In my last posting, I said there were three keys to a ‘successful’ debt debate: deal by August 2nd, major, but gradual cuts, and address entitlement programs. Boehner and Reid’s plans being proposed probably won’t be agreed upon by August 2nd, they’re not major, and neither address entitlement programs.
Here’s what you need to know:
- What they do not tell you is that every year, there is an assumed 7.5% increase in spending on autopilot. So, when they say they are going to save $2 trillion in 10 years, they may be adding around $9 trillion, and then cutting $2 trillion, equaling a net gain of $7 trillion in additional debt. They’d save more if they just froze spending.
- Despite the Tea Party being mocked, if it wasn’t for them, America would not care about this debt ceiling debate. The debt ceiling has been raised over 70 times and this is pretty much the first time America cares.
- There is only one plan being proposed that is worth looking at right now, the Connie Mack “Penny Plan.” The plan isn’t perfect, but it makes sense.
Before I explain the plan, I should admit that I have not yet seen the actual verbiage of the bill, I have just heard the writers talk about it’s features:
- The “Penny Plan” is the only plan that has real cuts. Essentially, the plan freezes spending this year and then cuts federal spending by 1% (vs. raising it 7.5%) every year for the next six years. By doing this, we would have a balanced budget in 5-8 years.
- The plan would then cap federal spending at 18% of GDP going forward (which is where federal spending has traditionally been). A balanced budget amendment would be much more feasible at that point.
- The plan allows Congress to decide how to make the cuts, but if they cannot decide, it mandates a 1% across the board cuts.
Although the plan does not address entitlements immediately, the plan is simple and makes real cuts. The plan has a path to a balanced budget, which could keep our triple A credit rating and put markets at ease about the future of the United States. Last, at 1% annual spending reductions, the cuts are gradual and humane. If Congress cannot find 1% in cuts in fraud and waste alone, then they aren’t qualified to be leading our country!
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The proposal has a lot of surface appeal, probably to people of many
political spectrums, but it just wouldn’t work in the real budget world.
Even under the most conservative estimates, Social Security, Medicare, and Medicaid are going to grow by 3.5 trillion dollars between now and 2016 simply due to the vast numbers of baby-boomers who are retiring and becoming eligible for benefits during that period.
The only way this plan could work would be to tell current recipients they are going to take a 1% cut in their SS payments every year for the next six years–even worse, newly eligible persons would be told, “Sorry, we have to cut current Social Security spending levels by an actual 1% each year for the next six years. You get nothing.”
Now factor in the military. Last night, GOP members of the Armed Forces Committee tore into the proposed “massive cuts” to the military budget in the Reid bill. Of course, they are not really cuts at all, they are merely reductions in the rate of increase. The military budget would still rise by multiple billions every year. You can forget any 1% cut there.
So we’re already talking about far more than half the federal budget which will never take 1% cuts–indeed, they will both grow by more than 1% every year. The “Penny Plan” is not simple, it’s merely simplistic.
Thanks JT – you offer some great points! I think this debt debate brings up so many subjects that I am glad people are talking about. The simple fact that we are having these tough conversations as a country is a step in the right direction.
In the end, I do not really like any of the plans, but the Penny Plan seems to be the best plan because it is actually cutting spending, unlike the other plans.
You are absolutely right that the 1% “across the board” cuts aren’t realistic! However, the reason I like the plan is that it forces them to deal with the entitlement programs or make massive cuts to other half. They are given a choice. I have argued that any cuts to the entitlement programs need to be humane and gradual, so I definitely wouldn’t want to see cuts to the people who have been promised social security, etc. But there are ways to offer incentives to private options that could be discussed (I won’t get into all of that here). Also, if we lose our credit rating and no one borrows to us, we’ll either have to cut entitlements or have massive inflation (due to printing money).
As for the military, you bring up a great point. I definitely believe in a strong national defense. However, military spending has been for Republicans what educational spending has been for democrats. They both keep pumping money into them because they are popular places to do it (rightfully so).
I worked in the MN governors office a while back and the projected increase in educational funding was going up 15% annually and the governor “cut” it down to an 8% increase and the democrats went wild! Like democrats did in MN, Republicans go wild if the increase is smaller than projected. I think everything should be on the table and all need to learn to cut their budget.
In the private world, numerous companies average a 3-5% productivity increase every year. I hate to compare government to business too often, because educating kids is different than selling widgets. However, the government operates so inefficiently and there is no incentive to improve efficiency. Knowing that in the next 6 years, you’ll be cutting 1% annually gives them the incentive to lean out their processes.
If we increased 7% for the last ten years, I think we can spend what we did a few years ago and be okay.
Thanks JT!
I should also reiterate that I haven’t read the actual bill and I am sure I would scrutinize many parts of it. For example, I am not sure I am sold on all of the talk at capping spending at a certain % of GDP. I like small government, but I am not sure that is the way to achieve it.