Fiscal Malpractice: America Missed Its Own Fiscal Diagnosis for Twenty-Five Years
The debt-to-GDP headline is twenty-five years late and only tells half the story
OPINION PIECE
The headline landed this week: U.S. public debt has crossed 100% of GDP for the first time since World War II. The post-WWII debt was the residue of an existential war with a defined endpoint. It was financed through long-duration fixed bonds, and followed by the most productive economic expansion in American history. None of those conditions exist today.
The Debt You Can See, the Debt You Cannot
The federal government reports its public debt as the total of Treasury bills, notes, and bonds outstanding. But as any good magician, they keep the rest hidden from you.
Unfunded liabilities are the present value of benefits the federal government has legally promised to pay — primarily through Social Security and Medicare — in excess of revenues projected to fund them.
Per the FY2024 Financial Report, total formal federal liabilities stand at $45.5 trillion (U.S. Treasury / GAO / OMB, FY2024 Financial Report). The present value of unfunded Social Security and Medicare obligations over 75 years adds another $78.3 trillion. Combined, total federal obligations reach $123.8 trillion. Far surpassing GDP years ago.
The Alarm That Rang in 2001
The 2001 Treasury Financial Report estimated total unfunded liabilities for Social Security and Medicare at $11.1 trillion, producing a combined federal obligation of approximately 105% of GDP (U.S. Treasury Financial Report, 2001; Capretta, American Enterprise Institute, November 2022). Public debt that year was approximately $5.8 trillion, or 55% of GDP.
By 2021, Social Security’s actuarial deficit had grown from $4.6 trillion to $22.7 trillion. Medicare’s unfunded liability had grown from $12.8 trillion to $40.5 trillion. Combined Social Security and Medicare unfunded liabilities in 2021 reached $93.1 trillion, approximately 400% of GDP (Capretta, AEI, longitudinal analysis of Treasury Financial Reports, 2001-2021).
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, described the 100% GDP crossing last week as a “bipartisan abdication”; a position I hold as true.
The National Credit Card
The debt ceiling periodically enters public debate as either a fiscal discipline mechanism or a constraint; some argue for its elimination.
The debt ceiling functions like the fixed credit limit on a VISA card, while the other option is the equivalent of switching to an AMEX with no preset spending limit. Hand either card to someone with no spending discipline and ask yourself, which produces more debt over any given timeframe.
The debate about the ceiling is a distraction from the spending behavior it was meant to constrain.
The Point of No Return
In 2025, the United States paid $970 billion in interest on its national debt (Peter G. Peterson Foundation, Monthly Interest Tracker, April 2026). That figure already exceeds annual defense spending. The Congressional Budget Office projects net interest payments will rise from $1.0 trillion in 2026 to $2.1 trillion by 2036, totaling $16.2 trillion over the next decade. Interest costs as a share of federal revenues reached 18.5% in 2025 and are projected to reach 25.8% by 2036.
The CBO’s most recent Budget and Economic Outlook projects debt held by the public will rise from 100% of GDP now to 118% by 2035 and to 120% by 2036 under current law (CBO, 2025-2035 Outlook, February 2026). The Congressional Budget Office has noted that the One Big Beautiful Bill Act, combined with higher tariffs and lower immigration rates, are cited as drivers of acceleration beyond the baseline (The Hill, May 1, 2026).
Can We Inflate Our Way Out?
Post-WWII debt reduction was aided meaningfully by inflation eroding the real value of long-duration fixed bonds. Today’s federal debt is predominantly short-duration. It must be refinanced frequently at prevailing market rates. Sustained inflation now triggers higher refinancing costs almost immediately, partially neutralizing the benefit that made inflation an effective tool in the 1940s and 1950s.
In addition inflation as a debt-reduction mechanism is a non-legislated tax imposed on people unable to afford it. It drives the value of their salary and savings down through increasing consumer prices.
Can We Tax Our Way Out?
The top 1% of earners reported approximately $3.3 trillion in adjusted gross income in 2022. Theoretical confiscation of every dollar in income covers less than two years of current deficit spending and makes no dent in the principal.
Three compounding consequences follow from aggressive high-earner taxation at scale.
First, capital flight. California lost a net $24 billion in adjusted gross income to out-migration in 2021, with Texas and Florida as primary destinations; the California Legislative Analyst’s Office has explicitly flagged revenue volatility from high-earner concentration as a structural budget risk (IRS Statistics of Income Migration Data, 2021; California LAO fiscal risk assessments). New York City’s top 1% of earners pay approximately 50% of the city’s income tax revenue, creating structural fragility from even modest high-earner emigration.
Second, capital formation. Venture capital, angel investors, and small business funding flow disproportionately from high-net-worth individuals. Compressing that capital through aggressive taxation decreases the pipeline from investment to employment and innovation.
Third, innovation suppression. The promise of financial reward in exchange for risk is the engine of entrepreneurial activity. Remove the reward sufficiently, and you reduce the risk-taking. The result is fewer new businesses, a contracting job market, and an unemployment crisis that becomes its own fiscal catastrophe.
The debt problem cannot be solved by taxing the top earners alone, without concomitant spending discipline.
The Healthcare Collision — Why This Is Personal
The federal government is the dominant payer in American healthcare. Medicare covers 67 million Americans. Medicaid covers 80 million. Together they represent roughly 40% of all U.S. healthcare spending.
The June 2025 Medicare Trustees Report projects depletion of the Hospital Insurance Trust Fund by 2033, three years earlier than the 2024 projection of 2036 (2025 Annual Report of the Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds). At depletion payroll tax revenues would cover approximately 89% of scheduled Part A benefits. That is an automatic 11% reduction in payments to hospitals and providers.
This depletion date has been extended by Congress twenty times over forty years. It is also becoming progressively more expensive to repeat. The gap between promised benefits and dedicated revenues is widening with each passing year. The ratio of workers supporting each beneficiary has fallen from approximately 5:1 in 1960 to 2.7:1 today (Social Security Administration Trustees Reports; CBO Long-Term Budget Outlook).
The CBO projects that mandatory spending will consume the entirety of federal revenues by the mid-2030s under current trajectory; discretionary spending would become entirely debt-financed by then. Fiscal mandatory expenditures are driven by the dual pressures of chronic disease prevalence and demographic aging; approximately 60% of American adults have at least one chronic condition; 40% have two or more (CDC, National Center for Chronic Disease Prevention and Health Promotion).
The Bill, and Who Pays It
Every reader who has ever spent beyond their means knows what happens next. The federal government has done exactly that for years with no change in sight. Every year of continued inaction narrows available options and increase required corrections in the future.
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