The Real Debt Threat: Government Spending, Not Tax Cuts

Larry Summers lately claimed on X that Republican tax insurance policies — particularly the One Massive Lovely Invoice (OBBB) pushed by Trump and congressional Republicans — are a significant cause why the US is headed towards a debt disaster. He even revived his favourite 40-year declare that “the financial system performs higher underneath Democratic presidents.”

Let’s be blunt: that’s nonsense. Summers is ignoring the precise root of the disaster — runaway spending by each main events — whereas defending the very insurance policies that obtained us into this mess. 

The actual hazard isn’t pro-growth tax reform, which the OBBB may enhance. It’s the $2.5 trillion in overspending yearly since COVID and the elevated trajectory that nobody in Washington appears prepared to reverse.

America’s federal funds has exploded from $4.5 trillion in FY 2019 to a projected $7 trillion in FY 2025. That’s a 56 % improve in simply six years, with a lot of that needlessly baked into everlasting baselines. This isn’t fiscal coverage — it’s financial malpractice.

And sure, the unique surge started underneath Trump and Congress in 2020, when emergency COVID support was rushed out with no spending offsets or accountability. However reasonably than rolling again these ranges, President Biden and Congress doubled down, institutionalizing new applications, inflating the paperwork, and racking up debt sooner than ever. Each events lit the fuse.

Trump’s Guarantees vs. Washington’s Outcomes

To his credit score, Trump typically says the fitting issues:

“We’re going to get rid of waste, fraud, and abuse.”

“We wish an easier, higher tax code.”

“We have to minimize spending.”

However as I defined in The Day by day Economic system, his execution — the “artwork of the deal” — typically didn’t ship. Relatively than shrinking the state, Trump too typically negotiated up — signing trillion-dollar spending offers, boosting the protection and border budgets, and giving Democrats large home wins. Fiscal hawks had been sidelined. The swamp stayed full.

That mentioned, there’s nonetheless time to be taught from these errors — and construct the coverage bundle this nation wants.

What Ought to Trump and Congress Do Now?

1. Return federal spending to FY 2019 ranges.

This straightforward transfer may save $2.5 trillion per yr with out touching entitlements. A lot of the post-COVID improve went to short-term applications, pandemic-era expansions, and bureaucratic progress. Roll it again. If households can tighten their belts, so can Washington.

2. Cap spending progress with a rule like TABOR.

Colorado’s Taxpayers’ Invoice of Rights (TABOR) ties spending to inhabitants progress plus inflation. It really works even with a Democrat trifecta — and will work federally. Even the Funds Management Act of 2011, handed by Congress throughout Obama’s presidency, quickly restrained spending. We want a everlasting model.

3. Enhance the 2017 Trump tax cuts.

The Tax Cuts and Jobs Act helped working households and boosted funding — nevertheless it didn’t go far sufficient:

• Remove or decrease the company earnings tax. Companies don’t pay taxes — individuals do by means of larger costs, decrease wages, misplaced jobs, and decrease shareholder returns.
• Flatten and decrease particular person tax charges with fewer carveouts, no SALT handouts, and no gimmicks like “tax-free suggestions,” “no tax on social safety,” and “no tax on extra time.” When will we lastly have “no tax on earnings”?
• Make full expensing everlasting to spice up funding and productiveness.

4. Slash wasteful subsidies and spending, beginning with healthcare.

As Dr. Deane Waldman and I’ve proven in Empower Sufferers, healthcare is Washington’s costliest catastrophe — and it’s not due to sufferers or suppliers.

It’s the $2 trillion in annual regulatory waste, bureaucratic duplication, and command-and-control mandates that inflate prices and undermine care. 

We must always:

• Empower sufferers with common entry to aggressive healthcare choices
• Remove distortive third-party fee techniques, substitute them with no-limit HSAs.
• Reduce the purple tape that traps docs and nurses in compliance quicksand.

Repair healthcare, and we repair the most important a part of the funds.

What Summers Will get Incorrect — and Why It Issues

Summers argues that Democratic presidents handle the financial system higher. However this evaluation ignores what’s really driving financial efficiency: institutional stability, sound cash, capital funding, and financial freedom.

None of that comes from rising authorities. All of it comes from unleashing the non-public sector.

Summers helps extra taxes, extra spending, and extra central planning. However this solely magnifies the uncertainty that has companies holding again funding and households dropping hope. As I’ve mentioned earlier than:

“Progressives develop the welfare state within the identify of fairness.

Nationwide conservatives develop the company welfare state within the identify of business coverage.

Both means, it’s financial socialism — and it’s bankrupting America.”

What Actually Works? Econ 101.

We don’t want Summers-style spin. We want Econ 101 — the foundational rules politicians maintain ignoring.

Listed below are just some:

• Nothing is free – Each authorities greenback is taken from another person.
• Commerce creates worth – Voluntary alternate beats tariffs and “Purchase America” mandates.
• Earnings and losses matter – Bailouts and subsidies distort incentives and reward failure.
• Inflation comes from the Fed – Not “grasping companies” or exterior shocks.
• Cease the damaged window fallacy – Rebuilding what was destroyed isn’t financial progress.
• Let individuals prosper – Washington doesn’t create wealth. Folks do.

That is the true playbook for financial renewal — no more top-down tinkering from elites.

A North Star for Actual Reform

Many say daring reform is politically not possible. However as Milton Friedman reminded us:

Solely a disaster — precise or perceived — produces actual change. When that disaster happens, the actions which are taken rely on the concepts which are mendacity round.

Let’s be certain the fitting concepts are mendacity round.

Sure, politics is tough. Sure, the established order has inertia. However reality doesn’t change — and financial actuality doesn’t care about occasion platforms. If we would like a way forward for alternative and prosperity, we want insurance policies that replicate that reality.

Reduce spending. Flatten and scale back taxes. Finish subsidies. Repair healthcare. Unleash markets. Empower individuals. That is how we get again on monitor.

And we should act now — not as a result of it’s straightforward politically, however as a result of it’s important morally and economically. America can’t afford one other decade of delay, dysfunction, or disinformation from failed concepts lately expressed by Summers.