Republican lawmakers are reviving an approach to balance the budget of the federal government that was first proposed by the Tea Party.
The approach, which has been nicknamed the “Penny Plan”, calls for the federal government to give back or stop spending one penny out of every dollar of the current budget. This reduction, a percent change in spending, would lead to a balanced budget within two years, where the federal government is no longer spending more money than they receive from tax revenue.
“Everybody should be able to live with one percent less in order to help bring this country back from the brink of catastrophic failure,” noted Wyoming Republican Senator Mike Enzi, one of the sponsors of the plan.
The plan as proposed by sponsors would allow Congress to choose where spending cuts occur such that one percent of the budget is removed. Sponsors consider this an improvement to the mandatory sequester that went into effect in early 2013, which required that every area of the government reduce spending.
“You don’t need five agencies doing the same thing, especially when their programs could be combined or cut,” noted a spokesperson from Enzi’s office. The agencies referenced by Enzi include Social Security, Medicare, and Medicaid.
In addition to Enzi, sponsors of the measure include Republican Senators Marco Rubio of Florida, Johnny Isakson of Georgia, Jim Risch of Idaho, Rand Paul of Kentucky, David Vitter of Louisiana, and John Barrasso of Wyoming.
Since 2002, annual spending of the federal government has increased from approximately 18 percent of gross domestic product to almost 23 percent of gross domestic product. Gross domestic product refers to the value of all good and services produced by a given country on an annual basis.
The Penny Plan calls for the one percent cut in spending to remain in effect for two years, at which time the budget of the federal government would be capped at a maximum of 19 percent of gross domestic product.
Each year the government spends more than the tax revenue they take in, the national debt increases. The national debt is currently $16 trillion. At current spending levels, the national debt is estimated to grow to $25 trillion, reaching a point when the United States will no longer be able to afford interest payments on that debt much less pay down the debt itself.
The Penny Plan has been proposed before, with supporters of the measure primarily include conservative organizations. But it is unclear that the plan has sufficient support to move forward.
In addition, although unpopular because of enacting cuts across the board, the sequester in addition to take increases levied against the wealthiest income earners appears to be working at least in the short term. The budget of the federal government is expect to be less than $650 billion dollars in the current year, after previously being more than $1 trillion dollars in each of the last several years.
However, that budget reduction is expected to disappear in the next several years with increases in Social Security, Medicare, and Medicaid, increases the Penny Plan would prevent.
Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.