Thoughtful Deficit Reduction in the President’s Budget

While much of the decline in debt as a share of GDP in the President’s Fiscal Year (FY) 2021 budget comes from rosy economic growth assumptions and unspecified savings, the budget also includes a number of thoughtful deficit reduction policies.

Not only does the budget save Medicare $600 billion while reducing out-of-pocket health care costs, it also proposes a number of other policies with broad support among experts, and even politicians, from across the political spectrum – many of which have appeared in both President Trump's previous budgets and President Obama’s budgets.

In total, we identified roughly $1.3 trillion of deficit reduction that has the potential for bipartisan support. Congress should seriously consider these proposals when crafting its own budget resolution, identifying budget offsets, or enacting much-needed deficit reduction.

Roughly half of the savings we identify would come from health care, and most of that is the $600 billion of Medicare savings we’ve written about before.

The larger health care savings include Medicare payment reforms such as reducing excessive post-acute care payments, equalizing payments for similar health services offered at different health settings, reducing reimbursements for bad debts, and reforming spending on graduate medical education and uncompensated care. The budget also includes a placeholder for drug pricing reform based on the bipartisan Senate Finance Committee bill, medical malpractice reform, and policies to reduce fraud and overpayments in Medicare and Medicaid.

Most of these proposals have the support of health experts on the left and right, and many of them were proposed in some form in President Obama’s budgets and are currently being advocated for by Democrats on the 2020 campaign trail. As we explained recently, the Medicare changes would actually reduce health care premiums and out-of-pocket costs, not reduce benefits.

*Builds on an Obama policy.

^†Similar or identical to an Obama policy.

Outside of health care, there are many other savings worthy of consideration. Again, many were proposed in some form in President Obama’s budgets.

For example, the President’s budget would raise more tax revenue by improving enforcement of current tax laws, especially by increasing funding to the IRS. These proposals mirror Obama-era ideas and are widely supported among tax experts.

The President’s budget also reforms the student loan subsidy by creating a single income-driven repayment (IDR) repayment plan in place of the standard repayment cap, differentiating graduate and undergraduate students, eliminating the in-school interest subsidy, and closing a loophole that allows married persons filing separately to report one income when repaying income-based and some pay-as-you-earn loans. Though these proposals are much more aggressive than prior ones, they build upon reforms President Obama proposed in his FY 2015 budget request.

The Budget would also reform federal retirement benefits — including by adjusting the COLA, using more years to calculate benefits, increasing worker contributions, and reducing excessive subsidies to the "G-Fund" interest rate. Again, some of these policies are more aggressive versions of Obama-era proposals and many were recommended by the Simpson-Bowles Fiscal Commission or other bipartisan efforts.

The budget also proposes numerous reforms to the Social Security Disability Insurance (SSDI) program. This includes common-sense program integrity savings such as disallowing concurrent receipt of Unemployment Insurance (UI) and SSDI, eliminating the Workers' Compensation reverse offset, and improving payment accuracy. It also calls for renewed demonstration authority for the Social Security Administration to test new approaches to support employment for people with disabilities as well as help youth receiving Supplemental Security Income (SSI) transition to employment at adulthood — including many put forward as part of our SSDI Solutions Initiative. While the budget assumes unrealistic savings from these proposals (we do not count those savings below), the ideas to modernize disability programs and help people with disabilities remain in the workforce are worthy of consideration, nonetheless.

The budget also includes numerous additional bipartisan savings — including from reducing overly generous and duplicative farm subsidies, postal service reform, to those more in line with the private sector, increasing various premiums and user fees, and cutting down on waste, fraud, and abuse.

*A version of this policy was proposed by President Obama.

While many parts of the President's budget are understandably controversial and partisan in nature, blind opposition to the entire budget is unwise and unproductive. The budget includes many sensible proposals that have the potential for bipartisan support and could help reduce deficits and improve policy at the same time. With deficits at $1 trillion and the national debt projected to rise to over 98 percent of the economy by 2030, lawmakers should seriously consider these reforms and work together to put many of them into law.