Streams

Connie Mack's Plan to Balance the Budget, One Penny at a Time

Wednesday, August 24, 2011

Florida Congressman Connie Mack has a plan to save the country from its growing deficit, using nothing but pennies.

Mack, a Republican, is promoting a "one-cent solution" to balance the budget in eight years by cutting spending every year by one percent. The proposal, called the One Percent Spending Reduction Act of 2011, aims to eliminate one penny from every dollar spent by the federal government, reducing the GDP from 25 percent to 18 percent and then capping it there.

The ideas seems popular among GOP lawmakers. The Act lists thirteen co-sponsors, and at least one more, Louisiana Senator David Vitter, has announced intention to sign on once the recess is over. Several key conservative organizations have endorsed the plan, including FreedomWorks, the National Taxpayers Union and the One Cent Solution.

By the plan’s own calculations, the spending for 2012 would be capped at $3,382 billion, less one percent, and spending every year thereafter would be reduced another one percent.

Here’s what that would look like (rounded and in billions):

2012

2013

2014

2015

2016

2017

2018

$3,348

$3,314

$3,281

$3,248

$3,216

$3,184

$3,152

In 2018, the U.S. would spend $230 billion less than it spent in 2011. As of this month, the Congressional Budget Office (CBO) estimates spending in 2018 will be $4,635 billion, so this plan reduces that amount by $1,483 billion, or nearly 32 percent. 

The Act does not say what programs would be cut in order to meet these cuts. 

An important note about the CBO estimate: The CBO estimates that spending will increase every year, not because each program will be getting more and more resources, and not just from inflation, but because the bulk of these programs serve older Americans—a growing demographic, and one with growing costs as health care expenses increase. Also, the Penny Plan's drafters used the CBO baseline projections from March, which is why their numbers seem slightly off from current estimates.

The National Taxpayers Union, a conservative fiscal policy institute which backs the bill, calls the plan an "elegantly simple solution [that] would steadily reduce outlays from $3.382 trillion in 2012 to $3.184 trillion in 2017 before capping spending at 18 percent of GDP, thereby bringing it in line with annual revenue averages."

"Furthermore, if Congress is unable to curb its spending habits to fit within the strictures of the given statutory caps, the Office of Management and Budget would be tasked with issuing across- the-board cuts to maintain the proper direction toward a balanced budget. The One Percent Spending Reduction Act also avoids the failings of past loophole-riddled spending cap plans, by ensuring that no federal programs, with the exception of interest payments on the national debt, are exempt from cuts."

Michael Linden and Michael Ettlinger of the Center for American Progress analyzed what a plan that cut 25 percent of spending would look like. They pointed out that capping federal spending at 18 percent of GDP, as the plan proposes to do, would require cuts larger than those proposed in the original House Republican plan.

"The last time federal spending dipped below 18 percent of GDP was 1966. Back then there were 100 million fewer people living in the United States, the median age was nearly eight years younger, and the average cost of health care was one-fifth of what it is now. In fact, no president in the last 50 years ever proposed a budget that would bring spending that low. President Reagan’s budget proposals never dropped below 21 percent of GDP, and actual spending under Reagan averaged over 22 percent. Even the budget passed by the Republican-led House, with all its draconian cuts to Medicare and Medicaid, keeps spending above 18 percent of GDP for the next 30 years."

The CAP analysis looked at where cuts of that size would come from and proposed five scenarios. In the first, cuts are shared evenly among Social Security, Medicare, Medicaid, Defense, and all other programs as a block. That would mean a nearly 32 percent cut to current spending on Mediacaid and Social Security at the same time that the rolls of eligible recipients is growing, and healthcare cost are escalating.

Here is CAP’s breakdown of where the spending cuts would land with a 25 percent reduction.

 

Chart

 

By their analysis, if the 18 percent cap is not applied to Social Security, everything else, including Medicare and Medicaid, would be cut by a third. If Medicare and Medicaid cuts are limited to 15 percent, everything else, including defense, would have to take a forty percent cut. And even if these programs are all completely protected, the country would be forced then to cut funding to all other programs by two-thirds. The report finds that option equally unrealistic.

"Does anyone truly believe the country would be better off with two-thirds fewer food safety inspectors, two-thirds less funding for education, and two-thirds fewer dollars for the maintenance of roads and bridges?"

Pete Sepp, Executive Vice President of the National Taxpayers Union, disagrees with the conclusion that federal spending can't be brought to twenty percent of GDP without devastating cuts.

"This flies in the face of analysis from the Congressional Budget Office as well as centrist outfits like the Committee for a Responsible Federal Budget that show programs such as Social Security and Medicare will become unsustainable without reform in this decade even with certain revenue increases. Gradually restoring spending programs including defense to FY 2008 levels while introducing reforms such as raising the retirement age and means-testing retirement benefits would make a great deal of progress toward bringing the budget to more supportable levels in years to come."

A group calling itself the One-Cent Solution, out of Georgia, has written a letter of endorsement for the plan. 

"Under the bill, Congress would have the opportunity to choose which programs to a cut [sic] and by how much, but if it fails to meet the overall spending caps, then all federal programs would be subject to across-the-board reductions with no exceptions. These across-the-board cuts are a powerful incentive for Congress to act. By adopting this approach, Congress can:
• Balance the budget by 2019
• Reduce spending by $7.5 trillion
• Restore America’s financial future
A key to the One Cent approach is its ability to energize Americans with its straightforward goal of restraining spending to balance the budget. Every American family knows it can reduce its spending by one percent, and they know the federal government can too."

Josh Gordon, policy director at the Concord Coalition, a bipartisan advocacy organization dedicated to ending deficit spending, is less optimistic.

“At this point what we need are bipartisan long-term budget plans, and this is a short-term plan that has no chance of ever getting approved, because it is in no way by partisan, and so that means it is taking up space from plans that actually could do something about the real fiscal challenge we face.”

Gordon says that the real problem is not that entitlement programs are too generous.

“What is our real problem?  We think the real problem is our growth in those programs [Medicare and Social Security] and our unwillingness to be taxed to pay for them and that involves a much more complicated reform than simply chopping off a certain amount each year.”

He says budget caps are not in themselves, a problem, and that any workable bipartisan plan must combine discretionary spending caps with long-term reforms to the entitlement programs and the tax code. But those caps, he says, must be achievable and realistic.

“If you set targets that are too unrealistic, it basically asks for the consensus to break down and makes it that much harder to achieve budget sustainability over the long-term.”

And what would a 25 percent reduction in entitlement spending look like? Gordon paints a grim picture, both for recipients and the economy.

“I think you would have a really dramatic cut in disposable income to seniors, and then if you’re cutting Medicare at the same time, you might be in a situation where a few health events put a senior on such a reduced social security benefit or bankruptcy of some kind. It’s virtually impossible to conceive of a situation where you could cut both of those programs by 30 percent and still have the economy actually work the way we’re used to it working.”

Calls and emails to Rep. Mack's office, to respond to these criticisms were not returned at time of publishing.

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