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The Programs You’d Have to Cut to Balance the Budget

Several conservative lawmakers say House Speaker Kevin McCarthy has promised a House vote on a balanced federal budget. That’s a harder task than it sounds, given the size of the federal deficit.

More recently, Mr. McCarthy has said he doesn’t want to cut spending on defense, Medicare or Social Security — or raise taxes. Those constraints mean cuts to the rest of the budget would have to be brutal.

What You’d Have to Cut if You Take Options Off the Table

Three scenarios for balancing the budget in 10 years without raising taxes.

Chart showing that to balance the budget in 10 years without raising taxes, it would require a 27 percent cut to all spending. If defense cuts were off the table, cuts to the rest of the budget would increase to 31 percent. If defense, Medicare and Social Security were off the table, the rest of the budget — which includes Medicaid, Obamacare subsidies, mandatory spending for food assistance and other anti-poverty programs, and discretionary spending for things like veterans’ health and transportation — would need to be cut by 70 percent.
No defense, Medicare
or Social Security cuts
No defense cuts
Even cuts
Social Security
No change
Medicare
No change
Medicaid/CHIP/Obamacare
No change
Other mandatory spending
Food assistance, farm subsidies, military retirement and anti-poverty programs
No change
Defense
No change
All other spending
Veterans' health, transportation, education, law enforcement, research and foreign affairs
No change
Each box represents $50 billion in spending over 10 years.
Source: Committee for a Responsible Federal Budget Note: Interest payments on the federal debt are not shown. The New York Times

“It’s incredibly difficult to balance the budget within 10 years,” said Marc Goldwein, a senior policy director at the Committee for a Responsible Federal Budget, a group that backs deficit reduction. “It goes from being incredibly difficult to practically impossible if you start taking things off the table.”

The federal deficit is expected to be so large over the next decade that it would take about $16 trillion in spending reductions or new revenues to balance the budget by 2033. That’s about the size of the entire Social Security program. Or the entire Medicare program in addition to every anti-poverty program and refundable tax credit. Those outlandish examples come from a recent analysis from the committee.

Balancing the budget without tax increases, or cuts to the military, Medicare or Social Security, would mean cutting the rest of the budget by a whopping 70 percent. Cuts of that magnitude would mean the firings of most federal workers in agencies like the F.B.I., the Parks Service and the State Department, and huge reductions in food assistance and military retirement.

So what would it take to balance the federal budget in a decade?

The Republican Study Committee, a group that includes 173 of the 222 Republican House members, has offered a fairly detailed plan. Its budget includes deep cuts to Medicaid and to discretionary spending on things other than defense, the part of the budget that funds functions like environmental protection, public transportation, medical research and homeland security. But those changes alone don’t get the budget to balance. The committee also relies on significant reductions in Social Security and Medicare to erase the deficit.

The Republican Study Committee Plan

The plan would balance the budget in 10 years by slashing government health programs and other domestic spending.

Chart showing the percentage cut the committee would make to each area of government spending to balance the budget over 10 years. Social Security would be cut by 4 percent; Medicare by 24 percent; Medicaid and Obamacare by 49 percent; other mandatory spending by 60 percent; and nondefense spending by 49 percent. Defense spending would increase by one percent.
Social Security
No change
Medicare
No change
Medicaid/CHIP/Obamacare
No change
Other mandatory spending
Food assistance, farm subsidies, military retirement and anti-poverty programs
No change
Defense
No change
All other spending
Veterans' health, transportation, education, law enforcement, research and foreign affairs
No change
Each box represents $50 billion in spending over 10 years.
Source: Republican Study Committee Note: The plan was released in 2022 and is based on outdated projections for the baseline budget. The plan also includes tax cuts representing about 2 percent of revenue. Interest payments on the federal debt are not shown. The New York Times

The plan’s changes to Medicare include increasing the eligibility age to 67 from 65, gradually rising to 70; increasing premiums for higher earners (while reducing them for lower earners); and reducing federal funding for private Medicare Advantage plans by making them compete on a more equal footing with the government plan.

It would modify Social Security for future beneficiaries by raising the eligibility age for full retirement slowly from 67 to 70 and adjusting the formula so that higher earners receive smaller lifetime Social Security payments.

Ways to balance the budget through tax increases alone

The Congressional Budget Office maintains a list of more than 100 policies that could reduce the deficit. Its catalog had several options that would generate substantial revenue, including a consumption tax similar to those levied by most European governments, increases to income and payroll tax rates, and a new tax on carbon dioxide favored by many environmental groups.

If lawmakers didn’t make any cuts, they could roughly balance the budget by combining several of these large tax increases.

Several Large Options for Raising Taxes

The following revenue options, described by the C.B.O., add up to roughly enough money to eliminate the deficit in 10 years without cutting spending. (Some of the options might overlap or interact, so they cannot be added precisely.)

Chart showing how much each tax proposal would raise over 10 years. An increase in payroll taxes would raise $6.6 trillion; a new value-added tax would raise $3 trillion; the elimination of itemized deductions would raise $2.5 trillion; an increase in individual income taxes would raise $1.3 trillion; a reduction in work-based health insurance subsidies would raise $0.9 trillion; and a new carbon tax would raise $0.9 trillion.
Increase payroll taxes
A new 2% tax, 4 pct. pt. increase in current taxes and an increase in maximum taxable earnings.
$6.6 trillion
New value-added tax
Apply a 5% consumption tax to most goods and services.
$3.0 trillion
Eliminate itemized deductions
Including for state and local taxes, mortgage interest and charitable contributions.
$2.5 trillion
Increase individual taxes
1% surtax on income above the standard deduction and exemption.
$1.3 trillion
Reduce health insurance subsidies
Limit the extent to which work-based contributions for premiums can be excluded from taxes.
$0.9 trillion
New carbon tax
Apply a $25 tax per metric ton of emissions and increase annually.
$0.9 trillion
Each box represents $50 billion in new revenue over 10 years.
Source: Congressional Budget Office Note: Revenue projections are based on outdated baselines, so actual amounts raised would differ slightly. The New York Times

Of course, Republican lawmakers don’t want to raise taxes. Instead, they have tended to favor tax cuts, passing major legislation to reduce taxes in the Reagan, George W. Bush and Trump administrations.

Democrats proposed some tax increases last year, when they were trying to pass their large social spending package, but as a way of paying for new federal spending, not lowering the deficit.

Three Scenarios for Budget Deficits

How current projections for government spending and revenue compare with two approaches to eliminating the deficit.

Eliminate with new taxes

Current projections

Eliminate with cuts

Deficits are projected to grow to $2.7 trillion by 2033.

A plan by the Republican Study Committee would balance the budget through cuts alone.

A series of major tax increases could balance the budget without cutting spending.

$10 tril.

$10 tril.

$10 triil.

8

8

8

Deficit

6

6

6

4

4

4

Spending

Spending

Spending

Revenue

Revenue

Revenue

2

2

2

2023

2033

2023

2033

2023

2033

Current projections

Deficits are projected to grow to $2.7 trillion by 2033.

$10 tril.

8

Deficit

6

4

Spending

Revenue

2

2023

2033

Eliminate by cutting spending

A plan by the Republican Study Committee would balance the budget through cuts alone.

$10 triil.

8

6

4

Spending

Revenue

2

2023

2033

Eliminate by increasing taxes

A series of major tax increases could balance the budget without cutting spending.

$10 tril.

8

6

4

Spending

Revenue

2

2023

2033

Eliminate by increasing taxes

Current projections

Eliminate by cutting spending

Deficits are projected to grow to $2.7 trillion by 2033.

A plan by the Republican Study Committee would balance the budget through cuts alone.

A series of major tax increases could balance the budget without cutting spending.

$10 tril.

$10 tril.

$10 triil.

8

8

8

Deficit

6

6

6

4

4

4

Spending

Spending

Spending

Revenue

Revenue

Revenue

2

2

2

2023

2033

2023

2033

2023

2033

Eliminate by increasing taxes

Current projections

Eliminate by cutting spending

Deficits are projected to grow to $2.7 trillion by 2033.

A plan by the Republican Study Committee would balance the budget through cuts alone.

A series of major tax increases could balance the budget without cutting spending.

$10 tril.

$10 tril.

$10 triil.

8

8

8

Deficit

6

6

6

4

4

4

Spending

Spending

Spending

Revenue

Revenue

Revenue

2

2

2

2023

2033

2023

2033

2023

2033

Sources: Congressional Budget Office; Republican Study Committee Note: Changes in the tax increases scenario include a selection of the largest options analyzed by the C.B.O. Some of the options might overlap or interact, so they cannot be added precisely. The R.S.C. plan was released in 2022 and is based on outdated projections for the baseline budget. The New York Times

Mixing cuts and tax increases

The nonpartisan Committee for a Responsible Federal Budget has its own plan to reduce the deficit. But it would not balance the budget in 10 years. The plan includes spending reductions in every part of the budget as well as new taxes. By 2032, it would cut the deficit approximately in half, an amount the group believes is sustainable because it would stabilize the ratio between federal debt and the overall economy.

A Plan to Reduce Deficits, but Not Balance the Budget

A plan by the Committee for a Responsible Federal Budget, a nonpartisan group that tends to be hawkish on deficits, would make cuts in each category, reducing deficits by $7 trillion over 10 years.

Chart showing the percentage change the committee would make to each area of government spending and revenue to cut deficits roughly by half over 10 years. Social Security would be cut by 2 percent; Medicare by 8 percent; Medicaid and Obamacare by 4 percent; other mandatory spending by 5 percent; defense spending by 8 percent; and all other spending by 7 percent. Revenue would increase by 4 percent.
Social Security
No change
Medicare
No change
Medicaid/CHIP/Obamacare
No change
Other mandatory spending
Food assistance, farm subsidies, military retirement and anti-poverty programs
No change
Defense
No change
All other spending
Veterans' health, transportation, education, law enforcement, research and foreign affairs
No change
Revenue
No change
Each box represents $50 billion in spending over 10 years.
Source: Committee for a Responsible Federal Budget Note: Interest payments on the federal debt are not shown. The plan was released in 2022 and changes are based on C.B.O. estimates for 2023 through 2032. The New York Times

The group’s goal — along with its reputation as a shop of deficit hawks — demonstrates how many politicians and economists reject the very goal of a rapidly balanced budget.

The committee’s budget includes specific policy proposals attached to its reductions. The plan includes a carbon tax, reductions in spending on various parts of Medicare, and an increase in the full retirement age for Social Security by at least a year.

Mr. McCarthy is asking Democrats to make budget concessions while using the leverage of a possible default on debt and payment obligations. But right now he is not talking specifically about balancing the budget, or about Social Security and Medicare.

Those two programs are very popular, and cuts to them would entail political risk. President Biden, in his State of the Union address, drew boos and cries of dishonesty from Republicans when he said they wanted to cut Medicare and Social Security, though several of them have proposed to do so.

But avoiding changes to Medicare or Social Security really complicates the math.

Social Security represents the largest share of federal spending, followed by Medicare. The programs also represent the fastest-growing parts of the budget in coming years, aside from interest on the debt, as more baby boomers age into retirement and need more health care.

“Health care costs tend to rise as people grow older, so it is not a surprise that Medicare spending is rising each year,” said Tricia Neuman, the executive director of the Kaiser Family Foundation’s program on Medicare policy.

Paul Winfree, a former Senate Budget Committee staffer who is concerned about the escalating federal debt, said it would be impossible to change the long-term trajectory of federal spending without addressing the growing cost of health programs, including Medicare.

“If they don’t meaningfully address Medicare, Medicaid and the federal health care programs in general, it’s essentially a fool’s errand,” said Mr. Winfree, now a distinguished fellow of economic policy and public leadership at the conservative Heritage Foundation.

And Medicare and Social Security aren’t the only popular programs. In 2019, the Pew Research Center polled Americans on which parts of the budget they thought should be bigger, about the same, or smaller. Large majorities opposed cuts to just about every area. Most Americans wanted increased government spending on Social Security, education, infrastructure, environmental protection and scientific research. The budget area where the public would most support reductions is in aid to the poor overseas. Still, only 28 percent said the U.S. government should spend less on that, and foreign aid is on track to represent only about one percent of the federal budget over the next decade.

Leading Republican budget hawks have called some areas of spending inappropriate. A proposal to balance the budget from the Trump-aligned Center for Renewing America takes direct aim at a “woke and weaponized government.” But the highlighted programs are relatively insignificant compared with the size of the deficit. (Added together, these cuts would total $67 million, or around 0.005 percent of the federal deficit this year.)

Most of the center’s major savings would come from reductions in domestic spending, including the repeal of the Affordable Care Act’s health coverage expansion. It also leans heavily on aggressive projections of economic growth that lack historical support. Those assumptions, which differ from the budget baselines used by most other research groups, allow the group to reach balance without having to find as much savings.

“People imagine that the government does a bunch of things that they think are wasteful, and they point to a $10,000 grant,” said Bobby Kogan, the senior director of federal budget policy at the Center for American Progress, a left-leaning research group. He noted that most federal spending goes to direct transfers to individual Americans, so meaningful cuts would almost certainly sting some important voting constituency. “At the end of the day, the budget is over $6 trillion, so if you find me a million dollars of waste, cool,” he said. “But that’s not balancing the budget.”

Should the U.S. balance the budget?

It’s not just fear of political backlash that explains the paucity of serious proposals to balance the budget.

Democrats in Congress and the White House are not just opposed to a rapid balancing of the budget; many oppose deficit reduction as a priority, pointing to the stability of federal bonds and the benefits that government spending on poverty prevention, health care and infrastructure have on Americans’ lives.

Even many conservative economists don’t view a balanced budget as an important goal for preserving a strong economy. Many suggest focusing instead on maintaining a stable ratio between debt and the size of the economy over time — arguing a larger federal debt can be sustained if the economy is also growing.

Trajectories for U.S. Debt

Federal debt is projected to reach nearly twice the size of the economy in 30 years. Here’s how those projections compare with those under two alternate scenarios.

Current

trajectory

200%

of G.D.P.

150%

100%

C.R.F.B. plan

to stabilize debt

R.S.C. plan to

balance budget

50%

Projections

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

Current

trajectory

200%

of G.D.P.

150%

C.R.F.B.

plan to

stabilize

debt

100%

R.S.C. plan

to balance

budget

50%

Projections

1930

1960

1990

2020

2050

Sources: Committee for a Responsible Federal Budget; Congressional Budget Office; Republican Study Committee Note: Both plans were released in 2022 and are based on outdated baseline projections; their debt reduction may differ modestly. The New York Times

The size of that ratio continues to be disputed. But if current trends continue, the debt is on track to grow substantially faster than the economy overall, particularly with recent increases in interest rates. Whether and how that changes depends as much on politics as on math.