Comeback America: The Nation’s Fiscal Challenge and A Way Forward Dallas CPA Society Member Conference Dallas CPA Society Dallas, TX May 26, 2011 Hon. David M. Walker Founder and CEO The Comeback America Initiative and Former Comptroller General of the United States

Growth of Government 2

Federal Spending & the Political Party in Power 3

Composition of Federal Spending (% of Total Outlays)

More on Autopilot 5

Fiscal Gap

7 Historical Receipts & Outlays

Projected Surplus? 8

Historical Debt Burdens 9

10

Growing Foreign Dependency 11

Comparative Debt Burdens 12

RankCountry RankCountry 1Australia18Mexico 2New Zealand19Israel 3Estonia20Slovenia 4Sweden21Austria 5China22Finland 6Luxembourg23France 7Chile24Spain 8Denmark25Germany 9United Kingdom26Belgium 10Brazil27Italy 11Canada28United States 12India29Hungary 13Poland30Ireland 14Netherlands31Japan* 15Norway32Iceland** 16Slovakia33Portugal 17Korea34Greece Fiscal Fitness Index: Overall Results Source: Sovereign Fiscal Responsibility Index. Note: *Japan’s debt was downgraded by Moody’s 1/29/11. ** Iceland’s Sustainable Fiscal Path reflects reforms enacted after an IMF bailout and there is a legal case pending in regard to foreign losses incurred due to the failure of Landsbanki. 13

RankCountry RankCountry 1Australia18Slovakia 2New Zealand19Korea 3Estonia20Mexico 4Sweden21Austria 5China22Slovenia 6Luxembourg23Finland 7Chile24France 8US under NFRRC plan25Spain 9Denmark26Germany 10Brazil27Belgium 11United Kingdom28Italy 12India29Hungary 13Canada30Ireland 14Netherlands31Japan* 15Poland32Iceland** 16Norway33Portugal 17Israel34Greece Fiscal Fitness Index: Overall Results with U.S. Under NFRRC Plan Source: Sovereign Fiscal Responsibility Index. Note: *Japan’s debt was downgraded by Moody’s 1/29/11. ** Iceland’s Sustainable Fiscal Path reflects reforms enacted after an IMF bailout and there is a legal case pending in regard to foreign losses incurred due to the failure of Landsbanki. 14

Our Fiscal Future 15

CBO’s Public Debt Projections 16

Impact of Health Reform 17

Federal Revenues & the Political Party in Power 18

Federal Revenue Composition 19

Tax Burden 20

Progressive Tax System 21

Individual Tax Expenditures 22

Effective Tax Rates 23

Corporate Tax Expenditures 24

25 Statutory Corporate Tax Rates

Key Systemic Challenges Expansion of government at all levels Health Care Costs Retirement Income Costs Disability and Welfare Related Costs Critical Infrastructure Needs Education Costs Corrections Costs Outdated and Inadequate Revenue Systems Myopia, Tunnel Vision, Special Interests and Self-Interest. 26

Federal : Implement statutory budget controls that address discretionary and mandatory spending as well as tax preferences in order to stabilize our debt/ GDP at a reasonable level Achieve Social Security reform that makes the program solvent, sustainable, secure and more savings oriented Reduce the rate of increase in health care costs and more effectively target related taxpayer subsidies and tax preferences Ensure that all future health care reforms adequately consider coverage, cost quality and personal responsibility Pursue comprehensive tax reform that makes the system more streamlined, understandable, equitable and competitive while also generating adequate revenues A Way Forward 27

A Way Forward - Continued Review, re-prioritize and re-engineer the base of the federal government, including national security strategies, to focus on the future, eliminate waste, generate real results and ensure sustainability Ensure that we have process that will enable us to achieve the above objectives within a reasonable period of time State and Local: Reform pension and health systems to make them reasonable, affordable and sustainable Review, re-prioritize and re-engineer the base of government. Pursue comprehensive tax reform in coordination with the federal government. Consider an exchange of primary roles, functions and revenue sources as part of a new federalism or devolution effort (e.g., health care, education, infrastructure) 28

Statutory Debt Ceiling 29

We must raise the debt ceiling. The Real Questions are: How much it should be raised?, and What conditions should be attached to any increase in the debt ceiling limit? The Debt Ceiling Debate 30

Given the deteriorating financial condition of the federal government and rising concern regarding spending, deficits and debt, the following conditions are illustrative of the types of conditions that should be considered: Short-term Spending:  Agreeing to cut discretionary spending, excluding war costs, to fiscal 2008 levels adjusted for population growth over 2-3 years. Structural Deficits:  Enacting tough but realistic statutory budget controls that could include:  meaningful PAYGO rules on the spending and tax side;  tough but realistic discretionary spending caps, and;  specific debt/GDP targets that begin in with automatic enforcement mechanisms (e.g., spending cuts and temporary tax surcharges or preference reduction).  Authorize and fund a major citizen education and engagement effort that will occur during late 2011 and 2012 to prepare the way for tough choices beginning in The Debt Ceiling Debate - Continued 31

Calendar 2011  Tough 2011 and 2012 Budgets (Short-Term)  Earmarks Moratorium (Short-Term)  Selected Pay and Hiring Freezes (Short-Term)  Leading By Example (Short-Term)  Statutory Budget Controls (Structural)  Transformation and Accountability Task Force (Structural) 2011 – 2013  Congressional Hearings  Citizen Education/Engagement ?  Comprehensive Social Security Reform (Structural)  Role and Size of Government (Structural)  Health Care Coverage Reform and Cost Controls (Structural)  Comprehensive Tax Reform (Structural) A Phased Approach 32

The policy should make economic sense, be socially equitable and culturally acceptable The math behind the policy must work The policy must be politically feasible A Three Pronged Test for Policy Creation 33

Comeback America Initiative (CAI) Bridgeport, CT No Labels Washington, DC New Players on the Fiscal Responsibility Field 34