Q: How will the One Cent Solution work?
The One Cent Solution and the legislation it inspired, the “Penny Plan,” entail three key provisions.
First, it would “straightjacket” the budget through strict caps on aggregate government spending. These caps would cover all federal programs — no federal programs would be exempt — and would be designed to follow the One Cent Solution’s proposed reductions to balance the budget and keep it balanced.
Second, Congress would enact reforms to bring federal spending under the overall caps. Some programs might be cut more than 1 percent and some less, as long as total government spending is cut 1 percent per year to meet the caps. Reforms would be enacted through the “regular order” of the budget, reconciliation, and appropriations process.
Third, if Congress fails to act, then mandatory “across-the-board” spending cuts would take effect at the beginning of the fiscal year, making certain that spending stays within the One Cent Solution guidelines.
Q: How is the total national debt calculated?
The national debt is the sum of all yearly deficits since the federal government was formed. Deficits are the result of Washington spending more money each year than is collected in taxes. The national debt is $14.5 trillion…and growing. This exploding national debt includes the public debt — the $10 trillion that has been loaned to the federal government by average Americans, other governments and investors, both foreign and domestic — plus $4 trillion in future promises, or unfunded obligations, to programs such as Social Security, Medicare and Medicaid.
Q: Can we grow our way out?
No. If the economy grows, the amount of tax revenue coming in to the federal government grows. But the economy is growing at only a two percent rate. With today’s out-of-control spending in Washington, even double-digit growth over the next 10 years will not fill the gap.
Q: Why not just raise taxes?
It won’t work. To cover the gap between spending and revenue, the lowest tax rate would have to be raised from 10 percent to 25 percent. The highest tax rate would have to increase from 35 percent to 88 percent. And business tax rates also would have to jump from 35 percent to 88 percent. An alternate European-style value-added tax, like a national sales tax, would add 18 percent to the cost of goods on top of all the other taxes we pay. Either taxing solution would cripple the economy.
Q: Can spending be cut?
Last time the federal budget was balanced government spending had been equal to 18 percent of the gross domestic product, the value of all the goods and services we produce as a nation in one year. Now government spending is over 24 percent of GDP, and Congress has not had the discipline to reduce spending year-over-year in the last 45 years. Everyone in Congress is for cutting spending…unless it is in their own districts. It will take the will of the people to force Congress to make difficult but necessary spending cuts.
Q: Will the One Cent Solution grow jobs?
The ”Penny Plan” achieves the goals of the One Cent Solution and brings spending down gradually for economic stability while helping to grows jobs.
With an unemployment rate hovering just under 9 percent, we need to put Americans to work. The majority of new jobs over the past 15 years have been created by small business start-ups.1 These start-ups need money to invest in their businesses, and they need customers to buy their products. Returning certainty to the economy and reducing debt will encourage both, and help to grow jobs.
Q: How do we prevent backroom deals from being made to protect pet projects?
You will. With your active involvement, we will hold Congress accountable and demand hearings be made public.
Q: Is this an attack on Democrats? On Republicans?
The spending problem in Washington is not unique to one party. Spending under both Democratic and Republican administrations has exploded.
Q: Will every program be cut?
While some programs may be too critical to cut, others must be reduced so that the total cut is equal to one cent for every dollar each year for six years.
Q: Isn’t this just a band-aid approach?
Though simple, the ”Penny Plan” legislation embraces the One Cent Solution’s aim to balance the budget in just eight years. It will do so by forcing Congress to reduce spending like never before.
But even significant reductions in federal spending are just the first step. The plan also includes look-back provisions to ensure that, once the budget is balanced, federal spending stays under control and the budget stays balanced.
It will require fiscal discipline moving forward to avoid future deficits, but the “Penny Plan” legislation will get us back on track.
Q: How do we ensure the most vulnerable citizens are still served?
As a nation, we have committed to caring for our seniors and those in need of a helping hand. But federal entitlement programs like Social Security, Medicare and Medicaid are not just underfunded: they are broke. Without significant changes in spending across all budgets, all citizens are at risk.
- Source: SBA.gov, “An Analysis of Small Business and Jobs” (PDF, 360 KB), page 9.