Former U.S. Comptroller General David Walker on the Federal Fiscal Crisis

Former U.S. Comptroller General David Walker on the Federal Fiscal Crisis David Walker: We are mortgaging the future of our children, grandchildren and future generations while at the same time reducing relevant investments in their future at the time that they’re going to have increasing competition. That’s not only irresponsible, it is immoral. Nick Gillespie: Hi, I'm Nick Gillespie with Reason TV. Today we’re talking to David Walker the President and CEO of the Peter G. Peterson Foundation and former US Comptroller General. David, thanks for dropping. David Walker: Good day with you Nick. Nick Gillespie: You talk about a lot about federal financial responsibility. What is the magnitude of the problem facing us in terms of fiscal responsibility or lack thereof? David Walker: Well last year fiscal of 2009, we had a 1.4, two-trillion dollar deficit, this year it’s going to be 1.3 trillion plus. The debt has more than doubled in the last 10 years. It’s scheduled to more than double again the next 10. Nick Gillespie: Isn't that kind of growth good? David Walker: That type of growth is not, that’s called negative growth and our liability is not going to promise is if tripled in the last 10 years as well. Nick Gillespie: What are the major drivers of this auto control government liabilities? David Walker: Medicare is $38 trillion under water. Social Security is $78 trillion under water. Those would be the two biggest. Nick Gillespie: What are the types of spending restraints that are meaningful that we might put in or Congress might put in on itself and then how do we say, not necessarily say, who do we make Social Security and Medicare ether less horrible disasters or more viable growth? David Walker: Well, first we need to learn from the past. We need to re-impose tough statutory budget controls and discretionary spending. We need to be able to have mandatory reconsideration of spending programs and tax policies when they reach a certain size. Nick Gillespie: What does that mean? David Walker: Well what that means is, is under the past spending controls that we have, we control what was called discretionary spending which is defense in other spending. But we didn’t have any controls at all, that over 60% of the budget that there's in there by law. There are the mandatory spending programs, Social Security, Medicare, Medicaid and agricultural programs. A trillion dollars worth of tax preferences, deductions, exemptions, exclusions and credits, those just grew on auto-pilot wasn’t subjected to any constraint or any oversight. We also need to have pay as you go rules that are meaningful pay as you go rules, the one that are there right now have trillions of gaps in them. Nick Gillespie: Speaking of Pay-go, President Obama has said, “We’re not going to spend a dime unless we’ve cut a dime.” One of the recent issues is the constant re-upping of federal unemployment benefits. Jim Bonning became a national laughing stock when he said, “If you want $10 million to pay for this, take it out of whatever it is, four- trillion dollar budget and he was laughed at more recently in a Congress just again agreed to redo or spend more on unemployment benefits without cutting anything. How do you make this thing stick? How do you make pay as you go work? David Walker: Well first, it’s very difficult to be able to constrain federal spending especially in the area of unemployment benefits when you almost have 10% unemployment and you got so many Americans that are hurting if you will. But I think this is kind of an example of when things aren’t going well, people want to do more and they may have justification for doing more. But when things are going well, they don’t want to end up making tough choices to be able to eliminate a bunch of things that aren’t working, and that is what we have to do. I mean we have to be more future focus, more results oriented. Government has grown way too big. We have a lot of federal government spending programs and tax policies that don’t work. Nick Gillespie: Was there in recent memory, was there a time when Pay-go rules actually worked or were Congress restrained at least the growth in spending if not absolute cut? David Walker: From 1990 to 2002, during the efforts of President George Herbert Walker Bush and William Jefferson Clinton. We have tough statutory pay as you go rules, discretionary spending cuts etcetera and by and large they worked. They help provide discipline. They help to give a basis for people to say no. Nick Gillespie: Why did they disappear? David Walker: They disappeared because as you know we have a surplus for four years. People thought that we didn’t have a problem anymore and frankly people didn’t want to be constrained with regard to spending or tax cuts. They wanted to be able to do both and they did a lot of both and now we’re in much worst shape than we’ve ever been. Nick Gillespie: Talk about Social Security, how big is the problem and what do we do to adjust things? David Walker: Social Security does not face an immediate crisis but it is paying out more in benefits than it’s taking in cash revenues. Nick Gillespie: And that will never reverse right? David Walker: Well it’s supposed to reverse for a few years, less than five years after we came out of the recession. But it’s permanently going to be negative cash flows starting in about 2017. We need to recognize that it’s proven to solve the problem sooner than later. We need to gradually increase the normally early retirement agents and then index in the increases in life expectancy. Strengthen the benefit from people near the poverty level, provide not quite as much from middle and upper income. We need to add an automatic savings account on top of a solvent, sustainable, secure define benefit program. Nick Gillespie: Let’s talk about Medicare. What do we do with Medicare? This is the thing that will bring us to our needs, right? David Walker: Well, there are a lot of things we have to do with Medicare. We need to move away from fee for service payment systems. We got to go more evidence space practices. We can’t write a blank check for Medicare which we do now. We need to be more realistic about what type of services should be covered under Medicare. We need to get out of the business of providing subsidies for billionaires and very wealthy people who voluntarily sign up for Medicare’s, out patient, physician payment and prescription drug programs. Nick Gillespie: Should we get rid of the prescription drug benefit? I mean this is one of Bush’s big legacies. It’s a total black hole and it really shovels money from relatively poor and young people to relatively well off. David Walker: I think the federal government was on the wrong business for healthcare. I think the federal government over the next 20 years or so should be in the business of making sure that every American has preventative, wellness and catastrophic. So guaranteed insurability and group rates for those things but beyond that I think that there ought to be choices. There will be options and Americans shouldn’t be required to take it beyond that. I think if we did something like that, we could do something it would be affordable and sustainable for our broad base societal benefit but what we have now and frankly what we recently did, I think is going to compound our problem. Nick Gillespie: So that and I mean obviously, essentially what the healthcare reform and a lot of ways was just what pass is really creating Medicare for everybody now. It’s certainly massively expend in the governments role at regulating and quite possibly, ultimately in delivering healthcare. What do we do to pull that back? How do you reach people to say, these systems are unsustainable now. Medicare is unsustainable. Adding another trillion dollars in healthcare spending over the next decade or more is unsustainable. What do you do? David Walker: Well, what Washington just did is they added a new wing to a healthcare account house that is structurally unsound mortgage for more than its worth and headed for foreclosure. Sooner or later people are going to realize that and we’ll have to have an honest discussion debate with the American people about what level of healthcare coverage is appropriate, affordable and sustainable, and how to best finance it. All the tough decisions dealing with that were really punted and I think it’s probably going to be 2013 before we come to make those decisions but we must make them. Nick Gillespie: There is no way that economic growth is going to save us. David Walker: No there's something called Math in order for us to be able to grow our way out of this problem. It would take double digit real economic growth every year for decades. It hasn’t happen. It’s not going to happen and we also can’t inflate our way out either. Nick Gillespie: Talk briefly about the Peter G. Peterson Foundation. What's its mission and what's your role there. David Walker: Well the Peter G. Peterson Foundation is named after a great American Pete Peterson who puts his money where his mouth is and his time where his heart lies. We’re about promoting federal financial responsibility. We want to make sure it’s not an oxy moron. We want to be able to promote more responsibility and accountability today so we can help create more opportunity. We’re focused on fiscal issues, savings issues, and balance and payments issues, basically trying to help save the republic. Nick Gillespie: Are you optimistic about the future or pessimistic? David Walker: I'm an American, so by definition I'm optimistic. At the same point I'm a realist and my view is, yes we can turn this thing around but only if the first three words of the constitution come alive, we the people. Nick Gillespie: But aren’t the people the problem? I mean, everybody wants something. You're talking about if it’s a 75% subsidy on healthcare. I'm paying a quarter, I'm getting a box worth. David Walker: Look, human nature being what it is. Everybody wants as much as they can get and not have to pay for it. But what they have to understand is not just an economic issue, this is a moral issue. We are mortgaging the future of our children, grandchildren, and future generations while at the same time reducing relevant investments in their future at a time that they’re going to have increasing competition. That’s only irresponsible, it is immoral and it’s also taxation without representation on a massive scale. Nick Gillespie: Thanks David for talking. David Walker: Good to be with you, Nick. Nick Gillespie: With David Walker of the Peter G. Peterson Foundation and former Comptroller of the United States, I'm Nick Gillespie for Reason TV.