 You probably already know that the national debt is bigger than our entire economy, but relax, because things can always get worse. And they will, regardless of whether Biden or Trump gets elected in the fall. Each has a proven track record of spending like a drunken sailor, and most projections show that debt will grow to be between 181% and 340% of GDP over the next few decades. My guest today is Brian Riedl. He's a budget expert at the Manhattan Institute, and he explains why massive and growing debt is really, really bad. Why reducing it is really, really hard and why young people should be really, really pissed. Here is the reason interview with Brian Riedl. Brian Riedl, thanks for talking to me. Glad to be here. According to your or the CBO calculations, depending on what happens, debt will be between 181% and 340% of GDP in another 30 years, right? So we got a lot of debt flowing around here. My first question to you is why are debt and deficits bad? Modest and sustainable deficits are not bad. It's like any sort of borrowing. It's okay to go into debt for your mortgage. It's okay to borrow for school. I am not a balanced budget absolutist. I think modest deficits for the right reasons. Which would mean national debt. That is just the each year's deficit added on plus interest. Every year's deficit adds up to the national debt. Modest borrowing is not bad. It doesn't raise interest rates very much. It doesn't cost taxpayers much. The problem is debt gets out of control when it grows faster than the economy forever. It's just like a family. If your debt is growing faster than your income forever, it's not sustainable. And for most of the period after World War II, the debt was about 40% of GDP, which most economists considered sustainable. It didn't raise interest rates very high and the interest costs as a share of federal spending were manageable. The problem is now we've gone from 40% to 100% and we're going much higher. If that happens, the dangers are in a basic macroeconomic angle, higher interest rates. Because the more savings the government borrows, the less savings is available for everyone else to borrow and that'll bid up interest rates and reduce investment. But what becomes even a bigger issue is how Washington is even going to be able to borrow that much money. Is there enough savings for Washington to even lend? And if they are able to borrow it, are the interest costs going to be so high that we could have a situation where 50% or 80% of your federal taxes are just paying interest on the debt rather than getting anything of value? What about the idea that long, persistent and growing debt, national debt, decreases long-term economic growth? Do you buy that? Absolutely. Again, modest debt doesn't make much of a difference. But if you think of it, there is a certain pool of savings in America and in the global economy. That savings usually would be borrowed for home loans, car loans, business loans, investment to grow the economy. But the more the government borrows this money, the more they soak up the savings. And instead of spending on investment, they spend it on consumption. They're going to give it to seniors to consume. There's going to be fewer money for home loans, car loans, student loans, and business loans. Ultimately, because investment is the lifeblood that drives the economy, when you starve the economy of investment dollars, you're going to get less business investment. It's going to create fewer jobs. There's going to be lower wages and lower growth. You could argue, we've already seen this, Japan has a debt of 200% of GDP. Their economy has been a basket case for 30 years. Does it matter? It seems that the government, both the federal government and then the federal reserve system, technically or ostensibly independent, they've just said, okay, well, we're just going to keep printing money. We're going to create money out of thin air. Is that also unsustainable? Yes. In fact, of the growth in debt over the past decade or so, about four to five trillion of it has essentially been funded by the printing press. The federal reserve's holding of treasury bills, which they essentially buy with printed money, has gone up four to five trillion. The Fed is actually looking to unload those that four to five trillion, but if they didn't, let's say they keep printing money, you're just going to get hyperinflation. The MMT crowd says, if you can always just print more money and the debt goes away, you can't expand the money supply by tens of trillions of dollars without creating significant inflation. My worry is long term, there's going to be a lot of pressure in Congress to go that direction. What's called fiscal dominance is when interest rates are set more to keep borrowing costs low than to stabilize the economy. That's my worry. Neither Trump nor Biden really talk about debt and deficits. Before we get to even the extent of the problem yet, well, let's talk about what is driving the debt? What is driving persistent deficits? The debt up until now has been driven by all sorts of factors. When you go from three to $27 trillion, there's going to be a lot of blame to go around. We've had social security and Medicare costs rise. There have been wars, tax cuts, just yearly runaway spending. The pandemic cost about $5 trillion. Moving forward from where we are now, there's one answer, Social Security and Medicare. Over the next 30 years, the Social Security and Medicare systems will run a shortfall of $116 trillion. We had mentioned we're looking over the next 30 years, $119 trillion in total deficits. It's all Social Security and Medicare. The long-term budget is roughly balanced if you take out Social Security and Medicare deficits. We do not really have a budget problem. We have a Social Security and Medicare problem. The other thing you mentioned, there are specific episodes where things cost a lot of money. It's fascinating in the 21st century. I was looking back at your charts and whatnot. After 9-11, there wasn't like the type of spike there was after the 2008 financial crisis. There was a massive blowout of debt finance spending. Then, of course, under COVID, broadly speaking from 1960 to 2022, spending was 20.4% of GDP. The government is spending 20.5% of the equivalent of the economy. Revenue average over that same time is 17.4%. That explains where we're at now, but you're saying going forward, it's going to get worse and it's almost all because of old age entitlements. You mentioned revenue has averaged 17.4% of the economy since 1960. It's projected to rise above that, depending on whether or not we extend the 2017 tax cuts. Revenues are going to be 18 or 19% of the economy over the next 30 years. That's above average. The problem is spending is going to jump all the way to 30% of the economy under the rosiest scenarios that the CBO can come up with. People can have their own value judgments of, well, I think revenues are lower than they should be, but if you're just looking at the moving variable driving deficits, it is 100% above average spending. There is no below average revenues projected for the next 30 years. We're going to have the highest sustained revenues in American history under the baseline, but it can't keep up with spending jumping 10% of GDP. One of the things that you talk about in your book of charts is that this is, and actually in writings, you have a piece recently at the dispatch that talked about this. This is not a Republican or Democratic issue. It is both parties. Can you talk a little bit about what is the type of spending? Because this is a spending issue, ultimately. We'll talk about tax cuts in a second in their effect on things. How do Democrats tend to spend money, and then how do Republicans tend to spend money? Democrats like to do big bursts when they get a new presidency, for instance. Barack Obama came in, spent trillions of dollars on stimulus, then did Obamacare the next year. You get this big burst of activity when it doesn't come to the office. And then he elected, and I know in something recently you referenced this, that went so well that he elected a Republican Congress. That then reigned him in. That reigned him in. And then it was similar with Joe Biden. Joe Biden comes in, spends $4.8 trillion in new legislation in 20 months, which is remarkable. And as remarkable as that, he came in promising $11 trillion in new spending. So he got halfway there. He got halfway there in 20 months. And who knows had the Democrats had a good election year in Congress, they could have gone further. Democrats not only do these bursts, but Democrats also are the defenders of the status quo with entitlement costs. The quiet driver of deficit is social security and healthcare costs rising six, seven percent a year. And Democrats are the adamant party that says we can never touch that. So even if they weren't passing their bills, that social security and Medicare six, seven percent a year buries us. So what about Republicans? How do they jack up spending? Republicans talk a good game. But if you take a look at in 2017, 2018, Republicans had the trifecta. They had the House, the Senate, and the presidency. They didn't reform entitlements at all. There was a little bit of push to repeal Obamacare that failed. There was no social security reform, no Medicare reform, no Medicaid reform. Instead, they came in, cut taxes, and busted the discretionary spending caps with a 13 percent hike in one year. When Republicans get the trifecta, when Republicans control the government, the first thing they want to do is reward their constituents. They're not thinking in terms of deficit reduction. They're thinking in terms of handing out benefits to constituents, whether it's big defense hikes, big discretionary hikes, tax cuts. You don't get the fiscal spinach from Republicans when they control everything. They consider it time to party. And then there was somebody like George Bush, and this gets muddied by 9-11 and whatnot, but he pushed for, he ran on and got an expansion of Medicare benefits, giving free or nearly free drugs to old people. He expanded education spending. Farm subsidies, 80 percent. Why is it past time to, I don't even want to say trust the Republicans, but not to laugh them out of the room if they start talking about fiscal responsibility? Republicans need to be judged by their actions, not their rhetoric. You listen to Republicans give speeches. We're going to balance the budget. We're going to reduce wasteful spending, and we're going to cut waste, fraud, and abuse. It's all empty rhetoric. If you look at Republicans, not only is their past record terrible, but their current proposals to reduce the deficit don't even reduce the deficit. Every Republican presidential candidate has an economic plan that increases deficits. Every one of them. The House Budget Committee released a budget blueprint that was entirely gimmicks. The Freedom Caucus, for all their talk, has released no actual blueprint to how to balance the budget. In fact, Republicans take 75 percent of spending off the table. They say we're not going to touch social security, Medicare, defense, veterans, and interest. They immediately take 75 percent off the table. So it's hard to trust a party that cuts taxes, increases spending, and then moving forward, takes 75 percent of the spending off the table and won't tell us where they'd cut the other 25 percent. I think you need to judge them by their actions, not their empty bounds to the budget rhetoric. Are there, kind of, obversely, if that's a word, are there Democrats who are more serious about fiscal responsibility, and where are they, and how do they get a louder voice? There are some... What are the modern equivalent of blue dog Democrats? The blue dogs officially, kind of, were wiped out under Obama. There is a quiet group of Democrats, about two or three dozen of them in the House, that are trying to work with Republicans, kind of, under the table on budget process reform, social security, and Medicare reform. They're very quiet about it. In the Senate, you have Joe Manchin, you have Michael Bennett, you have Mark Warner. There are some Democrats who at least talk a better game than even Republicans, but there hasn't been, of course, much action. But there are... The Democrats who are reasonable on this issue are unfortunately overshadowed by the loud progressives who just cost their party any credibility when you have Warren, Sanders, and AOC demanding $40 trillion in spending. I interviewed David Stockman recently, Reagan's former budget director, first budget director, and thinking about that, how important is the presidency when it comes to spending increases or decreases? Because in the Stockman lesson, part of it is he was able to cut a lot of... He was able to cut social spending, but then he couldn't touch defense spending, and you have charts in there showing how Reagan really didn't cut spending, ultimately. But is it the president? Is that the person who is the changemaker? The president cannot cut spending himself or herself. The president does not have the full power of the purse. And that's why I think sometimes presidents get too much blame when spending rises, when they tried to cut spending, Congress wouldn't cut it. That being said, you can't cut spending without the president being involved. The president has to sign the bills, and the president also has the bully pulpit to frame the issue. If presidents would actually invest political capital in spending cuts, they can create the framework in order to help us get there. They can't do it themselves. But again, the problem is we haven't really had a serious fiscal conservative president in memory, and they're not... Not only are they not a help, they're usually a barrier to spending cuts. What can we say about the budgeting process that comes out of Congress, which was reformed in the mid-70s or early 70s? And we don't actually... Or we. You and I aren't the problem here, but people in Congress don't follow it. Is that part of the problem? The 1974 Budget Act has been neutered into oblivion. One way to think about how it works is every year Congress is supposed to pass a budget. They never do. And they're supposed to pass a budget before that budget year starts. Right. They're supposed to pass the budget in March for the following October 1st. Right. How many times does that happen? Rarely. And then after that, you're supposed to pass 13 or 12 appropriations bills that actually fund the programs. The first problem is the appropriations bills only fund discretionary spending, which is 30% of the government. The budget process takes 70% of spending on autopilot out of the process. We're talking social security, Medicare, anti-poverty programs, Medicaid, farm subsidies. They're not even part of the budget process. They're just set aside on permanent autopilot. Congress spends all year tearing itself apart over the remaining 30% that discretionary spending. And then you have situations like now where we're almost six months into the next fiscal year and we still don't have discretionary appropriations for this year. We're still just running last year's numbers on autopilot. So the 74 Budget Act simply doesn't work anymore. If its goal is to help Congress set priorities, make trade-offs, and shape a holistic view of the budget, it's non-functional. What gave rise to the 74 Budget Act? And does that have any lessons for how we might reform things today? The 74 Budget Act resulted primarily from Nixon trying to impound money. There was a huge constitutional crisis under Nixon where he was trying to impound money that had been already appropriated by Congress. Impoundment means the spending has already been signed into law and the president says as chief executive, I'm not spending the money. The Supreme Court shot down- What was he trying not to spend money? That I do not know right now. But the Supreme Court essentially shot down impoundment and said if the law says to spend it, the president doesn't have a choice. That prompted, that's why the Budget Act was also called the Budget and Impoundment Act. But also what was happening back then is the budget was expanding. We were just past the Great Society. You had huge new government programs and a totally unwieldy process. It was just kind of all funded on a ad hoc basis. So the combination of the Great Society and Impoundment drove the 74 Budget Act. And that was one of the big differences. 66 Medicare passed, but it didn't go into effect until about 1970 or so. So that was coming online. Excuse me, and that kind of comically, Medicare was expected to cost a billion dollars a year or something. Like 48 billion by 1990 and it ended up three, four times that. They will make big mistakes made. Yeah. So is there anything like that that might spark a reform movement to reform the budgeting process? The challenge right now is everybody in Congress knows the process is broken. And the debt limit, the government shutdowns, that often motivates members to say this is no way to run a country. We keep having debt limit crises. We keep having government shutdown crises. The problem with budget reform that we've run into is there have been a lot of commissions in Congress and a lot of working groups and a lot of special blue ribbon lawmaker commissions. Nearly every reform they come up with dies because somebody's ox gets gored. Some committee is going to lose power, whether it's the Appropriations Committee or the is going to lose to the Budget Committee or the Budget Committee is going to have to give power to the Appropriations or Ways and Means is going to lose some authority over some of their entitlement programs. Budget process starts out idealistic and good government and it ends up devolving into a turf war between members over who can control what and the whole system falls apart. One way of doing it potentially is enact reforms perhaps that don't go in effect for five, seven, eight years so that members who are voting on it don't have to worry that you won't be the committee chairman anymore. You don't have to take this person. But that also gives the more space you give then it's kind of like, well, I'm going to weigh 100 pounds in 2030. So I'm going to, you know, and then in 2029, I'm like, I don't need that. They might repeal it then, right. And that's why nothing is foolproof. Yeah. So what's the role then of kind of public opinion or, you know, in your theory of social change? Like, yeah, is, you know, does it come from people protesting, you know, bad budget processing and things like that? You know, I have a sign up in my office. I'm drawing a little bit of a blank on it that says, I believe it's a quote that says, you know, do not think you public opinion doesn't matter. In the long run, it's the only thing that does matter. And ultimately, I have worked 20 years trying to adjust public opinion because when I worked on the Hill, I worked for six years in the Senate as chief economist to Senator Rob Portman. And when you're working in Congress and you talk to lawmakers, they will tell you the same thing. We know all these problems. We know it's unsustainable. But if I try to do anything about it, the voters will kill me. So one of the reasons I left the Senate was I'm like, okay, if everything comes down to public opinion because lawmakers are just weather veins, we have to fix public opinion. The challenge addressing public opinion on deficits is nobody believes it and nobody feels it. And they've been hearing concerns of deficits for a long time, but they don't feel it as much. I mean, there's been a little bit with interest rates. My fear is that we're not going to get real budget reform until the pain starts to hit us hard enough that people feel it. And that will be inflation. Inflation, rising interest rates, the bond market cutting us off, stock markets falling. And the danger, of course, is by the time you've gotten to that point, it's too late to fix it in any way that's not totally brutal. But I have spent 25 years trying to motivate people, even like looking for a Ross Perot type, I'm dating myself on this, you ran for president in 1992, kids, looking for a Ross Perot type or something to motivate people. And it's one of the reasons it's harder to get people motivated on the deficit now than say the 1990s is in the 1990s, the deficit was smaller. And you could fix it by reforming less popular programs that didn't matter as much. Today, the deficit is $2 trillion and driven almost entirely by Social Security and Medicare. It's really hard to motivate people to address the deficit when they realize that's the ox that's going to be gored. It's going to be Social Security, Medicare and middle class taxes. You're not going to be able to tweak your way to this like you did in the 1990s. Before we go into what is to be done, and I want to talk about some of the proposals that you've articulated over the years. Let's talk a little bit about Trump and Biden because, you know, they're running for president and they have recent track records or ongoing track records. One of the measures that you use in the charts and whatnot is how much, when a president comes in, there's a baseline of what deficits are going to be like in 10 years. And then, so you look at that and then you look how it turned out. And so, for instance, the 10-year projected decline for Bush, by the time he left, he ended up adding $10.3 trillion in deficits beyond what was expected. So that's really bad, right? Obama, it was $4.6 trillion dollars in a 10-year budget window. Trump in four years had $3.9 trillion extra budget deficits that he added to the baseline. Biden, I guess in his first 20 months, because it's still going on, he had added $5 trillion dollars. So does that tell us anything essential about these people or the parties they represent? I think one way to further slice up these numbers is, yes, you don't just want to look at what the deficit was when they arrived and when they left because you might inherit a budget where everything is on autopilot getting better or everything's on autopilot getting worse. But you can further divide up these changes between legislation versus the economy. And if you do that, Trump comes out a lot worse. Trump actually added $7.8 trillion in deficits, but he was able to save $3.9 trillion through faster economic growth, which cut the impact in half. Because Obama came in with a terrible economy, and I think we would both agree that the actions that came after him slowed down the recovery, but by the time Trump came into office, things were picking up. Sure, exactly. And especially in those first three years, the economy over-performed. And Biden also, he inherited a bad economy. So if you go by just legislation and you further take out the economy, Bush's legislation added $7 trillion in borrowing, Obama $5 trillion in borrowing, and Trump nearly $8 trillion in just four years. So what you see is that Bush and Trump added more than Obama, and much of Obama's debt was actually extending the Bush tax cuts. But Biden really came in all guns blazing. Like I said, he added $4.8 trillion in 20 months. He added as much debt in 20 months legislatively as Obama did in eight years. And so I think things are getting worse. That's why I'm concerned about a Trump-Biden rematch, because you have two presidents with two of the worst fiscal records of the past 100 years. Is there any, neither of them is talking about debt or deficits either, right? Is there, what is the option beyond despair when we look at the 2024 election? I think one hope you can have on spending in deficits is gridlock. If you do get, I think if you get a full Republican government or a full Democratic government, you're going to see massive deficits. If you get gridlock, you might have some hope that even if neither side cares about the deficit, they don't want to increase deficit the other way. Republicans don't want spending hikes, Democrats don't want tax cuts. But other than that, the real danger coming up after this election is we have an epic fiscal cliff coming next year. Next year, the tax cuts expire and are up for renewal. That's about $4 trillion over 10 years. The recent Obamacare expansion that Biden signed expires. The discretionary spending caps expire. The infrastructure bill expires and we hit the debt limit. So it's going to be interesting to see whether we have unified or divide government in a situation where we have six or $7 trillion in renewals coming and whether or not they're going to try to constrain or blow this out of the water. And talk a bit about how gridlock has operated in the 21st century because Bush came in and ultimately by 2004 he had a united government. But in 2006 he lost control of the House and the spending slowed down towards the end of his term. Obama, as we discussed, basically elected a Republican Congress which there was a massive increase and then kind of flatlining. Didn't quite work that way with Trump although he also managed to fracture control of Congress. So is gridlock viable and is it good? Historically gridlock is the only thing that has reduced spending and deficits. I can go a little back earlier to the 1990s when President Clinton came in and spent his first two years trying to nationalize healthcare. It was a disaster. Newt Gingrich comes in in 1994 and all of the sudden the entire debate is over how to balance the budget. Four years later the budget was balanced. Clinton was dragged kicking and screaming by Republicans into this. Similarly, as you mentioned, Obama in the first two years did about $1.5 trillion in stimulus bills plus Obamacare and it was after Republicans took the House in 2011. The next six years were six of the best years we've had. There was very little expense of legislation passing. It was Boehner and Obama were at each other's throats on spending and you had legitimate deficit reduction. It kind of fell apart under Trump after Trump lost in 2018 because you had the pandemic. And also the Trump Republican Party had changed so much that they were happy to team up with Nancy Pelosi to increase spending even outside the pandemic. Like I said, even when Republicans had unified government, that version of the Republican Party was happy to make deals with Democrats that said if you give us a 10% hike in defense, we'll give you a 10% hike in domestic discretionary spending. So we went off the rails there, but historically the GOP has worked really hard to constrain Democratic presidents. That's probably been the top formula for spending restraint is a Republican Congress constraining a Democratic president. Let's talk about the 90s because we managed to have balanced budgets a couple years or about three years in a row. Ninety through one. Yeah. So what happened there and how did that come about? There's a lot of mythology about the 1990s balanced budgets. There is a certain view that it was a massive amount of fiscal consolidation. The fiscal consolidation was actually pretty minor. What do you mean by fiscal consolidation? Physical consolidation meaning policies to reduce the deficit. You had President Clinton raise taxes in 1993, but it was only about half a percent of GDP out of a deficit that was about 5% of GDP. You had some modest spending restraint, but the real reason the budget got balanced and balanced faster than anybody predicted was A, the end of the Cold War created a defense dividend. Defense spending absolutely plummeted from about 5% or 6% of GDP down to 3% of GDP. At the same time, you had a big revenue bubble in the late 90s when the stock market was on fire. The defense savings and that temporary revenue bubble provided about 90% of the deficit reduction in the late 90s. If you want to give Clinton and Gingrich credit, it was basically staying out of the way. They didn't pass big expensive bills. They didn't do big tax cuts. They didn't do big spending hikes. They stayed out of the way and let the defense savings happen and the revenue bubble happen. Gingrich never talked about that partly because he didn't want to be seen as cutting defense spending. Right. He didn't mention that, but you wonder then why did the budget become unbalanced in 2001? Well, when all the savings were a revenue bubble and defense cuts and then you have the revenue bubble burst and then you have 9-11, the revenue bubble went away. At the same time, the defense savings went away. 9-11 in the bubble, you were suddenly right back to where you were 10 years earlier. And then you have the added kind of secret future costs by expanding Medicare. And then the Bush spending spree. I think one thing that gets lost on a lot of individuals is when Bush ran on compassionate conservatism in 2000, that theme was a repudiation of Newt Gingrich because there was a concern that Republicans were being too aggressive cutting spending even though they really didn't successfully cut that much. And they cut defense spending. Right. They didn't cut social programs at all, but there were the government shutdowns. So Bush was trying to repudiate that. Bush was announcing in 2000, unlike mean spirited Newt Gingrich, I'm compassionate and I'm going to increase spending. And he did. We had no child left behind, farm subsidies, a huge highway bill, domestic discretionary spending was rising about eight or nine percent per year in addition to the defense programs. So you really had a Bush made clear at the outset in 2000 that he was going to be a big spender. And then 9-11 just kind of put it on the acceleration also because even if there was some fiscal conservatives in the Bush White House, the prioritization of 9-11 defense funding didn't meant that they didn't really didn't have much leeway to play hardball with democratic spenders. There was a lot. In fact, when you talk to people from the Bush White House, they will tell you, we didn't want to increase this domestic discretionary spending as much as we did, but we needed our homeland security and defense funding from Democrats and we had to give them what they wanted. And instead of, I mean, that sounds like bullshit to me because it's like, obviously you say, you know, we're talking about national security here, existential threats, and you're saying we need to build more municipal swimming pools. Come on. Like that's a time to hold people's feet to the fire and prioritize something. Absolutely. Budgeting is about trade off. The idea, it kind of always reminds me of the, if we can afford to go to the moon, we can afford to do something else. Because you do A, you cannot afford to do B. One of the charts that I wanted to look at as we as we talk about where we are now and what can be done is the one you have a chart about how much spending per household the government does. In 2021, we were spending $59,188 per household. And then you have currently, it's at about $48,000. So it's come down from the peak, but not still much higher than before the pandemic. Yeah. And then it's projected in another 10 years or so to be up to 55,000. That kind of figure, does that crystallize for people like, you know, government spending is out of control? It does. When I talk to audiences, they can't believe the numbers. When I say, you know, government is spending at the peak of the pandemic, $59,000 per household. Right now, nearly $50,000 per household. And I frame it to audiences, imagine what you could do if you were able to keep even a fraction of that money for yourself in the first place without sending it to Washington. And that crystallizes it for people, just how big it's gotten. I remember, you know, when George H. W. Bush was president, we were spending $27,000 per household, that seemed high. And that's all adjusted for inflation. But I think that that should crystallize it for people. And it reminds me of a report in Wall Street Journal op-ed by my colleague at the Manhattan Institute, Judge Glock, who showed how much of people's taxes come back to the same household and benefits. I think he was estimating around 20% directly come back to the same household and much of the rest of it indirectly comes back to the same household. And, you know, it's really kind of dumb to send this money to Washington, have them send it, you know, cut an administrative haircut and then send it right back to you. Those were old arguments that I used to hear like why spend it, you know, send $20 to DC and get $18 back. It would be much more efficient to just keep it. But hopefully those will come back with some force. Okay, let's talk about what is to be done. And just to give a snapshot, this is current spending the way the federal budget is split up. It is 34% currently goes to Social Security of Medicare, 19% go to anti-poverty programs, 13% to defense, 10% to interest, and then there's 23% in another category. What are some of those? The other category? Oh, basically education, infrastructure, border security, health research, housing, all that kind of stuff. So, I mean like here we already, at this point, and this is only going to get bigger, but a third of federal spending is Social Security of Medicare. And that's going to go way up. Yeah, and interest will likely go up if interest rates continue to climb and things like that. Defense, it's fascinating in the early 60s, defense spending, and this is before Medicare, but defense spending was close to half of federal spending, right? But it's not so much anymore because we spend less proportionally on defense, but it's also because we spend so much more on it. We've gone from one half to one eighth of the budget on defense. Yeah, that's fascinating. But okay, so that's where we are now. What do we do in order to pay for this, you know, this type of spending? Can we tax our way out of it? It is mathematically impossible to tax our way out of this. In order to stabilize the debt long term, you need non-interest savings that gradually rise to about 6% of GDP outside of interest. I did a report last year on taxing the rich that showed that realistically you can only get about 1% of GDP in higher revenues if you set all upper income taxes at the highest possible rates at the revenue maximizing level and you adjusted for the economic damage that would create, you'd get 1% to 2% of GDP. Just to put a finer point on this, if you seized every dollar of every billionaire's wealth in America, their home, their car, their stocks, their vacation houses, their yachts, their businesses, you could fund the government one time for nine months. That's it. If you assessed 100% tax rates over 500,000 a year, you still wouldn't balance the budget. Taxing the rich should be on the table because everything needs to be on the table, but when I hear lawmakers down to people on Twitter say all we have to do is tax the rich and it'll pay for everything, that is spectacularly mathematically false. You show actually that according to OECD data and the OECD or advanced economies, the United States actually has the most progressive tax code. We have the most progressive. We are taxing the rich. The rich pay a higher percentage of government revenue in the US than in any other OECD country. Substantially more. It's because we tax the rich at a similar level as other countries. In fact, our highest rates are actually higher for other countries, but we tax the non-wealthy so much less than other countries that it makes us more progressive. Right. Yeah, and it's about 10%, the upper 10% of income earners in the US pay about 90% of the tax. Yeah, upper 20%. The highest 20% of earners pay 90% of all income taxes. The bottom half collectively pays zero. Yeah. So does that mean in order to balance the budget that we have to tax the middle class or we have to tax more a wider range of income earners? Here's the part that makes me really unpopular with all our audiences. If you try to build a stable budget for the next 30 years, and I don't mean stable. I don't mean balance the budget. I mean just one small enough deficit that the debt share of GDP stays at about 100%. You can't really get there on spending cuts alone. You have to cut that 5.5% of GDP. You can't really find 5.5% of GDP in reasonable cuts. You're going to have to have some revenue and if taxing the rich is limited, there's going to be higher middle class taxes. This is just a mathematical reality. As I explained in my dispatch article, you can't stabilize the debt with revenues at 17% of GDP. Spending is going to 30%. You're not going to get spending all the way down that low and you can't get there from taxing the rich. So middle class taxes are going to rise. Is that primarily where is that going to be? I mean part of it, and I guess this wouldn't necessarily be middle class, but payroll taxes which get capped for Social Security at what, $168,000. So the caps get taken off of that and that will increase some, but that's not middle class people. That's the taxing the rich part. Yeah. So what's the median household income now? $76,000 or something like that. What will they be paying in taxes 10 years down the road versus now? It remains to be seen. I can't give a number. I think people are surprised to hear though that the median earning family in America today pays an effective income tax rate of 2%. And people say, I pay more than that. If you actually adjust for what they actually pay with the child credits and sometimes the EITC, the middle earning family pays an effective income tax rate of 2% and then they pay an effective payroll tax of about 10% when you count the employer portion. So they do pay payroll, but it's going to go up from that. And the question is, eventually are we going to do most of this through payroll taxes and a value added tax, which is like a national sales tax or through income taxes? In Europe, that is everything. We are the only country in the OECD that does not have a value added tax. I would like to keep it that way. Why? What's bad about value added taxes? Value added taxes are actually more efficient than income taxes if you're starting a government from scratch, because you're taxing consumption. The danger though is value added taxes are a cash cow. Once you start with a 1% rate, it's so easy to raise it to higher rates and collect a huge amount of revenue. And my concern is I wouldn't mind replacing the income tax with a value added tax, but I don't want to get to the point where families are paying large income taxes and large value added taxes, because then you're burying families. A lot of conservatives have said, if we're going to switch to a consumption tax, the income tax needs to be destroyed, burned, and salted the earth first. And I mean, it's not that old, right? In a way, we could conceivably do that. It's 100 years old, the income tax is 100 years old. But yeah, if you're starting a government from scratch, your vats are better. Can we grow our way out of this? No. And this might be news to Vivek Ramaswamy, who said that he was going to balance the budget by growing the economy 6% per year, which was absolutely absurd. Not only, for the first challenge is we can't get that much additional economic growth, because when you look at the economic growth rates of the 50s, 60s, and 70s, most of that was rising population. The population is set to pretty much level off for the next 30 years. We're going to have almost zero growth of the workforce population, which means all the growth is going to have to come from productivity. You're not going to get 5, 4, 5, 6% growth entirely from productivity. It's just mathematically that doesn't work. You would need to do it like we did in the past with people. But the other side is, while economic growth does reduce the deficit, it also increases social security, Medicare, and interest costs. Okay, because they're tied too. Your social security payment is tied to your lifetime wages. The faster the economy grows, the more your wages grow, the bigger benefits you get. On Medicare, higher income is associated with higher healthcare consumption. Also, faster economic growth typically brings higher interest rates. And when you're in debt that much, every point interest rates rise has an enormous effect on deficits. So don't get me wrong. Faster economic growth is very good and it can modestly reduce the deficit. But as long as entitlement spending and interest costs rise alongside, you're not going to get a huge deficit reduction. And it's unrealistic. The Rama Swami 5, 6%, that's impossible with population stagnant. So why don't we just cut social security and Medicare? Because these are programs. Social security was a New Deal program. It was a Depression era program. So Medicare was called the last act of the New Deal by Lyndon Johnson. There's a reason why Harry Truman was the first recipient of a Medicare card and I guess benefits. Those are programs that were designed for an economy in which you were more likely to be poor if you were an old person, if you were past retirement age, you didn't live as long. Wouldn't it make sense to say, okay, this is what needs to be on the table? First and foremost, is this massive growing blob of space? Mathematically, it's going to have to come from Social Security and Medicare. Thirty years from now, Social Security and Medicare are going to be running a deficit of 12% of GDP. Just these two programs are going to be running a deficit of 12% of GDP if you count the interest costs that they create in the budget. You can't raise other taxes and cut other spending enough to close a 12% of GDP gap. The challenge, of course, is even if everything is on the table, most savings are going to have to go with the actual policy driving it. The problem is the politics. You have Republicans even tripping over themselves to say, I won't touch Social Security and Medicare because voters will kill them because there's this perception that you're just getting back what you paid into the system, which is absurdly patently false. How is that false? Are you getting more back? Yes. The typical retirees receive more. Social Security benefits are designed to become substantially more generous each generation, even adjusted for inflation. On Medicare, it's even a bigger gap. The typical retiring couple today gets back triple what they paid into Medicare. That's after you've adjusted in the net present value. You can't say, oh, inflation and interest. No, even adjusted for all that, you get triple. But there's this perception that there's a savings account for me in Washington that's just going to send me back by money. The reality is seniors get back more than they paid in. The programs are becoming more generous every generation. And baby boomers today are the richest generation, the richest age group in the richest country in the world in the richest time in history. As a matter of fact, retiree income over the last couple of decades has grown four times faster than the income of workers paying the benefits. So Social Security and Medicare right now largely redistribute money up the income ladder, not down. Yes, some seniors struggle and you can design reforms and I've designed reforms that protect struggling seniors. But it's really absurd that seniors making a million dollars a year after retirement are still getting generous benefits. This was also part of the COVID relief and it's more broad-based than this, but the family's making up to $400,000, etc. We're cashing checks from various benefits for COVID, but we've completely lost the distinction between even just median income families, much less struggling families and people who like it might hurt, but you can afford it, you should be buying it yourself. Right, and keep in mind when we're talking about senior income, seniors making half a million a year or 400,000, these are people who are making $400,000 a year after they retired. This isn't even wage income, this is interest in Social Security income. These are not worth far into the millions. But I guess what happens, boomers are moving into the youngest boomers are 59, I guess, right? So, they're moving into retirement and things like that and they will die and I think about that on an almost daily basis as a boomer myself, but they're going to give a lot of that money back to people. They have so much, they're going to leave it to their kids, right? Does that affect these calculations? It can over time. If you assume a certain degree of inheritance, especially simply housing values, boomers have so much home equity and frankly they're hanging on to the home equity a little too much to make the housing market difficult for their kids, but eventually when they go those are going to be inherited by their kids especially and those huge 401ks are going to be inherited by their kids. That should make it a little easier, you know, I'm Gen X, that should make it easier for Gen X and millennials to get by with less. And I've been telling people for years, if you're a Gen X or a millennial and you're assuming that Social Security is going to be there forever in its current form with no savings, you're just not paying attention. You should save as if Social Security and Medicare are a bonus because the programs will exist. Don't get me wrong, but I wouldn't take the little mailing you get from Social Security with your future benefits too literally. Yeah. Do you think, well, how do we activate, you know, Gen X but especially millennials and Gen Z to, you know, kind of, I mean get motivated about this because you were saying, you know, the current government system is taking money from younger, poorer workers and giving it to older, wealthier workers. That's happening. Your book of charts has a bunch of things where progressive ideas like free college tuition and, you know, a gifting away student loan debt, etc., or reducing the deduction or putting back the deduction on state and local types. All of these things which are pushed by Bernie Sanders and Elizabeth Warren and progressives totally benefit wealthy people, far more than they do working class people, etc. There's a lot of reason for younger people and relatively younger, relatively poorer people to be pissed at the system that's in place. How do we, how do we reach them to start, you know, calling, I don't want to say calling their legislators but creating that movement for social change on this policy? That is the million dollar question. I mean, it's kind of remarkable that we are facing the largest intergenerational transfer of wealth in world history. And while young people are often voting on trendy, the trendy issues of the day or not voting at all, seniors are going to the polls in record numbers and robbing them blind. And young people are completely oblivious to the fact that seniors are robbing you blind while you're voting on, on side issues. I think, you know, you have to get their attention. And one thing that I try to point out to younger progressives and I haven't had a lot of luck is whatever priorities you have in the future, not having your taxes go up, family leave, childcare, healthcare, climate, safety net, you're going to get squeezed. There is no way we can pay for any of the priorities you have if we're giving 116 trillion dollars and extra benefits to senior citizens. The math doesn't work. One thing that a lot of conservatives think about with motivating young people is climate change. Young people are so focused on climate change, even though it's something that's the main danger is 30 to 40 years off. You don't feel it now. And some years, it gets a little better and some years, it gets worse. But young people are totally attuned to these long-term climate projections and their effects. And conservatives are often asking, well, how do we get them to focus on long-term debt projections, which is a danger to them? I don't want to say just as much as climate. I don't want to get into that debate, but it's real. And the costs that are in the system are not theoretical projections. The seniors walk amongst us and they have letters saying how much they get. If there's a way we could motivate them the same way they're motivated on climate, that would be a success. But we haven't had much luck. What about younger conservatives? To be honest, I don't care about progressives or conservatives, I care more about libertarians. And they seem to be somewhat in sync with these ideas. But what is the, like if you're right of center, say, and you're not as suspicious of capitalism or you're not as motivated by climate change, what works to grab people? I think, if I knew I would have grabbed them by now, I think there is a certain perception, at least among right-of-center young people, that social security and Medicare are unsustainable. I don't think you have to really convince them of that. I think you have to get them to care about it, though. And when I talk to young people on the right, to be honest, they're a little too focused on Twitter, culture, war, Trump owning the libs, that you can't really get much policy focus. They get it, but they're just not motivated on it yet. And again, if I knew a way to reach them better, I'd love to do it. So then let me ask you as a final question, how do you reach your own generation of Gen X? It was very popular in the 90s, as I recall, that members of Gen X, especially, they were more likely to believe in UFOs than that they were going to get collective security or Medicare. Are they still keeping the faith or are they lost in the hurly-burly of everyday life? I think Gen X now has it in their DNA to be skeptical that social security and Medicare are going to be there for them. When I talk to people in my generation, they're not necessarily motivated to do anything about it, because I think when you talk to Gen Xers, there's bigger things going on in the world that are getting their attention politically. There's Trump, Biden, all the culture worst off. That's what they're voting on, but they're aware that we're facing problems. And they're in the leading edge of Gen X is really going to be in the pinch point when all of this blows up. The first couple of years, it's kind of like before whatever comes after is figured out. They're going to be the plastic surgery disasters. We're going to be the ones hit with the drastic changes when you have to do it. But you mentioned the 90s with social security. That was the time to fix it. The reason to fix social security in the 90s was not because the program is going to go bankrupt in the 90s, it was always going to go bankrupt around 2030, but that was the time to phase in the reforms while people were young. And we missed the window in the 90s and early 2000s to gradually phase in reforms for boomers. And because we didn't, now we're going to have to do the more drastic reforms. And as you mentioned, the baby boomers are going to be the people take when there's a ratchet of benefits, we're going to be the ones being ratcheted because we didn't do the reform 20, 30 years ago when we were warned to do it. I guess just a final comment on, do you think we'll be in a better place fiscally or in terms of budget a year from now, five years from now, 10 years from now? We're going to be in a worse place just because I think deficits are looking to get much bigger, $2 to $3 trillion deficits. I don't see Congress going in the other direction. Things are going to get worse until either voters wake up or the financial markets cut us off. I'm really hoping it's the first option that voters wake up, but I'm just not seeing it. All right, we're going to leave it there. Brian Riedel of the Manhattan Institute. Thanks so much. Thanks for having me.