309: America’s National Debt: What it Means for Your Retirement with Former U.S. Comptroller General, David Walker

Casey Weade: Dave, welcome to the podcast.

David Walker: Good to be with you, Casey.

Casey Weade: Well, I’m excited to see you again. You may not know this, but it’s been a while. So, back in 2010, I had the pleasure of seeing you speak. And so, that was a little over a decade now. But I’ve always been a huge admirer of yours and really enjoyed watching your work and not just have but really enjoyed your speech that you gave over a decade ago that really had a big impact on myself, the way we run our business, the type of advice we deliver to the families that have trusted us to do so. So, I’m so excited to take things a little bit deeper here with you today.

David Walker: Well, it’s good to be with you. And I hate to tell you, but things have gotten a lot worse at the federal level since 2010. But we’ll probably talk a little bit about that.

Casey Weade: We will. But before we get there, you’ve served under a couple of different presidents. You served under George W., as well as Clinton. And I thought we would start with something maybe a little bit more on the lighter side. Which one was your favorite?

David Walker: Well, I think Clinton was the last fiscally responsible president. As a personality, George W. Bush had a better personality. But I will tell you, my first presidential appointee was Ronald Reagan, who was my favorite president, and then George Herbert Walker Bush. And then Clinton appointed me as Comptroller General of the United States, which I served during both Clinton and George W. Bush.

Casey Weade: Well, what would be one of the things that maybe the public would know from one of those presidents that really stood out to you, maybe a funny story or just something unique that never made the press?

David Walker: Well, when George W. Bush was governor of Texas and he was thinking about running for president, he asked to meet with me at the Governor’s Mansion. And he wanted to talk to me about federal issues, financial issues, Social Security, Medicare, taxes, a range of other things. And I was happy to talk to him. I met with him.

And during the interview, he said, might we be related? Because keep in mind that W in George W. Bush stands for Walker and his Walkers came from New England, whereas mine were in the South, if you will. And I said, no, I don’t think so. And I said, it’d be a problem if you became president because I’ve got to be independent from the president, everybody in the executive branch. And then he said, well, on second thought, baldness doesn’t run in our family. And then I reminded him what the president and I and Eisenhower said, men only get so many cells above their neck. You have to decide if you’re going to deploy them on the inside or the outside.

Casey Weade: That’s great. Yeah, we always knew George. I had the pleasure of seeing him speak in the past as well, and had a heck of a great sense of humor, that’s for sure. And it was interesting also sitting in that chair as I watched George W. Talk for upwards of a couple of hours.

And I thought one of the things that was really insightful from that talk was the conversations that happened afterwards with some of the other individuals that didn’t really like George W. in the past and had a lot of negative things to say about him after actually seeing him in person and even having the opportunity for some of us to meet him face to face and shake hands. The reality was the media portrayed him a little bit differently than the man that he really was. And do you think we can trust at all the idea that we get of the president from the media? Or is it always a stark contrast?

David Walker: No. Unfortunately, media is part of the problem. The media has become too much about opinion rather than news, and we have too many what I would call fact-free zones. They don’t provide the facts. They just basically go and start stating their opinion.

In addition, we now have a fragmentation of the media. We’ve got so many different media outlets. People tend to self-select where they want to get their information. You’ve got some media outlets that are very progressive. You’ve got others that are more conservative.

And so, I think the media has actually served to fuel the divide in the United States. And it’s not just a divide with regard to party affiliation. I think the more serious divide is an ideological divide. The divide between those of us like myself who believe in maintaining the founding principles that made this country great and those that want to adopt socialist state principles, that’s the biggest battle. That’s an ideological battle. And that’s going on right now.

Casey Weade: Well, and you yourself don’t necessarily consider yourself Democratic or Republican. Is that correct? And maybe I get that wrong.

David Walker: I’m an independent, I’m a fiscal conservative, a social moderate. Frankly, I think a majority of the American people probably fall in that category. And as you undoubtedly know, Casey, now, a plurality of registered voters are like myself. They’re independent. They’re not affiliated with either party. And I’m fortunate, I live in Virginia, where you’re not disenfranchised by being an independent. I can choose to vote in either the Republican or the Democratic primary, as well as the general election. And so, I actually have more flexibility being an independent in Virginia.

Casey Weade: That leads me down a path of a question that I’ve had for some time. And I know, I think the generation today, the generation of younger voters today also has a similar question here. This is also one that my dad probably planted in my head as a young kid, the question of how much power the voter really has and how much it really matters which president is in the White House? Because it seems like we’ve had several presidents over the last couple of decades and there’s been very little progress, as you said, especially from a fiscal standpoint. So, in your opinion, how much power does the individual voter have? And depending on which president does get in the office, how much of a difference do you think it really makes from one president to the next or one party to the next, for that matter?

David Walker: Well, first, obviously, local politics, you can have more of an impact than you can at the state and the federal level. And to the extent that you are affiliated with other groups, groups that have more people end up having more of an impact the higher up you go. But there can be dramatic differences between who the president is.

Let’s just talk about the latest election in 2020. My personal opinion, I thought that many of Trump’s policies made sense with regard to his economic policies, his foreign policy, his immigration policy, his energy policy, etc. He was not a fiscally responsible president. But then again, the court is not either.

But if you look at the change between Trump who I like a lot of his policies, but I didn’t like his personality at all. And in fairness, I don’t want him to run again because I think if he ran again, it would be about personality in the past rather than policy in the future. And we need to be focused on the future.

In the case of President Biden, he did a 180 on almost all of President Trump’s policies on immigration, on the energy policies, if you will. And so, it’s had a dramatic impact on energy prices, on inflation, on losing control of the border, and a variety of other things. So, a president, keep in mind, is the only person who was elected by all the people. Nobody else is elected by all the people. And the vice president is really just along for the ride.

Casey Weade: And you see that from some of these different policies, as you mentioned, from energy to foreign policy, etc. You can see some dramatic differences from one administration to the next. But I don’t feel that we’ve seen much of an impact from a fiscal standpoint from one administration to the next. And I just think we all kind of wonder, is it even possible to make dramatic changes from a fiscal perspective, especially a government spending perspective, when there are so many different pressures today from so many different areas on these presidents and their administration?

David Walker: Well, and let me be clear, the last fiscally responsible president was Bill Clinton. And in part, he was fiscally responsible because he had a Republican Senate and House that he had to deal with, and therefore, they had to compromise. And if you remember, Bill Clinton is the one that said the era of big government is over.

Now, the problem that we’ve had since then is the Republicans tend to want to cut taxes that might end up increasing short-term revenues but not as a percentage of the economy. The Democrats want to grow government and increase spending when spending is already out of control. The combination of less taxes and more spending hemorrhages the bottom line, further increases deficits and accumulated debt burdens.

And let me give you an example. I mean, in the year 2000, we had $5.7 trillion in total federal debt. That’s debt held by the public and debt held by the so-called trust fund. Now, we’re over $30 trillion. In 2000, we had $20.4 trillion in total liabilities and unfunded obligations for Social Security, Medicare, etc. At the end of last year, we had over $110 trillion. And the numbers are growing rapidly.

My view is very clear. We need a constitutional amendment, and I’m working on it right now, and that’s why I’m flying to Atlanta tomorrow. We need a constitutional amendment that limits how much debt as a percentage of the economy the federal government can have absent very narrow, extraordinary circumstances. Statutory approaches have failed. The Congress is addicted to tax cuts and spending increases and to getting reelected. And so, we’ve got to have something that will work. And the only thing that will work, in my view, is a constitutional amendment.

Casey Weade: We start talking about government debt and you get riled up. I see it in your face. You get excited, your tone changes. You can tell this is a real passion of yours. Where does this passion come from? Is it something from your childhood? What kind of life experiences led to this passion around fiscal responsibility?

David Walker: Well, I’m a big believer in the word stewardship, which you don’t hear enough anymore. And stewardship means that as a leader, whether you’re in the private sector or the public sector, in the not-for-profit sector, your responsibility is not just to generate positive results today, not just to leave things better off when you leave than when you came, but to lead things better positioned for the future. In my generation, the baby boom generation is the first generation in the history of this country that is not discharging its stewardship responsibility. It’s not discharging its stewardship responsibility with regard to fiscal matters. It’s not discharging its stewardship responsibility with regard to environmental matters and a number of other things. And that is not acceptable to me.

The other thing is, is that my parents obviously had a great impact on me. And you’re in the financial planning and advisory business. He had very simple things. Have a budget, plan, save, invest, preserve for retirement, get out of debt as quickly as you can. And I followed all that advice. And it’s treated me well. But quite frankly, a lot of young people today don’t follow that advice. And you definitely don’t want to follow the bad example of the federal government.

Casey Weade: Well, it’s kind of gotten to a point where we all kind of start to question, does it even matter? You throw out numbers as 5 trillion, 30 trillion, 100 trillion. And when youth sees that, they start to think, well, maybe it doesn’t matter. Maybe I can just fuel my entire life with continually taking on more and more debt. And it seems like that’s where we’re headed. How much does the debt really matter, in your opinion, when we talk about some of these numbers?

David Walker: Well, look, deficits are the annual difference between revenues and expenses. Debt is the accumulation of all past surpluses and overwhelming deficits, right? Not all debt is bad. Sometimes you have to run a deficit. You have a recession. You have a national emergency. You have a war, other conflict, if you will.

But what does matter are two things, how much debt do you have as a percentage of the economy? And when you count total debt as a percentage of economy, we’re at record levels, all-time record levels and going up. And then how much interest do you have as a percentage of the budget? Because what do you get for interest? Nothing.

And so, those are the things that matter. That’s why I focus on debt to GDP. When you take these big numbers, trillions, you have to divide them by number of persons or number of taxpayers or number of households to get something more meaningful. Let me give you a number. The $110 trillion number I gave. If you divide that by the number of federal income taxpayers, payers, not filers, $1.4 million each. Every federal income tax filer is in the hole for one payer is in the hole for $1.4 million. People ought to understand that when median household income in the United States is $67,000.

Let me say one other thing, Casey. It’s very important. Within the last two years, there’s been a new theory called the Modern Monetary Theory. The Modern Monetary Theory was posed by progressives and by the lead economist for Bernie Sanders, who never answered how much is this going to cost because he didn’t care because he believed in the modern monetarism. The Modern Monetary Theory says deficits and debt don’t matter as long as you can borrow on your own reserve currency unless and until you have excess inflation.

Well, newsflash, one it’s contrary to the long-established economic theory, it’s contrary to history, it’s based on a flawed comparison to Japan. And guess what? We now have excess inflation, so it has failed miserably. And in fact, because people, some progressives believed in that theory that we had trillions of spending. In addition, the Federal Reserve artificially held down interest rates too low, and they self-dealt and they bought Treasury debt to trillions of dollars which served to fuel inflation.

And now, we’re in a situation now where we’re going to have to try to get control of inflation, hopefully without having a serious recession. And so, that theory has been a total failure. And we need to recognize that, we need to start making tough choices sooner rather than later.

Casey Weade: I think most understand that’s bad, right? That’s not a good thing.

David Walker: Too much debt. Too much debt spent.

Casey Weade: And the right kind of debt can be helpful, but this is not good debt. And especially when we talk about these numbers, and I think many understand, when it comes to government and the rising interest rates, the impact of that, but what’s this trickle down? What’s this mean to retiree or the individual saver at the end of the day?

David Walker: Well, here’s the bottom line. The government’s grown too big. Promise too much is going to have to restructure. And what’s going to end up happening over time is taxes are going to go up significantly because we’ve waited too long to solve the problem just through spending reductions. Social insurance programs are going to have to get renegotiated. That means Social Security, Medicare. We’re going to have to reprioritize and reduce projected discretionary spending.

And all those things mean that people need to be thinking about what’s likely to happen. And what does that mean to me? Meaning the individual and their family. And that’s what I talk to people about. I don’t just help them understand where we’ve been, where we are, where we’re headed, what’s likely to happen. I help them understand what does it mean to them and what do they need to start thinking about with regard to their savings, their investment, their insurance, and other things in order to make sure that they are best prepared for the future.

Casey Weade: And when we look back throughout history, you spent a lot of time in America in 2040: Still a Superpower? a Pathway to Success. You spent a lot of time in there sharing with us, I think, important pieces of historical information. I know you’re a bit of a history buff. And so, what can we glean that would be some of the best examples throughout history where we can say, this is where we’re at and this is what’s happened to other superpowers throughout history?

David Walker: Well, let’s take Rome as an example. Rome was the largest, longest-standing republic in the history of mankind. The empire lasted much longer than the Republic. It became more autocratic when the republic fell. There are several common denominators between Rome and the United States today. Rome fell for several reasons – fiscal irresponsibility, political incivility, moral decay, inability to control its borders, and overextended military. That sound familiar?

Casey Weade: Sounds a little familiar.

David Walker: Yeah. There are four things it takes to become a superpower, a global superpower – economic power, diplomatic power, military power, and cultural influence. The most important factor is the first, economic power, because with economic power comes diplomatic influence, comes the ability to be able to fund the strong military, and causes people to want to emulate you culturally around the world. The leading indicator on the way up and the leading indicator on the way down is economic power.

And the truth is, when you have too much debt as a percentage of the economy, it reduces long-term economic growth, which reduces individual opportunity, which increases the national security risk and domestic tranquility risk. And so, the bottom line is, if you can’t put your finances in order, everybody is going to suffer to differing degrees over time. And the question is, what can we do to get back on the right path? At the same point in time, what are we as individuals need to do to try to mitigate the risk to ourselves and our families?

Casey Weade: Well, I wonder sometimes what keeps you going? It’s been a couple of decades that you’ve been beating this drum, and yet, we haven’t seen the progress that you would like to see. We haven’t seen any progress, arguably. And what keeps driving you? I mean, most people, if they’re going on the golf course and they can’t get through a few rounds of golf, they may never come back. They continue to shank that ball for two decades. They’re never going to pick up the ball again. So, what makes you continue to beat this? And what makes you think that there’s actually a chance that something is going to change?

David Walker: Well, first, I love this country, I love my children, and I love my grandchildren. And one day, I hope to have great-grandchildren. My family came here in the 1680s. I’m a member of the Sons of the American Revolution. My wife’s family came here before mine. She’s a member of the Daughters of the American Revolution.

And so, I mean, I think we’ve had the good fortune. We’ve been to all 50 states. We’ve been to every continent. We’ve been to hundred countries. And we know what we have here and how precious what we have here, but we see it at risk and we see it slipping away. And that’s just not acceptable to me. It comes back to stewardship. I mean, it all comes back to that one word, stewardship, which we don’t hear. Too many people living for the day, not enough trying to take steps to help create a better tomorrow.

Casey Weade: And is it your belief that in 2040, we will still be a superpower? What are our odds?

David Walker: The answer to the question of still the superpower is yes, if, and no, unless. Yes if we take a number of the steps that are outlined in the book because half of the book is solutions. All right. First, you have to wake people up, then you have to have a call to action, then you have to show them away for. So, half the book is about solutions. So, if we pursue those solutions and they’re illustrative, they’re not the only way to solve the problem, but they’re a way, then the answer can be yes. But if we don’t, the answer will be no.

Casey Weade: All right. I want that crystal ball.

David Walker: I’m not the only one who’d seen it. Ray Dalio, I’m sure you know who Ray is. As your listeners and viewers will probably know, he’s the head of one of the largest hedge funds in the world. And he recently wrote a book talking about these issues. He didn’t get into solutions, which is what I get into, but he got into the problem and compared the US to current and past great powers. And his bottom line was, America is on the decline. China is on the rise. And if things don’t change, that’s what the future is.

Casey Weade: Well, people often try to put me in a corner and want to know if the market’s going to go up or down in the next 12 months. What are the odds? To go up, down, or stay the same. Now, I think I got that from you. The crystal ball, if you had to pull it out and if you had to apply odds, what do you think our odds are from continuing to maintain our authority from a global perspective?

David Walker: Well, as long as we are the number one or number two economy in the world, as long as we are one of the top diplomatic powers in the world, as long as we have the strongest military in the world, then we will have a lot of influence around that. But understand this, we are number one in nominal GDP, but China has already passed us in purchasing power parity GDP, and they are going to pass us on nominal GDP in the not too distant future.

Secondly, China’s already passed us on the number of diplomatic missions around the world. Thirdly, China is number two militarily and dedicated to trying to pass us militarily. China has got a plan. They have a long-range plan. This focuses on economic, diplomatic, military and cultural, and other issues. We don’t. We have no plan.

I mean, we’re dealing with annual budgets, we’re dealing with two-year election cycles. We don’t have a long-range plan to try to be able to (a) stay a superpower and improve over time. One of the aspects of their plan is something called the Belt and Road Initiative, which is a major development effort for the Third World, which has economic, diplomatic, military, and cultural implications. And they are implementing that plan. So, we need to recognize that just because we’re number one today doesn’t mean that we’re going to stay number one. And we got to start learning from the past and taking steps to help prepare for a better future.

Casey Weade: Yeah, you wrote a fairly similar book back in 2010, Comeback America, and this is one that I picked up back in the day, turning the country around and restoring fiscal responsibility. What are you doing differently today, this time around to ensure that this mission is actually accomplished?

David Walker: Well, first, that book was a national bestseller and was published by a mainstream author from a publishing house. The latest one I did, I self-published it, I did it because I was teaching at the Naval Academy. I was teaching the economics and national security. I didn’t have a textbook.

And so, after I taught for two semesters, I said, I might as well put this together in a book. (A) It’s broader because it doesn’t just deal with fiscal policy. It deals with much broader aspects of both national and economic security. And secondly, it benefits from including a whole range of solutions on taxes, Social Security, Medicare, Medicaid, defense, government organization, operations, and political reforms that came out of the 10,000-mile 27-state national fiscal responsibility bus tour that I did in 2012.

Comeback America was published in 2010. So, that tour took place in 2012. And so, it includes those illustrative solutions that got 77% to 97% support among a representative group of Americans. The people are way ahead of the politicians. They know you can’t spend more money than you make, charged it to the credit card, and not have a day of reckoning. They understand that. And they’re willing to accept tough choices if they’re part of a comprehensive, goal-based plan based on principles and values that bring people together rather than bottom apart, last night.

Main thing I’m working on right now with regard to the fiscal issue is to try to make a constitutional amendment on fiscal responsibility focused on debt to GDP a reality. Shockingly, here’s what we found within the last few months. There are two ways to get a constitutional amendment, the old-fashioned way, two-thirds of the House, two-thirds of the Senate passed something, sent to the states, three-quarters ratify. We’ve had 27. That’s all they’ve all been done.

There’s another way. The founders envisioned that Washington could become so out of touch and out of control, or there may be certain issues such as spending constraints, such as term limits, such as campaign finance reform, where Washington may have a conflict of interest and may not want to act on it. So, it provided that if two-thirds of the states file an application for a convention to propose amendments, not to rewrite the Constitution, a convention to propose amendments, then the Congress shall nondiscretionary ministerial responsibility set the date and place for a convention.

While two-thirds of the states is 34, guess what? We recently found out we had 39 state applications in 1979. Congress never did anything. Never did anything for two reasons. Number one, you didn’t assign responsibility for anybody to keep the records in count. And secondly, it doesn’t want to have one of these because it won’t have a seat at the table.

Congressman and members won’t have a seat at the table. So, I’m fighting right now. And there are two pieces of legislation that have been introduced in Congress in July to increase the visibility here, to rectify this wrong. And the way it’s likely to be rectified, in my view, is you’re likely to have states within the next couple of years, bring cases before the Supreme Court forcing the Congress to act if it fails to act otherwise.

Casey Weade: And do you think that is a key piece of legislation that will have to go through in order for us to actually see the increases in taxes that you actually see into the future, along with some of the major Social Security and Medicare changes that need to be made?

David Walker: I think the longer we wait to solve the problem, the higher taxes are going to go. It’s something called the miracle of compounding. Einstein said the most powerful force is the miracle of compounding. If you are an investor and a saver, it works for you. If you are a debtor, it works against you.

We know we have this large and growing fiscal imbalance. I talked to you about $110 trillion in 2021. That’s growing faster than the economy. And the per capita number is going up rapidly, too. So, the longer we wait, it’s just math, the bigger changes you have to make. It’s a lot more difficult to make changes to social insurance programs and other mandatory spending, which is over 70% of budget than it is the so-called discretionary spending.

And so, this logic tells you that we need something to force those decisions sooner rather than later. And the only thing that I think that’s likely to be effective in this on a sustainable matter is a constitutional amendment. And that doesn’t mean we shouldn’t do things in the interim. We should, for example, in the past, we had something called the Simpson-Bowles Commission, which did good work and made a range of recommendations designed to put our finances in order. Unfortunately, the president ignored it and the Congress never took it up in a meaningful way.

But what we need to do now is to have a new one that’s statutory, where the Congress and the president buy in, that engages the American people in a meaningful way with the facts, the truth, the tough choices, solicits their input, and then makes a range of recommendations that will be guaranteed a vote in Congress, an up or down vote. That’s what we need to do because it’s going to be a tough vote. I mean, when you talk about restructuring social insurance programs to make them solvent, sustainable, secure, when you’re talking about reprioritizing, reducing, spending, when you’re talking about doing tax reform that will actually raise more revenues as a percentage of GDP, those aren’t easy things, and we need to do all of that and more.

Casey Weade: And I get a sense that it’s becoming a little dangerous. And there are some parallels between rising taxes and inflation expectations. If we go back to what’s happened over the last year and what happened following the financial crisis of 2008, following that financial crisis, we saw money printing, like we’d never seen it before. And everybody’s talking about inflation becoming a real issue in the coming years.

And then year after year after year, those inflation concerns seem to wane and kind of go to the wayside. And people said, maybe we won’t see inflation. It continued to sustain low inflation rates following some of the actions that we saw following the financial crisis. And then we see where we’re at today, right? And we’ve seen the same thing with tax expectations coming out of ‘08, the financial crisis. Taxes are going to go up, taxes are going to up. They’ve done nothing but go down.

David Walker: Well, two things have happened in the last two years roughly, unprecedented amounts of federal spending, trillions of dollars in extra spending, and a lot of it, quite frankly, was wasted. A lot of it was wasted. So, you stoked demand, then you had loose money policy. And then we had COVID and we had supply chain challenges, and then we had a dramatic change in energy policy. So, basically, what’s happened is we’ve got a situation where we have too much money chasing too few goods. That’s called inflation.

And people don’t understand that energy policy is the foundation of the inflation fight because it’s not just what you pay for gas and what you pay for electricity and what you pay for fuel. It’s the input cost for fertilizer. It’s the input cost for plastics. It’s the input costs for a whole range of other products, petrochemicals are. Is climate change real? Yes. Does man assume some responsibility for it? Yes.

But again, we need to have a long-range plan that gets us from where we are, where we need to be. It phases over time, which can help us deal with the excessively high prices, reduce inflation pressures, but ultimately get to where we need to be. What’s happening right now is that people are trying to go too far, too fast for where we are to where we need to be. And that has caused a lot of the problems that we’re having today.

Casey Weade: In tampering inflation, the method of the federal government has been to increase interest rates as of recently, and that’s been, historically, what’s been done. However, wouldn’t we be able to kill two birds with one stone if instead of raising interest rates, we focus more on taking dollars out of the economy by raising taxes?

David Walker: Well, there’s absolutely no question that if you end up raising taxes, then you will reduce the supply. So, it could potentially help reduce inflationary pressures. Now, how you increase taxes matters. We’re in a global economy. We must be competitive on corporate taxes. If we’re not competitive on corporate taxes, corporations go overseas or they’ll engage in a range of creative transfer pricing methodologies which will end up getting more things taxed overseas than taxed here. So, we have to be competitive.

We also need to make sure that our tax code encourages savings, encourages investment but dampers excess consumption, especially above necessity. So, yeah, that could help. And that’s one of the things that Larry Summers has talked about recently, but it’s not the only thing that we need to do. And as I said, the longer we wait to engage in meaningful tax reform that will generate more revenues as a percentage of GDP in an equitable and sustainable fashion, the higher taxes are going to go.

Casey Weade: What do you say? It’d be nice to know, I mean, you’ve said, doubling tax rates is your expectation and...

David Walker: I don’t think they’re going to double across the board. They’re going to double across the board because that means if you don’t do anything on the spending side. We’re going to have to do something on the spending side. Candidly, spending is a bigger problem than revenues, but both are a problem. But I think you can expect that tax rates over time are going to go up at least 20%. I’m not talking about 20 percentage points. I’m talking about 20%. And it’s not going to all be evenly divided.

Casey Weade: Well, and we get pretty close to a 20% increase in 2026 automatically. Isn’t that the case?

David Walker: Well, but yeah. And in fact, when you do the projection, well, yeah, that’s at a minimum. And by the way, the projections that are done by the Congressional Budget Office about what our future fiscal outlook looks like assumes that current law is going to happen. Well, how many times have we allowed all those tax cuts to expire? We generally have it, and that exacerbates our problems. So, yeah, you’re right, they’re already set to go up, but I’m talking about an excess of that.

Casey Weade: So, you’re expecting 20% over the tax rates that we’ll see in 2026 upon reset?

David Walker: Yeah, if they’re...

Casey Weade: So, a 15% bracket going to an 18% bracket from what is currently a 12% bracket.

David Walker: Yeah. But I think it’ll skew more towards the upper brackets. It’ll skew more toward, so bigger increases for middle and upper income than lower income. You got to keep in mind, Casey, in most years, over 40% of people who file a federal income tax return pay zero federal income tax. Zero. And about 20% of the people who file a federal income tax return every year get a rebate about 20%.

In other words, they not only don’t pay any federal income tax, they get money back through the earned income tax credit, child care, refundable tax credit, etc. So, one of the things that we have to do is we’ve got to have more people with skin in the game, but we need to have a more progressive and equitable tax system.

Casey Weade: Well, and there’s that one side of it, which is taxes. But as you said, government spending is even a bigger issue and the one that we need to start tackling sooner rather than later, even before we get to increasing taxes. And that leads us to the largest area of expenditures, which is going to be our Social Security, Medicare programs. What do you see as far as reform when it comes to Social Security and Medicare over the next 20 years?

David Walker: Well, first, I think, let’s take Social Security, which is frankly not that difficult to reform. And I don’t know why we haven’t done it already. Bill Clinton wanted to do it as one of his legacies, but then he had the unfortunate circumstance with Monica Lewinsky, which caused him to lose all of his political capital, and he had to abandon that effort.

George Bush then tried to go from a defined benefit system to a defined contribution system. It failed miserably. And the reason being is because he forgot what the second word is in Social Security. It’s security, not opportunity. And as we all know, a vast majority of private pension and personal savings arrangements now are in defined contribution-type approaches where there’s much more volatility. The individual bears the investment risk, not not the employer.

So, I think what’s likely to happen and what a significant majority of American people supported was a further increase in the retirement age. Let’s say two years over the next 20 years, gradually over the next 20 years, an increase in the taxable wage base cap, not the rate, but the cap probably double the taxable wage base cap, which is similar to what happened back when Reagan was president. A modifying of the benefit ratio to where people that are near the poverty level get a higher replacement rate, and people in the middle and upper income get somewhat less of a replacement rate.

I look at the indexing formula for cost of living to have it more reflective of seniors rather than the general population as a whole because purchasing patterns are very different depending upon what age you’re at. And so, those are some of the things that I think you can see in the future for Social Security.

For Medicare, the fastest-growing expense in the future is interest for which we get nothing. Second fastest-growing expense in the future is health care. We spend 20% of our economy on health care. We get below-average health care outcomes. Below-average health care outcomes, and we spend a lot more per capita than any other country on Earth, didn’t even close. And that’s because we haven’t learned that you got to have three things to have a successful and sustainable system, properly design incentives, and encourage people to do the right thing and discourage them from doing the wrong thing, adequate transparency as to cost and quality to provide reasonable assurance that will and appropriate accountability if they don’t.

We’re zero for three on health care. We’re zero for three on K-through-12 education. We’re zero for three on a number of things. So, you got to go to the fundamentals. I think there will be discussion about whether or not to raise the eligibility age for Medicare, especially if we go after Social Security again. We’ve got to move towards payment systems that are paying more for outcomes rather than activities. There ought to be negotiation for prescription drugs. That’s different than price setting for prescription drugs. It’s negotiation for prescription drugs.

My personal view is, is we should not allow advertising on prescription drugs. We’re the only major industrialized nation that allows advertising for prescription drugs. What does that do? It fuels demand. It fuels demand in some cases where it doesn’t make sense.

And so, I think you’re also going to look at cost-sharing arrangements. Right now, there is cost sharing with regard to premium and well, differentiation and cost-sharing with regard to premiums for Part B, which is outpatient, and Part D, which is prescription drugs. There could be a further increase in the amount of costs that middle and upper-income people have to end up paying.

And then I think people need to keep something in mind that they typically don’t think about. And that’s long-term care. Long-term care is a lot more than health care. If you’re rich, you don’t need to worry about it. If you’re poor, you don’t need to worry about it because Medicaid covers it, but Medicare doesn’t, and a vast majority of the population is in the middle. And long-term care costs can wipe you out.

And so, I think that’s another angle, which is not just a health care issue. It’s much broader than the health care issue that people need to be focusing on themselves and with their financial advisors to make sure that they’re adequately protected.

Casey Weade: Well, to that point, what are some of the things that planners should be planning for, and not just planning for in the future, but adjustments to the way that we plan today around Social Security, retirement income, health care costs in the future, taxes going up in the future? What are some of the things– and maybe you can answer it this way, what are the things that you’re doing today to prepare for those things that maybe you weren’t thinking about or wouldn’t have thought about 20 years ago?

David Walker: Well, first, financial planners need to spend a lot more time than many do. There are exceptions on taxes. What’s likely to happen? How can you end up maximizing tax efficiency, not just under the current law, but based upon where we’re likely to go in the future?

Secondly, I think to help people understand that the government has over-promised. And so, you need to probably haircut what you think you’re going to get from Social Security depending on your age over time. Thirdly, you need to recognize that people are going to have to assume more responsibility for their health care costs in the future. So, you may need to assume a little bit more there than otherwise would be the case.

What do I do? I like to lead by example and practice what I preach. I mean, I’ll give you some examples. As I said, I plan, save, invest, preserve, got out of debt. I have zero debt. No mortgage, no car loans, nothing. I have two annuities that I have, I’m already in pay status. One is fully indexed to inflation, which is going to help right now. The other one is indexed 3% a year no matter what inflation is. I have a third one that’s not indexed. I have a whole life policy with considerable cash surrender value. I have a number of other investments.

And I will tell you that I’m looking more, and some of the new insurance products that are hybrids that can provide an opportunity, not just for savings and investment, but also provide an opportunity for either additional life and/or long-term care insurance, depending upon how they’re structured. There are some really innovative products out there now.

And one of the things that I and others are concerned about is, is that, look, we’ve got inflation of 9.1%, so you can’t make any money on a savings account. You’re losing ground. The markets have declined significantly this year. They’re going to remain volatile for a while. And so, where can you put money to where you’re earning more than, otherwise, you would, but you’ve got some protection against the downside if we get another big hit in the market? So, those are some of the things I’m looking at.

Casey Weade: So, three things there that I heard.

David Walker: And one other thing, you have think about whether or not, and if so, when and how much to convert from traditional IRAs to Roth IRAs.

Casey Weade: So, we’re talking about Roth conversion, taking action in the Roth conversion era, as well as having some tax diversification, which is why I assume you’ve picked up some of the cash value life insurance, evaluating some hybrids that might offer some alternative long-term care benefits along with them, and having some guaranteed income sources that are largely indexed to inflation in some way, shape, or form, be that a historical set inflation rate of increase, or preferably is something that’s truly indexed to inflation.

David Walker: Yeah. And in my view, I think my wife and I are set for retirement. I think we’re fine with regard to income. And so, a lot of my strategies are more from the standpoint of how can I preserve, and hopefully, increase to a certain extent what’s going to be left behind.

Casey Weade: Well, that’s all great, David. I know we’re coming to a hard stop of yours. And since we’re on the retirement subject, I want to close out the conversation with a philosophical question for you, and that is, the podcast is called Retire with Purpose, what does retire with purpose mean to you?

David Walker: What it means to me is that it’s a period of time where you’re no longer working for income and you are deciding to spend your time on areas that you’ve had a longstanding interest, and hopefully, where you think you can make a difference. It’s also being able to achieve probably a better work-life balance or better balance in life. You mentioned earlier about golf. I took up golf seven months ago. I didn’t have time to take up golf before that. And so, I try to play two or three days a week, at least nine holes, two or three days a week.

I’m a big pickleball player. I’m pretty darn good at pickleball, the fastest-growing sport in America. But I’m involved in a number of not-for-profit organizations, including Rotary International, trying to make a difference, trying to promote service over self, and trying to help create a better future. And so, I think people need to stay mentally and physically active. And you don’t necessarily have to make money because making a difference is much more important than making money.

Casey Weade: Yeah, well, that’s the beauty of where you’re at and where we’re trying to get some of the families that we’re working with is that job optional space where we can stop worrying about the net worth scorecard and making more money and do what you’re doing, which is making a bigger impact.

David Walker: But part of the problem, Casey, is with the kind of inflation that we’re seeing right now, people are getting penalized. It is a cruel, regressive tax. And now, we have too many people saying if we can’t get this under control in the near future, I may have to go back to work. Now, I’m not in that category, but too many Americans are.

Casey Weade: Right. Just due to a lack of planning, which you’ve done such a good job of planning, and we want to help more people get to that place that you’re in.

David Walker: Lack of planning and irresponsible fiscal and monetary policy. Both have been irresponsible and are unsustainable, and we need to change course.

Casey Weade: Well, Dave, I can’t wait to have you here in town here in just a few weeks as it’s coming up pretty quickly. I’ve been looking forward to this over a year. We’ve got you coming in to join us for a special event, September 22nd. We had a little prelude to that here on the podcast, but you’re going to be talking to hundreds of people here locally about our nation’s fiscal challenges and how that can impact retirees now and in the future. Thank you for your time.

And before you go, I want to do something for those that are listening and that found this conversation really helpful and not just a helpful conversation, what we should do as savers and retirees and just being citizens of the United States, for that matter, but what are some things that we can take action on? And so, we want to give away your book, America in 2040: Still a Superpower? a Pathway to Success. We’re going to give away the latest version of that as long as we have copies here in stock.

To those of you that go over to iTunes, write an honest rating and review of the podcast and then shoot us an email at [email protected] with your iTunes username. We’ll send you the book out for free. Truly believe in the impact that you’re trying to make in your mission and hopefully the impact that this book makes over the coming years. Thanks again, Dave. Look forward to seeing you in person here shortly.

David Walker: Same here, Casey. Thank you for the opportunity.