Comeback America

  For my family,

  the Peter G. Peterson Foundation,

  and my fellow citizens

  Contents

  Prologue

  ONE Fiscal Crisis 101

  TWO America 2030:

  Why We Must Act—Now

  THREE Principles from Our History

  and Common Sense

  FOUR Obama’s Challenge

  FIVE Save Social Security First

  SIX Curing Health Care

  SEVEN Collect More Revenue—More Fairly

  EIGHT Addressing America’s International

  Deficits

  NINE Getting Control of the Pentagon

  TEN Transforming Government

  ELEVEN Fixing Our Dysfunctional Democracy

  Epilogue

  Acknowledgments

  Six Simple Steps to Make Comeback America a Reality

  Prologue

  America is a great country—the greatest, as far as Americans are concerned. But its future is threatened, and we same Americans are the threat. I am talking about our nation’s deteriorating financial condition, perpetrated by all of us, and especially by the government that represents us. It is easy to ignore this national decline. Even in these hard times, we see relative prosperity and unparalleled power all around us. But the danger is there even if we fail to acknowledge it. The American way of life will go downhill, steadily and inexorably, unless we do something about our growing fiscal imbalance—and do it soon.

  I think you already realize that we are in a lot of trouble. After all, you have just picked up a book on the fiscal crisis by a certified public accountant and the government’s former top auditor. If you find yourself concerned about how our nation is spending money it doesn’t have, and spending it unwisely, then you have the right instinct. You should be worried. And this book might make you even more worried. But it will also show you a way out of the huge hole our elected officials have dug us into.

  We have run deficits over the course of our history for a variety of reasons, from paying for wars, to fighting the Great Depression, to stimulating the economy in times of recession. But in the past thirty years, America and many Americans have become addicted to debt and to conspicuous consumption. As the baby-boom generation gets older and the growth of our workforce slows, we will pay more for Social Security, Medicare, and other programs that already dominate our budget. And we will find it harder and harder to pay for this spending. It’s like having a credit card. At first, you pay off most or all of the balance. But as you continue to spend, the balance grows, and so does the interest on that balance. Before long you’re struggling just to pay the interest, and you have less money available for everything else. As we’ve seen all too often over the past few years, this pattern leads to bankruptcy.

  We live in a great and resilient nation. For all of our problems, the United States remains a global superpower and a beacon of liberty for people around the world. We have much to be proud of and thankful for. But I am here to tell you that if we don’t find a way to get spending under control, we will put our nation’s economy and international standing at risk and bequeath to our children a world of severely diminished opportunities. But I’m also here to tell you that it’s not too late, and that’s what inspired me to write this book. I didn’t call it “Comeback America” for nothing. We can make tough choices to restore fiscal sanity and stage a comeback from the recent financial crisis that has knocked us down. More important, we can come back to our basic principles and values, including thrift, personal responsibility, saving, and our stewardship obligation to shape a future for the next generation that is better than our past.

  It will take a lot of hard work. In the pages that follow, I will tell you how we can take that spending machine off autopilot and redirect it to provide the services our nation needs at a price we can afford. That is going to involve dramatically rethinking our social programs, reforming our tax system and other spending programs, changing the way our government operates, and reforming our political system. And all this will happen only if “We the People” use the power of our democracy to force change from our elected officials.

  Who am I to be sounding off? I spent fifteen years in Washington, working during four presidential administrations (Reagan, Bush 41, Clinton, and Bush 43). All my jobs involved working with top elected and appointed officials while also collaborating with a range of highly educated and dedicated civil servants—and all of them gave me a scary education in how our political system has failed to guard our nation’s financial health.

  I watched the Reagan revolution from my position as assistant secretary of labor for pension and welfare benefits. President Reagan cut taxes and increased defense spending simultaneously, which added billions to the government’s budget deficit. Of course, there’s an argument to be made that Reagan’s defense buildup gave the Soviet Union a decisive push into oblivion, winning the Cold War without firing a shot. That in turn allowed us to cut defense spending (measured as a percentage of the national economy) and to enjoy a peace dividend of growth and creativity throughout our economy.

  When we came down from that high induced by peace and lower taxes, however, we saw that the economic growth Reagan stimulated did not make up for the tax revenue we lost. As a consequence, our deficits were growing out of control.

  I served under Reagan’s successor, Bush 41, as one of two public trustees for the Social Security and Medicare systems. That job gave me a lot of insight into our money-draining social programs, which I’ll share with you later. It also gave me a lifelong respect for our first President Bush, who had the courage to break a campaign promise—“Read my lips: No new taxes”—when he saw our deficits rising to the danger level. That decision probably cost him reelection, but it was the right decision for America. He also imposed tough budget controls to constrain spending and the expansion of government.

  Let me also tip my hat to Ross Perot, the Texas businessman who ran for president in 1992 and 1996. Perot was the only national candidate in my memory who faced the American people with charts and graphs to pound home the point that the politicians in Washington were driving America into bankruptcy with their loose-spending ways. He made fighting the deficit sexy, at least for a while. He also showed that you don’t have to win to make a big difference.

  Perot made it extremely hard for the man who defeated him, Bill Clinton, to be anything less than fiscally responsible. I give President Clinton and his Treasury secretary, Bob Rubin, a lot of credit. They pushed through continuation of the statutory budget controls first put in place by Bush 41. “Statutory” means that by law Congress could not create new spending programs, among other things, without ensuring that they were adequately funded. Clinton set a good example for fiscal responsibility during his administration. He did not cut taxes, even though he had promised to do so for the middle class. He did not expand entitlement programs or move to increase social spending; in fact, he saved money through his welfare reforms.

  Clinton also was very lucky. He was blessed with a strong economy powered by the high-tech boom. His tax and spending discipline, combined with high growth, boosted federal revenues to their highest level (as a percentage of the economy) in history. In 2000, as he prepared to turn over the White House to Bush 43, the U.S. government reported its first true budget surplus in more than thirty years.

  My higher education in these issues began in 1998, when Clinton nominated me to serve a fifteen-year term as the seventh comptroller general of the United States and CEO of what was then called the General Accounting Office. That agency was responsible for auditing the federal government’s consolidated financial statements and for making sure Washington was accountable to the people who pay the bills. (Six years into my
term, we pushed through an act of Congress, signed by President Bush, that, among other things, changed the agency’s name to the Government Accountability Office, or GAO.)

  I applied for the job because I wanted to maximize my ability to make a difference for my fellow citizens (certainly not to maximize my net worth, since it required me to take a pay cut of more than 80 percent). I couldn’t have asked for a better time than the late 1990s to take this watchdog role. But the flush times, of course, didn’t last. After all the work it took to bring the deficit to zero, Washington seemed directionless. What do you do with a budget surplus? The answer is that you use it to build a new culture of fiscal responsibility. Once a balanced budget becomes the norm, you can begin to come to grips with the out-of-control social spending that leads to rising deficits and increasing debt levels.

  But that’s not how the new crowd in Washington looked at it. In 2001, Bush 43 came to town and joined the Republican Congress in proposing major tax cuts. The surplus was “the people’s money,” they reasoned, and should be returned to the people.

  That kind of talk immediately made me somewhat nervous. In February 2001, less than a month after Bush took the oath of office, I went up to Capitol Hill and tried to instill a little fear, or at least some responsibility, into the Senate Budget Committee. I reminded the senators that it wasn’t as simple as just giving the people back money in the form of tax cuts or adding new social programs. They had to consider future demands. The 77 million baby boomers born after World War II—one-fourth of the U.S. population—would start becoming eligible for Social Security in 2008 and for Medicare a few years after that. These programs were nowhere near well enough funded to handle the coming surge of spending, and we had to recognize that.

  We shouldn’t drop our guard, I warned the senators. Future budget surpluses were projected, but they may or may not actually materialize. Without continued financial discipline and without serious reforms in our social programs, I told them, demographics and escalating health care costs would overwhelm the surplus and drive us back into escalating deficits and debt. Our budget policy should cover all contingencies, I suggested. If the federal bottom line exceeded an established range, we could give taxpayers a dividend. If it fell short of our needs, we could impose a surcharge.

  The committee’s chairman, Pete Domenici (R) of New Mexico, had chided me for harping on the need for fiscal prudence when the senators were more concerned about how to spend the surplus. Several years later, he publicly conceded that he was wrong and encouraged me to harp away.

  The Clinton surplus melted away even faster than I could have imagined. President Bush pushed through a tax cut in 2001—and the next year, and the year after that. The tax cuts came even as we mobilized for military campaigns in Afghanistan and Iraq and a global war against terror after 9/11. And they came despite Bush’s decision to also push through a costly new Medicare drug benefit in 2003. As a result of these actions and other factors, the budget surplus that had been charted to last at least a decade disappeared almost overnight. We went from a $236 billion surplus in fiscal year 2000 to a deficit that was approaching $400 billion in fiscal 2003. The surplus was gone, and so was my patience.

  When Bush 43 came to office, in 2001, he probably thought that I would be friendly to his administration, given my past appointments by his father and President Reagan. But as a nonpartisan professional, I thought the one-party government of the Bush-Cheney administration made both the GAO’s role and my role as comptroller general even more important. If we didn’t provide an objective view, then who in government would?

  As the Bush administration geared up for the war against terror after 9/11, the GAO and I fought to keep its policies transparent. We even sued Vice President Cheney for the records associated with the National Energy Policy Development Group, which he headed, in part to try to keep the administration from creating secret White House task forces.

  I wasn’t happy with having to file suit, but our efforts to reach a reasonable resolution were rejected—ultimately, by Cheney himself in a phone conversation with me. So we exercised our legal rights. A Bush 43-appointed federal district court judge ruled against us on procedural grounds, but our unprecedented action and the ensuing publicity did result in greater transparency. The Bush administration never again denied us access to records during my tenure.

  From the start, the Bush administration was challenging an even more fundamental principle, in my view—the government’s duty to be a fiscally responsible steward of the American people’s wealth and well-being. I can still recall sitting in the office of a senior congressional leader in the autumn of 2003 silently seething as he made clear that even after Bush’s serial tax cuts and spending increases, Congress was going to pass the hugely expensive new prescription drug benefit for Medicare that Bush had championed. That’s when something snapped in me. I would not, I promised myself, behave like a typical comptroller general.

  Comptrollers general usually work in relative obscurity overseeing the churning-out of GAO reports for Congress. Our job is to produce the reports and recommendations; it’s up to elected and appointed officials to act on them. But in late 2003, I decided to forget the securities of bureaucratic custom. I would keep on testifying in congressional hearing rooms and presiding over GAO reports—but I would also start going public about the massive rip-off these politicians were about to perpetrate mainly to make themselves look good as the 2004 elections approached. Here we go again, I thought, cutting taxes, increasing spending, and fobbing off the bill on our children and grandchildren.

  Not only was the country going to war without declaring it, and without getting the consent of Americans to help pay for it, but Washington was poised to add on a huge new health care spending program while hiding behind the fantasy that it would somehow pay for itself. I had bought into the GAO’s core values of accountability, integrity, and reliability, and I decided to use my office as a bully pulpit to call attention to the growing problem. I scheduled a speech at the National Press Club in September 2003 that would be covered by C-SPAN and National Public Radio—not the biggest of audiences, but highly influential. It was called “Truth and Transparency,” and it can be found on the GAO’s website at www.gao.gov.

  The trick was to turn up my rhetoric without going so far that I sounded crazy. The growing deficit numbers alone made my case. I told the reporters and the wider audience assembled that day that in less than ten years we would be hit by a huge demographic tidal wave, one unprecedented in our nation’s history, and one that could swamp our ship of state. “Many believe that we will ultimately act to address this imbalance, but when will we start?” I said. “Other nations have already started to address their long-range imbalances. When will we?” I managed, just barely, to refrain from beating on the lectern.

  Was anybody out there listening? Thankfully, yes. I got enough calls and emails from people—including many in high places—to suggest that Americans were looking for leadership on our financial predicament, and that they weren’t getting it from politicians. At the GAO we continued to sound the klaxons in strongly worded reports. In December 2004 I held a comptroller general’s forum at the agency on our long-term fiscal challenge. I reached out beyond the usual deficit hawks and attracted a broad, nonpartisan coalition. Government officials; business, labor, and nonprofit leaders; public opinion researchers; think-tank scholars; and journalists joined us at the fiscal future forum. Former commerce secretary Peter G. Peterson, chairman of the Blackstone Group, a multibillion-dollar private equity firm, attended. So did former Federal Reserve chairman Paul Volcker; Bob Bixby, executive director of the Concord Coalition, a grassroots organization that advocates fiscal responsibility; and high-level representatives from various important organizations, including AARP.

  The group agreed that our nation’s finances were worse than advertised and that tough choices were needed. A number of us saw ourselves as the center of a nationwide movement that could shake our politi
cal leaders back to their senses. We decided to spread the word like country preachers, traveling to the far corners of our nation on a campaign we called the Fiscal Wake-Up Tour, which kicked off in the autumn of 2005.

  The tour was supported by the Concord Coalition, the Brookings Institution and the Heritage Foundation—the leading liberal and conservative think tanks, respectively—and the GAO. We ventured out to spread the word about our coming fiscal meltdown in any available forum. I attended every meeting and Bob Bixby attended the vast majority, while scholars from Brookings (Belle Sawhill, Alice Rivlin, Paul Cullinan, Diane Rogers, and Doug Elmendorf), Heritage (Stuart Butler, Alison Fraser, and Brian Riedl), and other organizations (Maya MacGuineas, Joe Minarik, Will Marshall, and Andrew Biggs) joined us at various stops. I was the dark-suited preacher in rimless glasses, spouting facts, fire, and brimstone. Bob was more disheveled and used a more informal and humorous style to convey the folly of Washington’s ways. We were very different, but made a good team.

  I was the fast-paced and superorganized one, burning out a BlackBerry after a few months and earning the nickname First-Flight Dave. (If you want to be sure of taking off, always schedule yourself on the first flight of the day, even if it’s before dawn on a frozen New Hampshire morning—especially then.) Bob was more unstructured and easygoing, though not about everything. Just ask the Concord staffers who had to scrounge around small-town America looking for Tab, the soft drink popular in the 1970s that he couldn’t live without. He also smoked small cigars; try finding a hotel these days that allows those.

  Our inaugural appearance was at the University of Richmond, in Virginia. Business and community leaders came to breakfast to hear us tell them that the nation’s financial condition was worse than anyone let on and that they had to help us do something about it. Selling financial responsibility to a generation addicted to credit cards and conspicuous consumption is not the easiest job in the world, but we could tell by their reaction that our audience got it. One man stood up and asked us, “Who put us in this condition?” I wished I could have pointed to just one person or political party, but that wouldn’t have been fair or accurate.