Former comptroller adds another budget plan to debt crisis mix

Mandel Ngan/Newscom
Federal agencies "need to get the message that the days of 20 and 30 percent spending increases are over," former Comptroller General David M. Walker told reporters on Capitol Hill on Wednesday as he added his own budget-cutting proposals to the swirl of competing plans for resolving the debt-ceiling crisis.

Walker's new report, "Restoring Fiscal Sanity: The Tough Choices We face and Two Possible Ways Forward," offers an array of deficit-reduction proposals that include major changes in Social Security, health care and defense spending, and long-term reforms to the Tax Code and budget process.

"The new four-letter word in Washington is math," Walker said, acknowledging that his report's release was not originally timed to coincide with Congress' stalemate over raising the debt ceiling. He said his objectives "are to help inform the current debt negotiations so they can achieve a bipartisan compromise; to help educate and engage the American public on the magnitude of the changes needed to solve the debt crisis and restore fiscal sanity; and to help congressional committees" work over the long run to design the major reforms to entitlements and the Tax Code, which, Walker says, are too complex to be accomplished before the Treasury Department's Aug. 2 deadline for avoiding default on the national debt.

Walker hopes the solution that emerges this week would raise the debt ceiling in the short run and commit to some $3.5 trillion in spending cuts and budget disciplinary tools -- targets, triggers and automatic enforcement mechanisms -- that would bring in revenues later.

"Over time, everything needs to be on the table," he said, adding that the exact ratio of spending to revenues probably won't be decided until after the 2012 elections.

"These cuts won't be popular -- the right won't like some things and the left won't like some things," he said. "But we're in dire straits."

Walker headed the Government Accountability Office from 1998 to 2008. In recent years he's been traveling the country campaigning for deficit reduction, an effort that was captured is in the commercially released 2008 documentary I.O.U.S.A. He is currently promoting his ideas in what is called the Comeback America Initiative funded by the Peter G. Peterson Foundation, where he formerly served as president and chief executive officer.

The initiative offers "not a plan but two frameworks," Walker said at the Wednesday briefing for Senate staff arranged through the offices of Sens. Kent Conrad, D-N.D., and Jeff Sessions, R-Ala.

The Pre-emptive Framework, designed to be implemented in installments to reassure credit rating agencies and foreign lenders, would cut discretionary spending back to 2008 levels, but also would spend $500 billion investing in infrastructure to "prevent a double-dip recession and stimulate job growth."

The Reactive Framework, designed as an emergency fall-back in case of a new crisis similar to the 2008 recession, includes accelerated cuts along the lines of the first framework, as well as lowered spending caps, debt-to-gross-domestic-product targets and constitutional reforms for emergency situations. These could include a line-item veto for the president, a debt-to-GDP limit and a balanced budget amendment.

This more drastic framework would mean "no more promise me, but show me," Walker said. "We don't want to just have another process-oriented approach. We need one that's fail-safe." Ultimately, Walker's plan would cap government spending at 21.8 percent of GDP. "The American people don't want to send more money to Washington," he said, "and they shouldn't until we've done these structural reforms."

In sketching the need for far-reaching changes, Walker noted that during the past 40 years, the composition of federal spending has changed dramatically, with an increasing proportion now "on autopilot." And in the past 10 years, spending has "gotten out of control, and both parties are to blame," he said.

In the revenue area, there are problems at the high end and the low end, he said, with 50 percent of Americans paying no income tax but the top 1 percent paying an effective rate of only 18 percent, mostly because of low rates on capital gains.

He says the amount of mandatory government spending means the United States falls $2 billion short every week. "Every 1 percent rise in interest rates means we spend $150 billion in payments per year, which we can't budget," he said. "We rank 28th among 34 developed nations in fiscal responsibility and sustainability."

The specifics of Walker's plan would be high impact. The Social Security proposals include raising the retirement age gradually and adjusting the cost-of-living allowance. His Medicare proposals involve means testing, with the aim of reducing the subsidy rate from 75 percent to 50 percent. He would repeal large parts of the 2010 Affordable Care Act, reducing federal subsidies and replacing the law by 2020 with a universal plan that focuses on preventive medicine and catastrophic illness. "We're the only major developed nation with no budget limit for health care," Walker said.

For defense savings, he would reduce the number of U.S. forces in Southeast Asia, require the Pentagon to consider affordability in its purchasing and lower overhead by 25 percent.

For federal workers, he proposes changing benefit calculations to use a chain-linked Consumer Price Index, which would account for changing purchasing habits, and he suggested raising the pension and health insurance contributions required of civilian and military workers.

Within the agencies, he said, it's time for a "workout plan" for resource constraints. "We need to create a baseline over time and look at what federal government can and cannot do, and then restrict government's ultimate size," he said. "The problem is the uncertainty, so we need clarity."

In the end, Walker said, his plan would improve competitiveness, promote economic growth and generate more revenue.

To make such far-reaching reforms politically doable, he suggested politicians "show courage and lead by example," in particular challenging them to "rescind and reject the written pledges to special interest groups" that have proliferated on both the right (no new taxes) and the left (no cuts in entitlements).

"It's one thing to pledge to serve your constituents," Walker said. "But these pledges have undercut our democracy."

Correction: The original version of this story described David Walker as president and chief executive officer of the Peter G. Peterson Foundation. These are his former roles, and he is no longer with the foundation.

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