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David Walker & Robert Bixby on the National Debt

posted on September 20, 2012

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Men on a mission.  Former U.S. Comptroller General David Walker and Concord Coalition Director Robert Bixby travelling the nation warning of a fiscal catastrophe.  We're listening to an economic warning on this edition of Iowa Press.

Borg: Like a 21st century Paul Revere, men like David Walker and Robert Bixby are sounding a warning. But instead of uniforms and marching boots, they see a fiscal threat to the nation's security saying the current federal entitlement programs are unsustainable, particularly health care. Mr. Walker, after serving ten years as U.S. Comptroller General and head of the Government Accountability Office, that's the GAO, in both President Clinton's and Bush's administrations, then headed the Peter G. Wallace Foundation and is now directing the Come Back America initiative.  And joining Mr. Walker is Concord Coalition Executive Director Robert Bixby.  Gentlemen, you've been here before, it's good to have you back on Iowa Press.

Walker: Good to be back.

Bixby: Thank you.

Borg: And you aren't riding a horse like Paul Revere across the nation but you are on a bus tour of several states.

Walker: That's right, it's got a lot more horsepower.  We're going to 33 different events from New Hampshire to Nevada to Florida to Washington, D.C. about what our challenge is and we're engaging the public on non-partisan solutions that we believe should be able to get bipartisan support to put our finances in order.

Borg: We want to talk more about that.  And asking the questions today, Des Moines Register Political Columnist Kathie Obradovich and Radio Iowa News Director Kay Henderson.

Henderson: Gentlemen, this is not a job interview but let’s just give our viewers an idea of your credentials so they know from what you speak.  Mr. Walker?

Walker: I spent 21 years in the private sector.  I ran a worldwide line of business for Arthur Andersen.  I'm a certified public accountant.  In addition, I have run three federal agencies, two in the executive branch, one in the legislative branch. I am a presidential appointee with Senate confirmation from Ronald Reagan, George Herbert Walker Bush and Bill Clinton.  And most recently ran the Government Accountability Office as Comptroller General of the United States, Auditor General.  And I have run two non-profits.  So I've had fairly diverse experience.  I've also been chairman of the audit committee of the United Nations, head of strategic planning for auditor generals around the world and I've been pretty busy.

Henderson: Mr. Bixby?

Bixby: Not quite that extensive.  But I will say that I started out with a judicial background you might say.  I worked for a court system in Virginia, was the chief staff attorney of the Court of Appeals of Virginia and then decided that I'd like to move more into public policy.  I hooked on with the Concord Coalition at its founding when Paul Tsongas was running for president back in 1992.  I worked for his campaign and when he founded the Concord Coalition with Warren Rudman, after that I've been with the Concord Coalition ever since.  I've been the field director, the policy director and now I'm the executive director.  So I've been working on these budget issues both in Washington testifying on the Hill and that sort of thing and out on the road because that is an important part of our mission for the past 20 years.

Obradovich: Mr. Bixby, Dean mentioned a fiscal catastrophe.  Describe the size of the problem that you are trying to get people to engage and understand.

Bixby: You know, it's not as, it's not the immediate size of the debt that we worry about, it is the projected size going forward.  If you look at the projected deficits they are totally unsustainable.  You would need -- you couldn't do it all by just raising taxes, you couldn't solve it all just by cutting some particular program in the federal deficit.  We're looking at trillions of dollars of debt over the next ten years, another ten trillion dollars just over the next ten years under current policies.  This is why economists say it's totally unsustainable because over time nobody will lend us the money to pay the interest on that debt.

Obradovich: And Mr. Walker, why a catastrophe?  What is the bad thing that's going to happen if people don't pay attention and take charge of what's going on with the debt?

Walker: Well, to put things in context, if people are familiar with the national debt clock, which is $16 trillion, on our $10 million a minute tour we have the U.S. financial burden barometer which counts unfunded Social Security and Medicare, pensions, retiree health care.  It's over $70 trillion, going up $10 million a minute.  We have to diffuse that ticking time bomb. If we don't what we can see is significantly higher interest rates over time.  That would be an adverse impact on the budget, on economic growth, unemployment, on underemployment and frankly if we have a debt crisis in the United States, which could happen, we're going to have a lot bigger problems than we do now.  It would be a global depression.  We can avoid that and what we're trying to do is make sure we do.

Borg: Mr. Walker, you're also talking about entitlements.  I was correct in introducing you that way.  They contribute to what you're talking about, they're in that catastrophe, is that right?

Walker: They are but I don't like to use the word entitlements because the Supreme Court and the Constitution of the United States say there are only two things that are guaranteed, number one, bond holders of the U.S. debt and military pensions, nothing else is a "entitlement".  The real problems are two things, demographics, the aging of our society, longer life spans, 10,000 people a day, health care costs and an outdated tax system.  So all three of those are a problem.

Borg: Then what I'm really getting at is how do you reconcile your message with that on a surreptitiously obtained videotape that was made public of republican candidate Mitt Romney's comments?  How do you reconcile your message with what he said?

Walker: Well, Governor Romney was talking about the fact that in any given year 46% to 47% recently have not paid federal income tax.  And that is a challenge because federal income taxes fund all or substantially all of the constitutional roles of the federal government.  I think he was very inartful in the words that he used.  But there is an issue that we have to deal with this part of tax reform.  At what level of income should you not have to pay any income tax?  At the same point in time, how can we increase the effective tax rate of people who are very well off in a way that makes sense?

Bixby: I would just add that the idea that entitlements, so to speak, and Dave is right, there's not a legal entitlement there, is sometimes viewed as welfare but most of these programs are not based on need, they are based on a formula.

Borg: Let me just put a tie around it right now.  Was Governor Romney correct in what he said, the gist of what he said, Mr. Walker?

Walker: Well, what he said was, I think, is that he's concerned that he's not going to be able to get a lot of support for people who, A, aren't paying income taxes and B, who may be reliant on government programs.  I think that is an oversimplification.  My personal view is when you look at the46% or 47% who aren't paying income taxes they are very different reasons. Some are retirees who don't make much money.  Some are people who have very low income levels.  Some have a lot of deductions, exemptions, credits and exclusions.  And so you shouldn't put them all into one category.  And there's no doubt in my mind that he could end up getting the votes of a significant percentage of those people.  But he better be more careful about his words because they're not helping him.

Henderson: Let's ask about the public appetite.  You gentlemen are going around the country talking about this subject for years.  Is there a public appetite for dealing with this?

Walker: Absolutely.  The people are way ahead of the politicians.  They understand that we're living beyond our means.  We're living on borrowed time.  They can handle the truth.  They're willing to accept tough choices.  And they're willing to allow for more taxes, changes in social insurance programs and reduce spending if they are part of a comprehensive plan that they deem to be fair. And our efforts so far have demonstrated that.  We have gotten a minimum of 76% support for the type of reforms that we're talking about, in some cases well over 90%.

Obradovich: Mr. Bixby, go ahead Kay --

Henderson: Same question to you.  During the health care reform debate many senior citizens were adamantly opposed to a government take over of the health care system yet they are part of a government health care system.

Bixby: Yeah, I think that that's why we need some leadership from our leaders.  Consistently public education exercises the Concord Coalition has run, even here in Iowa on several occasions, have demonstrated that the public is ready to make these choices if they are dealt with honestly and if they have the facts.  If you take a poll and say, would you like to have Medicare changed or Social Security changed or your taxes raised, people will say no.  That is a very logical response.  But if you say to them given X, X, X and the country is on an unsustainable track, would you be willing to change these programs in some way, then people come around to that point of view. So the public is willing.  What is difficult to get through is the political chaff, the political fire that tends to polarize rather than bring people to consensus.

Obradovich: Speaking of political chaff, Mr. Bixby, is it your view that it will take both spending cuts and revenue increases including tax increases to actually deal with the size of the deficit and the debt?

Bixby: Absolutely, I don't think you can do it all on one side.  You can do it theoretically but to make it politically feasible I don't think you can do it without putting everything on the table. I served on a commission chaired by Pete Domenici & Alice Rivlin last year, democrats and republicans and what I saw developing there was that if the democrats saw the republicans were willing to come to the table on some revenues the democrats would be wiling to come to the table on entitlements and vice versa.

Obradovich: Is that also your view, Mr. Walker?

Walker: Right, we need to grow the economy faster, we need three-part spending reductions, one-part revenue increase.  How you get it matters.  What is more important than what we think, we had a representative town hall meeting in Ohio that was a representative group of voters.  87% said that we need both spending reductions and revenue increases in order to solve the problem.

Obradovich: So do you disagree then that it's always a bad idea to raise taxes during a slow economy?  That has been a hinge of a lot of the republican argument that we're seeing right now.

Walker: Well, I think what we need to do is we need to recognize that we should not have a significant tax increase or significant spending reductions given our current weak economic growth, high unemployment and underemployment.  However, that doesn't mean that you shouldn't make tough choices on these issues and phase them in over time.  We should go ahead and do comprehensive tax reform.  We should end up coming up with an agreement on how we're going to reform these social insurance programs.  We should reduce defense and other spending without compromising national security.  But part of the issue is how do we come up with a comprehensive solution to deal with the short-term and the structural and phase in these changes over time.

Borg: Mr. Bixby, in that comprehensive solution that he just referenced, what is the role of the Federal Reserve in monetary policy?

Bixby: Well, the Federal Reserve runs monetary policy and, of course, they are independent of the things that Congress does.  So what we're talking about are things that would affect the fiscal policy, things that the Congress and the President can do to affect spending and revenues.

Borg: Are you saying the Federal Reserve doesn't have a role in --

Bixby: Not in crafting a plan to deal with these long-term fiscal challenges, no.

Borg: You agree?

Walker: Well, they're not involved in tax and spending, which is fiscal policy, but I'm very concerned about current Federal Reserve policy.  The fact is our fiscal policy is out of control, our monetary policy is frankly out of control.  But part of that is the Congress' fault because in 1978 the mission of the Fed was changed so they're not just focused on inflation and protecting the dollar but also short-term unemployment.  That politicized the Fed and because the Congress and the executive branch are not working together to try to be able to deal with tax and spending policy the Fed is the only game in town and they are doing what they can.  But frankly some of the things they're doing are short-term gain but increased risk of inflation and long-term pain.

Borg: What is the riskiest thing they're doing right now?

Walker: They're trying to bail out the United States government.  They're trying to bail out the United States government by self-dealing in our own debt.  They are buying U.S. treasury securities, the largest holder of U.S. treasuries is the Federal Reserve.  That artificially holds down interest rates which is short-term gain with regard to economic growth, with regard to mortgage rates but it is increased risk of a bubble and long-term pain.

Henderson: Mr. Bixby, do you agree?

Bixby: Yes, I think what we need to do is distinguish between our short-term economic challenges and our long-term structural challenges.  And people often get them mixed up or confused.  I think that we do have a short-term problem and what Dave was talking about is the Fed seeing that Congress is not doing anything, is trying perhaps imprudently to deal with that issue.  We also need to look at the longer term because that is really what concerns me.  Even if the economy -- some time the economy will recover so if you assume a robust recovery and let's say that we wind down our war expenses, our federal budget is still on an unsustainable track because of the growth of programs like Social Security, Medicare and Medicaid because of demographics and changing health care costs and the tax system, as Dave described it, is not able to produce enough revenue to fund those programs.  So ultimately once we get beyond this short-term economic challenge we have to deal with the underlying structural deficit that will run us over a cliff even if we solve the short-term problems.

Henderson: Mr. Bixby said we have to deal with -- the we that has to deal with it is Congress.  How do you get Congress to do anything in this environment, Mr. Walker?

Walker: First the Congress is dysfunctional this year.  News flash, it's going to be dysfunctional next year.  There is nobody in charge of the Congress.  That is why we have to keep in mind that the President of the United States is not only the commander in chief of our military, the President of the United States is chief executive officer of the United States government and therefore there is a disproportionate opportunity and obligation on the president, whoever that person is, to lead.  We have not had leadership for a number of years now.  We didn't have leadership under Bush 43 and we have not had leadership under President Barack Obama with regard to this issue.  That must change.

Henderson: Mr. Bixby, do you agree?

Bixby: Well, I do.  They're going to have to deal with this simply because if they don't there will be a crisis.  Now, think about what is happening in January, this sort of a self-inflicted crisis, a lot of tax increases are going to go into effect automatically and a lot of spending cuts are going to go into effect automatically, none of which they actually want to have happen.  So there is an opportunity in dealing with this artificial fiscal cliff, this crisis that would come in January, to deal with a longer-term package, to maybe not eliminate the cliff, maybe sort of push it back a little bit, give themselves time to deal with it.

Henderson: But what about the current economic climate leads you to believe that anybody is willing to do more than delay the resolution of the problem?

Bixby: Because, you know, I think they're going to have to deal with it at some point and I think -- here's the thing when you talk about the economic climate, the business community is getting increasingly alarmed at what is happening with fiscal finances and they're looking at the fiscal cliff and saying, oh my goodness, what is Congress going to do?  It is already having an effect on the economy because of the great uncertainty there is in the economy now.  Businesses, individuals are holding back because they're not sure what is going to happen.  If Congress just simply kicks the can down the road again with no framework in place, no nothing in place to look at the long-term I think there could be a very, very negative market reaction.

Obradovich: Mr. Walker, you are here to talk about a non-partisan solution that can get bipartisan support.  Just give us a few of those because frankly most of what we've heard in this campaign has been very, very partisan.

Walker: Well, we have eight categories.  I'll give you a couple of examples.  In the budget category we need to reimpose tough budget controls like we had under Bush 41 and Clinton, we need to phase them in.  We need to have rules that say you can't do tax cuts or expand government programs without paying for it.  You need to have spending caps on both defense and other discretionary spending.  We need to get rid of the debt ceiling. We're the only country in the world that has that, it's been politicized, it's been totally ineffective as a fiscal discipline and to go something more meaningful like debt as a percentage of the economy.  States differently, we need a credit card limit so these people don't end up continuing to mortgage the future of our kids and grandkids.  So we need fiscal reforms, social insurance, taxes, we need political reforms because we have a broken political system right now.

Obradovich: And what about a balanced budget amendment?  Is that something -- some congressional candidates as recently as this week have been calling it a gimmick. Others say it's vital to get Congress to move towards a balanced budget.

Bixby: I think it would be a distraction frankly.  I don't think it's a good idea.  We could spend a lot of time debating how to amend the Constitution and send it through the states and basically the goal is to solve a problem.  My view would be we need to try to solve the problem rather than passing an amendment to the Constitution that would say somebody should solve the problem.  Why don't we solve the problem? I mean, I think you could game with balance.  I'm a lawyer.  I think you could probably game a balanced budget amendment.  Dave can no doubt as chief accountant for the government give you examples of how that can happen and how it has happened in other states. So I think actually it's a distraction.  I would rather see Congress and the presidential candidates spend their time debating these options rather than assuming that the Constitution will do it for us.

Henderson: During the summer of 2011, credit rating agencies downgraded the U.S. government. Are the credit rating agencies legit these days? Or is there a need for reform on Wall Street and in the credit rating agencies themselves, Mr. Walker?

Walker: Well, the credit rating agencies are very short-sided.  They don't adequately consider off balance sheet obligations.  And they don't consider currency risk at all if you're a foreign investor.  They're a lag indicator.  The irony with regard to U.S. debt is the U.S. government will never default on sovereign debt because of the 14th amendment to the Constitution which guarantees bondholders the U.S. debt.  Nonetheless, there is significant interest rate risk and there's significant currency risk in holding U.S. securities, especially long-term securities and they're not adequately reflecting that.  So my view is look what happened with S&P downgraded us.  It didn't really have much of an impact.  We need to recognize reality.  The balanced budget amendment, there would be so many loopholes in that it really wouldn't be effective.  What do we need to focus on?  Debt as a percentage of the economy. So if you want to do something focus on that.

Henderson: Mr. Bixby, you two gentlemen have been in Iowa before and you have said the fuse has been lit.  It's a real long fuse.

Bixby: Listen, people keep saying, what is the tipping point?  When do you know it's going to go off? The thing is you really don't know exactly when it's going to go off and my question is, why risk finding out?  Once you have a crisis it's too late.  We do know -- I can't -- I will sort of analogize to health care, I can't tell you what cigarette is going to give you cancer, I can't tell you which donut is going to clog your arteries.  I do know what are healthy habits and what are bad habits and we are on a very bad habit with our fiscal policies in the United States.

Henderson: Mr. Walker, how do you avoid becoming a Chicken Little and remain a Paul Revere?

Walker: Well, Paul Revere warned of the Redcoats, we're warning of the red ink or the red tide, if you will.  There was some criticism early on when I started talking about this in about 2003.  Why are you talking about this?  What are you worried about?  I don't get that criticism anymore.  In fact, I get a lot of compliments for having been ahead of the curve and I'd rather be ahead of the curve than behind the curve. 

Bixby: Let me just say this with Chicken Little warning about something that wasn't going to happen -- I grew up in Lexington, Massachusetts and I can tell you the Redcoats really were coming. So the difference is it's a real problem.

Borg: Well, if you say that people are encouraging you and the message is getting through, is it getting through politically into the ballot box?

Walker: Well, it is better now than it was.  You've got to keep in mind we did have the Simpson-Bowles Commission, the President didn't do anything with it but at least he created the commission and that was on the table.  We have had something as part of the debt ceiling deal where they said we've eventually got to deal with this issue.  Look, Washington is a lag indicator and ultimately we the people are responsible and accountable and that's what we're trying to deal with.

Obradovich: Let’s talk about the presidential campaign right now.  Mr. Bixby, you said recently that Mitt Romney hadn't offered enough details for you to analyze ruling whether his budget plan or his plan for reducing the debt is realistic.  What kind of details do you still need?  And do you think that either candidate has presented a realistic plan at this point?

Bixby: Well, I don't think either one has presented a realistic plan for dealing with this long-term issue that we're talking about or even basically attempting to.  Shorthand I think that the President’s budget does not have a plan, does not include a plan for dealing with the long-term structural deficit that we're talking about.  Governor Romney does talk about entitlement reform, Medicare, Medicaid, things like that.  But on the tax side we don't have details about how he would do his tax cuts, which are quite explicit, in a revenue neutral way.  To do that you would have to close loopholes, deductions, credits, things that are very popular in some cases like the home mortgage interest deduction and that sort of thing and he has not detailed how he would do that whereas Simpson-Bowles and others have said exactly what the pain would be to go along with the pleasure.

Obradovich: Yeah, and Mr. Walker, do you think that a candidate could get elected if they were to say, if he were to say, Mr. Romney or Mr. Obama were to say okay, here's where the pain is going to be?  Or if as you said the political system --

Walker: Yes.  I believe the biggest deficit that this country has today is a leadership deficit and I believe that the people are starved for three things, truth, leadership and solutions.  And our $10 million a minute national fiscal responsibility bus tour is demonstrating that the people can handle the truth, they're willing to accept tough choices as long as they are part of a comprehensive package that they deem to be fair.

Henderson: Is Simpson-Bowles the fallback position that politicians should embrace, Mr. Bixby?

Bixby: Well, I think it's a good -- it's as good as any.  There are other plans out there.  If you want to just sort of pick a bogie and plug that in I think you could do that. The good thing about the Simpson-Bowles Commission is that it was bipartisan and you had people like Tom Coburn and Dick Durbin who were clearly a democrat and republican from different perspectives that were able to agree on it.  And so people can say a-ha, here's a plan that actual sitting members of Congress could agree on.  Now, there are a lot of details to be filled in on Simpson-Bowles and people shouldn't idealize it as some sort of perfect plan.  But I think that it gives a rational way of dealing with the long-term issues that did achieve bipartisan support.

Borg: Mr. Walker, you said earlier in my question about the Federal Reserve, Federal Reserve buying U.S. debt and holding U.S. debt.  But China holds a lot of U.S. debt too.  What is the national security implications of that?

Walker: Well, let's put it this way, if China holds a lot more of our debt than they have more leverage on us and we have less leverage on them.  It's as simple as that.  But the fact is, is China is looking for other alternatives because they're tired of holding our debt to the extent that they have it.  In addition, they're not buying long-term debt, they're not buying 30 year bonds.  They're buying short-term securities so they can get out pretty quickly.  And they're going to be looking at corporate bonds and other types of investments that quite frankly make a lot more sense for them I think.

Borg: But as the Chinese eocnomy and the world economy slows now what are the implications on how the U.S. has to act in what you’re recommending?  Does it make it more complicated or easier?

Walker: Well, right now the Fed is artificially creating, undercutting the market because they are basically buying all of our debt and not relying upon China or Japan or OPEC nations or others who are artificially holding down rates.  Ultimately we have to put our finances in order in order to keep interest rates from going up.  And that means the kind of things we're talking about.  That means we have to have budget controls.  We need to reform social insurance programs.  We need to reduce defense and other spending.  We need to do comprehensive tax reform that generates more revenues. If we don't, interest rates will go up and if they go up we're in deep trouble because for every one percent increase in interest rates it is $160 billion for which we get nothing.

Henderson: Mr. Walker, I'm told the bus that you're driving around on has been used by presidential candidates in the past.

Walker: It has.

Henderson: Would you consider yourself to be a presidential candidates of the future?

Walker: I do not plan to run for political office.  I would consider doing additional public service in the right capacity but I don't have any plans to run for public office.

Obradovich: My understanding is that the Eagles were also traveling around in this van.  Do you have any plans to start a rock band?

Bixby: I have no plans to start a rock band and I will not insult your viewers by attempting to sing any of the Eagles' songs.

Borg: Just one final question.  Can we expect you back here in another couple of years?

Walker: Oh, we'll be back until they solve the problem.

Bixby: So that means we'll be back.

Borg: And we're out of time.  Thanks so much.  And we'll be back with another edition of Iowa Press.  That will be next weekend, same times, 7:30 Friday night and a second chance to see the show Sunday at noon.  Thanks for joining us today.


Tags: David Walker economy Iowa national debt Robert Bixby