Ex-Reagan Budget Chief Stockman Warns of Coming Fiscal Crisis

Former OMB director and Wall Street executive David Stockman offers a dire outlook for the U.S. economy due to its exploding federal debt with no end in sight.

David Stockman speaking at the Committee for the Republic event on the national debt, Washington, DC, November 13, 2025. Image credit to the Committee for the Republic YouTube channel.

This is a repost of a previous article due to pending publication in The American Spectator. A shorter version of this article published in The American Spectator, December28, 2025.

President Reagan’s Director of the Office of Management and Budget (OMB) David Stockman was the featured speaker at a special event on the federal debt on November 13, 2025 hosted by the Committee for the Republic in Washington, DC. During his speech, Mr. Stockman put America’s federal government debt into historical context:

… prior to the 1913 creation of a central bank [the Federal Reserve] with a printing press capable of monetizing the public debt, America’s fiscal record was nothing short of remarkable by present day standards.

… after decades of budget surpluses during the second half of the 19th century---along with no income tax, no Welfare State and no peacetime military that amounted to anything much---the public debt had been reduced to just $1.2 billion by 1914.

Today’s dollar is worth just 3.1% of its 1914 value---so the 1914 public debt amounted to $36 billion in 2025 dollars of purchasing power. On an apples-to-apples constant dollar basis, that’s $365 per capita of public debt back then versus $113,000 per capita today.

Stated differently, in constant dollars the public debt has soared from $36 billion with a “B” in 1914 to $38 trillion with a “T” today. In real terms per capita, it’s up by 310X!

The above words are only a small excerpt from the in-depth, sobering speech given by Stockman on America’s ever-growing federal government debt. Stockman, who is now a writer and commentator on economic issues, has extensive practical knowledge on economic policy beyond his years as Reagan’s OMB director from 1981 to 1985. After his government service, Stockman held top positions at two prominent Wall Street firms, Salomon Brothers (1985-1988) and Blackstone Group (1988-1999). He ran his own private equity group from 1999 to 2005.

The primary thrust of Stockman’s speech was that U.S. government economic policy is effectively held hostage by two deeply embedded federal government spending streams sanctioned by the Washington, DC “swamp” – the Warfare State and the Welfare State.

The Warfare State

Stockman made a compelling case that the U.S. defense budget is enormously bloated and could easily be cut by more than half without sacrificing national security. For example, he stated that current federal spending on defense, about $1 trillion, is double the amount in 1960 of $475 billion in constant 2025 dollars.

Stockman stated his belief that the United States faces no military threat anywhere in the world today that is even remotely close to the threat posed by the Soviet Union in the 1960s. He explained that no nation in the world has a nuclear first-strike force capable of overwhelming America’s triad nuclear deterrent (ground-based missiles, strategic bombers, and nuclear submarines) that would avoid the retaliatory annihilation of its own country. The United States has 3,700 active nuclear warheads with about 1,800 operational at any point in time. This includes about 1,080 deep-sea nuclear warheads contained in 12 of 14 actively deployed Ohio-class nuclear submarines. Thus, it is inconceivable that any potential enemy state would risk total annihilation with an attempted first-strike nuclear attack.

According to Stockman, America’s nuclear triad only costs about $75 billion per year to maintain, which is only about 8% of the current $1 trillion annual defense budget. (Congress approved the FY2026 defense budget of $901 billion in the National Defense Appropriation Act (NDAA) bill on December 17, 2025, which is in addition to the $150 billion in supplemental funding for defense in the One Big Beautiful Bill (OBBB) enacted on July 4, 2025).

Stockman believes much of the defense budget beyond the nuclear triad is unnecessary (such as many of the 750-800 military bases in 80 foreign countries around the world) and could be reduced dramatically to only around $400 billion per year. (China’s official 2025 defense budget is equivalent to $249 billion U.S. dollars).

Reducing the current defense budget of around $1 trillion to $400 billion would be a major step in the direction of restoring fiscal prudence in the U.S. Government. However, even minor cuts in the defense budget are highly unlikely any time soon considering that both the Trump administration and large majorities in Congress desire increased defense spending. But to the Trump administration’s credit, it is projecting to at least limit defense spending increases over the next five fiscal years (FY2026 to FY2030) to only the rate of inflation, estimated to be 2% per year, and a freeze in defense spending over the following five years (FY2031 to FY2035).

The Welfare State

Stockman also highlighted the explosive growth in America’s welfare state, primarily driven by its two largest components – Social Security and Medicare. He said that federal spending on America’s welfare state has quintupled in constant 2025 dollars from just under $500 billion in 1980 to almost $2.5 trillion in 2024. The growth in spending on the welfare state will continue into the foreseeable due to the incessant increase in the number of benefit recipients. Stockman said that number will increase to about 100 million by the year 2050. (Currently, about 70 million Americans receive both Social Security and Medicare benefits).

Stockman did not even mention other costly welfare state programs, such as Medicaid, the Children’s Health Insurance Program (CHIP), Obamacare (Affordable Care Act) subsidies, Veterans’ disability and retirement benefits, the Supplemental Nutrition Assistance Program (SNAP), subsidized housing, and other welfare state programs and subsidies. In 2025 alone, Medicaid and CHIP are estimated to cost about $660 billion, Obamacare subsidies about $213 billion, Veterans’ benefits about $270 billion, and the SNAP program about $110 billion.

Corroborating Stockman’s Dire Outlook

Stockman’s main point was that the United States is headed towards an economic crisis of historic proportions by the middle of the current century unless the political establishment in Washington executes a radical U-turn in fiscal policy with dramatic reductions in spending across the board.

A report issued by the House Budget Committee on March 5, 2025 corroborates Stockman’s concerns. Excerpts from the report:

Perhaps the greatest threat we face from our debt is the one we don’t see: a fiscal crisis. According to CBO, a fiscal crisis is “a situation in which investors lose confidence in the value of the U.S. government’s debt… such a crisis would cause interest rates to rise abruptly and other disruptions to occur.” (…)

Given the interdependent nature of the world’s financial markets and the U.S. dollar’s role as the global reserve currency, such a crisis would almost certainly have irrevocable international repercussions. For instance, if international investors and foreign governments lose confidence in the U.S. government’s ability to pay its debts, this assumption could jeopardize the dollar’s reserve status, making it yet more difficult for the federal government to borrow and perform its vital duties on behalf of the American public.

Economists estimate the government’s ability to continue borrowing via an assumption known as “fiscal space,” which is the amount of money a government has available to spend without putting its financial health at risk. Paul Winfree of the Economic Policy Innovation Center estimates that the U.S. government’s fiscal space will be exhausted by the 2050s. The Penn Wharton Budget Model estimates there is only about 20 years for the government to right its fiscal ship, after which no level of tax hikes or austerity could prevent a government default.

The Peter G. Peterson Foundation, a non-partisan think tank dedicated to increasing public awareness about the U.S. government’s fiscal challenges that threaten America’s future, provides the graph below that illustrates the historical trends in federal government debt held by the public as a percentage of GDP from 1795 to 2025 and projected forward to 2055. The forecast to the year 2055 indicates that federal government debt held by the public will rise to an all-time high of 156% of GDP:

One Point of Disagreement with Stockman – Tax Cuts are Not the Problem

During his speech, Stockman was critical of Reagan’s tax cuts during the 1980s as a cause of the budget deficits during that decade and beyond. The data does not support Stockman’s criticism. The data shows that federal tax revenue actually increased every year from 1983 through 1990 by at least 4.1% (1989 to 1990) and by as much as 11.1% (1986 to 1987).

U.S. Fiscal Problem Entirely on the Spending Side

Federal government revenue in FY2025 (Oct 2024 to Sep 2025) was $5.23 trillion, which is 17.1% of 2025 U.S. GDP of approximately $30.5 trillion. This percentage is generally consistent with the historic trend since the end of World War II. Federal spending in FY2025 was $7.0 trillion, which is 23.0% of 2025 U.S. GDP. Thus, the federal government has a spending problem, not a revenue problem.

Impact of Trump Policies on U.S. Fiscal Outlook

The Trump administration’s director of the Office of Management and Budget (OMB), Russ Vought, has done outstanding work at pushing budget cuts across the bloated federal government. Director Vought has been so committed to cutting the federal budget that some commentators have even referred to him as President Trump’s own David Stockman.

Despite Vought’s admirable efforts at cutting federal spending, and expected increases in federal revenue from President Trump’s tariff policy, Vought’s 10-year OMB budget projection released on September 5, 2025 still shows cumulative budget deficits from FY2026 to FY2035 of $15.7 trillion or average annual budget deficits of $1.57 trillion. This is a 50% reduction in projected deficit spending from the Biden administration’s last 10-year budget projection, but it still calculates to an increase in federal debt from the current amount of $38.3 trillion to $54 trillion by FY2035.

Negative Effect of High National Debt to GDP

A $54 trillion federal debt load in FY 2035 would likely mean a debt-to-GDP ratio that is at least as high, probably even much higher than, the current debt-to-GDP ratio of about 126% ($38.3 trillion debt/$30.5 trillion GDP). Not a good fiscal outlook. Several empirical studies show that national debt-to-GDP ratios above 90% generally have a negative effect on a nation’s economy, and that the negativity grows stronger the higher the ratio rises above 100%, especially over an extended period of time.

Going forward, the political establishment in Washington must reject calls for increasing federal tax revenue as this would only harm American economic growth and prosperity. As Stockman discussed, the Washington political establishment needs to find the courage to take on both the entrenched warfare and welfare states to stop the federal government’s unsustainable deficit spending.