House Freedom Caucus Proposes up to $3.7 Trillion in Savings for Debt Ceiling Vote

The House Freedom Caucus released today a proposal for the upcoming debt ceiling negotiations. Its members call for repealing the announced student debt cancellation currently being challenged in the courts, rescinding unspent COVID funding, rescinding Internal Revenue Service (IRS) funding from the Inflation Reduction Act (IRA), repealing climate-related spending from the IRA, setting Fiscal Year (FY) 2024 appropriations to the FY 2022 enacted level, and capping future discretionary spending growth at 1 percent annually for a decade.

We estimate these proposals would save $2.9 to $3.7 trillion over a decade, including $275 to $775 billion over the next two and a half years, depending on the exact details. Although details of the savings differ tremendously, these savings levels are in line with the President's FY 2024 budget proposal, which aims to save $3 trillion over a decade and $400 billion in its first two and a half years. 

The majority of savings from the proposals are on the discretionary side. We estimate setting discretionary levels at FY 2022 levels – before the recent 9 percent increase – would save about $2.1 trillion over a decade. In combination with a 1 percent annual limit on future spending growth, savings would total $3 trillion – including $285 billion in the first two years.

Estimated Savings of the House Freedom Caucus Debt Ceiling Proposal

Sources: House Freedom Caucus, Congressional Budget Office, and Committee for a Responsible Federal Budget estimates. ^Policy will not generate any savings if the Supreme Court first rules debt cancellation to be illegal. *High end assumes rescissions, ending of the Public Health Emergency and student debt repayment pause, and anti-fraud efforts. 'High end assumes repeal of all Inflation Reduction Act climate spending and tax breaks. 

Three additional proposals could also save money, though how much depends on details. As we've shown before, the announced student debt cancellation plan would cost about $400 billion; savings from ending it would be similarly large unless the Supreme Court acts first to rule it illegal. Repealing climate-related funding from the IRA could save up to another $400 billion, though only if all spending and tax breaks in the bill were repealed. And some additional savings could be generated from ending COVID relief. The Government Accountably Office recently found about $90 billion of un-obligated COVID relief; in our assessment, rescinding all of this while ending ongoing COVID relief like the student debt pause is likely to save about $50 billion.

One policy on the list, rescinding IRS funding, which is being used to narrow the gap between taxes owed and taxes collected, would actually worsen the deficit – to the tune of $120 billion over the next decade.

Overall, we find these policies would save $2.9 to $3.7 trillion over a decade, including $275 to $775 billion through 2025 – when deficit reduction can do the most to help the Federal Reserve fight inflation and stabilize the economy.

As policymakers consider fiscal reforms over the coming months, this proposal now marks the second – along with the President's FY 2024 budget – to choose from, and both offer ideas for reducing deficits by at least $3 trillion over the next decade. Given the significant challenges we face as debt is projected to exceed record levels in the near future, policymakers should continue to offer proposals for how to improve our fiscal situation.