penny plan

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Debt Ceiling Debate – Finally There is an Acceptable Plan!

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!