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Breaking the Budget Gridlock:
A Bipartisan Blueprint for Debt Reduction

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Introduction

The nation’s fiscal trajectory is unsustainable. Policymakers should seek to stabilize the debt rather than demand balancing budgets or eliminating the debt entirely, and only bipartisan cooperation and solutions to these challenges will stand the test of time.

This blueprint offers a menu of policy proposals to both reduce the level of debt-to-gross domestic product (GDP) and win support from both parties. We protect taxpayer investments in programs that grow the economy and support workers and their families, while seeking spending reductions and tax increases that minimize distortions to the incentives to work, spend, save, and invest. Our combined proposals:

  • Increase revenue by $4.1 trillion over 10 years and $37.3 trillion over 30 years;
  • Reduce spending by $3.4 trillion over 10 years and $50.1 trillion over 30 years;
  • Reduce debt-to-GDP from its fiscal year 2024 level of 99 percent to 59 percent by FY 2054; and
  • Increase nominal GDP by $77.7 trillion over 30 years, 5 percent above the current baseline.

Although many of the fiscal policy challenges the nation faces will span decades, Congress does not have the luxury of time. Next year, the current debt limit suspension and the discretionary spending caps enacted in the Fiscal Responsibility Act expire along with trillions of dollars in tax cuts enacted in 2017 and 2022. Enormous pressure will mount on policymakers in both parties to extend tax provisions that — absent offsets — will further erode the nation’s fiscal health. At the same time, Social Security and Medicare face looming insolvency, which will come to a head in the 2030s.

While several of the policy options included in this blueprint are ones that BPC would not support in isolation, packaged together they reflect the types of tradeoffs that lawmakers will have to make soon to improve our fiscal outlook. Indeed, the required actions would have been less difficult and less severe 25 years ago, 15 years ago, or even five years ago, before the onset of the COVID-19 pandemic. Despite these challenges, BPC's blueprint is intended to help bridge the political divide and provide a stable path to more sustainable budgetary outcomes.

Top Three
Policy
Recommendations

1. Pay for TCJA Extension

BPC’s plan raises significant revenue overall, and we prioritize a close to revenue-neutral extension of the Tax Cuts and Jobs Act (TCJA). This major overhaul to the U.S. tax code passed in 2017 largely expires in 2025, making it one of the top policy issues facing the 119th Congress next year. Our proposals for the provisions directly affected in 2025 lead to $273 billion in increased deficits over 10 years. Considering revenue effects alone, the proposals are functionally revenue neutral (+$61 billion over 10 years), but outlay effects, primarily from extending the child tax credit, increase spending and deficits.

Among the tax cuts we extend permanently are:

  • Lower rates for the bottom three individual tax brackets (10 percent, 12 percent, 22 percent);
  • Limitations on the alternative minimum tax (we repeal it completely);
  • Doubling of the standard deduction; and
  • Doubling of the Child Tax Credit (we further expand it).

Among the permanent offsets we include to pay for those policies are:

  • Repeal of personal exemptions;
  • Repeal of the state and local tax deduction (SALT);
  • Repeal of all other itemized deductions, other than the charitable deduction and the medical expenses deduction.

Although our revenue plan goes well beyond TCJA, we prioritize offsetting TCJA extension because it will be one of the top policy issues facing Congress next year.

2. Broad Based Tax Reform

Beyond prioritizing offsets for TCJA extension, we offer tax policy proposals that increase revenue and modernize the tax code by broadening the nation’s tax base. For example, we repeal the income- and payroll-tax exclusions for employer-provided fringe benefits, and instead include those in taxable income, raising revenue by $700 billion over 10 years and $3.4 trillion over 30 years.

We also repeal step-up in basis for assets transferred at death, eliminating a provision that allows decedents to pass assets on to heirs tax-free — the capital gains of such assets escaping taxation. Doing so raises $200 billion over 10 years and $1.2 trillion over 30 years. These are examples of tax reform that broadens the tax base, reduces deficits, and helps sustain key government investments.

3. Strengthen Social Security

Social Security lifts nearly 23 million Americans above the poverty line annually and enjoys overwhelming public support. But it is the nation's single most expensive program, consuming 22 percent of the total federal budget and far more than its payroll tax brings in. BPC’s plan, adapted from that of our bipartisan commission on retirement security and personal savings, would put the program on a fiscally sustainable path while bolstering support for retirees who rely most on Social Security. We accomplish this through a balanced package of cost reductions — including continuing to gradually increase the full retirement age, indexing cost-of-living adjustments to a more appropriate price index, and capping spousal benefits — and targeted benefit enhancements such as a more progressive benefit formula, a robust minimum benefit, and improved survivors benefits.

We also include provisions that update Social Security for the modern workforce, changing the benefit calculation to an annual-primary-insurance-amount formula (“mini-PIA”) and replacing the Windfall Elimination Provision with a proportional benefit formula.

Address Near-Term Policy Issues and the 2025 Fiscal Cliff

  • Caps on discretionary spending beyond FY 2025. We limit discretionary spending growth — for both defense and nondefense categories — to 1 percent per year for the next decade (FY 2025 through FY 2034) and to 2 percent per year in the two subsequent decades. Although discretionary spending is not a primary driver of future debt and deficits, a comprehensive and bipartisan debt reduction plan will require sacrifice in all parts of the federal budget.
  • The debt ceiling. We urge Congress to expeditiously suspend or increase the debt limit ahead of its reinstatement on January 2, 2025. Even approaching the nation’s X Date — the date on which Treasury would exhaust extraordinary measures and be unable to meet all of the government’s obligations in full and on time — creates significant uncertainty for financial markets and the economy. Crossing the X Date carries potentially catastrophic consequences for the U.S. government and the domestic and global economy. Policymakers should reform the debt limit process to avoid any chance of default on our obligations and return the legislative focus to the underlying fiscal challenge.
  • Expiration of tax cuts for individuals in the Tax Cuts and Jobs Act. As noted above, we suggest that lawmakers address TCJA expirations in an approximately deficit-neutral manner. When considering extensions, we encourage lawmakers to prioritize low rates for low- and middle-income taxpayers and tax expenditures that disproportionately benefit those same taxpayers, such as an expanded Child Tax Credit. We similarly urge Congress to pay for these extensions by limiting tax expenditures that disproportionately benefit high-income households, like the SALT deduction.
  • Expiration of enhanced subsidies for purchase of health insurance through the marketplaces. This blueprint assumes no changes to current law regarding the Affordable Care Act’s premium tax credit structure, though we anticipate lawmakers will have a robust conversation next year over the extension of the expanded premium tax credits.
  • Upcoming exhaustion of the trust funds for Old-Age and Survivors Insurance, Hospital Insurance and Highways. Through decades of inaction, Congress has risked the depletion of the Social Security OASI, Medicare HI, and Highway trust funds. By prioritizing the long-term strength and stability of these programs, BPC’s blueprint delays depletion of all three trust funds. Without severe and immediate additional tax increases or spending reductions in these programs, however, lawmakers will still need to determine how to prevent shortages of funds as our plan phases in and begins to yield long-term fiscal benefits.

Conclusion

Lawmakers will have no choice but to address significant fiscal policy challenges in the years ahead, from the debt limit and the expiration of trillions of dollars in tax cuts in 2025 to the depletion of Social Security and Medicare trust funds in the early 2030s. BPC’s blueprint prioritizes bold, comprehensive solutions to these challenges that can win bipartisan support. We urge policymakers to reform their processes surrounding the most basic elements of governing — addressing the debt limit, preventing government shutdowns, passing budgets on time — and to spend more time on these generational challenges to our fiscal and economic outlook.

Explore other plans

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American Enterprise Institute

The AEI proposal narrows the fiscal imbalance, limits the size of government, and adopts a more growth-friendly tax code while also retaining support for the elderly and less fortunate.

Center for American Progress

The CAP plan places America on a more stable fiscal trajectory while safeguarding commitments to seniors, investing in the American people, and preventing interest costs from crowding out private and public investments.

Manhattan Institute

Manhattan Institute’s proposal would stabilize the long-term debt at around 100 percent of GDP through 2040 through a combination of reforming social security, healthcare entitlements and raising revenues responsibly.