‘Penny Plan’ Dodges Tough Budget Decisions

Issue Brief
Monday, September 19, 2016

The “penny plan” to reduce spending by one cent on every dollar (one percent a year), which has been bouncing around Washington for years, got renewed attention recently from Republican presidential nominee Donald Trump.

While the plan sounds simple, the actual budget cuts required are much larger and more unrealistic than one might think from the characterization built around the idea of “one percent."

A blog post by Concord Coalition Policy Director Josh Gordon points out that government spending on programs like Social Security, Medicare and Medicaid (which make up nearly half the budget) grows to take into account population changes, aging and inflation. Relative to that built-in growth, government spending cuts under the penny plan would actually be much larger than one percent.

Trump’s plan targets non-defense discretionary spending. However, such spending is already headed below its lowest level since the government started keeping records of it as a share of GDP. Trump's plan would cut this spending by an additional 25 percent.

This ignores the difficult decisions over which programs get cut to fit under spending caps. Non-defense discretionary spending area isn’t projected to grow faster than the economy, so penny-plan supporters are ignoring the problematic growth in long-term mandatory spending programs and the political unwillingness to sufficiently tax to pay for them.