(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.

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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.

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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.

CLICK HERE for article posted at the Brookings Institution site

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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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“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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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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(Originally appeared in the Washington Post)

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

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

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

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

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

At least the British government is still standing. France’s fiscal chaos has brought the current government’s collapse. The narrative is familiar. Aging baby boomers and a 1.7 fertility rate mean that France’s annual deaths are likely to begin outnumbering births by 2027 — forcing all net population increases to come from immigration, which itself faces political backlash. Also like its neighbor across the channel, France’s weak productivity and stagnant workforce size has limited economic growth to 1.2 percent annually over the past decade.

Within the European Union, only Greece and Italy exceed France’s debt, which stands at 116 percent of the gross domestic product and is heading to 130 percent within a decade. Annual interest costs are set to surge by two-thirds over five years and risk becoming the government’s most expensive budget item. Perhaps not surprisingly, Moody’s downgraded the French government’s credit rating last December.

The Macron administration initially attempted to supercharge its economy with even more borrowing for government investments and business tax relief. When this failed, a 2023 law raising the retirement age from 62 to 64 unleashed two weeks of nationwide protest, and recent calls for even modest austerity reforms caused the government to fold. Protests aside, French austerity is becoming economically unavoidable.

Yet neither France nor Britain can match the combination of debt unsustainability and denial in the United States, whose budget deficits are nearly $2 trillion and moving to $4 trillion within a decade. Within three decades, continuing current policies would propel annual deficits to 14 percent of the economy and the debt to nearly 250 percent of the economy.

The underlying drivers align with France and Britain.

First, the demographic challenge. The retirement of 74 million baby boomers combined with low fertility rates will drop workforce growth toward zero — leaving any population gains to come from (likely restricted) immigration. With fewer workers left to finance each retiree, Social Security and Medicare face a combined annual shortfall of $700 billion this year, rising to $2.2 trillion within a decade and totaling $122 trillion over three decades when including resulting interest costs.

Second, the economic challenge. Financing these retirement benefits requires a strong economic buildup. However, the slowdown in labor force and productivity trends has reduced annual economic growth to 2.1 percent since 2000. Worse, the Congressional Budget Office forecasts just 1.8 percent annual growth moving forward as labor force expansion trends toward zero.

America’s last hope was that — if an underperforming economy and tax revenue could not keep up with the accelerating costs of an aging society — Washington could at least plug the gap with cheap borrowing. In the 2010s, the government comfortably borrowed heavily because of low interest rates that the CBO projected would never exceed 4 percent. Unfortunately, this low-interest rate honeymoon eventually fell victim to rising inflation, tighter Federal Reserve policy and reduced global savings flows.

Closing that last door of ultracheap borrowing leaves no easy exit. America’s economy, workforce and tax code are not equipped to finance the expanding Social Security and Medicare shortfalls. France and Britain are at least debating solutions. The U.S. continues to slash taxes, add benefits and ignore unfathomable budget deficits. Yet the laws of math and economics always win eventually, and Americans are dangerously ill-prepared for what is coming.

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

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

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

The Limits of Taxing the Rich

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

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

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

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

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

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

American Taxes are Highly Progressive

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

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

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

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

Answering the Critics

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

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

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

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

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

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

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

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

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

Put Everything on the Table

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

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

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

(Originally published in The Dispatch)

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

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

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

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

Impoundment is unconstitutional.

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

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

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

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

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

Trump defies impoundment law.

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

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

CLICK HERE to keep reading at the Dispatch (paywall)

(Originally published in The Washington Post)

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

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

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

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

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

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

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

(Originally published in The Dispatch)

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

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

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

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

Tax relief becomes a religion.

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

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

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

CLICK HERE to keep reading at the Dispatch (paywall)

(Originally appeared in the Washington Post)

As Republican tax-cut legislation struggles to get through Congress under the weight of its staggering cost, party leaders have responded to criticism by trying to shift the blame. They’re assailing the nonpartisan Congressional Budget Office for the transgression of honestly describing the ugly $2.4 trillion reality of the One Big Beautiful Bill Act, as the legislation is titled.

GOP leaders have rallied around the talking point that the CBO’s egghead economists just don’t understand that tax cuts will unleash economic growth so stupendous that the additional tax revenue will offset the bill’s entire cost. What began with a May strategy memo from Newt Gingrich has grown to a chorus of condemnation of the CBO from congressional leaders, the White House press secretary and President Donald Trump.

Don’t fall for this spin. The CBO was created by Congress in 1974 as a counterweight to the White House’s Office of Management and Budget. Rather than having to rely on an often adversarial White House for budget estimates, Congress would have its own scoring body. The CBO is composed largely of nonpartisan economists and attorneys, with its director appointed by the party that controls Congress. Since 2019, it has been led by Phillip Swagel, a widely respected Republican economist.

The agency produces short- and long-term federal budget baselines, legislative cost estimates, and data-driven studies on fiscal and economic policy. More than being merely informative, the baselines and bill scores become the standard against which congressional anti-deficit rules are applied, such as the prohibition against reconciliation bills worsening long-term budget deficits.

To be sure, the CBO is not infallible. It erroneously assumed the late-1990s tax revenue bubble would continue indefinitely, creating unrealistic expectations of paying off the national debt. Its projections overestimated interest rates for decades before probably underestimating them now, which in turn lowballs future interest costs and budget deficits. Health care reform analyses have proved erroneous by overestimating the number of Americans who would gain health insurance under Democratic policies, as well as how many would become uninsured under GOP policies. Those CBO fumbles are surely fresh in the minds of many Republicans.

Continue Reading at The Washington Post (Paywall)

(Originally published in The Dispatch)

We are all seeing how tariffs damage economies by raising prices, distorting markets, and encouraging foreign retaliation against our export industries. What we see less of is the swamp-infested cronyism that tariffs encourage: When tariffs are enacted, as with the 2018 steel and aluminum tariffs, lobbyists rush to seek exemptions for individual businesses.

By my colleague Judge Glock’s count, those 2018 tariffs prompted 425,000 requests for exemptions, 200,000 of which have been approved based largely on political donations and connections. These individual business carve-outs, however, pale in comparison to the budget-busting tariff bailouts likely headed back to the farmers of deep-red America.

During President Donald Trump’s first term, farmers received $24 billion on top of their regular farm subsidies to compensate for the loss of access to foreign markets resulting from Trump’s trade war, such as China’s 25 percent retaliatory tariff on American soybeans. Then, in 2024, even as candidate Trump promised a more aggressive trade war that could cripple the farm economy, rural voters nonetheless preferred Trump to Kamala Harris by a 30-point margin. Trump earned a staggering 78 percent of the vote in the 444 counties most heavily dependent on farming.

In short, farm country voted overwhelmingly to unleash a new trade war. And now these same farmers and their political leaders want taxpayers to finance another round of bailouts to protect them from the consequences of their own votes. Congress already approved $10 billion in “emergency” payments to farmers during President Joe Biden’s final days, and now Trump has reportedly told Agriculture Secretary Brooke Rollins to “have some programs in place that would potentially mitigate any economic catastrophes that could happen.” Congress and the farm organizations are already discussing how to structure such a taxpayer bailout.

Another farm bailout should infuriate taxpayers. Consumers and businesses who paid $16 billion in tariff costs last month are not receiving any federal taxpayer bailouts. Other American export industries that will suffer from a prolonged trade war—such as software, electronics, pharmaceuticals, and energy—are not receiving any broad-based federal bailouts (just those lobbyist-negotiated individual carve-outs). Yet farmers—who actively endured an earlier Trump trade war and then provided overwhelming vote margins to return Trump to the White House to unleash an even more destructive trade war—are now set to receive special taxpayer protection from the consequences of their own votes.

What happened to the Republican belief in individual accountability? Republicans love to lecture low-income voters that poverty is a moral failing, and they argue that shielding poor families from the consequences of their poverty-inducing decisions will undermine the necessary incentives to change their behavior. Apparently, such tough-love approaches do not apply to Republican voters, who are always quick to explain why their own taxpayer bailouts and welfare payments are different.

“Farm country voted overwhelmingly to unleash a new trade war. And now these same farmers and their political leaders want taxpayers to finance another round of bailouts to protect them from the consequences of their own votes.”

True economic conservatives (all eight of us remaining) will not be surprised to learn that such bailouts make little economic sense as well. Most of the 2018-2019 assistance payments were paid from the Market Facilitation Program (MFP). In calculating the bailout formulas, the USDA vastly overestimated the forthcoming farmer losses to tariffs, leading it to significantly overcompensate affected farmers. U.S. food exports in 2018 and 2019 fell only slightly, and soybean revenues—expected to bear the brunt of those retaliatory tariffs—temporarily dipped by 11 percent before surging 60 percent above pre-tariff levels by 2022 after the trade war had died down.

Moreover, those earlier farm bailouts were egregiously tilted toward the wealthiest agribusinesses. A study by the American Enterprise Institute notes that “the largest 10 percent of farms, with average annual gross farm incomes of $2.14 million, received average subsidies ... of $230,700 per farm” in 2018 and 2019 from the MFP and crop insurance program. By contrast, owners of midsize farms received an average of $18,000, and smaller farms received virtually nothing.

These bailout payments not only exceeded farmer losses from the trade war, they were also duplicative. Washington already distributes $20 billion in annual farm subsidies that are paid out even during boom years. And when the farm economy dips, the aforementioned federal crop insurance program already compensates farmers at taxpayer expense. Receiving regular farm subsidies, crop insurance payments, and tariff bailout payments means essentially triple-dipping on government farm welfare.

CLICK HERE to keep reading at the Dispatch (paywall)

(Originally published on MSNBC.com)

Over the past decade, Washington has enacted President Donald Trump’s $1.5 trillion Tax Cuts and Jobs Act (TCJA), a bipartisan $1.7 trillion pandemic-response CARES Act and President Joe Biden’s $1.8 trillion American Rescue Plan. Yet the cost of the House-passed Republican tax cut will likely exceed all three of these expensive laws — combined.

The Congressional Budget Office (CBO) officially scores the GOP tax cuts included in the One Big Beautiful Bill Act as costing $3.8 trillion over the next decade. But the tab rises to $5.3 trillion when removing the deceptive expiration dates included to cover up the bill’s exorbitant long-term cost. Add in the additional tax savings added at the last minute to win more Republican votes, as well as the resulting interest costs, and the true 10-year tax cut cost likely approaches $6.5 trillion. The House bill would offset just $1.3 trillion with savings from programs such as Medicaid, SNAP and student loans — and the Senate is likely to strip many of those offsets.

The tab rises to $5.3 trillion when removing the deceptive expiration dates included to cover up the bill’s exorbitant long-term cost.

The 2017 tax cuts were drafted against a backdrop of $585 billion annual budget deficits. Deficits have since tripled to $1.8 trillion, and Republicans have responded by passing the most expensive legislation since the 1960s. The combination of tax cuts, escalating Social Security and Medicare shortfalls and soaring interest costs will push annual deficits toward $4 trillion within a decade.

Rather than reduce this unfathomable cost, GOP leaders are trying to hide it from voters. To circumvent Congress’ anti-deficit rules, Senate Republicans have suggested simply deleting the CBO score of the TCJA renewals and writing in zero cost. They claim that those original TCJA expiration dates were never real anyway — even as the GOP dutifully adds expiration dates into the new legislation. House Republicans have been seen carrying talking points from Newt Gingrich attacking the CBO for acknowledging that tax relief adds to deficits.

Another stale Washington gimmick has Republicans claiming that tax relief will unleash roughly $13 trillion in additional economic growth over the decade, in turn producing $2.5 trillion of additional tax revenues. However, most of the bill’s cost derives from extending the current TCJA, which leaves unanswered how continuing the same tax policies would suddenly cause economic growth rates to spike to their highest sustained level since the 1990s.

Moreover, the tax legislation undermines any potential economic expansion in several ways. It adds an additional expiration date to its most pro-growth provisions encouraging business investment. Businesses will not undertake expensive and risky long-term investments based on temporary tax provisions, even if those provisions are expected to eventually be renewed. Nor do the bill’s populist giveaways — such as eliminating some taxes on tips, overtime and car loan interest — boost economic growth. Instead, they will clutter the tax code, invite taxpayer gaming and weigh down the economy in more government red ink.

Even the conservative Tax Foundation modeled the tax provisions and found virtually no long-term increase in national income or wages. The economists at the Penn Wharton Budget Model found only minuscule long-term economic benefits. The modest growth effects of tax relief are swallowed by the economic drag of adding tens of trillions of dollars to the long-term federal debt, which in turn diverts national savings away from the investments that would start businesses, create jobs and raise incomes.

Economic growth is, mathematically, the product of labor force growth times worker productivity growth. With the labor force already set to stop growing due to low fertility, baby boomer retirements and Trump’s immigration restrictions, meeting the GOP’s economic targets would require nearly doubling the growth rate of worker productivity. Such an outcome would be quite unlikely even in the absence of a White House-induced trade war devastating key industries and starving the economy of foreign investment. Delivering economic expansion to pay for tax cuts requires more than populist pandering and unrestrained government debt.

Rather than reduce the cost of this budget buster, House Republicans passed their bill by buying off colleagues with even more debt-financed benefits. Coastal state Republicans demanded a last-minute evisceration of the TCJA’s cap on state and local tax (SALT) deductions, with nearly all benefits going to high earners. The bill scales back low-income welfare while providing a $52 billion corporate welfare bailout to farmers, a key GOP constituency. Republicans are correct that escalating spending is the leading long-term deficit driver, yet their refusal to rein in spending growth gives them no business cutting taxes by trillions of dollars.

While Democrats have blasted the cost of the GOP tax legislation, it must be pointed out that their sudden concern over runaway deficits reeks of partisan opportunism rather than principle. After all, Biden signed legislation and executive orders adding nearly $5 trillion to 10-year deficits. Democratic lawmakers refuse to address the Social Security and Medicare shortfalls that will quadruple to $2.2 trillion annually over the decade, and oppose nearly all spending offsets in the GOP bill. They have also endorsed renewing the TCJA for all but the highest-earning 5% of taxpayers, plus an additional trillion-dollar child tax credit expansion and full SALT cap repeal. Senate Democrats this week voted unanimously to stop taxing tips. A $36 trillion federal debt provides enough blame to go around, and both parties must re-evaluate their refusal to confront a debt headed toward $200 trillion over the next three decades.

They can begin by ending the era of trillion-dollar legislation. This month, Moody’s became the latest credit ratings agency to downgrade Washington’s credit rating, and a terrified bond market is pushing up interest rates to levels that could add $500 billion more to annual interest costs. As a fiscal conservative, I prefer low taxes but recognize that tax cuts without spending cuts are just tax deferrals with interest. If extending the 2017 tax relief is truly worth doing — and this includes the expanded child tax credit, higher standard deduction and business investment incentives — then it is also worth paying for.

(CLICK HERE for original op-ed on MSNBC.com)

(Published in The Atlantic)

In November, when Donald Trump first announced his plan to place Elon Musk in charge of a new Department of Government Efficiency, the idea was widely written off as a joke. Then Trump took office, and DOGE began its very real stampede through the government. As an effort to meaningfully reduce federal spending, however, DOGE remains wholly unserious.

Musk initially promised that he would eliminate $2 trillion of the $7 trillion federal budget, before scaling back his ambitions to $1 trillion, and then $150 billion. Even that revised target is highly improbable.

Precisely measuring the budgetary effects of the Musk experiment remains difficult, but we can begin by looking at the claims made by DOGE itself. In late February, its website claimed to have achieved $55 billion in annual-spending reductions. However, its “wall of receipts” detailed only $16.5 billion of this total. Half of that figure came from a typo claiming $8 billion in savings from terminating an $8 million contract. As The New York Times has reported, that was far from the only accounting error. Once such mistakes as false contract cancellations, triple counts of the same reform, and the inclusion of contracts that expired decades ago were fixed, verified budget savings stood at just $2 billion.

The DOGE website now claims $165 billion in savings. However, it still details only a fraction of the supposed cuts, and earlier accounting errors have given way to new ones. A common sleight of hand is canceling a “blanket purchase agreement”—in which the recipient had been given the equivalent of a credit limit to incur necessary costs on a project—and then claiming savings of the full credit limit rather than the (in many cases substantially lower) amount that was actually spent. Even assuming that the website’s stated savings have become twice as accurate as they were in February, annual savings would reach perhaps $15 billion, or 0.2 percent of federal spending.

Fortunately, more reliable sources than DOGE’s self-reported figures exist. The best is the Treasury Department’s monthly accounting of spending by agency and program. Any true DOGE spending reductions should show up in these budget totals, as should the results of other White House initiatives, including cuts to public-health spending and the ongoing efforts to eliminate USAID and the Department of Education.

These spending data do not flatter the Musk project. Total federal outlays in February and March were $86 billion (or 7 percent) higher than the levels from the same months a year ago, when adjusted for timing shifts. This spending growth—approximately $500 billion at an annualized rate—continues to be driven by the three-quarters of federal spending allocated to Social Security, Medicare, Medicaid, defense, veterans’ benefits, and interest costs. These massive expenses have been untouched by DOGE’s focus on small but controversial targets such as DEI contracts and Politico subscriptions.

We can see this by looking at Treasury’s breakdowns of monthly spending by agency. Short-term program spending can fluctuate greatly, and sustained trends might not be fully apparent for several months, but the early data are nonetheless revealing. Perhaps the highest-profile cuts under the Trump administration so far have been to public-health spending and foreign aid. And yet, even here, the numbers are rounding errors in the context of the federal budget. Public-health spending, previously about $8.2 billion monthly, fell to $7.1 billion in March, led by cuts to the National Institutes of Health and the Health Resources and Services Administration, the latter of which funds state and local health grants to serve underprivileged families.

CLICK HERE to continue reading at The Atlantic (Paywall)

(Originally appeared in Politico Magazine)

President Donald Trump is used to bending reality to his will. But he will soon learn — if he hasn’t already — that this is harder to do with the economy. Just ask former President Joe Biden, who painfully learned that an inflation rate of 9 percent could not be spun as illusory, transitory or driven by a sudden and inexplicable burst of corporate greed. Ultimately, people directly experience their gas and grocery prices, as well as layoffs and stock market downturns. Sustained political popularity requires getting economic policy right, because elected officials cannot spin real economic decline.

As is increasingly evident, many of Trump’s economic policy pronouncements make little sense, in large part because he makes ever-shifting arguments for contradictory policies. A president who promised voters that, “We’re going to become so rich, you’re not going to know where to spend all that money,” instead induced a market crash that resulted in top aides attacking middle-class families as being materialistic for aspiring to afford middle-class comforts, as well as claiming that markets had been overvalued and recessions can be good, actually.

As a right-of-center economist who has spent nearly 25 years producing research that warns against the dangers of unrestrained federal spending and debt, I am concerned that Republicans are dramatically over-promising and under-delivering. It’s not an issue of left-versus-right. Rather, Trump is offering policies and promises that — even on their own terms — don’t make any sense. The president’s vision cannot successfully produce fiscal responsibility or economic prosperity because nearly every statement and action contradicts each other. And ultimately, it is American families and businesses who will suffer from this fog of policy confusion.

Here’s the truth about some of the president’s promises.

Trade Contradictions

1. Tariffs can’t both create permanent domestic jobs and be a temporary negotiating tool.

It is not entirely clear why Trump has long been fixated with tariffs and hostile to any form of international trade. We know this aversion goes back to his 1980s days as a real estate developer, which suggests that his zero-sum view of trade may be the product of the kill-or-be-killed world of New York real estate. Whatever the reason, the president’s public arguments for steep tariffs seemingly reflect backward reasoning, as he promises that tariffs can provide all things to all people.

A clear example is the contradiction between selling tariffs as a permanent policy versus a short-term negotiating tactic. Trump has repeatedly emphasized that tariffs are intended to produce in America manufacturing that is currently taking place in China, Vietnam, South Korea, Mexico and elsewhere. Commerce Secretary Howard Lutnick went so far as to brag that American fingers would finally be inserting the screws into iPhones. (Notably, none of the lead tariff advocates have personally volunteered for such jobs.) Trump’s repeated criticisms of NAFTA and his (incorrect) assertions that it drove the decline in manufacturing jobs are often followed by promises of a tariff-based manufacturing renaissance where America builds everything it needs.

And yet, as soon as the president abandoned some of the tariffs in the face of a market meltdown, his press secretary described the move as “The Art of the Deal,” implying that many of the tariffs were always intended to be nothing more than a short-term negotiating tactic to force other nations to the bargaining table. Of course, this post-hoc rationalization would have been more persuasive had America’s major trading partners actually offered major trade concessions. Instead, Trump unleashed a global economic meltdown and won nothing in return. In fact, Lutnick’s call for onshoring iPhones was followed by Trump exempting them from the Chinese tariffs.

More importantly, Trump’s constant fiddling with the tariff dials and his claims that they are merely a short-term negotiating tactic undermine any hope of building new factories in America. One of the most important requirements for business investment is policy certainty. No entrepreneur will undertake an expensive, five-year project to build a new factory that is needed to last 50 years if the underlying trade economics are changing monthly or even weekly. Tariff, tax and regulatory policies may be helpful or hurtful, but they at least must be predictable.

2. Tariffs can’t both protect domestic industries and generate trillions of dollars in revenue.

Even more contradictory is Trump’s promises that tariffs can build a trade wall around America while also raising trillions of dollars in tax revenues to replace the income tax. A tariff cannot raise revenues from imports if those goods are no longer being imported. Tariffs can either lock out imports or collect revenues from them, but they cannot do both.

Conservatives love to cite (an exaggerated version of) the Laffer Curve to claim that hiking income tax rates will collapse the tax base and thus reduce tax revenues. Yet in international trade — where the Laffer Curve is actually more relevant — the same conservatives often deny that steeply hiking tariffs will bring any economic or consumer behavioral responses to shrink the tariff base and pull back revenues.

In reality, the U.S. imports $3.2 trillion of goods that can theoretically be subject to tariffs. But even at low tariff rates, they reduce demand for imports; it is mathematically impossible for tariffs to replace $2.6 trillion of annual income taxes because no tariff rate could raise that much money after accounting for the corresponding reduction in import demand. Yes, an average tariff rate of 20 percent could theoretically raise $640 billion in tariff revenue. However, the decline in import demand and the slowdown in broader economic activity would drastically reduce those revenues, while more bailouts of export-hammered industries like agriculture would likely consume most remaining revenues. Any deficit reduction would be marginal and not worth the economic chaos.

Counting on tariffs to raise significant revenue is wishful thinking, not economic thinking.

Budgetary Innumeracy

3. You can’t both eliminate the federal budget deficit and protect Social Security, Medicaid and other popular programs.

Trump’s unrealistic and contradictory tariff revenue promises fit well within his broader, and equally contradictory, budget promises.

In his recent address to Congress, Trump promised that “In the near future, I want to do what has not been done in 24 years: balance the federal budget. We are going to balance it.” But eliminating the entire budget deficit would be extraordinarily difficult even if Washington was run by deficit hawks willing to put all spending and taxes on the table.

Without raising revenues, eliminating the $1.87 trillion budget deficit would require cutting 27 percent of the $7 trillion federal budget. Yet Trump has already promised no cuts to Social Security, Medicare, defense and veterans’ benefits, and he cannot directly reduce interest payments. That’s 66 percent of the budget taken off the table (or 75 percent if we include Medicaid, which Trump occasionally promises to spare from the budget ax).

That means balancing the budget would require eliminating nearly every remaining federal expenditure, including border security, infrastructure, federal courts, U.S. embassies, federal prisons, all health research, national parks, unemployment benefits, disaster aid and disability benefits. Even if the president demanded every one of those cuts, not even a tea party Congress could or would pass them.

4. You can’t eliminate the federal budget deficit and also cut taxes.

The Committee for a Responsible Federal Budget calculates that, during last fall’s campaign, Trump proposed nearly $10 trillion in new tax cuts over the decade. This includes his promised “no tax on tips,” ending taxes on overtime and Social Security payments and reducing corporate taxes. He also endorsed significant new spending for defense and border security. Given that the aforementioned tariffs would likely provide little net budget savings, the president’s proposals (combined with $20 trillion in baseline deficits) would double the national debt held by the public from $30 trillion today to approximately $60 trillion within a decade.

Until Trump and his aides grasp the fiscal reality of his expensive promises and his pledges not to touch most existing spending, his balanced budget aspirations should be dismissed as mathematically nonsensical.

5. DOGE’s actions are likely to increase the federal budget deficit, not lower it.

Nor does the president’s “Department of Government Efficiency” cut through this nonsense or improve this fiscal calculus. Despite Elon Musk’s promises to immediately save $2 trillion (later scaled down to $1 trillion and now to $150 billion), DOGE is limited by the aforementioned presidential pledges not to touch the two-thirds of federal spending that is actually driving spending upward. Moreover, DOGE is forbidden by the U.S. Constitution, the Congressional Budget and Impoundment Control Act of 1974 and repeated Supreme Court jurisprudence from unilaterally canceling spending that was approved by Congress and signed into law. DOGE can cancel contracts, reduce payment errors and move money around, but its more sweeping attempts to eliminate federal agencies and programs will likely be reversed by the courts unless Congress passes legislation blessing such moves.

While the DOGE website claims to have saved $150 billion, the verified savings have been less than $5 billion — or less than 0.1 percent of federal spending. The rest of the claimed savings are either not backed up with specific data or based on mathematical errors, triple-counting the same savings and theoretical “savings” of funds that were never going to be spent. Ultimately, DOGE is government spending-cut theater that targets MAGA cultural totems such as DEI contracts, media subscriptions, federal employees and foreign aid that collectively save little money. Which is why total federal spending this year currently exceeds the level of spending during the same period last year.

In fact, DOGE is likely to ultimately expand budget deficits. Drastic layoffs of IRS tax enforcement employees are expected to encourage tax evasion and cost the federal government hundreds of billions of dollars in revenue. Gutting the Department of Education risks laying off the employees who collect student loan repayments. Even many of the laid off federal employees are currently collecting salaries and benefits while courts weigh the legality of their job cuts. These losses may ultimately exceed DOGE’s modest budget savings and leave it as a deficit expander.

6. The national debt can’t matter one day and not the next.

During his 2016 campaign, Trump promised not only to balance the federal budget, but even to pay off the entire $19 trillion national debt. Then during his first term, he signed legislation and executive orders adding $7.8 trillion more in red ink — only half of which was related to the pandemic. Now, Trump is promising to balance the budget while also proposing the largest borrowing binge since World War II. He even demanded that Congress completely eliminate the statutory debt limit.

Moreover, the self-described “king of debt” demands an end to each of America’s bilateral trade deficits (which are not economically harmful) yet has no qualms pushing budget deficits to stratospheric levels (which can be quite harmful). The president even recently confused the national debt and the trade deficit.

These contradictions have real world implications. This is clear each time the Trump administration claims that budget deficits will no longer allow Washington to continue spending 0.1 percent of the federal budget to provide life-saving medications to 20 million African HIV patients, at the same time it is prodding Congress to slash taxes by $5.3 trillion.

A New Gimmick

All of this helps explain why the White House and congressional Republicans are weighing using a new gimmick to hide this economic reality.

Congress’ anti-deficit rules provide powerful anti-filibuster protection to a limited number of budget bills. However, such bills are forbidden from expanding budget deficits beyond the typical 10-year window — which is why much of Trump’s original 2017 tax cut law expires at the end of 2025.

The Republican budget’s solution is to override the $4 trillion price tag of the policy and simply claim that extending the tax cuts forever has zero impact on budget deficits. Their absurd argument is that, because the tax cuts already reflect the “current policy” until the end of this year, then renewing their cost forever is “free.”

This is fiscal nonsense. It’s like a debt-ridden family buying a $100,000 sports car one year and then asserting that buying another next year is not costly because their annual spending level is not rising. Ultimately, this gimmick renders Congress’ entire universe of anti-deficit rules moot. After all, the next Democratic majority could use the same gimmick to declare zero cost for Medicare For All or the Green New Deal. As fiscally irresponsible as Congress and recent presidents have been, it is now likely to get much worse.

If you are a deficit hawk only when addressing the other side’s priorities, then you aren’t a deficit hawk. You are just grabbing whatever rhetorical weapon is nearest to defeat the other party.

What’s more, as we’ve already seen, none of this is going to fool the markets, particularly the bond market, whose recent gyrations suggest investors’ faith in the stability of the U.S. government has been shaken.

Trump has found political success selling his economic policies as achieving countless contradictory goals. But ultimately, he will be judged on whether the economy produces jobs, raises incomes, limits inflation and strengthens the stock market — metrics that are moving in the wrong directions. And his fiscal policies cannot escape the mathematical reality that deep tax cuts and spending expansions cannot reduce surging budget deficits.

A president who was elected in part on his predecessor’s hubristic economic errors is aggressively committing his own.

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