Cap growth in discretionary spending for the expected life of the debt increase.
Conservatives are furious about the regular end-of-budget year omnibus spending bills that inevitably raise both domestic and defense discretionary spending. These annual increases are not the major cause for our structural deficits, but they do add straw to the fiscal camel’s back. Reining these in should be a major goal of any deficit hawk.
But there is no way Democrats will agree to roll back the spending hikes they already passed. They would rather hold firm and rely on public pressure to force enough House Republicans to cave in. The House GOP has only 222 members, meaning they can only lose four members on any floor vote, and there are 18 House Republicans who represent district that President Biden carried in 2020.
Capping future discretionary spending growth could make a real impact over time without making Democrats eat crow. They could also tie down discretionary spending to remain below inflation rates. For example, they could decide that the annual increase in the prior year’s spending should not surpass three percentage points below the inflation rate, which would cut billions of dollars over time.
Defense hawks could be placated by allowing spending increases above that level with a two-thirds vote of both chambers. Defense spending bills could get that vote given the increased threats from China and Russia. Domestic spending increases, on the other hand, would never get that level of support.
Replace Social Security’s annual inflation adjustment for the rich.
Many government benefits are annually adjusted to rise by the inflation rate as measured by the consumer price index (CPI) for urban consumers. But many economists believe this overstates inflation and would prefer to use the chain-weighted consumer price index, which accounts for consumers’ willingness to seek cheaper substitutes for goods included in the price index. This results in a significantly lower — and more accurate — measurement of inflation.
Switching to this latter index for high-income earners in government programs such as Social Security, the largest single line item in the federal budget, would slow benefit growth substantially. Social Security recipients with low or middle incomes would be unaffected by the change, as they never earn enough to qualify for the maximum benefit. But people who consistently earn $100,000 or more during their careers would slowly see their benefits reduced, saving the taxpayer billions annually within a few years.
There are a surprisingly high number of people in this category. Data from 2022 shows that the top 20 percent of seniors in 2017 earned $110,897 or more. Fifty-six million Americans are now 65 or older, meaning there are at least 10 million people in this earnings category. Slowly cutting their benefits adds up over time, and these people have substantial assets or earning power to fall back on.
It is worth noting that chained CPI has already been used in government programs. For example, this measure was applied to the annual inflation adjustment to tax brackets in the GOP’s 2017 tax cut bill.
Tax rich nonprofits.
Democrats always say they want to tax billionaires, but there’s one category they are strangely silent about: nonprofit universities and foundations.
Private foundations hold more than $1.1 trillion in assets, while colleges and university endowments hold more than $800 billion. They make hundreds of billions of dollars in capital gains and investment earnings annually, but do not pay federal capital gains rates. Ending that exclusion for the richest of these entities, thereby exposing their gains to the same 21 percent rate paid by private-sector corporations, would bring billions annually to federal coffers.
I’m sure others could come up with other small but meaningful measures that House GOP negotiators could offer at crunchtime. The key is knowing what they can actually get, and then skillfully negotiating to obtain it.