Debt’s Dangerous Depth

A Budget Hawk Takes Up Mission

Posted February 22, 2010 at 3:20pm

Now that President Barack Obama’s 2011 fiscal budget has been printed, bound and widely circulated, budget hawk and former Comptroller General David Walker’s recent book, “Comeback America,” couldn’t be more timely. In addition, Obama’s recently announced debt commission makes it even more relevant.

The White House’s proposed budget — which predicts what most economists consider to be an unsustainable long-term rise in the ratio of debt to gross domestic product — has prompted members of both parties to sound off about the United States’ tenuous fiscal future, an issue that figures to become increasingly prominent in the legislative landscape for years to come.

Yet despite lawmakers’ rhetoric about soaring deficits, mounting debt and spending measures that some have dubbed “generational theft,” Congressional action to meaningfully address the nation’s fiscal woes has been scant.

This comes as no surprise to Walker, though; over the course of his 10-year reign as comptroller general and head of the Government Accountability Office, he developed an abiding belief that politicians simply can’t be trusted to proffer the politically dicey solutions needed to pay down the debt.

So he came up with a few of his own.

And although his 206-page work is geared more toward Middle America than Capitol Hill, lawmakers may find Walker’s critique of how the federal government does business particularly useful in crafting legislation designed to get the United States back in the black.

One of the first and most familiar-sounding remedies that Walker proposes is a “Fiscal Future Commission” tasked with devising a blueprint for reform. The commission would be similar to the one rejected by the Senate on Jan. 26, which would have created a bipartisan body whose budget recommendations would be subject to an up-or-down vote.

After the measure failed, the commission’s two architects — Sens. Kent Conrad (D-N.D.) and Judd Gregg (R-N.H.) — echoed Walker’s sentiment that Congress has consistently proved to be incapable of reining in spending and controlling deficits.

Walker’s ideal commission differs from Conrad and Gregg’s, however, in that it would include elected representatives, administration officials and outside experts — not just Democratic and Republican lawmakers. Moreover, one of the commission’s key duties would be to educate and inform the public about the tough choices that lie ahead on entitlement programs such as Medicare, Medicaid and Social Security.

In response to the failed measure, Obama has created his own bipartisan debt-reduction commission by executive order. But most Republicans have been less than lukewarm to the idea; some have noted that the commission lacks the teeth to force Congress to vote yes or no on its recommendations without amending them, while others have refused to participate in a commission that might suggest tax increases. All of this would seem to validate Walker’s charge that politicians will continue to literally pass the buck to future generations if left to their own devices.

Walker also takes issue with the notion that tax increases are inimical to fiscal conservatism; on the contrary, more tax revenue is exactly what’s needed to pay for the federal government’s current spending obligations while also chipping away at the debt, he argues.

In order to get out of the red, America will need to revert back to a more limited central government and also reform the way it collects taxes, he says.

Part of Walker’s multipronged approach is to dramatically scale back tax preferences (or tax exemptions, in many cases) to special interests such as farmers and health insurers. It’s fine to use taxes as a lever to promote certain types of behavior, he says, but overall tax preferences account for more than $1 trillion in lost revenue each year. For example, the U.S. lost $288 billion in 2008 from tax preferences given to employer-provided health insurance plans — under the current tax code, the federal government essentially subsidizes health insurance for the well-off by exempting most Americans from paying income or payroll taxes on their employer-provided plans, but stiffs the near-poor who lack employer-provided coverage.

Walker also recommends abolishing what he calls “the con game known as the Alternative Minimum Tax,” which originally targeted the rich but — because it’s not fixed to inflation — has trapped millions of middle-class Americans into paying more in taxes than they should really owe as nominal incomes have risen over the years. This could prove to be a tough sell, he notes, because it would require Congress to raise rates in order to make up for $800 billion in lost revenue over 10 years — but at the very least, it would be honest and greatly simplify America’s convoluted tax code.

More generally, Walker would prefer to lower tax rates while broadening the tax base so that more Americans help shoulder the cost of government. This idea does not go well with Obama’s current tax policy, however, which Walker says would exempt up to half of all Americans from paying income taxes. That would allow Obama to make good on his campaign promise not to raise taxes on anyone making less than $250,000 a year, yet it would also make it much harder to generate enough revenue to meaningfully attack the debt. It would also mean that only a small percentage of people at the top of the tax bracket would pay for the bulk of essential services such as national defense and homeland security.

In addition to devoting chapters to Social Security and Medicare reform — where he proposes such unpopular measures as raising the Social Security retirement age and capping Medicare and Medicaid spending — Walker also targets a segment of government that lawmakers have long been loath to cinch the purse strings on: the Pentagon. Obama’s proposed budget exempts all defense spending from an otherwise five-year freeze on discretionary spending, and Members have signaled that it’s unlikely Congress will seek to trim the military’s budget while two wars are under way. But Walker doesn’t mince his words when he writes, “the Pentagon is one sacred cow we should stop worshipping.”

Instead, he describes a series of commonsense reforms culled from his time spent at the GAO that would require the Pentagon to ask itself such novel questions as “Do we really need this new weapon?” and “If so, how many do we need?” Walker does give Obama and Secretary of Defense Robert Gates credit for axing the superfluous F-22 fighter program, but he says much more needs to be done.

One thread that runs throughout “Comeback America” is the notion that the federal government — from top to bottom — has never had a forward-looking strategic plan, as virtually all private enterprises have. So while lawmakers lament the budget challenges in the news of late and partisan rancor over the debt appears to be at an all-time high, it may behoove them to think about developing a plan along the same lines as the rough guide laid out in Walker’s book before it’s too late.