(Originally published in The Dispatch)

Recently, the U.S. government tried to borrow money by selling 30-year bonds and found investors reluctant to lend. That reluctance forced the Treasury to offer a 5.2 percent interest rate to sell its bonds, the highest auction rate in two decades. Washington responded not by curbing its insatiable appetite for borrowing but by announcing a few billion dollars in bond buybacks to calm investors. It did not work.

This weak auction may be a temporary blip, but the financial markets seem to be suggesting otherwise. Rising government debt pushes up interest rates, which in turn drive up interest costs and debt still further, until the two spiral together beyond anyone’s control. Washington keeps meeting rising rates with half-hearted gestures that ignore the underlying problem. To see why that is a mistake, start with what is actually driving rates higher.

What is happening with the Treasury and interest rates?

The interest rate on the 30-year Treasury bond, the government’s longest-term IOU and a benchmark that feeds into mortgage and business-loan rates, has climbed all year. In mid-August, a routine sale of these bonds drew unusually weak demand and cleared at 5.2 percent, the highest in roughly two decades. The same week, 10-year Treasury notes cleared near 4.7 percent, continuing their own upward march.

The reason is not mysterious. At a time when demand for AI investment and global instability are already pushing interest rates up, the U.S. government must borrow enormous sums to finance its escalating budget deficits. To attract ever more investors, it has to entice them with higher interest rates, especially on notes and bonds that will not mature for 10 to 30 years. A great deal can go wrong over such a long horizon, from inflation that erodes the value of a bond to the risk of default if the debt grows too large, and lenders demand compensation for bearing those risks.

This alarmed the Trump administration enough that, on August 19, Treasury Secretary Scott Bessent announced a plan. Beginning on September 9, the Treasury would borrow a few billion dollars at lower short-term interest rates and use the proceeds to buy back some of its longer-term bonds. That swap of a few billion dollars is a drop in the ocean of a $30 trillion market for U.S. debt. Its purpose was more psychological than mechanical—to assure investors that they can safely buy long-term bonds at modest interest rates because the Treasury stands ready to intervene on behalf of their confidence.

The trouble is that reassurance works only if investors believe there is force behind it. Because the swap was so small, the 30-year rate dipped to about 5.19 percent on the day of the announcement and climbed back to 5.27 percent within two days. If anything, the move backfired by signaling that the Treasury was alarmed about long-term rates yet too feckless to address them. The swap also left the Treasury marginally more reliant on short-term debt, which must be refinanced regularly—and potentially at higher rates.

The lesson is not that Treasury buybacks are a bad idea. They can help maintain liquidity in the bond market. The lesson is that rising interest rates are not a technical problem to be solved with creative financial engineering. They are a structural challenge, driven by the fundamentals of escalating government borrowing, incompetent lawmakers, and economic uncertainty.

But do not take my word for it. While the Fitch ratings agency recently affirmed the U.S. government’s AA+ credit rating on a AAA to D scale, it flagged two developments that could trigger a future downgrade: 1) a “marked deterioration in the [general government] debt/GDP level and/or debt service costs,” and 2) “an erosion in the coherence and credibility of policymaking.” The latter is Fitch’s diplomatic way of questioning whether current U.S. leadership is even capable of managing economic and fiscal policy.

Interest rates can bury the federal budget.

The Treasury’s concern was not misplaced. Elevated interest rates make it costlier for businesses to borrow, expand, innovate, and hire. They make it harder for families to buy a home or a car, or to move out of a house they had financed at a lower rate. All of this saps the investment and innovation that power economic growth, create jobs, and raise wages.

Rising interest rates also pose a dire threat to governments with escalating debt. With the federal government now $32 trillion in debt (or $40 trillion including intragovernmental debt that has not yet been borrowed from credit markets), interest costs in 2026 will reach $1 trillion. That is already the largest share of both GDP (3.3 percent) and federal tax revenue (19 percent) in U.S. history. Moreover, swelling federal debt is projected to drive interest costs to nearly one-third of tax revenue within a decade and more than half within three decades.

Congress’ solution has been simple: Keep expanding spending and cutting taxes on the naïve assumption that interest rates on the resulting debt will stay low forever. The Congressional Budget Office’s own long-term baseline assumes that, even as America undertakes an unprecedented long-term borrowing binge, the average interest rate on government debt will not surpass 4.2 percent for at least 30 years.

The CBO in February also projected that the rate on 10-year Treasury notes would not exceed 4.4 percent for the next 30 years. Merely six months later, that rate is 4.7 percent and rising.

The budgetary cost of rising interest rates is brutal. If interest rates simply exceed the CBO’s projection by a single percentage point, they would push annual budget deficits to nearly $5 trillion within a decade (up from an estimated $2.1 trillion in 2026), and to nearly 20 percent of GDP within three decades. By 2056, interest costs would consume 83 percent of federal taxes, or everything Americans pay into the federal government between New Year’s Day and Halloween.

Anatomy of a debt and interest-rate spiral.

Congress has bet the country’s economic future on the hope that interest rates will stay low forever. Yet standard economic analysis suggests the rising debt will itself push rates up. As the government absorbs a growing share of the economy’s annual savings, businesses, homebuyers, and other borrowers must compete for the shrinking remainder, and that added demand for savings drives the interest rate higher. The consensus estimate is that each 1 percentage point rise in the debt as a share of GDP raises interest rates by roughly 3 basis points. Applied to the roughly 140-percentage-point rise in debt projected over the next three decades (from about 100 percent of GDP today to 240 percent under current policies), that relationship would, all else equal, push interest rates up by about 4.2 percentage points.

This rule of thumb may overstate the increase, since other forces, such as Federal Reserve policy or slower economic growth, can pull rates back down. Yet even a 1-percentage-point rise would drive federal debt to unsustainable levels, and a self-reinforcing spiral could push rates higher still.

A debt-and-interest-rate spiral follows a familiar path. Structural deficits and elevated rates keep federal debt climbing. Financing that debt requires the government to borrow heavily every year, which pushes rates up further. Higher interest costs swell the debt, forcing still more borrowing and still higher interest rates. Eventually financial markets recognize that a spiral is underway and, fearing default or monetization, demand even higher rates to compensate for the risk. At that point the government is borrowing destabilizing sums at punishing rates simply to cover the interest on its earlier borrowing.

Such spirals have happened elsewhere, from Greece’s cascade of bailouts to Argentina’s serial defaults to Sri Lanka’s 2022 collapse. Sure, the United States is not Greece and is unlikely to experience these scenarios in full. Yet even the tools meant to avert them inflict real economic damage. The rosiest outcome is that, as rates climb and deficits approach 10 percent of GDP, lawmakers finally heed the bond market and enact fiscal reforms to slow borrowing. Those tax increases and spending cuts would be painful, but far less painful than a spiral. A short-term “mini-panic” in financial markets can even be useful, provided the president and Congress treat it as the warning it is.

A more dangerous outcome is that debt, interest costs, and rates all worsen gradually, never hitting a trigger dramatic enough to rouse lawmakers. The economy muddles along, offering a false sense of calm even as the waves build beneath the surface. The public says it worries about deficits and interest rates, but not enough to accept new taxes or spending cuts, or to break past the stale ritual of partisan finger-pointing. Policymakers meet those worries with gimmicks such as pressuring the Federal Reserve to cut rates, chasing creative financial fixes, or simply downplaying the debt. In other words, precisely what is happening now.

CLICK HERE for the full article at The Dispatch (Paywall)

(Originally appeared in The Dispatch)

Congressional Republicans have begun the process of “reconciliation 3.0,” which, like reconciliation 1.0 (the 2025 tax cuts) and reconciliation 2.0 (new spending on immigrant deportation and border control), will notably expand budget deficits with barely any of the spending cut offsets that Republicans have long promised.

These expensive bills violate the purpose of the budget reconciliation process (deficit reduction), and possibly even its legal requirements (such as the 2025 tax cuts bypassing limits on expanding long-term deficits, and non-budgetary items like the SAVE Act possibly being added to the new reconciliation bill). Yet such restrictions matter not to Washington, which today treats budget rules as mere speed bumps on the path to the next budget-busting blowout.

Washington has always been creative with fiscal accounting. Lawmakers from both parties have long twisted budget rules, gamed baselines, and declared victory over deficits that they had actually expanded. But in recent years, the budget process has devolved from imperfect to essentially nonexistent. And while the media coverage tends to focus on the partisan theater rather than the structural rot underneath, allocating $7 trillion annually with barely any functioning budget process is a recipe for poor choices and escalating shortfalls.

In a city allergic to hard choices, it is absolutely vital to maintain a budget process that at least sets a framework for responsible decision-making and imposes guardrails that only supermajorities can waive. The chaos we have seen—lurching from government shutdowns to debt-limit standoffs to trillion-dollar Christmas-tree bills that no lawmakers have read—is not merely embarrassing. It is expensive: The collapse of the budget architecture has yielded the steepest budget deficits among the 38 countries the Organisation for Economic Co-operation and Development.

How the budget process was designed to work.

The modern budget process was created by the 1974 Congressional Budget and Impoundment Control Act. In addition to stopping President Richard Nixon’s impoundment of legally appropriated funds, the law reasserted Congress’ constitutional budget powers, aimed to create an orderly process for setting spending and tax levels and promoting deficit reduction.

At the risk of oversimplification, this annual process begins in early February with the president releasing a detailed budget proposal. This nonbinding document relays the president’s fiscal priorities and previews potential veto threats should Congress move in a different direction. From there, by April 15, Congress is required to enact a budget resolution setting broad spending and revenue targets, typically for the next five to 10 years.

Then the real work begins. While taxes and mandatory spending programs—Social Security, Medicare, interest on the national debt—generally remain on autopilot with no further legislation, the budget resolution can attach reconciliation instructions directing committees such Senate Finance and House Ways and Means to begin drafting tax and/or mandatory spending changes that cannot be filibustered in the Senate and thus pass with 51 votes. Expanding mandatory spending or cutting taxes without offsets will trigger a pay-as-you-go (PAYGO) law mandating automatic offsetting spending cuts (called “sequestrations”).

On the discretionary spending side—which includes defense spending, infrastructure, housing, and education—the budget resolution’s overall spending target for the following year (say, $1.5 trillion) splits off into 12 or 13 separate appropriations bills. These spending targets are enforced by points of order that often require supermajorities to waive—including for “emergency” spending that would bypass these limits. If Congress has also enacted a statutory discretionary spending cap law, then any spending overage will trigger automatic across-the-board sequestrations.

Finally, total government borrowing is subject to a debt limit that—while it must be raised by Congress to avoid defaulting on government obligations —can also shame lawmakers into attaching deficit-reducing reforms to address the underlying problem,

The process has never been followed perfectly. However, it functioned well for a quarter-century, and between 1983 and 2001 it even provided a framework for turning large deficits into surpluses. During this period, expensive proposals proved difficult (albeit not impossible) to enact without offsets, and lawmakers benefited from having an excuse to say no to constituents and special interests demanding expensive favors. (“I’d love to help, but the budget rules make it nearly impossible.”) In short, the budget process facilitated (mostly) responsible decision-making, deficit reduction, and economic growth.

How the process collapsed.

Over the past few decades, Congresses and presidents of both parties have relentlessly shredded the budget process and nearly all of its fiscal responsibility guardrails—with disastrous results—in the following ways:

President’s budget proposal. Until the mid-2010s, the president’s budget release was so central to the White House agenda that it received media attention rivaling the State of the Union speech. Now, it has become virtually irrelevant. Budget proposals are often delayed until May or later, after Congress’ annual budget process has already started. Pledges of aggressive deficit reduction are backed up with “magic asterisks” that fail to specify any of the proposed savings. The proposals that are included are typically unserious, undeveloped, and unaccompanied by pressure on Congress to pass them, such as the Trump budget’s call for deep cuts in “woke” programs that somehow included NASA, cancer research, and senior citizen housing. Virtually every presidential budget is considered dead on arrival by Congress.

For the second consecutive year, President Trump did not even release a complete budget proposal—just a “skinny budget” of discretionary spending proposals. This leaves Congress with little sense of presidential priorities, and a lack of information and proposals on key agencies.

Congressional budget resolution. For a few decades, the budget resolution served its vital purpose of setting Congress on a long-term deficit reduction path, imposing fiscal restraints on lawmakers, and guiding subsequent tax and spending legislation. In the 2000s, lawmakers stopped using the budget as an actual fiscal planning document. Instead, it became an annual political messaging exercise with fake savings targets and empty balanced-budget promises lacking any policy specifics or plans to follow through on the savings.

Since 2010, Congress has largely abandoned even that largely fake budgeting exercise and largely stopped discussing deficit reduction at all. It enacted no budget at all in nine of the past 15 years, and those that were passed were typically empty shells whose only purpose was to spin off reconciliation instructions. Which brings us to …

Tax and mandatory spending reconciliation. Until 2000, the reconciliation process served its intended purpose of providing a fast-track, filibuster-free path to achieving the mandatory spending and tax savings targets laid out in the budget resolution. Then, in 2001, tax-cutting Republicans took advantage of a loophole allowing the fast-track reconciliation process to also be used to expand deficits with tax cuts and spending expansions (and then canceling PAYGO enforcement). Since then, reconciliation has been twisted into an annual “get out of jail free” card for parties controlling the White House and congressional majorities to pass all the partisan, budget-busting measures that could never survive the filibuster under regular order.

Consequently, since 2001, the reconciliation process has been abused to pass an astounding $12.8 trillion in tax cuts and mandatory spending expansions—also resulting in $3 trillion in additional interest costs. That is roughly half of the $31 trillion debt held by the public—and diametrically opposite to the intended purpose of reconciliation.

Discretionary appropriations process. For much of the 1980s and 1990s, the appropriations process worked as intended, with 13 appropriations bills allowing a piece-by-piece review of discretionary spending with frequent lawmaker amendments to tweak individual program spending levels.

For the past 30 years, this system gradually devolved to one massive annual appropriations bill that runs as long as 5,400 pages and spends as much as $2.3 trillion. The bill is often unveiled several months after the October 1 fiscal year has already started (typically right before Christmas when voters are distracted and lawmakers want to return home) and stuffed with every other legislative priority that could not pass during the year. Lawmakers are given 24 to 48 hours to examine the thousands of individual policies stuffed inside the bill and then forced to vote the entire package up or down with no opportunity to amend it. Congressional leaders often ensure that voting down the bill would trigger an immediate government shutdown—a convenient threat to lawmakers who consider opposing this annual monstrosity.

Emergency spending. Remember that total appropriations spending is supposed to be limited to the amount set in the annual budget resolution (which itself may be limited by multiyear statutory discretionary spending caps). Yet Congress has another “get out of jail free” card in the form of the emergency spending loophole. As long as lawmakers attach an “emergency designation,” any spending becomes immediately exempt from budget constraints. Of course, there is no enforceable legal constraint on what constitutes an “emergency,” so in practice the definition has become “anything Congress wants to spend beyond the budget rules.”

Dominik Lett and Romina Boccia of the Cato Institute calculate that total “emergency” spending and resulting interest costs on the debt have totaled $15 trillion since 1991, when adjusted for inflation. Some of this spending went to truly unanticipated emergencies—such as the immediate aftermath of the September 11 attacks, the 2008 market crash, and the 2020 pandemic. On the flip side, spending on the wars in Iraq and Afghanistan was still being designated as a sudden, unanticipated emergency for nearly a decade after the wars began. This practice moved beyond parody when funding for the 2000 census—which the U.S. Constitution 211 years earlier had mandated to occur once per decade—was nonetheless classified as a sudden, unforeseen emergency to evade spending limits.

Government shutdowns. If Congress and the president cannot finish all appropriations bills by the beginning of the fiscal year on October 1, then the affected discretionary spending programs are meant to shut down without a governing appropriations bill. In reality, Congress has failed to meet the October 1 appropriations deadline for the past 30 consecutive years. Thus, funding discretionary spending in the meantime requires passing a continuing resolution to keep those programs running.

There have been seven government shutdowns since 1995, with lawmakers holding the normal operations of government hostage for their own pet causes that they want passed along with the continuing resolution. The result has been regular chaos for federal programs as well as those who depend on them. Proposals to either move the fiscal year deadline from October 1 back to January 1 (after those Christmastime omnibus bills) or create automatic continuing resolutions to keep the government running have gone nowhere because neither party is willing to surrender its ability to hold the government hostage.

Discretionary spending caps. Concerns that budget resolutions were setting annual discretionary spending levels too high, and that Congress needs a longer-term, statutory commitment to fiscal responsibility, have occasionally led to multiyear discretionary spending caps. While such caps have typically held down discretionary spending increases for a couple years, they subsequently get bypassed by a coalition of Republicans wanting more defense spending and Democrats wanting more social spending. And because any law can be altered by the next law, these discretionary spending caps function more as a suggestion than a binding cap.

Thus, the 2011 Budget Control Act—a tight nine-year statutory cap on annual discretionary spending increases painstakingly negotiated by President Obama and House Speaker John Boehner in response to Tea Party deficit concerns— achieved barely half of its promised discretionary spending savings, while the two parties negotiating the 2023 Fiscal Responsibility Act agreed on “side deals” to evade its caps before the bill was even signed into law. This means that discretionary spending caps have served primarily as a public relations exercise, generating press releases and campaign ads highlighting deficit-reducing budget targets that Congress has no intention of following.

Pay-as-you-go (PAYGO) laws. Because discretionary spending caps affect only that one-third of the budget, they typically have been paired with PAYGO laws requiring that all tax and mandatory spending reforms be collectively deficit-neutral, or face automatic spending “sequestration” cuts.

While PAYGO has been in place in some form since 1990 (with the exception of 2003-2006), it has never once been enforced through sequestration. Instead, Congress has repeatedly cut taxes and expanded mandatory spending by collectively more than $10 trillion, and then voted to cancel every single PAYGO sequestration to enforce the law.

Back in the 1990s, PAYGO was likely effective in dissuading Congress and presidents from enacting certain tax cuts and spending expansions in the first place. Yet over the past 15 years, congressional votes to cancel PAYGO enforcement have become so routine that they are no longer noticed by anyone except the most committed budget hawks. Because everyone in Congress knows that PAYGO will never be enforced, the law has become irrelevant.

Debt limit. When all else fails, the last brake on escalating federal debt is supposed to be the statutory limit on how much debt the federal government can run up. The limit on total consolidated federal debt goes back to 1939, and while the mechanism is flawed (failure to raise the debt limit can bring default on the government’s debt, creditors, and obligations), the law is intended to at least shame Congress and the White House into passing fiscally responsible reforms alongside debt limit increases. And between 1985 and 1997, all six major budget deficit reforms were attached to debt limit increases.

However, since 2000, lawmakers have given up on attaching such savings reforms to the more than 25 debt limit increases and suspensions, with the exceptions of the (barely enforced) 2011 Budget Control Act and 2023 Fiscal Responsibility Act. Instead, the debt limit has devolved into a game where the party out of power holds the impending debt-limit legislation hostage—roiling financial markets—in order to extract some unrelated concession or simply cause embarrassment to the majority party. This final brake on unrestrained government debt has been essentially disabled and replaced with nothing.

CLICK HERE for the full article at The Dispatch (paywall)

(Originally appeared in The Atlantic)

Since the mid-1990s, Social Security trustees have warned lawmakers that insolvency was coming in the 2030s. Why are lawmakers seemingly content to wait until we reach that cliff, now projected for 2032? Because so many voters misunderstand how the system works and steadfastly refuse to accept the changes needed to fix it. Interest groups have capitalized on those fears, savaging any politician who dares to touch senior benefits or taxes. When House Republican Leader Paul Ryan proposed reforming Medicare, opponents ran a television ad portraying him pushing an elderly woman in a wheelchair off a cliff.

As policy, Social Security is not complicated. Closing the gap between revenues and benefits involves three broad levers: raising payroll taxes, hiking the eligibility age, and trimming benefit formulas for wealthier seniors. Fixing Social Security is a matter of negotiating how far to pull each lever. I’ve attended policy dinners where Republican and Democratic lawmakers quietly outlined, with relative ease, a plausible deal that would gradually raise the normal eligibility age from 67 to about 69, trim benefits for higher earners, and raise the annual earnings limit for the Social Security payroll tax to somewhere between $250,000 and $300,000.

So why haven’t they done it? Although Americans are aware that Social Security faces financial difficulties, we are also mired in collective denial about the inescapably painful decisions that will affect seniors, citizens, budget deficits, and the broader economy. Both liberals and conservatives fundamentally misunderstand Social Security. Let’s start with progressives. Their framework argues that Social Security is primarily an anti-poverty program for senior citizens. And those benefits, the story goes, are endangered by an inexplicable quirk in the law that applies Social Security payroll taxes to only the first $184,500 in annual wages (a figure that rises annually with wage inflation). Eliminate the cap, apply Social Security taxes to all wage income, and Social Security will automatically be funded for generations and could even pay for large benefit expansions.

The first problem with this argument is math. Social Security actuaries calculate that eliminating the wage cap (without those taxes accruing additional benefits) would keep the system out of deficit for just three years and close only about half of its long-term shortfall. So additional major solvency reforms are still necessary.

The second drawback is that Social Security’s public credibility rests on its perception as a pension-style, social-insurance system in which individuals earn their benefits with their tax contributions. This year’s payroll tax applies to only $184,500 in wages because no more than that amount can count toward one’s future benefit calculations. The U.S. is hardly unique here: Canada caps its public-pension contributions even more tightly, at roughly $85,000 in Canadian dollars (about $60,000 in the U.S.), and Britain’s National Insurance tax rate falls from 8 percent to 2 percent above roughly £50,000 (about $66,000 in the U.S.).

Raising the cap without raising earned benefits severs the link between tax contributions and benefits, and would make Social Security just another tax-and-spend redistribution program. And if we’re going to de-link taxes and benefits, lawmakers could achieve the same redistribution goals with less economic damage by instead cutting Social Security benefits for these high earners.

The third drawback to eliminating the tax cap is the opportunity cost. Currently, the top marginal tax rate on wage income—combining federal and state income and payroll taxes—is more than 50 percent in California, and nearly that high in many other states. Even liberal economists estimate that additional tax revenues begin leveling off as marginal tax rates reach the high 50s, and they begin losing money at rates somewhere between 60 and 73 percent. This leaves room to raise marginal tax rates on high earners by perhaps 6 to 12 percentage points. Raising the rich’s rates past that point may provide spiteful satisfaction but could reduce tax revenues, as high earners either stop earning additional wages or shift their compensation to lower-taxed investments or foreign jurisdictions.

If progressives wish to tax the rich at maximum rates, is closing perhaps half of the Social Security funding gap really the best use of those funds? Surely it would be better to trim Social Security benefits for high earners and then use the money from high-earner tax hikes to finance health care, education, child care, climate, infrastructure, and/or the safety net.

After all, Social Security mostly redistributes income upward, not downward. Today’s seniors are the wealthiest generation of the wealthiest country in world history, and senior poverty is so low that Social Security could easily guarantee a minimum senior income of 125 percent of the poverty line for a small fraction of the program’s cost.

And yet, over the next decade, Social Security (and Medicare) will spend trillions of dollars—more than $100,000 annually on wealthy married couples—on those seniors with six-figure post-retirement incomes and net worths in the millions of dollars. As a result, the federal government now spends six times as much on (usually wealthy) seniors as it spends on individuals under the age of 26. Is ensuring every dollar of these retiree benefits really the best use of all the remaining potential tax-the-rich revenues? Or should America instead invest any newly available tax revenues in young people and working families?

The conservative misunderstanding of Social Security is widely available in Facebook memes. These voters will tell you that an individual’s Social Security payroll taxes are stored in a trust fund—an extensive government savings account—until they retire, when those savings are returned to them in monthly checks. And because seniors are simply being repaid from their earlier contributions, the system would never have run a budget deficit were it not for the greedy politicians who raided the trust fund or all of the illegal immigrants who stole trillions of dollars from the program. Thus, simply repaying the trust fund and deporting the immigrants would restore Social Security to permanent solvency.

Obviously, none of this is accurate. Social Security surpluses and deficits are mixed with the rest of the budget and included in federal-budget totals. This year’s $250 billion cash shortfall—projected to reach $841 billion by 2036—contributes to Washington’s overall $1.8 trillion budget deficit that is rising toward $4.4 trillion. Payroll tax contributions are not saved—they are spent on the benefits of current retirees. Most retiring seniors ultimately collect benefits well exceeding their lifetime payroll tax contributions (even after adjusting for net present value, which incorporates inflation and an interest rate). As for immigrant fraud, undocumented workers paid roughly $26 billion into Social Security in 2022 and collected almost nothing back (legally or illegally), making them a net contributor rather than a drain.

Social Security insolvency is instead driven by three factors. First, by formula, Social Security’s inflation-adjusted annual benefit levels become more generous for each successive generation. Second, longer lifespans are expanding the number of benefit years that the system pays out. Someone retiring at age 66 and living until 90 will spend one-third of their adult life collecting benefits. Finally, a demographic bulge is producing 74 million retiring Baby Boomers while the number of taxpaying workers fails to keep up.

The Social Security trust fund was not stolen, because it was never designed to hold economic assets in the first place; it is merely some paperwork sitting in a filing cabinet at a federal office in Parkersburg, West Virginia. The trust-fund bonds are a paper asset for the Social Security Administration but a liability for the Treasury (meaning, the taxpayers) that must repay those bonds—which makes the federal government both the creditor and the debtor, no different than writing yourself an IOU.

So ignore the bonds and think of the trust fund this way: The Social Security system ran a $3 trillion surplus from 1983 to 2009, when the Baby Boomers were in their peak-earnings years. When the Boomers retired and the system fell into deficit in 2010, Social Security was legally entitled to run an equal $3 trillion deficit until the earlier “balance” is paid off, likely by 2032. In return for surrendering the earlier surpluses, Social Security is also receiving an additional $3 trillion in interest payments from the Treasury’s general revenues from 1983 to 2032—which likewise contribute to budget deficits.

The Social Security trust fund is an accounting mechanism that tracks these past surpluses and current deficits. When the math finally hits zero in six years, Social Security will no longer be legally allowed to run deficits. Without a change in law, the program will be required to slash benefits by 22 percent to match its annual tax revenues.

Social Security’s shortfalls are not driven by greedy politicians or immigrants but rather by a system that promised generous benefits to a very large generation that did not have enough children to finance all of these expensive promises.

CLICK HERE for the full article at The Atlantic

Each year, I am contacted by 100–200 college students and recent graduates seeking a meeting to discuss how to become a think tank fellow in Washington, D.C. While I enjoy mentoring (I was once that ambitious student), my busy schedule does not allow for this many meetings. Instead, I am offering my standard advice to young aspiring policy fellows below.

(While this advice is designed for think tank jobs, much of it also applies to jobs in Congress)

Before we start: Sorry, I cannot get you a job or internship

I have no role in hiring at my — or any — workplace. Such decisions are made by hiring committees above my pay grade. I do not have a dedicated research assistant position, nor do I select interns. Moreover, requests to “put in a good word” do not really help, because entry-level hiring decisions are made entirely on the strength of one’s application materials rather than on pre-existing relationships with fellows — relationships we likely do not have anyway. Your best bet for a think tank position is to put in a terrific application, and for that, my insider’s advice is below.

The Four Keys to Landing Your First Washington Policy Job or Internship

First: Build a strong academic record. College and graduate school transcripts are typically required, and you are likely competing against strong students from elite colleges. You need not attend an elite college, but you should be able to demonstrate that you have mastered the relevant coursework.

Second: Be willing to volunteer and intern. During my college and graduate school years, I put in 2,000 hours of unpaid volunteering and internships. It began during summer vacation after my sophomore year, when I simply walked into a hometown Congressional campaign office as a 20-year-old nobody and asked how I could help. That summer, I spent my nights working the lonely 11pm-7am shift at a 24-hour convenience store (a good time to read economic and policy books), and my afternoons lit-dropping, stuffing envelopes, handing out stickers at parades, getting ballot signatures, and driving the candidate (unfortunately he lost). Back at school, my political organization skills and (provocative) university newspaper opinion columns got me elected state chairman of the College Republicans.

These two roles earned me a junior and senior-year internship in my governor’s office (just down the street from campus), where for two afternoons each week I drafted constituent letters, made photocopies, ran errands… and then started receiving small policy research assignments, which over time grew into larger legislative analyses, policy memos, and even briefings with the governor. Upon graduating from college, this experience got me a Congressional campaign job back in my home district (this time we defeated the incumbent),1 then a full-time policy analyst position for the governor, and finally a personal recommendation letter from the governor that helped me get accepted into elite MPP programs. All in 36 (admittedly-exhausting) months.

So volunteer on campaigns, apply for internships with state legislatures, governors, Congress, think tanks, agencies, etc. Be willing to run errands and do low-level work. Nothing is beneath you because everything is a steppingstone. This is how you learn politics from the inside, and how you make contacts and earn the responsibilities that turn into full-time jobs.

Third: Develop a niche. Knowing a little bit about everything is great for conversation and bad for landing a policy job. Think tanks, congressional offices, and agency positions are typically siloed by issue area. Employers will be looking to fill slots for a health care legislative assistant, tax policy advisor, immigration research assistant, or China expert. This makes generalists difficult to place. Have one or two policy areas — or skills, such as press and communications — where you have legitimate expertise to offer and can shorten the learning curve. Note: Do not worry that you are locking yourself into a policy area for life. Once inside, experts move around across issues — but you need a niche to get your foot in the door.

Fourth: Be an excellent writer. Despite being an anonymous 26-year-old fresh out of my MPP program with no notable Washington experience or connections, I managed to get hired as the Heritage Foundation’s lead research fellow in federal budget policy (this was at Heritage’s peak of power and influence in Washington, long before it went off the deep end).

The key was showing up to my interviews with a full binder of writing samples for each person I met with. The goal was to demonstrate a broad range of policy writing — from college newspaper op-eds to shorter class essays to my senior honors thesis analyzing Wisconsin’s innovative welfare reforms. Being an excellent writer and communicator is a must, and it requires years of practice, improvement, and portfolio-building. If you are not writing regularly, start now.

Other Tips for Success in Washington Policy Communities

Communication skills are as important as policy expertise. This builds on item four above. Politics is a persuasion business. Your expertise is irrelevant if you cannot communicate effectively, and the most successful policy entrepreneurs are brilliant communicators. This requires knowing how to reach vastly different audiences with different ideological frameworks and levels of expertise. Why should people care about your research issue? How would you present your analysis to a liberal audience? To a conservative one? How would you explain it to a general reader with a short attention span and children interrupting? Or to a college student group? A member of Congress? Your peers in the policy community? This requires meeting each group where it is and understanding the frameworks, ideas, and biases they bring to an issue. I believe any success I have had in the policy world has stemmed from being a pretty good economist, but a top-tier policy communicator.

The best communicators see themselves as teachers. Don’t be the narcissistic academic deploying incomprehensible jargon to show off your intelligence. If your audience does not understand your oh-so-brilliant points, you have failed as a communicator and policy entrepreneur.

See yourself as an enthusiastic teacher. Your job is to explain complicated issues in ways that are simple and accessible, whatever the audience. People remember the relatable expert who taught them something cool, not the egghead who “must be really smart because I didn’t understand a thing.” If you cannot clearly explain the issue to your mother, your success will be limited. Not sure where to start? Try George Orwell and Peggy Noonan.

Don’t be a partisan jerk. There is a widespread misconception that everyone in Washington is fighting the nasty partisan war they see on television and social media. In reality, this describes perhaps 200 lawmakers and administration officials performing for cameras and social media. Beneath the surface are 10,000 other lawmakers, Hill staff, and administration officials who — even amid partisan disagreements — quietly maintain cordial working relationships across the aisle.

Think tanks are even less partisan. Washington is a small town, and each issue area is generally siloed — there are, for example, about 40 of us think tankers working on budget policy, and we all know each other well. Even when we sit across the political divide, we often peer-review each other’s research, grab lunch together, appear on panels, and team up to advance areas of agreement.

Being friendly and approachable is not only ethical — it is also effective. You cannot persuade and influence experts on the other side by alienating them. I have seen young think tankers — and even organizations — go in all-guns blazing with partisan venom and quickly sideline themselves from the policy conversation. Besides, today’s adversary is tomorrow’s ally on the next issue. You may be part of your policy community for 40 years, so don’t burn bridges or sabotage your influence. Kill them with kindness, build coalitions, play the long game, and stay above the partisan fray. Leave the partisan warfare to politicians and cable news screamers.

Soft skills still matter. I understand — your brilliance makes you indispensable. Except most of your colleagues will also be brilliant. The easiest way to build professional capital is by being exceedingly pleasant and easy to work with. This means being polite and friendly to everyone, both above and below you, while avoiding drama and gossip — and handling constructive criticism gracefully rather than throwing a tantrum when the editing team bleeds red ink all over your flawless, beautiful, draft report (pick your fights carefully). You may be a genius, but egomaniacs and narcissists wear thin in an organization and tend to become the scholars who cycle through 15 employers by age 40.

I have aimed to be a “plug-and-play” scholar: an employer can place me in the federal budget policy role and not have to actively manage me or even think about me. I show up on time, am friendly, do my job, manage myself, and free my directors to focus their energies elsewhere. Even if you are not a policy superstar, being solid, dependable, and pleasant has real value.

Remain intellectually curious and honest. In many parts of the policy community, the distinction is less “right versus left” than “serious scholars versus political hacks” — and we can all tell the difference immediately. We all have our general policy frameworks and broadly liberal or conservative ways of reading the world. But “scholars” who clearly begin with partisan conclusions and work backward to fill in half-baked arguments — and who never concede a weakness on their side or a strength on the other — will draw eye-rolls and quickly get dismissed. Even their own side will stop listening, because no one wants to go into a policy battle armed with shallow research that the opposition will quickly shred.

Ultimately, your reputation for solid, credible analysis and intellectual honesty is all you have in the policy community. Once you sacrifice it for lazy partisan hackery, it is nearly impossible to get back.

On a related note: before publishing any research, fact-check it repeatedly until you can’t stand it anymore. Then fact-check it again in the voice of top intellectual critics who may poke at your work or demand your underlying data — because they will. It’s ok when critics publicly disagree with your policy conclusions. It is catastrophic when they publicly call out your embarrassing factual or data errors.

Avoid certain résumé gaps. You can probably land a two-year think tank research assistant position with just a bachelor’s degree. If you want to make a career of being a policy fellow, you should eventually pursue an advanced degree — a master’s, Ph.D., law degree, or MBA. Additionally, many think tanks prefer some Capitol Hill experience, which builds contacts and gives you a view of the legislative process from the inside. Finally, seek out mentors in Washington to help guide you along.

Be persistent in the face of rejection. Your career progress will not be linear, free of rejection, or respectful of your perfectly-laid plans. It will not be fair. You will likely be rejected for jobs for which you are qualified, under-appreciated by some bosses, and at times have to take a step back before you can move forward. The question is not whether this will happen (everyone experiences it to a certain degree), but whether you allow it to defeat you… or you persist and adjust.

I’m satisfied with my career, and on paper it may look reasonably accomplished. What people do not see is how much rejection even successful careers include. The several times I was passed over for jobs that I had painstakingly done everything necessary to earn. The times I was recruited for an exciting job and had it enthusiastically promised, only to be subsequently ghosted without ever receiving an explanation. I’ve worked in organizations where (relative to others) I did twice the work and accomplished twice as much for half the pay and none of the recognition. I’ve been openly discriminated against for my relative youth (earlier in my career), and especially my LGBT status (more recently). People see my impressive new article in the New York Times, Wall Street Journal, or The Atlantic — but not my many article submissions that are coldly rejected by elite publications. It keeps you humble.

I offer these personal examples not because they are extraordinary, but because they are so ordinary. So many of my successful colleagues can tell similar stories of doors slammed in their faces. And if you build a successful career, you will surely have persisted past your own challenges. Keep your chin up.

A Little About My Own Career

Why I love my career choice. I originally entered the think tank world to get some policymaking experience while waiting to run for Congress and then hopefully governor of Wisconsin. I ultimately decided that think tank life is even better. I get to do all the substantive policy work without spending countless hours soliciting strangers for money, driving across a district to shake endless hands, barely seeing my family, or worrying about losing the next election if I follow my policy or ethical convictions. Especially in today’s grandstanding politics — where a principled, ethical, problem-solving approach is essentially disqualifying — I’d never have lasted as a politician.

Instead, I am a full-service policy entrepreneur. Within my issue area (federal budget policy), I track all major developments and master the latest research. I then develop my own solutions and support or help defeat proposals in Congress. This includes authoring policy studies, testifying before Congress, and advising lawmakers and White House officials. To influence the broader public, I write op-eds, travel for speeches and panels, speak with reporters and columnists, and appear on television, radio, and podcasts.

While serving as a chief economist to a senator was more of a support role (but still fascinating), my think tank positions have provided the intellectual flexibility to set my own research agenda and reach my own policy conclusions.

Best federal budget resources. I am often asked how one can build a career as a federal budget scholar. A degree in economics — and preferably an advanced degree in economics or public policy — is essential to provide the foundation for analyzing policy.

Once you have that base of economic and statistical fluency, federal budget policy is surprisingly accessible. Nearly all necessary data is readily available on the websites of the Congressional Budget Office (CBO) and the Office of Management and Budget (OMB), with helpful contributions from the U.S. Treasury (tax data), Joint Committee on Taxation (JCT), Government Accountability Office (GAO), and agencies such as the Social Security Administration (SSA), Bureau of Labor Statistics (BLS), and Bureau of Economic Analysis (BEA). Read the reports on these sites to get up to speed on the issues, then dive into the statistical tables to begin the real fun. Much of my time is spent downloading, studying, and playing around with these databases in Excel. Get your hands dirty in the numbers until you are fluent; use your economic and policy training to spot trends, merge databases, and build new ones to answer your own policy questions.

It is also important to learn from experts in the field. Read the think tank reports and books written by current practitioners to see how they approach the issues. Spend time in the footnotes, hyperlinks, and bibliographies — they are essentially blueprints for how a policy expert constructed their research. Look up those footnotes and try to replicate their work; you may even discover better approaches of your own. Then apply your own knowledge to the issue. Over time, your expertise and fluency will grow.

Good luck!

(Originally published at Reason)

Silicon Valley has a new pitch for Washington: Artificial intelligence will solve all your budget problems. Industry leaders claim the technology will turbocharge productivity growth, generate a flood of new tax revenue, slash the cost of delivering government services, and perhaps even bend the curve on Medicare and Medicaid spending. Deficits will shrink. The likelihood of a debt crisis will melt away, as technology accomplishes what politicians couldn’t. In the words of Elon Musk, AI and robotics are “the only thing that can solve for the debt situation.”

Politicians, desperate for any exit from their self-imposed fiscal catastrophe, are listening. The “easy answers” of simply cutting waste, defunding immigrants and foreigners, taxing the rich, or slashing defense spending are woefully insufficient to address budget deficits on track to hit 9 percent of GDP within a decade and 14 percent of GDP within three decades under current policies. Closing deficits of this magnitude would require an aggressive combination of Social Security and Medicare reforms with new broad-based taxes—unless Silicon Valley can produce an AI-based economic miracle that lets Americans continue collecting exorbitant government benefits at relatively low tax rates.

Unfortunately, like all the other “easy solutions” to budget deficits, AI is highly unlikely to produce the trillions of dollars in annual fiscal savings necessary to avert the hard decisions. Betting America’s fiscal future on AI is wishful thinking.

To analyze the prospects, we can examine the fiscal and economic categories AI is most likely to affect.

A Productivity Miracle Still Leaves a Massive Deficit

The late 1990s technology boom drove annual productivity growth roughly 1 percentage point above its long-run trend from 1995 through 2005. That extra growth generated healthy tax revenue and broadly raised living standards. If AI delivers a comparable shock—and some credible economists believe it could deliver more—the revenue windfall would be real and substantial. A sustained 1-point boost to annual productivity growth rates would raise tax revenues by $143 billion annually in 2028, rising to $834 billion (1.8 percent of GDP) annually by 2036.

While such revenues are significant, they would shave only a fifth off the $4.4 trillion projected budget deficit under current policies. As exciting as it may be to nearly double productivity growth rates, this would barely offset the economic growth declines already occurring due to labor force reductions driven by falling fertility rates, retiring baby boomers, and immigration restrictions.

Yes, some AI enthusiasts may suggest that long-term productivity growth could leap by 2 or 3 percentage points (or more)— essentially doubling or tripling its baseline annual growth rate. This would provide additional deficit reduction but still not come close to balancing the budget. Moreover, the productivity-to-wages-to-tax-revenue chain can weaken. If AI gains accrue disproportionately to capital owners rather than boosting worker wages, added income and payroll taxes may not grow as quickly. On the other hand, AI could help the IRS identify tax cheats and collect unpaid taxes.

All together, even an optimistic scenario delivers only $1 trillion annually in new net revenues by 2036.

The Hidden Price Tag of Automation

The more AI revolutionizes work and expands economic productivity, the more disruptive it will likely be to the workforce. AI is highly unlikely to permanently raise jobless rates—the economy has evolved from hunting and gathering to mass agriculture, the industrial revolution, and the information revolution without that occurring, because there are always new consumer demands to satisfy with new industries and jobs. But a full AI workforce revolution without significant and expensive job displacement costs is highly unlikely, and the adjustment costs for existing workers could be painful and expensive.

Economists have identified two potential job displacement scenarios. The first scenario, which has not borne out so far, involves significant layoffs in AI-heavy industries, bringing long spells of unemployment for mid-career professionals. The second scenario, which is beginning to play out, is a significant reduction in entry-level job openings for younger workers in selected industries. The first scenario produces perhaps 2 million to 3 million jobless workers at a given time requiring unemployment benefits, Medicaid, food assistance, and job-retraining assistance. The second scenario suggests perhaps 4 million to 5 million younger workers entering the labor force in lower-skill jobs at lower wages (or not at all) and thus reducing tax revenues and pushing up low-income benefit costs.

Depending on which scenario ultimately plays out, and to what degree, the total displacement costs could consume anywhere from 15 percent to 40 percent of all new tax revenues (or more than 100 percent if accompanied by a universal benefit of at least $3,000 annually).

Under a midpoint assumption of taking back 25 percent of the budgetary gains from productivity, worker displacement costs would total $250 billion annually by 2036.

Longer Lives, Bigger Bills: AI Could Create a Fiscal Paradox for Social Security and Healthcare

Any AI-produced improvements in worker productivity and wages will automatically expand Social Security’s spending liabilities, because initial benefit levels rise with lifetime earnings. These effects would be partially offset by job displacement effects that reduce both near-term payroll tax revenues and long-term benefit liabilities.

If these effects roughly cancel each other out, then Social Security’s tie-breaking factor may be AI-assisted advances in medicine meaningfully extending average lifespans, allowing retirees to collect benefits for more years—while simultaneously driving up Medicare costs as well. This would likely mean a modest worsening of Social Security’s long-term shortfalls that manifests in the 2030s and 2040s.

AI’s fiscal effect on healthcare spending is heavily disputed. The optimists paint a rosy picture in which technology would dramatically slash the one-quarter of national health spending currently allocated to administrative functions. New technologies would diagnose injuries and diseases earlier and treat them more quickly and effectively, extending lifespans and improving quality of life. Many of these advancements would be accomplished with at-home technologies and less time spent in doctors’ offices and hospitals. Federal Medicare and Medicaid costs, along with economy-wide health spending, would plummet in this scenario, solving the leading driver of long-term deficits.

All of these exciting outcomes are possible—but probably not the dramatic savings for the federal budget. Even if AI substantially reduces healthcare administrative costs, there is no guarantee the productivity gains would accrue to the government through lower payment rates; many past productivity gains have accrued to health providers and insurers instead. Aggressive diagnostic improvements can save treatment costs for many, but they can also encourage overdiagnosis, which brings unnecessary utilization costs for others.

Adopting new technologies requires substantial capital investment. And while automating existing procedures can lower costs, developing expensive new technologies that people want to use can drive utilization costs higher. Overall, it is not clear that AI’s efficiency savings would outweigh the costs of faster and more aggressive diagnoses plus the higher demand for expensive new technologies.

Moreover, even AI’s markedly improved health outcomes can only delay, not prevent, the inevitable cost of disease, end-of-life care, and death (with higher Social Security and Medicare spending in the meantime). Thus, it is not clear that even the rosy AI scenario described above would notably reduce per-beneficiary healthcare costs over these (likely extended) lives.

So an AI boost could lead to modest economy-wide health savings, but these would largely accrue to health providers and insurers rather than the federal government. Medicare and Medicaid spending would keep rising with an aging population and rising health care demand.

AI in the Military: More Missiles, Not More Savings

AI has the potential to streamline military logistics, intelligence and surveillance, and autonomous systems. At the same time, this would likely trigger an expensive investment surge in AI-enabled weapons systems. Historically, military “efficiency” gains have tended to get recycled into capability expansion rather than applied to deficit reduction.

These scenarios do not appear imminent in any case, as less than 1 percent of the Defense Department’s 2024 budget request went toward AI. Thus, AI-related savings in the defense budget, currently taking up 13 percent of federal spending, would be small to nonexistent.

The Computing Revolution Didn’t Notably Shrink Government. Why Would AI?

AI should streamline government administration and reduce the need for federal workers. Yet the federal personnel savings may disappoint. The federal bureaucracy’s widespread adoption of computers and internet technology in the 1980s and 1990s merely froze nondefense federal employment. That precedent, along with strong civil service job protections and current AI-based job trends, suggests that eliminating perhaps a tenth of the 2.2 million federal civilian workforce would represent an ambitious target. In this area, the federal budget might see annual savings of $30 billion from the $300 billion in salary and benefit costs for current civilian employees.

Looking at the federal government’s broader administrative expenses (which are a much smaller share of government spending than benefit costs) a fully scaled up AI-based systems may be able to shave $20 billion to $50 billion annually from the estimated $186 billion in fraud and improper payments. At the same time, deploying AI across federal agencies will require significant upfront acquisition, integration, and training costs. For roughly a decade, there would likely be no net savings as upfront investment costs swallow any efficiency savings.

CLICK HERE for the full article at Reason

(Originally published by The Brookings Institution)

The Social Security trust fund stands just six years away from its projected 2032 insolvency, which under current law would trigger a 22 percent reduction in benefits. Senators Bernie Moreno (R-OH) and Elizabeth Warren (D-MA) are working across the aisle to promote solvency reforms, and propose what the lawmakers call a “no-brainer” solution: applying Social Security’s 12.4 percent payroll tax to all annual earnings rather than just an individual’s first $184,500. Unfortunately, uncapping the tax would undermine the program’s social insurance status, harm the economy, starve other policy priorities, and not even save Social Security.

Despite often being considered an “easy” way to avert insolvency, imposing the full 12.4 percent Social Security payroll tax on all wages has been consistently rejected by both Republican presidents and Democratic Presidents Clinton, Obama, and Biden, and it has never been brought to the congressional floor for a vote by either party. Several drawbacks ultimately push political leaders away from this policy.

Social Security would return to deficits in four years

New TPC analysis shows why the proposal may seem attractive: It would increase federal revenues by about $2.5 trillion over the 2026–2036 period. In 2026, it would affect individuals with high earnings, increasing taxes for about 6 percent of tax units by an average of about $22,000.

But even that large tax increase would not save Social Security. Despite Moreno and Warren asserting that eliminating the cap would “save” Social Security, the Social Security Administration calculates that such a policy would keep the system out of deficit for a mere four years and close only about half of its long-term shortfall. And that is the best-case scenario—one in which the new taxes earn no corresponding benefit credits and this significant tax produces no disincentives to work or to report earnings.

This policy would extend the Social Security trust fund into the 2050s, but the trust fund cannot finance future benefits or close program shortfalls. It is merely an accounting mechanism tracking Social Security’s past surpluses and the future deficits that the system is allowed to run. The annual cash shortfall figures are more important, because those amounts must be funded with new budget deficits each year.

The contribution-benefit link would be severed

While closing even half of Social Security’s fiscal gap may count as progress, the policy carries substantial downsides. Social Security’s sacred public standing rests on its “earned benefit” structure: a pension-style system in which tax contributions determine future benefits. Its tax is capped because benefits are also capped. A billionaire pays Social Security taxes on only $184,500 in wages (adjusted annually for inflation) because wages above that amount do not count toward future benefits. Uncapping the tax without matching benefit credits would sever the contribution-benefit link on which Social Security’s earned-benefit status rests—the very structure that Moreno and Warren seek to protect.

Marginal tax rates could reach destructive levels

A 12.4-percentage-point increase in marginal tax rates is also substantial, and it would apply not just to millionaires but to many professionals in high-cost urban areas. This tax could ultimately squeeze other spending priorities by pushing marginal tax rates to the revenue-maximizing rate, or even beyond it.

Specifically, the current top marginal tax rate on labor income is just under 55 percent in California and above 50 percent in New York once federal income taxes, state income taxes, and payroll taxes are included. Uncapping the payroll tax would push these rates into the 60s. And yet the range of economic research suggests that the revenue-maximizing tax rate for labor falls somewhere between 50 percent and 73 percent.

Raising marginal tax rates past those levels could lose revenue as high earners shift income into lower-tax forms of compensation (such as capital gains) or to lower-tax jurisdictions. Higher rates could also prompt a household’s second earner to drop out of the paid workforce and spend more time at home with their children.

And pushing marginal tax rates to revenue-maximizing levels isn’t necessarily wise tax policy. As rates rise toward that level, the additional revenue raised shrinks while creating larger economic costs, including more tax avoidance, income shifting, and reduced incentives to work—until rates reach the point where the damage cancels out 100 percent of any further revenue. Better to cap rates a bit below these peaks than to endure deepening economic damage just to squeeze out the last few dollars.

CLICK HERE for the full article at The Brookings Institution

(Originally published by the Brookings Institution)

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 deeper dive into basic government data from the Congressional Budget Office, Office of Management and Budget, and the Treasury Department reveals several uncomfortable truths.

One such truth: The federal debt path is likely much more perilous than is commonly reported.

To be sure, the existence of rising government debt is widely acknowledged. Federal debt held by the public averaged around 40% of gross domestic product (GDP) from the end of World War II through 2008 but has since swelled to nearly 100%. The Congressional Budget Office (CBO) projects that debt will continue climbing to 175% of GDP over the next 30 years.

Such an exorbitant debt burden has been rarely seen among advanced economies and would surely strain the financial markets that would be expected to lend $138 trillion more to the federal government over three decades. At a 4% interest rate, that debt load would generate annual interest costs of roughly 7% of GDP, making interest the single largest federal expenditure. But this dire projection likely understates the true fiscal picture.

The CBO baseline rests on several current-law assumptions that are unlikely to hold

The CBO baseline includes tax changes and spending reductions that Congress has shown no appetite for:

• It assumes Congress will allow all temporary tax cuts to expire, including the new $40,000 cap on the state and local tax deduction.

• It projects that discretionary spending—which has not fallen below 6% of GDP since the 1940s—will drop all the way to 4.6% of GDP.

• It assumes that smaller mandatory programs such as the Supplemental Nutrition Assistance Program (SNAP), unemployment insurance, and student loans will shrink by nearly one-quarter as a share of the economy.

• It assumes that President Trump’s controversial tariffs will be renewed by every subsequent administration.

• And it assumes the government can borrow $138 trillion over 30 years without pushing interest rates above 4.2%.

This is a very optimistic scenario, one in which the likely largest government borrowing binge in world history leaves financial markets and interest rates mostly undisturbed.

More likely: future presidents and Congresses broadly maintain current policies (except Trump tariffs)

And then, the fiscal picture worsens considerably. As chart 59 shows, assuming that temporary tax cuts are made permanent—but that President Trump’s tariffs are not extended by the next administration—raises the debt projection from 175% to 201% of GDP by 2056.

If Congress also holds discretionary spending at 6% of GDP and does not allow smaller mandatory programs to significantly fall as a share of the economy, the projection climbs to 243% of GDP. This current-policy scenario (plus the Trump tariffs ending) is far more likely to materialize than the CBO current-law baseline.

Another variable worth adjusting: the interest rate on the debt

The federal government will be unlikely to maintain the CBO-projected payment of 4.2% interest on the debt as it rises to 175% of GDP since the resulting strain on financial markets would be untenable. Maintaining that 4.2% interest rate on a debt heading to 243% of GDP is even less likely.

A broad swath of economic research—most notably by Thomas Laubach of the Federal Reserve—suggests that each percentage point increase in the debt-to-GDP ratio raises long-term interest rates by roughly three basis points. Apply that rule of thumb to a 143-percentage point increase in the debt ratio—from roughly 100% today—and interest rates could rise by approximately 4.3 percentage points above the current 3.4%. Other factors may partially offset this upward pressure on rates, but the likely trajectory remains upward.

With debt levels set to soar, even modest interest rate movements carry enormous fiscal consequences. Each one percentage point increase in the rate paid on the federal debt would add roughly $57 trillion in interest costs over 30 years —approximately the cost of adding an entire additional Defense Department. In our current-policy projection, an interest rate topping out at 5.2% rather than 4.2% pushes the 30-year debt estimate from 243% to 303% of GDP. Adding another percentage point pushes it to 379% of GDP by 2056.

The resulting interest costs would be staggering. Pairing the 243% of GDP debt projection with CBO’s 4.2% interest rate assumption produces interest costs of 10% of GDP—which would consume 56% of all federal tax revenues annually by 2056. Pairing a 5.2% interest rate with the resulting 303% of GDP debt level produces interest costs of 15.8% of GDP, or nearly 90% of projected tax revenues.

At some point these projections become so extreme as to be economically unrealistic. Indeed, a 2023 analysis by the University of Pennsylvania’s Wharton School could not even model a functioning economy under the current debt trajectory—their models simply crashed.

Something has to give before that point. But the longer policymakers defer the debt reckoning, the more painful it is likely to be, exacerbated by the threat of sharply higher inflation and interest rates, a weakened economy, financial market instability, and ultimately, higher taxes and lower federal benefits for Americans. Better to start now with fiscal reforms and ultimately minimize the resulting economic pain.

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

CLICK HERE for the blog post at the Brookings Institution

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(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

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(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.

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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).

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(Published in the Dispatch)

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?

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(Originally published by the Brookings Institution)

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.

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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

“What is the most important federal budget process reform that would achieve a more sustainable fiscal outcome?”

Prohibit Reconciliation Bills from Expanding Budget Deficits

Proposed budget reforms to rein in soaring federal debt typically face a trade-off between effectiveness and political feasibility. The most effective reforms—such as an airtight cap on government borrowing as a share of the economy—currently face no plausible path to enactment. On the flip side, PAYGO rules to limit deficit-expanding legislation have garnered little opposition because the ease with which they can be bypassed has rendered them useless.

Instead of forcing painful tax increases and spending cuts, one approach to thread the needle between effectiveness and feasibility would make it much more difficult for lawmakers to worsen deficits. This means banning reconciliation bills from expanding budget deficits over any five-year period.

Reconciliation bills have become a lead driver of deficit-expanding legislation. The 2001 Bush tax cuts ($1.35 trillion), 2003 tax cuts ($350 billion), 2017 Tax Cuts and Jobs Act ($1.9 trillion), 2021 American Rescue Plan ($1.8 trillion), and 2025 One Big Beautiful Bill Act ($3.4 trillion) were all passed under reconciliation. And while the 2013 permanent extension of the Bush tax cuts—costing $4 trillion over the first decade—was not a reconciliation bill, there would have been no tax relief to extend without the earlier reconciliation law. That’s a staggering $12.8 trillion in new debt passed by (or related to) reconciliation since 2001—plus trillions more in resulting interest costs.

Such costs are antithetical to the purpose of reconciliation of bills. The1974 Budget Act created the modern budget resolution to help Congress set responsible medium-term fiscal targets. Reconciliation was included as a fast track, privileged, once-per-year process to help Congress meet those targets. While this process was meant to facilitate deficit reduction, the law failed to prohibit lawmakers from instead setting looser fiscal targets and using reconciliation bills to expand deficits (although the Byrd Rule later prohibited reconciliation bills from hiking deficits in the years beyond the budget resolution window).

Lawmakers focused reconciliation bills on deficit reduction until 2001, when the process was twisted into an annual “get out of jail free” card to cut taxes and expand spending without the possibility of a Senate filibuster. Since 2001, every president except Obama has pushed through a trillion-dollar reconciliation bill shortly after taking office (Obama passed his $800 billion bill outside of reconciliation).

If the Senate is going to maintain the filibuster, there is no rational reason to exempt one annual Christmas tree bill that can be packed with every budget-busting priority that could never pass under regular order. After all, the expedited consideration privilege exists to help Congress facilitate some vital national objective, in this case deficit reduction.

The Senate’s “Conrad rule” existed between 2007 and 2015 to prohibit reconciliation bills from expanding deficits at all. Congress should codify this concept, and close the loopholes allowing lawmakers to circumvent such rules by rewriting bill scores or measuring their cost against a baseline other than current law. These reforms may not douse the debt inferno but would at least limit Congress’ ability to pour additional gasoline on it.

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(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.

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(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.

DOGE was conceptually flawed.

The promise to save trillions of dollars was ultimately doomed by the reality that most federal spending was off limits to DOGE. Roughly two-thirds of all federal spending goes to five items (Social Security, Medicare, defense, veterans’ benefits, and interest) that Trump either promised not to cut, or in the case of interest, cannot directly reduce. Attempts by DOGE to scale back Social Security customer service spending as well as assistance at veterans’ hospitals were largely abandoned in the face of a steep backlash. Even much of the remaining one-third of federal spending consists of programs that Trump voters generally support, such as infrastructure, border security, farm subsidies, and law enforcement. Ultimately, DOGE was left to slash cultural totems that benefit MAGA enemies: aid to Africa, DEI contracts, Politico subscriptions, and government employees. And while the potential savings from these expenditures look like a lot of money for a typical family, they represent budget dust in the context of a $7 trillion federal budget.

Because real waste exists in the federal budget, DOGE represents a colossal missed opportunity. After all, Washington has a moral obligation to eliminate unnecessary and wasteful spending in order to minimize the necessary cuts to priority programs. OMB estimates that $191 billion annually is lost to payment errors, which overwhelmingly take place within Medicare, Medicaid, unemployment insurance, and earned income tax credit payments. Moreover, Washington is plagued with dozens of overlapping programs in areas such as education, economic development, and job training. And the Defense Department has a long record of losing tens of billions of dollars in contract cost overruns.

These examples of wasteful spending are easy to identify yet quite difficult to fix. Cleaning up such waste often involves completely overhauling countless government computer systems, developing new oversight controls (without unduly paralyzing the distribution of legitimate benefits), and coordinating with state governments that share in the administration of key programs. Overhauling these practices across hundreds of federal programs is tedious, complicated, and thankless—which is why it occurs so rarely. Lawmakers will hold hearings and press conferences blasting government waste, yet few are willing to invest significant resources into, for example, reducing Medicaid payment errors. DOGE could have focused on such activities—especially given its leaders’ background in computing technology—yet it seemed to lack the required attention span. Trump and Musk instead prioritized headline-grabbing gimmicks such as demanding a war on “millions” of fraudulent Social Security payments that did not actually exist.

DOGE was incompetent.

While there are clear limits to how much federal spending can be saved by cutting waste, DOGE undermined itself with sheer incompetence. Musk ran DOGE as though all it takes is some Silicon Valley experts to triumphantly show up, “break things,” fire people, and zero out major accounts like he did when he purchased Twitter. The problem is that the federal government—a $7 trillion entity with millions of employees serving 330 million citizens—is unfathomably more complicated than a tech company. Instead of a board of directors, DOGE is accountable to Congress, the courts, existing statutes, and the entire electorate. Moreover, “breaking things” at Twitter may mean that the search tool malfunctions or direct messages do not go through. Yet breaking things in the federal government can result in Social Security checks not going out, a compromised nuclear arsenal, and crumbling infrastructure.

Nevertheless, a serious attempt to cut government waste would have tapped into the existing industry of experts such as economists, public administrators, the Government Accountability Office (GAO), congressional oversight committees, inspectors general (IGs), and think tanks that have been building reform blueprints for decades. Instead, nearly all of these experts were ignored—and many of the IGs even fired—based on the absurd idea that nearly anyone who had developed expertise on federal programs must be part of “the swamp” that caused the federal government to grow out of control. Obviously, this framework conflates lawmakers voting to expand government with outside critics impatiently waiting for anyone in power to adopt their detailed blueprints to eliminate waste. The idea that the Cato Institute or the GAO cannot be trusted to help cut waste is bizarre and self-defeating.

With virtually all experts dismissed, the task of government reform fell on Musk and his team of business colleagues, some of whom were barely out of college and often brought zero public administration experience or expertise to the agencies they were dismantling. The resulting gaffes were at times infuriating and hilarious. This included claiming more than $200 billion in savings with a database that confused “millions” for “billions,” triple-counted the same savings, included long-expired expenditures, and counted savings from spending that was never scheduled to occur. DOGE accidentally fired and then rehired bird flu trackers and top-clearance nuclear weapons workers. It reportedly tried to delete the word “equity” from an IRS employee handbook because it confused the economic term for a DEI reference. Musk evidently misread a Social Security database to assume payments were being made to millions of dead recipients, and his team misread a federal grant to claim that the U.S. sent Gaza 1.5 billion condoms at a cost of $50 million. DOGE falsely attacked USAID as a money-laundering operation that provided only pennies on the dollar to the intended recipients. An executive order freezing federal grants and loans was quickly blocked by the courts, and Musk’s demand that countless federal employees email to DOGE a job justification within 48 hours or be fired had to be quickly rescinded.

Cutting government waste is difficult enough for seasoned policy and administrative experts. It is virtually impossible for a group of unqualified individuals who are wildly out of their depth.

DOGE was often illegal.

Finally, DOGE was destined to fail because many of its ambitions were illegal and even unconstitutional. Article I, Section 8 of the U.S. Constitution gives Congress the power of the purse, and the Impoundment Control Act of 1974 further clarifies that the executive branch cannot unilaterally cancel spending authority that had been passed by Congress and signed into law by the president. So while DOGE could legally reprogram government grants and contracts or undertake administrative reforms, it was legally forbidden from eliminating government programs, or altering an agency’s spending authority. Such reforms required new legislation, such as the $9 billion rescission bill enacted into law that codified what may be the only lasting DOGE savings.

Meanwhile, Musk was given extraordinary authority despite no Senate confirmation, no legal oversight, no official clearance to access Americans’ confidential financial data, and several business conflicts of interest. Clear illegalities included OMB illegally impounding federal spending authority and illegally concealing the evidence from Congress. Courts have also ruled that some grants and contracts were illegally canceled due to viewpoint discrimination rather than competence or congressional will.

Ultimately, deeply slashing federal spending requires going through the legislative process. And while MAGA voters often claim that congressional gridlock left no alternative to DOGE’s illegal overreach, such statements are fundamentally undemocratic. If the American people prioritize a government that focuses on reducing spending, it is free to elect candidates promising such reforms. Failing to elect and build a legislative majority supporting one’s reform agenda is undoubtedly frustrating, yet no excuse to subvert the democratic will of the people.

Were savings really the goal?

By any measure, DOGE failed to significantly reduce government spending. But perhaps cutting spending was never the real goal. After all, Elon Musk put himself in a position to potentially access taxpayer information and proprietary government software, as well as to expand his government contracts and hurt competitors. The Trump White House was able to fire “disloyal” federal employees and thus motivate remaining employees to prioritize loyalty to Trump over the impartial application of federal laws.

The MAGA voter base was treated to the “liberal tears” of defunding HIV medicine for poor African children, sending government employees to the unemployment office, and defunding grants and contracts that largely benefited minorities. Finally, DOGE attracted swarms of attention from the political media and offered the illusion of fiscal responsibility, leaving less public oversight of a Republican Congress passing tax cut legislation to add $5 trillion to the national debt over the decade. Ultimately, Elon Musk, elected Republicans, and MAGA voters all reaped benefits that were independent of DOGE actually saving much money.

No easy budget shortcuts.

DOGE has provided yet more evidence that there are no easy shortcuts to dramatically decreasing federal spending. The Republican fiscal contradiction is that many of its voters demand that Washington impose massive reductions in total spending while also shielding Social Security, Medicare, defense, veterans’ benefits, infrastructure, farm subsidies, border security, and (increasingly) the safety net from the budget axe. These voters have tried to resolve this contradiction by asserting that most federal spending actually goes to “waste, fraud, and abuse,” immigrants, foreign aid, or “woke programs.” And Republican lawmakers have played into this myth by proposing broad fiscal targets such as balancing the budget within a decade, the “Penny Plan,” or the Balanced Budget Amendment without specifying the steep cuts to popular programs necessary to meet those ambitious targets.

Washington does not face a $1.8 trillion budget deficit heading to $4 trillion within a decade because some “deep state” cabal refuses to eliminate government waste. Rather, the unsustainable budget deficit projections are overwhelmingly driven by surging Social Security and Medicare shortfalls that result from 74 million baby boomers, expanded benefits, and rising health care costs. Voters can either curtail these retirement benefits, eviscerate nearly all other spending such as defense, the safety net, and veterans’ benefits, or accept a significantly higher tax burden. This inescapable mathematical reality cannot be averted by a fast-talking president or celebrity CEO. Sure, a war on government waste would be a welcome way to save perhaps $100 billion to $200 billion annually. Yet that effort will require expertise, patience, upfront investments, and true buy-in from Congress, federal agencies, and outside policy experts. Unfortunately, the DOGE fiasco suggests that too many Americans still cling to the hope that lazy gimmicks will avert the need to align the government we demand with the taxes we are willing to pay.

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(Originally appeared at Reason)

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.

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(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.

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