>> and the sad thing is -- you know, healthcare had to be reformed. but there's a point that we're spending a couple trillion dollars on new programs when we haven't balanced the programs we have. we've expanded medicare and we've tan some tough choices of medicare and increasing taxes and that's going toward spending and fought fixing the program. and when you go back to participants hey we're going to have to cut your benefits some more and raise your taxes they're not too keen on doing that. i'm fully committed to the deficit system president obama has put together at the same time i'm skeptical or i'm gloomy about the prospects for success. in the "new york times" last week, an anonymous obama official said well, because we worked on medicare and medicaid in the health bill they will probably be off the table for the commission. likewise, the senate passed a

resolution saying that there could be no expedited consideration of social security. the recommendations on social security that come out of the commission. it tells me that in congress, there are too many people with just a lack of seriousness and a lack of maturity about these issues. these are threats to the federal budget. and you have people who are simply willing to dodge things. i saw an interview on television last weekend with a republican running for the senate. and they asked him how would you fix social security? he says well, we can't increase the retirement age and benefits, let's focus on waste, fraud and abuse. when they say they will fix social security, that's a way of saying i'm not serious. several weeks ago i laughed a little bit -- i read news stories about greek students protesting in athens about government spending cuts at the same time the government was about to default on its debt. and you laugh all those europeans. they're so silly. can't they realize what's going on? and if you look around what's

going on in the country here, we're spending more and we're showing lack of seriousness at a time when the deficit and the debt is getting larger and larger. so if congress doesn't act soon in acting very serious ways we'll to have think less of how we fix these programs and more as individuals but how we protect ourselves against the eventual collapse of these programs. people in developing countries when they invest their money they have to think, well, what happens if we have high inflation? what happens if our currency collapses and taxes rise. they are defensive about thinking of those things. one of the great things about america we can think offensively. how do i find the best business opportunities. how do i make the best investments in the future. with the budget rising the debt rising people will have to start thinking defensively and that's a sad prospect going forward. i'm very, very happy we're having this forum today. and i'm particularly thankful to congressman hoyer for proposing

it. but i think we need more and more people like you and more and more congressmen like representative hoyer who are willing to take on these questions. thank you. [applause] >> thank you so much for those extremely thoughtful conversations. this is a forum. there's lots of questions we hope from you. [inaudible] >> bill bixby who is the director a nonpartisan organization devoted to understanding the nation's fiscal responsibility. david walker, who is president and ceo of the peterson foundation and previously controller of the united states. and bill novelli professor at the school of business in georgetown and former ceo of aarp. we have andy biggs who is resident scholar of the american enterprise institute for public policy research.

and formerly principal deputy commissioner of the social security administration. and house majority leader steny hoyer. now in his 15th term representing the fifth district of maryland. let's start if we might have questions -- >> i don't have a question but i want to apologize because i'm going to have to leave because as i've told my other panelists, i have a meeting in southern maryland about an hour and a half from here. at 6:30. so it's a little more than an hour and a half. but i want to thank all the panelists. i think one of the things that you saw -- and you have a variety of different shades of conservative to progressive liberal -- whatever you want to call it on this panel. but i think you see an almost unanimity of view on, a, the scope of the problem. and the places where we need to look. and so i feel very comfortable that the answers they give for the most part -- novelli will be here to protect me on the healthcare bill.

which i do believe is going to bring down costs. but david is right.ketti, i thi for your hospitality with respect to leadership on this effort. it is, i think, the most critical we confront as a country. thank you all very much. [applause] >> a question of members of the audience for our panel. if you have a question please stand. come to the middle and if you have -- come on over here if you will. your question. >> my question is, it sounds like the challenge that we have is absolutely going to require a good deal of bipartisanship, which is something which is in very short supply now. without sounding political, when

one side of the aisle has declared revenue increases off the table permanently, how does one break through here and achieve some level of bipartisan interest in this subject? >> well, first i think we need nonpartisan solutions that can achieve bipartisan support. i think we also have to recognize that when you look outside of washington's beltway, that 42% of americans are political independents. and that's going up. i happen to be a political independent. and so the first three words, frankly, of the constitution are going to have to come alive. people are going to have to send a signal to washington to say that we know that we're spending more money than we take in. we know that we've got to change course. and to put pressure on elected officials, whether they be democrat, republican or independent -- to make those tough choices. and frankly not automatically

cause them to lose their jobs if they do. we're seeing evidence through public opinion surveys that 80% of americans are concerned about escalating deficits and zet and increased reliance on foreign lenders. we're seeing evidence at the ballot box that people are not happy with the status quo. and so as a result, the people are going to have to continue to speak out. and it's going to take special commissions in order to set the table for a tough vote where we can make progress on multiple fronts at once. budget controls, social security, healthcare cost, and tax reform and revenue enhancements. we need to make progress on multiple fronts at once. >> i have a question here. i think it's working. just speak loud. just go ahead. >> it doesn't work. okay. my question has two parts. first part is, it was mentioned about half of the debt is owned

by the foreigners. and they pay substantial interest or their debt. however, some fraction of the debt is owned by federal reserve. they own treasury bills, right? so the first part of the question what is the percentage of public debt owned by the federal reserve? >> i don't know. >> we'll move to the next part. >> a lot more than it used to be. >> well, i don't have the percentage but they have been more active in the market because in effect they are the lender of last resort. >> yeah. okay. so i would like to continue the second part. the department of treasury pays interest on this debt to federal reserve. federal reserve gives it back to treasury. why not federal reserve buy more public debt buy it is in foreigners in which case government doesn't spend -- basically get a interest-free loan.

why -- who prevents federal reserve to take more active role in a management debt? >> you know, frankly, i consider that self-dealing. you've got one hand buying debt from the right hand. which is trying to distort market conditions. you know, you can end up having an impact on the market in the short term. but you can't change market forces over time. i mean, frankly that's in my opinion a larger version of how the government has taken in all the social security revenues and spent it on something else and lent to itself. that's part of the problem not part of the solution. in fact, if you end up looking at the federal reserve's balance sheet. and if you recognize that fannie mae and freddie mac are not consolidated in the government's balance sheet, our situation is actually worse. and they don't consider

fannie mae and freddie mac. [applause] >> a question i have -- >> nancy gallagher at the school of public policy. the last speaker described the fiscal situation as a threat to the country. and i think all of you would probably agree with that characterization. and i'm interested most of your solutions have focused on medicare, medicaid spending and social security spending. the two big parts of the budget that i would say really are human security spending. and said very little about spending on military security. and so i'm curious to know from each of you, do you think that the military spending should be treated differently from any other part of the budget? and if so, why? >> well, i'll go first on that. no, i don't. i think that in looking for solutions all parts of the budget must be on the table including revenues. i think that there's certainly opportunities for savings in the pentagon budget.

the reason to focus on the larger program, social security, medicare, medicaid -- and they're all about the same size right now. you know, if you look at that -- if you put medicare and medicaid together, social security and defense they are in the high 600s, $700 billion. so you might say it's an equal problem. and if you look at today's budget, that may be the case. if you look at the factors that are driving the growth of federal spending over time, it's aging of the population, the healthcare cost which will not have the effect on the military that it has on social security, medicare and medicaid. so actually projections on military spending -- it's right around 4%, a little over 4% of gdp right now. and it probably will fall. a little bit as the war winds down. while the three big entitlement programs are north of 8% right now and will go to double in about the next 30 years or so.

so it's not -- what's contributing to the deficit now but what is going to contribute to the long-term structural problem that i described at the beginning. and that's why i'd focus more on those programs. but everything needs to be on the table. >> as the former comptroller general of the united states and head of the gao i can tell you there's a tremendous amount of waste in defense and in homeland security. and many other areas of government. and so nothing should be off the table. and i think that's important. you know, a lot of our defense spending is based upon past threats. it's not focused on current and future threats. we have huge problems with regard to our acquisition and contracting systems. frankly, the all-volunteer force is probably not sustainable from a financial and fiscal standpoint. it is very, very expensive. and so, yes, it's got to be on the table. >> if i could just touch quickly on that. there's a joke among people who work in entitlements that with

the growth of social security, medicare and medicaid. the government will nothing be more than a pension plan with an army. if you look at the math that's what you end up with. the danger, though, if you look long enough your pension plan without an army. i think about this. i went to grad school in the u.k. my older brother is in the military. he served in kosovo. and i remember the yugoslavian conflict started out and we can take military action and deal with these sorts of issues and at the end of the day they couldn't because they've become pension plans without an army. now you may or may not have agreed with that particular military action or the ones we have in place now. but it seems to me that having the capacity to do those things when we feel they need to be done is a very important thing for the federal government to have. and so if we are spending 4% of gdp in the military now, the question is how much lower do you want it to be? and how much breathing room low

pressure give us on entitlements? i think the answer is probably not a lot. >> may i -- >> one more question. >> i would like to say that i very definitely think defense needs to be on the table to be talked about. but when we were talking earlier about how difficult this is going to be and the first person to ask a question asked about the bipartisan challenges here, tackling that along with the things we're talking about would probably double triple, quadruple the complexity of all this. that doesn't mean we shouldn't put it on the table, however. >> i had a question here. yes, sir. >> my question is both a question and a comment. i want to follow up on mr. walker's comment about the fact that this is not just a numbers issue. it seems it's both cultural and global. especially if you consider the fact that the world has been basically willing to finance or standard of living. even though we've been living beyond our means. and so it seems to me-like if we

were to be successful at this fiscal reform, the outcome might be one that we don't necessarily want, i.e., slower economic growth or a world where the united states is no longer the economic engine nor the dramatic force as it is today. >> well, first, my personal view is our economic growth is going to be slower than historically has been the case. that our savings rates are going to be somewhat higher. our consumption levels are going to be somewhat lower. and that our assumption of debt -- this is from a personal standpoint is going to be somewhat less because i think the american people get it. and they are already adjusting their behavior. now, whether or not that will change in the future at some point, only time will tell. but their behavior has changed. you know, i think we have to look at the leading indicators. and the leading indicators are a matter of concern not just

regards to fiscal policy and public finances but also with regard to k-12 education. basic research. critical infrastructure. and a variety of other things that ultimately will determine whether or not we're going to be in a better competitive posture going forward. and so when you look at all of those things, i think, yes, america is a great country and we'll stay great. but if we want to continue to be the force that we are today, we're going to have to change course. and we're going to have to make tough choices. >> yeah and i don't think it's really a matter of choice that we do something. it's either that we could do something now in advance or go over a cliff eventually and wait to see. people can have a good legitimate debate about the size of a debt or the size of the deficit that a country should have. but the course we're on is by any definition unsustainable. and so some choices need to be made.

that's, you know, unavoidable. >> next question right here. >> david walker, you put forward a rubric of nonpartisan solutions that would get bipartisan buy-in. could you or others comment -- are there either -- where you see incremental low hanging fruit for such nonpartisan kind of solutions? or tradeoffs that speak of some of both sides best ideas and building a coalition to start putting those in place? >> i think the two easiest things to possibly gain consensus on would be statutory budget controls that would take effect after the economy has recovered and after unemployment is down significantly. because you don't want them to take effect before that. and secondly, i think there's a social security deal to be had. and i think there's been a social security deal to be had since 1998.

but it's just a matter of the president and the congressional leadership wanting to go for it. because -- and i think we need to do that. not because it represents the biggest challenge. not because it's a media crisis. because we get some points on the board. and we enhance public confidence. we bill credibility and we gain momentum to be able to take on much tougher stuff. >> i would just pipe in quickly and say i agree with that. if you listen to what bill novelli and i talked about social security. we didn't agree 100% but there were elements that we agreed upon. that's the easy fix. we understand what we need to do to fix this program. we understand the pros and cons. it's a mature policy issue. healthcare, medicaid is a lot trickier so i think starting with really does make sense. >> i would like to add i've been following the social security debate pretty closely for a long time. as we all have.

and i was really struck listening to bill and andrew, who haven't always been on the same side of the social security reform debate. but they were saying things that were very similar. and things that i think you could get a bipartisan agreement on if you could do it out of the context of political advertising and people trying for political reasons pull people apart. if you listen to, you know, what andrew and bill were saying, as bill said a deal to be made. one of the things that concerns me about the healthcare bill is that a lot of the so-called low hanging fruit was taken in that bill for -- as an offset to pay for the new benefits. and to me that's the thing that's most fiscally concerning about that. because even if all the savings are achieved, and all the tax increases actually go into effect, you're still on an unsustainable course.

and you've used up a lot of that so-called low hanging fruit. i don't know if there's anything all that's low hanging in this context. but i mean, the -- >> it's relative. >> yeah. >> i want to add to that, too. there is no low hanging fruit and i think social security is an example of this. everything on the hill is so gridlocked and so politicized. but there is a chance -- there are people up there who both understand the social security situation. and they do want to do something. it may be that we have to wait until after the november elections but the opportunity is there. >> the next question. >> hi i'm a graduate student from the business and policy school. as a representative of the next generation, i was just wondering a couple of questions. first, what can we do as the next generation? besides just writing our congressmen? and secondly, how are you engaging our generation such as

like social media, other forums like this? >> wow! is stefan still here? you know, our youth outreach coordinator -- he was here. and he was with me at a forum last night. and i know he had to leave for another engagement. so i guess he's not still here. i wish he was. we have lots of conquered field staff around. and what we have a specific youth outreach program at the conquered coalition. i'm probably not the best one to describe it. but it does -- you know, stefan really is in touch with all sorts of other youth groups. i don't want to say that. it sounds pejorative. i mean, young people are involved in lots of issues. and some of them are interested in fiscal issues. and some of them have different views on it. but our outreach is to try to get people engaged and encourage them to do activities on campus and engage in the social media because that's really what your generation brings to the table.

that the rest of us don't. and it really is a very engaged generation. and so we're trying to through our youth outreach efforts on college campuses just raise the awareness of fiscal issues. and so that -- and i would encourage you to get in contact with stefan brewer and he's much more tapped in the youth outreach network than i am. >> maybe i can touch on something maybe not for young people but for everybody out there thinking about these things. i think the key is don't punish politicians. as much as i bad mouth members of congress and said awful things of them. don't punish them for telling you things you don't want to hear. when i think back to the presidential primaries, both in the democratic and republican side, i remember then-senator obama saying, everything has to be on the table on social security. i remember talking to people who worked for him. he's really interested in the issue. he got punished in the primary.

he retreated to a position that was not simply realistic. it was a small tax increase on high incomed people which has now been used on something else, i think. they don't do this because they're bad people. they do it because if they continue to tell you the truth, a lot of people out in the public say, i'm not going to vote for that guy. you had the same thing happen on the republican side. where seemingly reasonable moderate people would back off and become entrancent. the problem isn't members of congress that you can condemn and act as if we're better with them. the problem really lies out in the american people who are not willing to have difficult things told to them and they're not willing to make difficult choices. >> there's two things. and it's especially for young people but it's for everybody. but young people even more so. things are being done to you, not for you. your future is being mortgaged. at record rates. relative investments in your

future are being cut down because so much of the budget is on auto pilot. and the country is facing increasing competition in a global marketplace. all right? so you need to be informed. you need to be involved. young people need to start using social networking in order to let their voice be heard, all right? but in addition you have to recognize in addition to trying to get elected officials to make tough choices sooner rather than later but to allow them to tell you the truth and not punish them when they do the right thing even though it may involve some shared sacrifice in the short term for greater gain in the long term. the government overpromised and underdelivered. it's going to restructure its promises and taxes are going up. so for your own personal financial planning, you need to understand that. the good news is if you're young, you know, the power of compounding can work for you if you start early enough and make wise choices. last thing, at the peterson foundation, we have a special effort with regard to young

people as it relates to social media, facebook, twitter, movies, youtube pieces, you know, games like, mtvu. we had alliance with mtvu. we do things with concord and others on college campuses et cetera and stay tuned for iousa solutions which comes out in two weeks. we're going to give it away. just as we gave away the 30-minute version of iousa. so it's really important to engage broad cross-sections especially young people because they bear a disproportionate share of the burden. >> thank you. >> hi, i'm tracy gordon school of public policy. so since this is a fiscal solutions forum, i thought i would ask about one particular solution which is a value-added tax or a vat. and as you all know, sales taxes have traditionally been the domain of state and local governments. and some very nice work that mr. biggs did recently that was

reported on the "new york times" shows that state governments when you look at their explicit or implicit liabilities are in a world of hurt right now. the work that mr. walker pioneered at the gao. i just wondered given the situation that states are in, does it really make sense to ask them to bail out the federal government? by raising their tax base basically. >> well, i think a value-added tax is a form of sales tax that if you're going to have a sales tax an value added tax it's self-enforcing so you have less problems with evasion. it would not be my choice. my choice would be scaled down programs. try to minimize the increase in taxes. at the end of the day, though, if you're going to have a european-size welfare state, you have to start taxing the way they tax. they tend to tax through high payroll taxes and things like value added taxes. you can't finance all these programs with just, you know, tweaking tax rates on people making over $250,000.

so there is a question of, however -- whatever level of government we're going to have, we need to finance it as efficiently as we can. the question is whether people really are willing to swallow it. in my view, it will be the least bad of those tax choices, though. >> did you say a european welfare system. >> european-size welfare system. >> see this is part of the problem. you know we don't agree on everything. we agree on a lot. i don't know anybody saw the charles column in the "washington post" where he said the v.a.t. the coming of socialism. you know, the idea of taxing consumption and looking at a v.a.t. -- i mean, as we've set repeatedly, i think everybody said it including leader hoyer, everything needs to be on the table. we really need to take a serious look at this. it will take americans a long time to figure out what it is and come to grips with it. but lots of times a novel idea of 20 years ago becomes serious mainstream thinking today. so, yes, we should look at it.

>> state and local governments have their own problems. because of medicaid costs, underfunded pension plans, underfunded employee healthcare and deferred maintenance and other infrastructure costs, higher education expenses, et cetera. and they're going to end up hitting the wall before the federal government because they can't print money. and because they have to be more concerned about their credit ratings. ultimately, the u.s. government is going to be concerned but the states have to be concerned about it now. the problem is how are we going to deal with this fiscal gap? and my personal view is, everything has got to be on the table. and, yes, we're going to have to have more revenues because the government has promised too much and waited to long to solve the problem at historically levels of 18.3% of gdp. that's federal revenues as percent of gdp historically over

the last four years. i think the problem is primarily going to have to be resolved on the spending side. more on the spending side than the revenue side but we're going to have to have some more revenues. and then the debate is what form of revenues? and clearly some type of a consumption tax. v.a.t. or otherwise has intellectual merit. but it needs to be coupled with statutory budget controls and other spending constraints or else the american people aren't going to go for it. they're not going to go for it unless it's coupled with other things. and, frankly, the v.a.t. might have to be earmarked for healthcare where there's no doubt we're going to have to have more revenues. and, you know, you need to coordinate it with the states and who's to say you can't have some revenue-sharing or some integration in order to try to solve the problem. >> well, i just -- 'cause that was exactly the point that i was going to make. i was going to follow up on that because i think we could think a little outside the box on that. if you did go to the v.a.t. tax and you go to the state's revenue base on conti