CBO Releases Report on How to Reduce the Deficit
The Congressional Budget Office just released a report on the various way to either increase revenues or reduce spending. Will Congress be able to implement any of these proposals.
In all, they review 76 different options and show the savings over a 10-year period. Some of the savings are fairly minor (the smallest we saw was $6 billion over 10 years). However, some of the proposals would have a major reduction on the deficit (the largest was over $3.5 trillion over 10 years). Let’s dig into some of the key proposals.
On the mandatory spending side:
Putting a federal cap on Medicaid spending would save between $500-900 billion.
Limit state taxes on health care providers would save up to $600 billion.
Reduce the federal Medicaid matching rates would save up to $561 billion.
Increase the premiums paid for Medicare Part B could save $510 billion (I am actually in favor of this even though I start Medicare next month. Us seniors already get too good of a deal on our health insurance).
Reduce Medicare Advantage benchmarks would save up to $500 (perhaps we could get rid of those TV ads and save even more).
Change the Cost-Sharing rules for Medicare and restrict Medigap Insurance could save up to $129 billion.
Modify payments to Medicare Advantage Plans for Health Risk could save up to $1.049 trillion over ten years.
Reduce Social Security Benefits for High Earners could save almost $200 billion.
Establish a Uniform Social Security benefit could save $600 billion (and as it affects more and more people in 2034 and later the annual savings would top $200 billion).
Raising the full retirement age to 70 only saves about $95 billion, however, the annual savings easily tops $50 billion in 2035 and later.
Introduce means testing for VA benefits could save $384 billion.
Use alternative measure of inflation could save $278 billion.
On the discretionary spending side:
Reduce the Department of Defense’s annual budget could save $1.118 trillion over 10 years.
Reduce funding of International Affairs Programs by 25% could save $227 billion.
Reduce selected nondefense discretionary spending could save up to $405 billion.
Revenue Options:
Increase all tax brackets by 1% point would reduce the deficit by $1.185 trillion.
Raising the top four brackets by 2% points would reduce the deficit by $570 billion.
Imposing a 1% surtax on AGI above $20/40,000 would raise $1.440 trillion while a 2% surtax on AGI over $100/200,000 raises $1.051 trillion.
Increasing the capital gains tax rate by 2% points only raises $103 billion.
Eliminate Head of Household status raises $209 billion.
Eliminate itemized deductions completely raises $3.423 trillion.
Eliminating the SALT deduction raises $1.621 trillion.
Limiting itemized deductions to a 15% tax bracket raises $1.909 trillion.
Applying the 2% rule to charitable donations raises $347 billion.
Eliminating carryover basis raises $197 billion but the annual effect rises dramatically after the 2032.
Imposing capital gains at death raises $536 billion and the annual benefit starts to hit $100 billion in about 2040.
Imposing the 3.8% Net Investment Income Tax on S corporation and partnership income raises about $420 billion.
Included VA’s disability income as taxable raises $235 billion.
Making part of health insurance taxable to employees could raise almost $1 trillion over 10 years with annual savings approaching $200 billion in 2035.
Reducing the amount employees could put in 401(k) and related plans could raise about $187 billion.
Reducing educational credits, etc. could raise about $130 billion.
Impose a 1% payroll tax on employees could raise about $1.282 trillion, while a 2% payroll tax would raise about $2.540 trillion.
Making all earned income over $250,000 raises about $1.427 trillion over 10 years.
Increasing the corporate tax rate by 1% point raises $135 billion.
Taxing all foreign income of US corporations at the full tax rate raises $340 billion.
Requiring half of advertising expense to be amortized over 10 years raises $177 billion.
Increasing taxes on alcoholic beverages raises about $102 billion.
Increasing fuel taxes raises $212 billion.
Impose a 5% Value-Added Tax to a broad base raises $3.380 trillion.
Impose a tax on greenhouse emissions could raise up to $919 billion.
Imposing a tax on financial transactions could raise $297 billion.
All-in-all, this report serves as a guideline for Congress to determine how to pay for extending the Tax Cuts and Jobs Act (that’s assuming they even want to pay for it) and many of these proposals have some sound foundations to them but who knows if any of them will be enacted.
We will keep you posted.