The “Penny Plan” to Trim Government Spending

[OmaHusker]

President Obama’s pet solution is to have millionaires hand over a minimum of 30 percent of their income to the federal government. This is the so-called “Buffett rule.”

There are two problems with the president’s approach. First, a millionaires’ tax would not solve our fiscal problems - there just aren’t enough millionaires. According to the congressional Joint Committee on Taxation, the official authority for tax legislation, the Buffett rule would only raise $47 billion over a decade. That’s a far cry from even the $1.2 trillion deficit we face this year alone.

Second, raising taxes does nothing to solve the federal government’s spending problem.

Any viable solution must cut spending growth. Sen. Mike Enzi of Wyoming and Rep. Connie Mack of Florida have introduced legislation in their respective chambers to do just that. Their “Penny Plan” - recently updated to reflect the latest budget developments - calls for reducing federal spending (excluding interest payments) 1 percent a year for five years, balancing the budget in the fifth year.

To maintain balance once it’s reached, Mr. Enzi and Mr. Mack would cap federal spending at 18 percent of GDP. By no small coincidence, 18 percent of GDP roughly matches the U.S. long-run average level of taxation since World War II.

Is it realistic to think Congress could limit federal spending to 18 percent of GDP? Actually, there is precedent. Federal spending fell as a share of GDP for nine consecutive years before bottoming out at 18.2 percent of GDP in fiscal 2000 and 2001. The Penny Plan would return federal spending, expressed as a share of GDP, near the level achieved during the last two years of the Clinton administration.

Washington Times

[Huskerwirejay]

That would mean major cuts to Medicare. Is that something you support?

[OmaHusker]

That would mean major cuts to Medicare. Is that something you support?

I'm for a cap on spending and a balanced budget.

[One Man Jury]

That would mean major cuts to Medicare. Is that something you support?

Obama has no budget; his stopgap measure to temporarily fund the government slashes the military budget by $500 billion and Obamacare, which has passed, will cut medicare in half. The Penny Plan is basically a cap on spending and will not gut Medicare. It makes too much sense for Harry Reid to let it see the light of day.

[Huskerwirejay]

What cuts will be made to reduce federal spending by approximately 30% in order for the penny plan to work?

Specifically, where are the spending cuts going to come from?

[Big Red Rick]

I'm not on board with any Penny Plan, unless it involves Kaley Cuoco...

[Warhorse]

What cuts will be made to reduce federal spending by approximately 30% in order for the penny plan to work?

Specifically, where are the spending cuts going to come from?

You know darn well where they would come from. Balance the budget and reduce the deficit on the backs of children, poor and working class, and students, same as Ryan Budget II.

[Inflation]

The plan is pretty simple, reduce ALL spending by 1% per year until spending equals 18% of GDP. If spending is $3.5 trillion this year, in 10 years spending would be about $3.15 trillion. If revenues grow at 4% per year the budget would be balanced by year 7.

I think the major problem with this approach is the use of social security surplus revenue to offset spending in other areas. The government has used SS surplus revenue for over 25 years to mask their over spending.

Since SS and Medicare, and Highways, have their own revenue stream, they should have their own budget process.The social security trust fund has a balance of about $2.7 trillion and is still taking in more than it pays out.

These politicians have used the SS revenues for spending and tax cuts and now they don't want to pay it all back.

[FLA4NEB]

You know darn well where they would come from. Balance the budget and reduce the deficit on the backs of children, poor and working class, and students, same as Ryan Budget II.

How is that different from the current plan of building a mountian of debt on the backs of children, poor and working class, and students?

None of these plans (or non plans) matter because we don't have the poltical will to do what we must to stop the coming collapse of all these programs. In the end the truly needed and those in real need will suffer right along with the rest of us who have become addicted to the entitlement spending.

[Warhorse]

How is that different from the current plan of building a mountian of debt on the backs of children, poor and working class, and students?

None of these plans (or non plans) matter because we don't have the poltical will to do what we must to stop the coming collapse of all these programs. In the end the truly needed and those in real need will suffer right along with the rest of us who have become addicted to the entitlement spending.

Seems plain enough to me...Building debt and paying off that debt are two totally different things.

[FLA4NEB]

How is that different from the current plan of building a mountian of debt on the backs of children, poor and working class, and students?

None of these plans (or non plans) matter because we don't have the poltical will to do what we must to stop the coming collapse of all these programs. In the end the truly needed and those in real need will suffer right along with the rest of us who have become addicted to the entitlement spending.

Seems plain enough to me...Building debt and paying off that debt are two totally different things.

[nems]

You know darn well where they would come from. Balance the budget and reduce the deficit on the backs of children, poor and working class, and students, same as Ryan Budget II.

So you favor continuing the unsustainable path and continuing to kick this can down the road?

[Bamsker]

The only problem I see with the penny plan is that it makes no provision for paying off the debt, just maintaining it without growth. Our debt is now 5 trillion dollars. How do we get that stagering amount off our backs?

[McKinneyTXHusker]

What cuts will be made to reduce federal spending by approximately 30% in order for the penny plan to work?

Specifically, where are the spending cuts going to come from?

Jay, my major was in engineering, not math - but I'm still having trouble understanding your claim - that to "reduce federal spending (excluding interest payments) 1 percent a year for five years", which is what the Penny Plan advocates, that we must "reduce federal spending by approximately 30%?" Interesting math indeed!

[FLA4NEB]

The only problem I see with the penny plan is that it makes no provision for paying off the debt, just maintaining it without growth. Our debt is now 5 trillion dollars. How do we get that stagering amount off our backs?

If you only are counting the past 3 years...yes but in total it is about 15 Trillion and growing very very fast.

(if President Obama is re-elected and continues on his planned trajectory of spending it is estimated to be over 22 Trillion by 2017 when he would leave office. That is if interest rates don't go up.)

[nems]

Paying off 100% of that debt would be catastrophic. A country with our economic power should always have some level of debt. It is economically stimulative.

The two metrics that matter to me is what is a reasonable % of our annual government spending goes toward iinterest and what is a reasonable level of debt as a percentage of GDP.

[Bamsker]

If you only are counting the past 3 years...yes but in total it is about 15 Trillion and growing very very fast.

(if President Obama is re-elected and continues on his planned trajectory of spending it is estimated to be over 22 Trillion by 2017 when he would leave office. That is if interest rates don't go up.)

I had forgotten that Obama had added 5 trillion to the already large national debt. Thanks for pointing that out. I f your numbers are true, what you say is frightening. I have enough trouble figuring out where the next loaf of bread is coming from.

[FLA4NEB]

Paying off 100% of that debt would be catastrophic. A country with our economic power should always have some level of debt. It is economically stimulative.

The two metrics that matter to me is what is a reasonable % of our annual government spending goes toward iinterest and what is a reasonable level of debt as a percentage of GDP.

Agreed.

I read an economist last year that stated that it has been established that when a country approaches a debt to GDP of 70% job creation in the private sector starts to slow down. At 80% real job growth just about shuts down and at 90% sustainable economic growth grinds to a halt.

Depending on what measure you look at the US is at about 80 to 100% debt to GDP.

I can't remember who this economist was but even the people on the other side from her sort of agreed with her statement and backing.

[FLA4NEB]

I had forgotten that Obama had added 5 trillion to the already large national debt. Thanks for pointing that out. I f your numbers are true, what you say is frightening. I have enough trouble figuring out where the next loaf of bread is coming from.

I have been buying the same brand of bread from the same store for over 3 years now. 3 Years ago it was $1.29, yesterday it was $2.99...milk cost a lot more than gas...

The money has been printed, the bonds are floating, what happens to the value of that money when the bonds need to be lifted by higher interest rates to keep floating.

[skernado]

I read this interesting article about some recent Bernanke comments/concerns. Basically, the kick the can approach Washington has been doing is going to come to a head at the end of this year/beginning of next year. We're to a point where cutting too much at one time would crush GDP. And raising taxes at the same time would compound the impact of the cuts removing hundreds of billions from the economy. As Bernanke calls it, a "fiscal cliff".

I really think the only way to get the country out of it's mess is one, Washington has the fortitude to do it and 2, have some measure of both cuts and small tax increases. Perhaps freezing spending at some past years rate at the same time of a phased in expiring of the Bush tax cuts so that the impacts of both would be gradual instead a fiscal shock. Maybe the penny plan one fiscal year then phased in ending of Bush tax cuts, then penny plan, etc. The deficit has to be brought under control and only a compromise will get the country there. Unfortunately Nothing will get done in Washington until it's too late.