A “War on Fraud” Will Not Balance the Budget
Last night, President Trump gave the State of the Union. Over the course of two hours, the president painted a rosy fiscal and economic picture and made several claims about tariffs, government waste, interest rates, and the federal debt. Some of these claims need a reality check.
The US can have a “balanced budget overnight” by eliminating fraud.
Coming on the heels of the Minnesota Medicaid fraud scandal, the president officially announced a “war on fraud” to be led by Vice President JD Vance. On its face, a campaign to eliminate fraud should be welcomed. The Government Accountability Office estimates that the US loses between $233 and $521 billion annually to improper payments, and Congress should more aggressively audit existing government programs.
However, the president also implied that if “we’re able to find enough of that fraud, we will actually have a balanced budget overnight.” That is basically impossible and undersells the real drivers of our worsening fiscal picture.
According to the Congressional Budget Office, the US faces cumulative deficits of $24 trillion over the next decade (FY27—FY36). Most of the growth in the federal deficit is traceable to Social Security, Medicare, Medicaid, and interest costs. Even if we take GAO’s upper-bound estimate and assume we can eliminate all improper payments via traditional fraud prevention, that would optimistically generate $5 trillion in savings—not nearly enough.
The real issue is not fraud but waste, which is built into the structure of major government programs like Medicaid and Medicare. Only through a full overhaul of those programs, such as downsizing and block-granting Medicaid, can you get remotely close to balance.
In all likelihood, the president’s “war on fraud” will be more akin to DOGE, in that it pays lip service to the underlying budget problem without making the politically difficult reforms needed to put our nation back on fiscal track. Look no further than the president’s pledge to “always protect Social Security, Medicare, and Medicaid”—the very programs driving our fiscal imbalance.
Unless “protect” means fundamentally reforming these programs, a war on fraud is likely to be just as ineffective as DOGE was at closing the deficit. Perhaps a war on waste would be better.
Tariffs can “substantially replace the modern-day system of income tax.”
The revenue math doesn’t come close. Individual income taxes raised roughly $2.7 trillion in FY2025. Tariff revenue was $264 billion, just 10 percent of individual income tax revenue. Moreover, the revenue-maximizing tariff rate falls far short of replacement levels. As Cato’s Adam Michel put it, “there is no economically feasible scenario where tariffs can replace the current income tax.”
Moreover, the legality of the president’s current tariff regime is questionable. The Supreme Court has already demonstrated its willingness to invalidate the bulk of the administration’s tariff policy. Building an entire revenue strategy around a legally suspect and unilaterally changeable tax is a fool’s errand.
“Lower interest rates will solve the Biden-created housing problem.”
The president is correct that 30-year mortgage rates are down from Biden-era highs—a real improvement. But they remain elevated compared to the past decade. A $328,000 30-year mortgage would entail roughly $2,000 in monthly interest payments at today’s rates, $500 more per month than an identically priced mortgage at 2019 or 2016 interest rates.
These higher rates are partly a consequence of irresponsible fiscal policy. In 2026, the federal public debt is projected to reach 101 percent of GDP, rapidly approaching WWII all-time highs. At the same time, interest costs are projected to consume an ever-larger share of the budget, exceeding $1 trillion annually.
Under these conditions, additional borrowing can contribute to a vicious debt doom loop. Irresponsible fiscal policy raises bond yields, which increase the cost of servicing the debt, leading to more borrowing, higher yields, and so on. Thus, new borrowing crowds out private investment, reduces productivity, and pushes up interest rates. For everyday Americans, that translates to less income and higher costs.
A president who endorses a tax-and-spending bill that adds at least $5 trillion to the deficit over 10 years, atop a $38 trillion debt and high interest rates, cannot credibly claim he’s solving affordability.
A new federal retirement plan with $1,000 matching contributions.
The president also announced that workers without employer-matched retirement plans will get “access to the same type of retirement plan offered to every federal worker” with up to $1,000 in annual federal matching.
Expanding retirement savings is a worthy goal. But as Cato’s Romina Boccia notes:
Americans are still waiting on their tariff rebate checks and DOGE dividend checks. Not only does the administration lack the fiscal authority to seed 401ks with a $1000 taxpayer match, but this is also not a good idea.
Americans need a simpler system of tax-advantaged savings via universal savings accounts, not more tax-advantaged accounts (i.e. Trump accounts) or related handouts.
America has “no choice” but to approve trillion-dollar defense budgets.
The FY2026 defense budget is $1 trillion—something the president said the US has “no choice” but to approve. Yet the administration is reportedly already gunning for $1.5 trillion in FY2027, a massive $500 billion increase on top of already record-high defense spending. Per Cato policy analyst Benjamin Giltner:
This defense budget is strategically and fiscally inept. Like previously bloated defense budgets, America’s overextended military commitments account for much of this one’s expenses. This budget will also likely include wasteful weapons programs, like the Golden Dome and the “Trump-class” battleship, which do little to bolster America’s security. Moreover, such defense spending will increase the national debt by $5.8 trillion over the next decade, worsening an already fraught fiscal landscape for the United States.
For everyday Americans, the defense budget is the least painful of the federal budget to cut. Yet, the Trump administration continues to add more to this wasteful federal expense. If policymakers truly wish to have a government that benefits Americans and cuts waste, then they must lessen America’s military commitments abroad and stop wasteful Pentagon programs. Unfortunately, this proposed $1.5 trillion defense budget fails in both regards.
The bottom line
You cannot cut taxes by trillions, hike defense spending by hundreds of billions, launch new federal benefits, and then claim to pursue budget balance through fraud prevention. These commitments are arithmetically irreconcilable.
The truth is that the fiscal state of the union is not strong. In fact, it’s quite the opposite. America’s fiscal health will continue to deteriorate unless and until the president and Congress take the entitlement challenge seriously.