CBO Releases 2022 Budget Options Report
The Congressional Budget Office (CBO) released its Options for Reducing the Deficit: 2023 to 2032 report this week, outlining 76 policy options and their impact on the federal budget over ten years. The report is split into two volumes: Volume I: Larger Reductions includes 17 policy options that would save more than $300 billion over ten years and Volume II: Smaller Reductions features 59 options that would generate smaller savings. The report updates CBO's last set of budget options, released in December 2020, and includes a detailed description of each option, their ten-year savings, as well as information on the distributional and economic effects of each policy.
Many of the options in CBO's report are updated versions of long-standing policy solutions in important areas such as Social Security and health care, but CBO does include several new policy options, particularly for a new payroll tax on earnings and a consumption tax. The following tables highlight several options in each major budgetary category to show that there are many options for policymakers to consider, especially to offset new spending or tax cuts.
Larger Policy Options
| Policy Option | 2023-2032 Savings |
|---|---|
| Health Care | |
| Limit tax exclusion for contributions to health insurance premiums and HSAs to 50th percentile | $893 billion |
| Cap federal Medicaid spending growth at inflation | $836 billion |
| Remove Medicaid FMAP floor | $667 billion |
| End use of Medicaid provider taxes to inflate costs | $526 billion |
| Increase Medicare Part B premiums from 25 to 35 percent | $406 billion |
| Reduce Medicare Advantage benchmarks by 10 percent starting in 2025 | $392 billion |
| Social Security | |
| Set Social Security benefits to 125 percent of the Federal Poverty Line | $593 billion |
| Reform Social Security benefits by creating new bend point at 50th percentile of earners and reduce PIA factors over 5 years | $184 billion |
| Other Mandatory | |
| Reduce spending on income security programs, including for SNAP and SSI | $327 billion |
| Means-test VA disability compensation for veterans with high incomes | $253 billion |
| Discretionary | |
| Reduce Department of Defense budget | $995 billion |
| Reduce nondefense discretionary spending | $332 billion |
| Revenue | |
| Increase all individual income tax rates by 1 percentage point | $1,081 billion |
| Increase top four individual income tax rates by 2 percentage points | $502 billion |
| Impose 5 percent broad-base VAT | $3,050 billion |
| Eliminate itemized deductions | $2,507 billion |
| Impose 1 percent surtax on AGI above Standard Deduction and exemption | $1,329 billion |
| Increase taxable maximum for 12.4 percent Social Security payroll to earnings greater than $250,000 | $1,204 billion |
| Eliminate SALT deduction | $1,143 billion |
| Impose new 1 percent payroll tax on earnings | $1,136 billion |
| Impose $25 per metric ton carbon tax and increase tax 5 percent annually, adjusted for inflation | $865 billion |
Source: Congressional Budget Office
Smaller Policy Options
| Policy Option | 2023-2032 Savings |
|---|---|
| Health Care | |
| Change cost-sharing rules for Medicare and restrict Medigap insurance | $122 billion |
| Reduce Medicare's coverage of bad debt | $74 billion |
| Consolidate and federal payments for Graduate Medical Education into grant program for teaching hospitals, with funding growth indexed to inflation | $68 billion |
| Social Security | |
| Increase full retirement age for Social Security to age 70 for workers born in 1978 or later | $121 billion |
| Require SSDI applicants to have worked more in recent years | $58 billion |
| Other Mandatory | |
| Narrow eligibility for VA disability compensation by requiring disability ratings of 30 percent of higher for all veterans | $48 billion |
| Discretionary | |
| Reduce international affairs program funding | $148 billion |
| Reduce funding for certain state and local government grants | $66 billion |
| Defer development of B-21 bomber | $34 billion |
| Reduce size of the bomber force by retiring the F-22 | $27 billion |
| Tighten Pell Grant eligibility to students from families with incomes below 250 percent of the Federal Poverty Line | $20 billion |
| Revenue | |
| Limit tax deduction for charitable contributions to cash contributions | $257 billion |
| Expand NIIT base to include S corporations and limited partnerships | $249 billion |
| Eliminate "stepped-up" basis for capital gains after inheritance | $156 billion |
| Raise tax rates on capital gains and dividends by 2 percentage points | $102 billion |
| Tax carried interest as ordinary income | $12 billion |
| Limit investment income limit for the EITC and extend that limit to the refundable portion of the CTC | $12 billion |
| Increase corporate income tax rate to 22 percent | $129 billion |
| Require half of advertising expenses to be amortized over 10 years | $154 billion |
| Raise the gas tax by 15 cents per gallon and index to inflation | $240 billion |
| Other | |
| Use Chained CPI to index Social Security and other mandatory program benefits | $257 billion |
Source: Congressional Budget Office
In conjunction with the report, CBO updated its interactive tool that features the policy options contained in the 2022 report as well as other policy options CBO has analyzed the budgetary effects of. The tool allows users to search by budget area, topic, or the date the policy option was produced.
With debt a near-record levels and projected to grow substantially over the long term, deficit reduction is needed to get our fiscal house in order. CBO's latest budget options report outlines numerous options for policymakers to choose from to put debt on a downward path. The report itself also contains an abundance of other useful information and is a must-read for policymakers and those interested in the federal budget.
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