The penny plan to reduce spending by one cent on every dollar (one percent a year) has been bouncing around Washington for years but is now getting a higher profile with versions supported by the Senate Budget Committee Chairman Mike Enzi and the Republican nominee for president, Donald Trump.
The penny plan to reduce spending by one cent on every dollar (one percent a year) has been bouncing around Washington for years but is now getting a higher profile with versions supported by the Senate Budget Committee Chairman Mike Enzi and the Republican nominee for president, Donald Trump.
While the plan sounds simple, it allows politicians to duck any responsibility for explaining to voters which federal programs should be cut and why. Furthermore, the size of cuts required are much larger and more unrealistic than one might think from the characterization built around the idea of “one percent.”
That is because government spending on programs like on Social Security, Medicare and Medicaid (which alone make up nearly half the budget) grows to take into account population changes, aging and inflation. Thus the actual amount that the government would have to cut in spending is much larger than one percent relative to that built-in growth.
In the plan’s most basic iteration, where all government spending aside from interest payments would be subject to cuts, spending would have to be cut by almost 40 percent from where it would be otherwise in the tenth year of the budgeting period. That would mean dramatically large cuts to Social Security, Medicare, and everything else. Exempting a program from cuts would just place a greater burden on other programs to make larger cuts.
In Trump’s plan, the one percent cuts are targeted at basically just non-defense discretionary spending. Due to the ongoing discretionary spending caps and sequestration, this would further cut spending from a category that is already headed below its lowest level since the government started keeping records (as a share of GDP). Such spending under Trump’s plan would be cut by roughly 25 percent relative to where it would be under current law.
Congress is already struggling to write appropriations bills implementing currently scheduled caps. So calling for even greater cuts in this one area of the budget ignores the very difficult decisions over which programs get cut to fit under caps. These caps also shortsightedly target the primary area of the budget where investments are made to increase future productivity and economic growth.
The even bigger problem is that focusing cuts on this one part of the budget demonstrates an inability to seriously grapple with the nation’s long-term fiscal challenges. By attacking an area of spending that isn’t projected to grow faster than the economy, proponents of the penny plans are ignoring the very real problem of growth in the long-term mandatory spending programs like Medicare and Social Security and political unwillingness to sufficiently tax to pay for them.
Those programs are growing because more people are becoming eligible for them (as the baby boom generation retires) and because health care costs grow more quickly than the economy. The penny plan doesn’t explain how government programs will be adjusted to deal with these changes and instead is a diversion.
Real budget reform involves a much more complicated plan than simply chopping off a certain amount each year. Candidates owe voters specific, thoughtful reform plans instead of an idea masquerading as a “plan” but much better termed a “dodge.”
