CHAMPAIGN – Economist Douglas Holtz-Eakin said he's optimistic the United States can and will solve its problems.

But the problems he outlined Thursday – many of them budgetary – are massive and daunting.

Holtz-Eakin, director of the Congressional Budget Office from 2003 to 2005, advocated "ruthlessly pro-growth" policies during the annual Bazzani Lecture in Public Affairs on the University of Illinois campus.

He's no stranger to politics, having served as domestic and economic policy director for the 2008 presidential campaign of Republican John McCain.

Today Holtz-Eakin is president of the American Action Forum, a policy institute whose board members include GOP stalwarts Jeb Bush, Tom Ridge and Norm Coleman.

During an hourlong speech at the UI's Business Instructional Facility, Holtz-Eakin predicted a "long slow recovery" to the recession and said the government should provide growth incentives that make companies more likely to hire employees.

Business is in the best position to pull the economy back, he said. Households and governments are financially strapped, but companies have cash on their balance sheets and healthy profit margins. They can put that money to work if given investment incentives, he said.

Holtz-Eakin said the nation's debt, as a percentage of Gross Domestic Product, has grown sharply the last two years, and radical budget changes must be made to avoid worse problems down the road.

"We need to consume less, save more and grow," he said.

His recipe includes reforming Social Security by raising the retirement age for younger workers and putting Medicare and Medicaid "on a budget." Cuts must include defense, especially "legacy systems" that are no longer needed, he said.

Holtz-Eakin also called for tax reform, saying many taxpayers get more from the government – through Social Security and other programs – than they put into it. As a result, he said, only "5 percent end up paying for national defense" and "everyone else is a net winner."

That imbalance in footing the nation's bill is "not helping representative democracy," he said.

He parted company from other conservatives in endorsing a carbon tax, levied on the carbon content of fuels. He said such a tax makes sense because oil imports are "financing terrorism."

Holtz-Eakin became animated when asked what it was like to be part of the McCain campaign.

"It was like nothing I ever anticipated," he said, adding he was "utterly unprepared for many aspects."

When the campaign was "broke and in last place," he had all the time in the world to talk with McCain about health care, climate change and Social Security. But by the time McCain won the nomination, Holtz-Eakin couldn't get "10 minutes" to talk with him as a result of demands on the candidate.

Complicating things: Both McCain and vice presidential nominee Sarah Palin liked to "improvise" and were "verbal learners." Holtz-Eakin said it was difficult, "with the two of them improvising."

"I still haven't recovered" from the campaign, he said, joking that he drank for a month afterward, then slept for two months. Now, he said, he's in "talk therapy."

Holtz-Eakin's appearance was co-sponsored by the UI's Institute of Government and Public Affairs and the Center for Business and Public Policy.