Balancing the Budget
February 14, 2018
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Let me offer hope to those who believe a balanced budget is important.
It is possible to balance the budget in the next decade – if we have the intelligence to focus on things which will work and avoid things which are impossible.
I should know.
The only four balanced federal budgets since 1969 came from a project House Republicans insisted on when I was Speaker.
We set out in the spring of 1995 to balance the budget as an act of policy. We had passed the constitutional amendment to require a balanced budget in the House with a vote of 300-132, and we came within three votes of passing it in the Senate with a final vote of 64-35. Clearly, there was a solid majority in favor of a balanced budget in both the House and Senate, however, amending the Constitution requires a two-thirds vote in both houses of Congress.
At a working dinner in the Capitol a few days later, the House Republican leadership discussed simply pretending that the amendment had passed and working to balance the budget anyway. Our most senior member, Bill Archer, the chairman of the Ways and Means Committee, had campaigned on balancing the federal budget when he replaced George H.W. Bush as the representative for the 7th Congressional District of Texas in 1971. At this dinner, 24 years later, we set out to implement his promise.
Budget Chairman John Kasich played a key role in developing and implementing the first balanced budget in a generation. He had strong support from House Majority Leader Dick Armey, Appropriations Chairman Bob Livingston, and Energy and Commerce Chairman Tom Bliley.
As we prepared for that extraordinary project, we were helped by business leaders who had led their companies through large-scale changes. Every Wednesday evening, we would have 15 business leaders come in for dinner to brief us on what big changes require.
Of course, balancing the federal budget required changes on a scale that dwarfed virtually all the companies advising us. After all, President Clinton’s proposed federal budget for the previous year aimed to increase spending from $1.468 trillion to $1.78 trillion over five years.
Nonetheless, the Republican leadership in 1995 had three principles which came up over and over:
- Define large goals with incredibly short deadlines.
- Delegate like crazy and hold people accountable (you get what you inspect, not what you expect).
- Throw all the “experts” out of the room. They will waste your time with what can’t be done and reject the changes you need.
We applied these principles over and over. We also listened to our members – to learn about good ideas and to learn what we could and could not pass.
We had a deliberate strategy of educating the country and appealing to the American people so that we could sustain the effort to balance the budget, despite the best efforts of the news media and the Clinton Administration to stop us.
Some of what we did was very popular. Reforming welfare and requiring able-bodied adults to go to work in exchange for benefits had 95 percent approval in a 1995 Hart/Teeter poll for NBC and The Wall Street Journal.
Our greatest challenge was to modernize Medicare, so we could save money while improving choices for senior citizens. We knew this was very dangerous in a presidential election year. We spent a year earning the trust of the American Association of Retired Persons (AARP) – the one organization that could have destroyed our effort. We spent that same year training our members, so they could hold town hall meetings on Medicare reform and win the support of their constituents.
We also made deep cuts to the capital gains tax in order to accelerate economic growth and increase government revenue through higher incomes rather than higher taxes.
All this effort paid off both in balancing the budget and in helping House Republicans keep our newly made House majority.
PRINCIPLES FOR BALANCING THE BUDGET
This experience suggests the following principles for getting back to a balanced budget:
1. We must maximize economic growth. This is the key to balancing the budget in a free society. It is virtually impossible to sustain an austerity budget filled with economic pain. Maximizing economic growth leads to a happier population as jobs, take home pay, and retirement benefits increase. Finally, it also increases the flow of revenue to the government so the budget becomes easier to balance. The increased profitability and wealth from economic growth make it possible for new ideas and new entrepreneurs to grow rapidly. The rise of companies such as Amazon, Wal-Mart, Google, Apple, Microsoft, Blue Origin, SpaceX, and others happen easier and faster in a growing economy.
2. We must identify extremely large cost centers that can be fixed to really change long-term spending. Welfare reform was an example from our balanced budget effort in the 1990s. Moving people from welfare to work saved an enormous amount of money for the federal government and states. It was one of the keys to balancing the budget. Some cost centers would include:
- Higher education, which has grown more expensive faster than health care. The work of Mitch Daniels at Purdue University, Dr. Jerry Davis at College of the Ozarks, Brandon Busteed at Gallup, and Sebastian Thrun at Udacity are all examples of better learning at much lower costs.
- Alzheimer’s is the costliest disease in America. From now to 2050 it will cost an estimated $20 trillion (about the size of the entire national debt). A crash program in brain science would probably do more to balance the budget than any other effort.
- The Defense Department, NASA, and other purchasing agencies should study Wal-Mart, Amazon, and other smart purchasers. Defense and space have to move at the speed of technology – not the speed of bureaucracy. When for the same price you can buy 10 flights with the private sector’s Falcon Heavy or John Glenn versus one flight with the government’s Space Launch System (which has yet to fly), you know there are huge savings.
- The bureaucracies must be modernized to meet the age of the tablet and the smartphone. The 1943 Pentagon that was designed for manual typewriters and carbon paper ought to be turned into a triangle. Modern information systems can provide a huge difference in speed and capability.
- The health system is the largest single driver of costs in America. A single giant solution – whether conservative or socialist – simply won’t work. No one is smart enough to replace 18 percent of the economy in one giant move. We need 1,000 steps of specific reforms all aimed toward lower costs, better access, and more modern solutions.
3. We must distinguish between true entitlements and transfer programs. There are three genuine earned entitlements: Social Security, Medicare, and veterans’ benefits. In all three, people have done things to deserve support. You can modernize and improve the entitlements, but you can’t cut them. Public reaction to entitlement cuts would be too explosive and would destroy the entire balanced budget effort. However, various transfer programs, such as welfare and food stamps can all be rethought and reformed – starting with work requirements.
4. Fraud is rampant throughout government. More than $100 billion a year is stolen in Medicare and Medicaid alone. Applying modern anti-fraud techniques developed by the major credit card companies could save the federal government $100 to $200 billion a year ($1 trillion to $2 trillion over a decade).
These initial steps should give you confidence that a systematic effort can in fact balance the federal budget within a decade.
We have done it before.
We can do it again.
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