I would like to propose a new line of thinking in solving our debt crisis. It is derived from living through several industry crisis. The proposal is what I call the 0 10 10 plan.
Today, we have a baseline budgeting system that is using an 8% baseline. What that means is next years budget starts 8% higher than the previous years before any new program increases or reductions. Therefore, with this years budget at 3.729T according to Wikipedia http://en.wikipedia.org/wiki/2012_United_States_federal_budget. that would mean the baseline for the 2012 budget would be 298B more or a total of 4.027T. With the economy struggling to grow at 1 to 2% this is a path to the end of the United States and much of the world will go down with us.
This is absolutely unsustainable and irresponsible!
So my proposal starts with a zero baseline budgeting process. There are no automatic increases in anything. By starting with a 0% baseline, whatever growth we see in the economy will help to restore our budget as opposed to a baseline that is greater than the most rosy scenario anyone could imagine.
However, this incrementalism doesn’t help now! It puts us on a trajectory to fiscal responsibility but our hole is too deep to rely on just a zero percent baseline. We need to find a way to cut expenditures. Unfortunately, everyone in Congress has their pet program that cannot be touched. I agree that there is a tremendous amount of waste and redundancy in government programs but fixing that is a long drawn out battle of political will that will not solve our immediate issue.
Taxing more is also a non-starter. It too will be a multi-year debate on how to restructure the tax code to be flatter to clear up many of the lollipops Congress has been handing out to their contributors for decades. Also, the class warfare line has done nothing but cause both sides to dig in and nothing will get done.
So what I propose is a 10% reduction in government staff. The government employs 2.15 million people on both the civilian and military side and about half of that again in government contractors. So a reduction of 300,000 positions immediately and then a hiring freeze until we balance the budget.
When my company went through the tech downturn in 2002, the first thing that was done was reduce staff. We didn’t reduce out output, we just asked everyone to do more with less but get the same amount done. It is the quickest way to reduce expenses. Sure you do it with respect, offering early retirement and manage it through attrition, much the way the auto industry did many of their staff reductions, but you need to get people off the payroll. According to the USA Today article http://www.usatoday.com/news/washington/2009-12-10-federal-pay-salaries_N.htm, the average federal employee makes 71,206 with loadings, pensions, and benefits that is approximately 100,000 per employee. A reduction of 10% would generate a savings of 30B per year, or 300B in government speak.
A nice start but not enough.
Then look at an across thew board 10% reduction in salaries. Savings an average of 7100 a year per employee would add another 20B in savings, again 200B in government speak.
This plan doesn’t address the hard problems of how to manage down the cost of entitlements and control health care expenses as well as structural changes to government organizations, however, it puts us on a glide path toward prosperity that is doable in the short term.
We need to do what can be done while focusing still on some of the hard choices. Waiting on the hard choices to made before any real substantive action is done is a recipe for failure.
My 2 cents