Bad Forecasts = Bad Policies

Earlier this year, the Congressional Budget Office (CBO) issued a new report on the horrible state of the U.S. government’s finances. But the cures proffered by most experts—raising taxes and cutting entitlement benefits—are wrong.

The national debt is indeed exploding. As a portion of our economy, it’s exceeding the level it reached in World War II. That this is happening in peacetime shows how irresponsible Washington politicians have become. The ten-year projections from the CBO are awful. Revenue will go up nicely, but spending will remain out of control. The national debt will continue to climb ominously. The cuts the Trump Administration achieved in its Big Beautiful Bill last summer and the reduction in the number of federal employees that came from Elon Musk’s DOGE efforts pale in comparison to the terrible negative trends.

This worrisome trajectory is made worse by the big increases coming in defense spending. The Iran war is once again a reminder of how conflicts rapidly consume prodigious amounts of munitions as well as necessitating enormously more weapons than anticipated.

Observers all point to the same big villains: the so-called entitlement pro-grams of Social Security, Medicare and Medicaid and the ballooning interest on the national debt. Democrats will also add the big boosts President Trump wants for defense, and Republicans will point to the astonishing waste in social spending, as exemplified by the amazing fraud being uncovered in Minnesota. The Learing Center, anyone? Minnesota, sadly, is hardly alone.

Experts fret that the CBO’s spending predictions may understate the problem. For example, Medicaid spending has blown past what the CBO forecast in 2022.

Proposed solutions include raising the retirement age for Social Security benefits, means testing for such benefits—that is, if you are or have been a high-income earner, your payments will be cut or eliminated altogether. The destructive move to put price controls on drugs will be more comprehensive.

Dr. Zeke Emanuel, brother of former Chicago mayor and probable 2028 presidential candidate Rahm Emanuel, gained notoriety for implying that people should stop getting medical care after the age of 75.

These ideas are profoundly misplaced. To start with, the CBO’s projected annual rate of economic growth is a measly 1.8%. Up that to 3%, and the crisis shrinks dramatically. Get it to 3.5%, and we would be on course to eliminating the national debt within the lifetime of middle-aged Americans.

Are those higher levels of growth unrealistic? Hardly. Despite a civil war, world wars, depressions and bitter political disputes, we averaged above 3% for over 200 years.

What has slowed things down this century are obscenely excessive regulation—a burden on the economy whose cost approached $3 trillion until President Trump began his second term—too-high taxes and a weak dollar.

The current administration is attacking destructive regulations and has cut taxes. Far more reductions in tax rates are needed.

The Supreme Court eliminated the growth-hindering tariffs—which are taxes—the President imposed by executive order. That will help the economy grow when the Iran war concludes.

The big problem, however, is the dollar. It’s weak, and as we should have learned from the weak-dollar policy of the George W. Bush administration, this leads to big trouble.

Kevin Warsh, when he takes over the Federal Reserve in May, has an immense challenge in strengthening the greenback while avoiding a full-blown international financial crisis, as other currencies are also feeble.

Despite all the wailing, we’ll have enough money with traditional growth rates to meet the obligations of those on Social Security and those who will be going on in coming years. The problem is with younger people, and the answer is to establish personal accounts into which a part of their payroll taxes would be deposited. Hopefully, President Trump’s baby accounts will soon morph into such a system.

As for health care, the answer is to speed up the move to a system in which patients, not third parties, control the money. People would have big Health Savings Accounts through which they could choose their own policies and doctors and networks. Free markets, which we don’t have in most of health care, would give us more at far less cost.

In short, our undeniable budget mess should be seen as an opportunity to get things positively right instead of falling for the austerity ideas floating around today.