By Jacob Bogage
WASHINGTON, Sept 2 (Reuters) – Donald Trump returned to the White House promising to get the United States’ financial house in order by slashing the scope of the federal government, ending costly “forever wars” and spurring economic growth to tame spiraling deficits.
Instead, the national debt has surged past $40 trillion in the first 19 months of his second term. Federal spending has grown, not shrunk. The six-month-old Iran war has become an expensive stalemate. And the cost of servicing the U.S. debt, meanwhile, has grown as yields on some U.S. bonds hit their highest levels in nearly two decades.
The result, budget experts say, is a looming fiscal crunch likely to force Congress and a future president to take politically unpopular steps to either raise taxes or trim the social safety net, potentially including Social Security.
“There is no scenario in which one could look at the record of President Trump in both this term and the previous term, and declare it a fiscal success,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a centrist Washington think tank. “The way we got here was not his fault, but the fact that we are here and lawmakers have not done anything to improve it is all of their fault, with the president clearly being central and creating the agenda.”
The debt surpassed $40 trillion just ahead of the upcoming November midterm elections that will determine if Republicans keep control of Congress for the second half of Trump’s final term. While voters may not focus on the issue until the country’s fiscal problems translate into benefit cuts or tax hikes, the fallout hits them just the same in the form of high mortgage interest rates that track yields on government debt and inflation outpacing wage hikes.
MOUNTING DEBT
Trump has driven up spending across his two terms. His first-term tax cuts added $8.4 trillion in debt, according to the Committee for a Responsible Federal Budget. His second-term tax and immigration law added another $4.7 trillion, according to the Congressional Budget Office, lawmakers’ nonpartisan bookkeeper.
White House spokesman Kush Desai said Trump was the “first president to seriously take on pervasive waste, fraud, and abuse across the federal government,” and cut spending by firing thousands of federal workers and eliminating “wasteful programs.”
Trump and congressional Republicans did shrink the annual deficit in 2025, but by a marginal amount, even as the overall debt continued to grow.
DECADES OF DEFICIT EXPANSION
Both parties share responsibility. Tax cuts under Republican presidents Ronald Reagan and George W. Bush widened deficits, as did Bush-era wars. Democrats Barack Obama and Joe Biden increased spending through stimulus packages after the 2008 financial crisis and COVID-19 pandemic, respectively. President Bill Clinton, a Democrat, posted modest annual surpluses in his second term during a period of strong economic growth and reforms to entitlement programs in compromise legislation with a Republican-controlled Congress.
Demographic shifts have also strained the budget. As the “baby boom” generation born in the years after World War Two retires, the trust funds behind Social Security and Medicare are running thin and payroll tax revenue falls short of covering future benefits.
Previous generations of Republicans have called for overhauling entitlements, but Trump has led his party to buck conservative orthodoxy, creating new safety-net-style programs such as government-backed investment accounts for newborns.
His administration has shifted the U.S. revenue structure, in part by raising tariffs and cutting corporate tax rates, further toward taxing workers and households and away from businesses and investors. It has made government revenue more dependent on a type of taxation that commands a shrinking portion of economic output amid global financial shifts and a rapidly retiring workforce. And it has tilted tax burdens increasingly toward low- and middle-income households over the highest earners, according to congressional budget officials.
“You now have Republicans becoming very fond of alternative ways of raising more taxes to avoid politically difficult entitlement reforms,” said Romina Boccia, director of budget and entitlement policy at the conservative Cato Institute.
COUNTING ON GROWTH
Conservatives have long held that lower tax rates and less government oversight spur investment and growth, generating more tax revenue and easing the cost of antipoverty programs and outpacing the debt, a strategy reiterated by Trump.
“The growth will take care of that very easily,” Trump said en route to a political rally on August 21. From the Oval Office on Monday, he said his policies could increase the country’s economic output to 20% annually, a feat accomplished only once since 1947, as the economy roared back to life in the third quarter of 2020 when COVID-19 shutdowns ended.
His optimism clashed with the message of Federal Reserve Chair Kevin Warsh on Monday at the G20 finance ministers’ meeting in North Carolina. The current record level of investment flowing to AI and big technology firms, Warsh said, indicates a shortage of capital and is forcing governments and the companies leading the AI investment boom to compete for the next investment dollar, driving up rates and making the government’s financing problems worse.
Trump during the campaign said tax cuts would pair with generational spending reductions, and he commissioned Elon Musk to lead the now-defunct U.S. Department of Government Efficiency.
Musk pledged to cut $2 trillion from the budget. The agency ultimately reported $110 billion in savings, a figure the Government Accountability Office said relied on overstated or unverifiable claims. The White House did not respond to a request for comment about the findings.
“It’s not that you can’t cut taxes. You can, but you have to pair that with spending cuts, and they haven’t been,” MacGuineas said.
Current and former administration officials say the White House is not getting enough credit for economic advances and maneuvers to ease consumer prices — things they say will improve the country’s fiscal standing. But William Emmons, the former system vice president of the Federal Reserve Bank of St. Louis, said Trump’s policies have deepened an already challenging fiscal condition.
“He inherited bad momentum. It’s not a surprise to anyone that it was a challenging budget environment, both back in 2016 when he came to office and again today,” Emmons said. “He made a bad situation worse.”
(Reporting by Jacob Bogage in Washington; Additional reporting by Howard Schneider in Washington; Editing by Colleen Jenkins, Craig Timberg and Matthew Lewis)
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