America's day of fiscal reckoning draws closer

By Brett Arends

We can thank the Iran war and the gas-tax "suspension"

We're back to where we were then.

Inflation just wiped out all the U.S. wage gains since Donald Trump was elected president. Yes, really.

That's thanks to the U.S.-Israeli war against Iran.

So reports the federal Bureau of Labor Statistics. And any skeptics should remember that the president replaced the head of the BLS nearly a year ago.

Consumer prices rose 0.6% last month, the BLS reports. That represents an annualized rate of 7.4%. The rate was even faster before statistical "seasonal adjustments."

A few days ago, the BLS also reported that median weekly earnings rose more slowly, by 0.45%, to $1,283. This is the second month in a row that wages have lost ground against consumer prices, following a disastrous March.

Adjusted for inflation, median real wages have fallen $16, or just over 1%, since February, taking them back to where they were in October 2024, just before the last presidential election.

The inflation caused by the war has effectively wiped out all of the wage gains since October 2024.

No wonder the president and his political allies are urgently talking up a "suspension" of the federal gasoline tax.

The number crunchers at the Wharton School of Business Budget Lab reckon that a four-month gas-tax suspension would add another $11.5 billion to the federal deficit, while bringing minimal relief to consumers (Technically, the money would come at the expense of the federal Highway Trust Fund.)

You'd see little benefit because gasoline taxes aren't what they used to be. Despite the incessant narrative about crippling U.S. taxes, federal gasoline taxes - at 18.4 cents a gallon - haven't changed since 1993, while consumer prices have more than doubled.

Maybe the higher deficit resulting from the loss of those taxes won't matter too much. But it comes on top of the extra $200 billion in taxpayers' money that Pete Hegseth, the secretary of "war," wants from Congress to help pay for the war in Iran. And the record $8 trillion that President Trump wants to spend in the next fiscal year, including $1.5 trillion - a 44% increase - on what the administration calls the "Department of War."

Trump's proposed 2027 budget, at $8.1 trillion, would be a full $1 trillion bigger than the supposedly reckless, runaway spending in the 2025 budget under President Joe Biden. Nothing says tightening your belt quite like spending an extra $1 trillion.

The Congressional Budget Office predicts the official U.S. national debt will rise 20% by the end of 2028, to $36 trillion.

Does anyone in the government care? Our national fiscal train wreck is taking place in slow motion - or not-so-slow motion - before our eyes.

The U.S. government already owes so much money that paying off the debt would use up an entire year's national economic output. Or, if you include the hidden or "off-budget" debt owed by the Social Security and Medicare trust funds, about two years' output. Just paying the interest on the national debt already eats up about one tax dollar in six.

The bond market now demands 5% interest to lend money to Uncle Sam for 30 years BX: TMUBMUSD30Y. Given the current rate of inflation, that means those who own Treasury bonds are currently losing money in real terms - or, to put it another way, they are effectively paying for the privilege of lending money to a profligate whose response to every crisis is to borrow more.

-Brett Arends

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05-12-26 1247ET