The U.S. should cut its debt as a percentage of total annual economic output to 60 percent by 2020, said David Walker, CEO of the Comeback America Initiative, which promotes fiscal reform and responsibility.
Today, the country's debt-to-GDP ratio stands at 103 percent, which is threatening the health of the U.S. economy, and no quick fixes will solve the problem, and neither will loose monetary policies at the
Federal Reserve.
A sweeping overhaul of how America taxes and spends is in order.
"We need to have a comprehensive plan that gets our debt as a percentage of the economy, or debt-to-GDP, to about 60 percent by around 2020 and it will keep it at or below that level going forward," Walker told Newsmax.TV in an exclusive interview.
"To do that, you’re going to have to reform social insurance programs, you’re going to have reduce the feds and other spending and you’re going to have to engage in comprehensive tax reform that, among other things, will generate more revenue."
Fiscal reforms are never easy to push through, since they often involve changes to taxes and public-spending programs that require congressional attention.
Up to now, the independent Federal Reserve has taken the lead to get the economy going again, but monetary policy can only do so much by loosening credit conditions to encourage investing and hiring.
Since the downturn, the Federal Reserve has cut interest rates to near zero and has pumped $2.3 trillion into the economy via two rounds of assets purchases from banks, a tool known as quantitative easing and often referred to as printing money out of thin air that further lowers interest rates.
Still, the economic growth remains tepid and unemployment rates remain high.
"Well, there’s not much the fed can do," Walker said.
"We need to provide more certainty with regard to our tax laws. We need to provide more certainty with regard to our regulatory structure. And we need to convince people that we’re going to actually start putting our federal finances in order if we really want growth to pick up and if we want the private sector to start making some major investments," Walker said.
Tax reform ultimately will come from broadening the base of tax payers but lowering the rates, as currently, not enough Americans are paying taxes who can while others are unfairly paying the Internal Revenue Service what they owe.
"We have to recognize that you can’t have 40 to 45 percent of tax filers paying zero income tax in a democracy. That is a dangerous disconnect. We’ve got to have a progressive tax system but more people have to be pulling the wagon and fewer on the wagon,” Walker said.
"That means eliminating, consolidating, better targeting deductions, exemptions, credits and exclusions is a way we ought to go," Walker added.
"We should make our top marginal tax rate no higher than 25 percent and, if we could get it down to that level, we could eliminate the difference between the tax rate applicable to capital gains and dividends and ordinary income."
Meanwhile, unfunded liabilities such as those for Social Security will soar unless addressed today.
"According to the trustees for Social Security and Medicare, the unfunded obligations for Social Security and Medicare went up about $4.8 trillion in the last year, based on their best estimate assumptions," Walker said, adding it gets worse.
"You add a $1.2 trillion deficit for this year to that, and there are a whole range of other items such as pensions, retiree healthcare, the bailouts of the housing agencies, you know, we’re adding to our federal financial sinkhole trillions of dollars a year and at the rate of about $10 million a minute."
Don't blame one political party and deify another, Walker added. Both deserve their fair share of both praise and blame.
"I don’t want to make it partisan. Let’s just say that George H. W. Bush, four one, and William Jefferson Clinton I would give a B+ or an A to," Walker said.
"And President George Walker Bush, 43, and President Obama I would give D- to. You know, the fact is that things have spun out of control since 2003. We are adding debt at record rates."
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