A Comprehensive Federal Budget Plan to Avert a Debt Crisis
A Bipartisan, 30-Year Proposal
Executive Summary
Annual budget deficits doubled to $2 trillion over 2022–23 and are headed toward $3 trillion a decade from now. Social Security and Medicare face a combined $124 trillion cash deficit over the next 30 years. The national debt is projected to soar past 165% of gross domestic product (GDP) within three decades—or as high as 300% of GDP if interest rates remain elevated and Congress extends expiring policies. At that point, interest costs could consume half to three-quarters of all federal tax revenues. Unless reforms are enacted, Washington’s escalating borrowing demands will come to overwhelm the capacity of financial markets to supply this much lending at plausible interest rates. When that event occurs, or even approaches, interest rates will soar and the federal government will not be able to pay its bills, with dire consequences for the U.S. economy.
In short, Washington is on a totally unsustainable fiscal path, and a debt crisis is coming.
There is a way to avert this debt crisis. However, lawmakers must act quickly to reform Social Security and Medicare, as every year 4 million more baby boomers retire into those programs, and the eventual cost of reform rises by trillions of dollars. This report presents a realistic, nonpartisan, and specific 30-year blueprint—each element of which is “scored” using data from the Congressional Budget Office (CBO)—to stabilize the national debt at the current 100% of GDP, and even reduce it eventually.
The fiscal consolidation in this report calls for trimming some Social Security and Medicare benefits for upper-income recipients. Some taxes would rise. Spending on defense would continue to fall as a share of the economy. In short, there is something in this blueprint for everyone to oppose. But letting the country plunge into a debt crisis would be far more painful than this blueprint’s reforms.
Introduction
Annual budget deficits doubled to $2 trillion over 2022–23 and are headed toward $3 trillion a decade from now (Figure 1).[1] Social Security and Medicare face a combined $124 trillion cash deficit over the next 30 years. The Congressional Budget Office (CBO) projects that the national debt will soar past 165% of gross domestic product (GDP) within three decades—or as high as 300% of GDP if interest rates remain elevated and Congress extends expiring policies.[2] At that point, interest costs could consume half to three-quarters of all federal tax revenues. Unless reforms are enacted, Washington’s escalating borrowing demands will, at some point, overwhelm the capacity of financial markets to supply this much lending at plausible interest rates. When that event occurs, or even approaches, interest rates will soar and the federal government will not be able to pay its bills, with dire consequences for the U.S. economy.
In short, Washington is on a totally unsustainable fiscal path that virtually ensures some version of a debt crisis. Yet most lawmakers tasked with the responsibility of averting that outcome express little interest in doing so. No recent president has presented a specific plan to stabilize the long-term budget, and Presidents Trump and Biden each added trillions in new debt. Congress continues to drive up federal spending, and is soon likely to renew trillions of dollars in expiring tax cuts. President Biden and Republican lawmakers compete to see who can most vociferously oppose any reforms to Social Security and Medicare’s massive shortfalls, as well as any new taxes for all but the top-earning 5% of earners. Deficits rise by $1 trillion annually while proposals to trim even a few billion dollars are met with overwhelming resistance. Surveys show that voters continue to demand even more tax cuts and spending hikes.[3]
Thus, American presidents, lawmakers, and even voters are in deep denial of the fiscal reckoning that is ahead. Interest rates are already rising, and politicians have made popular long-term spending commitments that vastly exceed what they are willing to tax and what the financial markets will be able to lend. The only decision is whether Washington gradually imposes savings proposals on its own terms, or whether it waits for a debt crisis to impose much more drastic and painful savings reforms.
There is a way to avert this debt crisis without historic broad-based tax increases or significant cuts to antipoverty and social spending. However, lawmakers must act quickly to reform Social Security and Medicare, as every year 4 million more baby boomers retire into those programs and the eventual cost of reform rises by trillions of dollars.
This report presents a specific 30-year blueprint—each element of which is “scored” against the most recent CBO Long-Term Budget Outlook—to stabilize the national debt at the current 100% of GDP. Section I identifies the drivers of long-term debt. Section II addresses false “easy” solutions deployed to avoid real reform. Section III presents the blueprint. Section IV defends the blueprint against both conservative and liberal objections.
The approach of this report requires a careful explanation. Yes, the current political environment renders virtually every significant deficit reduction proposal fatally unpopular and unpassable (otherwise, they would already have been enacted). However, at some point down the road—whether due to a courageous Congress, a voter uprising, or (most likely) fiscal constraints imposed by financial markets and a weak economy—Congress and the White House will likely be forced to confront deficits and placed previously rejected savings options back onto the table. When Congress finally commits to stabilizing the debt, this report will provide a specific, scored, and potentially bipartisan proposal to achieve that goal.
In other words, this report does not propose yet another hyper-partisan conservative or liberal fantasy scenario. It does not necessarily even feature reforms that the author would select if political compromise were unnecessary. Nor is it just a set of generic (and unrealistic) long-term spending and tax targets without detailing specific programmatic reforms that could meet those targets. This report is intended to provide a specific, well-crafted blueprint that could realistically appeal to both parties if they ever commit themselves to stabilizing the debt.
The fiscal consolidation in this report calls for some Social Security and Medicare benefits for upper-income recipients to be trimmed. Some taxes would rise. Spending on defense would continue to fall as a share of the economy. In short, there is something in this blueprint for everyone to oppose. But letting the country plunge into a debt crisis would be far more painful than this blueprint’s reforms.