This article is an attempt to think through the federal deficit in stages, starting with the relatively lower-pain options before moving into the more difficult structural choices. (See a different approach that still arrives at similar conclusions here).
The first tier discussed below focuses on reforms that could plausibly reduce deficits without fundamentally changing the lives of most Americans. These include areas such as fraud reduction, technical healthcare reforms, better tax enforcement, narrower loopholes, and gradual adjustments to existing programs. None of these changes are completely painless politically, but they are generally the kinds of reforms that attract at least some bipartisan support in principle.
The second tier is where the numbers become much larger, but the tradeoffs become much more visible. At that point, deficit reduction begins to involve broader entitlement reform, larger healthcare restructuring, defense tradeoffs, broader tax increases, or changes that directly affect larger portions of the population.
Separating the problem this way is useful because many public discussions jump immediately to one extreme or another. Some people assume the deficit can be substantially reduced through waste, fraud, and efficiency reforms alone. Others assume the answer is simply raising taxes on corporations or the wealthy. In reality, the easier reforms are meaningful but limited. The larger solutions generally require tougher choices.
The central question is not whether savings or additional revenue can be found. They can. The question is how much can realistically be achieved before the country reaches reforms that materially affect benefits, taxes, healthcare costs, retirement timing, or economic incentives more broadly.
Tier One: Lower-Pain Spending Reductions and Revenue Increases
Tier One: Spending Reductions
The first tier focuses on areas where the government can likely save meaningful amounts of money without dramatically changing the core structure of American life.
- Fraud, Improper Payments, and Administrative Controls
One of the clearest examples involves fraud, improper payments, and weak administrative controls. The federal government loses substantial money each year across Medicare, Medicaid, unemployment insurance, tax credits, and other programs because of fraud, verification failures, outdated systems, or administrative mistakes. Improved auditing, identity verification, data sharing, and enforcement could likely save roughly $500 billion to $900 billion over 10 years, or about $50 billion to $90 billion annually. However, political rhetoric often exaggerates how much of this money can realistically be recovered. Some losses are difficult or impossible to fully prevent without creating major administrative burdens or disrupting legitimate beneficiaries.
- Earmarks, Narrow Grants, and Lower-Value Discretionary Spending
Another relatively low-pain category involves earmarks, narrow grants, duplicative programs, and lower-value discretionary spending. Eliminating “pork” spending would not come close to balancing the budget, despite how often it dominates political rhetoric. Still, reducing politically favored projects and low-priority programs could plausibly save around $150 billion to $250 billion over 10 years, or approximately $15 billion to $25 billion annually.
- Technical Medicare and Healthcare Reforms
Healthcare also contains opportunities for substantial technical reforms before touching core benefits. Analysts across the ideological spectrum have identified significant overpayments and distorted incentives within parts of Medicare, especially involving Medicare Advantage risk-adjustment coding. Additional reforms could involve site-neutral payments, tighter reimbursement rules, modernization of payment formulas, and reducing certain subsidy distortions. Together, these kinds of technical healthcare reforms could likely save roughly $900 billion to $1.5 trillion over 10 years, or about $90 billion to $150 billion annually. Importantly, many of these changes would affect insurers, providers, and payment systems more than ordinary retirees themselves.
- Medicaid Financing Reforms
Some Medicaid financing structures allow states and providers to maximize federal reimbursements in ways critics argue are inefficient or overly complex. Technical changes to provider taxes, matching formulas, and reimbursement systems could likely reduce spending while preserving most core coverage. Savings from these types of reforms could plausibly reach $300 billion to $600 billion over 10 years, or roughly $30 billion to $60 billion annually.
- Gradual Social Security Adjustments
Social Security also offers some lower-pain opportunities, though even modest reforms quickly become politically sensitive. Gradually raising the retirement age over long periods of time, modestly reducing benefits for very high earners, or adjusting benefit-growth formulas for affluent retirees could likely save approximately $150 billion to $300 billion over 10 years, or about $15 billion to $30 billion annually.
- Federal Workforce and Subsidy Reforms
Additional savings could come from slower growth in federal compensation, modest pension adjustments, agricultural subsidy reforms, and reductions in duplicative administrative programs. Together, these changes might save another $150 billion to $250 billion over 10 years, or roughly $15 billion to $25 billion annually.
Taken together, this first tier of lower-pain spending reductions could likely save around $2.5 trillion to $4 trillion over 10 years, or roughly $250 billion to $400 billion annually. That is meaningful. But against deficits approaching or exceeding $2 trillion annually, it is not enough by itself.
Tier One: Lower-Pain Revenue Increases
The first tier on the revenue side focuses primarily on reforms that are at least plausibly debated within the current U.S. political system, rather than entirely new tax systems such as a national VAT.
- Better Tax Compliance and Collections
One of the clearest opportunities involves better tax compliance and collections. The IRS estimates that hundreds of billions of dollars in legally owed taxes go unpaid annually. Improved auditing, modernization, third-party reporting, AI-assisted enforcement, and better data systems could likely generate meaningful additional revenue. But there is an important distinction between the theoretical “tax gap” and realistically collectible revenue. Some unpaid taxes are difficult to identify, difficult to prove, or economically impractical to pursue aggressively. Realistically, stronger enforcement and compliance measures could likely generate around $400 billion to $800 billion over 10 years, or roughly $40 billion to $80 billion annually in net revenue after collection costs.
- Tax Loopholes and Aggressive Sheltering
Another opportunity involves narrowing certain tax loopholes and limiting aggressive sheltering strategies. Tightening pass-through business rules, limiting some high-end deductions, modifying carried-interest treatment, and reducing aggressive tax-avoidance structures could plausibly raise another $300 billion to $600 billion over 10 years, or about $30 billion to $60 billion annually.
- International Corporate Taxation
International corporate taxation also offers some room for additional revenue. Reducing offshore profit shifting, tightening transfer-pricing rules, and strengthening minimum-tax standards could potentially raise around $200 billion to $500 billion over 10 years, or approximately $20 billion to $50 billion annually, while still attempting to preserve international competitiveness.
- Estate Tax and Basis Reforms
Additional revenue could come from tighter estate-tax enforcement, reducing valuation discounts, and modifying step-up in basis rules. These reforms would primarily affect wealthier households and could plausibly generate around $100 billion to $300 billion over 10 years, or roughly $10 billion to $30 billion annually.
- Capital Gains and High-Income Tax Policies
More modest changes to capital gains and high-income tax policies could also raise meaningful revenue. Slightly higher capital-gains rates, somewhat higher taxes on large dividend income, tighter treatment of certain investment structures, or restoring portions of prior high-income tax rates could likely raise around $300 billion to $700 billion over 10 years, or roughly $30 billion to $70 billion annually. However, revenue estimates become less reliable as rates rise because investors and businesses adjust their behavior over time.
Taken together, this first tier of lower-pain revenue reforms could likely generate roughly $1.5 trillion to $3 trillion over 10 years, or approximately $150 billion to $300 billion annually.
Combined, the first tier of spending reductions and revenue increases could plausibly improve the fiscal picture by around $4 trillion to $7 trillion over 10 years, or roughly $400 billion to $700 billion annually.
That would materially slow the growth of debt and could meaningfully improve long-term fiscal stability, but it likely would not fully stabilize deficits on its own. It still would not fully solve the long-term fiscal challenge, especially because healthcare costs continue rising, interest costs compound, and the population continues aging.
That leads to the second tier.
Tier Two: Structural Changes
Tier Two: Structural Spending Changes
The second tier is where the truly large savings begin. It is also where the tradeoffs become much more visible and politically difficult.
- Major Social Security Reform
One of the largest potential areas involves major Social Security reform. Because the program is so large, even relatively modest changes to benefit formulas create enormous long-term effects. Broader retirement-age increases, slower cost-of-living adjustments, progressive indexing, and larger benefit reductions for higher earners could plausibly save around $1 trillion to $3 trillion or more over 10 years, or roughly $100 billion to $300 billion annually.
- Major Medicare and Medicaid Restructuring
Healthcare represents an even larger long-term fiscal lever. Major Medicare and Medicaid restructuring could potentially save roughly $2 trillion to $5 trillion or more over 10 years, or approximately $200 billion to $500 billion annually. These reforms could involve raising Medicare eligibility ages, increasing premiums and cost-sharing, slowing reimbursement growth, implementing premium-support systems, or restructuring Medicaid more fundamentally. However, unlike many first-tier reforms, these changes directly affect providers, insurers, patients, or beneficiaries themselves.
- Defense Reductions
Defense is another area large enough to materially affect the deficit. Reducing force structure, slowing procurement growth, closing bases, reducing overseas commitments, or cutting contractor dependence could plausibly save roughly $500 billion to $1.5 trillion over 10 years, or about $50 billion to $150 billion annually. But these reductions involve real geopolitical tradeoffs involving China, Russia, and broader questions about America’s global role and military posture. Our position is that we would rather see defense focus more on efficiencies instead of cuts, but we include the numbers here.
- Larger Domestic Discretionary Reductions
Additional savings could come from larger reductions to domestic discretionary spending involving education, infrastructure, scientific research, environmental programs, housing programs, and federal agencies. Even substantial cuts here, however, still produce less savings than many people assume because these areas are much smaller than healthcare and retirement programs. Still, these reductions could plausibly save another $500 billion to $1 trillion over 10 years, or roughly $50 billion to $100 billion annually.
Taken together, this second tier of structural spending reforms could plausibly reduce spending by around $4 trillion to $10 trillion or more over 10 years, or roughly $400 billion to $1 trillion annually.
Tier Two: Structural Revenue Increases
The second tier on the revenue side involves broader and more visible tax increases.
- Broader Middle-Class Taxation
One major option involves broader middle-class taxation. Many developed countries that maintain larger welfare states rely on broader participation in taxation across much larger portions of the population. Expanding the income-tax base, reducing deductions, lowering exemption thresholds, or increasing payroll taxes could potentially raise several trillion dollars over 10 years and hundreds of billions annually. But politically, this is extremely difficult because many Americans are accustomed to comparatively low broad-based taxation relative to other advanced economies.
- Payroll Tax Expansion
Payroll-tax expansion offers another large revenue source. Lifting or eliminating the payroll-tax wage cap, increasing payroll-tax rates, or expanding taxable compensation could plausibly generate around $1 trillion to $2 trillion or more over 10 years, or approximately $100 billion to $200 billion annually. These changes would directly target Social Security financing.
- Larger Capital Gains and High-Income Tax Increases
Larger increases in capital-gains and high-income taxes could also raise substantial revenue. Taxing capital gains closer to ordinary income rates, tightening estate-tax structures, reducing basis step-ups, or increasing taxes on high investment income could plausibly raise roughly $500 billion to $1.5 trillion over 10 years, or about $50 billion to $150 billion annually. However, as rates rise, investors and businesses increasingly change behavior, making long-term revenue estimates less certain.
- Higher Corporate Tax Rates and Business Taxes
Additional revenue could come from higher corporate tax rates, broader business taxes, or partially reversing prior corporate-tax reductions. These kinds of changes could plausibly raise another $500 billion to $1.5 trillion over 10 years, or roughly $50 billion to $150 billion annually. But these policies also involve tradeoffs involving investment incentives, competitiveness, and capital flows.
Taken together, this second tier of structural revenue increases could plausibly raise around $3 trillion to $7 trillion or more over 10 years, or approximately $300 billion to $700 billion annually.
Within Tier Two alone, combining the spending reductions and revenue increases could potentially improve the fiscal picture by around $7 trillion to $17 trillion or more over 10 years, or roughly $700 billion to $1.7 trillion annually. At that level, the United States could potentially stabilize debt relative to the economy, substantially reduce deficits, or in some scenarios approach budget balance.
But these policies will not be easy. They affect benefits, taxes, healthcare access, retirement timing, defense posture, and economic incentives directly.
Estimated Annual Fiscal Impact by Tier
| Category | Estimated Annual Impact |
| Tier One Spending Reductions | ~$250B–$400B |
| Tier One Revenue Increases | ~$150B–$300B |
| Total Tier One | ~$400B–$700B annually |
Tier One represents the relatively lower-pain category of reforms. These include fraud reduction, technical healthcare savings, better tax compliance and collections, narrower loophole closures, and gradual adjustments to existing programs. These reforms could materially slow debt growth, but likely would not fully stabilize long-term deficits by themselves.
| Category | Estimated Annual Impact |
| Tier Two Spending Reductions | ~$400B–$1T+ |
| Tier Two Revenue Increases | ~$300B–$700B+ |
| Total Tier Two | ~$700B–$1.7T+ annually |
Tier Two represents the more difficult structural reforms. These include larger entitlement reforms, broader healthcare restructuring, defense tradeoffs, broader tax increases, and policies that directly affect larger portions of the population and economy.
| Combined Total | Estimated Annual Impact |
| Tier One + Tier Two Combined | ~$1.1T–$2.4T+ annually |
In theory, a sufficiently large and politically difficult combination of both tiers could substantially stabilize the debt or potentially approach budget balance. In practice, however, the upper-end estimates involve politically difficult reforms, uncertain behavioral assumptions, and policies that would directly affect taxes, benefits, healthcare costs, retirement timing, or economic incentives across broad sections of society. None of this is easy.
The Core Reality
The easiest reforms are too small to solve the problem alone. The largest reforms are politically difficult because they require visible tradeoffs. That is why serious long-term fiscal discussions almost always arrive at similar conclusions: some spending restraint, some entitlement reform, some additional revenue, and stronger economic growth.
The debate is usually not about whether math exists. It is about which tradeoffs the country is willing to accept.