Blueprint for Balance: A Federal Budget for FY 2019

COMMENTARY Budget and Spending

Blueprint for Balance: A Federal Budget for FY 2019

Jun 19, 2018 6 min read

The Blueprint for Balance provides detailed recommendations for the annual congressional budget. Over the next decade, the national debt is projected to nearly overtake the country’s economy. Congress should take steps to drive down spending now—including through reform of entitlement programs—to a balanced budget, while maintaining a strong national defense, without raising taxes. Congress should also commit to conservative policy reforms focused on growing the economy, fostering free enterprise, limiting the size and role of the federal government, supporting civil society, and protecting individual freedom.

While Congress cannot solve everything at once, it can and must seize opportunities through the annual budget and appropriations process to make a down payment on the government’s growing debt, and to pursue conservative policy reforms. Congress can do this by immediately reducing discretionary spending, which has been inflated through irresponsible budget deals, and by taking meaningful steps to reduce mandatory spending by reforming autopilot entitlement programs.

The Blueprint: 

In total, the Blueprint would reduce spending by more than $12.3 trillion over 10 years, reaching primary balance (without interest on the debt) within the first year, and eliminating deficits by 2025—all that without counting any dynamic benefits from growing the economy. Including such effects would result in balance even sooner. The budget stays in surplus, allowing the nation to stabilize and begin paying down the national debt. It does this while permanently extending the Tax Cuts and Jobs Act of 2017, thereby reducing taxes by over $400 billion.

Entitlement spending is growing on autopilot, consuming more and more of the federal budget each year. Tens of trillions in unfunded obligations are threatening younger generations with massive tax increases and undue burdens of debt. This Blueprint would repeal Obamacare; modernize Medicare by transitioning to a premium-support system and making key reforms to meet demographic, fiscal, and structural challenges; cap the federal allotment for Medicaid and give states greater flexibility in designing benefits and administering the program; and make commonsense reforms to Social Security and disability to protect seniors and individuals with disabilities from poverty while accounting for increased life expectancy, reforming eligibility criteria, modernizing the disability determination process, and reducing the overall cost of benefits.

The federal government cannot continue indefinitely to spend at a faster rate than the economy grows. Over the next decade, the proposed Heritage budget would reduce the growth in spending to an average rate of 3.1 percent annually, well below the nearly 5.5 percent annual growth rate under the CBO’s baseline projection. Reducing spending alone is not the only component of a responsible budget. Growing the economy is another important aspect. Through spending reforms, as well as through tax and regulatory reforms, the Blueprint will also boost economic growth. Making the Tax Cuts and Jobs Act permanent should produce economic growth that is roughly 2 percent higher than the CBO baseline. However, the Blueprint does not assume this additional growth, nor any dynamic scoring effects resulting from spending cuts and tax and regulatory reforms. If the budget utilized less conservative estimates, it would likely balance and reduce the debt at an even faster rate.

The Blueprint would reduce debt held by the public by $6.8 trillion over the decade, when compared to current Congressional Budget Office (CBO) projections. As a percentage of the economy, debt would fall from a projected 78.0 percent by the end of 2018 to 73.4 percent in 2028, and continue falling from there. In stark contrast, the CBO projects that if reforms are not made, debt would rise to 96.2 percent of the economy over the next 10 years.

Federal employees as a whole receive significantly higher total compensation than similar private-sector employees. Yet the federal government is at a competitive disadvantage when it comes to attracting highly skilled workers because it fails to tie pay to productivity. Moreover, excessive civil service protections prevent federal managers from firing or even stopping performance-based pay increases for underperforming employees. The Blueprint puts forth comprehensive civil service reforms including everything from pay and benefits to personnel policies and labor-management relations. Not only would these reforms provide employees with more competitive compensations packages, it would also save taxpayers $330 billion in excessive personnel costs.

The U.S. tax code’s complexity and structure harm economic growth. The 2017 tax reform began to address the most pressing problems, but much work remains to be done. The new lower tax rates and other changes in tax reform will increase productivity, job creation, and real wages. In the coming years, Congress should make the individual tax cuts permanent, expand the ability of businesses to fully expense their investments, and eliminate all special tax carve-outs. These changes will work to increase and solidify the economic gains from tax reform. This budget makes additional tax reform recommendations that Congress should pursue. Future tax reforms should further lower tax rates on all Americans and work to establish a consumption tax base rather than the hybrid income-consumption tax base that the current system uses. Expanding the use and availability of retirement-style savings accounts for all-purpose savings is a good first step toward the goal of eliminating the bias against saving and investment. Future reforms should also make the U.S. tax system more transparent and less complex so that taxpayers understand how much they are paying every year to fund the federal government.

The federal budget should reflect the principles of the American people within the constraints of constitutional government. The budget delineates priorities, clarifies positions on fundamental issues, reflects views on the role of the government, and provides insight into Americans’ moral character. At the most basic level, a budget is a plan to collect and allocate resources. However, it should also illustrate a commitment to individual rights as well as strengthening civil society. James Madison wrote in Federalist No. 58 that providing budgetary powers to Congress was a critical element in maintaining individual rights. The Blueprint provides Congress with specific legislative riders to advance these conservative ideals through the budget process.

The Blueprint prioritizes national defense capabilities by moving resources from less critical domestic programs to funding the federal government’s core constitutional role. With continued and rising global tensions likely to persist, sufficiently funding national defense and ensuring troop readiness must be a top priority.

Net interest spending is projected to triple over the next decade if no action is taken. By 2023, the nation would be spending more on interest payments on the debt than on national defense. By stabilizing the debt, this budget reins in the cost of servicing the debt, freeing up resources for other national priorities and avoiding higher taxes.

The Blueprint takes immediate steps toward implementing change in the budget process, making commonsense recommendations that the Joint Select Committee on Budget and Appropriations Process Reform could adopt by the end of the year. These include: enacting a statutory spending cap enforced by sequestration to curb excessive spending growth; moving towards a balanced budget amendment to constrain future attempts at circumventing budget caps; eliminating the use of changes in mandatory programs (CHIMPs) as a tool to evade discretionary spending limits; stopping spending on unauthorized programs; putting government-sponsored enterprises (GSEs) on budget to accurately account for the budgetary impacts and risks of these programs; accounting for interest costs when providing estimates of the fiscal impact of legislation; exempting conference reports from being subject to the Byrd Rule; and implementing use of fair-value accounting to more accurately report the risks that Congress assumes and the subsidies it provides through federal credit programs, such as student loans.

In order to hold the Administration and lawmakers more accountable for pursuing important budget proposals, Heritage is introducing a new tracker to establish whether Blueprint proposals are included by the Administration and in select congressional budget proposals. Heritage tracks proposals in President Trump’s budget, the House budget, the Senate budget, and the influential Republican Study Committee budget. For each proposal, Heritage analysts identified whether the budget proposal includes Heritage policy recommendations, partially includes them, does not address them, or rejects them. We hope that this tool will prove useful to lawmakers in identifying which budget proposals already enjoy broad support and which need more champions. Our other aim is to influence future budget proposals by encouraging the inclusion of yet more support for the recommendations made in the Blueprint for Balance.

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