Federal Spending is Out of Control - Fall 2026

For the past 25 years, America has made big promises: expanded benefits, new programs, military commitments, and ongoing support for conflicts around the world, without consistently asking taxpayers to cover the full cost at the time.

That is not a political statement. It is a math statement.

Congress has expanded Medicare prescription drug coverage, increased health care subsidies, maintained and expanded benefit commitments, and continued to fund Social Security and Medicare obligations as the population ages. At the same time, the country has fought wars in Afghanistan and Iraq, supported allies and conflicts overseas, and reduced taxes at various points along the way.

The result? More obligations, more borrowing and a larger future bill.

Nobody enjoys discussing federal debt at a dinner party. It ranks somewhere between talking about the in laws and reading the fine print on a cable bill. But it matters because eventually the government has only a few ways to close a gap between what it promises and what it collects:

1. Spend less
2. Reduce benefits
3. Borrow more
4. Allow inflation to erode purchasing power
5. Raise more revenue through taxes
6. Use some combination of these choices

For families building a long term financial plan, the key question is not, “What will Congress do next year?” The better question is: What happens to our retirement, estate, and cash flow plan if taxes are materially higher in the future?

This Has Happened Before

After World War II, the United States had accumulated an enormous amount of debt to finance the war effort. In many ways, the starting point looked uncomfortably familiar: major national commitments had been funded through borrowing, and the country needed a path forward.

America did not use one magic solution. It used several.

The Government Ran Surpluses

In the years immediately after the war, the federal government took in more revenue than it spent in several years. Those surpluses were used to reduce outstanding debt.

That is an important distinction. Debt did not simply disappear because the economy grew. The government also collected revenue, constrained certain spending after the war, and used excess revenue to pay down obligations.

Today’s outlook is different. The federal government is expected to continue running very large annual deficits, meaning it spends more than it collects and borrows the difference. The Congressional Budget Office projects a federal budget deficit of about $1.9 trillion for fiscal year 2026, with debt continuing to rise over the following decade.[finance.yahoo]

Taxes Were Much Higher

After World War II, tax rates were dramatically higher than the rates many families see today.

The 1951 top federal income tax rate was 91%, and the lowest bracket began at 20.4%. In 2026, the federal individual income tax system starts at 10% and tops out at 37%.[cbo][wsj]

Of course, few households actually paid a 91% effective tax rate. Deductions, exclusions, tax preferences, and the design of the tax code all mattered then, just as they do now. But the comparison drives home the real point: today’s tax system is not permanent.

A 10% starting bracket and a 37% top bracket may feel normal because they are familiar. But familiar is not the same as guaranteed.

Interest Costs Were Kept Low

After World War II, the Treasury and the Federal Reserve worked together to keep government borrowing costs low. The Federal Reserve maintained a low rate peg during and after the war, including a 3/8% rate on short term Treasury bills. That policy ended with the Treasury Fed Accord in 1951.[finance.yahoo]

Put simply, the government limited the interest rate it paid on much of its debt.

When inflation is higher than the interest rate paid on government debt, the debt becomes easier to carry over time in real purchasing power terms. That does not make the debt vanish, and it is not painless. Savers may earn less after inflation. But it can reduce the inflation adjusted burden on the government.

Japan used a modern version of this concept beginning in 2016. The Bank of Japan adopted yield curve control, targeting the yield on 10 year Japanese government bonds at around zero percent.[wsj]

The historical comparison is not a prediction that the United States will do the same thing. It is a reminder that governments facing high debt loads may consider policies that affect interest rates, inflation, savings, and the purchasing power of money.

Businesses Paid More, Too

The burden of financing the federal government looked different after World War II. Corporate income tax revenue represented about one third of total federal revenue in the early 1950s. In most recent years, it has been under 10%.[wsj]

A Government Accountability Office report also illustrates how different the revenue picture was in the postwar era. Corporate tax receipts were substantially larger relative to the economy in the late 1940s than they are in the modern federal tax structure.[wsj]

The takeaway is not that one era had the perfect tax system. It did not. The takeaway is that the mix of who pays, how much they pay, and which tax breaks survive can change significantly over time.

That matters for business owners, executives, retirees, investors, and families with appreciated assets.

The Planning Lesson

The government’s future choices could affect taxes, inflation, interest rates, benefits, and the value of deductions. No one knows which levers Congress will pull or when.

But history suggests a very practical lesson: do not build a 20 or 30 year financial plan assuming today’s tax rates, benefits, and rules will never change.

Inflation changes. Tax law changes. Government services change. Retirement benefits change. Medicare rules change. Deductions change. Estate tax rules change.

A plan that works only if today’s tax environment lasts forever is not really a plan. It is a hope with spreadsheets.

Questions Worth Asking

A financial plan should model more than one future. Consider asking:

1. What happens if our effective tax cost rises by $5,000, $10,000, or $20,000 per year?
2. How much of our retirement income will come from fully taxable accounts such as traditional IRAs and 401(k)s?
3. Are there lower income years when partial Roth conversions may make sense?
4. Would a mix of taxable, tax deferred, and tax free assets give us more flexibility later?
5. Should we review charitable giving, investment account location, capital gain timing, beneficiary designations, or estate planning strategies while current rules are known?
6. Are we relying on a government benefit or tax rule that deserves a backup plan?

None of these questions require a crystal ball. They require a willingness to stress test the plan before a tax change becomes a deadline.

The Time to Plan

Taxes may not rise for every person in the same way or at the same time. Some changes could affect high earners, business owners, investors, retirees with significant required distributions, or families with larger estates first. Others could be broader.

The point is not to panic, make a dramatic tax bet, or let headlines drive investment decisions. The point is to prepare.

A strong financial plan can test higher tax scenarios, identify opportunities under current law, and create more flexibility for the future. That might include Roth conversions, coordinated withdrawal strategies, charitable planning, estate planning, tax aware investing, or simply improving the balance between taxable, tax deferred, and tax free savings.

If your financial plan assumes that today’s tax rates will be around forever, it is time for a second look. Schedule a meeting to stress test your long term plan and identify the tax strategies that may be worth considering now.

This article is for educational purposes only and is not individualized tax, legal, or investment advice. Tax laws can change, and every strategy involves trade offs. Consult qualified tax and legal professionals before implementing any strategy.

Sources

Congressional Budget Office, The Budget and Economic Outlook, 2026 to 2036[finance.yahoo]
https://www.cbo.gov/publication/61882

National Taxpayers Union Foundation, How Have the Top and Bottom Income Tax Brackets Changed Over Time?[cbo]
https://www.ntu.org/foundation/tax-page/how-have-the-top-and-bottom-income-tax-brackets-changed-over-time

Internal Revenue Service, IRS Releases Tax Inflation Adjustments for Tax Year 2026[wsj]
https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill

Federal Reserve History, The Treasury Fed Accord[finance.yahoo]
https://www.federalreservehistory.org/essays/treasury-fed-accord

Federal Reserve Bank of New York, Japan’s Experience with Yield Curve Control[wsj]
https://libertystreeteconomics.newyorkfed.org/2020/06/japans-experience-with-yield-curve-control/

Tax Policy Center, What Are the Sources of Revenue for the Federal Government?[wsj]
https://taxpolicycenter.org/briefing-book/what-are-sources-revenue-federal-government

U.S. Government Accountability Office, Corporate Income Tax: Effective Tax Rates Can Differ Significantly from the Statutory Rate[wsj]
https://www.gao.gov/assets/gao-13-520.pdf