Being penny-wise could pay off big over the next decade, according to budget experts looking at part of President-elect Donald Trump’s spending plan.
While campaigning in September, Trump told the New York Economic Club, “If we save just one penny of each federal dollar spent on nondefense, and non-entitlement programs, we can save almost $1 trillion over the next decade—again this is spending that does not touch defense, and that does not touch entitlements.”
Trump’s plan is narrower than similar plans previously proposed in Congress for an across-the-board 1 cent out of every $1 cut in each federal agency’s budget from the previous year, because it would exclude cuts from the military and entitlements.
But, since most federal agencies are projected to grow by 4 percent per year, this could lead to a reduction in spending by a quarter over a decade, or about $630 billion less in nondefense discretionary spending, according to the Committee for a Responsible Federal Budget. Trump projected “almost $1 trillion” in his economic speech in September.
“It is an innovative cost-cutting measure,” @JasonMillerinDC says.
For now, the Trump transition team did not have details as to how quickly the plan would be implemented. More details will come after Trump takes office, transition team spokesman Jason Miller said.
“The penny plan is something the president-elect spoke about on the campaign trail as part of a broader economic and spending plan,” Miller told The Daily Signal during a conference call with reporters. “We’ll explain of the mechanics of it after he is in office. But it is an innovative cost-cutting measure.”
What seems to be a small reduction, one penny out of every dollar or 1 percent, would accumulate over 10 years. For example, a federal agency with a $100 billion budget would decline to $99 billion the next year, then to $98.01 billion the year after that.
The Trump version of the penny plan would apply only to nondefense discretionary spending, which already faces spending caps.
Discretionary spending includes areas such as education, research, environmental and health programs, foreign aid, or any spending that Congress must set. That’s as opposed to entitlement or “mandatory” programs such as Social Security, Medicare, and Medicaid that occur without annual action by Congress.
“Trump’s version of the penny plan is actually more targeted and thoughtful because it isolates this to spending that is already being capped,” Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, told The Daily Signal.
Goldwein said a one-fourth reduction in nondiscretionary spending over a decade will accumulate, even if the “penny” branding seems small.
“This will seem modest in the first years, but it will accumulate significantly,” he said. “I’m not advocating against a 25 percent reduction, but it will mean there are some nondefense discretionary programs that they’ve got to deal with.”
Goldwein also said this won’t necessarily conflict with Trump’s ambitious plans for infrastructure, since most of that will be financed through highway funds.
If Trump’s economic policies are successful in spurring job growth, then government revenues could increase enough to pay for infrastructure spending, said Justin Bogie, a senior policy analyst with The Heritage Foundation.
However, unlike other “penny plan” proposals in Congress, the Trump plan shields defense and entitlement spending.
“Entitlements are the biggest driver of the debt,” Bogie told The Daily Signal. “ [Trump’s version of the plan] limits itself on how much it can save. But, it’s better than nothing.”
Politically, Bogie thinks the penny plan could be easy to sell.
“It’s very anecdotal to say that if every agency cuts just one penny from every $1, you’ll have substantial savings,” Bogie said.
The plan already has support in Congress. In July, House Budget Committee member Rep. Mark Sanford, R-S.C., and Senate Budget Committee Chairman Mike Enzi, R-Wyo., introduced a version of the “penny plan” that “would cut a single penny from every dollar the federal government spends.”
This would be across the board, and would cap federal spending as a percentage of the economy at 18 percent by 2022.
It is quite unlikely lawmakers would have the discipline to keep a “penny plan” in place for a decade, said Damian Brady, director of research at the National Taxpayer Union Foundation. Yet, if such a plan is in place for even a few years it would at least reduce spending as a percentage of the economy and maybe lead to a budget surplus, he said.
“If it’s enacted and actually adhered to, it would definitely lead to more savings,” Brady told The Daily Signal of the penny plan. “It’s nice on paper but history tells us Congress and the executive branch don’t hold the line on spending for long. If they do this for a couple of years, they will have extra money to play around with and begin spending again.”