12 Days of Solutions, Day 1: The Penny Plan
Fifteen days out from Christmas, Washington is certainly doing nothing to make sure the American people have the best Christmas present of all – fiscal responsibility and tax reform.
This is not because there is a dearth of ideas. Over the last two years, a number of strong proposals have been put forth that would cut spending and reform the tax code. Others would focus on improving the economy, which would help close the deficit with increased tax revenue.
Over the next 12 days, Tea Party Patriots will be highlighting one plan every day that actually aims to address the federal deficit. The first plan we will highlight is one introduced in 2011 by Rep. Connie Mack (R-FL) and Senator Mike Enzi (R-WY) and backed by over 80 Members of Congress, including Senator Rand Paul (R-KY): the Penny Plan.
The Penny Plan is as simple a deficit reduction plan that exists: Every year, the government will cut a penny from every dollar it spends from non-interest spending. The Penny Plan website explains:
The One Percent Spending Reduction Act of 2011 embodies the principles of the One Cent Solution. Also known as the “Penny Plan” on Capitol Hill, this legislation was introduced by Congressman Connie Mack (R-FL) and Senator Mike Enzi (R-WY) and is currently supported by 71 Members of the House and 13 Members of the Senate. Visit our current legislation page to view the list.
The “Penny Plan” legislation would cap overall spending to fit within the One Cent Solution targets. The legislation then calls on Congress to evaluate all areas of the federal government to make certain that future spending fits under the caps.
Under the One Cent Solution or “Penny Plan”, not all programs must be cut by one percent. Congress may determine that some programs are too critical to cut, but that would require that other programs be reduced more so that the total amount cut is equal to one cent for every dollar each year for six years.
For example, let’s say the federal budget only had three programs, each with an annual budget of $1.00. How might Congress meet the One Cent mandate?
- Congress cuts Program A by one cent every year for six years. That means the annual budget for Program A is $0.99 in year one and then $0.98, $0.97, $0.96, $0.95 and finally $0.94.
- Program B is found to be essential and efficient — Congress chooses not to cut Program B.
- Program C is outdated and needs to be restructured — Congress cuts two cents each year for six years from Program C.
In this example, Congress is able to make program-by-program decisions to bring spending within the One Cent Solution caps. If Congress fails to make those tough decisions, then automatic, across-the-board cuts would be imposed to make sure the caps were enforced. The One Cent Solution is a “belt and suspenders” approach to making certain spending is brought under control and the budget is balanced.
The advantage of the Penny Plan is that it cuts directly from the budget as it exists, instead of cutting from the baseline, e.g. expected future spending. So a cut is actually a cut, not merely a reduction in expected spending. It also caps non-interest spending at 18% of Gross Domestic Product, which is necessary in order to keep spending from exploding.
No plan is perfect, and the Penny Plan will require additional cuts in order to compensate for growing interest rate payments, but the basics are there, ready for anyone in Washington to pick up and run with. Instead, of course, both parties are talking about how much more of your money to take and spend.