're proposing gives us the best bang for the buck. A lot of ideas that look good on paper, when you start digging into them, it turns out that they're more complicated. And they may end up not working the way they're supposed to.

And we've got to be self-critical. There are times where, for example, in the housing market, we were very successful in keeping the housing market alive at a time when it had completely shut down.

But a lot of folks are still losing their homes because they've lost their job. They are just having trouble making their mortgage payments. And what we've been trying to do is get the banks to work with the borrower to see can you adjust the mortgage so if they're willing to make a payment, that they can stay in their homes.

JOHN HARWOOD: Haven't had proven that those interventions haven't worked and the housing market has to find its bottom.

PRESIDENT OBAMA: This is the remark Rick Santelli made and when he went on that rant about the Tea Party. It is a fair economic argument that some people make that say, You know what? Leave it alone. If people are losing their homes, they've got to lose their homes. If the housing market has to go down another 10 percent, just let it go down another 10 percent, and eventually it will find the bottom. That's an argument that's being made out there. I guess my job as President is to think about those families that are losing their homes, not as some abstract numbers. I mean, these are real people who worked really hard for that house. And, you know, we think it's very important that speculators, people who are just flying to flip condos, et cetera, that they're not getting help. We think it's very important to acknowledge that some people just bought too much house, they couldn't afford it. And it's not fair for the rest of us to have to subsidize them because of bad judgments and mistakes that they made. On the other hand, we also think it's important to recognize if you have communities where you've got every other house that's foreclosed, that that's bad for the economy as a whole.

So these are all tough decisions. But the main point I want to make is that we are going to constantly reexamine what we're doing, we are open to new ideas that are out there, and if we think something is going to work, to put people to work, then absolutely we're going to try to make it happen.

JOHN HARWOOD: Let me ask but two national security issues that are relevant to economic performance. One is Iran. Markets watch very closely for evidence of stability and lack of stability in the Middle East. Colin Powell said yesterday that, even though we can't take any option off the table, the stars are not lining up for an attack on Iran by the United States, by Israel, or the two countries in combination. Has he got that right?

PRESIDENT OBAMA: Well, General Powell is a very smart man, and I don't want to have a discussion about all the plans that we have in place to deal with Iran. Iran having a nuclear weapon would be a real problem. We passed the toughest sanctions against Iran ever. They are having an effect. We continue to be open to diplomatic solutions to resolve this. We don't think that a war between Israel and Iran or military options would be the ideal way to solve this problem, but we are keeping all our options on the table.

JOHN HARWOOD: All right. China. The -- a very quick way to improve the competitiveness of the U.S. exports, given the value of China's currency rises. Is it time for you to be tougher than you have been so far oppressing the Chinese?

PRESIDENT OBAMA: This is a real problem. And I want to just give everybody some background on this. China, its currency is balanced lower than market conditions would say it should be. And what that means is essentially that they can sell stuff cheaper here and our stuff when we try to sell there is more expensive. So it gives them an advantage in trade.

What we've said to them is, you need to let your currency rise in accordance to the fact that your economy is rising, you are getting wealthier, you are exporting a lot. There should be an adjustment there based on market conditions. They have said yes in theory, but in fact, they have not done everything that needs to be done.

We are going to continue to insist that on this issue and on all trade issues between us and China that it's a two-way street.

Look, it's good for us that China does well in the sense that, first of all, having millions of people get out of poverty is a good thing for the world. It makes them more stable, it buys them into a world economy that can reduce tensions and allow our businesses to thrive. It's a huge market where we should be able to export a lot of goods. Eventually I want some of those nice monogrammed glass things to be in Shanghai and Beijing.

But it's got to be fair. Our trade relationship has to be fair. You can't just sell to us and we can't sell to you. And so we have been bringing more actions against China before the World Trade Organization. We are going to enforce our trade laws much more effectively than we have in the past. Not because I'm anti-trade. I'm pro trade. I just want to make sure that trade is good for American businesses and American workers. And over the last several years it hasn't always been.


JOHN HARWOOD: Mr. President. Final question because we're out of time and you've got to go.

PRESIDENT OBAMA: I'm having so much fun.


JOHN HARWOOD: 15 years ago, at a similar point in his presidency, Bill Clinton took the stage at a town hall in New Hampshire with Newt Gingrich who was Speaker of the House. Are you willing to and would you like to debate John Boehner, the House Republican Leader, before the election to lay out your two visions for the economy?

PRESIDENT OBAMA: I think that it's premature too say that John Boehner is going to be Speaker of the House.


I do think it is very important for the country, as we go into these midterm elections, to understand that there's a choice in front of us. The other side, their basic argument is that if we go back to doing what we were doing before the financial crisis and before I was President, that we would be in a better place. Now think about this. From 2001 to the time I took office, your average wages went down 5 percent.

We took a record surplus under Bill Clinton, and took it to record deficits. We had two tax cuts that weren't paid for, two wars that weren't paid for that were hugely expensive. We put off solving healthcare costs that were skyrocketing. We didn't solve college tuition costs that were skyrocketing. We didn't have an energy policy. We were seeing jobs being shipped overseas because of the way our tax structure gave them incentives.

Now that was the agenda. We -- we have tried what they're offering. Now, I stay up every night and I wake up every morning thinking about the people who sent me into this job. And the single most important task I have is to make sure that the dreams of you and your families are realized. And so everything I'm doing is thinking about how do we grow this economy and how do we grow this middle class.

It has not happened fast enough. I know how frustrated people are. I know in some cases how desperate people are. But I also know this. That an economy that was shrinking is now growing. We have finally tackled tough challenges like healthcare that we have been putting off for decades. I have put forward proposals that are going to require bipartisan cooperation in order for us to get government spending under control. And I am confident that if we stay on a course that gets us back to old-fashioned values of hard work and responsibility and looking out for one another, that America will thrive, that the 21st Century will be an American century again.


But I'm going to need everybody's support. I'm happy to have that debate over the course of the next several weeks and for months to come.

Thank you very much.

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