The guy who oversaw Evers budgets says Tiffany's math doesn't add up

The day that David Crowley and Tom Tiffany had their only debate, the Milwaukee Journal-Sentinel ran a column written by Joel Brennan, who you may remember as someone who also wanted to be Governor in this election, but finished a distant 4th in the Dem primary behind Crowley. Brennan also served as Secretary of the Wisconsin Department of Administration for Tony Evers' first term, and was in charge of overseeing the budgets that Evers presented every two years.

So as a guy who knows a bit about budget numbers, let's listen to what Joel Brennan has to say about what would have to happen in order to make Tiffany's plan to remove the state's income tax work out.

The first option is to make you pay at the checkout line. To replace the income tax, Wisconsin’s sales tax would have to more than double, to nearly 13%. ( I say 12% given inflation, but you get the idea) The conservative Badger Institute says that would give us the highest sales tax in America. Every pair of school shoes, every car repair, every new furnace in January would cost you more, and the families on the tightest budgets would feel it first.

And let me give a visualization of Wisconsin's revenue mix, to remind you that our state's income tax is Wisconsin government's largest revenue source.

But Tiffany insists he wouldn't raise any other taxes to make up for the income tax cuts, so Brennan looks at how much spending would have to be cut to make the numbers work.

The second option is to gut the things that make Wisconsin work. Tiffany’s campaign swears he won’t raise any other taxes, so let’s do the math he won’t. Using the state’s own budget numbers, if you spread the cut across our schools, health care, the UW, technical colleges, prisons, child and family services, and aid to local communities, every single one of them gets cut in half.

If you try to protect our schools and corrections, you’d have to wipe out every state dollar for health care, including BadgerCare and nursing home care, along with the UW, our technical colleges, and local property tax relief. If you protect health care instead, every dollar of state aid to our K-12 schools disappears. There is no version of this “plan” where your kid’s school, your mom’s nursing home, and your local fire department all come out whole.

For an idea of scale, let me give you numbers from last week's Annual Fiscal Report for Wisconsin, showing which agencies and areas of government have the largest expenses for the state.

Let's not forget that Tiffany's fellow Republicans worked out a deal with his opponent to send a huge increase in shared revenue that disproportionately helped their rural districts. So is Tom Tiffany going to reduce all those boosts in shared revenues and cause even more service cuts and higher property taxes after promising no increase in taxes and nothing getting cut? Well, he still might do that because GOPs assume their yokel voters are morons who'll accept anything, but I can't think that would fly with most Wisconsinites.

But Tiffany insists there's a third way, where taxes go down and the economy is so great that the revenues . If this sounds familiar, Trump Treasury Secretary Scott Bessentt trots out this line on occasion, even while the US budget deficit was surging in Fiscal Year 2026.

Brennan says that especially will not work at the state level, and points at the epic failure of this attempt of magic revenue growth in Kansas from the 2000s.

Tiffany would like you to believe there’s a third option, where the cut magically pays for itself. Kansas believed that story. The result? A $900 million deficit, and Republican lawmakers scrapped the whole idea.

And here’s what should make everyone angry. Either way, the people at the very top win. Wisconsin’s income tax is the one part of our system where people who earn more pay more. Erase it, and the biggest windfall goes straight to our wealthiest residents (the ones who have poured millions into the Tiffany campaign), while everyone else picks up the tab. We’ve seen this playbook before. In Washington, Tiffany voted for a bill that cut Medicaid by nearly a trillion dollars over the next decade while handing out massive tax breaks at the top. Now he wants to bring that same deal to Wisconsin.

But that's not the only way Tiffany believes in magic to pay for spending. In last night's debate, Wispolitics notes that Tiffany said "he wasn’t open to new user fees, tolling or indexing the gas tax for inflation." However, Tiffany still insisted roads and other transportation would be invested in.

Tiffany insisted he would still be able to put more money into transportation, saying he did it while in the Legislature.

“We are going to put additional money into transportation,” Tiffany vowed.

May I also add that Tiffany and the rest of his GOP colleagues in Congress don't have a highway bill in place to continue the added federal assistance that was part of the Biden-era infrastructure act, so we may also be seeing less assistance for transportation coming down from DC.

Which means Tom Tiffany's transportation funding plan echoes the debt-ridden era of Scottholes in Wisconsin, which Tiffany was part of when he was in the State Legislature.

Yeah, that type of fantasyland poserdom didn't work out for us in the 2010s, and we don't need it in the 2020s.

I'll let Dan Shafer of the Recombobulation Area have the last word on how empty Tiffany's tax and spending plans are.

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— Dan Shafer (@danshafer.bsky.social) October 21, 2026 at 10:38 PM

"No tax on tips/OT" goes farther in Wisconsin, but maybe there's a better way to help working people

One thing Tom Tiffany keeps promising is that if Wisconsinites are dumb enough to vote him in as Governor, he will ask for the same tax exemption for tips and OT premium pay at the state level that he voted for as part of Tax Scam 2.0 in Congress.

Possibly with that in mind, Forward Analytics (FA) examined how a Wisconsin-based exemption for tips and OT income would look in a report they issued earlier this month. FA says that one important difference is when that tips and OT subtraction would be calculated at the state level, which would reduce a Wisconsinite’s Adjusted Gross Income (AGI), while the Federal exemption comes after AGI is totaled. Forward Analytics says this means a Wisconsin deduction would get extra bang for the buck.

Because the Wisconsin proposal would have created its subtraction inside the calculation of state AGI — rather than after it, as the federal deduction does — claiming the tips or overtime subtraction removes that income from a filer’s tax base and also lowers the state AGI that determines how large a standard deduction the filer is entitled to.

A lower state AGI produces a larger standard deduction. A filer who claims the tips or overtime subtraction therefore receives two benefits from a single dollar of exempted income: the direct exclusion of that dollar from taxable income and an indirect increase in the standard deduction available on the rest of their income. Federally, no equivalent second effect exists — the standard deduction is a fixed amount and is not impacted by the “no tax on tips or overtime” deduction.

To give you a visual on that, here’s how Wisconsin’s standard deduction works, based on the 2025 state income tax tables, and how it eventually phases out.

See how Wisconsin's standard deduction starts falling after a certain amount of income? That also means that if you move left along that line, the decline in taxable income from other deductions is larger than dollar-for-dollar. It would lead to a significant tax benefit if you are one of those tipped employees in that range of income, you are in essence getting a double deduction .

It also means certain professions would pay more taxes than others, even at the same incomes, as FA illustrates in the following chart.

So you'd have unintended consequences of making it more lucrative to wait tables or be in unionized manufacturing vs taking office jobs, and pay should have to be adjusted higher for the jobs that don't have those double deductions. While I'm down with encouraging more people to unionize and demand OT pay, I bet Tom Tiffany and his donors sure don't want that.

And yes, Tom Tiffany voted for "right-to-be-screwed" in the Legislature in 2015.

Forward Analytics also mentions the price tag of those exemptions, which isn't as much as the several hundred million a year that the 10% cut in taxes that Tiffany is also asking for (see this post for more on that), but it still is well into 9 figures a year.

In May of 2026, the Wisconsin Legislative Fiscal Bureau (LFB) released estimated effects of the “no tax on tips and overtime” proposal for the next two fiscal years. In 2026-27, LFB projected a reduction in individual income tax collections of $232.8 million ($179.9 million in overtime and $52.9 million in tipped income). For 2027- 28, they projected a reduction of $197 million ($148.1 million in overtime and $48.9 in tipped income).

It was higher in 2026-27 because year 1 would account for larger tax refunds in Spring 2027, since it would be a year-long deduction that hadn't been adjusted for in the first part of 2026, and also be in effect through the end of FY 2027 on June 30, 2027.

With that in mind, we'd likely see something at or above the $232.8 million figure for 2027-28 if it was passed in the next budget. The FA looks ahead from that, and shows how the amount of the writeoffs would expand as years and wages (hopefully) go up.

Using historical data, we estimated annual wage growth for the next decade and combined these estimates with an attrition rate (which accounts for a subset of workers who would meet the maximum allowed deduction). We also calculated employment growth in each sector (starting from a base of nearly 600,000 tipped workers and 1.2 million overtime eligible workers) using a similar process.

By 2037, the loss in annual tax revenue is projected to rise to $118 million from the tipped income deduction and $234 million from overtime income. A full breakdown of the yearly revenue amounts can be seen in Figure 2. In total, Wisconsin could expect to lose $2.7 billion in tax revenue between 2028 and 2037.

The price tag doesn't mean we shouldn't necessarily give some help to those in tipped-wage professions and give financial benefits to jobs that have OT. But it also isn't free, and with increasingly tighter budgets coming due to higher costs with inflation and less assistance coming down from DC, we need to keep it in mind.

But I got a better idea on how to help these workers and others. Why not raise Wisconsin's tipped wage from the absurd $2.33 an hour it is today and instead make it something like $7.50 while raising our non-tipped wage to $15 an hour or more. Heck, I'd prefer if we just paid a high base wage for those jobs and only have tips as a bonus, but I know that won't happen, so this is a good compromise.

And maybe going back to something Presidents Obama and Biden did and increasing the number of jobs that get overtime. Having more OT pay reflected on regular paychecks would be a better option than a costly gimmick where the "half" of time-and-a-half only gets refunded with someone's tax returns several months later.

In addition, all those tax cuts don't mean a thing if everyday life becomes more costly. Maybe we should be expanding BadgerCare and allowing people of all income levels to buy into it for their coverage if they so choose (as David Crowley has asked for). And maybe we need to restore funding to Child Care Counts that WisGOPs in the Legislature allowed to expire, to allow for more options for working parents and to make it easier for them to get by.

Just file these ideas and number away ahead of this week's debate, and know just what "no tax on tips" will or won't do. And maybe we should be using some of our state surplus to cut taxes in a different way, by paying down property taxes and wheel taxes that are taking an increasing bite out of Wisconsinites' available funds, while also maintaining services to allow for a strong quality of life in our communities.

Tom Tiffany's 0% income tax = 12% sales taxes. And his 10% income tax cut won't pay your bills

You may have seen some version of this story over the last couple of weeks here in Wisconsin, where GOP Governor candidate Tom Tiffany spilled the beans about what he would do regarding taxes if given the chance.

At a Sept. 23 campaign event, when Tiffany was asked by an attendee whether he would eliminate income taxes, he said he would look at that idea after the first state budget.

"I will not be able to do it in the first budget, but after that, we sure hope to be able to get it done," Tiffany said, according to audio obtained by the Milwaukee Journal Sentinel....

In a statement, a spokeswoman said Tiffany "will always look for opportunities to reduce the overall tax burden."

"How much may be possible will depend on economic conditions, state revenues, and other factors that remain uncertain," she said. "The 'hope' is that a growing Wisconsin economy will create opportunities to further lower taxes on working families. What is certain is that Tom will not shift the tax burden from one tax to another, and he will deliver a 10% income tax cut for working families earning under $150,000."

Those comments lead to a LOT of questions.

1. Why can't Tiffany cut income taxes to 0% in the first budget? Go big or go home, MFer! Seriously, what's going to be different in 2029 than 2027 for trying to do this?

2. It's funny to see that GOP hack spokeswoman say "Well, we'll have to see how much money is around, but if we magically grow more and have more money, we'll cut taxes." I thought we had $3.3 billion in the bank, are you implying that's not a certain thing, or is that just not enough?

3. "What is certain is that Tom will not shift the tax burden from one tax to another." Well, then how do you handle a cut in tax revenues?

That comment is followed in the article by this reaction from Gov Evers top budget guy.

Brian Pahnke, the state budget director for Democratic Gov. Tony Evers' administration, said, "it would just be very, very difficult to provide the services at the current level of any sort if you didn't have an income tax in Wisconsin."

So let's not discuss how much of a giveaway to the rich that cutting the income tax rate to 0% would be in our state (and it would be). Instead, let's go into the numbers themselves, given that the state just released its Annual Fiscal Report for 2026, allowing us to use the most up-to-date taxing and spending amounts for Wisconsin.

Here's how much Wisconsin's General Fund took in for revenue for FY 2026, and how much they would take in for FY 2027, if we get the same % increases that the Legislative Fiscal Bureau projected back in January.

Now, let's go back to how much money is projected to be available at the start of the next budget, after FY 2027 ends.

So can Tom Tiffany explain how you can cut the $10.9 billion in state income taxes to $0? Where is the other $7.8 billion going to come from in year 1, and the $10.9 billion that would be required year after year? Would he raise the state sales tax to 9.75% in 2027 and then 12% going forward? Would he raise corporate taxes? (HAHAHAHA! I kid, I kid) Would he quadruple excise taxes along with doubling the sales tax?

Or will he (much like Scott Walker before him) shift burdens down to local governments and individuals, requiring higher property taxes, even more referenda, and higher wheel taxes. That would be consistent with Tiffany's record both in the State Legislature in the Walker years, and when Congressman Tiffany voted to shove more costs of services like SNAP down to states like Wisconsin in GOP Tax Scam 2.0, requiring more state tax dollars for the same dollar amount of services.

Now add in the Wisconsin Department of Health Services saying they will need nearly $2 billion more over the next 2 years to maintain the same services because of the rising costs of health care and increased needs for individuals. So that $3.18 billion is not likely to be entirely available to pay for some kind of income tax cut in 2027-29 without having to do anything else.

But maybe Tiffany isn't promising to do much for tax cuts anyway. Let's go with Tiffany campaign's claim of a "10% income tax cut for working families earning under $150,000." We have some idea about how much that would cost, as current Governor Evers wanted to do the same thing in his 2023-25 budget, and Tiffany's fellow Republicans in the Legislature turned it down (because they're petty and pig-headed).

Let's go back to what the Legislative Fiscal Bureau said it would cost, starting with Page 303 of the Comparative Summary of items in the 2023-25 budget.

Set the credit equal to the greater of 10% of the claimant's net tax liability, defined as the claimant's income tax liability after the application of nonrefundable tax credits, but prior to the application of the nonrefundable credit for taxes paid to other states, or: (a) $100 if the claimant's filing status is single or head-of-household and the claimant's AGI is less than $100,000; (b) $100 if the claimant's filing status is married-joint and the combined AGI of the claimant and the claimant's spouse is less than $150,000; and (c) $50 if the claimant's filing status is marriedseparate and the claimant's AGI is less than $75,000....

Then the credit phased out between $100K-$120K for single filers and $150K-$175K for married, joint filers. The total tax cut ended up looking like this.

$320 as a max amount doesn't seem like a great total, but given the large number of Wisconsinites that would have eligible for this 10% income tax credit, the LFB estimated the total tax cut at $839.8 million over 2 years.

But I will add that the amount of that 10% tax credit for "Wisconsin families" making $150K or less might be lower than $839.8 million that was estimated back then, because the Republicans in the Legislature responded in 2023 by dropping tax rates in their passed budget, and while Evers partially vetoed the rate cuts for all dollars past $27,630 single and $36,840 married-joint, he did OK the rate cuts below that.

And more income taxes were cut in the 2025-27 budget, as shown in this LFB analysis.

The income levels in respective tax brackets will also be higher in 2027, due to indexing for inflation. Between the indexing and the last two budgets, Wisconsinites making less than $150,000 owe less in state income taxes than they did in 2023, so while a 10% income tax cut for those people sounds good on paper, it really won't account for that much.

Then add the higher costs of health care, gasoline, electricity are more than going to counteract the couple of hundred dollars that Wisconsinites might get. Then add in the likelihood that Tiffany will starve K-12 public schools and local communitites of state aids, while failing to allow them to raise sales taxes on their own (unless they're rural tourist towns, of course) and property taxes for Wisconisnites will be likely to go up even more. So that GOP spokeswoman's claim of "not shifting the tax burden from one tax to the other" doesn't seem likely, and people with real jobs and real financial constraints will end up paying more both in local taxes, and out of pocket.

Can we stop falling for the same Tom Tiffany/WisGOP BS that hasn't worked for decades, and actually make the greedy pay back some of what they're stealing from everyone else in this state, and improve our investments in infrastructure and people's stability to allow for a better chance for more Wisconisnites to get ahead? That would be a nice change from the same old trickle-down, limited payment garabge that isn't working for most communities and individuals in our state.

$3.3 billion in state's bank for FY 26, and Tiffany, WisGOP raised school prop taxes vs using it

Mid-October is always a big week for Wisconsin budget news, as we get the state's Annual Fiscal Report (AFR), which shows the final numbers on how much the state spent and took in for the previous Fiscal Year, and how much money was in its General Fund.

And we ended up pretty much where we thought we might be when we found out in late-August that the state took in more tax revenues for FY 2026 than what was expected in the 2025-27 budget. These 2026 revenue projections were revised up by the Legislative Fiscal Bureau back in May, and ended up even better than those expectations when the final numbers came in. I also am assuming the same amount of % of revenue growth that the LFB did for FY 2027 from that higher number.

Then in the AFR, we got the final numbers for expenses in FY 2026, which were a few million above projections, but nothing of significance. Put those together, and then assume that FY 2027 has expenses at budgeted levels, and you'll see that the state of Wisconsin is projected to spend more than it takes in, but not by much.

But given that the state carried over $4.6 billion in its General Fund in this current budget, there was still a bit over $3.3 billion in the bank on July 1 of this year, and there is projected to be a bit less than $3.2 billion left over when the new budget cycle begins next July 1.

Know what also got released on October 15 in Wisconsin? The final figures for General Aids to K-12 public schools. And a lot of community school districts are getting less from the state than they did last year.

That's 61% of districts seeing less money in this school year, but amazingly, that's a lower percentage than the 71% that got a cut in state aid for last year. And that was a conscious choice by the GOP Legislature to not increase K-12 school spending in either of the last two years, and have most Wisconsin homeowners face significantly higher property taxes to make up the difference for the declining amount of state aid their local districts are getting.

By comparison, Gov Evers' budget would have used state aid to stop most of the projected property tax increases for schools in the next two years. That included a total General Aid increase of nearly $1.2 billion ($494 million in year 1, $700 million in year 2). If the Legislature had merely given an additional 3.3% a year in state aids (which is approximately the annual rate of inflation between October 2024 and this week reading for Sept 2026), the increase would have been $184 million for 2025-26, and a $190 million increase for this year. Given that the $184 million first-year increase is counted twice vs base spending, that would be a total increase in state aids of $558 million.

Now let's look at the $3.3 billion that's in the General Fund right now and the $3.17 billion that's projected to be there at the end of FY 2027. If you gave that 3.3% increase each year, we would be projected to still have more than $2.6 billion to carry over into the next budget.

This relatively small amount of state aid increases would also have paid for the majority of what Tom Tiffany and WisGOPs claim is a "400-year property tax increase" resulting from Gov Evers 2023 veto that allowed $325 a year in additional revenue limit increases for K-12 schools. We know this because the LFB included this item as part of the K-12 funding and tax cut deal that went down in flames this Spring.

The bill would create a new first draw school aid that would be paid from the existing general school aids appropriation, and increase that appropriation by $302.5 million GPR beginning in 2026-27. Aid would be distributed using a formula under which 25% of the amount allocated would be divided by the average number of pupils enrolled statewide in the previous three school years and distributed to school districts proportionately based on the district's average number of pupils enrolled in the previous three school years. The remaining 75% of the amount allocated would be divided by the average number of pupils enrolled statewide in the current and previous two school years and distributed to school districts proportionately based on the district's average number of pupils enrolled in the current and previous two school years....

Payments from the general aid appropriation are under revenue limits, so the additional aid would provide property tax relief but not additional resources for school districts. Based on current enrollment, it is estimated that the payment would be equal to approximately $387 per pupil.

So using the LFB's math, it would have cost $254 million a year for the GOPs in the Legislature to turn Evers' "400-year tax" to ZERO. The WisGOPs chose not to do that, and that should be repeated every day.

Also, let's not forget that Tom Tiffany opposed that deal back in May because he wanted schools to have even fewer resources, and the suplus should be used for even more tax cuts.

Fuck them kids and teachers, my donors need more tax cuts.

Given that our one and only Governor's debate happens on Tuesday, and that you don't have to worry about a Brewers game getting in the way because they don't play UNTIL THE WORLD SERIES STARTS ON FRIDAY! (sorry, but definitely not sorry), keep these numbers and realities in the back of your mind.

And remind yourself and others that Tom Tiffany and the GOP chose to allow for property tax increases now and contunued underfunding of our community schools in an attempt to kick back more of the $3 billion in the bank to the same people that already have mega-millions to give to their campaigns.

Inflation bumped up with the pump while real wages dropped in September

Since affordability is allegedly the top issue in this year's midterms, the release of updated inflation data 20 days before the Election Day was going to be a big deal. Especially since we knew gas prices rose for September, and it was only a question of how much inflation went up.

Here was the answer.

Inflation heated up to 3.7% annually last month as energy prices soared, according to the latest Consumer Price Index data.

The latest reading came in hot, accelerating from 3.4% in August and outpacing economists' expected 3.6% jump. On a monthly basis, prices rose 0.6% in September from 0.4% a month earlier.

Gas prices were a particularly large driver of the jump, rising 9.1% month over month. Average prices at the pump hit a record $4.33 last month, according to AAA data, nearly $0.50 above the previous monthly record set in 2023...

"Core" inflation, which strips out volatile food and energy prices and is watched more closely by Federal Reserve officials, was also hotter than expected, rising 2.6% annually, up from 2.4% in August. Monthly core inflation was unchanged from August's hotter-than-anticipated 0.3% but also came in higher than the 0.2% economists were expecting.

None of that seems good, and it continues the run of the highest year-over-year inflation we've had since early 2023.

Dig into the actual report, and it looks like it could have been even worse than the topline numbers indicated. That 0.6% increase in overall prices came in a month where grocery prices allegedly dropped for the second time in the last 3 months (-0.1%), with beef and veal (-1.0%) and dairy products (-0.9%) leading the way. Take out the food index (both with groceries and at restaurants), and everything else went up by 0.7%.

Worse is that the 0.6% overall price increase happened in the same month where there was a paltry increase in average hourly wages of 0.1%. Which means inflation-adjusted wages fell by 0.5%, and continued a slide that started this time last year, and got worse after the US started bombing Iran at the end of February 2026.

And I think that leads to an interesting contrast between the bout of higher inflation we had in 2021 and 2022 vs what we're dealing with today. Real wages fell in both circumstances, but 2021 and 2022 came on the heels of a huge increase in real hourly wages for those who were still working in 2020, those who didn't got high unemployment benefits, and there were stimulus checks on top of it. And wage increases were still running at 5%-6% throughout 2021 and 2022 on top of the gains in 2020.

By comparison, year-over-year increases in average hourly wages have slowly dwindled since the end of 2022. And wage increases have continued to go down even as inflation has rebounded in 2026.

As important as the CPI number was today, I'm even more interested in what the Producer Price Index tells us tomorrow, as that'll tell us if the record diesel prices are starting to be pushed into cost increases in the making of other products. Then those price increases will likely be passed ahead in future months to consumers.

We also will have the release of retail sales for September, which will tell us if the higher gas prices combined with near-zero wage increases from last month caused consumers to slow spending on other items. Americans haven't slowed down yet, and it's allowed the overall economy to keep growing with limited layoffs to date. But with debt costs rising with the prices, you gotta think some Americans pull the plug soon.

Final US deficit at $1.99 Trillion for 2026, and higher than expected

At the end of last weekend, the Congressional Budget Office (CBO) gave their monthly budget update for September. This report doubles as the final figures for Federal Fiscal Year 2026, which ended on September 30. And the CBO says the US budget deficit went up by 12% for FY 2026, nearly reaching $2 trillion dollars.

And that increase in the deficit came in the last 6 months, as the first half of FY 2026 actually had smaller deficits than the previous year.

So what changed? There seems to be three main suspects, with the first being a direct result of Trump/GOP Tax Scam 2.0.

Receipts from corporate income taxes decreased by $70 billion (or 16 percent). The 2025 reconciliation act allows corporations to take larger deductions for certain investments, thereby reducing some payments and offsetting the increases in those receipts that otherwise would have been expected, given the rise in corporate income.

The second is the result of another Trump policy that was so illegally done that the GOP hacks on the Supreme Court shot it down.

Collections of customs duties dropped by $22 billion (or 11 percent) relative to the year before. Larger amounts were collected early in the fiscal year, but started to decline in May, when the Administration began to issue refunds related to tariffs imposed under the authority of the International Emergency Economic Powers Act (IEEPA). The refunds were made as a result of a February 2026 decision of the Supreme Court. CBO estimates that during fiscal year 2026 about $130 billion was issued in refunds for tariffs collected under IEEPA.

Those tariff reductions were a main reason that US tax revenues ended up nearly $200 billion below the CBO's projections back in February, along with lower-than-expected corporate revenues - factors that more than offset income taxes coming in better than expected.

The third reason the deficit got larger in FY 2026 was because it costs more to pay for the country's increasing debt.

Outlays for net interest on the public debt rose by $115 billion (or 11 percent) because the debt was larger than it was in fiscal year 2025 and because long-term interest rates were higher. Lower short-term rates partially mitigated the overall rise in payments.

That double-digit increase in interest on the debt came on top of typical 5-8% increases in the "Big 3" expenses of Social Security, Medicare and Medicaid, and other spending from Uncle Sam went up for FY 2026 as well.

The higher deficits and need to sell more bonds to cover it are a main reason behind the spike in Treasury bonds and mortgage rates that we've seen in the second half of 2026. Sure, there's been a decline from last week's peaks in yields, but there's not much of a reason given as to why, and if this week's inflation reports for September come in hot, then it becomes more likely that the Federal Reserve will put in more rate hikes in short-term rates. In addition, a high CPI print on Wednesday will raise deficit projections for Fiscal Year 2027 and beyond, as Social Security would then be set for its highest increase in benefits in 4 years.

I've mentioned before that deficits by themselves aren't a problem UNLESS it results in higher inflation (due to higher demand or deflated dollars), or it raises interest rates and leads to recession due as debt becomes too expensive and demand flags. The dollar has actually strengthened in recent months, so no problem there (although inflation has gone up due to a stupid war in the Mideast constraining oil and gas supplies).

But we also get to see this week what happened to consumer spending in September, after gas prices and the Fed Funds rates both went up. And given how weak wage growth has been, there isn't much to keep everyday Americans to keep up the strong pace they had in the Summer. Combine that with a Bubbly stock market that seems hevily reliant on increasingly expensive debt, and the chances the FY 2027 fiscal deficit exceeds $2 trillion in the next CBO estimates seem to be increasing.

US Debts and their costs keep jumping. But so far it's getting shrugged off

As interest rates in the bond market keep rising, it makes this week’s auctions of new Treasury debt worth checking in on. It includes the 3-year note on Tuesday, benchmark 10-year Treasury note on Wednesday, and 30-year bond on Thursday.

The 3-year auction was for $58 billion in US government debt, and in looking at the auction results from the US Treasury, it shows the yield on those bonds was significantly higher than what was being offered by bidders 3 months ago.

I also notice the coupon rate, which tells us how much interest will be paid on the $1,000 face value of those 3-year bonds, has gone up by a similar amounts of basis points between July and October.

Coupon rate, 3-year Treasury bond
July 2026 4.125%
Aug 2026 4.25%
Sept 2026 4.375%
Oct 2026 4.875%

Given that $58 billion was auctioned off in each of these months, this means the US Treasury is increasing interest payments by $435 million a year for October’s set of 3-year bonds vs July’s set.

That $435 million in additional interest takes the total annual interest payments on these 3-year bond issues from less than $2.4 billion to nearly $2.83 billion. Now multiply that $58 billion by 32.5, and you are around the $1.887 trillion that our budget deficit is projected to be for Fiscal Year 2027.

Multiply the $2.83 billion in interest by that same 32.5 and you get $92 billion in debt payments from new bonds issued this year alone. Multiply that by all the years of previous bonds with interest that we are also paying off (issued between 1997 and 2025) and….YIKES!

You can see where if we run high deficits for years, the costs start to build upon themselves. Which goes to a report that the Congressional Budget Office (CBO) sent to US Senator Jeff Merkeley less than 2 weeks ago, which discussed what would happen if interest rates were higher than earlier projections.

In the first scenario, the average interest rate on federal debt would increase until it was 1 percentage point higher than in CBO’s extended baseline (before incorporating effects on the broader economy, known as macroeconomic effects, that would further increase interest rates). CBO estimates that under those conditions, deficits and debt would be larger:

• Primary deficits over the 2026–2036 period would be about $178 billion larger overall than they are in CBO’s baseline. In 2056, the primary deficit would be 2.6 percent of GDP, 0.4 percentage points larger than in the extended baseline.

• Total deficits over the 2026–2036 period would be about $1.5 trillion larger overall than they are in the baseline. In 2056, the total deficit would be 14.0 percent of GDP, 4.9 percentage points larger than in CBO’s extended baseline.

• Debt held by the public in 2056 would be 222 percent of GDP, 47 percentage points larger than in CBO’s extended baseline.

What was the baseline 10-year interest rate that CBO projected for Fiscal Year 2026 (which just ended last week)? 4.1%. And for FY 2027 (which we are now in)? 4.3%.

Now what is the 10-year trading for on the markets these days?

Uh oh….

Also, copied in on this CBO memo? It’s the current chair of the Senate Budget Committee!

Remember when this guy claimed the US debt was America’s biggest threat instead of vaccines? Funny how tens of millions of dollars in election assistance from Diane Hendricks and the Uihleins helped to get RoJo’s mind off of the debt. (Giving himself tens of millions in tax cuts along the way also helped).

Yet the Bubbly stock market keeps powering through these higher debts and interest rates, which seems odd given how strung out on debt a lot of these companies are. But as long as businesses and consumers keep spending despite the higher borrowing costs, the US economy will keep growing. And the debt and its higher rates will be more of a stat instead of an economic problem.

I just don’t understand how it keeps going, as prices rise faster than wages, and the costs of debt keep going up for everybody. There’s a point where markets and people just say NO MORE, right?