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Walker Says U.S. Budget Deal Unlikely for at Least a Year

A U.S. budget-cutting accord is probably as much as a year away as lawmakers posture to delay across-the-board spending cuts and tax increases set for January, said former U.S. Comptroller General David Walker.

Congressional committees haven’t “done their work” on overhauling taxes and entitlement programs such as Medicare, Walker said at a luncheon yesterday in New York sponsored by the Economic Club of New York and Bloomberg News. He also said President Barack Obama’s administration has done little to prepare the public for spending cuts and tax increases.

“Realistically, the tough decisions are not going to be made until 2013,” he said. “The American people haven’t been engaged adequately.”

Congressional leaders have said they probably will wait until after the Nov. 6 election to address the George W. Bush- era tax cuts set to expire Dec. 31 and $1.2 trillion in automatic spending cuts set to begin taking effect in January. Congress agreed to the spending cuts as part of last year’s Budget Control Act in an attempt to require lawmakers to work out an agreement to replace the across-the-board reductions.

There is no sign of an agreement to avoid the so-called fiscal cliff. The Congressional Budget Office has said the economy will probably tip into recession if Congress doesn’t resolve the impasse by early next year.

Walker said he’s skeptical there will be movement toward a resolution when Congress meets after the election.

Lame Duck

“There’s a reason it’s called a lame-duck session,” Walker said. Congress and the president are instead likely to put the spending cuts and tax increases on hold, he said. “They’re going to delay the implementation of that from nine months to a year with a plan to do a grand bargain” including budget controls and a tax overhaul, he said.

Walker also called on Republican lawmakers to give up their pledge not to increase taxes, and Democrats to be willing to revise Social Security and Medicare. Grover Norquist, president of Americans for Tax Reform, is the architect of an anti-tax- increase pledge that all except six House Republicans and seven Senate Republicans have signed.

“Those that take pledges that say ‘I won’t raise taxes’ or ‘I won’t renegotiate the Social Security or Medicare promises,’ I’m here to tell you, they’re part of the problem, they’re not part of the solution,” Walker said. “People who are of means and of influence need to start putting pressure on these people to rescind these pledges.”

Comptroller General

Walker was U.S. comptroller general from 1998 to 2008 in the administrations of Democratic President Bill Clinton and Republican President George W. Bush. Now he leads the Comeback America Initiative, an independent, non-profit fiscal policy organization.

He said the tax code must be changed to capture more revenue from lower- and higher-income earners. He said 40 percent to 45 percent of individuals who file tax returns don’t pay income taxes because of deductions and credits like the child tax credit. “That’s a dangerous disconnect in a democracy,” he said.

There also is a “problem on the other end” as the top 1 percent of earners pay a median effective tax rate of 18.9 percent though the top rate is 35 percent, he said. The wealthy benefit from exclusions and credits, he said, and also make most of their money through dividends and capital gains, which are taxed at 15 percent.

“We’re going to have to get more people paying, but we’re going to have to deal with the effective tax rate for people at the top,” Walker said.

Report on Cuts

The Obama administration plans this week to send Congress a report spelling out how it would carry out billions of dollars in automatic spending cuts starting in January.

The cuts would amount to $109 billion next year, coming equally out of defense and non-defense spending. Democrats are insisting that Republicans accept some tax increases in exchange for altering the defense cuts, while Republicans have refused.

The nation may face a debt crisis if lawmakers don’t make progress in 2013 on an accord that includes spending cuts and revenue increases, Walker said. “Nobody is going to be able to hide,” he said.

Australia, New Zealand, Canada and Sweden had serious debt challenges in the 1990s, he said.

“They rose up to meet those challenges and now they’re in much better shape than we are,” he said. “If they did it, we can do it.”

To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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