Speaker McCarthy, Balance the Budget to Save America - The American Spectator | USA News and Politics
Speaker McCarthy, Balance the Budget to Save America
Rep. Kevin McCarthy on Nov. 29, 2022 (Shirley Preston/Shutterstock)

Speaker Kevin McCarthy and the House Republicans have a tremendous opportunity to create a better American future. If they can successfully carry out the will of the American people, we will get to lower spending, less inflation, and eventually a balanced federal budget.

The work we did in the 1990s led to the only four consecutive balanced federal budgets in our lifetime. It allowed us to start paying down the national debt. The budget and debt are much larger today, but there are several key principles that can help us transition back to a balanced budget by 2033. (READ MORE: Why the Debt Ceiling Continues to Matter)

Start With Public Opinion

We consistently paid attention to public opinion in the 1990s, from developing the Contract with America, to reforming welfare and Medicare, to balancing the budget.

We understood President Abraham Lincoln’s rule that with popular sentiment, everything is possible. Without popular sentiment, nothing is possible. We also believed deeply in Lincoln’s “government of the people, by the people, and for the people.”

We were Reaganites and worked with President Ronald Reagan to keep the principles he described in his farewell address: “Almost all the world’s constitutions are documents in which governments tell the people what their privileges are. Our Constitution is a document in which ‘We the People’ tell the government what it is allowed to do. ‘We the People’ are free.”

Finally, we learned Prime Minister Margaret Thatcher’s principle that “first you win the argument, then you win the vote.”

House Republicans must understand what the American people want — and what they will reject (check out America’s New Majority Project for dozens of examples). The budget must be popularly supported to survive the assault by the elite media, the left, and President Joe Biden.

Stay on Message

This absolute requirement to win the argument so that the American people will support the difficulties of balancing the budget — and then sustaining that support throughout the drafting and negotiating process — requires message discipline, coordination, and continued effort. This is challenging.

In 1996, we were developing a modernization program for Medicare (leading to Medicare Advantage, which turned out to be quite popular). We had one member, Rep. Dan Miller of Florida, whose job it was to train and monitor members on language. His charge was to make sure everyone described an increase in Medicare spending as “an increase.” This may sound weird, but we had to overcome the Congressional Budget Office’s wonky effort to argue that a “current services budget” made an increase a cut unless it met their projected number.

By having 230 members coordinated and consistent, we were able to win the argument and become the first reelected GOP House majority in 68 years (since 1928).

Disciplined messaging is the absolute key to sustaining public support despite the media and the White House.

Show Your Work

The key to getting the budget in balance is to do 10-year projections so that savings and efficiencies can slowly build. Projects and reforms that might seem small or slow to develop become worth doing if there is observable, trackable 10-year cumulative momentum. This also provides a road map for new members who join Congress in the following years.

Use Real Numbers

The budget must be presented in actual dollars. The CBO should be instructed not to use a current service budget. Current service budgets include inflation-driven expansion. This makes spending figures that don’t change yearoveryear appear to be cuts to spending — even if no dollars have been saved. No family can plan a budget on a current services baseline. This would require constant increases to stay even. If the GOP budget starts from a real spending baseline, it will be much clearer and inoculated against automatic bias for more spending. This is also a practical position that Americans will understand and appreciate.

Focus on the Three Pillars

There are three pillars to balancing the budget: economic growth, major reforms of spending programs, and methodically targeted savings in discretionary spending — including defense. If all three elements are made real, a balanced budget can be achieved surprisingly fast. We set out to balance the budget in seven years, which seemed almost impossible at the time. We did it in four years.

A powerful economic growth program should be developed. HR 1, the Lower Energy Costs Act, is a good start, and a number of other pro-growth steps can be developed. Larry Kudlow notes that from 1947 to 2000, growth averaged 3.5 percent. That would mean a 10-year deficit reduction of around $4.5 trillion.

Count the Interest

Since every dollar saved in 2023 that does not require borrowing saves 16 percent in interest payments over the decade, it is important to count interest savings. Remember, $100 billion saves $1.16 trillion over 10 years. This creates a bigger sense of momentum. Interest savings should be developed for each year of change (so that, for example, savings in 2024 will be worth a little less in interest than savings in 2023).

Force the Bureaucrats to Modernize

Every element of bureaucratic government behavior should be measured against private sector evolution into faster, more efficient, more accountable systems. Dave Clark was the head of Amazon logistics and worked with Amazon for 23 years. He now heads Flexport, providing logistics modernization for small- and mediumsized companies.

Clark estimates that applying modern systems to the federal government would save 20 percent to 30 percent in costs. Drafting the bills to achieve that — and fighting to get them scored — would make a big dent in the federal budget.

Further, Lisa Hershman, former chief management officer in the Pentagon, believes $100 billion can be saved in the U.S. Department of Defense over the next decade. The McDonald’s fast-food chain gets nightly reports from more than 38,000 stores in more than 100 countries. The U.S. Centers for Disease Control and Prevention is hopelessly overstaffed and incompetent (ask how long it takes them to track a pandemic, for example). Elon Musk’s innovations at SpaceX should be compared with Boeing’s incompetence with the Space Launch System as another area for savings.

The House GOP should bring in as many private-sector entrepreneurs as possible and adopt their innovations to reduce government costs. We had dinner with 10 or 15 CEOs every week while developing the balanced budgets in the 1990s.

Challenge the CBO — Everyday

Bringing in dynamic private-sector innovation and entrepreneurial analysis will inevitably lead to a series of fights with the bureaucratic big government mindset of the CBO. For example, Art Laffer and Cynthia Fisher wrote a paper estimating that U.S. health care spending as a percentage of gross domestic product would fall from 17 percent to 9 percent with fully integrated price and quality transparency in health care. That’s a savings of $2 trillion per year, or $7,000 per person.

However, CBO’s analysis of the impact of price transparency estimated that it would only lead to “very small price reductions” of about 0.1 percent to 1 percent over 10 years. In response, Fisher wrote a devastating response in Stat. A strong health payments transparency bill would yield substantial savings over 10 years.

On almost every front, the House GOP will find itself having to bring together private-sector analysts and insist on accurate scoring from a government-centric CBO.

Cutting Fraud and Corruption

Shifting from the fraud- and corruption-ridden payment systems of the federal and state governments could save billions. The private-sector credit card fraud rate is less than 1 percent. Credit card companies achieve this low fraud rate by utilizing real-time data analytics and predictive modeling. Whenever a transaction does not match their predictions, they simply don’t pay unless they can verify the purchaser’s identity.

In 2021, the U.S. Government Accountability Office (GAO) found that “federal agencies made an estimated $281 billion in improper payments in FY 2021.” If fraud prevention and accountability measures eliminated even 10 percent each year, it would save $28.1 billion per year or $281 billion over 10 years.

That’s a conservative projection for moving the federal government from its current pay-and-chase model to a verify-before-payment model. (Remember the first $28 billion in savings would also bring in another $3 billion in interest savings.) This saves money in Medicare and Medicaid by stopping fraud — not by cutting payments to the elderly or the poor.

Further, there is an estimated $218 billion to $321 billion in fraud from the COVID-19 relief programs (and some estimates go up to $500 billion). The estimated recovery, based on the average bank recovery rate of 25 percent, should be $50 billion to $80 billion or more.

Again, 16 percent savings on interest should be added. Passing a law to expedite recovery should be a high budget priority. Collecting the $1.5 billion in taxes owed by federal workers would be another deficit reducer.

Enlist Successful Leaders

Successful governors, state legislators, and local government officials should be asked for areas of waste and inefficiency imposed by federal government bureaucrats and regulators. The Republican Governors Association, the American Legislative Exchange Council, the Republican State Leadership Committee, and other organizations — including nonpartisan citizens groups and those Democrats willing to help balance the budget — should be asked to survey their members for budget-improvement recommendations to be given to the House Budget Committee.

Former officials in the George W. Bush and Donald Trump administrations should also be methodically asked for their ideas about modernizing government, making it effective, reducing waste, and cutting spending. The results will be amazing in depth and diversity of ideas.

Make America Work Again

An estimated $878 billion has been spent on unemployment programs, when there are many job openings.

A work-focused reform comparable to the 1996 welfare-reform bill would dramatically lower this cost. The House GOP should insist that the CBO look at the real historic level of change from the 1996 bill as a starting point. It saved an enormous amount of money by reducing the number of people who were not working and increasing tax revenues as people went from dependency to employment.

There was a further impact on Medicaid savings. On welfare reform and Medicaid reform, Republican governors should be consulted — but should not have a veto. Some governors will want more change. Some will want less. The act of consulting will make the bill more informed and defendable.

Reform the Ivory Tower

Higher education is bloated. It is ripe for major reforms that could lead to significant budget savings. For example, Stanford University has 15,750 administrators, 2,288 faculty members, and 16,937 students. The bloat in administrators combined with massive endowments make higher education an obvious place for reforms, which could save taxpayers billions over the next decade. 

The entire issue of endowments and taxpayer funding should be reviewed. Harvard University in fiscal year 2022 had an endowment of $49.4 billion. Sixteen other institutions had endowments of $10 billion or more. Why should the taxpayers be sending additional money to such wealthy institutions?

Return to Teaching

K–12 education is also ripe for reform — on educational outcome grounds and in terms of administrative waste and corruption.

What is the point of federal aid for the 23 Baltimore city public schools that had zero students proficient in math (out of more than 2,000 students)? For what are we paying? In some school systems, student absenteeism is not counted, so the system gets federal and state aid for ghost students. Requiring accurate attendance would incentivize systems to get students back in class and save taxpayers money.

Furthermore, the explosion of bureaucratic and support staff has been even greater in K–12 than in higher education. Refusing to use federal funds for people who have nothing to do with teaching students would allow for higher pay for teachers at no net cost to taxpayers.

Tame Discretionary Spending

Prune discretionary spending (defense and nondefense) from the bottom up.

Apply to every activity Peter Drucker’s question: “If we did not already do this, would we go into it now?” For example, every element of wokeism, equity, and racist training should be eliminated.

The amount of savings in one year would be modest, but over 10 years it would add up to more than a few billion. This would be politically powerful with most Americans.

Former Secretary of State Mike Pompeo suggests that the State Department’s $70 billion budget is about 40 percent too big. He says that we should consolidate USAID and aid elements to start. This would save $28 billion a year, plus $4.3 billion in interest payments from the first year. This would add up over a decade.

The Bakersfield to Merced high-speed train is scored at $33 billion. Canceling it would be a significant savings. The new FBI building is scored at $3.5 billion. Given conservative anger at corruption in the FBI, canceling this would be a political and fiscal winner.

Turn the Pentagon into a Triangle

The national security system must be examined with the same tough-minded desire for modernization and savings as the rest of the government.

In 2015, the Defense Business Board proposed reforms to the Defense Department that it believed would save $75 billion to $150 billion. The DOD has reported that approximately $7.2 billion in equipment was left behind in Afghanistan.

However, the Special Inspector General for Afghanistan Reconstruction has reported that there are likely flaws in the accounting. In early 2021, the DOD’s server that houses its inventory reports crashed, resulting in a loss of data on weapons and equipment provided to the Afghan forces after March of 2021. That figure also does not account for the number of U.S.-provided aircraft that were outside of Kabul International Airport before the final departure of U.S. forces, but those details have been provided to Congress in a classified form.

There is an estimated $220 billion in government-furnished property that is missing. That figure represents an estimate of government-furnished property provided to contractors. The GAO has said that this figure is significantly understated. Efforts at auditing the Pentagon have failed to account for more than 61 percent of its assets across the DOD as a whole. 

We have 18 intelligence agencies with bloated bureaucracies. This is a massive, expensive system that was wrong about the Taliban — and absurdly wrong about Russia’s capabilities in Ukraine. (Remember “they will be in Kyiv in three days?”)

We need to aggressively reform all of it.

Learn Three Important Leadership Principles

The key to an achievement of this scale is a simple set of leadership principles: cheerful persistence (there will be a lot of frustration and many opportunities to get angry and fight each other); learning to listen, learn, help, and lead as a routine system of coming together rather than falling apart; and training people to say “yes, if” rather than “no, because,” which will lead to a much higher level of productivity and inventiveness.

Finally, remember that America is at stake, and it is worth the great challenge of saving the country.

For more commentary from Speaker Gingrich, visit Gingrich360.com.

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