The U.S. economy grew at a solid 2% annual rate in the first quarter of 2026. So why is Taxpayers for Common Sense sounding the alarm? Because at the same moment, the national debt held by the public crossed 100% of GDP — a threshold once considered unthinkable. TCS President Steve Ellis and Director of Research and Policy Josh Sewell break down why good economic news and a historic debt milestone aren’t reassuring — they’re a warning. If we’re running a $1.9 trillion deficit when times are good, what happens when they’re not? Steve and Josh examine the structural drivers behind the debt, the systematic dismantling of every fiscal guardrail Congress has ever built, the misuse of budget reconciliation, and why Washington’s political class — in both parties — keeps finding new ways to avoid the hardest decisions. This isn’t a partisan story. It’s an arithmetic one.
Steve Ellis (00:39):
Welcome to all American taxpayers seeking common sense. You’ve made it to the right place. For 30 years, TCS, that’s Taxpayers for Common Sense, has served as an independent nonpartisan budget watchdog group based in Washington, DC. We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are on the political spectrum, no one wants to see their tax dollars wasted. Budget Watchdog AF Fateful, it’s May 1st, and the federal government has released two pieces of economic data that together tell a story Washington has been avoiding for years. First, the US economy grew at a 2% annual rate in the first quarter of 2026. Solid, resilient even. Consumer spending held up, private investment held up. The headline number isn’t bad. Second, as of March 31st, the national debt held by the public now exceeds 100% of gross domestic product.
(01:38):
100 cents of debt for every dollar the American economy produces. The Wall Street Journal’s, Richard Rubin, put it plainly. The US has crossed a once unthinkable threshold on its way toward breaking the record set in the wake of World War II. Here’s the thing. Those two data points don’t cancel each other out. They make the situation more alarming, not less. Because if public debt is crossing 100% of GDP when the economy is growing, when an unemployment is low, when consumer spending is holding up, what happens when the next recession comes? When the next war costs, more than anyone projected. When interest rates stay elevated and we’re already spending a trillion dollars a year just to service the debt. The government is currently spending $1.33 for every dollar it collects in revenue. Deficit this year is projected at $1.9 trillion, and those are the projected numbers before the full cost of the Iran war is on the books.
(02:38):
Meanwhile, the TCS Weekly Waste Basket, our flagship analysis, dropped this week on something that connects directly to all of this. The ongoing abuse of the budget reconciliation process. The tool Congress created in 1974 to align budgets and help reduce deficits has become the preferred vehicle for increasing them. We’re now potentially heading toward a third reconciliation bill in a single year. No offsets, no guardrails, no trade-offs. James Carville famously said, “It’s the economy stupid, but right now for long-term fiscal health, it’s the debt, and the political class and both parties has spent decades finding new and creative ways not to deal with it and actually increase it. ” Joining me now to get real about all of this is our good friend, Josh Sewell, TCS’s Director of Research and Policy. Josh, welcome back.
Josh Sewell (03:31):
Hey, Steve, thanks for having me. Thanks for giving me a chance to talk too.
Steve Ellis (03:34):
I know. It was a long monologue there leading into this, Josh. So the Ruben piece, the one that I referred to in the Wall Street Journal is careful to say that 100% debt to GDP ratio isn’t magic, that there’s no cliff where debt suddenly becomes catastrophic. How do you think about that tension between it’s a symbol and it’s a real warning sign?
Josh Sewell (03:59):
Yeah, to be fair, it was a long monologue because it’s a really important issue that you’ve been thinking about for a really long time. So it’s actually probably a short monologue, to be fair. And that’s just the thing is TCS and a few other groups in Washington especially have consistently warned about the threats of amounting debt. There’s a lot of threats that come from a massive debt. And I think the thing is that cliffs are scary, but slippery slopes can be just as deadly. And so I mean, that’s the thing about as a symbol or as a marker, this 100% of GDP, it really is a marker that shows how out of balance our fiscal health is. And it should lead people, especially people who don’t think about this every day, who it’s not part of their job, to really start questioning how we’re spending our tax dollars and what are we getting for it?
Steve Ellis (04:48):
So Josh, one of the key points Ruben makes is that unlike the brief debt spike that we saw during COVID, which then came down as growth resumed, the drivers this time are structural, not temporary. What does that mean in practice and why does it matter for the trajectory?
Josh Sewell (05:09):
Yeah, these aren’t some sudden unexpected changes. This is some threat we didn’t see on horizon. These were long expected, long known challenges. And the fact is solving the problem is going to be harder. There are no easy solutions when it comes to tackling the drivers of our debt and deficits. And I think especially when you’re talking social security, Medicaid, Medicare, these are the real drivers of our debt going into the future. And their costs aren’t even, the full impact of those aren’t even seen yet because the baby boomers are just now really starting to retire.
Steve Ellis (05:46):
Yeah. And we’re not raising the revenue that we need to be raising. We talked about that we’re spending $1.33 for every dollar in revenue that we’re raising. And we know that. I mean, that is something that is entirely predictable, but nobody seems to be willing to tackle this and actually, or very few lawmakers. I won’t say no one. There’s certainly been some Congressman Jody Arrington, the chair of the House Budget Committee and other lawmakers, but really no one seems to be willing to go there. Well,
Josh Sewell (06:19):
And that’s because these, whether it’s these large entitlement programs, which serve millions of people every year, and are relied on even by those of us who aren’t directly using them, yourself and me, I assume we will both retire at some point in the future, you before me, presumably, because these are the third rails of politics. These in the tax code, these entitlement programs and the tax code that lawmakers, they just don’t want to touch. It’s a lot of hard decisions. It’s not an area where you can just throw cash and make everyone happy. It’s, I guess, rocking a hard place.
Steve Ellis (06:52):
Well, Josh, lawmakers do seem willing to touch the tax code when it’s cutting the taxes. So I’ll just argue that point, but you’re absolutely right. As far as raising revenue, it’s never popular to tell somebody that they’re increasing their taxes. And doing nothing is a choice. I mean, according to the last Social Security trustees report, Social Security will deplete its trust fund surplus sometime in the next seven to eight years. Speaking of retirement, that would be right about when I hit retirement age. Not saying I’m retiring that exactly then, but just flagging that. And that would lead to an immediate benefit cut of 20 to 25%. Letting that happen by doing nothing is a choice. As a matter of fact, not tackling social security is a cop out because you’re then going to be the ones who are letting it have a benefit cut in the 2030s.
(07:50):
Okay, Josh, I mentioned the weekly waste basket, and this trace is not exactly, but kind of how we got here. Congress has dismantled every fiscal constraint it ever built, one by one inexorably. Whenever those constraints became inconvenient, Graham Rudman Haulings, Pay As You Go, Budget Control Act caps, the Fiscal Responsibility Act, these are all evaded, undermined, obliterated, and reconciliation is just the latest chapter. Walk us through what our wastebasket is saying about where the process stands right now and what reconciliation 2.0 actually means for the debt picture.
Josh Sewell (08:36):
In our system of government, Congress has to police itself. Co-equal branches of government, you can’t really tell Congress what to do. I mean, voters have an influence, but it’s up to Congress. And the budget process, they have created a process that is bound by rules for creating a budget, for making decisions within that budget. But again, this is all up to Congress, so it’s a self-policing system. And the challenge here is they’ve created rules over the years to try and make it more fiscally responsible, which is a good thing. And some of those, for folks who may not be as familiar, they’re supposed to base their revenue and spending assumptions on something that’s realistic. It’s not just pie in the sky. It’s supposed to be based on current law is one of the things, but also reasonable economic assumptions. They’re supposed to account for likely costs of programs, not just low ball them, but it’s these different ways of forcing themselves to make choices for what is in fact a limited budget.
(09:39):
They don’t have unlimited spending. These are restraints that they put on themselves, and that’s all a good
Steve Ellis (09:45):
Thing. It’s like for Congress, every day is a budget diet cheat day.
Josh Sewell (09:52):
It is. And so a lot of the reform efforts that we’ve worked on in other groups is to try to really make spending targets that are legally binding on Congress itself at the same time. And so when you look at, say, a mandatory program, so some of these entitlement programs are ones that don’t rely on annual spending decisions from Congress. If those mandatory programs exceed their expected amounts when they were authorized, there’s an automatic sequester of funds for many of them. So that’s an across the board cut. And you’re not supposed to be able to pick from one program to another. You’re supposed to harm basically all the programs equally. That’s what makes it a painful sequester. There are requirements that when you authorize new authorizing bills to create these programs have to be budget neutral. That means an increase in spending for one program has to be matched dollar for dollar with a cut somewhere else.
(10:40):
Or you can increase revenue, which they don’t really like to do because that means raising taxes. So there are these mechanisms that are supposed to force Congress to make some of these decisions.
Steve Ellis (10:49):
But Josh, these mechanisms haven’t stuck. They’ve become mere budgetary speed bumps on the way to accelerated spending.
Josh Sewell (10:57):
Yeah. And that’s the crux of the issue is that as soon as Congress, sometimes the day they make these kind of restrictions on themselves, they start working on finding workarounds. And so it’s not a game, but it feels like there’s a lot of gazemanship going on in Congress where you’re trying to find workarounds to these institutional restraints. Because to be frank, Congress likes to say no to no one, especially themselves. They will just vote to waive the rules, that Paygo rule you’re talking about in mandatory spending. So they literally in the bills creating something or increasing spending on some of these programs, they say this does not go on the Paygo scorecard or it has a score of $0. And another thing that’s really increased recently that we’ve talked about, and we will talk about again, I imagine pretty soon, maybe the next month, is quote unquote, emergency appropriations.
(11:46):
And that’s where you don’t have to account for this discretionary spending increases with either a cut or raised revenue because, oh, it’s an emergency. And so these are some of the major workarounds. And then again, this thing that has become a new norm apparently in Washington is you use the reconciliation process. And this one, I think is just a major misuse of a process that was originally intended to actually bring spending down or at least in line with the budget. You’re supposed to reconcile your spending with the reality of the budget as opposed to the budget you expected when you made that budget earlier. And so if a program costs more than you expected, you need to find a cut somewhere else. If you have a bunch of money, the budget projected and made some money available for a program and intends that you don’t need that money anymore.
(12:33):
So then you can rescind that money and pull it back and either spend it somewhere else, or more likely bring it to deficit reduction. But now reconciliation, it’s an inherently partisan process because you don’t have to … It avoids the filibuster in the Senate, so you can do things on a party line vote, and it’s become this tool to increase spending without engaging with the other side of the aisle. And so without having to really have someone check you and get you or spending decisions back into reality.
Steve Ellis (13:02):
Yeah. It’s something where lawmakers recognize that they need to get while they’re getting good. And so president comes into office sweeping in majorities in the House and the Senate of his own party, and then they can unlock reconciliation. And so you get bite at the reconciliation apple each fiscal year. And so that’s why you can actually stuff three into this year, basically, because they didn’t do the budget resolution for fiscal year 2025. Then they did the one for fiscal year 2026, and they can do the one for fiscal year 2027, even though that’s going to be at the end of this Congress, and they can jam through reconciliation on each of those packages. But you need to have the presidency, the White House, or you need to have the White House, the House, and the Senate. And so we saw that in the beginning of the Trump administration, 0.1.0 with the Tax Cut and Jobs Act.
(14:02):
We saw that in the beginning of the Biden administration with the Inflation Reduction Act, and we saw it last summer and are about to see it again. We saw it last summer with the one big beautiful Bill Act. And then we’re seeing it again with this reconciliation to pay for the CBP customs and border patrol, which is not surprising, and immigration and customs enforcement.
Josh Sewell (14:23):
And the abuse of reconciliation, as you just mentioned, it’s a partisan tool, but it’s been used by partisans on both sides. So in the IRA, I think it’s important to note that we were cautious of reconciliation to do what the Democrats were wanting to do then because it involved a lot of spending on various programs, especially energy investment and ag conservation and some things that Democrats really liked, and it was technically paid for. And I say technically because we didn’t expect all of those pay force to actually happen. And I think in reality, they haven’t. And so one of the big revenue raisers in the IRA was increased spending, increased investment in the IRS in its enforcement budget. And so then there’s an expectation that you would get more tax cheats, and so that would help pay for the cost. Well, Republicans have repealed those investments.
(15:15):
And so that anticipated future revenue, which is owed to the United States, isn’t going to come in. And so while it was paid for, it wasn’t actually paid for in reality. And that’s one of the problems with projecting 10 years into the future for increased spending right now. And we saw that in TCJA as well.
Steve Ellis (15:32):
It was almost $80 billion that they were going to plow into the IRS for modernization and for enforcement. And that’s been whittled down successively to where I believe now they’ve spent about 15 billion of that 80 and they only have about 10 billion of that 80 remaining. And so a lot of that has come out of enforcement. And this is at a time when we have a tax gap, the gap between the actual expected revenue and what the revenue actually comes in to the IRS of $600 billion a year. So it’s not an insignificant amount of money that is maybe in some cases it’s cheats, maybe in some cases it’s just errors, but anyway, it’s money that Uncle Sam is owed that we are not getting. All right, Josh, we beat up on Congress regarding spending and debt a lot and justifiably, but what about the executive?
Josh Sewell (16:28):
So the president sets the tone, particularly this president with his majority. So if the president, and in fact, it’s not just President Trump, but if any president demands austerity or budget cuts or revenue increases, it has an effect. It isn’t a silver bullet. I think President Bush wasn’t able to change social security for good or bad, but they can still have an impact. I mean, it takes two to tango. It’s the executive has to lead and Congress has to lead as well.
Steve Ellis (16:59):
Exactly. So Josh, Ruben, the Wall Street Journal columnist, has a number in his column that I want to make sure our listeners hear a 0.1%enage point increase in the interest rate that we’re paying on our debt. So again, 0.1 or 0.001% increases costs $379 billion over 10 years, and that’s according to the CBO, the Congressional Budget Office, the nonpartisan scorekeeping arm of Congress. One in $7 of federal spending now goes to paying interest on that debt. We touched on this in our budget request episode, how exposed we are, and is anyone in Washington actually grappling with this?
Josh Sewell (17:55):
Yeah. And the real thing about exposure is the more debt you have, the more it costs to pay for your debt. And I don’t think we can emphasize this enough. It doesn’t actually matter what the interest rate is. If you have more debt, you will be paying more interest. And it’s a double whammy when interest rates increase. And even right now, historically speaking, we don’t have very high interest rates. And so that is the real concern is that for decades, we’ve lived under low interest environments. And so when we move to a really high interest environment, which you can anticipate could happen at some point, that’s when this massive pile of debt becomes very, very harmful. And the other thing about interest rate is just for the federal government, just like it is for people, you don’t get anything for paying interest. You’re paying money for something you’ve already done or something you’ve already acquired.
(18:53):
So it’s not like we’re getting a new program. We’re not getting a new entitlement that helps people with healthcare or something else. You’re not getting bridges. You’re just paying for past spending decisions. And this issue just, it hasn’t reached leadership, at least not enough yet, not enough for there to be action on it.
Steve Ellis (19:11):
So Josh, I’m asking you to look in your history book, but I’m old enough to know that deficit reduction was a primary political concern from the ’80s through the ’90s, and lawmakers actually responded. What’s changed?
Josh Sewell (19:29):
President Reagan came into office as a small government conservative, from what I’ve read, and immediately got steep tax cuts. That was one of his first actions. And then the deficit, it soared. And that actually spooked him maybe personally, but certainly politically. And he and Congress worked to actually reverse course. And actually that tax cut, massive spike in the deficit actually helped set the stage for what was a very good 1986 tax reform, where you really did have a significant changing in the tax code for the better, and at the same time, it set up future budget agreements. We talked about Graham Rudman Holdings. I think that was 1985. So you had structural change in the tax code, structural change to the congressional budget and spending process to try to avoid that massive swing and increase in deficits later. And that set up various budget agreements that happened under both President George H.
(20:28):
- Bush and future President Bill Clinton.
Steve Ellis (20:32):
And of course, I would say in a monumental issue is that when George H. W. Bush in a debate said,” Read my lips, no new taxes. “And then they actually, he did do some leadership in, I think it was the Andrews Air Force Base Accords and then lost his reelection. Some people took from that was that, okay, we need to cut taxes or you can’t raise revenue at all, even though Clinton did it and got reelected.
Josh Sewell (21:00):
Yeah. And then for folks to know that George W. Bush campaigned on cutting taxes, which he did. And then nine eleven happened and Afghanistan, Iraq wars, massive need for spending, but those were entirely deficit financed and actually done through emergency spending. Even though we were there for years and you anticipated this need, it was still done under an emergency basis basis, so not budgeted for. And again, deficits, they are self-serving and deficit reduction comes with risk, especially political and maybe only really. I mean, there’s some economic risk, I guess, but it’s really, it’s a political risk. And now here we are, I mean, we’re talking … Is it 2026? So we’re talking 25 years since nine eleven. We’re talking 40 years, more than … I’m 45, wow, 45 years since Reagan took office. And people have gotten used to deficits. I mean, I know there was technically a balanced budget in the 90s.
(22:04):
Again, I’m aware of it. I wasn’t really working in this space. I was still in grade school. I was in middle school, actually, technically, but we’re all used to deficits now and debt just seems to be an accepted thing in Washington for many folks. And partly we’ve been able to float it because interest rates have been pretty low and so it hasn’t cost us a lot of money in many respects, proportionally at least.
Steve Ellis (22:30):
Yeah. You mentioned the balanced budget at the end of the 90s and the beginning of the odds, which is actually part of the rationale that President Bush used for the tax cuts was that we had surplus money and so we should give it back. But even then, it was only because we were counting the increased revenues, the surplus that was in the social security and Medicare trust funds along with our spending. So actually the on budget portion, not to get too wonky, was still in a deficit. It was just that we had more money coming in through Social Security and Medicare taxes than we had spending, which of course is not the case anymore. And so it’s going to make it harder. All right. So Josh, is there any realistic scenario where this concern about the deficits and debt goes back to where it was?
(23:20):
Actually, it becomes a higher priority for politicians?
Josh Sewell (23:24):
Yeah. Yeah. I think there’s really two scenarios. And the first is some horrible crisis happens, and that’s not something we wish upon ourselves, but crises do steal the mind. Barring that and preferably, I think there has to be a change in leadership. And this isn’t a call for electoral changes in 2026. There has to be just change across the board. There needs to be an acceptance that business as usual, just it doesn’t work. And that business I’m talking about is tax cuts don’t pay for themselves. That mantra is just not true. And increases in spending, especially the spending you like, they aren’t free. Everything comes with an opportunity cost. And I guess what I’m saying is it just really, it’s a matter of getting the political will. And I’m not trying to have a cop out, but that’s what it is. There needs to be more responsibility on the part of lawmakers, but even more so, I think it’s voters.
(24:25):
You got to reward people who want to make hard decisions. No one’s coming to save us. We have to save ourselves.
Steve Ellis (24:31):
Former Secretary of Defense, Chief White House Chief of Staff, Leon Pineda, former Congressman, budget chair, you hit the nail on the head. I’ve heard him do this speech many times and it’s like Washington governs either by leadership or crisis. That’s what makes change and we don’t want the crisis. And so really it is about leadership. And I would argue to some extent, for instance, when President Clinton took office, there was a third party running at the time, Ross Perot, the reform party, and they made the debt and deficits a big issue. And you had kind of a tag team between President George H. W. Bush and what he did as far as increasing taxes and coming to a budget agreement with Congress. And then what Clinton did with the new Republican majority after the 94 elections to kind of do this tag team that was real leadership to get to this surplus.
(25:35):
And so it really is lawmakers coming together and leading on this issue. And I mentioned House Budget Chair Arrington earlier, he partnered with the ranking member and they have their fiscal commission, which is you could argue it’s a cop out because it’s like, okay, we’re outsourcing still within Congress, but we’re outsourcing the responsibility to come up with some of these changes, but by the same token, we need that right now. And there is some leadership of saying, “Okay, we’re going to have to outsource this and this is the way to make it happen.” And so we certainly have pushed for those type of changes, those type of radical changes, because that’s what we need right now.
Josh Sewell (26:20):
The fiscal responsibility call can come from withinside of the House. It doesn’t have to be some new outsider. I’m not calling for, I don’t know, I think there’s 432 people in the house right now who are sitting. Maybe it’s a little more, after some unfortunate, the death of Mr. Scott, but there’s a lot of people in the House and the Senate and there will be new folks coming in after the election and the next election, but at the same time, circumstances change, people get to change their mind and maybe some folks can see the light because we need … This isn’t a partisan issue. Deficits and debt and the threat it poses to all of us. This is truly a bipartisan issue and we need to have bipartisan reform.
Steve Ellis (27:05):
So Josh, and this was also in the Wall Street Journal piece and it’s where we are saying it’s not like … Post World War II, obviously we had a dramatic change in the economy and the debt to GDP fell rapidly because one is we were winners and we were able to spend less on defense and we were able to retool that economy to take advantage and really have those boom years. But we don’t need to have that type of trajectory on the debt to GDP ratio. We really just need to get it on a stabilized path and that it actually slowly, it either stays the same or slowly shrinks because the economy is growing faster than the debt.
Josh Sewell (27:53):
Yeah. That’s really what the issue here now is. Our $39 trillion debt didn’t come in one year. This didn’t come in one decade. This is death by a thousand cuts. It is a death by tens of thousands of spending decisions is what it is. And to get out of it, it’s going to take a lot of small scale changes and structural changes, arguably. And so there’s a lot of things Congress can do. I think it’s, like you said, the goal is just to get the economy growing faster than our deficit. And maybe just getting it flat, just having a … Maybe the goal should be a trillion dollar deficit and keep it at that, for a while. And then it can go down a little because a trillion dollars is a lot of money, but it’ll be less money in 10 years and maybe that’s one of the goals.
(28:40):
But the fiscal commission, I think that’s a great idea. There’s things like you can repair first and build later. So we’re talking about infrastructure, it’s like take care of the stuff we have instead of getting the fancy new stuff immediately. Cost share. No one likes to talk about cost share, but if you want a federal program, you need to put up some of your own money. There’s a lot of things and you can just take lessons from your own life. You just got to be realistic about economic assumptions and understand that the debt you have now, they’re going to change later. So don’t spend all your money this year. Think about saving for the future and investing in some things that may have a payoff later. And also, I think for folks on both sides of the aisle right now, there’s 50 states. We can do the laboratories of democracy.
(29:27):
And I think in solving our spending problems and delivering social programs and delivering healthcare and delivering a lot of stuff, yet we should try some things in different states and see what works and then take those examples up. The good ones, take them up, the bad ones don’t emulate, but we need to figure out, again, business as usual in almost everything that we work on.
(29:51):
The policies we have got us to where we are, and most of those policies are not going to take us to where we want to go. So let’s figure it out. I We can do it. We’ve done it before.
Steve Ellis (30:02):
Yeah, it’s really sobering to me, Josh, in that in 1999 when I first came to TCS and budget watchdogaFaithful, I think you’ve heard me say this before, but the debt was $5.6 trillion. And as Josh just pointed out, it’s now in excess of $39 trillion. And so that’s just in the 21st century. We’ve piled on that much debt. It’s really staggering, but the best thing to do when you find yourself in a hole is to stop digging. And so that’s what we need to do and slowly get ourselves out of that debt pit that we’re in. So Congress, start bringing your lunch to work. No fancy lunches, no fancy dinners. But no, seriously, it is about some of these common sense types of approaches and really some tough decisions.
Josh Sewell (30:58):
Yeah. And Steve, you’ve got at least, according to you, at least six or seven years to keep helping us do that.
Steve Ellis (31:03):
There you go. Josh, thanks for sharing the wisdom.
Josh Sewell (31:06):
Yeah, I appreciate it. It’s good to be here.
Steve Ellis (31:08):
Well, there you have it podcast listeners. This isn’t a partisan story. It’s an arithmetic story. This is the frequency. Mark it on your dial, subscribe and share, and know this. Taxpayers for Common Sense has your back in America. We read the bills, monitor the earmarks, and highlight those wasteful programs that poorly spend our money and shift long-term risk to taxpayers. We’ll be back with a new episode soon. I hope you’ll meet us right here to learn more.
