CPI-X: A sensible solution to the nation’s budget woes

Since 2000, U.S. government spending has increased from $1.7 trillion to more than $6 trillion, the national debt has surged from $5.6 trillion to $34 trillion, annual interest payments on the debt have climbed from $350 billion to $1 trillion, and the national budget has gone from a $240 billion surplus to a $1.7 trillion deficit. In other words, over the span of nearly two decades, the U.S. government’s fiscal situation has gone from good to bad; however, it will only get worse unless drastic changes are made sooner rather than later.

The primary reason for the rapidly deteriorating fiscal state of the U.S. government is simple: too much reckless deficit spending. The good news is that this can be solved over a relatively short period of time. The even better news is that if and when the spending problem is solved, the U.S. economy would be in position to grow at a swift rate, the dollar would likely remain the world’s reserve currency for the foreseeable future, inflation would ease, living standards would improve, prosperity would bloom, and opportunities to achieve the American Dream would abound.

In “CPI-X: A Novel Method to Decrease Spending and the National Debt,” economist Darren Brady Nelson provides a blueprint for an objective and politically feasible plan to reduce federal spending back to 2008 levels.

In a nutshell, CPI-X would tether federal spending to the Consumer Price Index (CPI), using the CPI as a baseline, and accomplishing actual spending cuts via the “X” in the equation. The X-factors in CPI-X are derived from benchmarking the spending of the U.S. federal government, states, and other countries along 10 basic policy areas, such as defense, health, education, etc.

Unlike other so-called spending reductions proposed by Congress in recent years, which only reduce the rate of spending growth, the plan outlined in CPI-X produces real reductions in spending. For instance, under the plan, “the biggest overall cuts in terms of U.S. dollars ($) under CPI-X would be to welfare, health, and defense from $2.93 trillion to $1.6 trillion, $1.94 trillion to $648 billion, and $807 billion to $653 billion, respectively.”

Importantly, the cuts proposed under CPI-X are not across-the-board. Instead, they are tactical and policy-based. For example, “in terms of relative ratios (%) to the total of 100 percent, welfare and defense increase from 37 percent to 44 percent and 10 percent to 18 percent, respectively, while health decreases from 25 percent to 18 percent.”

If CPI-X were implemented in full, the benefits would be substantial. For starters, the net savings of $75 trillion over the next 12 years, beginning in 2025 and concluding in 2038, could pay down the entire national debt while also providing approximately $19,000 in annual relief to taxpayers. This enormous reduction in federal spending would also significantly decrease the footprint of the federal government throughout the economic realm, thereby reducing burdensome regulations that inhibit economic growth. What’s more, with a smaller public sector siphoning fewer resources from the private sector, innovation, entrepreneurship, and American ingenuity would be unleashed, likely heralding a slew of novel economic opportunities and a host of new jobs.

The common-sense cuts laid out in CPI-X would also improve national security because the power and prowess of the U.S. military is directly related to the fiscal health of the nation. It is much easier for the United States to shape world events so that they align with our interests, and the interests of our allies, when the country is on sound fiscal footing.

As of this writing, Congress is caught up in yet another short-term budget battle, quibbling over a $1.7 trillion continuing resolution that will only kick the can a little further down the road. After an initial agreement with Senate Majority Leader Chuck Schumer (D-NY), which seems to have since been taken off the table, Speaker of the House Mike Johnson (R-LA) celebrated that the proposal included $16 billion in non-discretionary spending cuts.

Although a $16 billion cut to non-discretionary spending is a good start, it leaves much to be desired. At this point, with a $34 trillion national debt and trillion-dollar deficits for years to come, much more is needed. What we need is a comprehensive plan to put our nation’s fiscal house back in order. We need an overhaul, not tinkering at the margins. CPI-X can deliver that much-needed and long-overdue overhaul to the federal budget. But time is of the essence, for the longer we wait to implement these spending cuts, the worse it will get.

Chris Talgo ([email protected]) is editorial director at The Heartland Institute.

Image: Wikideas1