Romney Presents Plan to Turn Around the Federal Government

"Getting our fiscal house in order has become more than just an economic issue; it’s a moral imperative." – Mitt Romney

Today at the Americans for Prosperity “Defending the American Dream Summit,” Mitt Romney addressed the moral responsibility that our country has to cut government spending and improve the country’s fiscal health. Romney criticized President Obama for taking an already bad fiscal situation and pushing it to the brink of catastrophe, racking up unprecedented deficits and adding nearly as much to the national debt in one term as had the previous forty-three presidents combined.

“Under my administration, we will level with the American people about what it will take to truly cut spending and balance our budget,” said Romney.  “We’re going to set honest goals and present a credible plan to achieve them.”

Romney also detailed the approach he would take to modernizing America’s entitlement programs, guaranteeing their continued vitality for future generations.  Romney emphasized that his proposals would not affect today’s seniors or those nearing retirement, and that he would not raise taxes.  Romney said the retirement age for younger workers should be increased slowly to keep up with increases in longevity. He proposed slowing the rate of growth in Social Security benefits for higher-income future retirees.  Tomorrow’s Medicare, he said, should give beneficiaries a generous defined contribution and allow them to choose between private plans and traditional Medicare.

“We must honestly and seriously deal with the future of Social Security and Medicare.  In their current form, these programs are unsustainable,” said Romney.  “Unlike President Obama, our next president must protect these programs, improve them, and keep them sustainable for generations to come.”

Romney described the steps he would take to turn around the federal government and gave examples of the savings he would seek to achieve.  He also detailed his vision for the future of America’s entitlement programs:

CUT SPENDING

Set Honest Goals: Cap Spending At 20 Percent Of GDP

Any turnaround must begin with clear and realistic goals.  Optimistic projections cannot wish a problem away, they can only make it worse.  As president, Romney’s goal will be to bring federal spending below 20 percent of GDP by the end of his first term:

• Reduced from 24.3 percent last year; in line with the historical trend between 18 and 20 percent
• Close to the tax revenue generated by the economy when healthy
• Requires spending cuts of approximately $500 billion per year in 2016 assuming robust economic recovery with 4% annual growth, and reversal of irresponsible Obama-era defense cuts

Take Immediate Action: Return Non-Security Discretionary Spending To Below 2008 Levels

Any turnaround must also stop the bleeding and reverse the most recent and dramatic damage:

• Send Congress a bill on Day One that cuts non-security discretionary spending by 5 percent across the board
• Pass the House Republican Budget proposal, rolling back President Obama’s government expansion by capping non-security discretionary spending below 2008 levels

Follow A Clear Roadmap: Build A Simpler, Smaller, Smarter Government

Most importantly, any turnaround must have a thoughtful, structured approach to achieving its goals. Romney will attack the bloated budget from three angles:

1.    The Federal Government Should Stop Doing Things The American People Can’t Afford, Including:

• Repeal Obamacare — Savings: $95 Billion. President Obama’s costly takeover of the health care system imposes an enormous and unaffordable obligation on the federal government while intervening in a matter that should be left to the states.  Romney will begin his efforts to repeal this legislation on Day One.

• Privatize Amtrak — Savings: $1.6 Billion. Despite requirement that Amtrak operate on a for-profit basis, it continues to receive about $1.6 billion in taxpayer funds each year. Forty-one of Amtrak’s 44 routes lost money in 2008 with losses ranging from $5 to $462 per passenger.

• Reduce Subsidies For The National Endowments For The Arts And Humanities, The Corporation For Public Broadcasting, And The Legal Services Corporation — Savings: $600 Million. NEA, NEH, and CPB provide grants to supplement other sources of funding.  LSC funds services mostly duplicative of those already offered by states, localities, bar associations and private organizations.

• Eliminate Title X Family Planning Funding — Savings: $300 Million. Title X subsidizes family planning programs that benefit abortion groups like Planned Parenthood.

• Reduce Foreign Aid — Savings: $100 Million. Stop borrowing money from countries that oppose America’s interests in order to give it back to them in the form of foreign aid.

2.    Empower States To Innovate — Savings: >$100 billion

• Block grants have huge potential to generate both superior results and cost savings by establishing local control and promoting innovation in areas such as Medicaid and Worker Retraining.  Medicaid spending should be capped and increased each year by CPI + 1%.  Department of Labor retraining spending should be capped and will increase in future years.  These funds should then be given to the states to spend on their own residents.  States will be free from Washington micromanagement, allowing them to develop innovative approaches that improve quality and reduce cost. 

3.     Improve Efficiency And Effectiveness. Where the federal government should act, it must do a better job.  For instance:

• Reduce Waste And Fraud — Savings: $60 Billion. The federal government made $125 billion in improper payments last year.  Cutting that amount in half through stricter enforcement and harsher penalties yields returns many times over on the investment.

• Align Federal Employee Compensation With The Private Sector — Savings: $47 Billion. Federal compensation exceeds private sector levels by as much as 30 to 40 percent when benefits are taken into account.  This must be corrected.

• Repeal The Davis-Bacon Act — Savings: $11 Billion. Davis-Bacon forces the government to pay above-market wages, insulating labor unions from competition and driving up project costs by approximately 10 percent.

• Reduce The Federal Workforce By 10 Percent Via Attrition — Savings: $4 Billion. Despite widespread layoffs in the private sector, President Obama has continued to grow the federal payrolls.  The federal workforce can be reduced by 10 percent through a “1-for-2” system of attrition, thereby reducing the number of federal employees while allowing the introduction of new talent into the federal service.
• Consolidate agencies and streamline processes to cut costs and improve results in everything from energy permitting to worker retraining to trade negotiation.

PRESERVE ENTITLEMENTS

If pursued with focus and discipline, Romney’s approach provides a roadmap to rescue the federal government from its present precipice.  But that respite will be short-lived without a plan for the looming long-term threat posed by the unsustainable nature of existing entitlement obligations. Romney proposes reforms that will strengthen both Social Security and Medicare, preserving benefits for today’s seniors while putting the program on sound footing for generations of seniors to come.

Social Security: No one at or near the retirement age will see any changes and tax hikes cannot be on the table. Instead, Social Security can be placed on a sustainable trajectory with commonsense reforms:

• Gradually raise the retirement age to reflect increases in longevity
• Slow the growth in benefits for higher-income retirees

Medicare: Medicare should not change for anyone in the program or soon to be in it.  Nor should tax hikes be part of the solution. Reforms must honor commitments to our current seniors while giving the next generation an improved program that offers the freedom to choose what their coverage under Medicare should look like:

• Give future seniors a choice between traditional Medicare and many other healthcare plans offering at least the same benefits
• Help seniors pay for the option they choose, with a level of support that ensures all can obtain the coverage they need; provide those with lower incomes with more generous assistance
• Allow beneficiaries to keep the savings from less expensive options or choose to pay more for costlier plans
• These reforms will encourage insurers to lower costs and compete on the quality of their offerings
• Gradually raise the retirement age to reflect increases in longevity

QUESTION AND ANSWERS ON ROMNEY’S PLAN TO REFORM MEDICARE

Basic Overview:

• Nothing changes for current seniors or those nearing retirement
• Medicare is reformed as a premium support system, meaning that existing spending is repackaged as a fixed-amount benefit to each senior that he or she can use to purchase an insurance plan
• All insurance plans must offer coverage at least comparable to what Medicare provides today
• If seniors choose more expensive plans, they will have to pay the difference between the support amount and the premium price; if they choose less expensive plans, they can use any leftover support to pay other medical expenses like co-pays and deductibles
• “Traditional” fee-for-service Medicare will be offered by the government as an insurance plan, meaning that seniors can purchase that form of coverage if they prefer it; however, if it costs the government more to provide that service than it costs private plans to offer their versions, then the premiums charged by the government will have to be higher and seniors will have to pay the difference to enroll in the traditional Medicare option
• Lower income seniors will receive more generous support to ensure that they can afford coverage; wealthier seniors will receive less support
• Competition among plans to provide high quality service while charging low premiums will hold costs down while also improving the quality of coverage enjoyed by seniors

What are the immediate effects of this plan?

This plan has no effect on current seniors or those nearing retirement.  It will go into effect for younger Americans when they reach retirement in the future.

How is this different from the Ryan Plan?

Romney shares Ryan’s goals and believes his general approach of premium support is the right one.  Existing Medicare spending would be repackaged as a fixed-amount benefit to each future senior that he or she can use to purchase an insurance plan with coverage at least comparable to what Medicare provides today.  Unlike the Ryan Plan, Romney’s approach keeps traditional Medicare available as one of the insurance plans that seniors can choose among.  Other details will differ as well.

How high will the premium support be?  How quickly will it grow?

Romney continues to work on refining the details of his plan, and he is exploring different options for ensuring that future seniors receive the premium support they need while also ensuring that competitive pressures encourage providers to improve quality and control cost.  His goal is for Medicare to offer every senior affordable options that provide coverage and service at least as good as what today’s seniors receive.  Lower income seniors in the future will receive the most generous benefits to ensure that they are able to get care every bit as good as that provided in the current Medicare program.

How will the plan impact total Medicare spending?

The total impact on spending will depend on a number of factors, including the rate of premium support increase and the effect of competitive pressure on providers.  By replacing the inefficiency of the current system with a competitive, market-oriented system in which every provider – including the government – wants to find the most efficient way to provide high quality care, the plan puts the future of Medicare on a sound footing to meet the needs of future generations.

How will traditional Medicare remain an option?

Traditional Medicare will compete against private plans.  It will be operated by the government and funded by premiums, co-insurance, and deductibles that are set at the level necessary to cover its costs.  The attractiveness of this option to future seniors will depend on how its efficiency and quality compares to that offered by other providers in the marketplace.  Future seniors will benefit from the innovation and competition among options.

How will seniors be affected by the costs of different options?

Future seniors will be able to enjoy the savings from selecting less expensive plans, or choose to pay more for costlier options.  When the insurance premium costs less than the support provided, the balance will be available in an HSA-like account to pay for other out-of-pocket health expenses.