Much of the current talk in Washington concerns President-elect Donald Trump’s plans for new spending. Even with the new Administration’s plans to stimulate the economy, deficit reduction will be a major consideration for the new Congress.
In anticipation of the coming Congressional debates about deficits, the Congressional Budget Office (CBO) has published its list of 115 options that would decrease federal spending or increase federal revenues between 2017 and 2026 and scored the anticipated savings for each option.
Not all deficit reduction plans offer equal levels of savings, and while targeting federal employees and retirees might be politically popular, when you look at the numbers, the savings are less than substantial.
While the list is quite varied, here are the CBO’s proposals that promise some of the largest net deficit reductions, mostly by increasing taxes (in billions):
- Impose a 5 Percent Value-Added Tax $1,770 to $2,670
- Limit the Value of Itemized Deductions $119 to $2,232
- Increase the Maximum Taxable Earnings for the Social Security Payroll Tax $633 to $1,008
- Impose a Tax on Emissions of Greenhouse Gases $977
- Increase the Payroll Tax Rate for Medicare Hospital Insurance by 1 Percentage Point $823
- Increase Individual Income Tax Rates $93 to $734
If politicians want to accomplish deficit reductions without imposing tax increases, the largest spending deductions include (in billions):
- Repeal All Insurance Coverage Provisions of the Affordable Care Act $1,236
- Impose Caps on Federal Spending for Medicaid $370 to $680
- Convert Multiple Assistance Programs for Lower-Income People Into Smaller Block Grants to States $367
- Reduce the Size of the Military to Satisfy Caps Under the Budget Control Act $251
In contrast, the CBO proposals that target federal civilian workers are quite modest in their potential to reduce the deficit (in billions):
- Use an Alternative Measure of Inflation to Index Social Security and Other Mandatory Programs $182
- Reduce the Annual Across-the-Board Adjustment for Federal Civilian Employees’ Pay $55
- Reduce the Size of the Federal Workforce Through Attrition $50
- Increase Federal Civilian Employees’ Contributions to the Federal Employees Retirement System $48
- Adopt a Voucher Plan and Slow the Growth of Federal Contributions for the Federal Employees Health Benefits Program $31
- Reduce Pensions in the Federal Employees Retirement System $7
Three health-related options listed by CBO would affect the general population as well as federal employees and retirees (in billions):
- Increase the Payroll Tax Rate for Medicare Hospital Insurance (Medicare Part A) by 1 Percentage Point $823
- Increase Premiums for Parts B and D of Medicare $22 to $331
- Raise the Age of Eligibility for Medicare to 67 $18
Of course, it will be up to the incoming Administration and Congress to choose which proposals to pursue, if any, of the 115 on this list.
Those items that offer the most savings might also engender the most opposition, and it will be a matter of political will for Congress and the new Administration to choose which deficit-reducing options to pursue.