GIBSON: Let me talk to you a little bit about deficit reduction, because that's something that's certainly going to loom very large for you in the next couple years. You're going to get a spending bill with 5,000 earmarks in it worth $4 billion, discretionary spending up 12 percent when inflation is essentially zero. How can you sign such a bill and be serious about deficit reduction?
OBAMA: Well, look, the -- keep in mind that some of the things that are in there are funding for unemployment insurance, veterans affairs, things that we -- are still part of the emergency situation that we are in. The costs -- everybody would acknowledge that the costs of this recession and just providing help to states and families and so forth has added to the deficit.
But people need to understand where our real debt and deficit comes from. It's not the trillion dollars of Recovery Act spending and, you know, the carryover of TARP that we inherited when we came in. It's actually the fact that we have a structural deficit. We take in 18 percent of gross domestic product in taxes, and we spend 23 percent.
So here's what we're going to have to do. I've been very clear -- and this will be reflected in my budget and my State of the Union address next year -- that trying to either raise taxes or cut spending next year would be the wrong thing to do for an economy that's still coming out of a recession and is still very fragile.
What we have to do is identify ways that, mid-term and long term, we are pulling the deficit down and reducing our debt. That has to be a priority. And what are the things that are required to do that? The main priorities are going to have to be dealing with Medicare and Medicaid, our health care costs, and that's why health care is so important. I think that we can reduce non-defense discretionary spending in a significant way. We've got to wind down this war in Iraq on a timely basis. I mean, there are going to be a host of tough decisions that we're going to have to make over the next year, and I'm prepared to make them.
GIBSON: And you've just given me a very good exposition on budgeting in Washington.
GIBSON: You know that. I know that.
GIBSON: The public is fixated on earmarks. They're fixated on discretionary spending.
OBAMA: I know.
GIBSON: Why not just say, "Congress, get those out of there, and I'll sign the budget, which is absolutely necessary"?
OBAMA: You know, there may come a point fairly soon in which we have to take that approach. I mean, this is part of the challenge of democracy, is that, you know, I have to deal with 535 members of Congress of both parties who may in the abstract say, "We hate government waste and government spending," but when it comes to that project in their district, they think it's absolutely vital.
And so we are trying to change a culture here. It is not something that is going to happen overnight. We have seen a reduction in earmarks, but, you know, let me take a very specific example. If I've got a defense bill that's presented to me, and defense funding is running out in three days, and I've got troops out there that I've got to make sure are equipped and we have planning for the deployment that's coming up, and somebody says to me, "You know what? I'm not going to vote for this defense bill unless I get this project in there," I've got...