Jan. 7 (Bloomberg) -- Republican Senator Jon Kyl of Arizona said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend, that he is optimistic his party can find common ground with President Barack Obama on restructuring the U.S. tax system, including changes to corporate and individual rates.
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
AL HUNT: And we begin the program with Senator Jon Kyl of Arizona, the Republican Senate whip. Senator, thank you for being with us.
SENATOR JON KYL: Thank you, Al.
HUNT: Happy New Year.
KYL: Great to be here.
HUNT: Give me a couple examples of where Republicans and the White House might find common ground this year.
KYL: I think there is a real opportunity for finding common ground, because no longer do the Democrats have an absolute control and, therefore, the ability to pretty much dictate what happens. If we’re going to get anything done, we’ll have to work together.
HUNT: So what are one or two -
KYL: The - the - two specific areas that immediately come to mind, first of all, are spending reductions. Everyone recognizes that we can’t afford the kind of spending we’ve been engaged in. The deficit is out of control. The debt is accumulating at an unsustainable amount.
And so everybody is going to be looking for those opportunities. We won’t always agree on where they are, but I suspect that we will be working together a lot this year to find areas, programs that could be cut, even departments of agencies that - or task forces and commissions that could be eliminated, as well as just overall reductions.
I think, for example, we may go back to 2008 budget levels for the following - for this next year, which would be a pretty substantial reduction.
HUNT: White House says they won’t go that far.
KYL: Well, maybe not, but everything is - the nice thing about fighting over money is this: You’re not asking either side to compromise principle.
HUNT: Principle, right.
KYL: If we say $100 billion and they say $50 billion, you kind of have an idea of where the middle ground is.
HUNT: What’s the second area?
KYL: The other area is in tax reform. Now, because the tax rates were all extended in the lame-duck session of the Congress, we don’t have to worry about taxes for a while.
KYL: But I think both the White House and I know Senate Republicans - and I think House Republicans - understand that in the longer run, starting maybe a year or two from now, we are going to have to make some changes to get a more pro-growth tax code. It’s too filled with all kinds of subsidies and credits and all that sort of thing. Some call them loopholes.
We could have lower rates, for example, a lower corporate rate that the White House has talked about if we are able to reform our tax code.
HUNT: And do away with some of those loopholes or provisions?
KYL: Yes. And that will take a long time to put together. We need to start working on it early in the year. And maybe it doesn’t come to fruition for a year or so.
HUNT: Would you like it to be a revenue raiser, revenue neutral, or a tax cut?
KYL: Well, our problem is not a lack of revenue, so I don’t want to see tax reform that ends up raising people’s taxes.
HUNT: How about revenue neutral? Could you accept that?
KYL: Revenue neutral might - depending upon whether or not you are able to get good, pro-growth policies substituted for the ones that we have, the inefficient policies we have, that might be a good compromise. So all of those are the kind of - I mean, you ask exactly the right questions. How -
HUNT: And you mentioned corporate. Individual, too, you think? Or just corporate this time?
KYL: Here’s the reason why we’re going to have to look at the individual - the individual rates, the marginal rates, as well as things like capital gains and dividends and even the estate tax, because the rates that we extended are extended only for two years.
KYL: So what happens at the end of the two years? It would be better to begin thinking about that now, rather than waiting until almost the end of two years.
HUNT: You’ve been central to the immigration debates over the last 5 or 10 years. The conventional wisdom is nothing’s going to happen this year on immigration. I guess I want to ask you if you agree with that. And what’s your position on changing the 14th Amendment to end automatic citizenship for children born in the U.S.?
KYL: Well, first, I think something could happen, but the condition for legislation is the securing of the border. That’s a clear message from the election of two years ago and this year.
HUNT: Once you do that, can you then -
KYL: I think a lot can then be done. And so what I’d like to see us focus on - and it’s not that hard. When you get right down to it, it’s neither particularly difficult, nor particularly costly to do the things necessary to secure our southern border.
And on the 14th Amendment, nobody knows whether you can even do this legislatively or whether it would require constitutional amendment. So my view has been, until you have some experts come up here and - and testify and talk to us about what’s possible, it’s premature to - to do anything.
HUNT: Let me talk about the Obama administration and business. Corporate profits are soaring. Goldman Sachs named 110 new partners. Bonuses are flowing. S&P has risen more than in any three-year period since the tech bubble. General Motors is - the IPO. This isn’t an anti-business administration, is it?
KYL: I would contend that, for the last two years, it’s been highly anti-business. Some of the results that you just talked about, I suspect, are - are coming from the fact that we extended tax rates that the president did not want to extend, but was willing to do so at the end of the year last year.
HUNT: But, of course, all these things happened before that.
KYL: No, all these things are, I think, partially a - a result of the knowledge now that taxes are not going to be raised in the next two years.
Now, there - there were some things that were beginning to happen, but I could also - as you know, whenever you talk about the economy, there are always good and bad signs.
Our unemployment is still structurally way too high. I mean, people believe it’s in the 17 percent range. This is a very difficult recovery, to the extent it is a recovery, because of the unemployment levels.
HUNT: What signal, then, does the appointment of Bill Daley as White House chief of staff send or not send to the business community?
KYL: No, I think it sends a good signal. I think he’s respected in the business community. He’s perceived as somebody that appreciates the needs of certainty for business, of less regulation, lower tax rates, and so on, and so I think it’s a good signal.
But if I could just mention one other thing -
HUNT: Yes, sir.
KYL: - until this health-care legislation, the Obamacare, as it’s called, is resolved, you’re going to see an incredible amount of uncertainty which will, I think, in and of itself prevent the recovery in a - in as timely a fashion as it might otherwise come.
HUNT: Let me then ask you a health-care question. You and others warned that “Obamacare” would create a bureaucracy that would ration health care. Others - not you, such as Sarah Palin - talked about death panels.
Your state of Arizona has cut back on Medicaid coverage. And this week, a second person denied transplant coverage as a result died. Aren’t these Medicaid cutbacks rationing health care and, indeed, life and death by income and wealth?
KYL: Let me answer it a couple of ways. First of all, the Obamacare actually prevents the state of Arizona from cutting back on what’s called maintenance of effort. The state of Arizona was one of about nine states that decided to cover up to 100 percent of poverty with Medicaid coverage. And we are prohibited by this law from reducing that one iota.
HUNT: But it was the Medicaid cutbacks that caused these transplant patients -
KYL: I need to finish my answer, Al.
HUNT: I’m sorry. Yeah.
KYL: Because the law said that Arizona could not cut back any of its Medicare - or, excuse me, Medicaid coverage of the things that were covered in the Obamacare, the only place that the governor had to make reductions was in highly expensive things like transplants that are not otherwise mandated under the law.
Well, that is a very bad choice to have to make. Far better it would have been for the governor and the state legislature to have been able to reduce the percent of coverage in a way that coverage could occur in other ways and then still have money available to do some of the things like the transplants that you’re talking about.
And so it is a very bad - it will produce bad results for patients. It will produce rationing, no question about it. It’s one of the things that we objected to all along.
HUNT: Thank you very much for being with us, Senator Kyl.
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