Sample Budget

I have described the problem and laid out my approach to solving the problem, but how would I envision this approach affecting specific programs? While I recognize that any proposal would have to go through considerable negotiations, I believe true leaders should be bold enough to propose real solutions rather than merely giving lip-service to problems, calling for independent study groups, or proposing gimmicks like The Penny Plan that fail to identify actual spending cuts. The time for real action is now. Every day that we delay results in additional $20 of debt for every taxpayer.

While there are many possible solutions that I could support to reach the goal of a responsible budget, I provide the following high-level overview of one possible solution along with an explanation of the cuts in the major programs. The intent is primarily to provide an example of the types and magnitude of cuts that will be necessary for us to fulfill our moral obligation to pay off the debt. The details are flexible, but my principles are firm. We must reduce spending to 17% of GDP, which amounts to a $700 billion cut from the 2018 budget of $4.2 trillion.

In order to reach this goal, we will need true leadership from Congress and an acceptance of shared sacrifice. True leadership means that Congress must set the example with its own budget. This is why I had proposed a 50% cut in Congressional pay, which matched my proposal for a 50% cut in general government expenses and is deeper than the 34% cut in the non-interest budget.

I also went one step further. It is easy for a candidate to make such a proposal since there is little chance that it would pass Congress. But true leaders demonstrate their integrity by finding ways to lead. It is for this reason that I pledged to personally donate 50% of my Congressional pay to charity until Congressional pay was reduced and I issued a public challenge to every member of Congress to take this same pledge. We need to find leaders in this country who will lead by example.

Of course, Congressional pay is just a small part of the budget. Table 1 provides the complete summary of my budget proposal with an update to compare how this relates to the 2018 budget. (The precise categories changed slightly so that we could make an apples-to-apples comparison among the budgets.)

¹ My original budget proposal in 2011 was based on a different breakout of the budget offered by the NY Times, which is no longer available. This breakdown is based on the published budget from the OMB, which allows an apples-to-apples comparison between budget years.
²  My sample budget numbers reflect my best guess as to where Congress would agree to make cuts, if Congress agrees to cut the budget by 34%. I believe we need to cut this much, but more importantly, we need to reform the budget process to define and reach our national budget goals.

Social Security

Social Security is currently spending virtually all of what it collects in payroll taxes plus the interest that the trust fund receives due to historic surpluses in the program. However, the outlook is bleak. Under current policies, the program is projected to consume its historic surplus by 2034 years, which is four years earlier than the projections estimated when I developed my original budget in 2011. At that time, we had an estimated 27 years to prepare, now we only have 16 years! If we fail to solve this problem, we will only have resources to fund 70% of promised Social Security benefits. The fundamental problem is that people are living longer, and we have underfunded the program to prepare for the retiring baby-boomers. I supported the calls to raise the Social Security retirement age to roughly age 70, which would have solved the long-term solvency of the program; unfortunately Congress seems totally disinterested in even talking about this issue - which likely means it will be years before any solution is enacted, at which point we will be entering a crisis situation.

I am also concerned that the Social Security program is extra-Constitutional; in other words, there is no enumerated power giving Congress the authority to establish such a program. However, the program has arguably already taxed the people for a promised benefit. I also believe that there is value in such a program - it just should not be the role of the federal government to provide the program. Rather, the program should either be transferred to the states or justified through a constitutional amendment (I prefer the former). However, any such transfer to the states is unlikely. At this point, the most likely outcome is that Congress will make no serious change until the program is in crisis, at which point it will simply approve additional general budget spending and add to the debt.

National Defense

The Constitution is clear; national defense is one of the most important responsibilities of our government. Unfortunately, we still face many threats to our national security. We need to be prepared to meet threats from the Middle East, North Korea, China, and Russia, just to name a few. We also need to protect our borders; the violence along the Mexican border has now reached levels seen in Iraq during the height of the war, yet it has received scant attention from the media. In addition, there appear to be an increasing number of reports suggesting that terrorists are crossing this border illegally.

However, I believe our national debt has now become our biggest national security problem. Wars are expensive. Many have pointed out the expense of the Iraq war, but World War II caused our national debt to rise from 30% of GDP to 120% of GDP in just a few years; in today's terms, that would equate to roughly $19 trillion. If we are to be able to defend our country in a future war, we will need a strong credit rating to fund our activities. We imperil our society by failing to plan for this eventuality. Worse, by failing to prepare, we invite attack.

Perhaps the biggest reason I lost my primary was because of my willingness to accept defense cuts. My opponent made this a major issue in a district that included significant military personnel. However, as we discovered, the military could be cut. It was cut almost precisely as much as I estimated it could be. Unfortunately, other areas of the government were not cut as deeply - meaning the next round of cuts (if they are made) will begin to severely impact our capabilities. At this point, we must start reconsidering the role of our military - any additional cuts will likely require pulling out of parts of the world where we have had a presence for decades. This is not unreasonable, but it is unfortunate that we have placed ourselves in a position where we are forced into action as opposed to making considered decisions.

The bottom line is that we must continue to provide for our national defense, and cuts made to the defense budget must be made with care; each and every defense program needs to justify its existence and magnitude. The defense budget accounts for a major portion of the budget, and it is difficult to envision how we might reduce spending to 17% of GDP watching every penny within this program. With that said, we are approaching defense spending levels that are lower than at any point since World War II. We must be careful not to cut too deeply.

Income Security

The income security category includes a variety of programs listed as "other" mandatory spending. A major portion of this category represents various retirement programs (both military and civilian) and insurance for disabled workers. These represent the funding of previous work agreements and should be low on the priority list of cuts on the basis that they represent employment contracts. On the other hand, many of these agreements were simply unrealistic when they were made, and we must all share in the sacrifice. Thus, these programs should not be entirely exempt from cuts.

Income security also includes unemployment insurance. The only reason that the budget for this program has decreased is the economy has improved and unemployment and other programs are not as large of a burden at present (especially because we returned to a responsible level of 13 to 26 weeks of unemployment rather than the 99 weeks offered in 2012).

Finally, the income security category also includes numerous programs that are personal subsidy programs. These programs, like all subsidy programs, create a severe drag on the economy while also enticing the recipients to become dependent upon the government. After decades of fighting the "war on poverty," these government programs have not brought us any closer to solving the problem. In fact, these subsidy programs are ever expanding and now form a significant portion of the federal budget. If we are going to balance the budget, we must drastically reduce this type of counter-productive spending. These programs inclulde:

• Food stamps
• Child tax credit
• Making work pay tax credit
• Earned income tax credit
• Section 8 housing credit
• State child nutrition programs
• Temporary assistance for needy families
• WIC
• Foster care and adoption assistance
• Energy assistance
• Etc.

Of course, we each still have a personal responsibility to care for the less fortunate in our society. We must humble ourselves and recognize that we are fortunate - any number of factors could easily place the wealthiest in our society into a position of need. It is only through the grace of God that we have our health and abilities; but from those who have been given much, much is demanded. I challenge my supporters and especially my donors to give at least 10% to charity. Charity works because it benefits both the giver and the recipient. The recipient is grateful and humble rather than expecting and demanding; as a result, the recipient is less likely to become dependent and more likely to use the resources to invest in the future.

Medicare

Medicare is perhaps the most problematic program in the entire federal government. Nominally, it is a self-funded program, but in reality, this is true only of Medicare Part A (i.e., hospital insurance), and even that program receives some outside dedicated funding (e.g., taxes on Social Security benefits). Medicare Part B (e.g., physician visits) is funded primarily through the general revenue (71%) and supplemented with participant premiums (27%), with some other minor sources. Rather than solving this funding problem, George Bush and the Republican Congress made the problem worse with the introduction of Medicare Part D, which is also mainly funded through general revenue.

Through these programs, Medicare Parts A and B now consume $600 billion per year, while the Medicare payroll taxes only bring in about $260 billion - and just like Social Security, these numbers are projected to get much worse with the retirement of the baby-boomers, with real costs potentially doubling in the next 25 years and the trust fund being exhausted as early as 2026, just 8 years from now! We simply cannot afford to provide the level of coverage that we have been providing - let alone promising.

There is only one real solution - we must drastically reduce spending on this program. Despite all of the spin, there is no magical solution. Cutting payments to doctors will only result in more doctors refusing to accept Medicare patients. Requiring doctors to accept patients will only result in doctors abandoning the fields in which they are needed. Forcing everyone to buy insurance, as with Obamacare, is simply an unconstitutional back-door way to introduce a new tax, while still not solving the fundamental imbalance (i.e., it does not raise nearly enough money). Standardizing care and programs will only meet with the same financial limitations and force the providers to ration their services.

Congressmen do not want to anger the older generation because they know that they vote; but the reality is that this program is the biggest component in our budgetary problems. We must recognize that the government has promised medical benefits that it has no hope of paying for. Future retirees will not receive the benefits that current retirees are enjoying; the only question is whether we as a country address this problem proactively or if we allow the entire economic system to collapse and then realize that there is no government able to provide these benefits.

While there may be some advantages to saving components of Medicare Part B and D, the current structure of the program suggests that we should retain Medicare Part A and eliminate Parts B and D. This will put the program into budgetary balance for the immediate future. However, a change this large should be done with a level of caution. There are likely components of Medicare Parts B and D that are worth salvaging and components of Part A that are not critical.

Finally, we should also recognize that Medicare is another example of an extra-constitutional program; Congress has no authority to run such a program. Therefore, as with Social Security, I believe this program should be gracefully transferred to the states, or optionally justified through a constitutional amendment. Once again, this is a delicate matter that will take years to put in place; my proposal provides a solution in the meantime to put the program into budgetary balance.

Health Programs

Health care costs are spiraling out of control. In order to address this problem, we must first understand where the extra money is going. Congress has already investigated this issue and determined that the bulk of the increased health care costs are due to technology-related changes. These include new drugs, new procedures, and new medical devices. This actually should not be surprising, as it is exactly what economists predicted would happen when the cost of insurance coverage shifted away from the individual and to a third party.

The problem is that the individual user of health care bears very little of the cost of health care. As in most markets, when the consumer can get something for free, they will consume more of it. However, in the health care industry, there is a unique dynamic. People do not go out and purposely get sick in order to use more health care services. Instead, what has happened is that the medical research community has gone out and invented new products for people to buy to solve existing problems. They know that if they invent a new solution, the health insurance industry will be forced to buy it as a result of the agreements that they have established with their customers. By the time the cost gets back to the individual, it is largely disassociated from the benefit, and the individual complains about the high price of the insurance. This is true whether the insurer is a private firm or the federal government.

To make this problem worse, we then subsidize medical research, thereby accelerating the pace at which we improve medical technology and increase costs. If we are to balance the budget, we must break this cycle. We must return the cost of health care, especially the costs of advanced forms of health care, to the individual, or at least closer to the individual. This can be done by shifting the full cost of medicaid, CHIP, and other programs to the states while also reducing the budget for the NIH.

Interest

It is critical that we continue to pay interest on the national debt to retain our credit rating. Had we cut the budget in 2012, the percent of our budget being dedicated to this expense would be decreasing; instead we now see it consuming an ever larger share of our budget making it even harder to escape the debt trap. The longer we wait to face our challenges, the more severe the cuts will have to be.

Veterans Benefits

Our military deserves the benefits that they receive, especially the medical benefits and pensions provided to the lower-ranking members. Nonetheless, every program must share in the cuts to some extent, but this should be one of the most protected programs.

Education and Training

Many of the education and training programs can be reduced or eliminated. K-12 education should be entirely funded by state and local sources so that the power is kept as close as possible to the people. Higher education should also be shifted towards state governments so that the programs become more efficient.

Transportation

The budget numbers shown for transportation in the table above only indicate the funding from the general fund as recorded in the OMB budget; in addition to this money, transportation receives roughly 35 billion per year from the federal gas tax. My proposal is that transportation should be fully funded through user fees.

We complain about the environmental impacts of transportation, but then subsidize all forms of transportation - except the most efficient, such as working from home. This is a classic example of how Washington works. Our supposed leaders will give lip service to an issue without taking any real action to solve the problems for fear of upsetting voters. It is time to find real leaders.

International Affairs

We should not be so generous with tax dollars. Many of the international programs are charity programs that should be left to individuals to fund on a voluntary basis. And the operation of the state department should be scaled back with the rest of the government.

Justice

Many of the administration of justice items would be difficult to cut and maintain proper operations. For example, we need to operate our prisons, secure our borders, and provide for the operation of our court system. However, there are components that can be cut, including the victims of crime fund and support for local and state agencies.

Other

Many of the remaining programs reflect federal government assistance to states, local governments, or individuals. Many of these can be reduced or eliminated.

2018 Comparison

When looking at 2018 versus 2011, it is easy to think that we have made progress. However, it is important to note that most all of the reduction in spending is due to an improved economy. Almost half of the reduction in spending (in % GDP terms) was due to the reduction of the "Other" mandatory spending related to unemployment, SNAP, and other programs that do not reflect any Congressional action. Similar reductions should have occurred within Medicaid, but because the ACA (a.k.a., ObamaCare) expanded Medicaid, the costs of this program actually increased faster than GDP! We have made some real progress in cutting discretionary spending, especially defense; however, we are still spending 20.5% of our GDP when we have never had a tax policy bring in more than 18.5% (on average over the duration of the policy) - and that is during a year when unemployment is near an all-time low, the stock market is at all-time highs, and we are still benefiting from relatively low interest rates on our national debt.

Further, part of the reason the economy is doing so well is because of the stimulus being injected by the tax cuts. Tax revenues have dropped to 16.2% of the economy rather than the 18% historic average since WWII. In 2008, we had our first trillion dollar deficit due to the complete collapse of the economy. In 2018 (Oct 2017-Sept 2018) our national debt increased by roughly $1.3 trillion dollars even though the economy is as strong as can be expected.

In short, we have made some progress in cutting discretionary programs, but we already have seen Congress relax its spending limits on these programs while also implementing tax cuts that have decreased revenues. In the meantime, nothing has been done about the out-of-control mandatory spending programs - and worse yet - both parties seemed to have stopped talking about the issue. While the Republicans have added to the debt, the Democrats are promoting universal Medicare at a projected cost of over $3 trillion per year without any proposals on how to pay for this massive program. Our country needs leaders. I believe they are out there; unfortunately, none seem to be able to break through the system to have their voices heard.

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