HonestSolutionsHonestSolutionsHone stSolutionsHonestSolutionsHonestSol utionsHonestSolutionsHonestSolution sHonestSolutionsHonestSolutionsHon estSolutionsHonestSolutionsHonestSol utionsHonestSolutionsHonestSolution sHonestSolutionsHonestSolutionsHonREPUBLICAN STUDY COMMITTEE estSolutionsHonestSolutionsHonestSolHONEST SOLUTIONS utionsHonestSolutionsHonestSolution sHonestSolutionsHonestSolutionsHonFISCAL YEAR 2012 estSolutionsHonestSolutionsHonestSolBUDGET utionsHonestSolutionsHonestSolution sHonestSolutionsHonestSolutionsHon estSolutionsHonestSolutionsHonestSol April 2011 utionsHonestSolutionsHonestSolution rsc.jordan.house.gov sHonestSolutionsHonestSolutionsHon REPUBLICAN STUDY COMMITTEE | HONEST SOLUTIONS: FISCAL YEAR 2012 BUDGET TABLE OF CONTENTS CHAPTER 1 HONEST SOLUTIONS FOR THE CHALLENGES AHEAD 4 CHAPTER 2 SPENDING 13 CHAPTER 3 TAXES 26 CHAPTER 4 BUDGET PROCESS 28 APPENDIX SUMMARY TABLES 31 2 REPUBLICAN STUDY COMMITTEE | HONEST SOLUTIONS: FISCAL YEAR 2012 BUDGET 3 REPUBLICAN STUDY COMMITTEE | HONEST SOLUTIONS: FISCAL YEAR 2012 BUDGET CHAPTER 1 HONEST SOLUTIONS FOR THE CHALLENGES AHEAD AN OPEN LETTER TO THE AMERICAN The challenges we face are clear—as are the PEOPLE FROM THE REPUBLICAN STUDY steps we must take to right our course. We COMMITTEE (RSC). face a once‐in‐a‐generation opportunity to ur nation faces serious economic and improve the effectiveness of our government fiscal challenges that must be by reining in unnecessary and wasteful Oaddressed. The Path to Prosperity put spending. We need a leaner, more efficient forward by the House Budget Committee federal government. Taken together, these takes an honest look at the challenges ahead steps will improve our economy and and, if implemented, would give Americans a encourage small businesses to grow and better future than the one toward which the create jobs. country is currently headed. Toward that end, the RSC proposes this budget that builds Our country must address substantial off the Budget Committee’s effort and challenges, and moving toward real solutions balances the budget by 2020. Thanks largely will require discipline and honesty on the to Chairman Paul Ryan’s leadership, Congress part of policymakers. Real solutions are not has finally embarked on a serious debate necessarily easy solutions. But given the about the long‐term future of this country. dangerous condition of our nation’s fiscal house, and the long‐standing desire to leave Simply put, there is no way to avoid the road our country in a better state for the next of tough choices that lies ahead. These generation, we must recognize that tough challenges, specifically regarding the choices will be necessary. unsustainable growth of government and debt, have reached a crisis point. To continue At the end of the day, these choices are not to kick the can down the road would be to about politics. The choices we as a nation threaten our nation’s great economic engine, make in the short term will ensure that the opportunities for our children, and the America’s families are not buried under a future of American prosperity. 4 REPUBLICAN STUDY COMMITTEE | HONEST SOLUTIONS: FISCAL YEAR 2012 BUDGET crushing tax burden and are free to pursue We must march forward with resolve. Too the American dream. much is at stake. This great nation has never run from tough challenges, and working Admiral Mike Mullen, the Chairman of the together, we can leave this country in a better Joint Chiefs of Staff, put it bluntly when he condition than we found it. said that the national debt is the single biggest threat to our national security. To maintain our national security and remain Jim Jordan true to the principles of individual liberty Chairman, Republican Study that our Founders so eloquently enshrined in Committee our founding documents, we must act quickly to right our fiscal ship. Scott Garrett Chairman, Republican Study The Republican Study Committee believes Committee Budget and Spending Task that the solutions contained in this budget Force proposal—Honest Solutions—will put our great nation on surer footing, address the fiscal crisis, and set the course for dynamic RED INK AND THE PRESIDENT’S innovation, job creation, and economic BUDGET. In February, President Obama growth. released his Fiscal Year (FY) 2012 budget. Unfortunately, the President’s budget is For too long, the federal government has nothing more than a missed opportunity for been making empty promises. As these real leadership and only forces us closer to commitments are coming due with the the crisis point. The non‐partisan CBO retirement of the Baby Boom generation, the recently evaluated the effect that President true magnitude of the problem is becoming Obama’s budget would have on our nation’s too clear to ignore. Largely as a result of the fiscal situation. commitments made through Medicare, Medicaid, and Social Security, our nation is Figure 1 shows that there is no end to the literally drowning in debt. tide of red ink under the President’s budget. The CBO estimates that the budget deficit for According to the independent General FY 2012 will total nearly $1.2 trillion. This is Accountability Office (GAO), our nation’s a result of record levels of government entitlement shortfall—the difference spending that have become the norm since between planned spending and the revenues President Obama took office in January 2009. coming in—is equal to $88.6 trillion. The If we continue on this path, by FY 2021, the non‐partisan Congressional Budget Office deficit will remain at $1.2 trillion. The net (CBO) estimates that, by 2025, spending on effect of continuing to postpone tough Social Security, federal health care programs, decisions means that between FY 2012 and and net interest will consume every single FY 2021, the President’s policies total $9.5 dollar of revenue the federal government trillion in deficit spending. collects. Clearly, great challenges are right around the corner. 5 REPUBLICAN STUDY COMMITTEE | HONEST SOLUTIONS: FISCAL YEAR 2012 BUDGET Figure 1. The President's Budget: Deficits 1,600 1,425 1,400 1,164 1,158 1,200 1,101 1,021 1,000 901 902 841 870 Dollars 764 748 of 800 600 Billions 400 200 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Congressional Budget Office DEBT AND MORE DEBT. Much like when company. These interest payments take up an individual or family overspends, when the an increasingly larger share of the family’s federal government spends more than it monthly income. collects in tax revenues, it must go into debt. Year‐after‐year, as the U.S. continues to At a certain point, the outstanding debt will overspend—and borrow money to cover its reach a level at which the family becomes a overspending—we add to our national debt. greater financial risk to the credit card company than before the family started Figure 2 shows how our debt held by the spending recklessly. To adjust for this public as a share of the economy skyrockets increased risk, the credit card company under President Obama’s budget. Beginning increases the interest rate on the credit card. in FY 2012, debt held by the public totals 74.3 percent of the economy. By FY 2021, this Much like the example above, our nation’s share jumps to more than 87 percent. The borrowing gets charged to what amounts to a truth is that our country does not borrow this national credit card. In reality, this credit money for free. card is really just the sum of the national debt. We pay interest on our national credit It is helpful to think of the national debt in card—or our national debt. terms of a credit card. Let’s start with an example closer to home: When a family uses As the national credit card balance increases a credit card and carries a balance each from years of continued deficit spending, the month, interest accumulates. As the family interest we must pay on that balance continues to make purchases, and the necessarily increases. And the interest adds balance increases, the family must make up. interest payments to the credit card 6 REPUBLICAN STUDY COMMITTEE | HONEST SOLUTIONS: FISCAL YEAR 2012 BUDGET Figure 2. The President's Budget: Debt As a Share of the Economy 90 87 86 85 84 82 81 80 80 78 79 77 74 75 Percentage 70 69 65 60 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Congressional Budget Office INTEREST PAYMENTS AND THE DEBT by the Departments of Education, Homeland DOWNGRADE. When the U.S. makes large Security, Housing and Urban Development, interest payments on its debt, there is less to Justice, and State, combined. Under spend on other priorities such as education, President Obama’s budget, by 2021, our scientific research, and health care. Figure 3 nation will owe nearly a trillion dollars in shows just how much interest we are paying interest on our national credit card. on our national debt. Much like a family, as our nation continues to Under the President’s budget, in FY 2012, our accumulate a debt and run up the balance on nation will collectively owe $260 billion in our national credit card, our credit rating will interest on our national credit card. To put be in danger of a downgrade. This could lead this amount in perspective, this equals all of to a financial catastrophe that would impact the spending every single American. 7 REPUBLICAN STUDY COMMITTEE | HONEST SOLUTIONS: FISCAL YEAR 2012 BUDGET Figure 3. The President's Budget: Net Interest Payments 1,000 931 866 794 800 725 651 600 571 Dollars 489 of 409 400 328 Billions 260 214 200 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Congressional Budget Office Figure 4. The President's Budget: Interest Payments as a Share of Tax Revenues 25 20 20 19 20 18 17 16 15 14 13 11 10 10 Percentage 10 5 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Congressional Budget Office 8 REPUBLICAN STUDY COMMITTEE | HONEST SOLUTIONS: FISCAL YEAR 2012 BUDGET Currently, our country benefits from an Aaa non‐partisan CBO’s latest analysis of the credit rating.