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Daily Missive

Fiscal Outlook 76 Options for Reducing the Deficit

Loading ...Addison Wiggin

January 15, 2025 • 3 minute, 57 second read


debtspending

Fiscal Outlook 76 Options for Reducing the Deficit

From the Peter G. Peterson Foundation:

 

Debt in the United States is already the size of our entire economy and is projected to grow much higher. Fortunately, there are many ways to stabilize our fiscal outlook. Recently, the nonpartisan Congressional Budget Office (CBO) released 76 policy options — spanning both revenues and spending — that could help bring the country’s rising debt under control. Below are some of the policy options that would have the largest effects.

Options for Raising Federal Revenues

CBO presents 32 options that would affect revenues. Some provisions are likely to be part of the debate in 2025 as legislators revisit expiring provisions of the Tax Cuts and Jobs Act; others would modify unrelated provisions or create new types of taxes.

Eliminate or Limit Itemized Deductions: The largest option to reduce the deficit would be to eliminate all itemized deductions, which benefit taxpayers when the value of their deductions exceeds the amount of the standard deduction. That would reduce deficits by $3.4 trillion over the 10-year period from 2025 to 2034. Subsets of such reform include eliminating just the state and local tax deduction or limiting the tax benefit of itemized deductions to a certain percentage of their value.

Impose a 5 Percent Value-Added Tax: A value-added tax (VAT) is a consumption tax imposed on the incremental increase in the value of a good or service that occurs at each stage of a supply chain until the item is sold. Applying a 5 percent VAT would decrease the deficit by between $2.2 trillion and $3.4 trillion over 10 years, depending on the size of the base to which it is applied.

Impose a New Payroll Tax: The current payroll tax is levied on the earnings of people who work for an employer and on the net earnings of people who are self-employed and used to support programs such as Social Security and Medicare. CBO estimated the amount that could be raised by a new payroll tax that would be part of general revenues of either 1 percent ($1.3 trillion raised over the 2025-2034 period) or 2 percent ($2.5 trillion raised).

Impose a Surtax on Individuals’ Adjusted Gross Income: Most individual income is taxed on an amount that is reduced by certain deductions or exemptions. CBO estimated an option that would impose a surtax on a broader measure of income (adjusted gross income). Depending on the parameters of such a surtax (as defined in CBO’s option), it could garner between $1.1 trillion and $1.4 trillion in revenues over the 10-year period.

Options for Decreasing Mandatory Spending

CBO also presents 27 options that affect mandatory spending, which includes programs such as Social Security, Medicare, and Medicaid. As those three programs are the largest categories of mandatory spending in the U.S. budget, reforming them has the potential to create the most savings.

Modify Payments to Medicare Advantage Plans for Health Risk: Medicare Advantage plans cover more than half of all Medicare beneficiaries. CBO offers three options to save money in Medicare Advantage by reducing payments to the program across-the-board or by making changes to its risk-adjustment policy. Savings from those policy measures range from $124 billion to $1 trillion over 10 years.

Establish Caps on Federal Spending for Medicaid: Currently, the federal government provides the majority of Medicaid’s funding and that funding has no ceiling — larger federal payments are generated automatically if enrollment or cost per enrollee increases. CBO estimates that if caps were established for total funding provided for each state, the government could save $459 billion over the projection period; establishing caps for the cost per enrollee, as specified by CBO, could generate savings of $893 billion over 10 years.

Establish a Uniform Social Security Benefit: Social Security benefits are calculated based on an individual’s average lifetime earnings, so individuals with higher earnings receive more retirement benefits than beneficiaries with lower earnings. CBO estimates that providing every beneficiary the same amount — either 150 percent or 125 percent of the federal poverty level — could save $283 billion or $607 billion, respectively, over the 10-year period.

Options for Decreasing Discretionary Spending

CBO provides 17 options that would affect discretionary spending. As nearly half of all discretionary spending is for defense, the option reforming that budget category has the greatest potential for deficit reduction.

Reduce the Department of Defense’s Annual Budget: According to CBO, addressing the Department of Defense’s annual budget could save $959 billion over the next 10 years. Reducing the number of active-component military personnel, reducing ground combat and air combat units, or relying on allies to provide their own defenses rather than using a U.S. combat force are possible methods of achieving the reform.

Although the United States carries significant debt due to a structural mismatch between spending and revenues, the new Administration and Congress have many possible options to address that gap.

 

Image by: Tom Brenner/Getty Images

Source: Peter G. Peterson Foundation


The Challenge Ahead for Trump’s Crypto Task Force

June 27, 2025 • Ian King

Right now, the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are battling over whether certain cryptocurrencies should be classified as securities or commodities.

And there is ongoing debate over whether stablecoins should fall under banking regulations.

The task force needs to ensure that these issues are resolved.

It also needs to ensure that crypto businesses are regulated in a way that allows them to benefit from being decentralized, yet still offers their stakeholders some protections.

And with the IRS increasing scrutiny on crypto transactions, the task force should review tax policies, exemptions and reporting thresholds.

But these issues can be solved with some foresight.

With the proper regulations in place, crypto businesses like Maker and Aave have the potential to truly go mainstream.

And this will solidify Satoshi’s vision of decentralized financial system, built from the ground up. 

The Challenge Ahead for Trump’s Crypto Task Force
America’s Just 12.3% of the Problem

June 27, 2025 • Addison Wiggin

After a spike during the pandemic,  U.S. debt-to-GDP ratio is still over 120% – and climbing again.

Historically, no country that crossed the 130%  debt-to-GDP ratio has been able to survive long enough to “grow its way out” of a debt crisis.

Therein lies the tension. The Trump Reset formula requires an extension of his first-term tax cuts, low and fair tariffs… and low interest rates.

America’s Just 12.3% of the Problem
Wall Street’s Huffing On AI Fumes, Again

June 27, 2025 • Addison Wiggin

It’s fair to say, the market’s resilience isn’t coming from strength in the real economy—it’s running on the fumes of AI exuberance, deregulation promises, and the chance that the Trump administration might delay its July 9 tariff hammer.

Wall Street’s Huffing On AI Fumes, Again
Is Crypto Now a Matter of National Security?

June 26, 2025 • Ian King

The passage of the GENIUS Act is a step in the right direction. It brings much-needed clarity to stablecoins and shows that lawmakers are finally taking digital assets seriously.

But we need to go further.

If we want to control the rails of the coming financial era, then we have to view crypto as part of our national infrastructure.

The U.S. has an opportunity to lead in this space.

But only if we treat the digital realm like a new layer of national power. One that needs to be protected, regulated and defended when necessary.

Otherwise, we could end up on the wrong side of a technology we helped build.

And that would be a loss with consequences far beyond crypto.

Is Crypto Now a Matter of National Security?