(Originally appeared in The Dispatch)

It has become commonplace to dismiss concerns about soaring government debt as much ado about nothing—a modern case of the boy who cried wolf. Indeed, voters have cycled through catastrophic warnings about runaway deficits as far back as the Reagan administration, the 1992 Ross Perot presidential campaign, the mid-1990s “Republican Revolution” in Congress, and the early-2010s Tea Party era. And yet, continually rising budget deficits have not brought a debt crisis.

Instead, hysterical deficit concerns have been cynically deployed by minority parties to attack the agenda of the party in power—right before they seize power and start running up deficits of their own. These politicians do not truly care about budget deficits because their voters do not. Sure, voters tell pollsters they would prefer smaller deficits—right after expressing support for more tax cuts and spending expansions. They are not willing to sacrifice for deficit reduction because they do not see runaway federal debt as affecting the economy or their personal finances.

Yet surging government debt is harming the economy and our fiscal priorities—and its rapid growth poses an existential threat to the long-term American economy. Economists have a cliché that compares government debt to the unnoticed termites quietly eating the foundation of a home. A better analogy: Indulging in escalating debt is like indulging in a lifestyle of fast food, cigarettes, and no exercise. It may be occasionally manageable—and one may avoid feeling the effects for years or even decades—but the damage accumulates until a day of reckoning becomes virtually inevitable. With government debt, the effects are already being felt, and the U.S. is approaching a point at which reversing course will require substantially painful reforms. Those negative effects fall into two broad categories: macroeconomic and budgetary.

Why government debt harms the economy.

Let’s start with the basics. Economic growth—which simply means an economy producing more output that consumers demand—is driven by increasing the number of workers and making those workers more productive through education, training, capital investment, and technology. Productivity gains rely in part on the financial system converting savings into investment. We put money in the bank or invest in a company, and those savings are transferred to someone else to expand a business, start a new one, or fund a home or auto loan. These investments fund the innovation, tools, and business expansions that make workers more productive, raise wages, and grow the economy. And it all starts with converting savings into investments.

Government debt hijacks this process. Washington’s $31 trillion in publicly held debt—a number now higher than the United States’ annual gross domestic product—represents $31 trillion in savings lent to the government for spending rather than to businesses, innovators, and homebuyers—with the exception of $4 trillion that the Federal Reserve financed through monetary expansion. The process of the government absorbing savings that would otherwise have financed private investment is known as “crowding out.”

While the government could borrow to finance pro-growth investments of its own—such as infrastructure, research and development, or education—most federal borrowing instead finances current consumption, such as government benefits for seniors. Temporarily borrowing for productive investments can eventually yield returns sufficient to repay the debt, but large-scale, long-term borrowing to finance permanent consumption is unsustainable and economically destructive.

This large government borrowing also drives up interest rates, which are simply the price of borrowed money. Baseline interest rates balance the supply of savings against the demands of businesses and families seeking loans. A government demanding trillions in borrowing of its own causes demand for savings to far exceed the available supply—pushing up its price.

This economic harm may worsen.

Determining the magnitude of the interest rate effect involves two countervailing factors. On one hand, the pool of savings has been globalized, allowing capital to move easily across borders. A government borrowing $100 billion will have a smaller interest rate effect on an enormous global savings pool than it would as a large fish in a single nation’s smaller pond. And holding the world’s reserve currency guarantees some degree of demand for dollar-denominated debt. On the other hand, the federal government’s borrowing needs are so vast—with debt currently at $31 trillion and projected to add $200 trillion more over the next three decades under current policies—that even global capital markets may struggle to absorb this without a meaningful rise in interest rates and reduction in pro-growth investment.

Moreover, the vast majority of this borrowing will come from domestic savings. Of the current $31 trillion in federal debt, China and Japan each hold only roughly $1 trillion, and they likely have neither the capacity nor the interest to absorb much of the $200 trillion in additional scheduled borrowing over the next three decades. Other nations will surely purchase Treasury bonds, but projected U.S. borrowing may eventually exceed the entire GDP of many potential creditor nations. That leaves domestic investors—insurance companies, pension and retirement funds, mutual funds, and state and local governments—to finance Washington’s escalating borrowing demands, or the Federal Reserve to do so while expanding the money supply. At this scale, significant upward pressure on interest rates seems difficult to avoid.

While many studies have attempted to quantify these effects, the general economic consensus is that each 1-percentage-point rise in government debt as a share of GDP pushes up long-term interest rates by approximately 3 basis points (or 0.03 percentage points). This may not sound like much, but it means the federal debt’s jump from 40 to 100 percent of GDP since 2008 has already pushed up interest rates by approximately 1.8 percentage points (some of which was offset by other factors such as a global savings glut). And the projected further leap to more than 240 percent of GDP over three decades under current policies would add yet another 4.2 percentage points of upward pressure—absent offsetting factors. Perhaps other economic forces will push rates all the way back down. But are we prepared to bet the economy on that hope—especially when the coming surge in AI investment may also compete for available capital and put further upward pressure on rates? And in the meantime, all of this government borrowing means significantly fewer savings available to finance home loans, auto loans, and pro-growth economic investment.

Estimating the economic costs.

These economic costs are not theoretical, as the public’s broad dissatisfaction with the economy can attest. Productivity growth averaged 1.6 percent annually between 1996 and 2010, but has averaged just 1 percent over the past 15 years—a gap that compounds to an economy roughly 9 percent smaller than it might otherwise be. While federal debt is certainly not the only driver of that decline, it is surely a contributing factor. Cross-national research from the International Monetary Fund finds that debt levels above 85 percent of GDP are associated with slower economic growth—and U.S. debt approximates 129 percent of GDP when state and local government debt is included.

With the Organization for Economic Co-operation and Development’s largest budget deficits, U.S. government debt as a share of GDP has leaped to the fourth highest among the 38 advanced economies in the OECD. As debt continues rising steeply, the economic drag is likely to intensify. CBO recently compared a long-term debt-stabilization scenario with one broadly maintaining current policies, finding that the higher-debt path would trim 27 percent off total per-capita income growth over the next 25 years, and that by 2050 per-capita income would be growing at just over half the rate as in the stabilization scenario. Overall, CBO projects that the higher-debt scenario would reduce the growth of annual national income by approximately $10,000 per person—or $40,000 per family of four—by 2050 in today’s dollars.

Similarly, economists at the Penn-Wharton Budget Model project that a package reducing the 30-year debt projection by 38 percent of GDP would expand GDP by 21 percent and significantly raise wages. To be sure, these are model-based estimates. Yet the underlying logic—that government borrowing crowds out the private investment necessary to raise productivity and living standards—is economically inescapable. And today’s sluggish wage growth, underwhelming economic growth rates, and elevated interest rates are surely affected by the prolonged surge in government debt.

CLICK HERE for the full article at The Dispatch

(Originally appeared as Brookings Insitution blog post)

Editor’s note: Spending, Taxes, and Deficits: A Book of Charts contains 132 pages of conventional-wisdom-defying insight into federal spending, taxes, budget deficits, and debt in 2026. This is the fourth in a series highlighting key myth-busting charts.

A closer look at basic government data from the Congressional Budget Office, Office of Management and Budget, and the Treasury Department helps answer a basic question: Who—or what—really balanced the budgets from 1998 through 2001?

For many economists, budget experts, and Americans of a certain age, the late-1990s balanced budgets tell a rare government success story. But politicians can’t claim full credit.

Budget deals were all the rage among 1990s politicians

After the federal deficit reached a post-World War II peak of 6% of gross domestic product (GDP) in 1983, deficit reduction became a leading issue in American politics. Several deficit-reduction laws were passed in the late 1980s and early 1990s. Billionaire and 1992 presidential candidate Ross Perot earned a surprising 19% of the popular vote thanks to a quirky campaign that focused heavily on fiscal responsibility.

The winner of that 1992 race, Bill Clinton, subsequently made deficit reduction a centerpiece of his first budget submission and tax increase enactment. The following year, Rep. Newt Gingrich (R-GA) led Republicans to their first House majority in 40 years on a promise to balance the budget within seven years.

The resulting clash between the GOP’s aggressive timetable and President Clinton’s more gradual approach produced contentious government shutdowns in 1995 and 1996. And yet by 1998 the budget had achieved balance for the first time since 1969—and remained balanced through 2001. A dominant political narrative emerged: High-profile belt-tightening budget deals negotiated by Clinton and Gingrich reduced the deficit and balanced the budget just a few years later.

But budget deals contributed relatively little to balanced budgets

The surprising reality: The elimination of the deficit was largely a temporary historical accident, driven by forces mostly beyond the control of the politicians who claimed credit for it.

Chart 110 (Figure 1 below) maps the path from 1992’s deficit of 4.5% of GDP to the peak surplus of 2.3% of GDP in 2000—a swing of 6.8 percentage points. Nearly the entire improvement in the federal government’s fiscal position resulted from two events: the end of the Cold War and a temporary stock market and tax revenue bubble.

The end of the Cold War brought defense savings

The first major deficit reduction driver was defense savings resulting from the collapse of the Soviet Union. After President Reagan’s Cold War military buildup peaked with a defense budget of 6.0% of GDP in 1986, the collapse of communism in Europe prompted Congress to trim defense spending to 4.7% of GDP by 1992 (see Chart 33, Figure 2 below). Then, during the 1992-2000 period of broader deficit reduction, the defense budget further declined to 2.9% of GDP, the lowest share of the economy since the 1930s. These savings account directly for roughly one quarter of all deficit reduction between 1992 and 2000, and more when the resulting interest savings are incorporated.

Obviously, President Clinton and Congressional Republicans cannot be credited with ending communism in the Soviet Union and Eastern Europe. Such events were driven by decades of internal Soviet and Eastern European developments—perhaps with a nudge from President Reagan and others who had drawn the Soviets into a costly arms race just as their economy was becoming increasingly fragile.

A stock market and tax revenue boom brought even more savings

The second deficit reducer was an unanticipated (and ultimately unsustainable) surge in temporary tax revenues in the late 1990s. Early 1990s corporate restructuring and substantial investments in emerging internet technologies produced a late-1990s burst of stock market and economic activity. That boom produced an extra 2.2% of GDP in annual tax revenues—particularly from capital gains—while simultaneously driving down unemployment costs and other countercyclical spending as a share of the faster-growing economy. Altogether, economic factors account for roughly 60% of all deficit reduction from 1992 to 2000.

It is difficult to identify contemporary White House or congressional policies that produced the corporate restructuring or internet-era expansion. And while Democrats often credit President Clinton’s 1993 tax increases with a significant share of late-1990s deficit reduction, the resulting 0.7% of GDP in tax revenues represents roughly one-tenth of the total improvement over this period. So while Republicans can note that Clinton’s 1993 tax increases were not the primary driver of deficit reduction, Democrats can respond that those increases did not derail the subsequent economic boom as Republicans had aggressively warned.

The accidental nature of 1998–2001 surpluses is confirmed by their quick unraveling

Shortly after the 1990s ended, the same two factors that had accidentally balanced the budget—an absence of powerful global adversaries and an aggressive tax revenue bubble—reversed course and unbalanced it. In 2000, the stock market bubble burst because any of the technology companies commanding enormous valuations couldn’t generate profits to justify them. The Nasdaq began a freefall that ultimately reached 77%. In early 2001 the economy fell into recession, erasing the earlier tax revenue surge. Then the September 11, 2001, attacks prompted a reversal of earlier defense reductions.

The federal budget has run deficits ever since, and they have expanded substantially—the product of repeated tax cuts, spending increases, and the long-anticipated costs of 74 million retiring baby boomers receiving Social Security and Medicare.

Politicians can claim credit for one kind of success

The balanced budgets of the late 1990s—and the swift return to deficits that followed—are a useful reminder of how elected officials often have less control over short-term federal budget fluctuations than is commonly believed.

Politicians routinely receive too much credit when things go well, and too much blame when things go wrong. In this case, there is little basis for crediting 1990s politicians with the broader geopolitical, economic, and technological forces that eliminated budget deficits between 1998 and 2001.

Perhaps the politicians’ true fiscal achievement of the 1990s was more modest. They stayed out of the way on economic and foreign policy and then resisted the temptation to spend the resulting windfall on expensive new initiatives—at least temporarily.

For more insights into federal spending, taxes, deficits, and debt, check out Jessica Riedl’s 2026 federal budget chartbook.

CLICK HERE for article posted at the Brookings Institution site

CLICK HERE for the full video

May 6, 2026

Cato Institute, 1000 Massachusetts Ave, NW, Washington, DC

Romina Boccia: Director of Budget and Entitlement Policy, Cato Institute

Jessica Riedl: Budget and Tax Fellow, Urban-Brookings Tax Policy Center, Brookings Institution

C. Eugene Steuerle: Institute Fellow and Richard B. Fisher Chair, Urban-Brookings Tax Policy Center, Urban Institute

Event Description

Social Security is widely portrayed as a self-financed program with a long-term trust fund solvency problem. But for more than a decade, the program has already been financed in part through federal borrowing. The trust fund is a political construct, not a true repository of savings or investments. Since 2010, the Treasury has borrowed more than $1.5 trillion to pay Social Security benefits, and borrowing is projected to rise sharply even before the trust fund is exhausted in 2032. Over the next 75 years, the program’s cash-flow shortfall will exceed $28 trillion in present-value terms.

This event will examine how trust fund accounting masks Social Security’s growing contribution to federal debt, why economic growth cannot solve the problem on its own, why lifting the payroll tax cap will not sustainably close the program’s funding gap, and how current benefit design fuels immediate deficits and long-term fiscal imbalance. Experts will discuss reform strategies that address the program’s structural flaws and prevent Social Security from worsening the debt crisis.

Debates over federal taxes, spending, and deficits will always be contentious due to deep disagreements over fiscal priorities, ideologies, and values. Yet these debates are often further hampered by an inability to agree on even the most basic underlying budget data. Simply put, standard liberal and conservative fiscal frameworks are often defended with fallacies regarding the current and projected makeup of taxes and spending, the trends in budget deficits and debt, and the fiscal records of recent presidents.

The new 2026 version of this annual chart book once again provides a standard, non-partisan look at the trends in spending, taxes, and deficits in hope of addressing common fallacies and providing a common starting point for fiscal debates.

The 132-page chart book begins by broadly examining the rising budget deficits and national debt and then dives deeper to show the policies driving the $138 trillion in new CBO-projected deficits over the next three decades—and how drastically the picture worsens if interest rates remain elevated. Next, the chart book shows the size of the reforms needed to stabilize the debt, and how the common “easy solutions” would fail to provide sufficient savings towards that goal. Finally, it examines trends in tax revenues and tax progressivity, slays common budget myths, and offers a full accounting of the fiscal records of Presidents Bush, Obama, Trump, and Biden.

These charts—most of which rely on publicly-available data from the Congressional Budget Office, Office of Management and Budget, Census Bureau, and U.S. Treasury—nevertheless defy conventional wisdom about spending, taxes, and deficits.

Examples of charts include:

• Annual Budget Deficits are Projected to Approach $4.4 Trillion Within a Decade (p. 7)

• Interest to Consume 31 percent of Revenues Within a Decade, More Than Half By 2056 (9, 79)

• The U.S. Now Has the OECD’s Largest Budget Deficit and 4^th Largest Debt (21-22)

• How Did Washington Go from Budget Surpluses to Escalating Deficits? (28, 49)

• Rising Social Security & Medicare Shortfalls Drive 2023–36 Deficit Rise (45-47)

• Debt in 30 Years Reaches Between 175 percent–379 percent of GDP, Depending on Baseline (59)

• What is Driving CBO’s Projected $138 Trillion Deficit over 30 Years? (61–67)

• How Much Does Social Security Add to Annual Deficits and the Debt Per Year? (71-72)

• Each 1 percent Interest-Rate Rise Adds $57 Trillion (or 60 percent of GDP) to 30-Year Debt (75-78)

• A Menu of Tax Increase Options With 10-Year and Long-Term Estimates (81)

• Taxing the Rich Could Raise at Most 1 percent or 2 percent of GDP (84)

• Does the U.S. Have the OECD’s Most Progressive Tax Code? (92-93, 102)

• What Really Caused the 1990s Budget Surpluses? (110)

• The Comprehensive Budget Record of Presidents Bush (112-113), Obama (114–121), Trump (122–126), and Biden (127-132).

Download the chart book

Inflation-weary voters are now watching gas prices spike from $2.80 to nearly $4 per gallon, an increase expected to drain hundreds of dollars from the pockets of typical families if they persist for a year or longer. Rising prices and a global economic slowdown are also reviving recession fears. And yet these costs are entirely policy-driven and preventable—the result of President Donald Trump’s decision to attack Iran without first securing oil and liquified natural gas (LNG) shipping through the Strait of Hormuz.

Once again, political leaders are asking voters to accept higher prices as the necessary cost of some other policy goal.

For the past four years, inflation has consistently polled as voters’ top economic concern—and often top concern overall. Nevertheless, President Joe Biden steadfastly ignored those concerns and pursued an inflationary agenda until it cost his party the White House. Then, after Trump campaigned on ending “Bidenflation,” he re-entered the White House and immediately unleashed his own aggressively inflationary agenda—tariffs, tax cuts, spending expansions, immigration deportations, and demands for Federal Reserve rate cuts. His approval rating has accordingly plummeted to 29 percent on the economy and 23 percent on inflation and prices. The likely result will be Republicans losing the House, and possibly even the Senate, in November.

Politically, this seems inexplicable. If inflation is the top voter concern—and at this point the leading determinant of presidential approval ratings and election outcomes—why do presidents keep ignoring the public will and pursuing inflationary policies? Don’t politicians care about inflation as much as we do? Don’t they desire the popularity that comes with addressing what voters care about most?

The answer is that Washington economic policy is no longer primarily about securing broad prosperity, low unemployment, and restrained inflation. Rather, it is about delivering targeted benefits to specific key constituencies. Presidents want to lavish their coalition with tax cuts, spending expansions, protection from foreign competition, and regulatory favors. Such benefits are tangible and traceable directly back to the president.

And the economists’ warnings? While debating new policy proposals, any resulting inflation or recession feels like a theoretical possibility rather than a predictable outcome. Maybe tariffs will raise prices—but what if they don’t? Who can say with certainty that a tax cut and spending spree will truly ignite inflation? Or that Federal Reserve rate cuts will do the same? After all, expert warnings of inflation following President Barack Obama’s 2009 stimulus and the Fed’s expansionary policies never materialized. And there is always some economist or organization willing to argue that a given president’s agenda carries no meaningful macroeconomic downside. So why sacrifice tangible benefits for a theoretical risk of broad economic harm?

Continue Reading at The Dispatch (Paywall)

Executive summary

President Biden’s tax, spending, and deficit legacy continues to spark debates. Supporters assert that Biden inherited a pandemic crisis and enacted vital stimulus spending to resuscitate the economy, undertook key investments in long-neglected areas, defended Social Security and Medicare against cuts, and still left with a smaller budget deficit than the one he inherited. Biden defenders add that even more could have been accomplished had he maintained a Democratic Congress for the last half of his presidency.

Critics believe that the economy that was already re-opening from the pandemic when Biden took office and that his programs only served to raise inflation. They contend that the new policies reflected special interest giveaways to partisan allies. Finally, critics note that Biden added trillions to budget deficits and argue that keeping deficits below their pandemic-peak levels is a weak criterion.

The end of Biden’s presidency allows for a final assessment of his tax, spending, and deficit record. As the methodology section explains, this analysis begins with the 10-year budget baseline that President Biden inherited in February 2021 and measures all subsequent tax and spending changes through the February 2025 baseline that was released as the president left office. The analysis is based on more than a half-dozen Congressional Budget Office (CBO) baseline updates over these four years, supplemented with the line-item scores of all notable bills and executive orders signed into law by Biden.¹

Here are the key findings:

• The cumulative 2021-2031 budget deficits were projected by CBO at $14.5 trillion when President Biden entered the Oval Office. Four years later, he left office with the same period facing a total deficit of $21.2 trillion. The president signed or enacted $6.6 trillion in new initiatives and oversaw economic and technical budget revisions that were nearly budget-neutral over the 2021-2031 period.

• Economic and technical factors added $0.1 trillion in actual and projected deficits over this period. Higher-than-projected inflation and a slight bump in economic growth expanded projected 2021-2031 revenues by $6.9 trillion, and mandatory and net interest costs increased by a combined $6.7 trillion. Technical revisions added roughly $1.4 trillion in revenues, but they also pushed up mandatory and net interest costs by a slightly higher amount. The fiscal effects of these factors largely offset each other, leading to a net addition of just $0.1 trillion to 2021-2031 actual and projected deficits.

• President Biden signed legislation and approved executive actions cumulatively costing $6.6 trillion over the decade—compared to $7.8 trillion for President Trump, $5.0 trillion for President Obama, and $6.9 trillion for President Bush. And like President Trump, Biden enacted these costs in just a single four-year presidential term, compared to Obama’s and Bush’s eight years in the Oval Office. The largest drivers were pandemic response and stimulus legislation ($2.1 trillion), expansions to discretionary spending excluding defense and veterans’ benefits ($1.7 trillion), veterans’ benefit expansions ($837 billion), student loan executive orders ($755 billion), and defense spending hikes ($596 billion).

• President Biden’s four annual budget proposals averaged 10-year tax increases of $3.9 trillion and spending expansions of $2.5 trillion. The proposed tax hikes—overwhelmingly consisting of drastic tax increases on businesses—were largely ignored by Congress. However, spending proposals such as pandemic relief, infrastructure, and family benefits found a receptive legislature.

• Biden left the White House with structural budget deficits of nearly $2 trillion, interest costs surging, and spending at its highest share of the economy in American history outside of world wars and deep recessions. The ongoing failure to address unsustainable Social Security and Medicare costs leaves a projected 30-year baseline deficit of $110 trillion.

As the methodology section explains, most changes in this report are scored over the full 2021 through 2031 period because most policy, economic, and technical changes have at least 10-year budget effects, and they can also be measured against the original February 2021 CBO baseline that covered the 2021-2031 period.

Download the full report

CLICK HERE to watch on YouTube

The American Economy: How Unchecked Executive Power Affects the Market

Principles First Summit, February 21, 2026,

Featuring Will Rinehart, Senior Fellow at AEI;

Jessica Riedl of the Brookings Institute;

Francis Fukuyama of Stanford University; and

Justin Wolfers, Professor of Economics and Public Policy at the Gerald R. Ford School of Public Policy at the University of Michigan

(Originally published in The Dispatch)

Even before the ink dried on the One Big Beautiful Bill Act (OBBBA), many Republican lawmakers were excitedly discussing the possibility of another reconciliation bill. To these conservative lawmakers, Reconciliation 2.0 could include all the deep spending savings that failed to make it into Reconciliation 1.0 (the OBBBA).

Indeed, the House Republican Study Committee (RSC) recently released a Reconciliation 2.0 blueprint that it claims would save $1 trillion over the decade.

Budget savings are desperately needed to combat unsustainable budget deficits heading toward $4 trillion annually within the next decade. Nevertheless, fiscal conservatives and deficit hawks should be strongly skeptical of Reconciliation 2.0. Given the still-shrinking House GOP majority and a critical midterm election approaching, such legislation is overwhelmingly likely to be twisted into another cynical vote-buying indulgence of tax relief and spending expansions. After all, the reconciliation process has produced the overwhelming majority of deficit-expanding legislation over the past quarter-century, and there is no basis for trusting the current Republican government to suddenly use it for courageous (and politically risky) budget cuts before the 2026 election.

Previous reconciliation laws added $16 trillion to the debt.

The temptation of another reconciliation bill is understandable because such bills can pass under an expedited process that a Senate minority cannot filibuster. Broad reconciliation bills are generally limited to one per fiscal year, as long as Congress is willing to first draft and pass a budget resolution (from which the reconciliation instructions spin off). Thus, Congress could perform this exercise once for FY 2026 (which ends on September 30) and then potentially again after the next fiscal year begins on October 1.

Parties with unified control of Congress and the White House seldom let reconciliation opportunities go to waste, as the rule protecting such bills from a Senate filibuster essentially renders the minority party powerless. And while this filibuster-proof privilege was originally intended to facilitate the passage of deficit-reducing legislation, it has since been twisted into a “get out of jail free” card providing the majority party with one annual bill to pack with all the budget-busting tax cuts and spending hikes they could never pass under regular order.

Accordingly, since 2001, the five largest reconciliation laws (plus the 2013 non-reconciliation extension of the reconciliation-passed Bush tax reductions) have cost a staggering $12.8 trillion plus $3 trillion in resulting interest costs for a total of $15.8 trillion in added government debt. This includes two President Bush tax cut bills (2001 and 2003) and one permanent extension of that tax relief (2013), two President Trump tax reductions (2017 and 2025), and President Biden’s American Rescue Plan (2021). Far from facilitating the passage of deficit-reduction bills, the reconciliation process has become a colossal deficit driver.

CLICK HERE to keep reading at the Dispatch (paywall)

(Originally published in The Dispatch)

The reported disbanding of the Department of Government Efficiency (DOGE)—eight months before the end of its scheduled term—is perhaps the entity’s only true conservative accomplishment. By having its activities subsumed into the Office of Management and Budget (OMB), DOGE has at least shown that the Trump administration can eliminate a wasteful and ineffective government program.

Earlier this year, DOGE tore through the federal government like a hurricane, with director Elon Musk promising to “move fast and break things” like a Silicon Valley disruptor. However, Musk’s exit in late May starved DOGE of the Trump support and MAGA voter credibility it needed to steamroll federal agencies and even Cabinet officials. The remaining remnant of tech bros simply lacked the needed expertise and institutional support to become a true power center to rival OMB.

DOGE fell victim to the absurdly unrealistic standards set by its leaders. Elon Musk originally pledged that his administrative actions to slash government waste could immediately save $2 trillion out of a $7 trillion federal budget. As Musk familiarized himself with basic federal budgeting, he quickly reduced his target to $1 trillion and then $150 billion. These ambitious goals reflected the long-held conservative fantasy that budget deficits are driven primarily by obvious waste, fraud, and abuse that any competent business leader could simply zero out, saving trillions of dollars. When that simplistic narrative was revealed to be false, conservatives such as Florida Gov. Ron DeSantis blamed the Washington, D.C., establishment (“the swamp”) for aggressively sabotaging DOGE. In reality, DOGE was fatally flawed from the beginning. Its premise of trillions of dollars in easily cuttable waste was nonsensical, and DOGE further limited its own effectiveness through incompetence and attempts to bypass Congress illegally. DOGE’s failure was entirely predictable to anyone with a baseline understanding of the federal budget, public administration, or basic politics.

DOGE saved little money.

While DOGE never came close to saving even the latest target of $150 billion, its precise savings may never be known because it is impossible to measure exactly which spending was canceled, how much would have been spent otherwise, and how much of the canceled spending was reprogrammed into other uses. On a macro level, total federal spending rose by $275 billion in 2025, which was $18 billion below the level projected by the Congressional Budget Office. This $18 billion difference is not necessarily policy-based, as it is also within the margin to be expected from slight changes in economic or technical factors.

Treasury’s monthly budget breakdowns reveal that spending on the State Department and international assistance programs fell by $12 billion in the second half of FY 2025 (which ended September 30), while spending on public health, education, and other targeted programs did not show notable declines across the year. That $12 billion mostly overlaps with the $9 billion rescission savings bill signed by President Donald Trump plus $5 billion that the administration refused to spend in a “pocket rescission.” Moving forward, the reported reduction in the number of federal civilian employees from 2.4 million to 2.1 million may save as much as $40 billion annually. But even that figure assumes that none of the eliminated federal jobs are restored or replaced by contractors. Finally, DOGE may ultimately lose money when including the tax revenues lost from fewer audits and more tax evasion as a result of IRS staff layoffs. Whatever final savings figure emerges will be far less than the trillions originally promised.

CLICK HERE to keep reading at the Dispatch (paywall)

The trustworthiness of the Bureau of Labor Statistics’ (BLS) data on inflation, employment, wages, productivity, and consumer spending has historically been a concern only for cranks and conspiracy theorists. Unlike many other nations, the United States has long been able to shield its government data collection processes from partisan political wars. We may debate who is to blame for employment trends, yet no credible critic would argue that the BLS is faking the jobs numbers. That is, until President Donald Trump fired BLS Commissioner Erika McEntarfer in August in response to a weak jobs report that Trump claimed was “rigged.” Trump then nominated as a replacement E.J. Antoni, a Heritage Foundation economist widely considered to be a partisan apparatchik with scant qualifications in labor economics. Antoni’s nomination was pulled in October due to bipartisan Senate opposition.

Republicans have since attacked the BLS’ monthly jobs reports for requiring subsequent revisions. However, such revisions are a feature, not a bug. In order to measure 163 million workers out of 340 million Americans, the BLS surveys establishments and households. However, delayed replies and declining response rates mean that an initial monthly estimate will be revised as later survey responses arrive. Avoiding these future revisions would require skipping the initial jobs reports altogether and waiting months until a critical mass of surveys has been received—a point at which a given month’s jobs data would be too outdated to be useful.

Despite declining response rates, the BLS’ track record is remarkably strong. Out of 163 million employed Americans, revisions typically approximate just 0.1 million. And despite common assertions otherwise, the subsequent revisions show no sustained pattern upward, downward, or in support of a single political party. While BLS faces data response challenges, there is no basis to doubt its overall trustworthiness.

Perhaps, that is, until now. Rather than try to improve the BLS, the Trump White House seems to be sabotaging it. It empowered the Department of Government Efficiency to lay off data collectors—and proposed deep additional cuts to personnel and funding. It disbanded its (unpaid) working groups of outside economists and statisticians who were advising the BLS on data improvements. It has delayed the release of a key annual report tracking consumer spending. Trump fired one well-respected commissioner while trying to install a replacement who lacked any notable publications record in labor economics. And of course, firing one BLS commissioner for releasing jobs data that did not flatter the president sends a loud message about the performance expectations for whoever becomes the next commissioner.

That said, faking jobs data would be extraordinarily difficult. The BLS’ data collection involves more than 1,000 permanent employees who would surely blow the whistle on data manipulation. Moreover, various databases—such as totals and countless subgroup breakdowns—would be quickly exposed by outside data analysts if they did not perfectly align together. Instead of the BLS outright rigging the numbers, we may see fewer jobs reports, and more changes to the timing and manner of various data reports in order to obscure bad news. (The White House is already planning to skip the October jobs report rather than backfill the data as the government reopens.) With the jobs market softening, we may soon discover how the White House tries to obscure bad news.

The BLS data has long been trustworthy. Whether that continues will depend on the actions of the Trump administration.

(Originally published in The Dispatch)

One hallmark of the presidencies of Donald Trump is surging budget deficits. Another is repeatedly claiming that drastic deficit reduction is just around the corner. During his 2016 presidential campaign, Trump famously promised to pay off the entire $19 trillion national debt within eight years. Instead, the debt jumped by $8 trillion, thus missing his target by a mere $27 trillion.

A new Trump presidency has brought additional empty deficit reduction boasts. Before the election, he suggested that the budget deficit (and Social Security) could be fixed by selling oil and gas reserves. In a March address to Congress, Trump pledged to eliminate the entire $1.8 trillion budget deficit while offering no path to accomplish such a monumental task. Not to be outdone, DOGE director Elon Musk initially pledged to save $2 trillion from administrative reductions in waste, fraud, and abuse. Over the summer, Trump promised that tariff revenues would leave federal coffers so awash in money that tax rebates would be necessary. And now, Treasury Secretary Scott Bessent is claiming the budget is on “solid footing” toward his deficit target of 3 percent of GDP, thanks to substantial deficit reduction.

Unfortunately, Bessent’s deficit reduction boasts continue the trend of propaganda over progress. Tariffs are providing modest fiscal savings, although the deficit remains on track to continue rising steeply.

When Trump returned to office in January, the Congressional Budget Office was projecting the annual budget deficit to dip slightly, from $1.8 trillion to $1.7 trillion over the next few years, before climbing to $2.5 trillion annually within a decade. The CBO assumed that immediate savings from the scheduled expiration of the 2017 tax cuts, as well as a continued phase-down of pandemic spending, would eventually be overwhelmed by the sharply rising costs of Social Security, Medicare, and interest on the national debt.

Trump’s actions thus far have dramatically worsened these deficit projections. While the pandemic phase-down as well as Trump’s tariffs provided some modest savings, the 2025 deficit still came in at $1.8 trillion—about the level projected at the beginning of the year. Yet the One Big Beautiful Act (OBBBA), which extended those 2017 tax cuts and more, is scheduled to cost a staggering $4.2 trillion over the next decade—or $5 trillion if one assumes that Congress and the White House will once again extend the bill’s purportedly temporary provisions like a $40,000 cap on state-and-local tax deductions and no taxes on tips or overtime. In that likely scenario, the tax bill alone will add $589 billion to the 2034 budget deficit, which even aggressive, permanent tariffs could not come close to offsetting. Thus, the Trump administration has raised—not lowered—current and projected budget deficits relative to the baseline.

Nevertheless, Bessent claims that monthly budget deficits began collapsing in spring because “Revenues are soaring and government spending is under control” in ways that suggest substantial long-term deficit reduction. While it is true that tariffs have provided modest savings, Bessent drastically overstates his case by confusing timing shifts with major policy changes.

CLICK HERE to keep reading at the Dispatch (paywall)

(Originally published in The Dispatch)

President Trump has declared war on the prized independence of the Federal Reserve in an attempt to essentially run monetary policy out of the White House. He has attempted—illegally and on dubious grounds— to fire Fed Gov. Lisa Cook, threatened to fire Chairman Jerome Powell, and installed a top White House economist into a key Federal Reserve position. This White House pressure surely drove the Fed’s decision to reduce rates by 0.25 points on September 17.

Going to war against the Federal Reserve seems baseless when current interest rates—while above the anomalous 2010s levels—are not high by historical standards. Moreover, rates are not holding back the current economy, and they may even be too low to combat the recent inflation uptick. However, President Trump has offered an additional argument: Lower interest rates would reduce Washington’s interest on the national debt, “saving us $1 Trillion per year” in reduced budget deficits. This sacrificing of Federal Reserve independence to help the Treasury sell cheaper debt is known to economists as “fiscal dominance.”

Setting aside legitimate concerns over central bank independence and the illegal firing of Fed officials, would fiscal dominance really provide substantial budget deficit savings? The clear answer is no.

Trump is correct that mounting interest costs threaten to bury the federal budget. The toxic combination of soaring debt and elevating interest rates has expanded what the government spends on interest annually from $352 billion in 2021 to nearly $1 trillion today—heading toward $2 trillion within the next decade. Interest costs are the second-biggest budget item after Social Security, having recently surpassed Medicaid, defense, and Medicare spending. Within a decade, nearly 30 percent of all annual taxes paid may go toward interest on the national debt. To put that in perspective, it amounts to nearly four months of annual federal tax revenue.

Yet instead of working with Congress on a deficit reduction plan, President Trump has chosen to increase deficits further with more tax cuts, and then try to force downward the interest rate on the federal debt.

Let’s calculate the savings estimates. The total national debt is $37 trillion, of which $30 trillion has actually been borrowed from the public (most of the rest represents the Social Security trust fund and other “intragovernmental debt” that was never actually borrowed from the public). Of that, $29 trillion represents “marketable debt”—tradable government bonds, in other words. These bonds are sold with maturities ranging from four weeks to 30 years, but the average weighted maturity is 72 months. That means that roughly half of our existing debt comes due over a six-year period. Within the next year, $9 trillion of this debt will come due and must be replaced with new bonds at whatever interest rates prevail at the time. Adding $2 trillion in new borrowing from new budget deficits means the Treasury will have to sell $11 trillion in securities next year.

CLICK HERE to keep reading at the Dispatch (paywall)

(Originally appeared in the Washington Post)

Washington’s spiraling debt trends are simply unsustainable. If you doubt this, consider the fiscal crises, protests and political chaos occurring beyond our shores.

Governments across the globe cumulatively spent on average $1.3 trillion annually on debt interest payments in the 2010s. Soaring debt and loan rates have escalated this year’s interest costs to $2.7 trillion. In five years, that number is projected to hit $3.9 trillion. This avalanche of borrowing costs represents the latest sign of long-term debt binges that have been mostly driven by aging populations and sluggish economies.

Let’s begin with Britain’s fiscal mess. The combination of aging baby boomers and falling fertility rates (now below 1.5 per woman) has swelled senior and health benefit costs beyond what its stagnant base of taxpaying workers can finance. Because economic growth is roughly the sum of labor force expansion and labor productivity increases, this workforce slowdown has strangled the British economy, especially with productivity trends also weak. Consequently, the economy has grown less than 2 percent annually since 2000 — and government forecasters see no improvement coming.

With the British economy failing to fund the benefit costs of its aging population, the resulting borrowing spree is being financed at the highest interest rates since the 1990s. This has pushed interest costs to almost 10 percent of public spending, nearly 50 percent higher than the defense budget. Britain’s Office for Budget Responsibility warns that the current debt — just less than 100 percent of its economy — is on its way to 270 percent within five decades, which would exceed the government’s reasonable borrowing capacity.

Yet the nation remains largely in denial. A historic tax increase enacted last year was plowed into government spending rather than closing the fiscal gap and a stubborn refusal to reform spending has brought calls for another tax hike.

Continue Reading at The Washington Post (Paywall)

CLICK HERE for the Reason video presentation

CLICK HERE for the Reason article below

Budget deficits of nearly $2 trillion—and speeding towards $4 trillion within a decade—will force increasingly difficult budgetary trade-offs. Many on the left, and sometimes the populist right, respond with: “Easy, just tax the rich. Problem solved.”

But is it really that easy? Can most of these soaring budget deficits be closed by higher taxes on the wealthy and corporations? The answer is an emphatic “no.” And that’s not a question of ideology, or of picking winners and losers. It’s just a matter of unforgiving math: Deficits have grown too big for even aggressive tax-the-rich policies to fix significantly.

Taxing the rich could be part of a broader deficit “grand deal” where all taxes and spending are up for debate. But it could only ever be a modest part of such a deal, because the potential revenue available from taxing the rich can close only a small portion of our nearly unfathomable deficits.

The Limits of Taxing the Rich

Let’s begin with an extreme example. America has about 800 billionaires. Imagine we seized every single dollar of their wealth—every home, property, business, investment, car, and yacht, right down to their kids’ teddy bears—and sold it all for full market value.

That would raise enough revenue to finance the federal government for 9 months. Not 9 months out of every year: 9 months one time. Then, with no billionaires left to pillage, it’s gone—as is your 401(k), because most of that wealth would’ve been liquidated out of the stock market.

Even taxing million-dollar earners at 100 percent marginal tax rates wouldn’t balance the long-term budget. Not even if each of those taxpayers would keep working for zero net pay (and they would not).

Only slightly more realistically, imagine that President Bernie Sanders gets to implement his dream tax proposal: federal income tax rates as high as 52 percent, an uncapped 15.3 percent payroll tax on all wages, and capital gains tax rates of 62 percent—plus the state tax rates on top of those. Sanders also proposed hitting corporations with a world-leading 35 percent corporate tax rate that includes all multinational income, a wealth tax rate as high as 8 percent, an estate tax rate as high as 77 percent, new financial transaction taxes, and several other surtaxes.

Sanders’ tax proposal would set marginal income, capital gains, business, wealth, and estate tax rates at their highest levels in the developed world. Total new revenues: approximately 1.5 percent of GDP, after accounting for losses to dampened economic growth. That is a lot of money. But it’s not enough to close more than a fraction of a current-policy budget deficit heading toward 8 percent of GDP in the next decade. And even those revenue figures implausibly assume that people and corporations would continue working, saving, and investing despite combined federal and state marginal tax rates on labor and investment that would approach 80 to 100 percent.

Two years ago, I ran a model that set every upper-income and corporate tax policy at its revenue-maximizing level without regard to economic damage. It showed roughly 1.5 percent of GDP in new revenues and much slower economic growth. This is not a good tradeoff for an economy. The mathematical reality is that there just aren’t enough millionaires, billionaires, and undertaxed corporations to close a 30-year budget deficit of between $115 trillion and $180 trillion, depending on the baseline we use. It is not possible to finance annual deficits heading to $4 trillion in a decade and 14 percent of GDP over the next 30 years on the backs of corporations and only 5 percent of American families. There just are not enough super-rich people to pay for the other 300 million of us. And most of the available tax base resides in that large middle class.

American Taxes are Highly Progressive

Few Americans understand that our tax code is already extraordinarily progressive—more so than any other nation in the Organisation for Economic Co-operation and Development (OECD). And it’s grown radically more progressive over the past 40 years. The top-earning 20 percent now pays 69 percent of all federal taxes, and the top 1 percent currently pays 25 percent of all federal taxes.

By contrast, the bottom-earning 60 percent of Americans—that’s 3 out of 5 taxpayers—pay just 13 percent of total federal taxes, including a combined negative income tax.

Last year the federal government funded 263 days of spending by taxes instead of borrowing. Of that, the top-earning 20 percent funded the government for 201 days, or nearly 7 months. The next 20 percent funded 41 days. And the bottom-earning 60 percent of Americans—which means most of the U.S. population including the median-earners—funded the federal government for just 21 days of the year.

That level of tax progressivity might not be a bad thing. But most of the nation’s total income comes from families earning under $400,000. And their dramatically lower current tax rates mean that the large majority of the available remaining tax base resides within the tens of millions of these families. No one likes the idea of raising middle-class taxes, but there’s only so much revenue to raise from the wealthy, even at exorbitant tax rates.

Answering the Critics

Advocates of dramatic tax-the-rich policies often claim enormous potential revenues by invoking: 1) the 1950s income-tax brackets exceeding 90 percent; 2) European tax systems; and 3) corporations that paid little to no taxes last year. The reality is different.

Those 91 percent income tax rates from the 1950s averaged only 7.2 percent of GDP in federal income tax revenues. As the top tax bracket fell to 70 percent in the 1960s and 1970s, income tax revenues actually rose to around 7.8 percent of GDP. And in the time since all the dramatic reductions of the top income tax rates starting in 1981, federal income tax revenues have averaged 8.1 percent of GDP. So Washington collects more income tax revenues as a share of GDP today with a top tax bracket of 37 percent than it collected in the 1950s with a 91 percent tax bracket. In fact, since 1950 the correlation between the highest income tax bracket and revenues as a share of the economy is -0.25 percent, meaning that higher top tax rates are correlated with lower income tax revenues.

How can eras with higher top tax brackets bring in less overall tax revenue? Because the highest income tax brackets don’t tell us much about the total income tax revenues. What matters more are the income thresholds for every tax bracket, the amount of tax preferences and tax deductions, whether the tax system encourages tax avoidance and tax evasion, and—most importantly—broader economic growth rates. Those dials can produce more tax revenues than merely raising upper-income tax rates on a small number of taxpayers.

In fact, almost no one actually paid those old 91 percent tax rates, which kicked in at today’s equivalent of a $4.1 million annual income. In 1961, that was only 446 families, and it raised just 0.1 percent of all income tax revenues. Moreover, all of the tax brackets between 52 percent and 91 percent collectively produced just 1 percent more income tax revenue than if we had capped those tax brackets at 50 percent. Those tax brackets won’t even pay for 2 days a year of federal spending. People are free to advocate 91 percent tax rates, but they should not point to 1950s America as proof that they raise significant tax revenues that way.

What about the claim that Europe has shown how to finance large welfare states on the backs of the rich? In reality, those nations tax the wealthy at similar rates to the U.S. It is their heavy middle-class taxes that produce the typical OECD nations’ 7.5 percent of GDP tax revenue advantage over the US across all levels of government. Specifically, every other OECD nation assesses a value-added tax (VAT)—essentially a sales tax—as high as 27 percent. Without the resulting 7.2 percent of GDP in average VAT revenues, U.S. and OECD tax revenues are nearly equal. Even the social democratic Scandinavian countries that collect 14 percent of GDP more than the US do it almost entirely from their VAT and higher payroll taxes—which come from everyone, not just the rich.

America’s top tax brackets for income, capital gains, corporate, and estate taxes are actually all slightly higher than those of the typical OECD nations when merging all levels of government. We’ve got the most progressive tax system in the OECD because we tax the rich at similar rates as those other countries but we tax middle- and lower-earners dramatically less than they do. So if you want America to tax like Europe, then our middle class is going to get the nastiest surprise of its life. Europe is no longer the caricature Americans imagined decades ago.

Finally: Every year we get reports of a handful of corporations that paid little to no taxes that year, or those “Warren Buffet pays less tax than his secretary” stories. The corporate examples are often the result of shifting income and taxes from one year to the next, which means any real analysis should examine a corporation’s taxes over a period of several years. And the corporations paying low taxes over many years are typically either earning most of their income abroad and paying foreign taxes, or taking advantage of tax breaks for business investment and R&D that politicians create to encourage those activities.

Either way, eliminating those tax breaks and taxing these companies more could raise perhaps $100 billion a year. That’s real money, but it’s not a game-changer in the context of those $4 trillion annual deficits we’re heading toward. And, of course, we’d lose the business investment and job creation that comes from those bipartisan incentives.

Today, many wealthy individuals escape short-term income taxes by receiving most income in capital gains or borrowing against their wealth. The capital gains will eventually be taxed when the investments are sold, unless they carry it through to death. Ensuring that capital gains would be taxed at death or that rich people can no longer easily borrow tax-free against their wealth would be logical reforms—but they wouldn’t raise revenue of any significance to our deficits. We will still have to make difficult choices on spending or middle-class taxes.

Put Everything on the Table

None of this means we shouldn’t tax the rich more. Fixing a ruinous deficit requires putting everything on the table, including higher taxes on the rich. For example, my deficit reduction blueprint would close the loophole that permanently exempts capital gains from taxation if they’re held until death. It would also dramatically scale back upper-income and corporate tax loopholes, and fully fund audits against high-earning and corporate tax cheats.

But we must acknowledge the mathematical reality that our budget deficits have grown so enormous that tax-the-rich policies can’t close more than a tiny fraction of them. And also, that much of Europe long ago learned the hard way that going overboard on wealth taxes and steep top income and corporate tax brackets can backfire on the economy. That’s why their (non-VAT) tax codes have moved closer to ours. A slow-growing economy can’t produce enough revenues to cut its deficit no matter how high its tax rates are. We need higher revenues in the least economically damaging way possible. And yes, if we want to stabilize the debt, that means middle-class taxes will have to rise—and federal spending must be significantly pared back. This includes major spending reforms to Social Security and Medicare’s staggering 30-year cash shortfall of $124 trillion.

Neither political party is suicidal enough to tell middle-class voters that their taxes and benefits must also contribute heavily to reining in runaway deficits. So we comfort ourselves with the wishful thinking that millionaires and billionaires can take the entire burden off our hands. But beyond the empty rhetoric, you will never see a specific, fully scored proposal to eliminate most of the long-term deficit by taxing the rich—because mathematically, it’s just not possible.

CLICK HERE to watch on Reason website

Script:

Can taxing the rich fix the budget deficit? Whenever debates arise over how to fix the soaring federal debt, many on the political left—and even some on the populist right—invariably say “easy, just tax the rich.”

But is it really that easy?

Can those budget deficits of nearly $2 trillion headed toward $4 trillion annually within a decade can simply be closed by higher taxes on the wealthy and corporations?

The answer is an emphatic “no” -- and it’s not a question of ideology, it’s not about picking winners and losers.

It’s just math.

To be clear, we can tax the rich more. And in fact, taxing the rich can absolutely be part of a broader deficit “grand deal” where all taxes and spending are up for debate. But it could only ever be a modest part of a grand deal, because the potential revenue available from taxing the rich can close only a small portion of our nearly unfathomable deficits.

Let’s begin with an extreme example -- America has about 800 billionaires. Let’s imagine we seized every single dollar of their wealth -- every home, property, business, investment, car, and yacht … all, right down to their kids’ teddy bears -- and we sold it all for full market value.

That would raise enough revenue to finance the federal government for 9 months. Not 9 months out of every year -- 9 months one time. Then, with no billionaires left to pillage, It’s gone.

Oh, and so is your 401(k), because most of that wealth would’ve been liquidated out of the stock market.

Even taxing million-dollar earners at 100% marginal tax rates wouldn’t balance the long-term budget -- even if each of those taxpayers continued working optimally for zero net pay.

Chart - https://media4.manhattan-institute.org/wp-content/uploads/Budget-Chart-Book-2024.pdf#page=80

Only slightly more realistically, Imagine that President Bernie Sanders gets to implement his dream tax proposal. We’re talking his proposal of federal income tax rates as high as 52%, an uncapped 15.3% payroll tax on all wages, and capital gains tax rates of 62% -- plus the state tax rates on top of those. And we’d also hit corporations with a world-leading 35% corporate tax rate that includes all multi-national income, a wealth tax rate as high as 8%, an estate tax rate as high as 77%, new financial transaction taxes, and… that’s only the beginning of countless other surtaxes.

Basically, income, capital gains, business, wealth, and estate tax rates would all be set at the highest rate in the developed world. And the total new revenues would be… Approximately 1.5% of GDP.

That is a lot of money. But it’s not enough to close more than a fraction of a current-policy budget deficit heading toward 8% of GDP in the next decade.

And even those revenue figures implausibly assume that people and corporations would continue working, saving, and investing despite combined federal and state marginal tax rates on labor and investment that would approach 80% to 100%.

Actual tax revenues would likely increase by about 1.5% of GDP.

Two years ago I ran a model that set every upper-income and corporate tax policy at its revenue-maximizing level without regard to economic damage. It showed roughly 1.5% of GDP in new revenues and much slower economic growth. It’s a terrible tradeoff.

The mathematical reality is that there just aren’t enough millionaires, billionaires, and undertaxed corporations to close a 30-year budget deficit of between $115 trillion and $180 trillion, depending on the baseline we use.

It just isn’t possible to finance annual deficits heading to $4 trillion in a decade and 14% of GDP over the next 30 years on the backs of corporations and only 5% of American families.

There just are not enough super-rich people to pay for the other 300 million of us. And most of the available tax base resides in that large middle class.

The surprising secret no one seems to talk about is that the tax code is already extraordinarily progressive -- it’s the most progressive tax code in the OECD. And it’s grown radically more progressive over the past 40 years.

The top-earning 20% now pays 69% of all federal taxes, and the top 1% currently pay 25% of all federal taxes. By contrast, the bottom-earning 60% of Americans -- that’s 3 out of 5 taxpayers -- pay just 13% of total federal taxes, including a combined negative income tax.

Last year the federal government funded 263 days of spending by taxes instead of borrowing. Of that, the top-earning 20% funded the government for 201 days, or nearly 7 months. The next 20%? 41 days. And the bottom-earning 60% of Americans -- which means most of the US population including the median-earners -- funded the federal government for just 21 days of the year.

That level of tax progressivity might not be a bad thing. But most of the nation’s total income comes from families earning under $400,000. And their dramatically lower current tax rates mean that the large majority of the available remaining tax base resides within the tens of millions of these families.

No one likes the idea of raising middle class taxes, but there’s only so much revenue to raise from the wealthy.

Now, I know what many of you are thinking. How can this be true? What about those old 91% tax rates from the 1950s? What about Europe’s tax-the-rich social democracies? What about those millionaires and corporations that paid nothing last year? Ok, let’s take these one at a time.

Start with those old 91% income tax rates in the 1950s. Those income tax systems averaged only 7.2% of GDP in federal income tax revenues. As the top tax bracket fell to 70% in the 60’s and 70’s, income tax revenues actually rose to around 7.8% of GDP. And since all the dramatic reductions of the top income tax rates starting in 1981, federal income tax revenues have averaged 8.1% of GDP.

So, Washington collects more income tax revenues as a share of GDP today with a top tax bracket of 37% than it collected in the 1950s with a 91% tax bracket. In fact, since 1950, the correlation between the highest income tax bracket and revenues as a share of the economy is -0.25%, meaning that higher top tax rates are correlated with lower income tax revenues.

How can that be? Well, it turns out that the highest income tax brackets don’t tell us much about the total income tax revenues. What matters more are the income thresholds for every tax bracket, the amount of tax preferences and tax deductions, whether the tax system encourages tax avoidance and tax evasion, and—most important—broader economic growth rates. If you want more tax revenues, look there.

You see, almost no one actually paid those old 91% tax rates, which kicked in at today’s equivalent of a $4.1 million annual income. In 1961, that was just 446 families, and it raised just 0.1% of all income tax revenues. In fact, all of the tax brackets between 52% and 91% collectively produced just 1% more income tax revenue than if we had capped those tax brackets at 50%. Those tax brackets won’t even pay for 2 days a year of federal spending.

If you want 91% tax rates, go ahead -- but don’t point to 1950s America as proof that they work.

But surely Europe has it figured out! They know how to fund large welfare states on the backs of the rich!

Right? Wrong again. They do it by taxing the middle class.

Europe just isn’t the caricature Americans imagined decades ago. The average OECD nation does collect 7.5% of GDP more in tax revenues than the US across all levels of government. And virtually that entire gap is explained by every other OECD nation assessing a value-added tax -- essentially, a sales tax, as high as 27%. That typically raises 7.2% of GDP, so not counting the VAT, US and European tax revenues are nearly equal.

Even the social democratic Scandinavian countries that collect 14% of GDP more than the US do it almost entirely from their VAT and higher payroll taxes -- which come from everyone, not just the rich.

America’s top tax brackets for income, capital gains, corporate, and estate taxes are actually all slightly higher than the typical OECD nations when merging all levels of government. We’ve got the most progressive tax system in the OECD because we tax the rich at similar rates as those other countries, but we tax the middle and lower classes dramatically less than they do.

The American middle class deals with far lower payroll and income tax rates -- so if you want America to tax like Europe, then our middle class is going to get the nastiest surprise of its life.

That third common counter-argument is to blame budget deficits on that billionaire or corporation that reportedly paid no taxes last year.

Every year we get reports of a handful of corporations that paid little to no taxes last year, or those ‘Warren Buffet pays less tax than his secretary’ stories. The corporate examples are often the result of shifting income and taxes from one year to the next, which means any real analysis should examine a corporation’s taxes over a period of several years.

And the corporations paying low taxes over many years are typically either earning most of their income abroad and paying foreign taxes, or taking advantage of tax breaks for business investment and R&D that politicians create to encourage those activities.

Either way, eliminating those tax breaks and taxing these companies more could raise perhaps $100 billion a year. That’s real money -- but it’s not a game-changer in the context of those $4 trillion annual deficits we’re heading toward. And, of course, we’d lose the business investment and job creation that comes from those incentives.

With rich individuals, it’s absolutely true that much of their income is shifted into capital gains or borrowing against their wealth. The capital gains will eventually be taxed when it’s sold, unless they carry it through to death. Ensuring that capital gains would be taxed at death or that rich people can no longer easily borrow tax-free against their wealth are possible reforms -- but they wouldn’t raise revenue of any significance to our deficits.

None of this means we shouldn’t tax the rich more. Fixing a ruinous deficit requires putting everything on the table, including higher taxes on the rich.

Personally, I support closing the loophole that permanently exempts capital gains from taxation if they’re held until death. And I also support dramatically scaling back upper income and corporate tax loopholes, and fully funding IRS audits against high earning and corporate tax cheats.

But we’ve got to acknowledge the mathematical reality that our budget deficits have grown so massive that “tax the rich” policies can’t close more than a tiny fraction of them. And, also, that much of Europe long ago learned the hard way that going overboard on tax the rich policies can backfire on the economy. That’s why their “tax the rich” policies have moved so much closer to ours. A slow-growing economy can’t produce enough revenues to cut its deficit no matter how high its tax rates are. We need higher revenues in the least economically-damaging way possible.

And yes, if we want to stabilize the debt, that means middle class taxes will have to rise -- as well as putting all federal spending on the chopping block, especially including Social Security, Medicare, and defense.

The problem, of course, is that neither political party is suicidal enough to tell middle class voters that their taxes and benefits must also contribute heavily to reining in runaway deficits. So we comfort ourselves with the wishful thinking that millionaires and billionaires can take the entire burden off our hands. But, beyond the empty rhetoric, you will never see a specific, fully-scored proposal to eliminate most of the long-term deficit by taxing the rich, because mathematically, it’s just not possible.

(Originally published in The Dispatch)

Imagine the president having the power to unilaterally cancel any expenditure that has already been enacted into law. A Democratic president could wake up one morning and decide to cancel all border patrol spending. Or to cut the defense budget by 20 percent. President Donald Trump could decide on a whim to eliminate Medicaid or veterans’ benefits.

In an extreme case, Trump could announce before the 2026 midterm elections that he will cancel all Social Security and school lunch benefits for any congressional district that elects a Democrat. Or threaten to defund the Supreme Court if it rules against him.

Such a nightmare scenario would grant the president near-dictatorial powers over most government functions. Its evisceration of the separation of powers would be antithetical to the very foundations of the government crafted by James Madison, Alexander Hamilton, and other Founding Fathers. Americans would come to fear that every government program, and even the functional existence of Congress and the courts, depends on the daily will and wishes of the president.

This scenario is far less far-fetched than it sounds. These are the actual stakes in the Trump administration’s aggressive battle to legalize a practice known as “impoundment,” which occurs when a president refuses to implement federal expenditures that were authorized and appropriated by Congress and enacted into law. While no one disputes a president’s authority to veto spending bills passed by Congress (which can be overruled by a two-thirds congressional vote), nearly 235 years of constitutional interpretation, case law, and statute have made clear that—once a law is enacted—the executive branch is not permitted to refuse to execute that law. In matters of federal spending and the implementation of federal programs, impoundment would replace the rule of law with rule by one person.

Impoundment is unconstitutional.

Article 1, Section 9 of the Constitution clearly gives Congress the power of the purse, stating, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law.” And rather than grant presidents the authority to refuse implementation of such expenditures, the Constitution mandates that the president “take Care that the Laws be faithfully executed.”

Historically, presidents have occasionally taken advantage of statutory spending flexibilities or canceled a few small projects that even Congress usually agreed were no longer necessary (this limited flexibility was eventually blessed within the Antideficiency Act). Yet in 1973, President Richard Nixon attempted to impound billions of dollars of enacted clean water appropriations over the objection of Congress. In doing so, he declared, “The constitutional right for the President of the United States to impound funds ... is absolutely clear,” and therefore, “I will not spend money if the Congress overspends.”

The Supreme Court disagreed, unanimously, leading Justice Antonin Scalia to summarize decades later that: “President Nixon, the Mahatma Gandhi of all impounders, asserted at a press conference in 1973 that his ‘constitutional right’ to impound appropriated funds was ‘absolutely clear.’ … Our decision two years later in Train v. City of New York, 420 U. S. 35 (1975), proved him wrong.” Scalia’s words appeared in the Supreme Court’s 1998 decision striking down President Bill Clinton’s use of a line-item veto, which attempted to block certain portions of a spending bill in a manner that was also tantamount to impoundment.

Nixon should have listened to his own assistant attorney general (and future chief justice), William Rehnquist, who had advised him that the “existence of such a broad [impoundment] power is supported by neither reason nor precedent,” and thus “It is in our view extremely difficult to formulate a constitutional theory to justify a refusal by the President to comply with a congressional directive to spend.”

Nixon’s impoundment prompted not only the Supreme Court’s 9-0 decision in Train v. City of New York, but also Congress’ passage of the Congressional Budget and Impoundment Control Act of 1974. This law, ultimately signed by Nixon, sprinkled a statutory impoundment ban on top of the existing constitutional prohibition and codified a formal rescission process whereby the president can request that Congress vote to cancel an enacted expenditure before it is made.

Trump defies impoundment law.

Five decades later, the Trump administration claims that the Constitution guarantees its right to impoundment, and that Congress’ 1974 statutory ban was unconstitutional. Campaigning last year, Trump pledged to “use the president’s long-recognized Impoundment Power to squeeze the bloated federal bureaucracy for massive savings” and to “restore executive branch impoundment authority to cut waste, stop inflation, and crush the deep state.” On Inauguration Day this year, he signed an executive order to “immediately pause the disbursement of funds appropriated through the Inflation Reduction Act of 2022 (Public Law 117-169) or the Infrastructure Investment and Jobs Act (Public Law 117-58).”

DOGE director Elon Musk publicly pledged to ignore impoundment restrictions, and immediately began unilaterally cancelling foreign aid, public health, and other funding that had been appropriated and signed into law just months earlier. (Trump’s occasional victories in resulting lawsuit have largely rested not on impoundment’s ultimate constitutionality, but rather on questions of who has standing to file suit against impoundment or whether the funding may be paused while the lawsuits are proceeding.) The White House also illegally took down a publicly available apportionment database to hide its additional impoundments from Congress and the American people. A federal court recently required that the database return online, which revealed the additional impoundments.

CLICK HERE to keep reading at the Dispatch (paywall)

(Originally published in The Washington Post)

After passing tax cuts that will likely cost $5.5 trillion over the coming decade, the Trump administration is under increasing pressure to rein in soaring budget deficits. So what’s the plan? Tariffs, tariffs and more tariffs.

Commerce Secretary Howard Lutnick recently claimed on CBS’s “Face the Nation” that tariff revenue “is going to pay off our deficit.” Administration estimates of 10-year tariff revenue have ranged from “substantial” (Treasury Secretary Scott Bessent) to $6 trillion (presidential adviser Peter Navarro) and now $7 trillion (Lutnick). Just last week, President Donald Trump asserted that these exorbitant projected gains even had him considering issuing tariff rebates to taxpayers.

As both a critic of Trump’s tariffs and a longtime deficit hawk, I would certainly find it to be nice if the silver lining of our misguided trade policies is that they helped scale back Washington’s nearly $30 trillion in projected 10-year budget deficits.

Unfortunately, no such silver lining exists. Not only is the reduction in deficits not worth the harsh economic damage from the tariffs, but it’s also likely to be modest at best.

Thus far, Trump has pushed up typical monthly tariff revenue from nearly $8 billion to over $27 billion. That additional $20 billion extrapolates to $240 billion annually and $2.4 trillion over the next decade — estimates that generally align with the consensus of static tariff revenue forecasts.

Except the economy is not static. Rather, it dynamically responds to trade wars in ways that will pare back that revenue.

CLICK HERE to keep reading at The Washington Post (paywall)

CLICK HERE if clicking picture above does not play video

Full transcript:

Do Reagan Republicans still have a home in the Grand Old Party? This week on Firing Line.

Ronald Reagan once said, “I didn’t leave the Democratic Party, the Democratic Party left me.” Jessica Riedl, a senior fellow at the Manhattan Institute, says fiscal conservatives like her are feeling the same way about today’s Republican Party.

RIEDL: Today’s Republicans have seemingly given up on conservative economics. They’re adding five trillion dollars to the deficit with the tax cuts. And it’s not even smart tax reform, but it’s just tax giveaways to different constituencies.

JOHNSON: The yays are 218, the nays are 214. The motion is adopted [cheers]

Republicans voted overwhelmingly for Trump’s “big beautiful bill”…

REPUBLICANS CHANT: USA! USA!

But outside of Congress, not all Republicans support the party’s fiscal direction. What does economic policy expert Jessica Riedl say now?

‘Firing Line’ Margaret Hoover is made possible in part by: Robert Granieri, The Tepper Foundation, Vanessa and Henry Cornell, The Fairweather Foundation and by The Pritzker Military Foundation.

HOOVER: Jessica Riedl, welcome to Firing Line.

RIEDL: Glad to be here. Thank you, Margaret.

HOOVER: You have worked in Republican economic policy circles for more than 20 years. You’ve been a participant on two Republican presidential campaigns. You worked in a Republican Senate office that focused very heavily on the budget. You recently wrote, quote, “Washington Republicans have essentially given up on reining in a runaway debt. It is no longer clear what most congressional Republicans actually do besides serve as television cheering sections for President Trump and troll Democrats on X.” Where does this leave a traditional economic conservative like you in today’s Republican party?

RIEDL: I think traditional economic conservatives like me are pretty homeless. When I started working with Republicans 20, 25 years ago, there was a big focus: We’re going to cut spending, we are going to streamline taxes. I remember tax reform; ‘broaden the base, lower the rates,’ and we’re going to cut the budget deficit. But today’s Republicans have seemingly given up on conservative economics. They’re adding five trillion dollars to the deficit with the tax cuts. And it’s not even smart tax reform, but it’s just tax giveaways to different constituencies. Republicans have given up on spending. They’ve given up deficits. They’ve given up on Social Security and Medicare reform. They’ve given up on energetic solutions to healthcare, energy. They’ve-

HOOVER: You haven’t even mentioned tariffs.

RIEDL: They’ve deferred to the White House on tariffs and even on spending cuts with DOGE where the Republicans aren’t really doing anything.

HOOVER: So the Wall Street Journal reported this week that the U.S. economy is, quote, “regaining its swagger.” Consumer confidence supposedly is up. Fears of recession seem to be fading. When President Trump began to impose tariffs, many experts, you included, predicted disaster. And Vice President J.D. Vance recently posted on X, quote, “It’s almost like the economics profession doesn’t fully understand tariffs.” So were the experts like you wrong?

TARIFFS

RIEDL: No. Most of the tariffs were pulled back. When Trump announced his Liberation Day tariffs, the market dropped 20 points, 20 percentage points. Moreover, we saw that in the first quarter, the economy shrank.

HOOVER: Yep.

RIEDL: This caused the president to finally panic and create a pause on his tariffs. Markets responded to the pause. They became more optimistic. And this quarter is looking a little bit better. However, most economic forecasts assume that as the tariffs are gradually reimposed, as we’re seeing now, we’re going to see less growth the rest of the year. So I don’t think this has proven tariffs work. I think we’ve proven that stopping tariffs works.

HOOVER: While President Trump did delay most of the tariffs, as you point out, the effective tariff rate is still the highest in the United States now since 1910. Inflation did tick up slightly since June. Is this a sign of what could come if these tariffs remain in place and more tariffs are added?

RIEDL: If more tariffs are added, I expect economic stagnation. It’s not going to totally put the economy into a recession by itself, but we are going to grow more slowly. We are going to have higher prices. We are going to have higher interest rates. You know, last month inflation ticked up to its highest rate under President Trump. If you’re worried about inflation President Trump’s economic agenda should really concern you. The tariffs are inflationary. Immigration restrictions are inflationary. Tax cuts, spending hikes are inflationary. And through it all, the president is trying to get the Federal Reserve to artificially lower interest rates, which is also inflationary. After beating Joe Biden on inflation, he’s doubling down.

HOOVER: Administration officials are flaunting, essentially, that revenue from tariffs have already topped 100 billion dollars this year. And some say that it could be as high as 300 billion dollars by the end of 2025. Now, General Motors reports that it took a billion-dollar loss in profits in order to absorb the cost of the tariffs. But on the flip side, price increases to products like toys and appliances suggests that some companies are choosing to pass the costs of the tariffs on to consumers. So which is it? Who is actually paying for the tariffs?

RIEDL: The consumers are going to ultimately pay for the tariffs. Even if businesses try to absorb them in the short term, again, over time, businesses are going to have to replenish their reserves, replenish the imports, and raise prices. Look, tariffs raise prices because that’s the purpose of tariffs. The purpose of tariffs is to make imports so expensive that you purchase domestic alternatives instead. As for the revenue they’re raising, it’s about 20 billion dollars a month in tariff revenues, which is about 240 billion dollars annualized. However, as the economy slows down, you’re going to lose revenue broadly because there’s less economic activity to tax. Which is why I think, when all is said and done, the revenue impact of tariffs is going to be approximately zero.

HOOVER: President Trump has spoken at times that tariff revenue will fund other priorities. It will fund the deficits. It will fund the debt. It will fund social programs. You disagree.

RIEDL: No. tariffs cannot fund what President Trump is promising because, again, so far it’s been about 20 billion dollars a month, but ultimately, if you want more tax revenue, you need a growing economy, creating jobs, raising wages. First quarter, when most of the tariffs were imposed, economic growth was negative. You’re not going to grow revenues with economic growth. You may get tariff revenue, but you’re going to have companies with lower profits paying lower taxes, families who are poor paying less taxes, and overall you’re just not going to see a revenue bump. Additionally, the president has talked about bringing back domestic manufacturing. But if businesses are going to invest in long-term factories, they need predictability and consistency out of Washington. Not a president turning the tariff dials every five minutes. No company is going to invest based on that. So I don’t really know what we’re accomplishing.

HOOVER: So, I mean, that is one of the arguments, is that the uncertainty caused by Trump’s constant threats actually creates a backlash against the economy itself. How do you price in the uncertainty?

RIEDL: You price in the uncertainty of tariff policy by looking at the decline in business investment we’re seeing. We’ve already seen it since President Trump was inaugurated. Businesses are investing less, they’re expanding less, they’re not hiring more workers like they were at the same rate before. Businesses are paralyzed by uncertainty. And as that reduces investment, it’s going to eventually factor all the way through the economy into slower growth, fewer jobs and lower incomes.

BIG BEAUTIFUL BILL

HOOVER: The Congressional Budget Office released its final analysis of Trump’s One Big, Beautiful Bill act this week. Its estimate is that it increases deficits by 3.4 trillion over the next decade. Now, supporters of the bill argue that experts like you underestimated the benefits of Trump’s first tax cuts, the Tax Cuts and Jobs Act. And what they say is that the White House projections now are that stronger economic growth will be spurred by making the cuts permanent and ultimately will reduce deficits by more than 2 trillion dollars over the next decade. Now, you’re a projection that you have said is based on, quote, “fantasy land math.”

RIEDL: Well first off, the real cost is five trillion dollars over 10 years when you stop counting the fake expiration dates of some of the provisions in a few years that we know they’re not going to hold. Republicans have already been on the record saying we don’t respect expiration dates. We didn’t respect the expiration dates in the last bill. We’re not going to respect them in this bill.

HOOVER: I see.

RIEDL: If it does cost five trillion dollars, that will cost more than the 2017 tax cuts, 2020 CARES Act pandemic aid, and 2021 American Rescue Plan combined. Now, will it bring economic growth? Here’s why economic modelers on the left and right aren’t so sure. The majority of the costs of the bill are just extending the 2017 tax cuts. Those aren’t new policies that are going to increase growth over current rates because you’re just keeping current policies in place. The rest of the new policies are more special interest giveaways: No tax on tips, no tax on overtime, no tax on car loans, bailouts for farmers, bailouts for seniors, bailout for state and local tax deduction. Those do not encourage working, saving, investing in productivity. This is special interest clutter. So while you’re not getting a lot of pro-growth policies, you are getting five trillion dollars in more debt, which is going to raise interest rates, squeeze investments, and after a short-term economic bump we might see for a year or two, probably drag down long-term growth.

HOOVER: For people who’ve worked in this space for a long time, people like you have been talking about what pro-growth economic policy looks like.

RIEDL: Yes.

HOOVER: If you were to have been at the drafting table, can you just remind our viewers what a pro-growth economic tax bill would have looked like?

RIEDL: Well, first off, remember that economic growth is the sum of a bigger labor force, more workers, and higher productivity. If you want to grow the economy, you need more workers making more stuff. So if you want pro-growth policies, first off, you want to encourage people to work. Our immigration laws are really not doing that because we’re going to lose workers. But also, you want to encourage productivity: work, save, invest. Now, when you do policies like no tax on tips, no tax on overtime, higher state and local tax deductions, that doesn’t encourage people to work, save, invest, and be productive. What you want is lower marginal tax rates on work, lower marginal text rates on investment, on expanding your business. There is some of that in this bill, like small business expensing. But a lot of the giveaways don’t encourage working, saving, investing, and being productive, and therefore they won’t bring growth.

DEBT CRISIS

HOOVER: You’ve been warning about a debt crisis, you’ve been talking about deficits and the debt for years, even when the debt was much smaller. It was a frequent topic of debate on the original firing line with William F. Buckley Jr. Here is a clip from 1992, a discussion of deficits with James Davidson of the National Taxpayers Union. Take a look at this clip.

DAVIDSON: We tend to suppose that governments have a great deal more power than I believe they really do. If you look across time, every society which has gotten into trouble has tried as a first approximation to solve that problem by spending money it didn’t have. Now they either do that by financing it through inflation or by trying to run down their balance sheet if they have a balance sheet to run down. But at the end of the day they tend to avoid the solutions to the problems, which are quite real.

HOOVER: You’ve worked for several Republican politicians who have sincerely tried to tackle these issues. And yet, that was in 1992, and the debt now is 37 trillion dollars. What gives?

RIEDL: The reality is, everyone likes small deficits in theory, but very few people are willing to actually pay the price. If you ask people, will you cut your own spending or raise your own taxes to cut the deficit, most people say no. And politicians are going to do what people want them to do. And so ultimately, politicians talk a good game. They try to look like they’re cutting deficits. But the American people only seem to like deficit reduction if their political opponents are paying the price.

HOOVER: What does a debt crisis really look like?

RIEDL: From the end of World War Two to 2008 the debt was about 40% of the economy. It was manageable.

HOOVER: Yeah.

RIEDL: It has since grown to 100% of the economy and is set to go to 250% of the economy long-term, which is something we’ve really never seen. The economists at the University of Pennsylvania Wharton School tried to model out what the long-term economy would look like under these debt projections. Their economic models crashed. They couldn’t even project it out. The way this would play out is in the bond market.

HOOVER: Yeah.

RIEDL: You see, the federal government is going to need to borrow 200 trillion dollars over the next 30 years under current projections. That’s not an accident. 200 trillion dollars.

HOOVER: Okay.

RIEDL: The bond markets may not be able to supply that much lending at reasonable interest rates. If that is the case, they’re going to have to force up interest rates which then forces the government to borrow even more money to pay the higher interest costs. And that is where the debt spiral begins, when the bond market gets squeezed.

HOOVER: So, the time horizon by which we can structurally address some of these issues is really shrinking. Now, in 1992, there were people who were very concerned that we had an impending crisis. And I know you think that that in some ways was Chicken Little saying that the sky was falling. Have Republicans been hurt by their own alarmism about the debt over time?

RIEDL: I think Republicans overstated the short-term dangers of debt back in the 80s, 90s, and early 2000s. At that point, the debt was not out of control. The danger was always what happens when the baby boomers retire and drive up Social Security and Medicare. The retirement of 74 million baby boomers between 2008 and 2030 was always going to bring a debt crisis sometime after those retirements end. The reason we wanted to reform Social Security and Medicare in the 90s was so that we could phase in the reforms before the baby boomers retire. Unfortunately, we didn’t, and now we’re facing a short-term crunch, which is going to make any sort of reforms to Social Security and Medicare so much more painful and drastic.

HOOVER: This fiscal year interest on the debt accounts for more than defense spending, more than Medicare spending, more than any other category of spending except social security. You wrote in 2023 for the Manhattan Institute a report that estimated that the maximum sustainable revenue that could be collected from taxing the rich would be about 700 billion dollars a year. So if you can’t tax your way out of it, can’t spend your way of it, what are the practical reforms that we can implement now on each of these legacy programs that will allow us to have a sustainable social safety net and a growing economy?

RIEDL: Viewers aren’t going to like to hear this…

HOOVER: Well, if viewers aren’t going to like it, voters are going to hate it.

RIEDL: Social Security and Medicare are facing a 124 trillion dollar shortfall over the next 30 years.

HOOVER: Is it fixable? Is it sustainable?

RIEDL: We can save these programs, but not in their current forms. There are three levers to fix Social Security: Raise the eligibility age, start trimming back benefits, usually for upper income retirees, and bring more revenue into the system, such as charging more payroll taxes. Most Social Security reforms are some combination of those three options.

HOOVER: But hold on, we’ve known how to do this for a long time. These aren’t new ideas. I mean, you’ve been talking about these ideas for at least 15 years.

RIEDL: Yes. We’ve known how to fix Social Security, and to some degree, we have known a lot of good Medicare options for decades. And when I meet with Republicans and Democrats on the Hill, when I have been in the room where they have had their closed door off the record meetings, they agree on how to fix these programs.

HOOVER: Right.

RIEDL: But they also know that you can’t get away with it politically, which is why, unfortunately, I’m worried that by the time we finally fix Social Security and Medicare, it’ll be because we already are facing a debt crisis, the bond market has already started panicking, the debt and interest rates have already risen. I don’t think we have the discipline to fix Social Security and Medicare until the sky actually begins falling.

HOOVER: Well, to your point, Josh Hawley, the Senator from Missouri, who voted for the big, beautiful bill, actually has already introduced legislation to block Medicaid cuts that would take effect in the bill that he voted for.

RIEDL: Of course, the most controversial part of the tax cuts among Senate Republicans were the offsets. They wanted to make sure that the SALT deduction was bigger. They wanted to make sure the farm bailout…

HOOVER: State and local tax deduction.

RIEDL: The state and local tax deduction was even larger. They wanted to make sure farmers and seniors got even bigger bailouts, and now they want to reverse the Medicaid savings. It seems like there’s just really no restraint.

HOOVER: What are the most obvious structural reforms that could be made to Medicare and Medicaid?

RIEDL: Healthcare reform is a lot more complicated than social security.

HOOVER: Yeah.

RIEDL: But for Medicare, I like what’s called premium support. Where you bring in more private plans, more choice and competition to hold down costs. But Medicare and Medicaid are very difficult to fix.

DOGE

HOOVER: This month, Congress approved a request to rescind nine billion dollars of appropriated funds, which codifies cuts that were recommended by the Department of Government Efficiency. Of course, public television and public media were part of those cuts. Cuts to philanthropy overseas, and public health also were on the docket. You have said, and you said at the beginning, that you were, quote, cautiously hopeful about DOGE at first. And you wrote in May, quote, as an effort to meaningfully reduce federal spending, DOGE remains wholly unserious. Where did it go wrong?

RIEDL: DOGE is really just spending cut theater.

HOOVER: Spending cut theater.

RIEDL: Elon Musk originally promised to cut two trillion of the seven trillion dollar budget, then it was one trillion, then it was 150 billion. I recently estimated that they’re only cutting about three billion dollars a month. And in fact, DOGE may end up losing money when you take into account the fact that they are eviscerating IRS staff, which is going to increase the losses for tax evasion. Here’s where they went wrong. 75% of all federal spending goes to six items, social security, Medicare, defense, veterans, and interest. They didn’t go after that. They went after the culture war totems that excite conservatives: DEI contracts, Politico subscriptions, government employees, aid to Africa. These are symbolic cuts that budget analysts like me consider to be budget dust. If they’re not going to go after the real programs where the money is and they’re going to defund the IRS’s ability to collect taxes, they’re going to lose money, and they are doing this against the backdrop of a five trillion dollar tax cut. That’s not serious.

JEROME POWELL

HOOVER: You mentioned monetary policy earlier. President Trump continues to publicly toy with the idea of firing the Federal Reserve Chair Jerome Powell. There are some prominent economists who believe that it’s time for Powell to step down. Would Powell resigning under pressure from the president be better or worse for the integrity of the Fed?

RIEDL: It would be much worse. Federal Reserve independence is based on its credibility from being insulated from political pressure.

HOOVER: Why is the independence of the Fed important?

RIEDL: The independence of the Federal Reserve is important because it gives it the credibility to maintain price stability. The Federal Reserve makes the tough decisions so that politicians don’t have to. And that in the long term gives us lower inflation, low interest rates, and faster economic growth. Moreover, ironically, as much as the president wants to fire Jerome Powell to lower interest rates, replacing him would actually increase interest rates.

HOOVER: Why?

RIEDL: And that’s because the Federal Reserve credibility would be shattered. Financial markets would believe that inflation is going to be coming and they’re going to demand higher interest rates to compensate for the inflation. So ultimately, you end up with higher interest rates. I also want to add that this really does tie into the budget deficit because one of the reasons President Trump tweeted out this week that he wants low interest rates is to make it less expensive to finance our growing debt. But of course, doing so paralyzes the Federal Reserve, prevents it from stabilizing the economy and promotes inflation. Let’s actually cut the deficit, not paralyze the Fed.

REPUBLICAN PARTY

HOOVER: You have written, quote, “Seeing the critics of Bidenflation and the end-the-Fed inflation hawks now chastising the Fed for caring too much about inflation is more proof that today’s politics are Calvinball.” Of course, Calvinball is from Calvin and Hobbes where Calvin makes up the rules as he goes along.

RIEDL: Yeah, I think we’ve seen in the last decade that the Republican Party really doesn’t know what it stands for on a policy basis. It used to stand for free trade, free markets, deficit reduction, social security, and Medicare reform. And then in 2016, Trump came along and threw most of those economic policies over the edge. And he won. And lo and behold, it seemed like Republican voters are really more motivated by culture war, by anti-immigrant fervor, by populism than by free market economics. And I think a lot of Republican lawmakers don’t know what to do with that. A lot of them were raised with free market principles. But they don’t want to cross a White House that got elected on big government populism. So they’re somewhat paralyzed.

HOOVER: Are you still briefing Republican members of the Senate and the House?

RIEDL: I still do. I still talk to Republicans. I talk to Democrats too.

HOOVER: Where are these ideas— If the Republican Party has been so fundamentally transformed, as you have observed, where do these ideas go for purchase?

RIEDL: Republicans right now are kind of lying in wait, at least the ones that I talk to, waiting for the fever to pass where they can start to look at more common sense ways to reduce deficits. At this point, economic policy is completely run out of the Trump White House. And very few Republican lawmakers are going to cross the Trump White House. But they’re hoping that when the country moves on from President Trump, that perhaps the Republican Party can bring back some of its traditional economic views. So a lot of these lawmakers right now are collecting ideas, trying to come up with ways that, maybe starting in 2028, they can actually gain currency. But even if the political system doesn’t make it possible right now, we are facing a potential debt crisis moving forward.

HOOVER: It doesn’t change the fundamentals.

RIEDL: Budget deficits are 1.8 trillion, on course to double to 3.6 trillion dollars over the next decade. We are going to start to see the economic impacts, and that’s going to force our hand.

HOOVER: Is there anything that gives you hope?

RIEDL: The country has faced challenges before. We have won the Cold War. We have won World Wars. Our economy has been the envy of the world for a century. I believe we can overcome this challenge. The problem, of course, is that sometimes we’re a little slow grasping these challenges, but when we do motivate ourselves, eventually the United States has managed to overcome all challenges up until now, and I think we can beat this one.

HOOVER: Jessica Riedl, thank you for joining me on Firing Line.

RIEDL: Thank you so much, Margaret.

Over the past few weeks, I—and my family—have been subject to an aggressive internet harassment campaign. Thousands of strangers have smeared my name, sent insane direct messages, and made more than a few death threats. Podcasters and radio hosts have slandered me with fictional tales about my private life, such as that I “abandoned my family.” My kids have been doxed by a leading website with millions of readers. What triggered this torrent of abuse?

As a modestly public figure, I committed the unforgiveable crime of existing while transgender. That’s it. Let me explain…

(Yes, it’s a bit long. TL;DR version: In my professional life, I do not care if colleagues, audiences, readers, or followers happen to be trans-skeptics. I prefer to focus on economic policy, not fight culture wars. But I also will not tolerate harassment, disrespect, or discriminatory behavior—and will defend myself when I am slandered or my family is endangered.)

Here’s What Happened

On June 27^th, I published another of my regular economic policy articles for The Dispatch. Alongside the article’s release, the right-of-center publication also tweeted my new role as an official (non-staff) “contributor” in economic policy. Within an hour, a few major Twitter accounts thrashed The Dispatch for bringing on a transgender “pervert” who had supposedly “abandoned their family”—driving hundreds of their followers to join in the slander. When a few high-profile accounts responded by defending my research and integrity, mobs of MAGA and culture warriors mobilized, conservative leaders smeared me (and The Dispatch) on their blogs, and—worst of all—the Babylon Bee (through their “Not the Bee” site) and a few other fanatics doxed my kids.

As the harassment and doxing campaign accelerated into day three, I finally decided to address the endless stream of vitriolic claims that transgenderism is entirely a “mental illness” with no biological basis. Rather than directly respond to individual trolls, I posted a thread walking through the current medical research on transgender neurobiology packed with links to research from prominent neurologists, biologists, and doctors. While the thread proved broadly popular and was endorsed by several noted scientific and medical professionals, the anti-transgender mob reacted hysterically to the idea that they may not have a monopoly on the latest medical and scientific expertise.

I was repeatedly told that responding to hundreds of vicious, public, personal attacks with a single tweetstorm calmly walking through the science and directing readers to read the studies themselves somehow made me an “activist” who “brought upon myself” the Not the Bee doxing of my family by relentlessly pushing “transgender ideology.”

That is not only absurd (even murderers are afforded an opportunity to defend themselves), but also chronologically backwards. The harassment campaign began immediately following the Dispatch announcement on June 27^th, the Not the Bee smear piece appeared on June 28^th—and my neurobiology thread was not published until June 29^th.

It really was just me writing about economic policy for right-of-center publications—rather than any “activism” on my part—that triggered the mob.

How They Publicly Justify Hatred, Bigotry, and Harassment

In the spirit of self-defense, I want to address some of the more common attacks and misconceptions I read.

Countless people have shouted at me that transgender people are mentally ill. They should look in the mirror. After all, sane, well-adjusted people do not message death threats to strangers for being LGBT. Or publicly slander transgender individuals as perverts, pedophiles, and unfit parents who should die brutally and burn in hell. Or spread lies that someone has “abandoned their family.” Or spend months posting near-daily rants about a single transgender person that they have never met and know nothing about. Or dox their children on a leading website and then mock their demands to remove it—before slandering them again on Twitter. Or do podcasts psychoanalyzing other families’ children.

This degree of obsessive, fanatical hatred, slander, and harassment of someone they have never met (who is barely even a public figure) and who is just going about their life is unhinged, sociopathic, and far more mentally ill than whatever they think I am.

Countless people have also called me an unforgiveable sinner. I was raised around the church and know many wonderful Christians who prioritize love and service. But I’ve also seen those who instead treat Christianity as merely a weapon to wield against whomever they hate.

Although I have harmed no one and humbly serve my family and community, some Christians can twist a half dozen of the Bible’s 31,102 verses to pretend that God is intensely concerned with what clothes I wear or how I treat an in-born medical condition. This is nothing new, as Bible verses have historically been twisted to perpetuate American slavery, racism, segregation, lynchings, and misogyny.

Now, some of today’s too-online “Christians”—while doing nothing to oppose Trump’s foreign assistance cuts that endanger 500,000 impoverished African children—think the better way to honor God is by harassing, threatening, slandering, doxing, and brazenly lying about random LGBT people going about their lives. What a mockery of Jesus’s teachings.

And that self-righteous defense that they are honoring God by attacking and trying to destroy the lives of anyone they deem a “sinner” sounds straight out of the Taliban. You hate transgender people? Fine. God can judge me. He doesn't need you to do it for him (Matthew 7:1-5, anyone?) And, truth be told, my Bible tells me that God is less concerned with my fashion choices and medical care than with this mob’s rejection of primary Biblical values such as kindness, compassion, honesty, humility, service, and not casting the first stone. Not to mention much of the Christian right’s aggressive rejection of Jesus’s repeated commands to care for immigrants, refugees, and the poor. Go answer for your own many sins before publicly judging mine.

This especially goes for the Babylon Bee and Not the Bee. (And yes, they are connected, for the apologists lamely trying to change the subject). These false Christians/Mormons doxed my kids and then doubled down by slandering me and then playing the victim when I aggressively demanded the picture’s removal, before (much later) taking it down. This was indefensible—people’s children must always be off-limits.

Finally, countless people smugly claimed to be simply defending “truth and science” by slandering me. Give me a break. This mob doesn’t give a damn about science, which to most of them means a few internet memes—or perhaps google-and-pasting a few barely-skimmed “gotcha” hyperlinks into a tweet.

While many unanswered questions remain, leading medical scholars surveying the field of transgender research confirm that “most cross-sectional neuroimaging research indicates that brain morphology and activation patterns… are more congruent with gender identity than natal sex in untreated MTFs and FTMs” (emphasis added). For a small sample of the transgender biological research, see here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, and here.

Not persuaded by research? That’s fine—I do not care if someone is a trans-skeptic. But claiming the mantle of “truth and science” requires deeply and dispassionately engaging these (and more) medical studies, not flying into a hysterical rage when someone cites peer-reviewed medical research that does not align with your bumper sticker slogans.

Even if every remaining medical scientist endorsed transgender biology tomorrow, few trans-skeptic minds would change because, for the vast majority, “truth and science” is just a veneer for their gut-level disgust at transgender people. Just like the “concern trolls” who are oh-so-concerned about the well-being of my children that they dox them (or laugh about it).

I will not be lectured on current scientific research by people who have not studied it or lived it—or who also believe that COVID is fake, vaccines are more dangerous than the diseases, and evolution is a myth.

And I will not be lectured on “truth,” “integrity,” “morality,” and “bearing false witness” by people whose Twitter accounts also cheer Donald Trump and his endless lies and smears. Or who tweet racist lies about Haitian immigrants eating pets until the local schools and hospitals have to be evacuated for bomb threats. Or who brazenly lie that I’ve “abandoned my family.” The complete lack of self-awareness is astounding.

And it is especially rich to have the co-author of a book defending Justice Kavanaugh against an unhinged mob of bigoted activists who relied on ignorant stereotypes to smear him as a sexual predator with no evidence … then herself encourage an unhinged mob of bigoted activists who rely on ignorant stereotypes to smear me as a sexual predator with no evidence. I guess it really is just empty tribalism all the way down.

It is also quite rich to see angry culture warrior podcasters take a break from demanding that society stop telling them how to raise their kids to tell me how to raise mine. These gossiping busybodies should worry about their own family and stay out of mine. My kids are perfectly well-adjusted, thank you.

These smears of transgenderism and its community—“disgusting,” “delusional,” “mentally ill,” “against nature,” “biologically fake,” “dangerous around kids,” “perverts,” “recruiting kids,” “should not exist in public or the workplace”—are the same stale, braindead, malicious smears that gays and lesbians have been hearing since the 1970s (and earlier). And not surprisingly, the hysterical trolls savaging me often had Twitter pages directing similar venom at gays, lesbians, Jews, Muslims, African Americans, Asians, Hispanics, immigrants, and/or foreigners.

The Real Reason They Went After Me

Here is a key point: I came out as transgender the so-called “right way.” I waited until I was an adult (my 40s) to officially transition. I never sought out women’s sports teams or cis women’s spaces. I never “abandoned my family,” and in fact moved forward only with their enthusiastic encouragement. I limited my coming out announcement to a single tweet and Substack post explaining my updated name and appearance. And then I immediately returned to conservative economic policy and devising solutions to runaway debt, inflation, and sluggish economic growth.

That meant turning down every media request to profile me as a transitioning conservative, and refusing to rebrand myself online as a culture warrior (I’m moderate on transgender policy issues). I even clarified that I will not police pronouns or names (at least among the well-meaning), and have no problem working with trans-skeptics. I spent months working to keep my transition as low-key and inoffensive as possible because it does not define me, and I still want to be seen as an economist first.

And while the conservative policy community responded with strong support, those efforts bought me Zero goodwill with trans-obsessed culture warriors and social media mobs. In fact, avoiding the traditional conservative landmines probably deepened the backlash because it called their bluff. With me, the mob couldn’t cloak their anti-trans zealotry in more acceptable rhetoric about underage transitions, sports teams, bathrooms, abandoning one’s family, in-your-face activism, or pronoun policing.

Without any of their regular excuses, these culture warriors were left to confirm that they simply do not believe that transgender adults should be permitted the basic human right of living and working in peace. And when it comes to online mobs, cancel culture, speech-policing, intolerance, vindictiveness, and groupthink—the “woke right” is a mirror image of the “woke left.”

So they harassed me and posted stolen pictures of my kids when I came out. Then, they made sure to hijack every economics interview clip of me posted by a TV network or podcaster to relentlessly mock my appearance. And they unleashed the latest campaign of harassment, smears, death threats, and family doxing when I continued writing on economic policy for right-of-center publications. Such tough guys, hiding behind anonymous accounts at their keyboards.

While awful for my family, I know that the recent backlash was never truly about me at all. I’m not a particularly important or well-known person. However, many unhinged culture warriors are fighting a broader campaign to erase transgenderism from public life. So when they discovered that a transgender economist was employed at a prominent think tank and now had been named a contributor to a right-of-center publication (their own side!), they panicked at this tiny shift towards tolerance. Then they publicly savaged me to make me a pariah and send a message that transgender individuals are not welcome in public jobs—especially on the right.

And to justify the anti-transgender rage, the mob had to turn this boring, suburban, 40-something economist and devoted spouse and parent who also happened to be transgender ... into some fictionalized cartoon caricature who had callously abandoned their family to go live as a dangerous sex predator and “impose their fetish” on unwitting victims. In reality, I’m just at home with my family watching baseball and building federal budget charts.

Prominent culture warriors and their minions shamelessly lied about me and then told me that I deserve it as payback for “trans movement extremism”—holding me personally responsible for every underage gender transition, every uncomfortable moment in a female locker room or sports team, and every outrage (real or imagined) ever committed by a transgender person.

I’m not unique—social media has normalized public displays of bigotry against countless undeserving targets. Millions of broken people simply enjoy destroying strangers for sport. The self-righteous superiority of joining a tribal pile-on provides that quick hit of self-esteem, and whether the target deserves it is irrelevant because the cruelty is the point. To them, you are just a name on a screen, a character in the day’s story rather than a real person. It reminds me of a cheeky tweet I came across that promises “Just one more mean tweet and then maybe you’ll love yourself.”

Social media has also made it easier to understand what kinds of people could have joined the mobs beating the Jews on Kristallnacht, or lynching black families in the Jim Crow South. There will always be broken, hate-filled bullies who cowardly attack whatever minority groups are the most vulnerable—and these days, those groups certainly include the transgender community.

Importantly, all of this online nonsense has come from clout-chasing, performative haters that I’ve never met—or at most met in passing decades ago, long before I came out. Friends and colleagues who regularly interact with me have been (to my knowledge) unanimously supportive over the past few weeks—regardless of their politics. That has meant a lot.

Moving Forward…

After a long career consistently standing up to fiscally reckless presidents and lawmakers of both parties, I surely will not be intimidated by some bad faith Twitter trolls or a few washed up websites and podcasters. I’ll continue to block trolls and limit Twitter replies to people I follow—people across the spectrum who can discuss economic policy and behave like adults.

So if a bunch of bored blowhards have nothing better to do than waste their precious and limited time on Earth sitting on Twitter gossiping and lying about the lives of LGBT individuals, well, they can go ahead and shout into the vast nothingness. Most of them have now been blocked out of my feed anyway, and the economic policy community ignores them.

I’ll be over here at the grown-up table debating taxes, spending, debt, tariffs, inflation, and growth, publishing studies and op-eds, and working closely with Congressional Democrats and Republicans on bipartisan solutions to soaring debt. Now, finally, back to economic policy.

(Originally published in The Dispatch)

Republicans vociferously claim their tax legislation—the One Big Beautiful Bill Act passed by the House and working its way through the Senate—would unleash an economic boom so colossal that its resulting tax revenues would offset the entire cost. This dubious boast was shredded by a recent Congressional Budget Office (CBO) reality check showing that the bill’s broader economic effects actually increase the 10-year cost projection by $356 billion.

According to this “dynamic score,” the bill is so poorly designed that it would fail to produce any significant long-term increase in economic growth. Instead, the tiny amount of growth revenues would be swallowed by $441 billion in added 10-year federal debt interest costs that would result from the bill raising interest rates across the economy and on the entire federal debt. Those “dynamic” interest costs from rising rates are in addition to $551 billion in interest costs that would be paid specifically on the bill’s $2.4 trillion in 10-year borrowing.

Rather than address the bill’s extraordinary cost, Republicans responded by attacking the CBO. They challenged the agency’s historical accuracy by claiming that it failed to competently score the 2017 Tax Cuts and Jobs Act (TCJA)–even as CBO’s subsequent revenue estimate achieved 99.5 percent accuracy up until the pandemic. President Donald Trump accused the CBO of being run by Democrats even though its director is a Republican. Sen. Tim Scott produced a video claiming that CBO also erroneously scored tax cuts in the 1930s and 1960s—which is impossible because CBO did not exist until 1974, not to mention that those 1930s tax cuts actually took place in the 1920s. All because the CBO refused to pretend that the House Republican tax bill would pay for itself or even offset a portion of the cost.

A more serious political party would have acknowledged that CBO’s analysis aligned with virtually all tax modeling organizations on the left and right—including the conservative Tax Foundation—and then committed itself to fixing the bill. Instead, Republican economic policy in 2025 is much like Democratic economic policy under President Joe Biden: lazy special-interest pandering combined with an almost mystical belief in an economic nirvana that never arrives.

Tax relief becomes a religion.

The Laffer curve, a theoretical construct favored by supply-side economists, observes that tax revenues will peak at a tax rate somewhere above 0 percent but below 100 percent. In cases where the tax rates exceed the revenue-maximizing rate, a tax rate reduction will increase revenues by encouraging an expansion of taxable economic activity that is substantial enough to outweigh the losses from the reduced tax rate. More broadly, supply-side economists note that, in certain situations, certain tax reductions can expand the economy by increasing incentives to work, save, invest, and be productive. The resulting additional tax revenues can offset a modest portion of the tax cut cost.

Today’s Republicans have parodied the Laffer curve into a religious belief that is totally divorced from economic reality. They treat nearly all tax reductions as magically igniting economic expansions vast enough to increase total tax revenues. Sen. Scott summarizes in the aforementioned video that, “The Laffer curve is right. If you lower taxes, you increase production, and that means more revenue for the government. It always has worked. I think it always will work.” That is definitely not how the Laffer curve or tax policy works, as even conservative economists will confirm.

Neither the 1980s Reagan tax cuts, 2001 Bush tax cuts, nor 2017 Trump tax cuts came close to paying for themselves in increased tax revenues from economic growth. That is because the vast majority of tax rates are already well below the peak rate of the Laffer curve. Current lawmakers are not rescuing taxpayers from (non-existent) 70 percent tax brackets that had been losing revenues, but instead focusing on adding new carve-outs and trimming marginal tax brackets from, say, 25 percent to 23 percent.

CLICK HERE to keep reading at the Dispatch (paywall)