What's at Stake
Getting our fiscal house in order has become more than just an economic issue; it's a moral imperative. Every dollar of deficit spending must be borrowed, with the bill sent to our children to pay back. As president, Mitt Romney will ask a simple question about every federal program: is it so important, so critical, that it is worth borrowing money from China to pay for it?
Excessive government spending is also harming the economy by skewing the market place and creating high levels of uncertainty. As federal funds slosh through the economy, they lift up some enterprises at the expense of others. In an environment where the government is picking winners and investing huge sums in projects of questionable value, private entrepreneurs across the economy cannot have confidence that their own investments will pay off. Aware that such spending cannot continue indefinitely, business owners also have a difficult time predicting how demand will shift from year to year and how to invest accordingly. The only recipe for fiscal health and a thriving private economy is a government that spends within its means.
Since President Obama assumed office three years ago, federal spending has accelerated at a pace without precedent in recent history, taking us from an already staggering $3.5 trillion in federal spending in 2010 to a projected $5.6 trillion within the next decade. This sharp rise has been entirely a matter of choice. Even as federal spending remains wholly within our control, Washington is spending money in an out-of-control fashion.
One traditional yardstick for gauging whether government is living within its means is spending as a percentage of GDP. Since the 1950s, federal spending as a percentage of GDP has hovered around 20 percent. When President Obama took office, it shot up to 25 percent, a level not seen since World War II. Before the recession, the federal government spent $25,000 per household. That number has now soared past $30,000 and is on track to hit $35,000 within the next decade.
Our untenable spending habits were at the root of this past summer's crisis over the debt ceiling. President Obama's insistence on a "balanced approach"--by which he meant a combination of spending cuts and tax increases--would have put a seal of congressional approval on a baseline level of spending significantly higher than when he took office. That is precisely why the President's approach had to be soundly rejected. He wanted to move the country in the wrong direction of more taxes and more spending at a time when both are smothering the economy.
After three years of President Obama, many now question whether we can ever return to fiscal sanity, let alone fiscal strength. A point of no return may well be approaching -- a decade of huge deficits could drive our principal payments and interest rates beyond our reach while starving the economy of the capital it needs to grow.
Fortunately, the American economy's tremendous capacity for growth gives the country one more chance to correct course. Mitt Romney has spent his career executing turnarounds in the private sector, the Olympics, and state government. He will bring to Washington the turnaround philosophy it so badly needs.
Set Honest Goals: Cap Spending At 20 Percent Of GDP
Any turnaround must begin with clear and realistic goals. Optimistic projections cannot wish a problem away, they can only make it worse. As president, Mitt's goal will be to bring federal spending below 20 percent of GDP by the end of his first term:
* * Reduced from 24.3 percent last year; in line with the historical trend between 18 and 20 percent
* * Close to the tax revenue generated by the economy when healthy
* * Requires spending cuts of approximately $500 billion per year in 2016 assuming robust economic recovery with 4% annual growth, and reversal of irresponsible Obama-era defense cuts
Take Immediate Action: Return Non-Security Discretionary Spending To Below 2008 Levels
Any turnaround must also stop the bleeding and reverse the most recent and dramatic damage:
* * Send Congress a bill on Day One that cuts non-security discretionary spending by 5 percent across the board
* * Pass the House Republican Budget proposal, rolling back President Obama's government expansion by capping non-security discretionary spending below 2008 levels
Follow A Clear Roadmap: Build A Simpler, Smaller, Smarter Government
Most importantly, any turnaround must have a thoughtful, structured approach to achieving its goals. Mitt will attack the bloated budget from three angles:
1) The Federal Government Should Stop Doing Things The American People Can't Afford, For Instance:
* * Repeal Obamacare -- Savings: $95 Billion. President Obama's costly takeover of the health care system imposes an enormous and unaffordable obligation on the federal government while intervening in a matter that should be left to the states. Mitt will begin his efforts to repeal this legislation on Day One.
* * Privatize Amtrak -- Savings: $1.6 Billion. Despite requirement that Amtrak operate on a for-profit basis, it continues to receive about $1.6 billion in taxpayer funds each year. Forty-one of Amtrak's 44 routes lost money in 2008 with losses ranging from $5 to $462 per passenger.
* * Reduce Subsidies For The National Endowments For The Arts And Humanities, The Corporation For Public Broadcasting, And The Legal Services Corporation -- Savings: $600 Million. NEA, NEH, and CPB provide grants to supplement other sources of funding. LSC funds services mostly duplicative of those already offered by states, localities, bar associations and private organizations.
* * Eliminate Title X Family Planning Funding -- Savings: $300 Million. Title X subsidizes family planning programs that benefit abortion groups like Planned Parenthood.
* * Reduce Foreign Aid -- Savings: $100 Million. Stop borrowing money from countries that oppose America's interests in order to give it back to them in the form of foreign aid.
2) Empower States To Innovate -- Savings: >$100 billion
* * Block grants have huge potential to generate both superior results and cost savings by establishing local control and promoting innovation in areas such as Medicaid and Worker Retraining. Medicaid spending should be capped and increased each year by CPI + 1%. Department of Labor retraining spending should be capped and will increase in future years. These funds should then be given to the states to spend on their own residents. States will be free from Washington micromanagement, allowing them to develop innovative approaches that improve quality and reduce cost.
3)Improve Efficiency And Effectiveness. Where the federal government should act, it must do a better job. For instance:
* * Reduce Waste And Fraud -- Savings: $60 Billion. The federal government made $125 billion in improper payments last year. Cutting that amount in half through stricter enforcement and harsher penalties yields returns many times over on the investment.
* * Align Federal Employee Compensation With The Private Sector -- Savings: $47 Billion. Federal compensation exceeds private sector levels by as much as 30 to 40 percent when benefits are taken into account. This must be corrected.
* * Repeal The Davis-Bacon Act -- Savings: $11 Billion. Davis-Bacon forces the government to pay above-market wages, insulating labor unions from competition and driving up project costs by approximately 10 percent.
* * Reduce The Federal Workforce By 10 Percent Via Attrition -- Savings: $4 Billion. Despite widespread layoffs in the private sector, President Obama has continued to grow the federal payrolls. The federal workforce can be reduced by 10 percent through a "1-for-2" system of attrition, thereby reducing the number of federal employees while allowing the introduction of new talent into the federal service.
* * Consolidate agencies and streamline processes to cut costs and improve results in everything from energy permitting to worker retraining to trade negotiation.
If pursued with focus and discipline, Mitt's approach provides a roadmap to rescue the federal government from its present precipice. But that respite will be short-lived without a plan for the looming long-term threat posed by the unsustainable nature of existing entitlement obligations. Learn more about Mitt's proposals for entitlement reform: Medicare and Social Security