Seven Ideas to Help the Administration Achieve Fiscal Consolidation

Treasury Secretary Scott Bessent last week said the Trump Administration will announce an “increased focus on fiscal consolidation,” including a slate of revenue and spending options. A fiscal course correction is very much needed and long overdue. Gross debt has topped $40 trillion; debt held by the public is equal to the size of the entire U.S. economy; the federal budget deficit, at 6% of GDP, is on pace to surpass $2 trillion this year; 30-year Treasuries hit 5.2% this month, the highest since 2001; and the U.S. is on the precipice of a debt spiral.

Unfortunately, this Administration has thus far made the situation worse, not better, by approving over $3 trillion in new ten-year debt. The net $4.2 trillion debt increase from the One Big Beautiful Bill Act (OBBBA) will only be partially offset by less than $2 trillion in expected tariff revenue, with other policy changes modestly increasing the debt further. Economic growth, which has remained around its 2% trend, has not done much to improve the fiscal outlook.

The following is a statement from Maya MacGuineas, president of the Committee for a Responsible Federal Budget:  

We welcome the pivot to fiscal consolidation, particularly after a period of ongoing debt expansion. But these will need to be significant and serious policies to have any meaningful effect. Reducing deficits to 3% of GDP will require roughly $10 trillion in savings over the next decade. Policymakers could enact this all at once through a major debt deal, or they could consider a more incremental approach – by enacting, for example, $1 trillion of ten-year deficit reduction per year until deficits are reduced sufficiently.

Here are seven places policymakers can start to look for savings:

1. A Plan to Save Social Security. Social Security is only six years from becoming insolvent at which point the law calls for 22% automatic cuts, but the budget baseline assumes the government will engage in $190 trillion of borrowing to fund benefits over the next 75 years. Thoughtful solvency solutions on the revenue and benefit side could close half or more of the nation’s long-term fiscal gap and generate at least $3 trillion of unified deficit reduction in the first decade.  

2. Bipartisan Health Care Savings. Reducing health care costs can save money for the federal government and beneficiaries alike and has a long history of bipartisan support. Lawmakers could begin by adopting site-neutral payments in Medicare, reducing Medicare Advantage overpayments, requiring greater price transparency, and funding the Affordable Care Act cost-sharing reductions. Depending on the details, these and other reforms could save $1 trillion or more over a decade.

3. Discretionary Spending Caps. Discretionary spending caps helped support fiscal discipline in the 1990s, 2010s, and early 2020s but expired after last year. Reimposing these caps could generate hundreds of billions or perhaps over $1 trillion in savings and prevent unfettered discretionary spending growth.

4. Reduce waste, fraud, errors, and abuse. The federal government loses hundreds of billions of dollars a year to improper payments and the tax gap as well as wasteful and abusive practices in the budget and tax code. Policymakers should aggressively work to reduce waste, fraud, errors, and abuse in the budget and tax code, including by funding anti-fraud and tax compliance efforts. Program integrity funding alone could generate upwards of $400 billion over a decade, with other efforts generating hundreds of billions more.  

5. Impose a Tax Expenditure Limit. The federal government forgoes upwards of $2.3 trillion of revenue every year through tax expenditures. To help address this, policymakers should consider an across-the-board limit on tax expenditures – which could include by tightening and broadening the 35% limit on the value of itemized deductions enacted under OBBBA. Limiting the value of most deductions and exclusion to 24% could save roughly $500 billion over a decade.

6. Enact a Deficit Reduction Surtax. In light of the extremely high current deficit levels, lawmakers could impose a broad-based surtax on individual and corporate income. The revenue would be dedicated specifically for deficit reduction, and the surtax could be automatically phased down as deficits decline. We’ve previously discussed deficit reduction surtaxes that could generate anywhere from $1 trillion to $2.5 trillion over a decade.

7. Appoint a Bipartisan Fiscal Commission. Identifying $10 trillion of savings will require tough choices on both the tax and spending side of the ledger. A bipartisan fiscal commission – such as the one that would be appointed under the Fiscal Commission Act, Budgeting for a Better America Act, or Sustainable Budget Act –  could help to facilitate that agreement and pave the path to a comprehensive fiscal consolidation plan that reduces deficits, stabilizes the debt, grows the economy, and better prioritizes our budget and tax code.

These are just some of the many possible options for fixing the budget. The first step is to add no new debt by avoiding any new spending or tax cuts without at least offsetting them twice over. Beyond that, lawmakers need to work together – and rapidly – to bring deficits and debt back under control.  

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For more information, please contact Matt Klucher, Assistant Director for Media Relations, at klucher@crfb.org.