Renewing TCJA Without Blowing Up the Debt
Fiscal restraint isn’t the enemy of growth — it’s the enabler
Under current law, the Tax Cuts and Jobs Act (TCJA) provisions affecting individuals and small businesses will expire after 2025. Meanwhile, the Congressional Budget Office (CBO) projects that debt held by the public will reach 117 percent of GDP by 2034. If Congress simply renews the expiring provisions without offsets—and assuming no additional tax breaks such as tip exclusions or SALT cap increases—the debt trajectory will worsen, rising to 127 percent of GDP.
If policymakers want to renew TCJA expiring provisions and keep the debt trajectory below CBO baseline projections, they need to seek savings (spending restraint and/or revenue raisers) of about $5 trillion or more over 10 years. To renew TCJA provisions and stabilize the debt ratio at 100 percent by 2034, policymakers would need to seek at least $11 trillion in savings over 10 years.
To illustrate the savings possibilities, I’ve compiled a list of spending and revenue options that together would save about $6.8 trillion over 10 years—enough not only to offset TCJA renewal but to reduce the debt ratio to around 111 percent of GDP by 2034. The list represents just a handful of the many dozens of reform options at policymakers’ discretion, and additional reforms would lower the debt ratio further.
Selected Spending Reform Options:
Establish Per Capita Caps on Federal Medicaid Spending ($893bn)
Limit State Taxes on Health Care Providers ($612bn)
Increase Premiums Paid for Medicare Part B from 25% to 35% ($510bn)
Change Mandatory Program COLA to chained CPI ($278bn)
Reduce Payments for Hospital Outpatient Departments ($157bn)
Change Cost-Sharing Rules for Medicare and Restrict Medigap Insurance ($129bn)
Phase In Retirement Age to 70 (born after 1981) for Full Social Security Benefits ($95bn)
Reduce Annual Raises by 0.5 percent for Federal Civilian Employees ($77bn)
Require SSDI Applicants to Have Worked 4 of the Last 6 Years ($60bn)
Phase in Lower Social Security Benefits for Top 30th Percent ($48bn)
Increase Federal Civilian Employees' Contributions to the Federal Employees Retirement System ($40bn)
Targeted Revenue Options for Closing Loopholes:
Repeal Most IRA Green Subsidies and Expansions ($1,351bn)
Cap Corporate SALT Deduction at $10,000 ($793bn)
Cap the Employer-Sponsored Health Insurance Exclusion (ESI) at 50th Percentile of Premiums ($661bn)
Reduce the Mortgage Interest Deduction to $500,000 ($260bn)
Eliminate Head-of-Household Filing Status ($209bn)
Repeal SALT Deduction Pass-Through Workarounds ($200bn)
Expand Social Security to Newly Hired State and Local Government Employees ($149bn)
Eliminate Tax Credits for College Expenses ($130bn)
Eliminate Private Activity Bonds from Muni Bond Interest Exemption ($114bn)
Require Valid SSN for Child Tax Credit and EITC ($28bn)
Figure 1 shows three different scenarios for the trajectory of public debt in the coming decade:
Baseline debt level assuming TCJA provisions are not renewed (blue line)
Debt level with clean TCJA renewal (orange line)
Debt level with clean TCJA renewal combined with the cost-saving reforms implemented (green line)
The chart underscores a critical point: fiscal irresponsibility is not the inevitable outcome of tax cuts. With disciplined reforms, Congress can renew the TCJA without compromising long-term debt sustainability.
While not exhaustive, the menu shows the range of credible options available. Some options may seem more or less politically palatable than others, but these reforms demonstrate how policymakers can:
Pay for expiring TCJA provisions in a responsible way
Bring the debt ratio and budget deficit to a point lower than baseline CBO projections
Improve long-term trust fund balances and sustainability of mandatory programs
Policymakers could seek additional reductions in federal spending, devolve greater spending authority to the states, or implement binding rules that restrain the level of spending growth over time.
Alternatively, reforming, limiting, and eliminating some of the 170 tax expenditures in our current code would achieve two goals at once: simplifying the tax code and demonstrating fiscal prudence. We recently offered a roadmap identifying low-hanging fruit for policymakers in implementing tax cuts and full expensing without blowing up the long-term budget deficit.
Policymakers face a clear choice. They can let deficits balloon and trust funds collapse, or they can take up the challenge of real reform. By renewing pro-growth tax policy while trimming spending and simplifying the tax code, policymakers can secure both economic freedom and fiscal sustainability.