David Walker wants a nonpartisan solution to our nation's financial woes.

• Position: COVER STORY - Interview - Cover story

Q & A Which areas are you most concerned about and what are the largest problems?

WALKER: The biggest single challenge from a policy perspective remains out-of-control health-care costs. And while there were positive aspects to the recent health-care reform legislation, based upon reasonable and sustainable assumptions, it's unlikely to help our financial condition and fiscal imbalance, and the tough choices remain to be made.

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The second area is our dysfunctional political system. We have a situation where the far right and the far left are dominating our politics, which results in a stalemate in Washington. It's critically important that we break that stalemate so that we can begin making some tough choices--before we face a much bigger economic crisis than we've been through in the last couple of years.

Q & A What aspects of the health bill do you find "positive," albeit we don't know exactly what it entails yet?

WALKER: The reform legislation that passed was primarily a coverage expansion bill. Many people--including myself--believe that it's likely to harm our financial condition and fiscal imbalance because it assumes that Congress will do certain things or restrain from doing certain things that they historically have not done. In my view, the federal government has promised too much, so we have to rationalize what level of promise is affordable and sustainable over time.

Secondly, we're going to have to make a lot tougher choices on how to control health-care costs than were made in the recent legislation.

So while there were some positive aspects, including various pilots and the Independent Payment Advisory Board, the legislation results in higher costs as a percentage of the economy than if it had not been enacted into law. In addition, Medicare was underfunded by more than $38 trillion as of Sept. 30, 2009.

Importantly, the reforms that are included do not guarantee that the projected savings from a deficit standpoint will actually be achieved. In fact, I believe that one of the things that Congress needs to consider is enacting legislation that will ensure that the asserted savings will be achieved through adjusting premium subsidies, reimbursement rates or otherwise making changes to make sure that it doesn't worsen our financial condition and fiscal outlook.

Q & A What other policy areas are problematic?

Walker: Tax policy. We have a tax system that is mind-numbingly complex, inequitable and not competitive in an increasingly global marketplace. We're going to have to dramatically streamline and simplify our tax system as well as make it more competitive from a business standpoint.

And, ultimately, we're going to have to do some things that will help to increase our savings rates and generate adequate revenues so that we can pay our bills and deliver on the promises that we intend to keep.

Q & A Related to taxes, where do you stand on adding a value-added tax to the U.S. system?

WALKER: From a policy standpoint I would prefer that we have a progressive consumption tax in lieu of our current tax structure. However, from a political standpoint that's a bridge too far.

So what's likely to happen is that we'll have a more streamlined and simplified income tax with a broader base to lower rates for corporations and keep them as low as possible for individuals. That will be combined with a supplemental consumption tax, possibly a VAT, possibly earmarked for health care.

It's also likely that we're going to see some type of a carbon tax to not just generate revenues but promote conservation and to help fund alternative energy sources and distribution mechanisms.

Q & A Generally, do you believe desired behavior (by corporations or individuals) can be achieved by providing incentives, i.e., taxing?

WALKER: Politicians and others need to understand that corporations do not have duties of loyalties to countries; their loyalties are to their shareholders, and hopefully, they're also concerned with their broader stakeholders. As a...