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Scott Bessent’s 3 Percent Deficit Target Would Require Massive Cuts to Anti-Poverty Programs and Middle-Class Tax Increases [1]

['Brendan Duke', 'Associate Director', 'Media Relations', 'Senior Director', 'Government Affairs']

Date: 2025-01

President-elect Donald Trump’s choice for treasury secretary, hedge fund manager Scott Bessent, has laid out an economic plan known as “3-3-3,” which involves reducing the federal budget deficit down to 3 percent of gross domestic product (GDP),* getting real GDP growth to 3 percent, and producing an additional 3 million barrels of oil a day by 2028. Bringing the budget deficit down to 3 percent of GDP represents a laudable goal if done in a way that protects programs Americans rely on. It would more than fully close the fiscal gap, leaving debt as a percentage of GDP slowly declining in the long run. Yet Bessent has explicitly stated that extending the expiring 2017 tax cuts is a priority, and he would likely rule out tax increases on the wealthy to pay for them. This suggests a deficit target of 3 percent of GDP would require large taxes on imported goods and enormous cuts to programs such as Medicaid, reducing low- and middle-income families’ living standards.

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This column does the accounting to determine what it would take to achieve Bessent’s 3 percent deficit target. It takes Congressional Budget Office (CBO) projections of the budget deficit for 2028—5.8 percent of GDP—and assumes the economy hits Bessent’s improbable 3 percent long-run growth target while extending the Trump tax cuts, eliminating Inflation Reduction Act energy investments, and freezing nondefense discretionary spending as Bessent has proposed. The analysis finds that such a combination would actually increase the projected 2028 budget deficit from 5.8 to 6.0 percent of GDP, or $1 trillion above the 3 percent target. If the Trump administration does not cut Medicare, Social Security, or defense, and takes most sources of additional tax revenue off the table, achieving Bessent’s 3 percent budget deficit target would both require: Enacting the most expansive tax increase Trump has proposed—a 20 percent tax on imported goods from every country and a 60 percent tax increase on imported goods from China—which would cost a typical family $2,200 to $3,900 and reduce the 2028 deficit by about $460 billion, or 1.3 percent of GDP Cutting the budget by $499 billion in 2028 alone, on top of the 6 percent cut to nondefense discretionary spending, a move that would require a 31 percent cut to the remainder of the affected budget, including Medicaid, the Supplemental Nutrition Assistance Program (SNAP), veterans’ compensation and pensions, and more The basic arithmetic behind Bessent’s 3 percent of GDP deficit target suggests that it would require major tax increases on low- and middle-income Americans as well as devastating cuts to programs low-income families rely on, all while cutting taxes for the wealthy. Notably, the massive cuts to Medicaid and nutrition assistance align with the menu of offsets identified by House Budget Chair Jodey Arrington (R-TX).

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The basic accounting behind a 3 percent deficit target The Congressional Budget Office currently projects the federal budget deficit will amount to 5.8 percent of GDP in 2028, which means that reaching the 3 percent target would require deficit reduction equal to 2.8 percent of GDP. One way Bessent and the Trump administration are likely to say they can reduce the deficit is through stronger economic growth. A key pillar of the Bessent 3-3-3 plan is getting real GDP to grow 3 percent in 2028, compared with the less than 2 percent rate projected by the CBO. Notably, Trump’s economic plan is highly unlikely to add more than a full percentage point to the annual growth in 2028. (see Appendix) Nevertheless, this analysis assumes real GDP grows at 2.5 percent in 2025 and at 3 percent in 2026, 2027, and 2028 to show how that would affect the accounting to reach Bessent’s goal. Three years of 3 percent growth would help with the deficit, reducing it by 0.5 percent of GDP in 2028. This calculation accounts for both the mechanical effect of higher GDP increasing the denominator of the deficit-to-GDP ratio and uses the CBO’s rules of thumb for how higher economic growth reduces deficits through higher tax revenue and lower spending. Any faster growth, however, is swamped by the deficit effects of tax cuts Bessent has called for. The CBO deficit projections assume that the temporary portions of the 2017 tax law expire as scheduled after 2025. But Bessent has explicitly called for renewing them: “It’s got to include reinstat[ing] the 2017 Tax Cuts and Jobs Act with pay-fors.” Simply extending its individual and estate provisions—not counting other key business provisions such as bonus depreciation—would raise the deficit by 1.1 percent of GDP. Bessent’s specific deficit reduction proposals do not achieve a deficit equal to 3 percent of GDP In a June 2024 interview with Manhattan Institute President Reihan Salam, Bessent provided detailed thinking on economic policy in general and how he would reduce deficits specifically. First, Besset suggested the incoming administration “tame this ‘Green New Deal’ [to] probably save a trillion over 10 years”—likely a reference to the Inflation Reduction Act’s clean energy tax credits and spending. Yet this would save only about $110 billion in 2028, or 0.3 percent of GDP, based on CBO’s latest estimates of the cost of the credits.** Moreover, repealing these credits would hike costs for consumers since the credits are already supporting wind and solar deployments that protect against electricity price hikes and will, by 2035, save consumers $16 to $34 billion in annual electric costs, according to Rhodium Group estimates.

Due to the skewed nature of the 2017 tax cuts Bessent supports extending, high-income households would still come out ahead in this 3-3-3 deficit reduction program, while the vast majority of Americans would come out behind.

The other specific policy Bessent proposed to reduce the deficit: “On discretionary spending, we probably need to do some kind of a freeze except for defense.” The CBO baseline assumes that within the 10-year budget window, discretionary funding rises with inflation. The freeze to nondefense discretionary funding (NDD) would mean an inflation-adjusted cut of 6 percent to affected government services, including veterans’ medical care, nutrition for newborns and pregnant women, and cancer, stroke, and Alzheimer’s research, by 2028. If veterans are spared any of the cuts, the non-veterans portion of NDD would be cut 7 percent, on average, by 2028. An NDD freeze would generate $975 billion in deficit reduction over the decade, including $41 billion in 2028, or 0.1 percent of GDP, bringing the federal deficit to 6 percent of GDP when combined with the 2017 tax law extension, higher assumed economic growth, and the elimination of the Inflation Reduction Act’s clean energy credits and spending. In other words, Bessent’s fiscal plan specifics with enough detail to estimate are not only far short of his 3 percent deficit target, but they would actually raise the deficit by 0.2 percentage points compared with the CBO baseline. Bessent’s remaining options for achieving a budget deficit equal to 3 percent of GDP require large middle-class tax increases and devastating cuts to anti-poverty programs During the Manhattan Institute interview, Bessent took defense cuts off the table, saying: “If anything, defense spending needs to rise.” He also stated that “entitlements are massive” but “the next four years isn’t the time to deal with them.” While that comment might suggest he would rule out cuts to Social Security and Medicare, as Trump himself has claimed, it almost certainly does not rule out cuts to other entitlement programs, such as Medicaid, which Bessent explicitly mentions during the interview. One obvious choice for deficit reduction that Bessent did not mention but Trump has embraced is large taxes on imported goods. Trump’s most expansive import tax idea during his 2024 campaign was a 20 percent tax on all imported goods and a 60 percent tax on imported goods from China.

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The Tax Policy Center estimates that this would raise about $460 billion in 2028, or 1.3 percent of GDP. This would be the equivalent of a $2,200 tax increase for a typical family—more than wiping away the $1,000 tax cut these families would receive from extending the 2017 tax law. Other estimates are even higher. High-income households, on the other hand, would still receive a net tax cut from the combination of extending the 2017 tax law and imposing a 20 percent tax on all imported goods. Beyond raising prices, Trump’s haphazard—as opposed to strategic—approach to tariffs would harm workers and make it more difficult to solve global problems.

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Adopting this enormous import tax would still leave the federal deficit at 4.5 percent of GDP after accounting for interest savings and require an additional $499 billion in cuts to programs to achieve Bessent’s deficit target. Bessent identified Medicaid on his list of ways to reduce the deficit, saying in his interview with Manhattan Institute: “There’s probably something to do on Medicaid in terms of empowering states,” but he confusingly qualified this statement with “no cuts.” In order to get the deficit down to 3 percent of GDP by 2028 while protecting defense, Medicare, and Social Security and “only” freezing NDD, all remaining programs would need to be cut, on average, by 31 percent. Of that 31 percent, 71 percent would come from low-income programs such as Medicaid, SNAP, and Social Security Income (SSI). If veterans’ programs are also protected, the cut to these programs would rise to 38 percent. Conclusion The combination of policies that would deliver the deficit reduction proposed in Bessent’s 3-3-3 economic plan would raise taxes on low- and middle-income families and gut health care, nutrition assistance, and veterans’ programs while still cutting taxes for the wealthy. Such a plan would hike families’ costs both because broad-based tariffs would increase prices and because Americans would have to pay more for health care and food due to cuts to federal programs that help lower the cost of living. Nevertheless, due to the skewed nature of the 2017 tax cuts Bessent supports extending, high-income households would still come out ahead in this 3-3-3 deficit reduction program, while the vast majority of Americans would come out behind.

See also

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[1] Url: https://www.americanprogress.org/article/scott-bessents-3-percent-deficit-target-would-require-massive-cuts-to-anti-poverty-programs-and-middle-class-tax-increases/

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