HH: Dr. Lanhee Chen is the policy director of Romney/Ryan. He is a four time Harvard graduate, with his J.D., PhD, M.A. and undergraduate degree from Harvard. And today, like most, he’s looking at a CBO report that predicts another recession for the United States if measures aren’t taken to prevent it. Doctor Chen, welcome back to the Hugh Hewitt Show, great to have you.

LC: Good to be with you, Hugh. Thanks for having me.

HH: Are you going to be down in Tampa Bay next week?

LC: I’m actually in Tampa right now, and look forward to a convention next week. Hopefully, the hurricane steers clear here, but either way, we’ll plan accordingly.

HH: I’m just bringing my umbrella. I look forward to meeting you. But what about this CBO report? That’s what prompted my call to Romney/Ryan headquarters today to talk to you. This is pretty dire.

LC: It is, it is. I mean, it’s really, in my mind, an indictment of President Obama’s economic policies. I mean, what we’ve really seen here is overspending, increasing debt, a failure to deal with the entitlement crisis that faces us, and really, the report, in addition to showing another trillion dollar deficit, demonstrates, as you said, the possibility that if we don’t act on some of these expiring tax provisions, we’re going to see some major economic slowdown into 2013.

HH: Isn’t that the bottom line of this report, that we can’t allow what the President wants to happen, to happen?

LC: Well, that’s absolutely right. And you know, it’s lunacy to believe that this is the time to increase taxes, but that’s Barack Obama’s argument. His argument is what we need to do now is we need to go out and raise taxes on job creators. We need to raise taxes on the very people that will help to get us out of this economic situation we find ourselves, and it’s absolute lunacy. But that’s the argument that the President is out there making.

HH: Now I spoke yesterday with Robert O’Brien of the Romney team on your defense side. He pointed out the sequestration is going to cost hundreds of thousands of jobs, including people who are presently in uniform, cutbacks across the Defense industry. Do you think that sequestration is part of the recession that looms as well?

LC: Yeah, absolutely. You know, part of the problem we face is that the President hasn’t led to avoid these automatic cuts that are going to really affect people in a number of different places around the United States. Whether it’s Virginia, or Iowa or North Carolina, you’re going to see a lot of Americans who are part of the effort to keep our country safe really impacted by the President’s failed leadership on this critical issue. So Robert’s absolutely right. Sequestration is going to cause some major problems not just for those individuals, but for our economy as a whole.

HH: Okay, let me play Jim Lehrer for a moment, and you can be Governor Romney. He’s going to say look, we understand you don’t like what the President is proposing. How is your plan any better? How is your plan going to avoid massive trillion dollar deficits and the fiscal cliff?

LC: Well, I think there’s a couple of things. One is Governor Romney’s approach, and Paul Ryan’s approach, is to look at our budget and to think to ourselves, you know, you look at every dollar, and is it so critical that we spend this dollar that we’re willing to borrow money from China to pay for the spending? And in most cases, you know, the answer is you’ve got to take a really critical eye, and you’ve got to examine the situation, and you’ve got to be willing to make tough choices to rein in spending, to do it in a responsible way. Of course, we still want to maintain some kind of safety net. But you want to reduce spending responsibly, cut the deficit, and really get that side of the house in order. And then on the flip side, you’ve got to have policies that promote economic growth. You’ve got to have policies that will grow the middle class, that will grow the economy, and create jobs. Now one of the biggest things that you’ve got to do, Hugh, is you’ve got to return some certainty to this economy. You’ve got job creators staying on the sidelines because they just are uncertain about what’s going to happen. You’ve got President Obama threatening tax increases every day, and it’s just exactly the wrong approach. We’ve got to do more to jump start economic growth. We’ve got to cut taxes, we’ve got to reform our individual tax code, we’ve got to get rid of Obamacare, open up trade relationships, have energy independence. All the policies that Governor Romney talks about are what we need to get this economy going.

HH: Now Dr. Chen, tell me if I’m wrong about this, I’m not an economist and you know this stuff well. To me, there are two kinds of federal spending – a dollar that we either borrow from China or we take from another taxpayer that we just give to another taxpayer doesn’t do anything, but that there are dollars, for example, dollars spent on Defense spending, which not only keep the country safe but generate jobs, and that you’ve got to go and find where to cut those one for one dollars, and to save the spending on those dollars which generate jobs in national security. And that, I think there are billions there to be saved without cutting into our job creation stimulus effect.

LC: Yeah, I mean, I think you’re absolutely right. You know, not all spending is created the same, and obviously, you’ve got to look at things with a critical eye. But ultimately, the biggest problem that we face now is we have an administration that is hostile to economic growth. They have policies that are hostile to economic growth, policies that are hostile to job creation, and it’s just the absolutely wrong approach. And you know, one of the things that I think, one of the reasons why I think out there you’re seeing such a clamoring for change is because you’ve got folks in the White House now who just don’t understand how this economy works. And that’s why Mitt Romney and Paul Ryan have such a fresh approach. They’re really going to come in and give us policies that we need to grow this economy and create jobs.

HH: Now Dr. Chen, there are $7 trillion dollars in retirement assets in this country. They’re tax-protected. People are leaving them where they are, because if they take them out, they’ll be penalized 10%, and they’ll be taxed at the regular rate, which may go up. Any way to put those to work, either by removing the penalty or lowering the rate on the removed penalty dollar? Is there any way to have a private sector stimulus by letting people use their own retirement funds to build businesses or pay off mortgages, or somehow stimulate the economy?

LC: Well, I’ll tell you one of the things that Governor Romney has proposed, and that is to take the rate on capital gains, dividends and interest income, so you know, income on saving and investment, for middle income Americans, to take that tax rate to zero, so that you provide particularly middle income Americans with the ability to use that money, to save it, excuse me, instead of having the government take it, to save it and to use it for whatever purpose they want. You know, whether it’s to fund children’s education, whether it’s to invest in their own future, whether it’s to buy a home, we’ve got to figure out a way to unlock the entrepreneurial spirit of the American people, and Governor Romney really has a set of policies highlighted by this plan for middle class savings that will do absolutely that. But you’re right, you know, we’ve got to figure out a way to get this economy going.

HH: That takes me back to the Reagan years…

LC: Yeah.

HH: And that’s when I was doing stuff that you do now, and they were campaigning on Kemp-Roth, and when President Reagan was elected, tax rates came down and the economy took off. I know that Governor Romney is not proposing a tax hike. He’s misrepresented every time the President discusses what he wants. But nevertheless, it’s not going to be a net tax decrease. Is there enough of a stimulus effect to get the economy off the ground?

LC: Yeah, absolutely there is. I mean, tax reform, there’s been a number of studies out there in the economics literature that demonstrate that tax reform is one of the ways that we can really jump start economic growth. And actually, you know, a couple of economists, including some really well known folks like Glenn Hubbard at Columbia, and John Taylor up at Stanford, have studied the Romney economic plan. And what they find is that the kind of tax reform that Governor Romney and Paul Ryan are proposing will help generate 12 million new jobs over the course of the Governor’s first term. Tax reform will get our tax code simpler, it’ll get it fairer, it’ll get it flatter, it’ll get it much more efficient. And as a result, it’ll grow the economy and create jobs, so absolutely that’s the right approach.

HH: Now what, last question has to do with the housing sector. Housing leads recovery, but there’s a little uncertainty out there, because the Governor has really not made up his mind yet about what to do with the mortgage interest deduction. I am, have been adamantly opposed to reducing that. I’ve represented home builders for 20 years. I know what happens if the mortgage interest deduction gets capped or in any way eliminated. But what about that industry, and how in the world are we going to help them? They’ve got to lead the economy. They’re the new car industry of the 21^st Century.

LC: Yeah, I mean, there’s no question that the housing industry is very important, and it’s an industry that’s been hit really hard by this economic downturn. We’ve seen housing values continue to decline under President Obama. I think there’s a couple of things to your question. I mean, first of all, with respect to the tax preference for home ownership, you know, that is clearly something that for middle income Americans, Governor Romney is absolutely committed to retaining and insuring that we have some sort of a tax preference in there to support home ownership. But more broadly, I think what we’ve got to do is really have an aggressive plan for the long run to ensure that the housing industry, and the housing market, gets on a safe footing. So that means things like insuring that we take Fannie and Freddie and have some real reform of those institutions. We’ve got to get credit flowing again to responsible home buyers by getting rid of Dodd-Frank and replacing it with regulation that works. We’ve got to think about promoting foreclosure alternatives that work. And ultimately, Hugh, we’ve got to get the economy moving again. That’s what it’s going to take to get the housing market going, and ultimately to get home values on the way up again.

HH: Lanhee Chen, policy director of Romney/Ryan 2012, thanks for joining us. See you in the rain, bring an umbrella, and thanks for joining us today.

LC: Thank you, Hugh. We look forward to seeing you down here in Tampa.

End of interview.