Yellow Card: Penny Plan

Background

Americans agree: Washington doesn’t run a deficit because we tax too little, but because we spend too much.

The need for a balanced federal budget is obvious. The question is, how do we get there?

The answer is as simple as it sounds: The Penny Plan, sometimes called “The 1 Percent Solution.”

In a nutshell, the Penny Plan would require the federal government to spend just one penny less next year out of every dollar spent this year. If the government were to do that that for five years, and then limited overall spending at 18 percent of Gross Domestic Product (the average in the post-war era), we could balanced the budget within five years.

It is important to note that the Penny Plan does not require all programs to suffer the same one percent reduction in spending. Congress, in its infinite wisdom, may deem some programs more worthy than others; that would be fine, as long as the overall one penny per dollar reduction is met.

It is also important to note that the Penny Plan does not recognize so-called “baseline” budgeting, which assumes ever-growing budgets. The reductions in spending required by the Penny Plan are not reductions of planned future growth, they are actual reductions in spending – next year’s outlays would be one percent less than this year’s outlays, and so on.

If Congress fails to enact the required reductions in spending, then mandatory across the board reductions would be implemented each year.

Once the budget is balanced, the legislation would limit overall federal spending to no more than 18 percent of Gross Domestic Product, which is the historical average during the postwar era.

For More Information

Mercatus Center: Working Paper: The 1 Percent Solution

Senate Budget Committee Chairman Mike Enzi: Debt Is the Problem; the Enzi Penny Plan Is the Solution

The One-Cent Solution