The nonpartisan Congressional Budget Office (CBO) released a report last week detailing a range of options for reducing the federal budget deficit in the decades ahead.
"The options come from a variety of sources, including legislative proposals, budget proposals from various Administrations, Congressional staff, federal agencies, and private groups," explained CBO Director Phillip Swagel. "The options are intended to reflect a range of possibilities rather than to rank priorities or present a comprehensive list. The inclusion or exclusion of a particular option does not represent an endorsement or a rejection by CBO."
Earlier this year, the CBO projected that federal budget deficits are expected to average $1.9 trillion, or about 5.4% of gross domestic product (GDP), over the next 10 years, well above the 50-year average of 3.7%. That's expected to push the federal debt held by the public – a measure used by economists to compare government debt to the size of the economy – from roughly 99% this year to 122% in 2034 and 166% of GDP in 2054.
The CBO's deficit reduction options report includes reforms to both mandatory spending on programs like Social Security and Medicare, as well as discretionary spending and also changes to tax policy that would bring in more tax revenue. The report outlines 76 options which range in financial impact from a few billion dollars to upwards of $1 trillion over the next decade.
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Here's a look at some of the notable deficit reduction options from the report, including changes to mandatory and discretionary spending programs as well as tax policies that are designed to bring in more revenue.
Establishing a uniform Social Security benefit to 150% of the federal poverty guidelines would reduce spending by $283 billion over 2025-2034, while setting the benefit to 125% of the poverty guidelines would reduce spending by $607 billion in that period.
Modifying payments to Medicare Advantage plans for health risk could save up to $1.049 trillion from 2025-2034 if the 20% across-the-board payment reductions are implemented. A smaller 8% reduction would lead to savings of $159 billion over that period.
The CBO also analyzed savings from capping federal spending on Medicaid, a health care program for low-income Americans that is jointly funded by states and the federal government. Implementing an overall spending cap for each state would cut the deficit by $742 billion over 2025-2034, while a per enrollee cap would reduce deficits by $893 billion over that period.
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Reducing the Department of Defense's annual budget authority by about $1 trillion over the next decade in 2025 dollar terms would translate to spending cuts amounting to $959 billion in spending cuts from 2025-2034.
The CBO analysis notes that accomplished in many ways, including reducing the number of active-duty military personnel by about 17% from 2025 to 2034, or reducing ground combat and air combat units, or de-emphasizing the use of U.S. combat forces and instead relying on allies to provide more of their own defense.
CBO also analyzed reducing the non-defense discretionary budget. The analysis looked at reducing funding for two of the largest areas in the non-defense discretionary budget – grants to state and local governments for transportation programs and education programs – by one-third.
For transportation, highway and transit grants would be most affected, while education would impact funding for children from low-income households and those with disabilities. Cutting funding by one-third for those categories would reduce spending by $339 billion over the 2025-2034 period.
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Increasing all tax rates on ordinary income by one percentage point would bring in $1.185 trillion in revenue to reduce the deficit over the 2025-2034 period. Another alternative under which income tax rates by two percentage points in only the four highest tax brackets would net $569 billion in deficit reduction over that period.
Eliminating deductions for state and local taxes (SALT) would reduce deficits by $1.621 trillion from 2025-2034, while eliminating all itemized deductions would bring in $3.423 trillion in tax revenue for that period.
Imposing a new payroll tax of 1% on earnings would bring in $1.281 trillion in revenue over 2025-2034 to reduce the deficit, while a 2% payroll tax would bring in $2.54 trillion in that period.
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Implementing a federal consumption tax in the form of a value-added tax (VAT) could bring in trillions of dollars in tax revenue depending on how it's structured, CBO found. A 5% VAT applied to a broad base including most goods and services would bring in $3.38 trillion from 2025-2034. If a 5% VAT was applied more narrowly to exclude certain goods and services needed for subsistence – like new residential housing, food bought for consumption, health care and postsecondary education – that amount would be $2.18 trillion over that time.
Imposing a surtax on taxpayers' adjusted gross income (AGI) at various levels was also analyzed. A 1% surtax on AGI over $20,000 for single filers and $40,000 for joint filers would bring in $1.44 trillion in tax revenue over 2025-2034, while a 2% surtax on AGI over $100,000 for single filers and $200,000 for joint filers would bring in $1.051 trillion in that span.
source https://www.foxbusiness.com/politics/federal-deficit-keeps-growing-congressional-budget-office-has-solutions
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