The key to economic progress is not a revenue equation, but a spending equation, David Walker, former U.S. comptroller general told CNBC on Tuesday.
“What threatens our future is not the current deficit; what threatens the future is the glide path of spending and the huge gap of what people have been promised and the revenues that we have to deliver on those promises,” he said. “The so-called off-balance sheet obligations—that’s the ice under the water that could sink the ship of state.”
Although economic expansion is the best solution, said Walker, it would take double-digit GDP growth for decades to push the U.S. economy into full recovery. Meanwhile, the economy is expected to expand by 2.7 percent in 2010, 3.8 percent in 2011 and above 4 percent for the next 3 years, according to the Office of Management & Budget, just as discretionary spending has ballooned 20 percent in two years, said Walker.
Meanwhile, tax relief is not the answer, he said. Not all tax cuts stimulate the economy, nor do they pay for themselves, he said. Therefore, tax cuts established under George W. Bush should be able to expire in order to help generate much-needed revenues, he said.
“The few that should not expire are ones that contribute to economic growth: “To the extent that you’re talking about investment-oriented, tax provisions, then those we should keep, but to the extent that you’re talking about broad-based tax relief, that doesn’t make sense,” he said.
Meanwhile, the deficits in President Obama’s 2011 budget are “unbelievably high” and “unacceptable,” he said.
“We’re in the danger of passing the tipping point where our foreign lenders lose confidence in our ability to put our financial house in order,” he said. “If that happens, we’re going to end up having to pay a lot higher interest rates to finance this debt. And that will set off a series of implications for America and Americans. We don’t want that."
Walker outlined three good steps in the President’s budget: (1) a freeze on discretionary spending for three years, (2) support for 'pay as you go' rules and (3) the proposal of a bipartisan, fiscal future commission.
“That’s the key: a commission that has capable, credible and committed people to be able to interact with the American people, state the facts, speak the truth, talk about the tough choices and deal with statutory budget controls, social security, Medicare, Medicaid tax reform.”
For the commission to be successful, it should engage in town-hall meetings with representative groups of Americans outside Washington and leverage the Internet, he said. When asked whether he had been approached to establish a fiscal future commission, Walker said he had not had conversations with the White House about that.
“I think they’re still deciding how to go about this,” he said. “You need to make sure that Republicans don’t try to play politics with this. This is the future of the country.”