$700 Billion of Easy Deficit Reduction

With the national debt approaching record levels and interest costs exploding, lawmakers will need to consider substantial spending cuts and revenue increases to put the national debt on a more sustainable path. Policymakers will also likely want to enact new priorities, which they should pay for. Many of these policies require tough trade-offs and choices – and next year, we will release a new Budget Offsets Bank itemizing these policies.

But not all deficit reduction needs to be contentious. Some of these policies already enjoy broad bipartisan support, or at least should. Below, we outline roughly $700 billion of potential 10-year savings.

$700 Billion of Potential Deficit Reduction Options

All numbers rounded to the nearest $5 billion. Most estimates are based on Congressional Budget Office (CBO) scores and figures.
+We are unaware of any estimate of this policy. $50 billion represents a rough guess.
*Versions of this policy appeared in budgets proposed by Presidents Trump and Biden
^Versions of this policy appeared in budgets proposed by Presidents Trump and Obama
 

Lawmakers could start by taking action to restrict the President from unilaterally spending taxpayer dollars. The Constitution grants Congress the power of the purse, not the executive branch, yet the past two Presidents have increased spending on student loans, farm subsidies, and SNAP (“food stamps”) in ways that appear well in excess of legislative intent. Requiring that future actions in these areas be budget neutral would save $80 billion relative to the Congressional Budget Office (CBO) baseline and has the potential to save much more, depending on actual presidential actions.

There are also a number of health care changes with the potential for broad bipartisan support. Closing the site-neutral loophole, which allows off-campus hospital outpatient departments that opened before 2015 to charge Medicare more than freestanding physician offices for the same service, would save roughly $40 billion. Applying site-neutral rates to imaging and drug administration services could save a further $15 billion. Other reforms, such as banning spread pricing by pharmacy benefit managers, ending facility fees for telehealth and certain other outpatient services, and reforming Medicaid’s managed care benefits, combined could save another $15 billion. These policies generally enjoy bipartisan support.

Additional spending cuts could come from extending current policies and closing loopholes. Extending the sequester on mandatory spending, which began in 2013 and will currently expire in 2031, through 2035 would save $85 billion. Equalizing retirement contributions for newer and older federal workers, closing the ‘married-filing-separate’ student debt forgiveness loophole, and permanently increasing the maximum age for SNAP work requirements would save another $50 billion.

There are also several user fees and asset sales with a history of bipartisan support. The FCC’s spectrum auction authority expired in 2023, and reviving it could generate an estimated $70 billion from further spectrum sales through 2035. Meanwhile, various existing user fees, including mandatory TSA fees on plane tickets, customs fees for vehicles crossing the border, and guarantee fees for Fannie Mae’s and Freddie Mac’s loans, are set to expire in the coming years and will require Congress to extend them. Extending these fees would generate $45 billion through 2035.

On the revenue side, improving tax compliance allows policymakers to raise revenue without raising taxes. Every President from Reagan to Biden – including President Trump – has proposed increasing funding to the IRS and enacting other measures to reduce the “tax gap,” or the difference between taxes owed and taxes actually collected. Simply extending the IRS’s mandatory funding — which is projected to run out before 2030, would raise $130 billion through 2035. About $80 billion in additional savings could come from bipartisan legislation to end payments for the Employee Retention Credit (ERC), which have come in well above budget, in large part because of fraudulent claims - claims that were made long after the Covid-19 pandemic. The Obama, Trump, and Biden Administrations have put forward additional measures to improve tax compliance, such as allowing the IRS to fix corrective errors and increasing certain penalties for tax fraud.

Finally, policymakers could close various tax loopholes — for example, for leased electric vehicles, digital assets like cryptocurrency, import tariffs, and carried interest. Closing these loopholes would remove subsidies that Congress did not intend to create while raising over $100 billion in total.

To be sure, some of these policies may be unpopular with certain constituencies and interest groups. And even enacting all of them would only get a fraction of the way toward fixing the debt. But these and similar policies are an obvious place to start. Enacting this $700 billion of deficit reduction would be an important first step in the right direction.

Note: This blog has been updated on 12/10/2024 to reflect that the closure of the ‘De Minimis’ loophole for certain goods would apply to all countries.