A Bad Time For "Bad Math"

By Allison Rizzolo

Speaking at the Maxwell School/ Public Agenda Policy Breakfast, on June 25, 2009, in New York City, the Honorable David Walker, CEO and president of the Peter G. Peterson Foundation, drew upon a metaphor in his analysis of the country's current financial situation.

"We have a house - let's envision it as the White House - that's got a cracked foundation, leaking plumbing, a roof that needs to be repaired, and that's underwater… it's got a mortgage that's worth more than the house. And at the same point in time, we're engaging in a discussion that's, 'Look, let's build a new South Wing!' And we'll pay for the South Wing, but it's attached to this house."

"When are we going to start fixing this house?" asked Walker, who is well-known for his advocacy of the need to address the escalating problem of the federal budget and national debt. "We are expanding government promises in ways that are unaffordable, unsustainable, and make no sense whatsoever."


Peter G. Peterson Foundation president and CEO David M. Walker, speaking at the Maxwell School/Public Agenda Policy Breakfast in New York, called for the convening of a Fiscal Future Commission to put all government spending on the table and engage the public to chart a course out of deficit spending and plans based on "bad math."

 

Walker, a former Comptroller General of the United States (the government's chief auditor), approached the subject of our fiscal future with a determined optimism that solutions to the federal budget deficit problem exist.

The answer, said Walker, lies in "dramatic and fundamental transformational reforms" that will involve "re-baselining" the government. It's a tall order, but, according to Walker, it can be done: "You can transform government, but it takes tough choices, and not popular choices, in many cases."

What about the "easy rhetorical solution," asked Robert Siegel of National Public Radio and host of the Policy Breakfast Series. Can we "'grow our way' out of this?"

"The U.S. is not top 25 in the world in math," Walker replied. "The fact of the matter is that the math doesn't come close to working. If you take our current ditch, the federal financial hole… we would need double-digit real GDP growth - after inflation, every year for decades - to grow ourselves out of the hole. It hasn't happened. It isn't going to happen."

The "federal financial hole" is, he added, "not a matter of money."

In fact, "we spend more money than any other country on Earth on health care and education," said Walker, "and we get below average results across the board in those two areas."

Our fiscal future is in jeopardy "not because we're not spending enough money," said Walker. The problem, instead, is "bad math."

"The government," he continued, "spends a lot of money, issues a lot of tax preferences, and in many cases, is not receiving measurable results."

Walker identified "four dimensions" to the current fiscal crisis: "deficit, debt, dependency and the ditch," a term he used to describe the "sum of the total liabilities and unfunded promises for Social Security and Medicare alone."

The solution to all four dimensions, according to Walker, lies in asking "a number of fundamental questions about every major federal government tax preference and government spending program."

To that end, Walker is calling for a convening of a Fiscal Future Commission that is statutory and which "ends up having everything on the table… that ends up engaging the American people… and that would make a package of recommendations" to introduce to Congress. Walker sees a commission of this type as "the only way we're going to be able to get politicians to make tough choices."

In his view, four things must happen to address the deficit: tougher statutory budget controls, changes in the tax system, and reform of both the health care system and Social Security. What needs to be done in the case of Social Security, he said, is so straightforward that he calls it a "lay-up."

If the solutions to Social Security reform are so clear, why has it yet to happen?


Public Agenda president Ruth Wooden, asking David Walker - whose past experience includes service as Comptroller General of the United States, leading the Government Accountability Office - when he thinks Social Security is likely to move to center stage for the Obama administration.

Walker pointed to what he views as "a leadership deficit in Washington" as part of the problem. "That's the biggest deficit we have… American people are ahead of their elected officials," said Walker. "They get it. We need more leadership… They are absolutely dying for people to tell them the truth and to exhort leadership."

Unfortunately, he added, the truth is not always a popular message.

"We have something the founding fathers never intended, which is something called career politicians, and they view their position as a job," said Walker. "Therefore they don't want to tell people the truth, they don't want to answer the tough questions, and they'd rather give people what they want: they want more government and less taxes. The problem is," again, "the math doesn't work."

Solutions to the fiscal crisis, says Walker, may not be popular, but they are feasible. One large element in a successful financial future, he believes, would be an increased tax rate.

Walker also commented on the wars in Afghanistan and Iraq, which many people point to as culprits for running up the deficit. In reality, the wars account for only three percent of the "federal financial hole." On the other hand, eliminating the tax cuts enacted during the last administration would also eliminate ten to twelve percent of the problem.

"Tax rates are going to go up," said Walker, "and overall tax burdens are going to increase as compared to what historical levels were… My concern is, the longer we wait, the higher taxes are going to go… We need to act sooner rather than later."

Health care reform, weighing heavily on the minds of citizens and Congress alike, is "the biggest… fiscal challenge we face," according to Walker. "If there's one thing that can bankrupt America," said Walker, "it's health care cost. There is no free lunch."

"We are the only industrialized nation that does not have a budget for health care," Walker points out. "Even socialized medicine countries have a budget… because they know it's more than money—it's emotion."

Walker identifies the cost of health care as "one of the reasons that wages have not been going up as much, and one of the reasons that pensions have been frozen… Health care costs are out of control."

And while "we need to recognize reality," understanding that’s "there's a limit to how much we can allocate to health care," Walker feels strongly that we can do better that what we're doing now, which is "a strikeout on the…basic things that it takes for any system to be successful and sustainable over time."

Solving the problem of health care, as with every other dimension of the fiscal crisis, will take "tough choices," but Walker sees a way forward. "We do ultimately need to move to a system that provides universal coverage," he says, "not universal opportunity, universal coverage for certain types of healthcare based on broad-based societal needs."

Walker also acknowledges that we "may need to consider an individual mandate… then the debate is, 'What must you have?' And this is where we don't have a debate. What is the basic and essential level of care that we want to make sure that everybody has, because it's in our societal need and frankly it's in our interest too, and that's what I would argue would be preventative and wellness and catastrophic protection."

As for Social Security reform, Walker envisions gradually increasing both the normal and early retirement ages, indexing them to life expectancy, strengthening the minimum benefit for those at or near poverty level, reducing the replacement rate for middle and upper income, raising the taxable wage base cap, and adding an automatic, supplemental savings account that the government can't touch.

All of this, Walker says, can be accomplished in one piece of legislation.

"Things aren't that complicated," said Walker. People need to realize that they can't "have everything that they want and expect not to have to pay for it at some point." The re-baseline, then, needs to take place not just in government but also in the attitude of the public.

We need to "really just get back to the basics," Walker concluded, "and say, 'We need to reengineer this,' and we're not looking for a nip and tuck. We're looking for radical reconstructive surgery, in installments, over time."

 

To learn more about the federal budget deficit and national debt and what we can do about it, check out FacingUp.org, our site devoted to this issue, and Students Face Up to the Nation's Finances, our nonpartisan curriculum for college students and concerned citizens, available free of charge through a grant from the Peter G. Peterson Foundation.