Concept_Debt_pennies

Paul & Sanford Introduce Penny Plans

May 17, 2018 | Budgets & Projections

Senator Rand Paul (R-KY) and Representative Mark Sanford (R-SC) have introduced “penny plans” that would balance the budget within a decade through a series of 1 percent annual cuts to federal spending.

In a year when Congress has not yet done a budget and is discussing not doing one at all, Paul and Sanford have taken an admirable step forward in putting forth a budget with their preferred plan of action. Both plans would place debt as a share of the economy on a downward path. Paul’s budget also deserves credit for including reconciliation instructions that would allow Congress to follow through and enact a portion of the savings. (The Senate today rejected a motion to proceed to the Paul budget.)

Unfortunately, penny plans lack specificity. Though they call for dramatic spending cuts, they do not identify what to cut or how those cuts would happen.

The Plans

Both plans call for Congress to enact further legislation reducing spending by 1 percent from its previous year's level for each of the next five years. Paul would repeal the recent spending increases in Bipartisan Budget Act of 2018 and then reduce all non-Social Security spending by 1 percent each year; Sanford's bill would apply the reduction to all non-interest spending.

In contrast, non-Social Security spending is projected to grow by an average of 6 percent under current law over the next five years and non-interest spending by 5 percent – percentages that would be slightly higher under CBO's Alternative Fiscal Scenario, which assumes Congress continues the spending increases enacted this year. As a result, total spending would be cut below baseline projections by almost one-fourth by 2023 under either plan.

For the second five years, Paul's budget has on-budget spending grow at 1 percent per year – still slower than projected under current law – while Sanford's proposal allows total spending to grow from the lower level as long as it stays below 18 percent of Gross Domestic Product (GDP). Paul's plan would reduce ten-year deficits by $13.3 trillion, and Sanford's would reduce them by $10.6 trillion.

Both plans would be sufficient to balance the budget in five years. In Sanford's case, keeping total spending below 18 percent of GDP isn't quite enough to keep the budget balanced, as revenue is projected to be below that level until December's tax cuts expire after 2025.

Under either plan, debt would decline as a share of the economy, declining from 77 percent of GDP today to 59 percent by 2028 under the Sanford bill and 50 percent under the Paul budget, as opposed to the 96 percent it is projected to reach under current law.

Encouragingly, the Paul budget contains reconciliation instructions that ask Congress to follow through on a portion of the promised savings. Fifteen different committees are instructed to propose legislation reducing deficits by at least $1 billion in the first year and $5 billion over a decade, while the Senate Finance Committee is also instructed to reduce revenues to expand Health Savings Accounts. In total, the instructions account for at least $75 billion of ten-year savings, which is far better than the FY 2018 budget resolution that included reconciliation for just $1 billion of savings and allowed $1.5 trillion of tax cuts.

Sanford's bill is not a budget resolution and therefore not able to include reconciliation instructions, but it does contain a sequester that would automatically enforce spending levels by equal percentage cuts to all non-interest spending.

Paul's budget also includes a number of budget process changes, including making it easier to remove duplicative and unauthorized spending, addressing discretionary spending through reconciliation,  as well as a prohibition on Congressional recesses if full-year appropriations have not been completed.

Lack of Specificity

Penny plans tell lawmakers how much spending to cut, but they do not provide any guidance as to what programs should be cut. For a more thorough explanation of this issue, see our post on President Trump's campaign plan to reduce nondefense spending or our previous factcheck of then-presidential candidate Paul's campaign plan.

Cutting spending by 1 percent per year is not as simple as it sounds. Since many programs naturally grow over time (in nominal dollars) due to automatic factors like inflation, health care cost growth, population growth, and other measures, this cut would entail significant changes to many programs and/or a significant downsizing in government functions.

To his credit, Paul has proposed specific budgets in the past, but penny plan reductions would be politically and mathematically very difficult to achieve. Since many of these categories of spending would otherwise grow and the cuts compound over time, the changes needed would quickly become quite dramatic. By 2028, non-Social Security spending would be  almost 40 percent lower than under current law projections.

* * *

We've called on Congress to do a budget this year, asking every Member of Congress to either support a budget or put forth their own plan for a sustainable fiscal path.

Both Senator Paul and Representative Sanford deserve plaudits for proposing plans to put debt on a declining path, particularly in a year when Congress as a whole may not be doing a budget. It is a good first step that Paul's budget resolution contains reconciliation instructions to require even a fraction of its claimed savings.

However, penny plans lack specificity about where Congress should cut, and without those specifics, it's very difficult to see how dramatic spending cuts of this nature are politically or mathematically possible to achieve. Nonetheless, it's good to see both Paul and Sanford taking the national debt and the budget process seriously.