David Walker: Dave Walker, President and CEO of Peter G. Peterson Foundation and former Comptroller General of the United States.
Question: What got us into this financial mess?
David Walker: There are a number of common denominators between the factors that led to the current mortgage based sub-prime crisis and the federal government’s own deteriorating financial condition. First, a disconnect between the players who benefit from current policies and practices and those who will bear the risk and pay the price if things hit the fan. Secondly, a lack of transparency about the nature and extent of magnitude of the real risk. Thirdly, too much leverage, too much debt. And, fourthly, a failure of both private sector and government risk management mechanisms in the case of the mortgage related sub-prime, a failure of those to act despite clear and compelling warning signals going off in order to prevent a crisis.
What we saw in the case of the mortgage based sub-prime is laggardship , not leadership, that’s a new word. What laggardship is, it’s a failure of leadership and its waiting [sic] ntil there is a crisis at your doorstep to act and then acting precipitously in the face of such a crisis. What we need is leadership both on the public sector and the private sector, and what that leadership means, it means looking ahead, seeing key trends, identifying challenges and opportunities, taking affirmative steps to be able to capitalize on those opportunities to meet those challenges and to avoid crisis that’s what we need. More leadership, less laggardship.
Question: What should President-elect Obama do immediately?
David Walker: A) focus on getting the economy turned around and restoring confidence in the short term, and B) putting processes in place like a fiscal future commission or something along those lines that would be able to do work for about a year and then make recommendations to the new president and the new Congress to get our own federal financial house in order so we can avoid a super sub-prime crisis that we don’t ever want to see.
Question: What do we need to do for the long term?
David Walker: There’s no question that after we turn the economy around, we need to have some type of statutory budget controls in place in order to restore the type of discipline that existed in the 1990’s and early in this millennium that helped us go from large and growing deficits to large and growing surpluses. We need things like pay-as-you-go rules.
We need things like caps on discretionary spending. We need things like to understand what the long term cost beyond 10 years of tax cuts and spending increases are, but we also need to do things that we didn’t have back in the 1990’s and early in this decade, we need to be able to force elected officials to be able to disclose the long term cost, the discounted present value dollar cost, major spending in tax proposals before they are enacted in the law. We need to be able to have reconsideration triggers for major mandatory spending programs and major tax preferences, deductions, exemptions, credits exclusions, so that we reconsider those and that we don’t allow them to continue to grow on autopilot.
Believe it or not, the federal government’s budget for fiscal 2007, 62% was on autopilot and growing every year, and of the 38% that wasn’t on autopilot, believe or not, every expressed and enumerative responsibility envisioned by the founding fathers for the federal government was in that 38%.
Question: Would you reform the tax code?
David Walker: In my view, we need to streamline and simplify the tax code because even people who want to comply would have a difficult time complying and knowing that they have complied is complex as it is. We need to be able to eliminate a lot of the special exclusions, deductions, exemptions, the special interest provisions to be able to broaden the base that subject to taxation so we can keep rates low, so we can try to end up encouraging the economy to grow, all right?
So we are going to need a broader base, flatter but not flat income tax, and we’re probably over time going to have to supplement that with some type of a consumption tax probably geared towards healthcare because we’re not going to be able to deal with the basic and essential needs of healthcare under our current revenue structure, although, any healthcare reform should be designed to meet those four pillars or at least further progress on those four pillars and to save money as compared to current law.
Recorded on: November 4, 2008