Give Your Two Cents and Balance the Budget: The Completely Practical Way to Eliminate the Deficit in Just Two Years
Prior to leaving on Congress’s five week August recess, Republican Senator Mike Enzi (R-WY) introduced legislation in the Senate designed to bring control over the budget and deficit fiasco within two years. The bill, entitled the “One Percent Spending Reduction Act of 2013” (S.1436), is a derivation of what is called the “Penny Plan”.
The core of the Penny Plan has been around at least a few years, introduced last Congress in the House of Representatives by former Rep. Connie Mack (R-FL), and it has been met with praise due to its radical simplicity. The idea is to cut one percent of aggregate federal spending each year– literally a penny of every dollar spent by the government. Depending on the specifics of the given legislation, this seemingly modest cut to federal spending rather rapidly balances the budget, often within a decade. This occurs because, while federal spending is slowing down, there are no changes to revenue laws thus allowing economic expansion to catch up to the size of government.
Most progressives, even considering the modesty of simply asking federal agencies to find a single penny of every dollar they spend to eliminate, would likely consider a pure Penny Plan to be totally untenable and draconian. Despite the general objection to any spending reductions from the left, the current situation, left without reform, will yield far more drastic consequences for the American people than any spending cut ever could.
President Obama and his allies have recently claimed that the deficit is shrinking at the fastest rate since World War II. While this is technically true, don’t be fooled. This convenient talking point is simply the byproduct of the utterly unprecedented deficit levels seen over the last half-decade. Furthermore, this ‘shrinking’ deficit is still massive by all measures. At $642 billion for Fiscal Year (FY) 2013, this year’s deficit is still hundreds of billions higher than any year prior to 2009. The deficit will continue to shrink over the next two years; however all estimations project that it will begin to grow again by FY 2015. Ten years from now, the deficit will again approach the trillion-dollar mark, with the government projected to borrow $895 billion in 2023.
Letting this situation play out is simply not an option. Doing so will result in a total debt burden beyond $20 trillion and a near quadrupling of the net interest payments paid on that debt. At that point, simply financing the debt will begin to crowd out other functions of government. Spending reductions must be put in place immediately to cure the government’s addiction to deficits and debt and avoid this bleak fiscal future.
While a pure Penny Plan of sustained one percent reductions each year for at least the next decade or so may only enjoy support in the margins of Congress, Senator Enzi’s incarnation of the Penny Plan, the “One Percent Spending Reduction Act of 2013” (S.1436), is a unique alternative aimed at achieving necessary, and politically feasible, results now. Instead of continued cuts each year for the next several years, Enzi’s plan mandates only two years of one percent spending reductions.
Minus the net interest payments owed by the government on US debt, Senator Enzi’s bill immediately caps federal spending for FY 2014 at 99 percent of projected FY 2013 spending. For the next year, FY 2015, the government will again be limited, this time to 99 percent of outlays for FY 2014. By FY 2015, the government will be limited to spending roughly $3.17 trillion minus net interest. This is a full $190 billion more than all federal expenditures for FY 2008 including net interest.
At this point, after simply forgoing just two cents worth of government growth, Congressional Budget Office (CBO) figures project that the budget will balance in FY 2016, with a $36 billion surplus to spare.
Moving forward, federal spending would be tied to economic activity, as the legislation enumerates a 19 percent outlays-to-Gross Domestic Product (GDP) cap for FY 2016 and all subsequent years. This is a full percentage point higher than the historical average of US government spending in relation to economic output.
Technically, minor and manageable deficits are projected to resume under this plan through FY 2021, peaking at roughly $62 billion in 2020. However sustained surpluses are projected for FY 2022 and beyond, freeing up funds to put towards the principal on the debt and eventually back into taxpayers’ wallets.
The “One Percent Spending Reduction Act of 2013” (S.1436) is a clever and feasible reincarnation of an ingenious plan. Most Americans, still reeling from the effects of the financial crisis and Great Recession, would likely beg for such an opportunity to balance their own checkbooks, making those who would label such an effort ‘draconian’ seem out of touch. By forgoing just two pennies of every dollar worth of expenditures for 24 months, the federal government could practically eliminate the fiscal crisis that now haunts every aspect of the government and the broader economy. Supporting such legislation is a compromise each and every member of Congress should be eager to make.
