Sean Hannity, Donald Trump, and the Penny Plan
During the Tuesday, March 8th election coverage on Fox News, Sean Hannity indicated that Donald Trump supports the Penny Plan. Also known as the One Cent Solution, the Penny Plan is a proposal to trim the federal budget by one cent for every dollar spent (excluding interest payments on the national debt). Hannity was referring to an interview he conducted with Trump on Monday, March 7th. While Trump said he liked the idea of the Penny Plan, he didn’t explicitly endorse it. Here is that transcript:
HANNITY: Between energy independence, the repatriated money at a low tax rate to incentive companies to bring back money they had parked overseas that would be highly taxed if they bring it back -- those two things I think would go a long way to growing the economy, creating millions of jobs, and on top of that, spending less. And I think I'm pulling you in on the Penny Plan at least in areas outside the military.
TRUMP: Yes. Well, I like the concept of the Penny Plan -- not for the military because the military we have to build up. But we can save probably in many case more than a penny if you look at it. I mean, the penny plan is a pretty good plan, and it's a pretty simple plan.
And you know, it's something -- I think in some cases, a penny is nothing compared to the kind of numbers. Then you get to fraud, waste and abuse, Sean. I mean, the fraud and the waste and the abuse, which everybody agrees if you can solve that problem, but it's, you know, mind-boggling the kind of numbers.
So we can get our budgets in place. The one thing we really have to take care of -- you know, the health care is going to be less money, and we're going to have much better health care.
Hannity may have been trying to tout Trump as a “fiscal conservative”, but in their exchange, the candidate falls short of declaring that he would implement a Penny Plan.
What budget cuts has Trump supported? He has vowed to repeal the Affordable Care Act which would reduce direct spending by $470 billion over the next five years (there would likely be discretionary savings as well, but an estimate is indeterminate). While Trump has laid out some guidelines for reforms (which we analyze here), he has said he would leave it to Congress to work out the details (which presumes that Republicans would retain control of Congress). While there would be some costs associated with any replacement policies, it is expected that they would be much less than the current outlay burden under the ACA.
And of course, as he repeated in the above transcript, Trump would target “fraud, waste, and abuse.” Every recent occupant of the White House has vowed to reap savings from fraud, waste, and abuse. Given the continuing prevalence of these misspent funds, getting rid of them is easier said than done.
Efforts to reduce improper payments through entitlement programs could be successful, but would require initial spending increases in order to claw back savings over the long-term. For example, in the latest budget, the Social Security Administration (SSA) requested $1.8 billion for program integrity efforts to reduce improper payments that occur as a result of waste, fraud, and abuse. Under the latest accounting, SSA issued $8.1 billion in such payments during 2015. SSA estimates that proposed integrity reforms, such as conducting full medical continuing disability reviews, would yield from $3 to $8 over ten years for each $1 spent.
If Trump were to support the plan suggested by Hannity, how much could be saved? First of all, it would have to be considered as modified version of the Penny Plan. Trump would exclude the military, and, based on what he has said in debates, NTUF assumes that he would also leave out funding for homeland security and veterans. In addition, he has promised not to reduce Social Security.
The chart below shows the Congressional Budget Office’s (CBO) latest projection of federal outlays excluding interest payments, defense, veterans, homeland security*, direct spending under the Affordable Care Act (which he has already called to eliminate), and Social Security. The remaining spending amounted to $1.92 trillion in FY 2016. The chart also shows the same outlays with a 1 percent cut from each previous year’s level, starting in FY 2017. The authors of the original Penny Plan note that if Congress decides to protect certain programs from cuts, then further reductions must be made elsewhere to adhere to the one percent target. But given the broad range of spending likely to be protected from cuts considered in this analysis, we will also assume the cuts to the remaining parts of the budget won’t go deeper than one percent.
If implemented, and maintained over five years – which would be questionable given the recent history of reversals of the budget caps and automatic cuts passed in the Budget Control Act – outlays would be $754 billion less than CBO’s outlook.
Compared to total outlays excluding debt interest payments and ACA spending, this limited “Penny Plan” would slow the growth in overall spending (see Figure 2), however it is still not clear that Trump would support a Penny Plan, or even this modified version. By contrast, former candidate Senator Rand Paul has proposed his own Penny Plan to reduce spending by 1 percent per year. Over the five year period, total spending would be reduced by $3.2 trillion compared to the August 2015 CBO baseline.
Trump has described himself as a “conservative” for his support of military increases (by an unspecified amount), his homeland security positions, and his tax reform proposal. And while it remains unclear whether he would cut program spending to pay for his defense and homeland security increases, one thing that’s certain is that the budget can’t be balanced by relying solely on the elimination of fraud, waste, and abuse.
* The homeland security figures are based on cross-cutting budget authority reported in the Analytic Perspectives of the Budget of the U.S. Government for Fiscal Year2017 and extrapolated in future years as a constant percentage of outlays.