The Economy

David Walker: Fire and Brimstone on Debt

The former U.S. Comptroller General and deficit hawk sees beyond the approaching fiscal cliff to an onrushing fiscal abyss.
David RosenbaumNovember 15, 2012

BOSTON — At Thursday’s MIT Sloan CFO Summit, David M. Walker, U.S. Comptroller General from 1998 through 2008 and founder and chief executive officer of Comeback America Initiative, said in his morning keynote address that as a CPA and a member of the Sons of the American Revolution, he’s “a patriot who can add.” And according to Walker’s addition, the much-discussed fiscal cliff is only a symptom of an underlying disease.

“The U.S. government,” Walker said, “has grown too big and promised too much. A hundred years ago, [the government represented] 2% of the economy. It’s now 24%. By 2040, it will be over 50%.” Unless this trend is reversed, said Walker, and reversed speedily, it will not just lead us off a fiscal cliff, it will plunge the nation into a “fiscal abyss.”

Walker told the summit of CFOs that he believed the so-called fiscal cliff — the January 1 deadline when it’s widely believed the expiration of the Bush-era tax cuts combined with broad, automatic spending cuts (sequestration) will cause the already grindingly slow economic recovery to be thrown into recessionary reverse — will be avoided by a compromise that will extend certain tax cuts while cutting defense spending more than Republicans would wish and less than Democrats would like.

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Walker suggested the foundational principles upon which he believes the compromise will be based. It will be pro-growth to create revenue. It will be socially equitable, meaning it will not increase the poverty rate. It will be culturally acceptable, allowing tax cuts that hit the wealthy to expire, while at the same time limiting extended unemployment benefits. Above all, it will be politically feasible (since, “after spending $6 billion on the election,” the government remains divided).

But this compromise, or “grand bargain,” Walker said, will do little to defuse the “ticking debt bomb.” A lame-duck Congress will not be able to address Social Security or tax reform even as an aging population retires at a rate of 10,000 a day. This retirement wave will both reduce the revenue the government collects and increase the money it must spend to take care of that population. The United States, said Walker, needs universal health care, but needs it to be affordable and sustainable. Right now, it’s not. “We are the only industrialized nation on Earth that writes a blank check for health care,” he said.

Walker called upon the CFOs in the room to put pressure on their representatives to work harder, to address tax simplification so that “99% of the American public can do their taxes themselves without software,” and reduce what the government spends relative to the gross national product. The current political stalemate preventing real reform, the inability of the government to defuse the debt bomb, is, thundered Walker, “irresponsible, unethical, immoral,” and, he said, “it must stop.”