As federal spending continues to rise, accumulated federal debt will soon reach all-time highs relative to the size of the economy. Federal debt held by the public will hit 107 percent of gross domestic product (GDP) in 2028, surpassing the previous peak after World War II. The Congressional Budget Office (CBO) often highlights the rising debt-to-GDP ratio as a warning for policymakers to change course and avert a debt crisis.

Another warning sign of a coming debt crisis is soaring interest costs. With interest rates rising, federal interest payments have doubled from 1.2 percent of GDP in 2015 to 2.4 percent in 2023. The government will pay $640 billion in net interest this year.

The chart shows federal interest costs entering uncharted territory in coming years, based on CBO projections. Interest costs will hit an all-time high in 2030 of 3.3 percent of GDP, surpassing the previous peak in 1991. By 2033, interest costs will hit 3.6 percent of GDP, double the peak reached after World War II.

Here is an explainer for the chart, noting that interest costs are determined by the level of debt and interest rates.

• 1790–1860. Interest costs declined as the young nation paid down the Revolutionary War debt, and then paid down debt from the War of 1812. By the 1820s, there was strong political support to fully pay off the debt, and President Andrew Jackson was able to do so by 1835, as I discuss here. Unfortunately, war with Mexico in the 1840s and other developments prompted the government to start borrowing again.
• 1860–1920. Debt and interest costs soared as the nation fought the Civil War. But the post-war decades were a period of prudent fiscal management. Congress ran budget surpluses 28 years in a row beginning in 1866, and interest rates were falling in the decades after the war.
• 1920–1942. Debt and interest costs spiked to pay for World War I, then fell as the government ran surpluses every year during the 1920s. Interest costs rose again in the 1930s as debt increased, but the costs were moderated by falling interest rates during the decade.
• 1942–1978. Federal debt soared to 106 percent of GDP in 1946 due to massive war costs. But the government was able to borrow at low interest rates, so interest costs relative to GDP were less than today. Interest rates were moderate during the 1950s and 1960s, and GDP grew strongly.
• 1978–2001. Debt began piling up in the late 1970s and interest rates spiked. Interest costs exploded, reaching a peak of 3.2 percent of GDP in 1991. But then in the late 1990s, bipartisan efforts to restrain spending combined with rapid economic growth greatly improved the budget situation. The government ran surpluses from 1998 to 2001.
• 2001–2023. The government began running deficits again in 2002, and debt began rising. Federal debt tripled as a share of GDP from 32 percent in 2001 to 98 percent by 2023. However, interest rates had been trending downward the past two decades, which moderated federal interest costs. That period has now come to an end. Since 2021, interest rates have been rising and federal interest costs are spiraling upward.

When it comes to the budget impact of federal debt, the rubber hits the road in interest costs. No more can federal policymakers rely on low interest rates to keep their overspending juggernaut rolling. They need to reverse course as they did in the 1990s. They should restrain spending, balance the budget, and support policies that grow the economy.

Data Notes: For 1790–1939, interest payments are Census series P102 here. For 1940 to today, net interest is OMB data, and then the projection to 2033 is CBO. In 1940, the Census figure is 16 percent larger than the OMB figure, so there is a bit of a discontinuity. Historical GDP from 1790 to 1929 is from CBO here. A historical chart on debt is here and one on interest rates is here.

WalletHub recently published an analysis of tax burdens by state that included some surprising findings: most notably, that Texas state and local governments impose heavier taxes on median earners than their California counterparts. Of the fifty states plus DC, the Golden State had the 12^th lightest tax burden, while Texas ranked 41^st.

The counterintuitive conclusion that California is a relatively low tax state caught the attention of State Senator Scott Wiener (D‑San Francisco) trumpeted the results on his Twitter page.

But the WalletHub analysis seems to contradict a Tax Foundation burden ranking which placed the Golden State and Lone Star State 46^th and 6^th respectively.

The difference between WalletHub and the Tax Foundation is partially explained by a different focus. The Tax Foundation is measuring overall tax burden while WalletHub is trying to estimate the impact of taxes on a median family. Since California’s personal income tax is highly progressive, with the burden falling more on high income taxpayers, it is not surprising that WalletHub would come to a different conclusion.

But could it really be true that California taxes average families less than Texas does? After looking through the underlying numbers, I do not think so. As we dive through the numbers, I will explain.

WalletHub’s analysis focuses on a family earning the US median income and owning a home and car both valued at the national median. It does not consider differences in income and cost of living between states.

WalletHub partially offsets this issue by including a second ranking that is adjusted to use each state’s median household income. This alternative ranking narrows but does eliminate the gap between Texas (34^th) and California (32^nd). But it does not fully capture vast differences in real estate values.

Extracting just the numbers for California and Texas from the WalletHub data gives us this comparison:

Unlike California, Texas does not impose taxes on personal income or on the value of one’s vehicle. So, of the four tax categories WalletHub included, only Sales & Excise Taxes and Real Estate Taxes apply in the Lone Star State.

WalletHub estimates Sales & Excise Taxes of $4591 for the theoretical median household in Texas versus only $3292 in California. But sales tax rates are generally lower in Texas than in California. According to the Sales Tax Handbook, combined state and local sales taxes in California range from 7.25% to 10.75%. In Texas, the range is from 6.25% to 8.25% Neither state levies sales taxes on groceries. Gasoline taxes are also much higher in California, weighing in at 53.9 cents per gallon compared to 20 cents per gallon in Texas. Finally, cigarette taxes in California are double those in Texas.

WalletHub based its Sales & Excise Tax Burden estimates on a 2018 report from The Institute on Taxation and Economic Policy which uses a different definition of middle income and relies on 2015 data. It thus misses large increases in gasoline and cigarette taxes California imposed after 2015, along with numerous local sales tax hikes.

WalletHub found an even larger gap for real estate taxes, with the burden in Texas more than double that of California. This discrepancy reflects both an element of truth and a distortion.

California’s Proposition 13 limited property tax rates to 1% plus add-ons for voter approved bonds and parcel taxes. Although these add-ons can mount up, the total tax bite rarely if ever exceeds 2% of assessed value.

Texas, by contrast, has no similar property tax limitation. Counties, cities, school districts and special districts levy taxes independently, and homeowners must pay the combined rate, which can be quite steep. In the small north Texas community of Darrouzett, four local tax levies totaled an eye-watering 4.2% of assessed value in 2022 (according to State Controller data available here).

But there are two caveats to consider. First, home values in Darrouzett are relatively low: a three-bedroom house is on the market for $139,000. Second, the homeowner’s exemption plays a role. In California, homeowner occupants can deduct $7,000 from the assessed value of their property before the tax rate is applied. In Texas, the exemption is $40,000 for school districts and variable for other taxing entities.

These factors, especially the difference in home prices, largely offset the tax rate differences between Texas and California. The Zillow Home Value Index is 2.5 times higher in California than it is in Texas. In fact, the median US home value WalletHub used, $244,900, is virtually unheard of in most of California.

All that said, Texas officials have started to recognize that property taxes are becoming onerous. Both the House and Senate have unveiled plans to reduce property tax bills and limit future growth. So, although the WalletHub ranking appears to be misleading overall, it nonetheless highlights a reasonable concern about Lone Star State taxes.

High and rising government debt slows growth, crowds out private investment, limits the government’s ability to respond to unexpected emergencies, and elevates the risk of a sudden fiscal crisis, where investors would lose confidence in U.S. Treasury bonds and the U.S. dollar. This fact sheet lays out everything legislators and the public need to know about the U.S. federal debt to help them examine the unsustainability of the U.S. budget.

• The total or gross federal debt is $31.5 trillion. This is the debt subject to the debt limit.

  • At 120 percent of gross domestic product (GDP), the gross federal debt exceeds the amount of goods and services produced in the United States every year by one-fifth.
  • The total federal debt burden per U.S. person is $94,000.
  • The total federal debt burden per U.S. household is $240,000.
  • Total federal debt consists of publicly held debt (borrowed from credit markets, including from individuals, state/​local governments, foreign entities, and the Federal Reserve) and intragovernmental debt (borrowed from federal trust funds like Social Security).

• The publicly held or public debt is $24.6 trillion. This debt is borrowed in credit markets.

  • At 95 percent of gross domestic product, the publicly held debt is approaching the size of the U.S. economy, as measured by all the goods and services produced in the United States in one year.
  • Such high levels of debt reduce economic growth. Researchers identified that government debt drags down economic growth beginning at 78 percent of GDP.
  • Economists focus on the publicly held debt to assess how government debt affects interest rates and crowding out of private investment, because this debt is mostly held outside the federal government and traded in public markets.
  • The public debt will surpass its WWII-high of 106 percent of GDP by 2028.
  • The public debt is projected to grow to 118 percent of GDP by 2032 under CBO’s optimistic scenario and to 130 percent of GDP by 2032 under a more realistic scenario, in which the 2017 middle class tax cuts are extended.
  • We owe one-third of the publicly held debt to foreign entities; two of our biggest foreign bondholders are China and Japan.
  • The U.S. Federal Reserve holds about one-quarter of publicly held debt. When the Fed buys U.S. government debt, this is called quantitative easing, and represents the issuance of new money in the economy. When the money supply increases faster than production, this leads to inflation.

• The federal government paid $475 billion in interest costs in 2022. Net interest is the cost of servicing the publicly held debt, paid to foreign and domestic bondholders.

  • 10 cents of every taxpayer dollar the federal government collected last year went toward paying the interest on the debt.
  • If average annual interest rates were 1 percentage point higher than CBO projects, cumulative interest costs would increase by $4 trillion over 10 years.

• The annual federal deficit will more than double over the next 10 years from $1.4 trillion in 2023 to $2.9 trillion in 2033. The annual deficit is the difference between annual government spending and revenues.

  • Federal spending is projected to rise to 25 percent of GDP by 2033. That’s 4.4 percentage points above the historical average over the last 50 years.
  • Federal revenues will rise to 18 percent of GDP, about 1 percentage point above the historical average.

• The 75-year unfunded obligation, as reported in the Financial Report of the United States Government, is $79.5 trillion. That’s the difference between the present value of total government receipts and total non-interest government spending over the next 75 years.

  • 95 percent of the total non-interest unfunded obligation is driven by social insurance programs (98 percent by Social Security and Medicare; and less than 0.2 percent by Railroad Retirement and Black Lung Benefits).
  • Public debt will reach 200 percent of GDP by 2046 and 566 percent of GDP by 2097.
  • According to Treasury and the Office of Management and Budget: “the continuous rise of the debt-to-GDP ratio indicates that current fiscal policy is unsustainable.”

Further reading:

• The Debt Limit and the High Costs of Debt [Cato]. “High and rising debt slows growth, crowds out private investment, limits the government’s ability to respond to unforeseen emergencies, and elevates the risk of a sudden fiscal crisis where investors would lose confidence in U.S. Treasury bonds and the U.S. dollar.”
• The CBO Budget and Economic Outlook in the Post‐​COVID Fiscal Era [Cato]. “CBO forecasts a worsening fiscal trajectory characterized by high and rising federal debt [in which] pandemic spending followed by a surge in interest costs [has] accelerated the [unsustainability of the U.S. budget.”
• The Impact of Public Debt on Economic Growth [Cato]. Academic research has identified a negative effect of high and rising debt levels on economic growth. “For the 25 studies that provide threshold estimates, [the] mean and median threshold levels [where debt drags down growth] are found at 78 percent and 82 percent of GDP [for advanced countries], respectively.”
• Q&A: Gross Debt Versus Debt Held by the Public [CRFB]. “This explainer will lay out everything you need to know about the different measures of debt and what they mean for the government’s fiscal situation.”

Download a printable PDF version of this fact sheet here.

Federal spending jumped from $4.45 trillion in 2019 to $6.21 trillion in 2023, according to the Congressional Budget Office. That is a 40 percent increase in four years. The pandemic supercharged the federal budget, and spending and deficits are expected to continue rising unless policymakers pursue major reforms.

What is all the new spending since 2019? The answer is surprising, as shown in the two tables below. The main drivers of the recent increases have not been the largest three programs—Social Security, Medicare, and defense—but rather rapid growth in numerous other programs.

Table 1 shows CBO spending for 2019 and baseline estimates for 2023. The largest increases have been nondefense discretionary, Medicaid, veterans, food stamps, health tax credits, welfare, school food programs, and interest. All data in both tables are fiscal year outlays.

Some of the 2023 spending is temporary and should decline in coming years, such as the PBGC aid and education pandemic aid. Nonetheless, CBO projects baseline spending to rise at an annual average rate of 4.8 percent over the coming decade. The projections show that Social Security, Medicare, and Medicaid will be the main growth drivers ahead, but the past four years show that other programs will also grow rapidly if not controlled.

What about Ukraine? CRFB tallies the total authorized (but not necessarily spent) funding so far as $67 billion for defense aid and $46 billion for nondefense aid. If I am reading CBO correctly, they estimate that about $36 billion of the defense aid will be spent this fiscal year.

Table 2 shows spending data from President Biden’s recent budget broken out by major agency. The budget puts the increase between 2019 and 2023 at 43 percent, and Biden is proposing an 8 percent increase for 2024. The data are from Table 4.1 here.

What programs are behind the largest increases in the table? Agriculture: food stamps. Education: college aid and pandemic school aid. HUD: numerous programs. Labor: PBGC aid to troubled pension plans. Treasury: interest costs. EPA: state grants. International Aid: Ukraine. SBA: disaster loans.

Republicans led the way on spending increases in 2020, and then handed the big government baton to the Democrats for 2021 and 2022. Now some Republicans want to reverse course and leverage the upcoming debt limit debate to start cutting. What should they target?

How about a “last in first out” strategy? Reformers could push for cuts to the programs that have grown the most since 2019. Medicaid, food stamps, education aid, housing programs, welfare, the EPA, and international aid would all be good targets to downsize.

By the way, outlays from 2019 to 2023 are up 47 percent for the operations of the legislative branch and 58 percent for the Executive Office of the President. How about these institutions showing some budget leadership and cutting their own costs?

Recent commentary on federal spending is here and here, and further proposals to cut spending are here, here, and here.

Data Note. The “all other” row in Table 2 is the net of other spending programs and hundreds of billions in offset receipts, which are explained here.

Washington is ready to unleash an unprecedented $52 billion to support the domestic microchip industry — and a startling array of companies are angling for a payday, some with an unclear connection to microchips.

Among them are labor unions, the social media company Snap, FedEx, home heating and cooling companies, cryptocurrency exchange Coinbase and even the American Israel Public Affairs Committee, according to lobbying filings from the last three months of 2022.

That’s how Brendan Bordelon and Caitlin Oprysko begin their Politico story about the gold rush created by the CHIPS and Science Act. But never fear, it’s not like the big companies are being left behind:

…the bulk of the money is expected to go to established semiconductor giants like Intel and Samsung.…

the five top U.S. tech companies — Meta, Microsoft, Google, Amazon and Apple — all lobbied on CHIPS and Science implementation in the last three months of 2022.…

Top defense contractors like Northrop Grumman and General Dynamics paid lobbyists to work on the law. So did HVAC companies like Carrier and Trane.…

Massive labor unions, including the AFL-CIO and the Communications Workers of America, have lobbied on the law’s implementation.

And on and on.

This is of course the standard story whenever Congress appropriates, or considers appropriating, a new pot of taxpayers’ money. The civics books explain that the people bring a problem to Congress, committees hold hearings and hear from expert witnesses, the issue is debated, Congress then maybe appropriates the money, and selfless experts in the bureaucracy spend it in the national interest. The reality is more like a feeding frenzy to get a piece of every new funding opportunity. As my colleague Scott Lincicome told Politico, “It would almost be corporate malpractice to not go after that cash.”

It’s not just the CHIPS Act. The New York Times reported in November,

These days, [Commerce Secretary Gina] Raimondo, a former Rhode Island governor, is the most important phone call in Washington that many chief executives can make. As the United States embarks on its biggest foray into industrial policy since World War II, Ms. Raimondo has the responsibility of doling out a stunning amount of money to states, research institutions and companies.

I recall noting previously that total reported spending on lobbying peaked in 2009 and 2010, the first two years of President Barack Obama’s administration, when trillions of dollars were being handed out or moved around by the stimulus package, the omnibus spending bill, the Dodd‐​Frank financial regulation bill, the Affordable Care Act, and an ultimately unsuccessful 1200‐​page energy bill stuffed with taxes, regulations, loopholes, and subsidies. The Washington Post found that “more than 90 organizations hired lobbyists to specifically influence provisions of the massive stimulus bill.” Now I see that lobbying expenditures fell a bit later in the Obama administration, rose when a new administration with new priorities took office, and are now reaching new highs in the spendaholic Biden administration.

As Craig Holman of the Ralph Nader‐​founded Public Citizen told Marketplace Radio during the financial crisis, “the amount spent on lobbying … is related entirely to how much the federal government intervenes in the private economy.”

Marketplace’s Ronni Radbill elaborated: “In other words, the more active the government, the more the private sector will spend to have its say…. With the White House injecting billions of dollars into the economy [in early 2009], lobbyists say interest groups are paying a lot more attention to Washington than they have in a very long time.”


Big government means big lobbying. When you lay out a picnic, you get ants. And today’s federal budget is the biggest picnic in history.


The Nobel laureate F. A. Hayek explained the process 80 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

That’s the worst aspect of the growth of lobbying: it indicates that decisions in the marketplace are being crowded out by decisions made by lobbyists and politicians, which means a more powerful government, less freedom, and less economic growth.

Despite the headlines, the President’s 2024 Budget demonstrates how challenging it is to raise significant new tax revenue from a small minority of wealthy taxpayers. The budget raises about $1.8 trillion from non-corporate taxpayers over ten years. Yet, following all the rhetoric about the rich not paying their fair share, it should be striking that across more than twenty new and expanded taxes, the administration’s plan does not even raise enough revenue from wealthy taxpayers to cover new spending proposed in Biden’s budget, let alone the projected $20 trillion deficit over the next ten years.

So, what’s going on? By promising the American people he would only raise taxes on people earning over $400,000, President Biden has made his budget math next to impossible. There is simply not enough income at the top of the distribution to cover the projected federal budget deficit, let alone a significant expansion in federal spending over the next decade.

What’s left to tax?

Using IRS data, we can illustrate the difficulty of raising a lot more revenue from a narrow segment of the population.

In 2020, the IRS reported that there were 164 million individual tax returns filed, with $12.6 trillion in Adjusted Gross Income (AGI). AGI includes wages, capital gains, and personal business income, in addition to other forms of income and adjustments for things like student loan interest and retirement contributions. This IRS data can show an upper bound on how much revenue could be extracted from the highest-income taxpayers.

The IRS reports statistics by different income groups, separating taxpayers into buckets with AGIs of $200,000, $500,000, $1 million, and $10 million, among others. Table 1 shows four income groups and information from 2020 on how much total income was earned and taxes paid by each group.

For example, $2.9 trillion in total AGI was reported by taxpayers earning over $500,000, and they paid a total of $722 billion in federal income taxes, leaving them with about $2.2 trillion after-tax income. There were 1.8 million tax returns above $500,000 or about one percent of all returns.

In the most extreme case of the federal government taxing all income over $500,000 at a 100 percent tax rate—confiscating every dollar earned past this point—not all of the $2.2 trillion is available to tax. The graduated income tax system is such that raising the top tax rate only increases taxes on the income in that tax bracket and above. Essentially, everyone’s income below the maximum rate is taxed the same. If Congress wants to raise taxes only on people earning over $500,000, the system of progressive rates effectively exempts the first $500,000 earned from additional taxes.

The IRS data show that for the $500,000 and above group, there is $2 trillion in taxable income above the $500,000 threshold. These high-income taxpayers pay an average income tax rate of 25 percent, so they already paid roughly $500 billion in taxes on their above-threshold income. Thus, only about $1.5 trillion remains after taxes (and is available for additional taxes), across all taxpayers earning more than $500,000.

If Congress confiscated every dollar earned by individuals and businesses past their first $500,000, it would still be about $200 billion short of covering the cost of next year’s projected $1.7 trillion deficit—unrealistically assuming no behavioral or other economic effects from taxing 100 percent of earnings.

Table 1 shows how the math of taxing the rich gets even more challenging the more income Congress exempts, showing figures for only raising taxes on people earning over $1 million or $10 million. Lowering the income threshold to $200,000 can expand income available for Congress to tax, but it is still not a realistic way to raise significant additional revenue. Common sense and economic incentives tell us that Congress cannot raise income tax rates anywhere close to 100 percent and still bring in any new revenue. Therefore, even a substantial fraction of the available income earned above $200,000 would not cover currently projected deficits.

Where’s the rest of the money going to come from?

Political rhetoric about raising taxes on the rich primarily serves as a distraction from the United States’ fiscal reality. If spending is not constrained, large and growing deficits will remain even after taxes are raised on corporations and the wealthy. The only way to significantly increase revenue is by raising taxes on a broader swath of middle-income Americans.

Talking points like those President Biden routinely uses about the rich not paying their fair share in taxes have historically provided political cover to raise taxes on other segments of the population. Tax historian Joseph Thorndike explains how high marginal income tax rates in the New Deal era were used “to help justify regressive consumption taxes on alcohol and tobacco, which supplied anywhere from a third to half of federal revenue during the early 1930s.” Again, in the 1940s, Thorndike explains that high marginal tax rates of 90 plus percent (even though few people paid these rates) were used to provide political cover for a “dramatic downward expansion of the income tax.” Narrow taxes on the rich are leveraged into mass taxes on everyone.

As I’ve written elsewhere, every other large modern welfare state funds its higher levels of government spending with high taxes on a broad swath of the population. This is not because politicians in those countries do not want to tax the rich; it is because there is not enough money at the top of the income distribution to fund their desired spending levels.

It is often reported as irresponsible or implausible to suggest reducing federal spending as the key mechanism to stabilize the budget. However, it is accepted at face value that we can raise more than $2 trillion in additional annual revenue from the highest-income one percent of American taxpayers. “Tax the rich” is not a serious budget proposal, and it should be treated as irresponsible and implausible.

As federal debt continues to rise, younger generations will bear the brunt of today’s irresponsible deficit spending. Not all millennials are passive bystanders as Congress seals their fate. The Millennial Debt Foundation (MDF) recently released 10 recommendations to address the U.S. debt challenge over the next 30 years.

Founded in 2019 with the support of the late Senator Tom Coburn, MD, the Foundation convened millennial business leaders and members of Congress to devise a plan to reduce the growth in the federal debt. I am pleased to serve the organization as a senior advisor.

The latest Congressional Budget Office long-term outlook projects that debt will rise to an unprecedented 185 percent of gross domestic product (GDP) by 2052. Under the MDF proposal, debt would rise just shy of 129 percent of GDP. While a significant improvement to doing nothing, the fact that debt would still rise to such alarming levels demonstrates the severity of the U.S. fiscal challenge. Delay is making it even worse.

As the House Budget Committee, under the chairmanship of Jody Arrington (R‑TX), prepares its budget proposal over the next few weeks, they should seriously consider adopting some if not all the MDF’s recommendations. Here are the MDF’s 10 proposals:

Increase federal benefits to keep pace with inflation by using a more accurate and modern cost-of-living measure: $200 billion in savings over 10 years

Use the Chained CPI measure of inflation to calculate cost-of-living adjustments for federal spending programs (i.e., Social Security, means-tested programs, other federal retirement programs & health programs). The 2017 tax law adopted chained CPI for adjusting the tax code. It’s only sensible that federal benefit programs should follow suit. As I’ve argued previously:

“[T]he chained CPI is a more accurate measure of changes in the cost of living, it should be adopted across all federal benefit programs that are currently using the CPI‑W or the CPI‑U to make benefit adjustments.

Opponents of moving to this measure, argue that it would grow welfare beneficiaries’ benefits more slowly, leaving recipients with fewer resources over the long run. If proponents believe that welfare benefits are too low, they should address this issue directly; not perpetuate use of a less accurate inflation measure to achieve their ends.”

Increase Social Security’s initial benefits to keep pace with inflation: $50 billion in savings over 10 years

When Social Security calculates recipients’ initial benefits it gives seniors a bonus increase based on average wage growth. This leads to more generous benefits than ensuring benefits kept pace with the cost of living. Under the current approach, Social Security benefits grow more generous over time as workers become more productive.

The rationale for this method of calculating benefits was to ensure seniors’ incomes grew in line with workers’ incomes. Instead, we have a system in which working Americans subsidize ever more generous retirements for seniors whose incomes and net worth far exceed their own.

MDF suggests calculating initial benefits based on changes in prices instead of wages, but only for high-income recipients. As laid out in the Cato Handbook for Policymakers:

“Perhaps the best way to reduce Social Security benefits would be to change the formula used to calculate the initial benefit so that benefits are indexed to price inflation rather than national wage growth. Since wages over the long run have tended to grow at a rate roughly 1 percentage point faster than prices, such a change would hold future Social Security benefits constant in real terms but would eliminate the benefit escalation that is built into the current formula.”

Reduce the growth of Social Security benefits for higher-income beneficiaries: $40 billion in savings over 10 years

MDF calls for adjusting Social Security’s benefit formulas to slow the growth in benefits for upper-income recipients while maintaining benefits for lower-income beneficiaries.

In general, I am supportive of changes that reduce Social Security spending by making the program more progressive. Targeting benefits toward those recipients who are most reliant on them is a commonsense way to protect seniors against poverty without saddling workers with higher taxes.

Unfortunately, this proposal is so vague, it’s hard to say what exactly it would do. If I understand the proposal correctly, it will phase in other Social Security changes, like an increase in the retirement age, sooner for high-income beneficiaries than for others. More details would be welcome.

Grow Social Security’s eligibility age with increases in longevity: no savings over 10 years due to implementation delay

MDF proposes to gradually raise the eligibility age for Social Security based on increases in life expectancy. I support this proposal though prefer a faster implementation. As I’ve argued:

“Congress should raise the early and full Social Security eligibility ages by 3 years each (to 65 and 70) and index both to increases in longevity. [This change is long overdue as] life expectancy at birth in the United States has increased by nearly 20 years. Yet, Social Security’s full retirement age has increased by only two years (from 65 to 67—to be fully phased in by 2027), and the early retirement age has not budged at all – despite significant improvements in health and lifespan.”

Adopt a Premium Support Plan for Medicare: no savings identified over the first 10 years due to a delay in implementation

MDF proposes that Medicare beneficiaries use the dollars provided to them by federal taxpayers to choose among competing healthcare plans. As Cato’s Michael Cannon has written:

‘“Premium support” would give enrollees a fixed subsidy they could apply toward either traditional Medicare or the private health plan of their choice. A fixed subsidy would encourage enrollees to choose less wasteful coverage.

[Even better if] enrollees could receive “Medicare checks” at the same time they receive their Social Security checks. […] Enrollees could use those funds to purchase the health plan of their choice at actuarially fair rates. Enrollees who want more expensive health insurance could supplement their subsidy with private funds, just as they do now with Medicare Advantage and Medigap plans. Alternatively, seniors who choose a lower‐​cost plan could save their extra health care dollars in a tax‐​free health savings account.”

Increase Medicare’s eligibility age to 67: $15 billion in savings over 10 years

MDF recommends to slowly (in two-month increments) increase the Medicare eligibility age to 67; aligning it with current policy on Social Security.

This is another commonsense reform that would fix a current policy flaw. Medicare’s current eligibility age encourages some older Americans to retire earlier than they otherwise would. It makes sense that Social Security and Medicare, which target the same population, should be aligned when it comes to the timing when recipients first become eligible for benefits.

Extend the $10K cap on the Deduction for State and Local Taxes (SALT): $600 billion in revenue over 10 years

MDF calls for permanently extending the Tax Cuts and Jobs Act of 2017 policy that capped the federal tax deduction for state and local taxes (SALT) at $10,000. As Cato’s Chris Edwards has written:

“The new SALT limit is a long-needed reform. […] The prior SALT deduction mainly benefited higher earners. […] The deduction favored higher-income and higher-tax states over other states. In California, 96 percent of state and local deductions that exceeded $10,000 were taken by households with incomes above $100,000.”

Reform the Tax Exclusion for Employer-Sponsored Health Insurance: $250 billion in revenue over 10 years

Instead of excluding employer-sponsored health insurance from federal taxation, MDF calls for capping the exclusion, replacing it with tax credits, or ending it entirely.

As Cato’s Michael Cannon has explained: “tax credits are the functional equivalent of ObamaCare’s individual mandate.” Ending the tax exclusion entirely would be most beneficial in the long run. Elsewhere Cannon has written:

“The exclusion has increased medical prices, thrown workers out of their coverage after they have fallen ill, and generated so much dissatisfaction with the U.S. health sector that Congress has spent decades trying to fix the problems it creates. Replac[ing] the current exclusion with an exclusion for contributions to larger, more flexible health savings accounts [is] the most desirable and politically feasible option.”

Adopt Additional Medicare Reforms

MDF proposes several changes to administrative rules that increase Medicare’s costs, and which in combination would save $200 billion over 10 years. These include:

• decreasing overpayments by the Centers for Medicare and Medicaid Services (CMS) to Medicare Advantage (MA) based on population risk factors. It’s worth noting that a 2019 Congressional Budget Office report estimated this change would save about $50 billion over 10 years. More recent proposals that feature larger changes to MA risk coding could generate $200 to $400 billion in savings over the next decade.
• changing provider reimbursements for Medicare part B to incentivize the selection of low-cost drugs in line with recommendations by the Committee for a Responsible Federal Budget. Adopting clinically comparable drug pricing could reduce Medicare spending by $122 billion over 10 years.
• cancelling rules suggested by the Department of Health and Human Services (HHS) regarding drug manufacturer rebates as part of Medicare Part D.
• no longer adjusting Medicare Part B and D beneficiary income brackets for inflation when determining premiums, leading to small increases in collected premiums from higher income beneficiaries.

Adopt Other Healthcare Reforms

MDF proposes additional reforms affecting federal health care payments, including:

• removing the safe harbor that limits state taxes on Medicaid providers to 6% of the provider’s net patient revenues.
• removing the safe harbor that requires states to default to existing tax limits made by Congress in the 1990s, that artificially increase the federal match. $400 billion in savings over 10 years.
• lowering spending on medical malpractice insurance, capping awards for non-economic damages to $250,000 and capping punitive awards either at $500,000 or twice the amount of economic damages, whichever is greater. $60 billion in savings over 10 years. This may seem like a good reform on the surface but comes with unintended consequences. As Cato’s Michael Cannon explains:

“[C]aps on damages could expand access to health care by reducing payouts and liability insurance premiums, but at the cost of leaving some injured patients with uncompensated losses. […] making any single set of rules mandatory and codifying them in statute makes removing harmful rules extremely difficult. A more patient‐​friendly and liberty‐​enhancing approach would allow patients and providers to write their own medical malpractice reforms into legally enforceable contracts.”

In combination, MDF’s 10 recommendations would reduce deficits by about $2 trillion over the next 10 years. That’s short of the $3 trillion in revenue-driven deficit reduction the President proposed in his latest budget proposal. It’s also short of the $3 trillion in spending-based deficit reduction that the Freedom Caucus put out a day after the President’s Budget. And it falls far short of the $8 trillion in deficit reduction required to stabilize the debt at the current too-high and economically damaging level of 97 percent of gross domestic product.

On the flip side, MDF’s proposals address the biggest drivers of spending growth with sensible reforms that will make a real difference over the 30-year time horizon and beyond: health care and old-age entitlements, like Medicare and Social Security. Tackling these programs is a feather in their cap. As is taking the long-term view and demonstrating how their proposals would curb the growth in the debt outside the 10-year budget window.

Congress should take note of these commonsense reforms that thoughtful millennials can get behind.