Options for Reducing the Deficit: 2021 to 2030

The Congress faces an array of policy choices as it confronts a daunting budgetary situation. At 14.9 percent of gross domestic product (GDP), the deficit in 2020 was the largest it has been since the end of World War II. Much of that deficit stemmed from the 2020 coronavirus pandemic and the government’s actions in response—but the projected deficit was large by historical standards ($1.1 trillion, or 4.9 percent of GDP) even before the disruption caused by the pandemic. In the Congressional Budget Office’s projections, deficits as a percent of GDP fall between 2021 and 2027 (from 8.6 percent of GDP to 4.0 percent), and then increase to 5.3 percent of GDP by 2030—more than one-and-a-half times the average over the past 50 years.

CBO projects that if current laws governing taxes and spending generally remained unchanged, federal debt held by the public would first exceed 100 percent of gross domestic product (GDP) in 2021 and would reach 107 percent of GDP, its highest level in the nation’s history, by 2023. Debt would continue to increase in most years thereafter, reaching 195 percent of GDP by 2050. High and rising federal debt makes the economy more vulnerable to rising interest rates and, depending on how that debt is financed, rising inflation. The growing debt burden also raises borrowing costs, slowing the growth of the economy and national income, and it increases the risk of a fiscal crisis or a gradual decline in the value of Treasury securities.

To help inform lawmakers as they address budgetary challenges, CBO periodically issues a compendium of policy options and their effects on the federal budget; this is the most recent. The agency also issues separate reports that present policy options in particular areas.

This document provides estimates of the budgetary savings from 83 options that would decrease federal spending or increase federal revenues over the next decade. All of the options appear in the previous edition of this volume, which was published in 2018; however, certain options from that edition are omitted in this report because they have been superseded by subsequent legislation or administrative action. Other options are omitted in order to release this report when it would be most useful to the Congress.

The options in this report originally come from various sources. Some originated in proposed legislation or budget proposals of various Administrations; others come from Congressional offices or from entities in the federal government or the private sector. As a collection, the options are intended to reflect a range of possibilities, not a ranking of priorities or an exhaustive list. Inclusion or exclusion of any particular option does not imply approval or disapproval by CBO, and the report makes no recommendations.

The options cover many areas in the federal budget. The budgetary effects identified for the options span the 10 years from 2021 to 2030 (the period covered by the baseline budget projections CBO produced in 2020). This document presents options in the following categories:

• Mandatory spending (or direct spending), which includes outlays for some federal benefit programs and for certain other payments to people, businesses, and state and local governments. Such outlays are generally governed by statutory criteria and are not normally constrained by the annual appropriation process.
• Discretionary spending, which is controlled by appropriation acts in which policymakers specify how much money will be provided for certain government programs and activities in specific years.
• Revenues.

This report includes some background information and a description of the policy involved for each option. For additional information, including more detailed background information, a discussion of the basis of the estimates, the largest sources of uncertainty, and arguments for and against the change, see the version of that option in the 2018 volume.

The estimates in this report generally reflect changes in the behavior of individuals, businesses, and other entities. However, they do not incorporate macroeconomic effects—that is, behavioral changes that affect total output in the economy.

Options that would increase an excise tax (or any other indirect tax imposed at an intermediate stage of production and sale) or the employer contribution for payroll taxes would reduce the amount of income subject to income and payroll taxes. The estimates for options in this report that increase indirect taxes or employer contributions for payroll taxes include an offset that accounts for that reduction.

The ways in which specific federal programs, the budget as a whole, and the economy will evolve under current law are uncertain, as are the possible effects of proposed changes to federal spending and revenue policies. CBO’s projections, especially its projections of how the economy will evolve, are even more uncertain than usual this year because of the 2020 coronavirus pandemic.

Estimates for options could differ from cost estimates for similar proposals that CBO or the staff of the Joint Committee on Taxation (JCT) might produce later for several reasons. First, the proposals on which those estimates were based might not precisely match the options presented here. Second, the baseline budget projections against which such proposals would be measured might have changed and thus would differ from the projections used for this report. Finally, CBO has not yet developed specific estimates of secondary effects for some options.

Many of the options in this report could be used as building blocks for broader changes. In some cases, however, combining various spending or revenue options would produce budgetary effects that would differ from the sums of those estimates as presented here because some options would overlap or interact in ways that would change their budgetary impact. Furthermore, some options are mutually exclusive.