Congress knows what its doing: It creates tight budget rules to look tough on deficits without doing anything about them. They get great press when they pass the rules, and then no one notices when they bypass them later for popular tax cuts & spending expansions. Its all a game.

Congress loves to hype laws capping discretionary spending for the next several years. Great for TV ads. Then it simply votes to bypass the limits each year. When crafting the 2023 FRA spending caps, both parties already agreed to ignore the caps before they were even passed.

Remember PAYGO? This 1990 law mandated that all tax cuts & mandatory spending expansions that are not paid for would trigger automatic, equal spending cuts. How many times has PAYGO been enforced since 1990? ZERO. Both parties voted to cancel every enforcement of the law. Ever.

Then there's "emergency" spending. All budget constraints can be waived for emergencies - but without a binding constaint for what constitutes an emergency, Congress slaps the label on anything to evade budget rules. Cost: $15 trillion since 1991, adjusted for inflation.

An example is budget reconciliation. It was created in 1974 as a fast track, no-filibuster process to help lawmakers cut deficits. Then in 2001, lawmakers began using this streamlined process to *expand* deficits instead. Total cost since 2001: $16 trillion.

Social Security reform is not about poor seniors - they have only a 6% poverty rate and we can easily & cheaply guarantee incomes of 125% of the FPL. Instead, the tax-the-rich revenues would be to ensure the trillions spent on wealthy seniors - without even a trim in benefits.

Finally, if we're going to raise marginal tax rates for the rich to (or even beyond) the revenue-maximizing level - little room to tax the rich for anything else - should 100% of those revenues to go (often wealthy) seniors instead of health care, climate, education, etc?

The progressive solution is to eliminate the tax cap - which would keep the system out of deficit for just 3-4 years. And - because the higher taxes would not earn any corresponding benefits - sever the contributions/ benefits link that supposedly "earns" our benefits.

But the right rejects most Social Security fixes bc many of them still cling to the myth that SocSec is just a savings account that repays exactly what they pay in - if not for those darn immigrants and lawmkers raiding the trust fund.

Social Security reform need not be complicated because there are 3 main reform levers: The payroll tax, eligibility age, & high-earner benefits. Economists brag we can negotiate a bipartisan fix "in 15 minutes" and I've seen GOP & Democratic lawmakers do so behind the scenes.

And no, Washington taking 50% ownership in AI companies would not be a major new revenue resource. Unless Washington unloads the stocks, they become paper gains with modest dividends once investment costs trail off and profits emerge. Plus govt. meddling would chase investors.

Interest costs: Big AI means an investment gold rush that pushes up interest rates - including on the debt. Big range of possibilities, but central estimate is rates rising around 0.4%, costing the govt around $240 billion annually by 2036.

However, the more AI adds to growth, the greater the resulting job displacement. Two scenarios: 1) Big layoffs of mid-career professionals. 2) Fewer good entry-levels jobs for younger grads. Scenario 2 is looking more likely. May consume 15-40% of revenue bump. We'll say 25%.

Revenues: If we match the internet boom's decade-long 1% annual productivity bump - plus the IRS better collecting unpaid taxes - we get around $1 trillion in added revenues annually by 2036. It could be less if most of the gains accrue to (lower-taxed) capital over labor.

But there's more: CBO assumes all this new government debt will never push its average interest rate above 4.2%. Economic research suggests otherwise. If rates instead plausibly rise to 5.2% that's another 60% of GDP in debt - $57 trillion in nominal dollars. Yikes.

Replace those unrealistic assumptions, and the projected 30-year debt surges from CBO's 175% of GDP all the way to 243%. That means Washington's 30-year borrowing spree leaps from $138 trillion to $200 trillion.

These questionable assumptions include: - Big tax hikes from all temporary tax cuts expiring. - Cutting defense, other discretionary spending, and smaller entitlement programs by 1/4 as a share of GDP, down to 1930s levels. - Trump's current tariff rates being renewed by every president.

"We've been hearing this for decades." Sure - but the crisis was always coming around the 2030s, after the boomers retired. The urgency in the 1990s-2000s was to fix SocSec & Medicare while the boomers had time to adjust. We failed, they retired, and now we're in deep trouble.

Trump's answer to rising interest costs is to force the Fed to maintain lower interest rates (fiscal dominance). Yet in the past, this policy paralyzed the Fed and brought surging inflation - which itself pushes long-term rates back up.

And those numbers rosily assume that pushing the debt past 240% of GDP would barely raise interest rates. Yet rates rising just one percentage point above the CBO baseline would cost as much as a second Defense Department, and push interest costs to 83% of all revenues by 2056.

The fiscal costs of debt are more straightforward. This year, net interest will consume a record of 3.3% of GDP and 18.8% of tax revenues - heading to 31% in a decade and 54% in three decades. That means all your federal taxes until Juy 16 would go to interest on the debt.

Moving forward, CBO data projects that the (current policy) debt path would - over the next 25 years: - Shave 27% off personal income growth. - Cut the growth rate of personal income nearly in half. - Reduce annual national income growth by $10k/person (in today's dollars).

The main economic cost is diverting savings away from pro-growth investments and also raising interest rates. This is not just a future concern - standard econ analysis shows 2008-2026 debt has pushed up rates by 1-2 percentage points. And productivity growth has been lower.

And finally, I spend 20 charts walking through the fiscal records of Presidents Bush, Obama, Trump, and Biden. The summary table is below.

Yes, federal tax system is still progressive. The median-earning family pays an effective federal tax rate of around 12% for all taxes - including just 2% for income taxes. Deductions and tax credits do a lot here.

But doesn't Europe raise so much more revenue by taxing the rich? Nope. The gap is driven by their broad-based value-added taxes.

So you think we can close long-term deficits just by taxing the rich and cutting defense? You need to raise 4.3% of GDP annually by 2036 and 5% of GDP by the 2040s (interest savings would do the rest). Have at it!

The CBO projects that Washington can push the federal debt to historic levels without interest rates ever again exceeding 4.2%. We better hope they are right - because higher interest rates would bury the budget. 😳

There is a common fallacy that Social Security cannot add to budget deficits. It is contributing around $250 billion to this year's $1.8 trillion deficit.

Over the next 30 years, Social Security and Medicare will run a cash shortfall of $157 trillion according to CBO data. The rest of the budget projects to run a surplus over 30 years.