'Heart attack and heart burn': Why small sequester cuts cause panic

>>> let go, including inner city public schoolteachers like ms. payne here. this must be so hard for you.

>> this is the greatest day of my entire life. good luck reading "beowulf," you monsters.

>> these cuts will also affect our national zoo here in d.c.

>> we're going to have to fire three of our monkeys. we're just going to let them loose in the city. on the plus side, ikea and taco bell have made a very generous offer to buy some of our horses. so that's a relief.

>> plus, there will be cutbacks on meat inspections.

>> you know what? you know what? these cuts will affect our military, our civil servants , federal construction projects, even grants to native americans . and i'm the one who has to tell these folks, young men, there is no need to feel down. young men, get yourself off the ground. young men, just because your funding is down, there's no need to be unhappy.

>> welcome back to " morning joe ." nicolle wallace is still with us. and joining the table, we have the cohost of cnbc's " squawk on the street ," david faber .

>> you say squawk as if you're on steroids. leigh gallagher is here with "fortune's" list of the world's most admired companies. i can't wait to hear what's on the list. i'm sure comcast is on the list.

>> i'm sure comcast is on the list.

>> thank you. there are many on the list.

>> let's get to the news. "the new york times" reports cutting spending remains the gop's central focus as the party is increasingly divided on other issues. the article lists several areas where republicans are no longer united from immigration to same-sex marriage. several republican governors are now supporting positions -- portions of obamacare. and just last week, the republican-controlled house passed democratic legislation concerning domestic violence. on "meet the press" yesterday, house speaker john boehner reiterated his stance on spending. telling nbc's david gregory that last friday's sequester is not nearly as painful as what the nation will face if the government fails to address the larger drivers of the deficit.

>> is this going to hurt the economy? will it hurt economic recovery?

>> listen, i don't know whether it's going to hurt the economy or not. i don't think anyone quite understands how the sequester is really going to work. there's no one in this town who's tried harder to come to an agreement with the president, toll do with our long-term spending problem, no one. it's unfortunate, and we've not been able to come to an agreement. but the house did its work to avoid the sequester. there's no plan from senate democrats or the white house to replace the sequester. in over the last ten months, house republicans have acted twice to replace the sequester. there are smarter ways to cut spending than these automatic across-the-board --

>> that's just not true. they've made it very clear, as the president just did, that he has a plan that he's put forward that involves entitlement cuts, that involves spending cuts, that you've made a choice, as have republicans , to leave tax loopholes in place, and you'd rather have those and live with all these other cuts.

>> well, david , that's just nonsense. if he had a plan, why wouldn't senate democrats go ahead and pass it?

>> that would be good. if he's got a plan, i would love to see --

>> he did. he had one.

>> i would love senate democrats to pass it. we could have regular order. but these senate democrats haven't passed a budget in four years, so why would they pass any plan whatsoever? nicolle, i just want to get this out there. we say, like everybody else says, budget cuts, budget cuts. you heard leon panetta talking about the doomsday scenario , that defense budget was going to be slashed so much that we were going to become a regional power . his undersecretaries talked about castration. i wish they wouldn't. it makes me uncomfortable. another one talked about assisted suicide, that these sequestration cuts are --

>> it's like sarah palin -type fearmongering.

>> here's the thing. you look at the pentagon budget . as lindsey graham 's saying, ronald reagan 's rolling over in his grave. and john mccain 's quoting chairman mao about just how bleak it looks. if you actually look at the numbers s numbers, there's not a single cut. spending goes up for the pentagon every single year, even under the sequester.

>> that's right. and this needs to be translated outside of the beltway because when people in washington talk about cuts, they're talking about a reduction and an increase in spending. that is washingtonspeak for a cut. but what's so remarkable to me is that the sequester was not a storm on the horizon. it wasn't like hurricane sandy and everyone had to, you know, take bottled water into the bathtub and whatnot. this was something that they created. this was initiated by the white house . this was a backup plan created by the very same politicians who are now railing against their own backup plan. the other point that you have made is that the cuts in and of themselves are so minuscule, what everyone i think is having heart attack and heartburn over is that they were so inartfully done. that there is certainly room in the pentagon budget in procurement reform, in green initiative -- i mean, there are certainly places where there was waste. and any republican that tells you otherwise is not being truthful.

>> is just not telling the truth. you know, david , that's one part of it. the cuts were crude. they were unfocused. the second problem is, we continue to cut out of the wrong part of the budget .

>> exactly.

>> we picked the 10%, 11%, 12 prosecuti12% of spending, and we ignored areas we need to go, medicare , medicaid, these long-term entitlements that we have to trim over time .

>> no doubt. and that was key to much of the debate that's taken place over the last year and a half. and yet we're nowhere on those potential cuts, or at least taking a look at that. one good news, i guess, piece is medical c osts seem to be rising more slowly than had been anticipated. so some of those numbers look a bit better. but you're right, joe. we are taking actually, if it was a business, we'd be doing the opposite of what we should be. taking money from what would be investment where you're actually going to make the investments that are going to allow to you grow. whether it be infrastructure or in so many different areas. and instead choosing not to go down the road where there is real opportunity to make those cuts. it goes back to just the overall dysfunction i think when i speak to so many members of the business community , and they look at washington. the reaction has not been that negative in the stock market . certainly not the case. and even in the business community to the sequester, but nonetheless, it's the overarching theme of can't they get anything done? we still don't have an energy policy . we still don't have an immigration policy . we still are making the wrong decisions.

>> you're exactly right. and leigh , what's happening is the opposite of what businesses would do. they are cutting r&d. they are cutting future investments. but they're keeping a pension plan in place that's not sustainable, that economists, for 30 years, have seen coming. we are an aging population . in three years, the average age is going to be 45. the door is shutting for us to be able to plan ahead to save medicare , to save social security , to save medicaid.

>> right. but i mean, wasn't that in part the point? hey, we're going to make these cuts a year and a half from now, blind. we're going to make them indiscriminate, and surely that will get everyone to act. if these cuts are so sensele, surely everyone will come to an agreement. and sure enough -- that was back when maybe that was a slight more -- things were slightly more optimistic.

>> and there certainly are some who are saying this is kind of a presidential campaign to destroy the republican party . here's what doug showen and patrick goodell wrote in "politico." the president is obviously going all out, but not to avoid the $85 billion in spending cuts known as the sequester set to kick in on friday. obama doesn't want to make a deal with republicans . his fearmongering is part of a concerted plan that extends far

beyond the sequester crisis: to obliterate the republican party as a viable force in american political life . his self-righteous rhetoric

obscures a bitter truth: obama is not trying to unite the country, he's waging a class-based battle for political gain. his goal is to win back the house for democrats in 2014 , giving him a united congress for his last two years in office and allowing him to pursue the most expansive government in history. i would counter with i think the republican party 's doing just fine obliterating itself. and that republicans , to your point, don't really want to plan ahead. they don't want to cut entitlements. they could have and they didn't. and they didn't because they had one issue, loopholes, which they all want, just not now, not in this fight because they'll look bad to their base. wouldn't you agree?

>> no, i don't. republicans are the only political force that have been planning ahead. paul ryan put a medicare plan out. republicans have put budgets out every single year. democrats have decided they have not -- would not -- no, not full of poison pills. the way regular order works, the way our constitution sees congress working is, the house passes a bill. the senate passes a bill. and they work together. there's no moral relativism here. the house continues to pass budgets. the senate bill not pass a budget . and when the senate doesn't pass a budget , david , what happens is you take the budgetiers out of it, all of the appropriators out of it, you force a crisis, which harry reid 's senate has forced, and you have three or four of the top people on the hill rushing down to talk to the president at the last moment instead of having regular order where appropriation chairmen put out their priorities. they debated on the floor. it passes on the floor. then the senate does the same thing.

>> is it because you need 60 votes for everything these days ?

>> no, it's because harry reid doesn't want to put a budget out on the floor. the senate could.

>> and pass it.

>> and pass it. health care -- i mean, republicans would love to give harry reid and the democrats a chance to pass their first budget in five years. but they don't want to do it. they're hiding the ball. paul ryan does it. they criticize him. i mean, they've got to return to regular order here.

>> do you really have any expectation that will happen?

>> that's up to harry reid and the senate democrats . i mean, i just -- mika --

>> is regular order more important than a grand bargain would have been? have they been able to do this?

>> what regular order does is -- and i don't want to get too far in the weeds -- it allows congress to function the way our founding fathers expected congress to function, and it stops this government by crisis deadline, crisis deadline, crisis deadline. and so again, i salute the republicans for passing a budget every year. i hope the democrats will start doing that, and then they compromise, and then they send the bill to the president. he signs it or vetoes it.

>> as the dow hovers near record highs, there's a troubling question this morning. why isn't unemployment dropping more quickly? "the new york times" reports major corporations have seen soaring profits but haven't been able to add to their work force . in the third quarter of 2012 , corporate profits accounted for over 14% of the national income , its largest share in more than 60 years. however, personal income has seen its largest drop in nearly two decades, falling by over $500 billion.

>> mika, i warned this, that if barack obama got elected, the richer would get richer and the poor would get poorer, and here it is.

>> come on, now.

>> so many people just love to look at the micro and say george bush passed this. and that's why the rich is getting richer and the poor is getting poorer. we have -- we have technology changes over the past 20, 30 years that are allowing corporations to do this, aren't we? and that's the great challenge of our time economically.

>> productivity increases are certainly a part of it. there's no doubt. that is one part of it. but there are a lot of different elements to why hiring has not been perhaps as strong as some had hoped. it also goes back to what we were talking about earlier. there is continued uncertainty in corporate america . perhaps not as much as there was before the election. or in the summer of 2011 .

>> what's the main uncertainty?

>> yeah, tell me.

>> there are trillions of dollars on the sidelines.

>> a lot of it's overseas.

>> how do we get it back?

>> but you've got to pay taxes on it. u.s. corporations for the most part don't want to pay those taxes. repatriate it.

>> can we get it where we don't have to pay them back? why?

>> if we passed a tax holiday of some kind, then you would.

>> close loophole loopholes.

>> dell is bringing money back at the tax rate . but that's another reason. so we talk a lot about that cash. but joe, a lot of that cash is overseas. and for whatever reasons corporations use it over there or they might buy something overseas, but they don't bring it home . it is continued uncertainty in part because of regulatory concerns, although it is, i think, a bit overstated, and you don't hear it as much. and because of political dysfunction. but mostly it's because of demand. it's because, okay, things are okay. and they are okay. they're better than they were. they're getting a bit better, but they aren't growing enormously.

>> they're making a lot of money.

>> they're making an enormous amount of money.

>> record profits.

>> there's still growth in the economy, and the second half we're hoping will be even stronger.

>> it's interesting, merger activity is starting to come back. wouldn't you say that, david ? we're seeing a couple big deals just in the past couple weeks.

>> we are.

>> that's never been any question.

>> we're seeing a sign of confidence. it may be making more of it because heinz is being taken over, dell and well-known household names . but we are seeing a bit more. there are more decisions being made. but your overall point, sure, productivity has helped u.s. businesses avoid having to make massive hiring decisions. but they're also not building perhaps the plants and things that they might need to. to add to that hiring.

>> how many household names , leigh , are on "fortune's" list of the top ten most admired companies?

>> a lot of them. these are the companies that are most admired. it's basically sort of a corporate report card. we pull executives, analysts, and board members of who are the companies you admire most?

>> who are they?

>> the first one is apple. many moons ago on this list, ge was always at the top. so this is sort of a changing of the guard . apple's number one for the fourth or fifth year in a row.

>> now, who's judging this?

>> it's directors of companies, executives and analysts. it's the corporate world. this is not people on the street.

>> so tim koch's getting kicked around by a lot of people, but his peers still admire what he's doing.

>> yes. that is because when you look at innovation and leadership, this company has transformed seven industries. it's sold 100 million ipads, 200 million iphones this year.

>> he's got a daytime job. he's doing all right. now, number two, google. how did these guys avoid the zuckerberg effect? they could have fallen by the side. it's a cutthroat game.

>> but i wouldn't rule out mark zuckerberg . facebook is on our list for the first time this year. facebook has grown into a blue-chip company. it's not that old. the companies at the top now have risen very fast. and this just goes to show you how quickly, you know, the tools to build businesses now have never been faster acting. i mean, in the industrial economy , it would have taken decades for a johnson & johnson to rise to the top of this list.

>> so really quickly, i want to get through the list. amazon, number three. that guy is just -- he's going to take over the world.

>> jeff bezos , exactly.

>> number four, an old- line company .

>> coca-cola. there's a lot.

>> coca-cola. as we say in the south, co. cola. what makes them stand out?

>> this is an iconic -- in a market that's changing dramatically.

>> exactly.

>> this is a company that's really adapted and changed and continues to.

>> number five, starbucks. number six, ibm . what a story, ibm remade itself. it could have collapsed. but it's remade itself over the past decade.

>> it did. it's an incredible transformation. ibm is also known as a leadership factor as much as it is an i.t. services company.

>> number eight, berkshire hathaway .

>> god love warren buffett , he's buying ketchup and newspapers.

>> how much money did buffett make during the collapse back in 2008 when he said, you know what? i'm going to be a good guy and put some money down on goldman sachs .

>> and general electric .

>> and general electric . yeah. no doubt about it. walt disney . what are they doing?

>> disney, great story.

>> not the employees speaking here.

>> not the employees. not at any of these companies.

>> no, i'm serious.

>> hey, hey, hey. walt disney , what are they doing right?

>> they're getting -- they've got major hits. you know, disney's got its hands in many things, owns espn. which is a huge profit for the company. you know, again, great leadership under bob eiger.

>> number 11 not seen on the list, comcast .

>> exactly.

>> the issue is "fortune's" most admired companies.

>>> still ahead, senator kir stkirsten gillibrand and mick lass confessore and later, former cia operative valerie plame . up next, chuck todd and wes moore join the set. you're watching " morning joe " brewed by starbucks. [