Evaluating the Economic Impact of Trump’s Tax Cuts

How will we ever get the national debt under control? Just asking questions.

The U.S. national debt stands at a staggering $36 trillion. And while President Donald Trump assures us he's a "fiscal hawk," the GOP's latest fiscal plan, dubbed the One Big Beautiful Bill Act, is a fiscal time bomb, says today's guest. David Stockman, the director of the Office of Management and Budget under President Ronald Reagan, joins the show to dissect the Trump administration's budget priorities and explain why tax cuts without spending reductions are a recipe for disaster. With a career spanning decades in Washington, including his role as a key architect of Reagan's economic policies, Stockman brings unmatched insight into the mechanics of federal budgeting and the political roadblocks to fiscal sanity.

Mentioned in the podcast

The One Big, Beautiful Bill Act

Federal spending data, by the U.S. Treasury

"Preliminary Analysis of the Distributional Effects of the One Big Beautiful Bill Act," by the Congressional Budget Office

"CBO's First Score of House Reconciliation Bill," by the Committee for a Responsible Federal Budget

The Triumph of Politics: Why the Reagan Revolution Failed, by David Stockman

Deficit by gross domestic product for the past 50 years, by the Congressional Budget Office

CSPAN on X: President Trump on @RepThomasMassie: "I don't think Thomas Massie understands government. I think he's a grand-stander, frankly…I think he should be voted out of office."

Chapters

• 00:29 Introduction and national debt overview
• 06:01 Analyzing the One Big Beautiful Bill Act
• 10:23 Tax cuts and deficit spending challenges
• 18:28 Supply-side economics and Reagan's legacy
• 27:33 The Federal Reserve's role in debt monetization
• 40:03 Consequences of a potential debt crisis
• 49:41 Political dynamics and opposition to Trump
• 56:45 Strategies for fiscal reform and recommendations by the Department of Government Efficiency
• 01:02:30 Lessons from past budget surpluses
• 01:07:43 Closing thoughts and the free lunch myth

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Transcript:

This is an AI-generated transcript. Check against the original before quoting.

Zach Weissmueller: How will we ever get the national debt under control? Just Asking Questions. David Stockman has more insight into this question than just about anyone we can think of. He was the budget chief for Ronald Reagan, so he understands both the mechanics of the federal budget and the real-world politics that make cutting spending extremely difficult. 

We're delighted to have him here with us today to dissect the Trump budget—known as the One Big Beautiful Bill Act—to lay out the potentially dire consequences of uncontrolled deficit spending and to offer lessons from the Reagan Revolution, which in his telling failed to deliver the smaller and more responsible government that it had promised. David Stockman, thanks for coming back on the show.

David Stockman: It's great to be with you, and there's certainly a lot to talk about here. Here we are 40-years later, and I think we're in a far deeper pickle—let's say, dilemma—even catastrophe, than we thought we were battling in 1980. So there are a lot of things to talk about.  There are a lot of lessons to be learned. Hopefully there are ways out of this, but it's looking increasingly bleak to me when we have a Republican Party with a mandate—really, for the first time—all three branches: the White House, the Senate, and the House. Albeit by slim majorities, but still, they have a majority for the first time in a long time.

Are faced with $36 trillion of existing public debt, which is out of control. and a budget that has built in $22 trillion of additional debt over the coming 10-year horizon, which is kind of the budgeting time frame that we work with. So you would think that the conservative party—the Republican Party, which at least historically had some pretty firm commitment to fiscal rectitude—would look at that $22 trillion and say, "Our job is to shrink it, to cut it, to reduce it and minimize any further growth in the $36 trillion we already have."

But instead, they've done the opposite. They've basically said, like they're at the gambling table, "We'll see your $22 trillion that's built in, and we're going to add $3—5 trillion more," depending on how you count the numbers. The Republican Party was supposed to be the party that defended the taxpayers and the free market and the private economy and society, and yet they can't even muster a single dime of net spending cuts over the next decade.

They've set aside so many large parts of the budget that it is kind of ridiculous when you say—as Trump and the Republican leadership have said—Social Security is off limits, Medicare is off limits, veterans benefits, which are like $350 billion a year and growing rapidly, are off limits, the defense budget—which is now pegged at $1 trillion—is off limits. And of course, we have to pay the interest on the debt, which is now also $1 trillion a year.

So if you put all that stuff together, you're talking about 75 percent of the budget or more that they put off limits.

Zach Weissmueller: Just so people can see the visuals here of government spending by category, laid out here by the Treasury Department—you can see there Social Security, this is for fiscal year 2025—Social Security is at the top. Then interest—half a trillion dollars just in interest—and then health, Medicare, national defense, and income security. And so—

David Stockman: And while we're all looking at this here, go down one more and you've got veterans benefits and services. So by the time you get through all of those bars, you're down to the little tiny microscopic bars at the bottom to find any spending cuts. But then you get to transportation, for instance, and if you can strain your eyeballs, here at $77 billion—well, a good share of that is the highway trust, the interstate highway system, which at least gas taxes allegedly pay for, in spending. So they're not going to shut down highway construction and the interstate highway program.

What I'm trying to get at here is, if you just look at this chart, you realize they're painting themselves into a corner that's so tiny that it's not serious. They're basically faking it. The Republican Party has become a pretty sad sack of fakers when it comes to what their job is. Remember, the Democrat Party is the government party. The Republican Party is for the taxpayer and for private life and private enterprise. And if the taxpayer—pro-taxpayer—party, at least in theory, is throwing in the towel, we're in big trouble.

Zach Weissmueller: I want to look a little more into the details of the One Big Beautiful Bill and what it is that's driving this increasing deficit spending. I believe you said you think that it might add up to $30 trillion over the next decade. 

David Stockman: How do I get that? Let's just start with the CBO baseline.

Zach Weissmueller: Yeah, let me add that here because we've got it, yeah.

David Stockman: Yeah. Well, that's the reconciliation package. But let me start with the bigger picture—the context of where we are. If you look at the CBO baseline for 10-years—which would be fiscal 2026 through 2035—we always budget on a 10-year basis. Anything more than that is in the distant future that you really can't see. Anything less than that, you can't get all the leverage you need to make the path of policy change.

Now, if we look at that CBO 10-year current forecast, here's what it shows you. It shows you that revenues—if we have a GDP that grows at 4.2 percent a year, this is nominal—and 4.2 percent nominal growth is the same as we've had for the 25-years since the turn of the century. So they're not skimping on growth. In other words, we'll be lucky to replicate over the next 10- years what we had over the last 25.

Well, if you do that, they end up with $67 trillion of revenue under current tax law, including assuming that all of the 2017 tax cuts expire. In other words, in that $67 trillion so-called current law or current policy baseline, they've already let the entire 2017 tax cut expire, which is about $4 trillion of added revenue that's in the numbers.

So if you said, "Well, let's look at it from the way the Republicans want to look at it," well, then the revenue over that 10-year period is only $63 trillion, okay? Because I'm taking the $4 trillion out from letting the 2017 tax cut expire, assuming it is extended for the next decade.

Now, what's on the spending side? Well, in round terms, it's $89 trillion. Okay? So that's what they're looking at if they say, "We're going to keep the 2017 tax cut and we look at the rest of the budget," including all of these sacred cows—Social Security, Medicare, defense, veterans, and so forth—that we've set aside. What we end up with is—if I can use round numbers here—$90 trillion of spending and $63 trillion over 10-years of revenue. That's $27 trillion in debt right there.

Now, they tried to cut a little bit in Medicare, but I think when push comes to shove, maybe it's $400 or $500 million over a decade. They've done a little bit of pairing of the entitlement for food stamps—a couple hundred million. And they've repealed—and they should have—some of the ridiculous Biden green energy scams, both tax credits and spending.

But if you take all of that, I really doubt whether there's $1.5 trillion of savings on the other side of the ledger in the so-called Big Beautiful Bill. Now, if you start with $27 trillion—

Zach Weissmueller: Hold on. Can I ask you one thing about that? This is the CBO estimate as visualized by the Committee for a Responsible Budget. What they're showing here is that the deficit spending is very front-loaded in these early years, and then in the years after Trump leaves office, that will be reduced—presumably because the administration that succeeds him will not keep the tax cuts in place. What do you make of these kinds of assumptions?

David Stockman: Well, this is what the Republicans always do. I mean, they created this problem for themselves back in 2017. 

See, there is a rule in the reconciliation process that says you can't increase the long-run deficit. And by that, they define it as out beyond 10-years in the future. So that's why they had the 2017 tax cut expire in 2025—because otherwise there would have been a point of order, and they never would have even got the tax bill to the Senate floor.

So now they basically have the due bill coming up. In other words, who would write a tax law that creates a cliff where, at a certain date—December 2025—all of these cuts, which were over, you know, $2–3 trillion, expire? So that's what they're dealing with here.

And essentially, they've done the same thing again. They have extended for 3 or 4-years—that's why you see the larger deficit impact there, $500—600 million a year through 2029. But then a lot of these additional tax cuts that they've added—for tips and overtime and Social Security taxes and automotive loan deductions and a lot of other things—they all expire in 2028. So in the out years, there's no deficit impact.

Now, follow me on this. When we get to 2028—it's an election year—do you think all of these nice tax cuts, the guys are going to go out campaigning and tell all the workers at restaurants, "Hey, your tips are no longer tax-free. We're going to start taxing you next year." "You know, elect me, I'm going to tax you next year on your tips." Or telling industrial workers or manufacturing workers, "Next year we're going to nail you on your overtime." Ok, well, obviously it's not going to happen.

What's going to happen is, as we get toward the election in late 2028, and they're going to extend all of these cuts for another 3, 4, 5-years, and all of that decline that you see in terms of the deficit impact will disappear—just like it's happening right now. The '26, '27, '28 numbers in the act back in 2017 looked like they were disappearing too—as in, the deficit impact—but now here we are, and they're extended.

Now, the other thing that I think is really important to note here, it's really important—if we could just get your chart back up there. This is what we're adding to the deficit. This isn't the deficit, Ok? The result of the deficit from the $22 trillion that's built into the baseline over 10-years was about $2.5 trillion a year. Take the chart in front of you and add it on top of $2.5 trillion a year that's already there. And that's what the House Republicans are saying is a big, beautiful bill.

Are they out of their minds? They're pushing the total deficit to over $3 trillion a year by the end of this period. And they have the nerve—they have the gall—to call it a big, beautiful bill. 

I call it a big, ugly bomb. 

You know, a fiscal bomb that we're going to pay for badly in the years ahead.

Zach Weissmueller: So a lot of this, as you're laying out, comes down to—it seems like—cutting taxes without an equal cut in spending. Or even, there should be a more severe cut in spending if we're talking about actually reducing the deficits.

This is also from the CBO. They mention that there's an increase in the federal deficit in that 10-year period of $3.8 trillion attributable to tax changes. And then they point out that there are some cuts: $698 billion less in federal subsidies to Medicaid, $267 billion less in federal spending for SNAP, which is food stamps, $64 billion less in spending on net for all other purposes. But—

David Stockman: While you've got that up there, can we talk about it and put it back up? Because people need to understand—there's a lot of trickery in this.

OK? The first thing is that $3.8 trillion is a big, big number. You're adding that on top of the $22 trillion that's already there, so let's not forget that. But secondly, a lot of the tax cuts are expiring in the out years, so you're not getting a true measure of the 10-year cost.

Yet we know when we get to the expiration date for a tax cut—like we are right now—they're going to extend it, ok? So the real 10-year cost of what's in the bill on that first line there is down close to $5 trillion when you price it out on a 10-year basis, and not on this sort of 3 or 4-year basis that they're using as a trick.

Now, the second thing is, the $698 billion of savings for Medicaid is never going to happen in a month of Sundays. And the reason for that is most of that savings is attributable to work requirements. That's good, I'm all for work requirements. But the definition of work requirements is so loophole-ridden, and there's so much opportunity for the blue states that actually administer Medicaid—that's where most of the Medicaid dollars are spent: California, New York, New Jersey, Massachusetts, Illinois, Minnesota, all these big spending states—they're going to rip the work requirement to shreds. And I doubt whether even half of what they've projected will actually be saved.

Then we get to things like, there's an increase in spending in the bill for defense. Again, it's kind of a scam because the defense increase—which I think is $100 billion, if I remember right—is basically a down payment for a huge increase in defense spending that is going to come from Trump's golden dome air defense system and increasing the shipbuilding program in the Navy.

Why in the hell are we doing that? Ships in the Navy are sitting ducks out on the blue water right now. We don't even need half the size of the Navy that we have today. It's a complete waste. We don't need it to defend the homeland security at all—and yet that's in here.

Now, the point is, once you start building all these ships, what are you going to do? Leave them in dry dock? No. You're going to put sailors on them. You're going to put them into training and into their O&M—operations and maintenance—routines. And all of this is going to take more dollars in the out years that aren't shown in these numbers.

So I think when they say, "Well, we're only adding $3.8 trillion to the deficit," that is one of the biggest, jokes, fiscal jokes that I've heard in a lifetime of dealing with this stuff since the 1970s. I mean, this isn't even close to what's going to happen.

Zach Weissmueller: So, I mean, the theory that they seem to be operating on—and this is directly relevant to your experience serving for the Reagan White House—is it's kind of supply-side economics. Like the idea that tax cuts will pay for themselves because they stimulate economic growth.

Even Milton Friedman, for a time, said he was generally in favor of cutting taxes because he believed it would force the government to eventually cut spending. Now, if we look at the history, neither of these things really happened.

I'm just going to pull up a couple slides. Here's federal spending per capita. I've got the Reagan years in a purple box here. You can see it went up. It continued to go up under just about every president. We had surpluses famously during the Clinton era. And then Bush—War on Terror, economic crisis. And if we were to keep extending that out, it would just keep going up and up and out.

And then here—deficits as a percentage of GDP. Again, I've got the Reagan years in a little red box here. And you can see that tax cuts did not, quote unquote, "pay for themselves" during these years in terms of covering the spending.

My question for you is: We've got tax-and-spend Democrats—I think we can all agree that's bad. But are tax-less-but-still-spend Republicans, in a sense, even worse?

David Stockman: Yeah, now a couple of things about that. Milton Friedman was right in one way. He always said that, "what you want to look at is spending, not just taxes," because when the government spends money, it's channeling resources of society into less productive things than the private sector might do if it had the money to allocate on its own.

So they developed in the 1980s a "Starve the Beast" theory. And it's been attributed to me—I never believed that. But somehow I got saddled with it in the history books, and it won't go away. But the thing is, there was a belief that if you cut taxes, the deficit would be so bad that finally the politicians would wake up and they would do the tough stuff—make the hard choices—and reduce spending.

Well, it didn't work. And here, I can prove it.

The first thing I had to do in January 1981 with Ronald Reagan was tell him that the debt ceiling is now a tad under $1 trillion, and it's going to go over $1 trillion in the first month that you're in office, ok? That was $1 trillion. It's $36 trillion today. With what we're looking at in front of us in the big, beautiful bill, it's going to be well over $60 – 65 trillion by the mid-'30s.

So did we starve the beast as we went from $1 trillion of public debt to $36 trillion to possibly $60 or $70 trillion in a reasonable time period here? No. Starving the beast does not work.

You have to basically, I think, force the taxpayers of America to face the cost of all this government. And if they have to pay taxes to fund all these things—like a ridiculous $1 trillion defense budget, when we don't even need $500 billion—maybe you start to get some offsetting political pressure on the spending side, not the tax side.

But what made it all possible—that is, that "Starve the Beast" failed, and this spending just continued to soar upwards—is the Fed stepped in and monetized a huge share of the debt. Back when we were having these debates in the 1980s, no one really factored that in. Because if the Fed—what we mean by monetize—the Fed buys the bonds.

Now, how does the Fed buy the bonds when it has to pay the dealer who sells them the 10-year note, let's say? Well, it creates credits out of thin air, so it's very easy. But the effect of it is to make interest rates far lower than they would be if you had an honest supply-demand equation in the bond pits.

And so, over that 30—40-year period, the Fed took its balance sheet from $300 billion in the early '90s to a peak—before we started to roll it back a little bit—of $9 trillion. So it was the Fed and the other central banks of the world stepping into the financial markets—the bond markets—buying up all of this emission of new debt by governments that tricked the politicians into thinking that they could just keep on spending and borrowing.

The current secretary of the treasury, he seems to think, well, if we can get the deficit down from 6 percent of GDP to 3 percent, we'll be good because the economy can grow at 3 percent a year. Well, that is pretty deficient thinking, in my view, because it's never going to work out that way.

We are now, though, in a different environment because after all those years of excess money printing, the Fed finally lost control of the inflation rate. And as we all know, after 2020, 2021, the inflation suddenly hit a 40-year high. We were up in the 7, 8, 9 percent range. If you look at even some of the more efforts to take apart the CPI, you realize it was probably 10 percent or more at the peak.

The central bank—our central bank, the Fed—and the rest of the major central banks of the world are now struggling to get the inflation genie back in the bottle. And in that condition, they don't have the running room to turn on their printing press and go out and buy up all the bonds—the QE that we were doing, quantitative easing.

Now, when you have the central banks not buying up the debt, and you have the governments—the treasuries—flooding the market with additional debt like we were just looking at—$3 trillion a year when this big, beautiful bill is layered on top of what's already there—you are going to have one hell of a collision in terms of supply and demand. 

Yields are going to go up.

And we have an economy now that people really need to understand is saturated in debt—not just the government debt. That's bad enough, the $36 trillion heading higher.

If we look at the numbers that come from the Federal Reserve itself, right today, there's $102 trillion of total debt on the U.S. economy: household sector, business sector, government sector, and financial institutions. 

$100 trillion on a GDP of $30 trillion. So there's three times more debt than we have GDP.

What it means is that even if interest rates got driven up by 1 percent—which doesn't sound like a lot, ok?—but there's an awful lot of supply coming into the bond pits, and the central banks aren't buying the bonds anymore. So it's honest-to-goodness, honest-to-engine supply and demand.

If it pushes up the interest rate just 1 percent—that's $1 trillion per year of additional interest payments by households, businesses, and governments in the United States. 

A trillion, just from 1 percent.

Now, if it goes up 2 or 3 or 4 percent—as it has in the past when government borrowing got too big—you're talking about a real calamity. But that's important to know because that's the jam that we've backed ourselves into. That's the corner.

It's not just the government now. It's the entire society, the entire economy, lugging around $102 trillion worth of debt. We can't afford interest rate increases—

Zach Weissmueller: Are you attributing a significant amount of that to what you would say is an artificially low interest rate environment? Because it encourages people to take out more and more debt that they can't afford?

David Stockman: Exactly. The Fed has all these crazy ideas about pegging interest rates and its 2 percent inflation target and so forth. But what it was doing during that period, as it was buying up all that government debt, was—remember, the 10-year U.S. Treasury note is like the fulcrum security for the entire financial system of not only the United States, but the planet, for that matter—the world.

So when it drove the 10-year rate down—where maybe it should have been 5 or 6 percent—they drove it to 2 or 3 percent, as people remember a few years ago. That was the signal to everybody out there, but particularly to the speculators and gamblers and LBO artists and financial engineering geniuses on Wall Street: Go out and borrow money.

Why do you think all the corporations were buying in trillions and trillions of their own stock every year? The answer was the Fed. The answer is the Fed was making the interest rates so low that it became economically rational to borrow money in order to retire their own stocks.

Now that is a recipe for some really serious trouble down the road. But that's one of the ways in which we got so much debt—

Zach Weissmueller: And now you're saying the party is kind of coming to an end because they can't keep doing it—or else the inflation will come back—and so they're just stuck with no real plan.

I do want us to have to confront one of the main arguments that you hear from Republicans who are defending this right now, which is that when Trump was in office before, the CBO got it wrong. His tax cuts did generate a much better economy. There was more economic growth, and the CBO underestimated government revenues by over a trillion dollars. So, therefore, they're getting it wrong again because they're not taking into account the stimulative effect of the Trump tax cuts. 

What say you?

David Stockman: It's a total misunderstanding—if not, you know, I would call it a lie—because they should know better.

The growth rate that was estimated at the time of the 2017 tax cut by the CBO—the real growth rate—was 2.1 percent for the period from then until 2024. That's real time. And we can look at the actual growth rate for that period. It was 2.0 percent, ok? There's hardly a dime's worth of difference—2.1 versus 2.0 over that 7-year period.

Now, there was—and I've laid this out in some things that I've written and published—there was more than a trillion dollars of additional revenue compared to what CBO forecasted. But it wasn't because they underestimated growth, real growth. It was because they way underestimated inflation. Inflation over that 7-year period averaged about 3.5 percent versus the 2.1 percent or so that CBO had in its forecast.

Now, what happens when we get more inflation? Everybody's income goes up. It doesn't do you any good, because everything you buy goes up too, but your income goes up, you pay more taxes, and the government gets more revenue.

The government then also has to pay COLA increases to all the Social Security recipients—70 million. COLA increases to the food stamp people. Medicare and Medicaid costs go way up, because the inflation gets built into the charges that hospitals and doctors and so forth make.

So even though there's a trillion more of revenue solely due to inflation, there's more than a trillion of additional spending that none of these Republicans are talking about. I've looked at just the COLA numbers—that is, the cost-of-living adjustments for veterans benefits, Social Security, SSI, and so forth. That alone was underestimated by CBO by roughly $400 billion over that same period in which the revenues were a trillion higher.

Now, if we go to interest expense, they way underestimated that, because interest rates have unfortunately gotten a lot higher—because inflation got out of control and the Fed had to go out of QE and into QT. So there's a huge increase in interest expense.

And then Medicare, Medicaid—there are hundreds of billions of additional expenses there as well.

So the idea basically has been wrong since Laffer put it out in the 1980s. And I'm as big a supply-sider as the next guy. I want to take government down, shrink it, make it smaller, get the burden off the private sector, unleash entrepreneurial energy and so forth. But you have to understand that if we could get the growth rate up—in the current forecast, it's 1.9 percent per year over 10-years—if we could get it up to, let's say, 3 percent, which would be a 50 percent increase in the growth rate over time, it wouldn't actually do much for the budget.

Because the supply-side effect is that we get more labor hours offered in the market. We get more productivity-improving investment as people decide that the future is better and they invest more. The effect of that, basically, is to lower costs and reduce inflationary pressure between supply and demand. So what we do is we end up getting less inflation each year and more growth—but we get the same revenue.

Because revenue—remember, I would love it if we had a system where you're doing your taxes, we all just did our taxes recently, and it said, "Well, what was your income last year? Now let's adjust it for inflation." Ok? "So we're only going to make you pay taxes on the real income of last year." Well, that would be wonderful—and the government would get a hell of a lot less revenue—but that isn't how it works.

We tax inflated incomes, inflated corporate profits, inflated wages and salaries, and so on. And as a result of that, to understand the supply-side effects, it isn't just more income, ok? It's got to be more real income. And the effect of more real income and less inflated income would be the same revenue but slightly less spending.

Now, it used to be the government budget was heavily anchored to, you might call,  full employment. And the idea back—the Keynesians had back in the '40s, '50s, '60s—was that if we get the economy permanently at full employment, then the cost of unemployment insurance will be much lower, and that'll help balance the budget.

Now, the problem today is we're a welfare state. We're a welfare economy, not a workfare economy. So if you look at the federal budget today, there's about $4.2 trillion of welfare programs. Social Security is a welfare program because nobody works to get it—they're already retired. But Social Security, Medicare, Medicaid, food stamps, and all the rest of it.

And the budget for 2026—the year ahead—for unemployment insurance is only $65 billion, ok? Now think about that: $4.2 trillion of welfare-type entitlement spending that is totally insensitive to whether employment's up or down, whether growth is strong or weak or in between. And only $65 billion that's sensitive to the unemployment rate and the growth rate.

So today, workfare-oriented government spending is only 1 percent of the welfare-based spending.

So what does that mean? Well, it means that if we get more real growth—more power to us—it's a good thing. But it's not going to cut spending relative to the CBO baseline at all, because CBO already assumes that we've got full employment. You know, they have 10-years' worth of 4 percent unemployment—full employment for 10-years.

So even if we get a little more growth, the change in unemployment insurance spending would be a rounding error. You couldn't even find it. But welfare spending will continue to soar, because more and more people are retiring. We've got 80 million people on Medicaid alone, and so forth.

So the supply-siders are about 35-years obsolete In terms of understanding the equation.

Zach Weissmueller: And that is only poised to get worse with the demographic changes that are happening—where we're getting more retirees, fewer workers, fewer new people being born. So it is a pretty bleak-looking picture.

But I'm wondering—why does it matter? Just to the average layperson out there? We can pull up charts to show what the debt looks like—it's a very dramatic rise when you look. And this is debt held by the public, by the way, which is $28 trillion—or closer to $29 trillion—and then the projections going forward, upwards of, you know, by 2055 getting close to 150 percent of GDP.

David Stockman: Can I address that while you're on it? I think people need to focus very intently on that little peak of the purple triangle there for 2055, because it says the debt-to-GDP—I think if I look at it right—is, well, it's more than 150—160 percent.

And you say, "Well, that's kind of cosmetic. What's 160 percent?" I'll tell you what that is.

The underlying GDP in that forecast—and I know these numbers—is about $85 trillion a year. But if you do the math, what it tells you is under current policy—the drift that we're in now, the pathway that we are in now—the public debt in 2055 will be $150 trillion. I mean, just let that sink in. That's what's in this chart. 

And they're afraid to actually print the number. In other words, they could show you a chart that's in dollars and not in percent—and it would scare the living bejesus out of everybody, because you would see a chart going to $150 trillion in debt, so that's why they put the percentages in.

Zach Weissmueller: But that's the thing—it doesn't necessarily scare people because it seems abstract. And we've now got people on both sides of the aisle who are saying either—you know, the MMTers—where none of this really matters, "we hold the reserve currency, we can always keep printing money." You've got the kind of, I don't know what you would call them, the extreme supply-side or some Republican side who are just like, "We're going to grow our way—"

David Stockman: We'll grow our way out of it.

Zach Weissmueller: How does this play out? What would a debt apocalypse actually look like, and why should the average American be concerned about it and not think that you're just screaming that the sky is falling?

David Stockman: Well, we've never been there before. We've had a, let's say, sabbatical from the bad stuff for the last 30 or 40-years because the Federal Reserve and the other central banks of the world that follow it stepped into the breach, monetized huge amounts of debt like never before, artificially suppressed interest rates, and thereby bought time before the big conflagration unfolded.

Now we got to 2022, and the Fed cried uncle. In March 2022, the Fed said, "Oh, this inflation is not transitory after all. We thought it was going to go away—it didn't." So, we're shutting down the printing press. They haven't bought a single dime of government debt since then, and they're not likely to start it up again for a long period of time.

That's a new world.

Zach Weissmueller: Does that explain why this chart here—why the yields on the U.S. 20-year bonds have been spiking as of late? They're close to 5 percent.

David Stockman: The 5 percent is just the beginning of where I think it's going to go.

But what is totally unreal is, if you look there at 2020—during the whole shutdown—when you had long-term debt yielding 1 percent in an environment in which inflation was already toward 3 percent and heading to 7 or 8 percent, obviously you were upside down. There's no way that any investor with any modicum of rationality would keep buying the bond at a 1 percent yield when inflation was coming in at 6, 7, 8 percent.

So, what happened was it took an increase in the yield from 1 percent to 5 percent just to keep the market digesting all of this new paper that's flowing in.

A lot of Washington people got so used to a environment—from 1987, when Greenspan became Fed chair, until March 2022—in which the Fed constantly stepped into the breach and cleared the market of all the excess government debt. They got so used to that, that seemed like the normal world.

Because when you have that—there's a thing called recency bias. People kind of look at the world based on how they've experienced it in recent years. But when you go through 30-years of recency bias, which says, "yields are very low and debt is a big bad number but it doesn't cost very much to carry," that's why, for instance, the interest on the federal debt 2 or 3-years ago was $200 billion a year. It's $1 trillion a year now—because of just what you've shown in that chart: the yields going up from 1 percent to 5 percent.

So, people got so used to the low yield that they became basically inured to the public debt. And now, all of a sudden, we're in an environment where the Fed is not going to be coming to the rescue. 

In other words, they're not going to be sending in the rescue crew to buy the bonds and keep interest rates from rising. And that's when the rubber's going to meet the road, unfortunately.

Zach Weissmueller: Well, I mean, what does that mean? I know Trump is trying to—well, they've talked about trying to strong-arm countries into buying what they're now calling century bonds, which is a 100-year bond.

But if this is where the rubber meets the road—the emergency crews aren't coming anymore—just make that concrete. 

What are you afraid of, in terms of how that all plays out?

David Stockman: Well, if confidence is lost in the bond market—and it's a worldwide market, it's $150 trillion worth of paper, a lot of it ours, but the EU governments and Japan—I mean, it's way over the top in terms of public debt.

But in that market, if it becomes clear to all the people that are there with a lot on the line every 24 hours a day that the central banks are not coming to the rescue, what they're going to do is front-run where they think the future is going.

For 30-years, they thought rates were going down because the central banks were buying. So the smart money—all these smart guys down in the canyons of Wall Street—said, "We're going to buy what the central bank is buying because we know the price will stay the same or go up, and we can put it on 95 percent leverage, we can make a huge arbitrage profit, and laugh all the way to the bank."

So everybody was front-running the central banks by buying what they thought the central banks would be buying.

As we go forward, the central banks aren't going to be buying anything. And they may all have to sell a part of their portfolios in a desperate fight against inflation—that's happening in Japan, by the way, right now.

So, if it becomes clear to the smart money—the big traders in the financial markets: London, New York, Tokyo—that rates have nowhere to go except up, and there's no magic that the governments can put into place to stop that, you know what they're going to start doing? They're going to start shorting the bond.

Because you're going to make just as much money shorting the government debt as the yield goes up and the price goes down as they made going long on the government over the last 30-years, as the yields went down and the prices of the bonds went up.

And once the market starts shorting the debt—it's crazy—"Katie, bar the door." Because once the smart money starts shorting it, there's just going to be an avalanche of selling. 

There won't be any bids.

The central banks will then probably step in and try to slow down the freight train, but they're not going to be able to go all out because they're going to fear inflation being rekindled. And we're going to have a real world-class crisis in the bond market sometime in the next 3, 4, or 5-years.

And all this nonsense coming from President Trump and his secretary of the treasury—he ought to know better, he's a Wall Street guy—that they're going to sell 100-year bonds? Nobody's going to buy a 100-year bond from the United States or anybody else unless the yield is 15 percent or something like that, in an environment where fiscal discipline has been totally destroyed or collapsed.

Now, we had this a few years ago when we were at the peak—people might remember, 5-years ago, I think it was about 2014 or 2015—there was something like 40 percent of all government bonds in the world were trading at negative yields. In other words, the prices got pushed so high by the central banks, and the yields got pushed so low, that the eurobond—for instance, German bonds—were trading at a negative yield.

So, in that environment, Austria—which isn't the strongest country in the world, in fact, it famously went bankrupt in 1931 the last time around—issued 100-year bonds with a yield of less than 1 percent. Because the market was so full of speculative momentum at the time, there was so much front-running that people were actually willing to buy a 100-year bond from a government that might not even be here 100-years from now, with a yield of 1 percent.

Well, today, those bonds are not even worth half of the face value they were issued at. They've been a total, complete disaster for anybody who bought them at par the day they were issued.

The only reason I'm mentioning this is, that's exactly the lesson that hasn't gone away—that will be in the market if the Treasury, if Washington, tries to issue 100-year bonds. It's the dumbest damn idea I've ever heard. And it's just more of Trump's economic ignorance.

The guy is a total economic imbecile. 

And when you have a president in the Oval Office that is so full of himself that he doesn't even want to listen to any experts and only surrounds himself with yes-men—which is clearly what he's done on economics—you're in a, you know, dangerous state of—

Zach Weissmueller: State of play. Yeah, I wanted to end this conversation by talking a little bit about the politics behind all this. You know, the scenario you're laying out—unfortunately, the timelines you're suggesting here don't necessarily suggest that there's going to be a political fix. But it's at least worth trying to figure out what went wrong, in case there is time to course-correct.

I want to start by talking about some of the internal opposition to Trump within the GOP. There were two members of the House who voted against this bill. One of them was Thomas Massie, who Trump blasted—again. He's blasted him several times. We're going to roll that real quick. 

Trump (clip): I'm a fiscal hawk. I'm a bigger fiscal hawk. There's nobody like me as a fiscal…

Journalist (clip):
Do you think that Thomas Massie is correct in saying that this is adding—

Trump (clip):
No, I don't think so. No, I don't think Thomas Massie understands government. I think he's a grandstander, frankly. He'll probably vote… we don't even talk to him much. I think he should be voted out of office. And I just don't think he understands government. If you ask him a couple of questions, he never gives you an answer. He just says, "I'm a no." He thinks he's going to get publicity. And you have that. You have that—they've got some too. Go ahead.

Zach Weissmueller: So, I mean, you're someone who has worked for an extremely media-savvy president—the Great Communicator. What is your reaction to Trump using the bully pulpit to lash out at the dissenters?

David Stockman: You know, you almost can't use words on a public media broadcast like this to describe what I think about that. Donald Trump is the last thing from a fiscal hawk. That is just so much BS, ok?

And then the one guy who really does his homework—I tell you, I follow the House and Senate as closely as maybe a lot of people. I've been at this game for 50-years. 

In my knowledge, there's been no one in the House who is more of a student, who is courageous, who knows the facts of life about the fiscal equation than Tom Massie. He's the best. 

It kind of reminds me of what I was trying to do in 1979 and 1980 when I was a younger member of the House. And for Trump to say he ought to be driven out of office is like the ultimate testimony to the guy's delivering idiocy when it comes to economic governance, fiscal policy, and what needs to be done to keep us from sliding into the financial disaster that's somewhere down the road.

Zach Weissmueller: Yeah, and I mean, let's make sure that we are fair to Trump in that this seems to be the M.O. of many presidents preceding him. There are many contributors to this mess that we're in. You know, we can take it all the way back to 1979, when you got involved in government. And you wrote a book about this—it's a great book I recommend. It's not on the stage—there we go. The Triumph of Politics: Why the Reagan Revolution Failed.

And in that book, you wrote that the tendency within political circles, within the White House, was to gravitate to the easy solutions, like ferreting out, "obscure tidbits of spending that could be excised without arousing massive political resistance," which yielded savings that you called a "rounding error" in a trillion-dollar budget.

What do you think it would take to get over that and actually get serious—to make the kind of hard cuts needed to get government spending under control?

David Stockman: Well, I think it's going to take a thundering financial crisis—a breakdown in the global bond market, the U.S. Treasury market—so severe that they basically have to declare a national emergency and take sweeping action.

And it'll probably consist of huge reductions in defense spending, some major means testing of entitlements—Medicare, Social Security—that we don't do today, and even some significant revenue increase.

Now, the one thing I think Trump is ok on, if he would just stick to the script, is that we should have a big consumption tax in this country. We should tax income less and consumption more. If we're going to get to a crisis where we've got to close the structural deficit with revenue, then you've got to tax consumption and not investment and income and production.

So the best thing would be a national sales tax or VAT. But Republicans are never going to go for that, for a lot of different reasons.

Then the second-best thing is a uniform, across-the-board tariff on the $3.5 trillion of stuff we import from the rest of the world. Now, I'm totally against his big, beautiful tariffs—just like I'm against the big, beautiful bill. But if he would stop trying to negotiate with everybody and change the game every—last Friday he said it's 50 percent on Europe, then on Sunday said, "Well, we're going to give them till July 8th." You can't run an economy that way. You can't even think about it.

There are so many businesses trying to figure out what they're doing next month, next quarter, next year—and the rules keep changing every three days. It's just not going to work.

So, if he would throw all that stuff aside and forget about The Art of the Deal, which is just a lot of baloney to begin with, and say, "Ok, I'm going to put a 10 percent tax on everything coming in because we need the revenue for the next little period of time—10-years or longer"—that would be $300 or $400 billion a year. Now, it would come out of the hides of consumers, but it would be $300—400 billion a year.

You could add that to $500 billion in defense cuts, $500 billion of entitlement reforms, and several hundred billion more of shrinking government, as Elon Musk was trying to do with DOGE. Now that would start to make a difference—and that's one way you could go about it in terms of getting some revenue.

Zach Weissmueller: Yeah, picking up on the DOGE point—DOGE did make some recommendations, but it seems that's falling on deaf ears. There are things that Trump could begin to do, right? Even unilaterally, to make some cuts based on what DOGE is recommending.

David Stockman: Well, let me jump in there. That point tells you that he's a fake. He is not a fiscal hawk—he's a fiscal fake.

Because under the law, the Supreme Court settled this long ago—that's why we got the 1974 Budget Act, and we got a budget process and so forth—they basically said the president can no longer impound money unilaterally. 

If Congress votes it, it has to be spent.

Now, Elon Musk and all of his team of eager-beaver DOGE boys did a lot of good work turning this stuff up—the incredible nonsense and insanity in USAID and a lot of others we don't need to go into now—but you won't save one dime of anything that Elon Musk came up with unless you send a rescission bill to the Hill, where they start a clock of 45 days for an up-or-down vote in both houses. And if both houses approve it, then the money that has been previously appropriated for all these ridiculous projects is canceled.

If you don't do that, some private interest group—and there are hundreds or thousands of them—will bring a lawsuit, and the district court will say you've got to spend the money. 

Because frankly, that's what the law is.

The proof in the pudding that Trump has no interest in doing anything about this fiscal calamity that we're dealing with is that he's not sent one dime of rescissions up to Congress for an up-or-down vote. He should have sent $100 billion in rescissions—all of this excess waste that was done during the Biden period: the so-called Inflation Reduction Act, the Infrastructure Bill, and the energy bill. He should have sent $100 billion up to the Hill by now, and it should have been voted, by now.

And he hasn't sent a dime—because he doesn't care.

Zach Weissmueller: So yeah, that's a clear-cut example of a legal, straightforward action that Trump could have taken to at least get the ball rolling—and get at least a yes or no vote on, "Are we interested in cutting the government or not." But clearly, not a priority.

I have to ask you, as someone who's been in the inner circle of a president—I think it was Rothbard who said that economists are supposed to be like the skunk at the garden party. They're the ones who are supposed to be raining on everyone's parade and saying, "There are trade-offs here. You can't spend this money, or this is going to happen." And yet, proximity to power—the people in power don't want to hear that.

Based on your experience and your observations, it seems to be bearing out: whether it's right or left, as we've already discussed, the economists that get into that inner circle are the ones who are telling the presidents and the people in power that you don't really have to cut spending, there's a way around this.

Do you think that these economists actually believe this? Or is this self-delusion—or just pure power-seeking?

David Stockman: I think it's self-delusion. I think after 40-years of this idea that we can grow our way out of the deficit—and this is what the real hardcore supply-siders, Laffer and Jude Wanniski, who was one of the big thinkers in the game back then, they said, "Look you Republicans don't be the stupid party. If you go around trying to cut spending everywhere, you're just going to make enemies, and you're never going to win any elections. That's not the way to go. What you need to do is give people some treats. In other words, cut their taxes. They'll be grateful to you. And the tax cuts are going to create so much economic activity that it'll take care of the deficit."

Well, it might have taken care of that deficit when it was 1 or 2 percent of GDP. But we now have a deficit that's 7 percent of GDP on a structural basis. And we have so much debt that the carry cost of the debt alone—a trillion dollars a year, that's the interest payment—has now created a fiscal equation where you can't possibly even rationally think how you would grow your way out of it.

So, we're now 40-years later, and the Republican economists are still mouthing this line about "we need to have growth, we need to stimulate the supply side." Of course, that's pretty obvious, but it's not going to solve a $22 trillion built-in deficit. And by taking it to close to $30 trillion, which is what I think they're doing—the added deficits over the next decade—they're only misleading their principals very badly.

Zach Weissmueller: Last thing I want to ask you is, if we can imagine that we have time to fix this and think about how the government could start maybe running surpluses again. The last time that actually happened was in the late 1990s during the Clinton administration.

Are there any lessons to learn from that period—or elsewhere throughout history—about what the people in the federal government need to do to budget responsibly?

David Stockman: Yeah. Well, one—I have a lot of criticism of George Bush Sr.. But remember, he said in 1988, "Read my lips, I'm not going to raise taxes." In 1991, he raised taxes as part of a deal with Congress that did take a big chunk out of the structural deficit that we in the Reagan administration left behind.

And then Bill Clinton came in and did another go-round of that—I think it was in 1995. So, the two big fiscal maneuvers—and they were pretty balanced packages, half spending cuts, half revenue increases—set up a structural equation fiscally that, when added to the boom, the tech boom of the 1990s, and a lot of one-time revenue that came in from huge capital gains as the technology market took off—Microsoft and all the rest of them—you got on the chart that you just showed…

It's tiny. If you put that thing back up, it's well worth it when you talk about the surplus. The only surplus that you can see in this chart is these tiny little surpluses. And this is primary only, ok?

If you look at the total, it's barely visible—even for the 3-years of the late 1990s. So, there's not a snowball's chance in the hot place that we're ever going to have a balanced budget. I'll say that—at least in the world that I can imagine.

The issue is: Can we do enough repair? Can we do enough contraction of this big, nasty structural deficit to allow us to get by without too much collateral economic damage?

I would say right now, it's 50-50 that we can do that. And if the wrong 50 percent option prevails, it will be an economic disaster worse than the '30s.

Zach Weissmueller: Let me close out on that—just a lovely note— the question that we ask all of our guests, with the theme of the show:

What is a question that you, David Stockman, think more people should be asking?

David Stockman: We should be asking: Do you really think there's a free lunch?

Because that's what the politicians are telling you. That's what they're telling you when they run $7 trillion of spending and $5 trillion of revenue. They're saying, "There's a free lunch. We can just borrow it and address the problem somewhere down the road."

We've tried the free lunch route—going back to your chart again—since the 1980s. And obviously, it's only getting us deeper in the soup.

And the one thing that doesn't go away is the debt. Every year you run a deficit, it piles more bonds and notes and bills on top of the debt outstanding. And this thing is really now starting to become what you might call a doomsday cycle—growing so fast.

Now here—just think about this. A few years ago—as I said, not that long ago, I think it was like 2018—the interest on the federal debt was $300 billion a year. It's now $1 trillion.

Do you know how much pain it would take to cut $700 billion from defense or Social Security or education grants or farm subsidies or NIH grants? And I could go on down the line. Massive pain, just to break even on the $700 billion of annual interest expense that has been increased in the last 8-years.

That's the danger of the debt. It's like a snowball. It creates a financial avalanche.

Zach Weissmueller: Yeah, I think I'm going to have to take a walk and clear my head after this conversation. It's a lot.

But I do appreciate you joining us again, David Stockman. You can find more of his work at his Substack, which is Stockman's Contra Corner.

David Stockman:
David Stockman's Contra Corner. I might say that, yeah, this stuff is not all that appealing, not all that appetizing—but people are better off knowing the facts and knowing where we're heading, and cutting through all the BS and all the lies that come from the politicians and the mainstream media.

I don't know who's worse—the Uniparty in Washington, in the Beltway—or the media that covers it. But it's worth just getting a clear, honest, historically grounded view of what all this adds up to.

And I do write about it every day in this newsletter called David Stockman's Contra Corner.

Zach Weissmueller: Agreed. David Stockman, thanks for coming on the show. Great.

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• Producer: John Osterhoudt

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