America's Out of Control Debt
The federal government has a spending problem. Last year the government spent $1.3 trillion more than it collected, and total federal debt now approaches $15 trillion.61 62 By the end of this year, the White House Office of Management and Budget expects the gross amount of federal debt to exceed the size of America's entire economy for the first time in over 65 years.63 And according to OECD data, America's federal debt relative to its economy is 27% higher than the average for all other OECD countries.64
While interest rates today remain low, the inexorable rise of federal spending debt will eventually lead to higher interest rate and payments, lower economic growth, and lower standards of living. The current economic crisis affecting Europe paints a portrait of America's future if Washington politicians refuse to make changes to the federal budget. If current spending and debt trends continue, individual Americans can each expect by 2035 to have $10,300 less to go around due to the crowding-out effects of the ever-increasing federal debt.65
Every child born today is immediately saddled with a federal debt burden of more than $46,000. The share of federal debt for each American household is now $136,000.66 67 That exceeds the 2010 median sales price of existing homes in cities like Akron, Indianapolis, and Amarillo.68 The current administration just wrapped up three consecutive years of trillion dollar deficits and added more than $4 trillion in new debt -- an amount greater than the size of the entire federal debt less than twenty years ago.69 70
There exists a simple solution to America's spending problem: a balanced budget. To get a handle on its federal debt problem, the federal government must first stop spending more than it collects each year. Only then can it begin to reduce the total amount of federal debt and free every American family from the debtor's prison that was erected by years of overspending and fiscal mismanagement.
Balance the Budget by 2020
Demand a Balanced Budget Amendment that Does Not Raise Taxes
American prosperity has been gravely threatened by runaway spending, increasing debt and deficits, and a political class that refuses to make the tough decisions necessary to restore order to the nation's fiscal house. A balanced budget amendment to the Constitution that limits spending and protects families from tax increases will force Washington lawmakers to finally make the tough decisions about federal spending priorities.
While some inside the Beltway have advocated a so-called "balanced" approach that would raise taxes on middle-class families who are already struggling to pay their bills, innocent American families should not be forced to forever pay the tab run up by spendthrift politicians. Congress must send a balanced budget amendment to the states as soon as possible to begin the process of getting the federal government's spending and debt problems under control.
Cap Federal Spending at 18% of GDP and Balance the Budget by 2020
Swimming in Debt
If the federal budget is ever going to be balanced -- the first step that must be taken before America's enormous debt burden can be reduced -- federal spending must be capped at 18% of GDP to avoid a tax burden that far exceeds the national historical average. Since 1960, the ratio of total federal tax receipts to GDP has averaged 18%.
The country's debt and deficit problems were not created overnight and will not be solved overnight. Further, the current economic crisis requires immediate tax reform and tax reductions to spur growth that will increase the time it takes to get to balance, but will put the nation on stronger long term footing. A gradual step-by-step process that acknowledges the political realities of deficit reduction will be required to put the country back on the path to fiscal sanity.
Credible and workable plans to balance the budget within ten years by reforming entitlements and curbing discretionary spending have been proposed in both houses of Congress. A proposal put forth by Sen. Pat Toomey of Pennsylvania balances the budget by 2020 and sets federal spending equal to 18.4% of GDP.72 The Republican Study Committee budget proposal in the House also balances in 2020 at federal spending equal to 18% of GDP.73 Workable balanced budget proposals have also been proposed outside Congress. The "Saving the American Dream" plan prepared by the Heritage Foundation reduces federal spending to 18% of GDP by 2019 and reaches balance by 2022.74
By working with committed lawmakers who have put forth detailed and credible budget proposals, the president and Congress and eliminate the federal deficit by 2020.
Reduce Non-Defense Discretionary Spending by $100 Billion in the First Year
Americans who depend on entitlement programs like Medicare and Social Security will not trust lawmakers to tackle entitlement reform until they have proven they can eliminate waste and duplication from the discretionary budget. By cutting non-defense discretionary spending by $100 billion and restoring it to 2008 levels, Washington can demonstrate that it is serious about making the tough decisions necessary to balance the budget. Sen. Tom Coburn recently proposed $9 trillion worth of specific ideas on how to reduce federal spending.
Consolidating Department of Education funding for all elementary and secondary programs, reducing it by 50 percent, and returning the rest of the money to the states would save $25 billion in the first year.75 Reducing the portfolio of investments by government-sponsored enterprises like Fannie Mae and Freddie Mac would save $26.5 billion over ten years.76 And repealing the Davis-Bacon Act and paying market-based wages would save $11.4 billion.
Require Presidential Signature on Every Federal Budget
As the individual who ultimately authorizes, via his or her signature, the expenditure of taxpayer money, the president needs to have a stake in annual budget negotiations. The country's massive fiscal problems are not going to be solved by either the president or Congress acting alone. Giving a budget resolution the force of law via a presidential signature will also make the spending levels within the resolution subject to statutory spending caps. Under current the law, Congress adopts a concurrent resolution which does not require a presidential signature and does not carry the force of law.
Institute Automatic Government Shutdown Protection
American troops overseas and senior citizens should not have to worry about their income security because Washington politicians refuse to do simple things like pass a budget or fund the government. They should not be used as hostages in a partisan political battle to see which party can hold out the longest before the other blinks. Automatic government shutdown protection would fund discretionary federal spending at the previous year's level of spending if no budget or specific spending bills were signed into law before the end of a fiscal year.
No More Earmarks
Individuals who depend on programs like Medicare and Social Security will never trust Washington to reform those programs as long as lawmakers spend billions of dollars on Bridges to Nowhere. In order to be trusted with vital entitlement programs, Congress and the president must first prove that they can be trusted to not waste money on smaller items like earmarks. A permanent ban on earmarks will demonstrate to American taxpayers that Washington is serious about tackling the nation's unsustainable fiscal problems.
Require Emergency Spending to be Spent Only on Emergencies
Data compiled by CBO shows that since 2003 Congress has appropriated an average of $120 billion each year in so-called supplemental spending bills.78 When "emergency" designations are applied by Congress to those bills, they become exempt from normal budget rules and spending caps. True emergencies are not nearly as predictable as Washington politicians using budget loopholes to get around spending rules.
A 2010 analysis by the Concord Coalition found that misuse of emergency spending bills has directly led to higher spending and deficits.79 Instead of pretending that predictable expenditures should be given special treatment to avoid spending caps, lawmakers should only be allowed to use the emergency declaration on true emergencies that are purely unforeseen, unpredictable, unanticipated, and entirely temporary in nature.
End Baseline Budgeting and Require Common-Sense Scoring Rules
Current Washington budget rules assume that new programs and spending increases continue forever, an assumption that has led directly to the massive increase in federal spending over the last decade. In contrast, tax relief provisions are often assumed to expire at the end of a five- or ten-year window. The result is upward pressure on spending and tax collections, all due to arbitrary scoring rules written in the mid-1970's.
Unlike Congress, families struggling to make ends meet cannot assume an infinite stream of money to make ends meet. Every single federal agency and program should be required to justify every dime of funding they wish to receive from taxpayers, instead of continued funding being treated as a given. It is time for Washington politicians to treat taxpayer money just like taxpayers do.
Dynamic scoring should also be required for tax legislation. The current system of static scoring ignores the fact that people and companies behave differently depending on how they are taxed. Dynamic scoring would take into account the incentives of different proposed tax policies and the increased economic growth and job creation that can result from lower tax rates and long-term predictability of the tax code.
PAYGO for New Federal Programs
Before creating any new federal programs, Washington politicians must first eliminate or reduce spending in existing programs in amounts equal to or greater than the new program. For too long, Washington politicians have created new federal programs without eliminating existing programs that may be duplicative, ineffective, or wasteful. For example, an expansive 345-page GAO analysis of federal duplication identified 34 specific areas across several dozen agencies where the federal government could save billions of dollars by consolidating duplicative programs.80 A lack of political will, not credible options, is the reason for rampant duplication throughout the federal government.
Freeze Federal Civilian Hiring and Salaries Until the Budget is Balanced
The federal workforce has ballooned under the current administration, with 175,000 new positions being created since 2009.81 Americans deserve a leaner, more efficient federal workforce, not one that pays its employees far more than what comparable private employees receive, or one that hands out bonuses and promotions regardless of performance. Federal bureaucrats should not receive real increases in pay while taxpayers are losing their jobs and struggling to pay their bills.
No More Bailouts
The Troubled Asset Relief Program, also known as TARP, was wrong when it was signed into law in 2008, it is wrong today, and it will be wrong tomorrow. Instead of bailing out irresponsibly managed banks with taxpayer money, policy makers should focus on removing the government-created incentives that created the financial crisis in the first place. Although alternatives to TARP had been proposed prior to the legislation's ultimate passage, including a proposal from the Republican Study Committee, Washington politicians preyed on the fears of a financial collapse to ram the bailout through Congress.
Contrary to the claims of many TARP proponents that the bailout would allow troubled banks to expand lending and potentially prop up the faltering economy, lending contracted even further. According to an analysis of TARP expenditures by the Washington Post, lending declined in the immediate months following TARP's passage and banks that received TARP money "reduced lending more sharply than banks that didn't."