Fiscal reform can't come with spending cuts alone and will likely require more revenue, likely from lowering and simplifying tax codes but broadening the base, says David Walker, former Comptroller General of the United States.
"We're going to have to have more revenue. It's simple math. The reason being is we have over $50 trillion in off-balance sheet obligations, $37 trillion for Medicare, $9 trillion for Social Security and those numbers grow faster than inflation and faster than the economy when the economy grows," Walker tells CNBC.
"Spending is a major problem, there's no doubt about it. It's out of control and we're going to have it recapture control of the budget. And keep in mind when you talked about the capital gains and dividend rate, that's bringing down the top marginal tax rate across the board for individuals, corporations and the estate tax to 25 percent. That's the important part."
Otherwise, the U.S. economy may resemble the Titanic, which sank a century ago.
While the tip of the iceberg above the water caused alarm — similar to the way talk of $1.3 trillion budget deficits do to economists today — unfunded liabilities will ultimately sink the economy like ice that lurks deep underwater
"What sunk it was not the ice above the water, it was the ice below the water. Those are the off-balance sheet obligations that we have, $50 trillion plus — $37 trillion for Medicare, $9 trillion for Social Security. We need to recognize that starting in 2013 we need to start taking steps to bring back budget controls because they expired in 2002, but we have to do it in a way that doesn't undercut the recovery, our efforts to try to get unemployment and underemployment down."
That means reforming social insurance programs and healthcare promises, and even the military must go under the knife.
"We need to cut defense spending and constrain it without compromising national security, and we're going to need comprehensive tax reform that makes it simpler, fair, more competitive, more equitable and generates more revenues," Walker says.
"That's three parts spending reduction, one part revenue."
Walker has said top rates shouldn’t exceed 25 percent, but revenue can come by tweaking loopholes as well as by applying a more equitable rate to everyone, not so much as rolling out a flat tax championed by former GOP presidential hopeful Steve Forbes but a "flatter tax."
President Barack Obama has suggested those earning over at least $1 million or more a year should pay no less than 30 percent, much higher than the roughly 15 percent they pay now, mainly because the wealthy receive their revenue as investment income, which is taxed at a lower rate than income tax.
Such a tax policy, known as the “Buffett Rule” because it was championed by Warren Buffett, faces an uphill battle in Congress, as Democrats lack the numbers to push the policy through.
Republicans say the president is touting tax hikes on the rich to stir up class warfare and distract the country's attention away from persistently high unemployment rates.
"This is kind of like spring training," one Republican operative familiar with the Romney campaign tells Reuters.
"The Democrats are trying out different lines on taxes. If they want to argue over whether we want to lower taxes or not, that is fine with the Romney folks."
Democrats insist they want everyone to pay their fair share.
"Middle class families are taking it on the chin right now and they don't see others doing their fair share," Wisconsin Democratic congresswoman Tammy Baldwin said in a conference call set up by the Obama campaign, Reuters adds.
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