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Issue Position: Cut, Cap, and Balance

Issue Position

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Mitt Romney recognizes that we are on an unsustainable course. He believes we must take immediate action to rein in excess spending and begin the process of fundamental budget reform. Washington's addiction to spending has been ignored for far too long. Under President Obama, the government has actually tried to make a virtue of its addiction to spending. We must act swiftly to chart a course of fiscal
responsibility that will guarantee that a strong, stable dollar remains the world's reserve currency and that will support the robust economic growth necessary to create jobs and restore America's future.

Although the last ten years can be referred to as a Decade of Deficits, it was not that long ago that the United States enjoyed budget surpluses. From 1998 to 2001, the federal government managed to balance its budget and successfully applied surpluses toward debt reduction. During that period, debt held by the public was between $3 and $4 trillion. Just about a decade later, yearly deficits of a previously unthinkable
magnitude have led the amount of debt held by the public to swell to $10 trillion.

To return the United States to the path of fiscal discipline, America must cut its government spending, cap that spending at a sustainable level, and pass a Balanced Budget Amendment to the Constitution. Cut, Cap, and Balance are three words that are spoken far too rarely in Washington. But they encapsulate the conservative approach that Mitt Romney has advocated since the debt ceiling controversy began last spring. In a Romney administration, they will be heard loudly and acted upon in a consistent manner.

Cut and Cap the Budget

As president, Mitt Romney will immediately move to cut spending and cap it at 20 percent of GDP. As spending comes under control, he will pursue further cuts that would allow caps to be set even lower so as to guarantee future fiscal stability. While getting the federal debt under control will be a long and arduous
task, the first step toward recovery is admitting we have a problem and refusing to allow any more irresponsible borrowing. The good news is that many Americans have awoken to the problem. The rise of the Tea Party is a classic instance of the self-correcting forces of American democracy in action. One way or another, Washington will get the message that we must live within our means, spend only what we take in, and pay down our debt. Romney will move immediately to cut non-security discretionary spending by 5 percent. But more will be required to bring the budget under control. The plan the House passed earlier this year to return non-security discretionary spending to below pre-Obama levels is a step in the right direction that could save hundreds of billions of dollars over the decade.

Enact Entitlement Reform

Any serious attempt to rein in spending will have to include entitlement reform. This issue is among the most complex facing policymakers, but some basic principles guide Mitt Romney's position. First, we must keep the promises made to our current retirees: their Social Security and Medicare benefits should not be
affected. But second, we should ensure that the promises that we make to younger generations are promises we can keep.

With respect to Social Security, there are a number of options that can be pursued to keep the system solvent--from raising the eligibility age to changing the way benefits are indexed to inflation for high-income retirees. One option that should not be on the table is raising the payroll tax or expanding the base of income to which the tax is applied. Similarly, with respect to Medicare, the plan put forward by Congressman Paul Ryan makes important strides in the right direction by keeping the system solvent and introducing market-based dynamics.

As president, Romney's own plan will differ, but it will share those objectives. Romney will also work to reform and restructure Medicaid. Currently, the federal government writes the states a blank check for the program. Each state decides how much to spend on Medicaid, and Washington reimburses them as
much as 80 percent of the cost. It does not take an economist to recognize the problems with having one level of government make the spending decision while another pays the bill. States have every incentive to expand Medicaid spending--at the expense of other state priorities such as education, and with little regard for efficiency--in order to maximize their federal subsidy. And with federal money comes federal strings attached. Washington micromanages decisions as to who and what the states must cover, and forbids states from experimenting with new approaches that might improve care and reduce cost. The result is a Medicaid
system that generates poor health outcomes at enormous expense. As president, Romney will push for the conversion of Medicaid to a block grant administered by the states. This approach could save the federal government over $200 billion each year by the end of the decade, while also providing states with the flexibility to develop innovative and effective approaches best suited to their needs.

Reduce the Federal Workforce

A complementary step would be to align the wages and benefits of federal workers with market rates and then work to reduce the overall size of the federal workforce by 10 percent. Since the economic downturn began in 2007, hardworking Americans across our great nation have learned to do more with less. Businesses across America have responded to harsh economic realities by downsizing operations and cutting their workforces. Yet despite widespread lay-offs in the private sector, President Obama has continued to expand the size of government. While the private sector has shed 1.8 million jobs since he took office, the federal workforce has grown by 142,500, or 6.9 percent. The President is planning for yet more federal employee job growth. His 2012 budget adds 15,000 more employees to the federal payroll.

As president, Mitt Romney will not only halt this growth, but work to cut the current size of the federal workforce by 10 percent through attrition. This could be achieved by hiring only one new employee for every two who leave federal service in a Romney administration. Such a "1-for-2" system would have the benefit
of reducing the number of federal employees while allowing the introduction of new talent into the federal service. The approach would also allow the president flexibility to allocate the new hiring to those areas where additional resources could be put to most effective use.

Undertake Fundamental Restructuring

Reining in the federal government's runaway spending promises to be an enormous undertaking. Taxpayer money is being used to underwrite a maze of rules, regulations, and overlapping government agencies whose complexity defies the understanding even of those who inhabit the system. Far too often, government is counterproductive and wasteful. One of Mitt Romney's most important goals is peeling away the duplicative and dysfunctional layers of bureaucracy that prevent government from serving the people.

As with the restructuring of any large organization, a first step in reform is they were worth the cost. A Balanced Budget Amendment to the Constitution acknowledging that the federal government cannot be everything to everyone. would eliminate the incentives that drive Congress to spend ever more money on
There are many functions and services that the private sector can perform better programs while asking future generations to pay for them.

than the public sector. For instance, the government-run railroad, Amtrak, lost money on 41 of its 44 routes in 2008. Losses per passenger ranged from $5 to $462. That's no way to run a railroad. If given a shot, the private sector will certainly do a better job.

There are many other functions and services that the 50 states can manage better than Washington. We should seek out such functions and devolve power and responsibility to the level at which the taxpayers will be best served. Giving states control of Medicaid via block grants, just discussed, is by far the largest such opportunity. But the federal government has been usurping state authority in countless ways since at least the New Deal era. Every government program and budget must be subjected to an intense top-down review to determine, first, whether tax dollars are being spent wisely and efficiently, and, second, whether
there are more suitable alternatives to currently flawed approaches.

Pursue a Balanced Budget Amendment

We also must put controls in place to ensure that we never see a repeat of the explosive spending and borrowing of the past few years. A Balanced Budget Amendment to the Constitution is necessary to ensure that our nation embarks on a path of long-term fiscal discipline, and as president, Mitt Romney will introduce
one in Congress and fight for its passage. A properly constructed amendment would guard against the use of net revenue increases to achieve balance by requiring a super-majority for the passage of any tax hike. And it would include only very limited exceptions, such as for war or national security emergencies. As some economists and political scientists have argued, powerful incentives sometimes motivate our legislators to enact expensive programs that may not be in the long-term interests of their constituents, let alone our society as a whole, once costs are taken into account. But with the public unwilling to support higher taxes,
Congress pays for the programs with borrowed funds. There is thus a mismatch between what Congress does to advance its own short-term interests and what is in the national interest. If new programs had to be paid for with taxes, legislators would be exceedingly reluctant to enact them absent widespread consensus that they were worth the cost. A Balanced Budget Amendment to the Constitution would eliminate the incentives that drive Congress to spend ever more money on programs while asking future generations to pay for them.

Mitt Romney has extensive experience in both the private and public sectors and he has a long history of making hard choices. As governor, he consolidated state agencies, encouraged the sharing of resources among departments, and reshaped wasteful programs by aligning incentives with actual goals. He is
deeply committed to the conservative idea of limited government. If the federal government needs to be cut and reshaped--and it is in dire need of both--Mitt Romney is the man for the job.


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