'Buy American' Provision Draws Fire

Sparks Fly on "This Week" as CEOs and legislators debate stimulus package.

Feb. 1, 2009 -- A powerhouse economic roundtable faced off today on "This Week with George Stephanopolous" over the controversial "Buy American" provision of the economic stimulus package now before the Senate.

FedEx CEO Fred Smith argued the plan, which in part would require companies to buy iron and steel manufactured the U.S., would ultimately hurt global trade.

"The reason it's not the right thing to do is that the growth of global trade has been enormously beneficial to the United States," Smith said.

"The problem with trade is that the benefits are diffused and the pain is localized. But the benefits of having a global economy have created an export sector in this country that provides our highest-paying jobs.

"If the Congress passes this buy-American provision, I can assure you -- and we operate in 220-some-odd countries around the world and are a huge part of the import-export infrastructure of the United States -- we will get retaliation, and it will be American jobs at risk," Smith told ABC News' George Stephanopoulos.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, agreed with Smith but argued that a better social safety net is needed to help people who are underemployed or out of work.

"The fact is that the average American feels that, even when there was growth, he and she wasn't getting a piece of it," said Frank. "And I appreciate you saying, Fred, that we need to take care of the people dislocated, but you have to broaden it.

"I will tell you, I believe, until you get a better social safety net, actions that you're not going to like are going to continue ... Until you relieve the localized pain better, the average American will block things like trade, like outsourcing that you think we ought to do."

The Obama administration appears to be of two minds when it comes to "Buy American." Vice-President Joe Biden said this week that he thinks it is "legitimate to have some portions of Buy American" in the stimulus.

However, White House Press Secretary Robert Gibbs said "the administration is reviewing the provision. It understands all of the concerns that have been heard not only in this room but in newspapers produced both up North and down South."

Sen. Jim DeMint, R-S.C., a member of the Joint Economic Committee, explained to the panel that "we all want to buy American... But then we have the highest corporate tax rate in the world. We've got a regulatory system that makes us less competitive.

"So we actually put these people out of work, ship jobs overseas with bad policy, and then we want to put our hand up and stop our imports from coming in. This is a government-managed economy which doesn't work. It's inefficient."

Sparks flew between Frank and DeMint on the broader issue of tax cuts versus spending in the stimulus plan. While Frank argued that spending in the $819 billion House bill passed Wednesday is indeed stimulative, DeMint claimed taxpayers would be better off with more tax cuts.

"The notion that everything is solved by a tax cut, of course there are sensible tax policies you could have. But there are public needs we have in this society ... that cannot be accomplished by a tax cut," Frank said. "No tax cut builds a road. No tax cut puts a cop on the street. No tax cut educates a child in -- in the way that it ought to be done. So this -- only tax cuts, at a time when I think we have a deficiency in some areas that are important for the quality of our life is a big disagreement."

DeMint fired back: "But let's don't say it's a stimulus when it's a government spending plan. And all of these things, the needs in our society, education, these are things we debate every year ... This is the largest spending bill in history, and we're trying to call it a stimulus when it's just doing the things that ... you wanted to do anyway."

Frank defended the package. "Spending can be stimulus," he said. "I don't understand what you think stimulus is.

"If we're going to talk about spending, I don't -- I have a problem when we leave out that extraordinarily expensive, damaging war in Iraq, which has caused much more harm than good, in my judgment. And I don't understand why, from some of my conservative friends, building a road, building a school, helping somebody get health care, that's -- that's wasteful spending, but that war in Iraq, which is going to cost us over $1 trillion before we're through -- yes, I wish we hadn't have done that. We'd have been in a lot better shape fiscally."

Google CEO Eric Schmidt argued for the stimulus to be a blend of short-term and long-term spending.

"There are plenty of cases where directed spending does help things to happen more quickly," he said. "The stimulus package -- most of the money actually goes to reasonably short-term things in education, state relief and various other things that help people in the short-term. Some combination of all that money's got to get out now to get people going again."

Schmidt also urged Congress to pass the stimulus package as soon as possible. "The business community needs action now," he said. "There's a sense that things are getting worse, people are saying the March quarter, the June quarter are going to be particularly difficult for business. It's time for government action."

DeMint was asked to comment on the failure of President Barack Obama's nominee for the Department of Health and Human Services, Tom Daschle, to pay roughly $128,000 in back taxes. The senator said the situation "may be" disqualifying.

"I want to find out more about it," DeMint told Stephanopoulos. "It's disheartening, obviously. I mean, people are struggling to pay taxes on a very small amount of income. And when he's got this huge amount of -- you know, I can see now why liberals don't mind if the tax rate goes up, because they're not going to pay it anyway. And so, yes, it frustrates me. It did with our Treasury nominee. But we need to look at it. And I would just -- I wish they would just say, 'Hey, our tax code is just incomprehensible. We need to change it.'"