Paying for Emergency Funding
As Congress considers $14 billion of emergency funding to aid Israel and potentially tens of billions more in other one-time foreign and domestic supplemental funding packages, lawmakers should work to offset the costs. The key purpose of offsets is to prevent legislation from adding to the debt. The proposed rescission of IRS funding to pay for aid to Israel is not an effective offset, as it would reduce revenue collections and thus lead to $27 billion of total borrowing, rather than $14 billion.
Below we suggest a number of possible payfors for a hypothetical $100 billion emergency spending package over four years (the time in which almost all of the emergency spending would be spent out).
Possible offsets of roughly $100 billion over four years include:1
- Rescind President Biden's unilateral Income-Driven Repayment program expansion.
- End the individual and business state and local tax (SALT) deduction through the end of 2025.
- Phase out Medicare Advantage overpayments due to coding intensity and phase in budget neutral quality bonuses.
- Reform Medicare provider payments to address site-of-service disparities and reduce excess post-acute care payments, and end reimbursements for bad debts.
- Impose a temporary 2.5 percent corporate surtax.
- Impose a temporary 0.25 percent "offset surtax" on top of current income tax rates.
- Establish a temporary $10 per barrel oil surtax.
- Reduce the 2024 update by 1 percent for all inflation-indexed federal government programs and provisions.
- Reduce the Fiscal Responsibility Act-enacted Fiscal Year (FY) 2024 and FY 2024 discretionary spending caps by 3 percent.
- Impose a 0.5 percent across-the-board spending cut on nearly all mandatory and discretionary spending programs.
Most of these offsets could be adjusted upward or downward depending on the size of the emergency package and the timeframe of the offsets. Lawmakers could also consider multiple smaller options as payfors.
1Note that the estimates for the policies presented in this analysis are rough and are unlikely to produce exactly $100 billion of savings over four years in most cases. Actual savings from these policies may be modestly higher or lower than $100 billion.