Approaching the Cliff on Social Security and Medicare

 Many posts have discussed Social Security and Medicare.

Jessica Riedl at Brookings:

Social Security and Medicare finances are headed for a reckoning. Social Security has run an annual deficit since 2010, and its trust fund is projected to become insolvent by 2032.1 The Medicare Part A trust fund is projected to follow in 2033.2 Trust fund accounting may sound like a green eyeshade technicality, but it is only one symptom of the broader unsustainability of both programs.

Consider that:

• Far from paying for themselves through payroll taxes and premiums, Social Security and Medicare are running a combined $847 billion cash shortfall in 2026—comprising roughly half of the entire federal budget deficit. 
• Their combined shortfall is projected to reach $2.7 trillion a year within a decade, becoming the overwhelming driver of rising federal budget deficits.4
• Over the following three decades, the two programs are projected to run a cumulative cash shortfall of $157 trillion, with the annual gap reaching 12.4% of GDP by 2056.5
• All told, these shortfalls will account for nearly 80% of all federal budget deficits projected over the next three decades.

Clearly, something has to give—before these shortfalls drive the federal debt to a projected 240% of GDP within thirty years and push interest costs high enough to consume a majority of annual tax revenue.6 Both parties created this unsustainable path, repeatedly expanding Social Security and Medicare benefits well beyond available revenues while failing to account for longer lifespans, fewer workers per retiree, and rising health care costs.

Nor has either party offered a solution. Republican lawmakers take new taxes off the table, while President Trump opposes any benefit reductions. Democratic leaders take benefit changes off the table while pledging to limit new taxes to the wealthiest families and corporations. Neither side will admit that reining in these costs will require both reductions in scheduled benefits and new broad-based taxes.

This report aims to show that Social Security and Medicare sustainability reforms can be designed within progressive principles of protecting low-income seniors and promoting income redistribution down the income ladder. Specifically, it shows that:

A) While benefits for the poorest seniors must be protected, a growing share of today’s Social Security and Medicare spending redistributes income upward—from working families to millions of wealthier seniors whose benefits often far exceed their lifetime contributions to the system. This includes close to $5.6 trillion in benefits set to be paid over the next decade to seniors with pre-benefit incomes over $100,000 (in 2026 dollars), including $2.0 trillion to those above the $200,000 threshold.
B) The soaring cost of these benefits threatens to absorb every plausible tax increase on the wealthy, and even on the non-wealthy, leaving little or no room to fund other progressive priorities such as education, health care, climate, and childcare.
C) Because sharp tax increases face broad opposition, escalating Social Security and Medicare costs are already squeezing spending on other progressive programs—a trend likely to accelerate.

While the “just tax the rich” approach remains popular among progressives, the notion that it alone can close all or even most of a thirty-year, $157 trillion shortfall collapses under scrutiny. Mathematically, even seizing every dollar of billionaire wealth or taxing millionaires at 100% tax rates would fall short.7 Economically, marginal rates on top earners can rise only so far before the resulting economic and incentive effects begin to erode revenue. And politically, for nearly a century even unified Democratic governments have proven unable to enact substantial upper-income tax increases outside of major wars—a constraint likely to persist as Democrats increasingly represent the highest-earning regions, such as California and New York. Taxing the rich belongs in any sustainability plan, but it cannot spare middle-class taxpayers or other spending programs from bearing much of the cost.

Given these constraints, continuing to give retirement benefits for (often wealthy) seniors the first claim on federal revenue will force other priorities—poverty relief, education, health care, climate, childcare, family leave, and infrastructure—to compete for a shrinking pot of remaining tax dollars. Progressives can instead protect the poorest seniors, rein in benefits for wealthier ones, and reserve most new tax increases for those other priorities.

The Fiscal Picture Gets Worse

Many posts have discussed federal deficits and the federal debt. 

 James C. Capretta at AEI

The Treasury Department will release the official tally for fiscal year 2026 later this month, but the Congressional Budget Office (CBO) has provided a useful early look that is likely to be close to where the more carefully scrubbed numbers eventually land. The bottom line is that the federal government’s fiscal position continues to deteriorate, with rapid spending increases on the main entitlements and net interest on past borrowing accounting for most of the growing fiscal pressure.

The final deficit figure for 2026 is $1.993 trillion, or $218 billion above what was recorded in 2025. Revenue was up 3 percent in 2026 relative to 2025, but spending grew even faster at 6 percent.

On the spending side, Social Security, Medicare, and Medicaid continue to dominate the outlook, with all three growing at rates exceeding the rate of increase for federal revenue. Social Security outlays rose by 5 percent in 2026, while Medicare and Medicaid were up 8 percent. Their combined spending increase in 2026 was $217 billion, which accounts for 80 percent of the entire increase in noninterest outlays recorded for the entire federal government.

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What should be most worrisome to policymakers is the combination of rising entitlement obligations and newly emerging pressure on net interest costs. In 2026, net interest payments were $1.143 trillion, up $115 billion compared with 2025 payments. Servicing federal debt now accounts for 15 percent of all federal spending, up from 8.5 percent in 2006.

Tariffs and Capital Investment

 Many posts have dealt with tariffs and trade. 

Kyle Pomerleau, Thomas Brosy, Robert McClelland, et al. "The Impact of Tariffs on the Cost of Capital in the US, AEI, September 30, 2026

Since 2025, the second Trump administration has imposed significant levies on most imports. Although tariffs are routinely discussed as a consumption tax, 36 percent of all imports are capital assets used to produce goods and services. As a result, tariffs place a meaningful burden on new investment in the United States.

We estimate that Trump’s tariffs (before the Supreme Court’s decision) raised the cost of capital by as much as 2.7 percent. This is equivalent to raising the METR [marginal effective tax rate] on new investment by 4.2 percentage points. The burden varies significantly by asset, industry, and legal form of organization, placing the largest burden on equipment. A 4.2 percentage point increase in the METR roughly offsets the OBBBA’s tax cut on investment. The burden that tariffs place on investment is an underappreciated effect of these taxes that has important implications for tax reform, the macroeconomy, and the distribution of the tax burden.

CBO Tax Data

 As many posts have pointed out, the federal tax system is more progressive than many people believe.  Higher-income people do pay higher rates and bear a larger share of the tax burden than people with lower incomes.

Once again, CBO stats make the point:

Data tables here.

The share of federal taxes paid by households in the top quintile of the income distribution increased from 55 percent in 1979 to 70 percent in 2023. Most of that increase was due to the change in the share of federal taxes paid by the top 1 percent of the distribution, which grew by 12 percentage points—from 14 percent in 1979 to 26 percent in 2023.

Ticking Debt Bomb

 Many posts have discussed federal deficits and the federal debt.

Zachary Basu at Axios:

Zoom in: President Trump said in 2016 that he could eliminate what was then roughly $19 trillion in national debt within eight years. On Tuesday, the debt crossed $40 trillion, after growing by $3 trillion in the past year alone.About $32 trillion is owed to investors and other outside holders. The rest is debt the government owes to its own accounts, including Social Security and other federal trust funds.

Treasury must refinance $9.7 trillion in debt coming due this fiscal year while covering a deficit the Congressional Budget Office now projects at roughly $2.1 trillion.

That creates a punishing cycle: Old debt comes due, Washington replaces it with more expensive debt, and the resulting interest bill feeds future deficits.CBO projects annual deficits will average $2.4 trillion through 2036, pushing debt held by the public to 120% of GDP — above the record set after World War II.
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The big picture: America's debt burden is approaching the point where it starts reshaping household finances, presidential politics and the country's economic choices.Long-term Treasury yields have climbed to their highest levels since 2007, raising borrowing costs across the economy — from mortgages to business loans — and making Washington's own debt more expensive to refinance.

Social Security's retirement trust fund is projected to run dry in late 2032, during the final months of the next president's first term.

Medicare's hospital trust fund follows in the second quarter of 2033.

Between the lines: Trump and Elon Musk promised to break Washington's addiction to debt without forcing Americans to swallow painful sacrifices.Musk launched DOGE with ambitions of cutting as much as $2 trillion from federal spending. Its final public tally claimed just $215 billion in savings — barely a tenth of that goal.

A federal audit released this month found billions in unsupported or inaccurate savings claims, including $27.4 billion tied to contracts that were still active.

Price Controls

 Anthony Salvanto, Jennifer De Pinto, Fred Backus at CBS:

Though a slight majority, along with most Democrats and independents, [Republicans] would be okay with government price controls.

Nixon tried price controls, and they inflicted economic damage that lasted through the 1970s.  In his memoirs, he made a rare admission of error

What did America reap from its brief fling with economic controls? The August 15, 1971 decision to impose them was politically necessary and immensely popular in the short run. But in the long run I believe that it was wrong. The piper must always be paid, and there was an unquestionably high price for tampering with the orthodox economic mechanisms.

Government Ownership of the Means of Production, Continued

The proletariat will use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralize all instruments of production in the hands of the state..."-- Karl Marx and Friedrich Engels, The Communist Manifesto

Jonathan Hillman at the Council on Foreign Relations:

Washington’s latest and boldest experiment in industrial policy is a renewed willingness to take equity stakes. Since January 2025, the U.S. government has announced investments worth $27.6 billion across thirty-seven deals involving direct ownership, broadening a toolkit that has traditionally focused on grants, loans, and tax incentives. The Department of Commerce leads the way with twenty four announced deals, including taking a 10 percent stake in Intel. The Development Finance Corporation, the United States’ development bank, has pledged six equity transactions in critical minerals, energy, and infrastructure. The Department of Defense has disclosed seven deals, and the Department of Energy has participated in two.

Return to this page for the Government Deal Tracker. 

Kit Pulliam at Moneywise:

The government owning equity in private companies is unusual, to say the least. And experts say that the way the Trump administration is approaching equity could be easy to abuse.

"The federal government has powers no private shareholder possesses," said Tad DeHaven, policy analyst at the Cato Institute, in an email to Moneywise. "A government that owns the players cannot be trusted to call the game fairly."

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While it is unusual, the U.S. government holding equity in private companies has occurred before. But there's one big difference in past ownership deals compared to these new ones.

"It hasn't been normal for Washington to accumulate stakes in otherwise private companies as a routine economic policy tool," DeHaven said. He says that several administrations — including the Carter, Bush, and Obama administrations — have accumulated stakes in companies during emergencies, such as during the Great Recession or after 9/11.

"Whatever one thinks of those interventions, they were justified as emergency stabilization measures and generally intended to be unwound," DeHaven said. "The second Trump administration is doing something quite different."

Consumer Sentiment and the Perils of Online Polling

Many posts have discussed pollsters' challenges, including the plunge in response rates.

Joel Wertheimer at Silver Bulletin discussed the Index of Consumer Sentiment (ICS):

The University of Michigan ICS is the gold standard sentiment survey measuring consumer sentiment.1 The survey has historically shown a very strong correlation with “hard” economic data such as inflation and unemployment. But before more bad analysis gets done on the vibecession, people need to know they’re working with dubious data. As with election polls, the ICS has struggled amid a shift away from telephone polling. There are issues both with partisan nonresponse, with some political groups more likely to respond than others, and partisan expressive response, with survey-takers using questions about the economy to express political sentiment.

So the problems with the ICS are these:

The switch to online polling made responses more negative and,

There are too many Democrats in the sample.

Thus, ICS data since mid-2024 is not comparable to past periods. Here is the partisanship of the sample over time:

And Democrats right now say they hate the economy with Trump in charge.

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When adjusted for these issues, the ICS should be substantially higher than the Great Recession lows we have witnessed over the past year. Weighting the survey to Pew’s National Public Opinion Reference Survey — what Nate Cohn called “perhaps the most important poll you’ve never heard of” — would place the ICS at a level more like that in 2013, when the economy was growing after the Great Recession but unemployment remained stubbornly high and wages stubbornly low. This adjustment would bring the survey in line with other measures of consumer confidence, such as those from the Conference Board, Gallup, and YouGov.

Saving Social Security

Many posts have discussed Social Security and Medicare.

 Jessica Riedl at The Atlantic:

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

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

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

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Even liberal economists estimate that additional tax revenues begin leveling off as marginal tax rates reach the high 50s, and they begin losing money at rates somewhere between 60 and 73 percent. This leaves room to raise marginal tax rates on high earners by perhaps 6 to 12 percentage points. Raising the rich’s rates past that point may provide spiteful satisfaction but could reduce tax revenues, as high earners either stop earning additional wages or shift their compensation to lower-taxed investments or foreign jurisdictions.

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Income Inequality 1826-2026

Many posts have discussed economic and educational inequality. 

Bruce Mehlman:

Individual incomes have increased exponentially but not evenly. But while 2026 shows the highest market inequality of the five eras, overall inequality is lower than most… taxes and government transfers today redistribute far more than in earlier centuries.

 

US: Still Religious and Prosperous

Many posts have discussed international views of religion.

Ryan Burge on the World Values Survey: 

The most recent version of the survey is Wave 7, and it was fielded between 2017 and 2022. It contains 64 total countries, but some don’t have responses to religion questions, so we are left with 54 countries. Which is still a lot.

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One final scatterplot before I close up today. This one is just a simple replication that is widespread in my corner of the world: specifically, the secularization hypothesis. This is the idea that as a country becomes educationally advanced and economically prosperous, it will be less religious. I created a composite index of religiosity based on a number of questions about religious belief, belonging, and behavior. Then I grabbed a measure of GDP per capita to assess economic prosperity.

What about outliers above the line? One big surprise is Puerto Rico. Its GDP is $40K but their religiosity index is .83. The combination of a strong Catholic Church and the rise of Pentecostalism probably explains a lot of that. Then you’ve got a bunch of Eastern Orthodox countries who are more religious than they should be based on their GDP: Cyprus, Greece, and Romania all fit this pattern.

Where does the United States fit? Well, it’s still an outlier. The religiosity index is .62, and GDP is nearly $70K. In order to fit the trend line in this scatterplot, GDP would need to drop to just $28,000 or religiosity would need to dip to .47. 

The Federal Debt Hurts Americans Right Now

Many posts have discussed federal deficits and the federal debt.

Martha Gimbel at The Atlantic:

What should matter is that the consequences of this debt are not off in the future, but already here. The government’s deficits have saddled many American families with higher costs, largely from rising interest rates. The Budget Lab, the policy research center at Yale where I am the executive director, recently estimated that congressional-spending decisions since 2015 have raised Treasury yields by almost a full percentage point, which affects what American households pay to borrow. For someone taking out a 30-year mortgage at last year’s median home price, this rise in long-term interest rates has increased their borrowing costs by about $2,500 a year, or roughly $76,000 over the life of the loan. (The Budget Lab has built a tool to help users calculate their own extra mortgage costs.)

The problem is not just for Americans who are lucky enough to buy a home. The bloated government budgets and waning federal revenues of the past decade are driving up costs across the board. Compared with a world in which these fiscal-policy changes did not take place, the annual borrowing costs on a typical auto loan are now up by about $120, and by about $770 on a typical small-business loan. Credit-card borrowing rates are also hovering near record highs.

Although affordability has become a watchword for politicians who understand that rising prices are hurting American families, lawmakers seem to have forgotten that reducing federal deficits would help bring down prices. In the 1990s, Congress and the White House prioritized bringing deficits down by both cutting spending and raising revenue—moves that lowered borrowing costs for American families by about 0.6 percentage points, according to Budget Lab calculations. But few lawmakers seem to be suggesting the spending cuts and tax increases necessary to lower costs now.

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Politicians respond to electoral consequences. Right now there is nothing stopping them from doling out tax cuts and spending promises while also driving up interest rates. Voters may complain that their lives are becoming unaffordable, but hardly anyone seems to appreciate that federal deficits are partly to blame. If we want to see lawmakers actually address this problem, economists need to do a better job explaining the stakes. This means that instead of talking about the fact that our national debt could fill all 32 NFL stadiums with two tiers of construction pallets filled with $100 bills, we should be talking about how deficit spending is making it harder to pay our own bills.

Tariffs Are Taxes

 Many posts have dealt with tariffs and trade. 

 Kyle Pomerleau at EconoFact:

Tariffs are a tax on imported goods. Tariffs are collected when the tariffed goods enter the United States. Tariffs can be levied either as a fixed percent of the value of an import, a fixed dollar value per imported good, or as a tariff-rate quota, which applies tax when the value of certain imports exceeds a certain threshold (Pomerleau and York 2025).

Like all taxes, tariffs affect the price and quantity of goods on which they are levied. An excise tax increases the price paid by consumers and decreases the price received by sellers of the product. An important issue with any tax is its incidence – by how much do consumer prices rise and by how much does the price received by producers fall? In the case of tariffs, the consumers are domestic residents while the producers are foreign, which has implications for whether the costs of tariffs are borne by American consumers or foreign sellers. The extent to which a tariff is paid by domestic residents is called its pass-through – for example if a 10% tariff results in an increase in the price of domestic goods by 6% then the pass-through is 60%. Research suggests that tariffs are primarily passed through to U.S. importers as higher import prices (Amiti et al 2019) and the extent of price pass-through rises over time. Evidence on the latest round of tariffs suggests that the pass-through is almost 100%, that is, United States consumers are bearing the full costs of tariffs (Gopinath and Neiman 2026). Between March 2025 and May 2026, The price of imported goods rose by 6.8 percent relative to a pre-tariff price trend between March 2025 and May 2026, as measured by a study that tracks the online prices of over 350,000 products sold at five large U.S. retailers. The largest price increases observed were in carpets and other floor coverings (54 percent), other articles of clothing and clothing accessories (24 percent) coffee, tea, and cocoa (16 percent), and fish and seafood (16 percent) (Cavallo, Llamas, and Vazquez, 2025b).

Tariffs that raise the price of imported goods can also result in rising prices of domestically produced goods that compete with those imports. When the price of an imported good rises due to a tariff (or for other reasons), domestic producers who sell goods that compete with those imports raise the price of their goods as well since they have less competitive price pressure from foreign goods (Cavallo, Llamas, and Vazquez, 2025a). Experience from President Trump’s first term suggests that even untaxed complimentary goods can face price increases due to tariffs. For example, the price of clothes dryers rose after tariffs were applied to imported washing machines in 2019. Importantly, the increase in the price of domestically-produced goods generates no tariff revenue for the government.

The burden of tariffs is shared broadly. Research shows that while tariffs burden households of all income levels, they tend to be regressive taxes – that is, they fall proportionally more heavily on lower-income households, who devote a larger share of their income to consumption of goods that are either subject to tariffs or that compete with tariffed imports (Tax Policy Center 2024). As an example, the Tax Policy Center estimated that if the tariffs in place as of December 2025 stayed in place during 2026, they would reduce household after-tax income by 2 percent for the bottom 95 percent of households. At the same time, this tax would reduce after-tax income for the top 1 percent and top 0.1 percent by 1.7 and 1.5 percent, respectively.

Debt Matters

Many posts have discussed federal deficits and the federal debt.

Neil Irwin at Axios reports on federal debt exceeding 100% of GDP.

Catch up quick: The Commerce Department last week reported $31.9 trillion annualized GDP in Q1. That surpasses the $31.4 trillion in debt held by the public on the last day of the quarter.The U.S. debt-to-GDP ratio briefly topped 100% during the early days of the COVID-19 pandemic when economic activity collapsed. But before that, it hadn't exceeded that ratio since the aftermath of World War II.

The ratio is on track to continue rising, with the Congressional Budget Office projecting it will reach 120% in 2036.

Zoom in: Consider a family with $100,000 in debt and an annual income of $100,000. Is their debt excessive? The answer, of course, is that it depends.If the family ran up that debt due to one-time expenses that won't recur and has a low interest rate, rising income and day-to-day spending in line with what they bring in, they're probably fine.

If, on the other hand, they ran up that debt to support routine living expenses in excess of their earnings and have a high interest rate and stagnant income, it would raise serious alarm bells.

Zoom out: The U.S. government is more like the latter family. The CBO projects federal revenue in the next few years will be 17% to 18% of GDP, while expenditures will be north of 23% of GDP.That gap, of around 6% of GDP, is higher than the CBO's GDP growth projection, which would imply an ever-rising debt-to-GDP ratio.

In those projections, the federal government's interest expenses soar to new heights as a share of the economy — surpassing $1.5 trillion and 4% of GDP in 2031.

That assumes interest rates remain broadly in their current zone, with a 10-year Treasury note yielding about 4.4% — and that bond investors prove willing to continue financing an ever-growing debt at those levels.
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The bottom line: The national debt hitting 100% of GDP isn't a worry in and of itself, and it isn't some magical threshold. What is worrying are the details of how it got there, and what comes next.

Spending, Taxes, and Deficits: A Book of Charts from Brookings

Many posts have discussed federal deficits and the federal debt.

Jessica Riedl at Brookings:

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

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

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

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

Threats to Econ Stats

A number of posts have discussed presidential documents, official data, and government websites.

David S. Johnson at Brookings:

Since the founding of the country, the nation’s economic statistical system has produced timely, accurate, and relevant statistics that are used by policymakers and the public to make critical decisions. However, in recent years, the nation’s economic statistical agencies have been increasingly threatened by political and technical challenges. Having dealt with continually falling budgets, staff shortages, and increasing pressures to modernize their statistical infrastructure, these agencies are now experiencing a period of unprecedented staff reductions, budget cuts, and criticisms of their statistical credibility. This social and political environment has put federal statistical agencies into a state of crisis, furthering distrust of government statistics among the American people and reducing the availability of statistics on various aspects of the nation’s economy, people, and well-being.

The specific threats to the Federal Statistical System (FSS) can be placed into two broad categories. First, some threats are internal within the FSS, including declining survey response rates, changing technology, and the use of blended data. Second, other threats arise from external factors or political structures, including declining public trust, political interference, falling agency budgets, and staffing limits.

This paper provides an overview of internal and external threats and suggests a key mechanism for how agencies can survive in this challenging climate: keeping the staff motivated. After reviewing the structure of the FSS and headline economic indicators (or Principal Federal Economic Indicators), the paper focuses on the internal threats of falling response rates and difficulties in innovation and the external threats of decreasing budgets, staff, trust, and increasing political interference. This analysis shows that falling response rates are a concern if they bias the statistics, demonstrates the challenges faced by agencies in modernizing their statistics, highlights the recent reductions in staff, and discusses the implications of decreasing financial resources over the past 15 years. The conclusion examines whether attempts to limit the independence of the agencies could harm the statistics.

Download the full report

Deficit and Debt 2026

Many posts have discussed federal deficits and the federal debt. Like previous efforts to reduce the deficit by cutting "waste, fraud, and abuse," DOGE was a failure.

CBO:

In CBO's projections, the federal budget deficit in fiscal year 2026 is $1.9 trillion and grows to $3.1 trillion by 2036. Relative to the size of the economy, the deficit is 5.8 percent of gross domestic product (GDP) in 2026 and grows to 6.7 percent in 2036, which is greater than the 3.8 percent deficits averaged over the past 50 years. Rising net interest costs drive much of that increase. The primary deficit, which excludes those net interest costs, totals 2.6 percent of GDP this year and stays below that level through 2036, when it totals 2.1 percent.

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 From 2026 to 2036, large and growing deficits cause debt to increase. Federal debt held by the public rises from 101 percent of GDP this year to 120 percent in 2036, surpassing its previous high of 106 percent of GDP in 1946.

 

A Year and a Week of Trump

Many posts have discussed the presidency.

 My article in La Tercera (original English):

The first year of President Trump's second term was full of action. He got Congress to pack much of his domestic agenda into what he called "One Big Beautiful Bill." The legislation cut taxes, with the benefits flowing mainly to the wealthiest Americans. It partly offset the tax reductions by cutting programs for the poor.

Trump assigned billionaire Elon Musk to cut "waste, fraud, and abuse" in the government. The effort failed. The young staffers who worked for Musk did not know what they were doing. They disrupted government operations and fired experienced employees without finding much waste. Their actions led to lawsuits and required expensive remedial measures. In the end, Musk cost American taxpayers more money than he saved. By the end of 2025, the federal government's debt had risen to $38 trillion.

On the positive side, the economy grew, and inflation remained modest, continuing trends that had begun during the Biden administration. Additionally, Trump's tariffs did not lead to the immediate price spikes that many had feared. Nevertheless, economists warned that tariffs could drive up prices in 2026.


Trump's record on foreign policy was also mixed. His administration helped broker a cease-fire in Gaza and carried out a military strike that set back Iran's nuclear program. The abduction of Nicolas Maduro possibly opened long-term opportunities for American oil companies, but it was not clear how the Venezuelan people would fare.


During his 2024 reelection campaign, Trump repeatedly promised that he would end the war in Ukraine in the first 24 hours of his term. But despite his courtship of Vladimir Putin, the war dragged on. He was no more successful in his quest to gain ownership of Greenland.


All in all, it was a year to remember, though not necessarily for the reasons that Trump wanted.

Since I wrote that piece, things have gotten worse for Trump.  Tricia Escobedo at CNN:

President Donald Trump showed his first signs of retreat since surging federal immigration agents in Minnesota late last year — replacing the leader of the crackdown on the ground and signaling a new willingness to cooperate with the state’s Democratic elected officials. Top Border Patrol official Gregory Bovino and some of his agents are expected to leave Minneapolis today and return to their respective sectors, according to three sources, sidelining a key player in the Trump administration’s immigration crackdown. The move comes after Trump announced he was dispatching White House border czar Tom Homan to Minneapolis in the wake of the fatal shooting of US citizen Alex Pretti. The White House has said Homan is expected to manage ICE operations in the city.

US and EU Comparisons

 From the French Ministry of Foreign Affairs:

Our « culture » https://t.co/RZK5YlpsCj pic.twitter.com/QeOtT75a2e

— French Response (@FrenchResponse) January 22, 2026

Federal Taxes Are Progressive

As many posts have pointed out, the federal tax system is more progressive than many people believe.  Higher-income people do pay higher rates and bear a larger share of the tax burden than people with lower incomes.

 Congressional Budget Office The Distribution ofHousehold Income, 2022 :

The average federal tax rate for households in the lowest four income quintiles increased in 2022, largely because of the expiration of two policies—the recovery rebate credits and expanded child tax credit—that reduced average tax rates in 2020 and 2021 for all quintiles (though households in the top quintile were generally less affected). Without those two policies, federal tax rates would have remained more stable from 2019 to 2022. Despite increasing in 2022, the average federal tax rate for each income group declined over the 1979–2022 period. The decline was largest for households in the lowest quintile and smallest for households in the highest quintile. 

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 The share of federal taxes paid by households in the top quin tile increased from 55 percent in 1979 to 70 percent in 2022. Most of that increase is attribut able to the change in the share of federal taxes paid by the top 1 percent of the income distribu tion, which grew by 13 percentage points—from 14 percent in 1979 to 27 percent in 2022