Thank you Arthur, and thank you all for being here today.
You know, the budget debates that are raging now in state capitals and here in Washington—especially the one we’re having now in Congress—seem a little disconnected from reality.
The news stories are full of phrases like “continuing resolutions” or “baseline levels.” The numbers are in the millions or billions. The scorecard is about political posturing and partisan edge.
The debate is stale. The debate is distracting.
The debate needs to change.
Today, we are here to give Americans the debate they deserve.
We face a monumental choice about the future of our country. For too long, policymakers in Washington have traveled the path of least resistance… of easy promises and the empty claims of progress… of relentless spending and constant borrowing.
This path has left us on the brink of national bankruptcy, and continuing down it will push our nation into a debt crisis characterized by uncontrollable interest rates… unsustainable taxes… and an unprecedented economic collapse.
We will leave our children a very different nation than the one we inherited—highly centralized and heavily bureaucratic, less self-governing and less free.
The President, whose budget punted on the drivers of our debt, is not the first public official to have drifted down this perilous path.
And those members of his party who are defending his do-nothing approach while demagoging our solutions—well, they are certainly not the first, either.
In recent years, both political parties have squandered the public’s trust. The American people ended a unified Republican majority in 2006, just as they ended a unified Democratic majority last fall.
They reject empty promises from a government that can’t live within its means. They deserve the truth about the nation’s fiscal and economic challenges. They deserve—and demand—honest leaders willing to stand for solutions.
The new House majority—in which it is my privilege to serve as Chairman of the Budget Committee—has decided to do things differently. We have decided to offer America the choice they deserve.
The stakes in this debate are high. They transcend what fraction a government worker in Madison contributes to his benefits package. And they transcend what number between $33 billion and $61 billion we finally settle on as we try to repair this year’s broken budget process.
At stake is the security and stability of American families. At stake is the potential and prosperity of American workers.
At stake is America.
If the debt poses an existential threat to all we hold dear—if we truly believe that our current path leads to a debt-fueled economic crisis and to the demise of America’s exceptional promise—then let’s dispense with the trivialities. Let’s confront the nation’s most urgent fiscal and economic challenges. And let’s chart the path to a brighter future, restoring America’s promise, and ensuring real security through real reform.
The Path to Prosperity is the budget we are putting forward today. It is not just a budget—it is a cause. It represents our choice for America’s future, and our commitment to the American people.
We aim to restore the dynamism that has defined America over the generations, unleashing the genius of America’s workers—investors—and entrepreneurs and strengthening the foundations of economic growth and job creation now and in the future.
We reject a culture of complacency and offer reforms that promote initiative by rewarding effort.
We disavow the idea of unlimited and unrestrained government. Instead, we call for a government limited to its core constitutional functions and faithful to its noble mission to secure life, liberty and the pursuit of happiness for all.
Now more than ever, it is vitally important that we act.
The government’s unfunded liabilities—promises the government makes to current workers about their health and retirement security for which it has no means to pay—are projected to grow by tens of trillions of dollars in the coming years.
Every year that Congress fails to act, the U.S. government gets closer to breaking promises to current retirees, while adding to a large and growing stack of empty promises made to future generations.
The flawed structure of our biggest government programs is by no means the only reason that we find ourselves facing a crisis.
The President and the last Congress enacted major increases in spending, diverted government agencies from their key missions, and failed to deliver on their promises to create jobs—the biggest step in the wrong direction being the creation of two new open-ended health care entitlements, which will accelerate the nation toward bankruptcy.
Programs that make up the safety net for the poor are failing both the citizens who rely on them and the taxpayers who fund them.
And the tax code is riddled with complexities and inefficiencies, creating a drag on the very economic growth that is essential to a sustainable fiscal future.
The President’s recent budget proposal would accelerate America’s descent into a debt crisis. It doubles debt held by the public by the end of his first term and triples it by 2021. It imposes $1.5 trillion in new taxes, with spending that never falls below 23 percent of the economy. His budget permanently enlarges the size of government. It offers no reforms to save government health and retirement programs, and no leadership.
Our budget is very different. For starters, it cuts $6 trillion in spending from the President’s budget over the next ten years, reduces the debt as a percentage of the economy, and puts the nation on a path to actually pay off our national debt. Our proposal brings federal spending back to 20 percent, consistent with the post-war average, and reduces deficits by $4.4 trillion.
Most important, our budget tackles the nation’s biggest fiscal challenges head-on. It is a plan for job creation and growth today—a plan that ensures that our children inherit an America stronger, more prosperous, and more free—as past generations have sacrificed to ensure for us.
There are four major aspects of this budget’s reform agenda:
• First, this budget reforms government to make it more efficient, effective and responsible.
• Second, it builds on the state-led welfare reform successes of the 1990s to strengthen the social safety net.
• Third, this budget helps to fulfill the mission of health and retirement security for all Americans.
• Fourth, it will reform the tax code to promote economic growth and job creation.
By removing the anchor of debt that weighs down our economy and advancing pro-growth tax reforms, this budget is a jobs budget. It sends a signal to investors, entrepreneurs and job creators that a brighter future is still possible—that America can still be the growth engine that it ought to be.
An estimate from the Heritage Center for Data Analysis projects The Path to Prosperity to help create nearly 1 million new private-sector jobs next year, bring the unemployment rate down to 4 percent by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade alone. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to the Heritage analysis, this budget would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year. This is a path to prosperity.
It begins by reforming government. The role of the federal government is both vital and limited. When government takes on too many tasks, it usually doesn’t do any of them very well.
This budget restores limits to government in order to reduce deficits, save money for taxpayers, and focus federal departments and agencies on critical missions.
The first job of government is to secure the safety and liberty of its citizens. Defense spending should be executed with greater efficiency and accountability, but our men and women in uniform should never be thought of as mere line items on a budget spreadsheet.
This budget follows the lead of Defense Secretary Robert Gates, assuming $178 billion in savings from going after the inefficiencies at the Pentagon, but reinvesting $100 billion of that into key military capabilities, before putting the rest toward deficit reduction.
Other government agencies have important roles to play as well, but the budgets for many of these agencies have grown far beyond what is justified by their properly limited missions. Domestic government agencies enjoyed a 24 percent increase in their base budgets since the President took office—nearly 85 percent when stimulus funds are included.
The massive budget increases of the last few years have served, not to help agencies meet existing missions more effectively, but to create new missions that lie beyond the proper scope of the federal government and serve dubious public policy goals—whether an excessive EPA overreach or the implementation of the disastrous new health care law.
This budget restores spending discipline to a government that badly needs it by returning spending on domestic government agencies to below 2008 levels, and freezing those levels in place for five years.
It does this, not through indiscriminate cuts, but by proposing the elimination of dozens of wasteful and duplicative programs identified by nonpartisan watchdogs and government auditors such as the Government Accountability Office.
And it doesn’t just call for government to spend less—it calls for government to refocus on creating the conditions for prosperity, instead of micromanaging the economy.
Washington should not be in the business of picking winners and losers. Jobs are not created when politicians reward their connected cronies with favoritism or fund their ideological adventures. Jobs are created when we choose economic freedom.
So our budget targets corporate welfare programs by proposing to privatize Fannie Mae and Freddie Mac which are costing taxpayers hundreds of billions of dollars.
It gets rid of the permanent Wall Street bailout authority that Congress created last year.
And it rolls back expensive handouts for uncompetitive sources of energy.
Instead, it calls for a free and open marketplace for energy development and innovation. It proposes the removal of moratoriums on safe, responsible energy exploration here in the United States… ends Washington policies that drive up gas prices… and unlocks America’s vast energy resources to help lower costs, create jobs, and reduce dependence on foreign oil.
If we want these reforms to last, then it is not enough to change how much government spends—we must also change how government spends.
This budget contains budget-process reforms—including real, enforceable caps on spending—that will reorient government toward spending and taxing only as much as it needs to fulfill its constitutionally prescribed roles.
The second part of our reform agenda seeks to build on the success of the bipartisan welfare reforms of the late 1990s.
There is a widely shared consensus in this country in support of strong safety net for Americans who, through no fault of their own, have fallen on hard times.
However, the government programs that make up this safety net are coming apart at the seams. It should come as no surprise that a system designed in the 1960s is not equipped to deal with the unique pressures of the 21st century.
Bipartisan efforts in the late 1990s transformed cash welfare by encouraging work, limiting the duration of benefits, and giving states more control over the money being spent.
But cash welfare is only one of 77 means-tested federal government programs. Others, including Medicaid, food stamps, and housing aid, were left un-modernized and unreformed.
This budget completes the work that was left undone with reforms that are centered on individuals and led by the governors at the state level.
Medicaid suffers from the same flawed financing structure that welfare used to suffer from. The federal government provides an open-ended match on what the states spend on Medicaid, which creates perverse incentives and encourages the program’s heedless growth.
And states are unable to save money by tailoring the program to meet the unique needs of their own populations. Instead, they must obey one-size-fits-all federal mandates, meaning that the only way they can save any money at all is by cutting reimbursements to doctors and hospitals.
That’s why so many doctors refuse to see Medicaid patients—the payment rates in many states are so low that doctors are losing money every time a Medicaid patient walks into their offices.
This budget proposes an end to this one-size-fits-all approach. It converts the federal share of Medicaid spending into a block grant and cuts excessive federal strings, freeing states to design programs that work best for their residents.
Giving states more flexibility will allow them to create a range of options that will give Medicaid patients access to better care.
This budget proposes similar reforms to the food stamp program, ending the same flawed incentive structure that rewards states for signing up ever-higher numbers of recipients, as opposed to rewarding results.
And because the best welfare program is one that ends with a job and a stable, independent life for the individual, this budget aims to streamline and strengthen federal job training programs by consolidating dozens of wasteful and duplicative programs into accountable, targeted career scholarships, aimed at empowering American workers with the resources they need to pursue their dreams.
The third part of our reform agenda will put an end to empty promises from a government that is going broke. Instead, it secures health and retirement programs both for current beneficiaries, who will receive the benefits they’ve organized their retirements around, and for future generations, who will inherit stronger programs they can count on when they retire.
This starts with saving Medicare. The open-ended, blank-check nature of Medicare’s subsidy mechanism is threatening the solvency of this critical program and creating inexcusable levels of waste in the system.
Everyone who is on Medicare or knows someone on Medicare has stories about waste in the system—unnecessary tests… redundant treatments… the cost in both time and money of mistaken billings and misplaced records… and just outright fraud. This kind of waste is inevitable in a top-down, government-run system, and it translates into runaway health-care inflation.
This budget repairs Medicare’s broken structure and saves the program for current and future beneficiaries.
In observance of the principle that government should reorient its policies without forcing people to reorganize their lives, this budget’s reforms will not affect those in or near retirement in any way.
Instead, when people 54 years old and younger become eligible for Medicare, they will be able to choose from a list of Medicare-approved coverage options and pick a plan that best suits their needs.
Medicare would then provide a payment to the plan to subsidize its cost. This plan is identical to the system that members of Congress and other federal employees enjoy. It is similar to how the Medicare prescription drug benefit works today.
This reform plan will preserve Medicare through competition among health plans for the business of millions of seniors, and by trimming billions in waste and fraud.
Under this plan, Medicare will provide wealthy seniors with less assistance, while providing more assistance for lower-income beneficiaries and those with greater health risks. Reform that empowers individuals—with a strengthened safety net for the poor and the sick—will guarantee that Medicare can fulfill the promise of health security for America’s seniors.
It will also be necessary to reform Social Security to prevent severe cuts to future benefits. This budget forces policymakers to come to the table and work to enact common-sense reforms.
It does this by requiring the President to submit a plan for restoring balance to the Social Security trust fund, and requiring congressional leaders in the Senate and the House to put forward their best ideas as well. This process is designed to yield a bipartisan solution quickly.
We all know the way forward here. The President’s bipartisan Fiscal Commission provided a very good example of what needs to happen to make Social Security solvent.
The Commission proposed a more progressive benefit structure, with benefits for higher-income workers growing more slowly than those of lower-income workers who are more vulnerable to economic shocks in retirement.
The Commission also proposed reforms that account for increases in longevity, to gradually reflect the demographic changes that are straining Social Security’s finances.
Although the budget itself does not contain these changes, I support both of these ideas.
The goal of our budget is clear: We must save Social Security for current retirees and strengthen it for future generations.
This budget strives to achieve retirement security, economic security, and fiscal sustainability—but none of this is possible unless we have economic growth. This brings me to tax reform—the fourth part of our agenda. This budget recognizes that the nation’s fiscal health requires a vibrant, growing private sector and a tax code that is simple, efficient and fair. Unfortunately, the U.S. tax code fails on all three counts.
This budget attacks complexity, inefficiency and unfairness in the code with a set of fundamental reforms drawn from a broad consensus of economic experts and based on the principle that government should never take a dollar from one of its citizens unless that dollar is needed for an absolutely vital national purpose.
It draws on the commonly held view that the key to pro-growth tax reform is to lower tax rates while broadening the tax base—that is, letting individuals keep more of the money they earn, while getting rid of the distortions and loopholes that divert economic resources from their most efficient uses.
And it starts, not by asking what is the “right mix” of tax increases and spending cuts to balance the budget, but by asking what is the purpose of government, and then raising only as much revenue as the government needs to fund the things it is supposed to be doing.
In 1981, President Ronald Reagan inherited a stagnant economy, with a tax code that featured 16 brackets and a top rate of 70 percent. When he left office in 1989, the tax code had been simplified down to just three brackets, with a top rate of 28 percent.
Over time, additional brackets, credits and carve-outs have grown on the tax code like weeds. As with so many things, such as practicing the politics of optimism, we need to get back to the Reagan model—in this case, by implementing the policies of growth. This budget begins by lowering taxes, with top individual and corporate rates capped at 25 percent. It adopts a revenue neutral approach by clearing out a burdensome tangle of loopholes that distort economic activity.
Finally, this budget fixes a major problem that has distorted economic activity over the last few years: Its reforms are designed to be permanent changes in law, not temporary booster shots or short-term cuts with built-in expiration dates. American families and businesses need—and they deserve—certainty and predictability when it comes to taxes. They need to be able to plan for their economic futures.
America is drawing perilously close to a tipping point that has the potential to curtail free enterprise, transform our government, and weaken our national identity in ways that may not be reversible.
The tipping point represents two dangers: first, long-term economic decline as the number of makers diminishes and the number of takers grows… and second, gradual moral-political decline as dependency and passivity weaken the nation’s character … as the power to make decisions is stripped from individuals—and their elected representatives—and given to non-elected bureaucrats.
This budget charts a new path. It represents a new federal commitment, assuring this nation’s workers, investors and entrepreneurs that the new House majority recognizes the threat that unlimited government poses to the American way of life.
It affirms our cherished ideals of individual liberty, equal opportunity, entrepreneurship and self-reliance. These are the ideals that have cultivated the exceptional American character.
The American Enterprise Institute, under Arthur Brooks’s visionary leadership, continues to make this case for these ideals with clarity and force, just as this budget seeks to make them the guiding lights of American fiscal policy once again.
Freeing individuals by restoring limits to the size and scope of government should not be a partisan issue. In his State of the Union Address on January 4, 1935, President Franklin Delano Roosevelt warned the nation of the threat to America’s national character from permanent dependency on government:
“The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit… It is in violation of the traditions of America.”
This budget offers America a model of government that is guided by the timeless principles of the American Idea.
This budget provides policymakers with a blueprint to put our budget on the path to balance and our economy on the path to prosperity.
This budget assures America’s seniors—those who are currently retired and future retirees—that their health and retirement security will be preserved and strengthened.
This budget provides parents with hope that their children can inherit a strong, free and prosperous America. It is a plan to give our children a debt-free nation so they too can realize the American Dream.
Submitted for consideration to the U.S. Congress, and to the American people, this budget represents the new House majority’s answer to history’s call. It is now up to all of us to keep America exceptional.