Over the next decade, the US faces the largest sustained budget gaps in nearly a century. According to the IMF, the US federal government is now among the most indebted governments in the world.
Not long ago, the US was among the least indebted countries, but the 2008 financial crisis and 2020 pandemic changed that. The costs of high debt levels are upon us now, most visible in the form of high inflation, high interest rates, financial stress, and the risk of an economic downturn.
The problem is that the largest and fastest growing shares of the budget, mandatory spending like Social Security and Medicare, are difficult to reform. Without reforms, benefit cuts loom within a decade.
Our latest analysis finds that even large tax hikes won’t stabilize the debt. International experience with fiscal consolidations suggests that sustainable solutions require prioritizing spending reforms, paired with tax policies that minimize economic harm like well-structured consumption taxes or expansions to the tax base.
With the budget process in disarray and debt escalating, bold reforms are critical. A fiscal commission, as proposed in recent legislation, could drive meaningful change by addressing both spending and tax policies.
Given the poor state of the budget process and worsening debt trajectory, lawmakers should move boldly and quickly to address the issue, including via a fiscal commission process. Issues to consider should include reforms to both spending and taxes.
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Social Security is by far the largest federal government spending program. The latest trustees report shows the program is on a fiscally unsustainable path that will exacerbate the US debt crisis if its imbalances are not addressed in the near term.
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If tax increases are included in a package, international experience points toward raising consumption taxes, rationalizing tax expenditures, and broadening the tax base—not hiking income taxes.
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Rather than continue down the path of growing debt, lawmakers should craft a comprehensive solution. International experience cautions against tax-based fiscal consolidations, but modest tax increases may be part of a successful debt reduction package.
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While federal tax collections—especially corporate taxes—have reached historically high levels, these gains have not kept pace with escalating spending, particularly on debt interest, leading to a substantial and concerning budget deficit in FY24.
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Now is the time for lawmakers to focus on long-term fiscal sustainability, as further delay will only make an eventual fiscal reckoning that much harder and more painful. Congressional leaders should follow through on convening a fiscal commission to deal with the long-term budgetary challenges facing the country.
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As the policy debate for the next presidential election begins to take shape, both sides need to be honest about their plans for addressing the actual challenges our country faces.
One year after “Liberation Day,” evidence shows President Trump’s tariffs were not reciprocal, did not generate the promised investment boom, raised less revenue than projected, and contributed to higher prices.
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By 2036, more than one out of every four dollars raised in total government revenue will go to pay interest on the debt.
AI is everywhere, and now it’s in the tax policy debate.
President Trump is scheduled to deliver the annual State of the Union address to Congress. The speech is bound to address a multitude of topics, but taxes and (especially) tariffs will certainly feature prominently.
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The increased senior deduction with the phaseout would deliver a larger tax cut to lower-middle- and middle-income taxpayers compared to exempting all Social Security benefits from income taxation and would not weaken the trust funds as much. But given the temporary nature of the policy, it would increase the deficit-impact of the reconciliation bills without boosting long-run economic growth.
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Our analysis of the major tax provisions included in the OBBBA finds it will increase long-run GDP by 0.7 percent. The major tax provisions will reduce federal tax revenue by nearly $5.2 trillion between 2025 and 2034, on a conventional basis.
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With changes to payroll taxes likely to be part of a toolkit for reform, both policymakers and the public would benefit from understanding how the payroll tax works, who pays it, and its impact on the economy.
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AI technology has a wide range of potential economic outcomes. It would be a mistake to tailor tax policy to the extreme end of that range. Still, policymakers shouldn’t do nothing: they should instead make tax reforms that are sound regardless of which AI scenario emerges.
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Economic policy in 2025 came with historic highs but also disappointing lows.
Over the long run, OBBBA’s permanent extension of lower marginal tax rates on work, saving, and investment lays a solid foundation for stronger economic growth.
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Our modeling indicates the One Big Beautiful Bill Act (OBBBA) will boost economic growth but increase deficits, leading to record high debt in 2028 that rises to 124 percent of GDP by 2034.
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One thing remains certain: sending out tariff rebates does not provide a long-term solution for families, but ending the trade war would.
Amidst a government shutdown, healthcare subsidies have metastasized into a major threat to the nation’s fiscal and economic health.
The fiscal fight that resulted in the current federal government shutdown is, at its core, about the healthcare sector, spiraling healthcare costs, and federal subsidies.
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Short FormThe US national debt is on an unprecedented and unsustainable trajectory that will require ever-greater borrowing and larger interest payments on what is borrowed. These interest payments will, in turn, consume a larger part of the budget, and all Americans will pay the price.
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The US fiscal trajectory is on an unsustainable path over the next 35 years, regardless of whether the IEEPA tariffs are struck down or maintained.
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President Donald Trump’s fixation on tariffs as a solution for just about everything, including the deficit, has led him to run roughshod over the law and norms of international trade.
As US businesses and consumers face higher costs of goods due to the Trump tariffs, Senator Hawley (R-MO) has introduced legislation to rebate tariff revenue to provide financial relief. The proposal takes a similar approach to the stimulus checks issued during the COVID-19 pandemic.
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Our experts explain how this major tax legislation may affect you and how policymakers can better improve the tax code.
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