Federal Budget Expert On Debt Commission's Plan

The White House commission on reducing federal debt released a draft proposal Wednesday. David Walker, former U.S. comptroller general and author of Comeback America: Turning the Country Around and Restoring Fiscal Responsibility, joins Steve Inskeep to explain the proposal.

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STEVE INSKEEP, host:

Well, when a senator hates something like the devil hates holy water, you don't want to bet on it becoming law, but let's talk more about this proposal with David Walker. For a decade, he was in charge of the Government Accountability Office - the GAO - which is the independent auditing arm of Congress. They're all about numbers. He's on the phone from Arizona.

Welcome to the program, sir.

Mr. DAVID WALKER (Founder and CEO, Comeback America Initiative): Great to be back with you.

INSKEEP: Is this a serious proposal?

Mr. WALKER: It is. Look, this is a chairman's mark. It's very common on Capitol Hill for the chairman of a major committee to come up with a proposal, and then to vet it with the committee. And then the committee has to decide what they're going to go along with, and what they're not. You know, this is a commendable, comprehensive, aggressive and good-faith effort.

And yes, there are a lot of controversial aspects. But you know, if we're going to put our federal finances in order, we're going to have to do a lot of dramatic and controversial things.

INSKEEP: Well, let's talk about that. On one level, it's fairly simple. If you want to reduce the deficit, you need to cut spending and bring in more money from somewhere.

And let's talk about the revenue side. On the proposal that's been put out -there's a 50-page proposal out there - there's a chart in which income tax rates appear actually to go down, not up. The top tax rate, which right now is in the 30s, would go down into the - around somewhere around 23, 24, 25, 26 percent, depending on the proposal.

What's happening there?

Mr. WALKER: Basically, what's happening is there's a trillion dollars of lost revenue every year due to deductions, exemptions, exclusions and credits in the Internal Revenue Code. It has become extremely complicated.

And what they're proposing to do is to eliminate, or to target, or consolidate a number of those tax preferences, such that more income will be subject to tax. Therefore, you could end up reducing the tax rate at the same point in time.

INSKEEP: So for those of us who just file our taxes and don't go crazy with deductions, we might actually get a tax cut out of this. That's what you're saying?

Mr. WALKER: That's correct. You could. But, you know, most people - especially people that are well off - end up having a lot of deductions. And some of those deductions don't make sense. For example, why do you get a deduction for a second home for interest? Why do you get a deduction for a million-dollar loan on a primary home in a city that's not very expensive to live in?

So, you know, it's an attempt to try to streamline and simplify the tax code, to broaden the tax base - to keep rates as low as possible, and the system as simple as possible.

INSKEEP: The Social Security plan here, which it's said - is, this is designed to just be an attempt to fix Social Security, not necessarily come up with money to reduce the budget deficit - which is kind of a separate problem - includes lower benefits, but also higher payments. Is that correct?

Yes, it includes - well, not lower benefits to everybody. That's actually not correct. It includes higher benefits for people that are near the poverty level...

INSKEEP: Okay.

Mr. WALKER: ...somewhat lower benefits for middle- and upper-income individuals, as compared to what the current program is. Later retirement age is phased in very, very slowly over time, with an exception - a hardship exception for people in certain occupations, like mining and steel working, and things of that nature.

And it does include a tax increase. It raises the so-called taxable wage base cap - the amount of your income that's subject to Social Security taxes - from about 106,800 to about 170-or-so thousand - I didn't see the exact number in the proposal - 90 percent of wages.

INSKEEP: One thing here, Mr. Walker, I'm just thinking this through and looking at recent history. In 2005, Republicans tried to reshape Social Security, and had their heads handed to them by the Democrats. In 2010, Democrats passed a health-care law that saved some money in Medicare, and they had their heads handed to them by Republicans in the late election. There were endless commercials. And of course, Republicans are dead set against anything that can be described as a tax increase.

Given those political realities, can you see anything like these proposals becoming law?

Mr. WALKER: Over time, we're going to have to make these tough choices. The key is: Are we going to make it before we have a crisis? Or are we going to have to do it because the bond markets lose confidence in our ability to put our finances in order? And therefore, we face dramatic increases in interest rates, dramatic declines in the value of the dollar, and significantly higher inflation.

Look, there's no free lunch. Neither the Democratic Party nor the Republican Party has a plan to put our financial house in order.

INSKEEP: Okay.

Mr. WALKER: Okay.

INSKEEP: Mr. Walker, thanks very much.

Mr. WALKER: It's my pleasure.

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