The Penny Plan: Should Federal Spending be Cut by 1 Percent for Five Years then Capped? (H.R. 5637)

What is H.R. 5637?

(Updated May 22, 2020)

This bill would establish new spending caps for the federal budget by requiring one percent of the budget to be cut each of the next five years (through fiscal year 2021), after which total spending would be limited to 18 percent of U.S. GDP. It wouldn’t mandate spending cuts in any particular area, but it would give Congress the ability to make targeted cuts as long as total spending is reduced by one percent each year.

Starting in fiscal year 2023, total projected spending could not be less than the previous year’s projection, meaning that the federal budget would stop shrinking, but its growth would be constrained by the 18 percent of GDP cap. If the U.S. economy were to enter a recession and shrink, the budget wouldn’t get smaller along with it, instead remaining at or above the level it had been the year prior.

The Office of Management and Budget (OMB) would be required to sequester funding that exceeds these budget caps through automatic cuts. Most existing exemptions from sequestration would be eliminated, other than interest payments on the national debt so as to avoid default.

If the OMB projects that a sequestration will occur, congressional budget committees would be allowed to report a resolution that requires congressional committees to change existing law to make the needed spending cuts.

Argument in favor

Cutting federal spending is a necessity if the U.S. is going to avoid descending into a debt crisis. Spending one percent less on the federal government for five years will allow the budget to balance and stay that way. It’s a sensible approach that will put the nation’s fiscal house in order.

Argument opposed

Reducing federal spending by one percent per year for five years will have a negative impact on the economy and the government’s ability to meet its obligations. Rather than cutting spending, a tax increase could bring in more revenue to help reduce the deficit and the national debt.

Impact

Federal agencies and other entities receiving funds from the government; Congress; and the OMB.

Cost of H.R. 5637

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sponsoring Rep. Mark Sanford (R-SC) introduced this bill in the hopes of staving off an impending debt crisis by cutting the growth of government spending continues to allow the budget to balance and prevent the national debt — which tops $19 trillion — from increasing:

“The idea is simple: cut a single penny from every dollar that the federal government spends for the next five years. By 2021, the budget would be balanced and would remain balanced with federal spending capped at 18 percent of Gross Domestic Product (GDP) from then on… Spending in Washington is out of control, and the impending financial trainwreck continues to get closer and more devastating.”

This legislation currently has the support of nine cosponsors — all of whom are Republicans.

Of Note: The cost of servicing America’s $19 trillion national debt threatens to exceed the amount that the federal government spends on defense as soon as 2021 (at a level of $600 billion per year), and by 2022 it is forecast to exceed nondefense spending as well. Currently, the U.S. spends over $200 billion annually servicing its debt.

This spike is anticipated because interest rates have been relatively low in recent years, and if they return to their historic levels the cost of repaying what the federal government borrowed will increase.

Media:

• Sponsoring Rep. Mark Sanford (R-SC) Press Release
• Rep. Mark Sanford Fact Sheet
• Association of Mature American Citizens (In Favor)
• Institute to Reduce Spending (In Favor)