Special Guests: David Walker - Former U.S. Comptroller General

NEIL CAVUTO, HOST: Sacre Bleu, the French must really be fried. What else could explain President Nicolas Sarkozy wanting to hike the country's value-added tax, or VAT, to 21.2 percent, a far cry from the original rate of about 16 percent.

To former U.S. Comptroller General David Walker, who says America should take no. If you won't cut, you keep hiking. And still the debt keeps growing.

I know you are for a balanced approach to this, David. But there is nothing approaching balance over there. They feel that going too far on these cuts will only make a bad situation worse. So hike taxes.

DAVID WALKER, FORMER U.S. COMPTROLLER GENERAL: Well, I'm not for a balanced approach. I'm for a comprehensive approach. I think our problem is overwhelmingly a spending problem. And we need to do about three to one spending reductions for revenues. How you achieve the revenues matter.

CAVUTO: By the way, the Republican candidates who are all in the race now do not see that ratio of all. No part revenues. But go ahead.

WALKER: All right. Well, they may have a problem with math. But we'll see. The fact of the matter is that we haven't had a joint budget in over a thousand days. We haven't passed appropriation bill in a timely manner but two out of 25 years. Less than 40 percent of the budget is even controlled. The rest of it's on autopilot.

So the bottom line is -- the lesson is escalating deficits and debt represents deferred taxes, absent tough budget approaches that will constrain spending. That's the reality.

So we need to start hearing more from President Obama, as well as from the leading Republican candidates about what they're going to do to restore fiscal sanity, so we don't be on the same path as Europe.

CAVUTO: You know, David, I'm wondering if the president, though, is running out the clock. I'm not saying the poll numbers mean anything. But by and large, he is relatively stable in these polls, beats almost all the candidates, is competitive with Mitt Romney in this 14 states, crucial, you know, battleground areas. He's essentially tied.

So he might be figuring, why should I go out on a limb and throw myself over a cliff, right?

WALKER: My view is you're still in the primary portion for the Republicans. You're really not going to hear a lot of specifics about solutions in the primaries for a variety of reasons. As you know, you're appealing to a different electorate in the primary than you are the general. I think it's absolutely imperative in the general election we hear more truth; we hear more discussion about sensible solutions.

You know, frankly, 2012 is the 20th anniversary of Ross Perot running for president the first time. He ran out fiscal irresponsibility, political disfunctionality, declining trust in government and declining confidence in the future.

We are demonstrably worse off than we were 20 years ago. So it's imperative that we get some more truth and more solutions in the general election. And I'm going to try to do my part to make sure that happens.

CAVUTO: You have tried to do that, David. But the fact of the matter is I just think both parties are just trying to get to November, and after November, and resolve these phony issues after that. In the interim, we're picking up four billion dollars a day added to our debt. Never mind the problem is going to be a lot worse by then.

But I don't see anything getting done.

WALKER: Well, it's about three billion a day adding to the debt right now. But the fact of the matter is you're not going to get significant progress between now and the election. But it's absolutely imperative that we start making progress in 2013.

The only way you're really going to make progress in 2013 is if the presidential candidates are truthful with the American people, and build the case for a mandate to do what needs to be done to keep a debt crisis from coming here.

CAVUTO: Do you think that will happen?

WALKER: I think it can happen.

CAVUTO: I don't know if I take bets on it. So do you think that will happen?

WALKER: I believe that it will happen because I know for a fact that we're going to have to make these tough choices. The only question is are we going to make them prudently and preemptively? Or are we going to wait for a crisis where we have to do it in dramatic and Draconian fashion?

Once Europe starts getting its act together, the eyes of the world will start turning to us. And they will not like what they see.

CAVUTO: That's a big assumption that Europe will get its act together.

WALKER: I think there will. It's only a matter of when. It may take them two years and more.

CAVUTO: The French solution doesn't seem to be much of one.

WALKER: No, I don't believe it is. But then again, that's because they are not dealing with the structural problems. You're right. You've got to be careful not to cut too much in the short term, or else we could be back in the tank again.

Last thing; don't forget, Neil, you and every American should take the five to 10 minutes to do the fiscal IQ quiz at FiscalIQ.net. Find out what you know, what you don't know, and what it's going to take to restore this nation's finances.

CAVUTO: I did take the test and I got 100 on it.

WALKER: You're less than one percent who did.

CAVUTO: I have no idea.

CAVUTO: David. thank you very much.

WALKER: Great to be back with you again.