Over the next two years, the United States will be confronted with a number of public finance challenges that will require careful and deliberate attention from policymakers. The most immediate challenge is the expiration of the two-year discretionary spending caps enacted as part of the Fiscal Responsibility Act. These caps and ensuing legislation have had a salutary effect on the budget outlook through projected discretionary savings. While this is welcome, discretionary spending is not a key budgetary pressure and may limit U.S. capacity to respond to geopolitical challenges. The United States has an existing federal budgetary process that should obviate the need for additional spending caps. Policymakers should follow it.

The expiration of the TCJA individual tax title in 2025 is an opportunity for continuing the important work of tax reform begun in 2017. Unfortunately, the U.S. budget outlook is substantially worse than in 2017. In the absence of meaningful reform to the nation’s major health and retirement systems, no tax code could durably finance the appetite for deficit spending and the debt service that attends it. It is critical that fiscal consolidation focus first and foremost on this challenge. The expiration of the TCJA is an opportunity to grapple with this reality and refine the nation’s tax code to be more competitive internationally, while also embracing a more modern tax base. While this approach may yield additional revenue, the tax reform effort should be animated by efficient tax policy design.

At the same time, the enhanced premium tax credits will sunset as well. Given the need to control the growth of mandatory spending, these larger tax credits are a luxury that the taxpayer should not have to bear. They should be allowed to sunset.

There are additional challenges confronting U.S. public finance over the near and medium terms. First, the United States will need to increase the statutory debt limit in 2025. The debt limit is increasingly a risk to the U.S. economy for which the benefits are arguably insufficient. Policymakers should increase this limit promptly and expeditiously, recognizing that in the absence of meaningful reform to the nation’s major entitlements, the United States will continue to plunge headlong into a future debt crisis. Relatedly, the exhaustion of the trust funds for Social Security and the Medicare Hospital Insurance program should prompt lawmakers to immediately pursue reforms to right-size these programs for the sake of beneficiaries and taxpayers. These reforms should look first to changes to benefits and introduce market forces where feasible. Last, recent infrastructure legislation has failed to tether highway spending to dedicated revenue. The gas tax is increasingly (and somewhat by design) obsolete. Accordingly, highway spending should compete with other appropriated programs for federal commitments.