Recap: The US national debt (which excludes what the government owes itself) is expected to surpass the all-time record of 106% of Gross Domestic Product (GDP) by 2029. To put that in perspective, the average over the last 50 years was about 49% of GDP.  My goal is to cut $8.1 billion from the Federal Budget to stabilize the debt at 100% of GDP by 2035. See Part I of this series for additional details.

The Committee for a Responsible Federal Budget has a handy “Debt Fixer” to aid me in my quest. It’s an interactive tool that allows users to select budget options in areas like health care, defense, Social Security, taxes and other domestic spending to gauge their impact on our national debt. Here were my choices, along with CRFB explanations of what they entailed (unless otherwise indicated):

1. Provide a Pathway to Citizenship for Undocumented Immigrants   $180B

CRFB didn’t provide more information on this option. I’m assuming that the pathway to citizenship will be for vetted undocumented immigrants who have registered for the citizenship program. Registrants will have to leave the country if they fail the vetting process.

2. Require States to Cover One-Quarter of the Cost of Food Stamps  $250B

The Supplemental Nutrition Assistance Program (SNAP, or food stamps) is a federally-financed but state-administered program that provides food assistance to people of limited income and assets. President Trump’s Fiscal Year 2 018 budget proposed making states partially responsible for financing SNAP, phasing in the state share of spending to 25 percent over six years. In addition, this option would make more narrow reductions to the program, including eliminating increased benefits for those receiving low-income energy assistance, tightening work requirement waivers for able-bodied adults, and limiting automatic eligibility (regardless of income and assets) to those also receiving low-income cash benefits.

3. Reduce the Cost of the Federal Workforce  $170B

This option would undertake a few steps to reduce federal worker pay and shrink the size of the federal workforce. Specifically, it would reduce automatic pay increases for military and civilian workers by 0.5 percentage points, reduce the federal workforce by 10 percent by replacing only one worker for every two who leave, and repeal the Davis-Bacon Act, which requires federal construction projects to pay the prevailing wage in the project’s area.

4. Reduce Federal Worker Retirement Benefits  $170B

Federal worker retirement benefits consist of a defined-benefit pension and a defined-contribution plan, along with participation in Social Security. This option would reduce pension benefits by calculating payments based off the five highest earning years rather than the highest three, increase pension contributions so federal workers contribute half of the amount (up from 31 percent for new hires), and reduce cost-of-living adjustments for military retirees by one percentage point if they are under age 62.

5. Increase Medicare Premiums for High-Income Beneficiaries $220B

This option would reform Medicare provider payments in multiple ways that would reduce spending. Specifically, it would equalize payments for outpatient services across different settings, reduce and equalize payments for post-acute care (care received after a hospital stay, for example), and reduce payments for hospital bad debts (unpaid medical bills).

6. Ban State Matching Gimmicks $830B

Almost all state Medicaid programs tax health care providers to fund their share of Medicaid spending. Since these taxes are essentially funneled back to providers through the Medicaid spending they finance, the federal government currently limits these taxes to 6 percent of patient revenue. This option would prohibit provider taxes, requiring states to compensate with other revenue sources or by reducing Medicaid spending.

7. Use Chained CPI to Measure Inflation  $350B       

CRFB didn’t provide more information on this option. Per AI Overview, the Chained Consumer Price Index is an alternative measure of inflation calculated by the Bureau of Labor Statistics that aims to provide a more accurate reflection of the cost of living by accounting for consumer substitution across goods and services in response to price changes, a limitation of the traditional CPI. This is important for nation debt reduction, because the federal government uses the traditional CPI to calculate annual benefit adjustments for many benefit programs.

8. Raise the Payroll Tax Cap to Cover 90% of Earnings $860B

Workers and their employers pay Social Security taxes on income up to its taxable maximum. In 2025, earnings up to $176,100 are subject to the Social Security payroll tax, and that amount increases annually by average wage growth. Originally, in 1937, about 92 percent of all earnings were subject to the tax. While the 1977 Social Security amendments intended to set the cap to cover 90 percent of earnings, it has since fallen to about 83 percent of earnings. This option would raise the taxable maximum so it would cover 90 percent of aggregate earnings. 

9. Raise Payroll Tax Rate by 1%  $1510B

Social Security is mostly financed by a 12.4 percent payroll tax, split equally between employees and employers. This option would increase that rate by one percentage point to 13.4 percent, phased in over ten years. This increase would only apply to income under the current taxable maximum of $176,100. 

10. Repeal and Replace Student Debt Cancellation  $320B

Last year, the Biden Administration implemented a new Income-Driven Repayment (IDR) plan that raised the amount of income that’s excluded from calculations of monthly payments from 150 percent to 225 percent of the federal poverty line, changed the percentage owed on “discretionary income” for undergraduate loans to 5 percent, and forgives unpaid interest each month for borrowers whose monthly payments do not cover interest payments. The IDR plan also forgives the entire loan balance for those who borrowed less than $22,000 after ten to 20 years of repayment, depending on the amount borrowed. This option would repeal the IDR plan and replace it with reforms described in the College Cost Reduction Act, such as introducing "risk sharing" of institutions in their students' outcomes and improving transparency of higher education costs. 

11. Extend the Tax Cuts and Jobs Act for Taxpayers Earning Less Than $400,000 $3030B

The Tax Cuts and Jobs Act of 2017 (TCJA) includes several changes to the individual income tax that reduce taxes on net. These changes include reducing tax rates across the board, increasing the Child Tax Credit, increasing the Standard Deduction, providing a deduction for noncorporate businesses, and rolling back several other deductions. However, these policies expire after 2025. This option would permanently extend the TCJA’s individual income tax changes for taxpayers earning less than $400,000 per year.

12. Institute a Cap on the Health Insurance Tax Exclusion  $710B

Employer-paid premiums for health insurance are excluded from an employee’s income, which is the largest single tax break in the tax code. This option would place a cap on the exclusion set at the 75th percentile of premiums for employer-sponsored insurance and indexed to inflation. The amount of premiums paid by employers above the new thresholds would be included in employee income and taxed.

13. Enact a Value-Added Tax  $2910B

A Value-Added Tax (VAT) is a form of sales tax that is imposed at each stage of production. This option would enact a 5 percent VAT. The VAT would exclude items like groceries, education, health care, new housing, and financial services

How’d I do?

  • Total Savings: $5.49 Trillion.

  • Debt reduced to 105% of GDP in 2035.

Close, but $2.61 Trillion still to go.