Posted on 08/03/2006 9:10:19 AM PDT by SirLinksalot
The Nation's Accountant Tells It Like It Is
Dave Eberhart, NewsMax.com
Thursday, Aug. 3, 2006
WASHINGTON -- NewsMax caught up with U.S. Comptroller General David M. Walker, who, at age 54, is a bona fide baby boomer.
The energetic CPA was direct about what most motivates him: "The baby boomers are on the path to be the first generation in the history of this country not to leave the country better positioned for the future.
"That is unacceptable to me, and I will continue to fight as long as I can to try to make sure that that doesn't become a reality."
The outspoken official shot from the hip with candor and a refreshing straightforwardness about the nation's fiscal woes.
NewsMax: You are a busy man these days.
Walker: There is always full employment opportunity when you are just trying to state the facts and speak the truth and get people to do the right thing in government.
I was told when I was first being considered for this job that if I was patient, I would prevail. Well, on reflection, it goes from patience to persistence to perseverance to pain before you prevail. And I found that that is pretty much true about most anything of real significance - including our fiscal situation.
So I'm sticking with it.
NewsMax: What is the single policy or program that most concerns you?
Walker: To me, the poster case for what is wrong with Washington is Medicare prescription drugs, and let me tell you why.
Congress decided that it was going to spend up to $300 billion on Medicare prescription drugs when we had a surplus. By the time the Medicare Prescription Drug Bill passed, we had a deficit.
Furthermore, the Congress and the White House focused on 10-year case-flow budget costs. They ignored the costs beyond the 10-year horizon in which costs mushroomed because of the way the bill was structured and because of known demographic points.
The Medicare actuary of the Center for Medicare/Medicaid Services calculated the cost at $534 billion for the 10-year period rather than the [lower] number that the CBO [the Congressional Budget Office] came up with. But the Medicare actuary was told he could not tell the Congress or else he might lose his job.
That not only was unethical but it was illegal, and nobody has been held accountable for it.
Finally, the Medicare prescription drug benefit just layered on top of a 1965 Medicare program a new benefit - when that program was already underfunded by $15 trillion to $20 trillion in current dollar terms, and with that new benefit costing $8 trillion-plus in current dollar terms.
We need to reform our budget process, our legislative process, and our financial reporting mechanisms to just report the facts and to be able to provide this type of information so that the public can see it and, hopefully, understand the need for action.
NewsMax: Why don't we get more of a sense of impending emergency over the national fiscal situation from Capitol Hill?
Walker: I believe that more people are starting to get the message both within Washington and outside the Beltway, and I think we are seeing early signs of that. However, we still have some people who say that the deficit doesn't matter and that our current deficits are manageable.
The concern is that we do not face an immediate crisis. However, we are clearly on an imprudent and unsustainable fiscal path, and our long-range deficits clearly are a major problem, and they are growing day by day.
There are signs of change.
First, the White House now pretty consistently will say that while they believe the short-term deficits are manageable, they readily acknowledge now that we face a huge long-range structural deficit that has to be addressed.
Second, when you look at floor statements - when bills that come up that deal with major spending or tax proposals - there are more floor statements and there is more attention to what this going to do to our fiscal future.
Look at some legislative proposals. Congressman Wolf [Rep. Frank Wolf, R-Va.] has a legislative proposal to create a capable, credible, and bipartisan entitlement and tax reform commission in order to try to help deal with our long-range fiscal imbalance.
Candidly, he is critically important, as the Congress is, but the Congress is a committee and you can not lead a country by a committee. The president has to be in the forefront of any effort to deal with our large and growing structural imbalance. And it doesn't make a difference who the president is and what party he is associated with. The country only has one CEO and one commander-in-chief, and it happens to be the same person.
So yes – Congress should be doing more; there is no question. But the idea that Congress is going to lead our way out of this is one that I think doesn't compute.
We have to educate the American people as to the nature, extent, and magnitude of our challenge and the consequences to our country, their children, and grandchildren if we fail to act.
Many of these choices will not be popular. We have so many elected officials today with their desires of staying in office for a number of years, that, realistically, they are not going to get too far out ahead of the electorate.
NewsMax: This practice, with the Department of Defense, of emergency supplemental appropriations must be an accountant's nightmare. Some have suggested that the defense budget process has literally collapsed. What are your concerns?
Walker: "Supplementals" were intended to be for unexpected emergencies, and sometimes that is what they represent and sometimes it is not. We have recommended that most, if not all, of the type of activities that have been funded recently relating to the Defense Department should be in the base of the defense budget. When you do things through supplemental, you have less transparency, you have fewer controls, and you have typically an expedited process.
Candidly, with regard to the Defense Department's normal budget, which is $400 billion to $500 billion a year, the Defense Department is the only agency in the federal government that cannot adequately account for its assets and its expenditures - and cannot withstand an outside financial statement audit.
However, it has a major effort under way to try to be in a position where, ultimately, it will be able to. The Defense Department gets a "D" for economy, efficiency, transparency, and accountability. It has not been held accountable.
I'm doing a commentary on "Market Place" on NPR called "Ike was Right," and it is about one small dimension of the problem I am talking about - the "iron triangle" that exists among the Pentagon, the Congress, and defense contractors. It existed in the '50s and it still exists today. It is not the only challenge, but it continues to be a major challenge.
NewsMax: Your refrain is that Congress needs to "put everything on the table" in order to address the nation's fiscal woes. Does that include a balanced budget amendment?
Walker: I think with regard to a balanced budget amendment that we have to keep in mind several things. First, all but one state has some requirements with regard to a balanced budget. Then, however, depending up on how you define a balanced budget, it may or may not be meaningful.
For example, California has a requirement for the governor to submit a balanced budget to the Legislature. However, there is no [ultimate] requirement for the budget to be balanced, and as a result they just borrow. That is what the federal government does. Ironically, the only state that doesn't have a balanced budget amendment - that I know of - is Vermont, and yet it has significant reserves. It not only balances budgets, but it has significant reserves.
So, the first issue is it all depends upon how you define a balanced budget.
Second, keep in mind that I work for the legislative branch, and if you had a balanced budget amendment - without adequate release valves or provisions to account for war or significant economic recessions or whatever - that may not be in the interest of the country. Furthermore, it would represent somewhat of a difference in the balance of power, depending up how it was structured.
So my view is we need to make sure that we have systems and controls in place that will assure that we have balanced budgets over an economic cycle and to assure that we do not run large operating deficits at any point in time - absent economic or national security considerations.
NewsMax: Another nettlesome item that doesn't seem to come up in the GAO is the line-item veto.
Walker: If there was a line-item veto where the president could basically scratch out items on his own volition, then that would be a huge difference in the balance of power under the Constitution. There are, however, line-item concepts that I think have merit and could withstand scrutiny by the Supreme Court.
For example, if the president was to have the authority to be able to propose line-item vetoes, but that would require that the Congress must take an up-or-down vote on what he is proposing – that would in effect leave the final word is with the legislative branch.
NewsMax: You spend a lot of time on the road both domestically and overseas giving your famous talks. Particularly overseas does anyone ask, "Why is the U.S. being so fiscally irresponsible?"
Walker: I do receive comments when I am overseas from people who are concerned about the U.S. fiscal path and they are concerned about it because of the old saying, "When the U.S. catches a cold, the rest of the world may catch the flu." We are trying to learn lessons from other counties - what have they done in order to focus more on fiscal sustainability, what they have done to reform their public pension and health programs.
NewsMax: We hear a lot about how the growing economy is going to make up for these controversial tax cuts. True?
Walker: There is a lot of misinformation and disinformation in this town. Let me try to address the issue without pointing fingers. There is a difference between whether or not tax cuts stimulate the economy and whether or not tax cuts pay for themselves.
Not all tax cuts stimulate the economy, but even those tax cuts that do stimulate the economy, very few, if any, pay for themselves - and by that I mean that you end up generating more revenue after the tax cut than you would have generated had you not had the tax cut.
Now that can happen in circumstances where you are dealing with dramatic reductions in marginal tax rates, which can be very stimulating. It can happen in situations where you are talking dramatic reductions in tariffs and, therefore, you stimulate broader economic growth on a global basis.
But merely because revenues are going up doesn't mean the tax cuts are working. Given economic growth, given inflation, given the different tax brackets, and given alternative minimum tax, those factors alone mean that if everything else is the same, revenues are going to go up every year.
The bottom line is that there is no way we are going to grow our way out of this problem. The math doesn't come close to working.
While, obviously, you've got to reform entitlement programs and constrain other spending, you are also eventually going to have to look at the revenue side.
In the final analysis, you have to have enough revenues to pay your current bill and deliver on your future promises and we are way short of that now, and we are going to get a lot shorter after the baby boomers retire.
NewsMax: Many Americans are not happy that we are financing our foreign wars with foreign money. Why can't we do like in World War II and go to the American public and have them buy bonds - or is that completely naive?
Walker: No, it is not completely naïve, but consider this: We face four serious deficits in the United States at the present time. The first is a budget deficit. The second is a balance of payments deficit - of which the trade deficit subs in. The third is a savings deficit, and the fourth is a leadership deficit.
On the savings deficit, last year was the first year since 1933 that Americans spent more money than they took home and, as you probably recall, 1933 was not a good year for the United States.
Since we're not a savings society at the present time, we have to rely to an increasing extent on foreign central banks and other players to finance our deficits. So the amount of our debt that is held by foreign players has increased dramatically in recent years.
In the long term, however, it is a high-risk strategy because it means that other players hold an increasing percentage of our nation's mortgage; and it means the debt service is going to go overseas rather than domestic; and it means that we will have less leverage on them with regard to economic, foreign policy and national security issues - and they will have more leverage on us.
Normally, you would expect in a "time of war" - although I might add war hasn't been declared since World War II, and that is another issue - you would expect for expenditures to go up and, in fact, ours have.
However, a significant majority of our deficit has nothing to do with the global war on terrorism and incremental homeland security costs. If it did, frankly, I wouldn't be as concerned. But it doesn't and, therefore, you know, that is my concern. We are running structural deficits that are going to get worse when the boomers start to retire.
NewsMax: Is there any good news?
Walker: Yeah, there is good news. Smaller short-term deficits are better than bigger short-term deficits.
I wouldn't consider this good news, but the recent announcement said that rather than running a $494 billion operating deficit for this fiscal year, we are only going to run $470 billion.
The bad news is the long-term deficit is getting worse every day. Every day the long-term structural imbalance it is getting worse.
The good news is that there are more and more players who are recognizing the realty that while things may look good in the short term with regard to economic growth, inflation rates, and interest rate levels, we must begin to address our large and growing structural deficit and do so sooner rather than later - or else we will face serious problems in the future.
What I mean by structural deficit is that it is not due to recession; it is not due to war. It is just a fundamental imbalance between our projected revenues and expenditures from normal recurring government programs and operations, entitlements, etc.
Right now, we are about 3 percent short of the GDP between what we are taking in and what we are spending, and it is going to get worse when the boomers start to retire - primarily because of entitlement programs.
You can't solve the problem without fundamental reform of the entitlement programs. Medicare is going to require much more dramatic and fundamental reforms than Social Security because the problem is six to seven times greater than Social Security.
It is going to take entitlement reform; it is going to take spending constraints; and it is going to take some revenue enhancements subject to the conditions that I talked about before.
NewsMax: It's is one thing borrowing from foreign countries, but how about this borrowing from Social Security?
Walker: I used to be a trustee for Social Security and Medicare, and the only reason that these are called trust funds is because the law calls them trust funds. They are not trust funds consistent with Webster's Dictionary, nor are they trust funds consistent with what you and I and an overwhelming majority of Americans would view as being trust funds.
What we have is a situation that, for years, the federal government has borrowed any surplus Social Security revenues and replaced them with a bond that is guaranteed by the full faith and credit of the United States government as to both principles and interest. It is non-readily marketable, meaning that the trustees can't sell it to anybody else.
Last year, we took $174 billion in additional revenues that came in for Social Security and we spend it on other government operations.
We put back one of these bonds which bears interest. On paper, that reduced the amount of money that we had to borrow from foreigners and that also serves to hold down interest rates because to the extent that you don't have to borrow as much immediately, that helps to hold down interest rates short term.
The problem is when Social Security starts running a negative cash flow, it flips the other way, and that is way before the so-called trust funds run dry. Social Security is expected to start running declining cash flow within the next five years and is expected to run a negative cash flow starting in 2017.
And when that happens, in order to "cash in" these bonds that are in the so-called trust funds, you are either going to have to raise taxes, borrow more, probably from foreigners, or cut other spending . . .
If you look at the balance sheet of the United States government, you will not find a liability for the value of the bonds in the trust fund -- because under a current accounting principles. it is deemed that the left hand owes the right hand and, therefore, it is eliminated under consolidation.
Now, my personal view is that that should change because I believe we took the people's money; we spent the people's money; and we replaced it with a bond. Now, the bond has legal, political, and moral significance and I believe the government will deliver on that, but the money is gone and we ought to recognize that reality and we ought to account for it properly.
Let me tell you, I got married at 19, and we had our first child at 22, and now we have a daughter, 32, and a son, 29, and our daughter has a 5-year-old daughter and our son has a 3-year-old daughter and a 4-month-old son.
I'm not worried about you or me - I am worried about my kids. I am really worried about my grandkids because on the path that we are on, they are going to pay the price and they are going to bare the burden.
"The baby boomers are on the path to be the first generation in the history of this country not to leave the country better positioned for the future."
Yep, and two baby boomers that bear a major responsiblity:
Bill Clinton
George W. Bush
The energetic CPA was direct about what most motivates him: "The baby boomers are on the path to be the first generation in the history of this country not to leave the country better positioned for the future.
What a great legacy.....
I wonder how fast this one will get pulled?
I am astonished and greatly respectful of this man's honesty. Very rare at any level of government, particularly higher up.
Don your flame-retardant undies, the bush-bots don't take kindly to unpleasant truths.
Reality Ping.
"Don your flame-retardant undies, the bush-bots"
No problem there ;)!
Just try posting to the Bush love fest threads and you will certainly feel the warmth of the freeper Bushys.
That's the main problem that will never end.
Cold hared reality bump.
Ooops.
Hared s/b hard.
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