Looking at the Monthly Treasury Statement for June, it is clear that the U.S. budget deficit for the year to September 2026 will again be above $2 trillion, once again over 6% of Gross Domestic Product. The fault is mostly on the revenue side, where last July’s Big Beautiful Bill gave away some $150 billion annually to large corporations. Meanwhile, the bankruptcy date for the Social Security Trust Fund has been brought forward from 2033 to late 2032, within the next 4-year Presidential cycle (yes, that tweak is suspicious, but the reality is still alarmingly close.) The Bernankean chickens have come home to roost, and changes must now be made.

The Federal Budget sank into deficit under the influence of George W. Bush’s pointless and expensive wars (it had been in surplus when he attained office) but deficits were turbocharged, first by the 2007-08 financial crisis and its profligate resolution with mass taxpayer bailouts and then by the artificially low interest rate policies followed by Fed chairs Ben Bernanke and Janet Yellen. Those policies led to massive investment in unproductive assets, primarily real estate, sluggish economic growth for an entire decade and a Federal government that was incentivized to waste appalling amounts of money by real interest rates that were relentlessly negative, so imposing no penalty for borrowing. The Curse of Ben Bernanke will rest on the U.S. economy and its fiscal position for several decades to come.

More recent policies have made matters worse. The Big Beautiful Bill allowed businesses to expense capital investments, an economically pointless subsidy received largely by big corporations with their near-infinite access to finance in current conditions. As a result, the 27% decline in corporate tax revenues from the previous year recorded in March, which I wrote about in May, has become an $87 billion shortfall from the previous year in the 9 months to June, albeit only 24% in relative terms indicating a likely shortfall of well over $100 billion for the year to September.

There is nothing populist about a corporate tax cut; it was simply a case of the feeble Republican Congress caving to the big-company lobby, always a powerful force on Republican Congressmen because of their desperate search for election funding. As this column noted in April, corporate taxes have declined from 2.1% of GDP to 0.7% of GDP in the last thirty years, with the Bush and 2017 Trump tax cuts being especially corporate-heavy in creating new loopholes. In addition, this particular tax cut artificially subsidizes pointless capital investment, producing today’s enormous boom in data center construction. While data centers have an unquestionable economic purpose, the current tsunami of projects, having been undertaken so rapidly, has become undeniably a bubble, with substantial costs to the economy when it bursts, from badly designed, misplaced or duplicative data centers that have become “malinvestment” in the Austrian economists’ sense.

Corporations are thus the first place that Congress should tap to increase revenue and reduce the excessive deficit. Returning corporate taxes to their 1990s levels is long overdue – post-tax corporate profits appear to have reached a record level of 12.4% of GDP in the first half of 2026. Such a high level of corporate profits is not healthy; it inflates the stock market and thereby other asset prices beyond all reason and increases the most pernicious kind of “robber baron” inequality, whereby the middle class is unable to share the benefits generated by new wealth. The corporate tax levy of 0.7% of GDP is a mere 6% of the profits level; thus bloated corporate behemoths are paying far lower taxes than ordinary people.

This must be reversed, forthwith, yielding about 1.5% of GDP or some $500 billion a year towards reducing the Federal deficit, in other words eliminating a quarter of it. Corporate resistance to this reform could be quieted by threatening to introduce an SEC regulation whereby their book depreciation must match their tax depreciation; with current tax rules this would force the “Magnificent 7” to report massive losses, crashing their stock prices and rendering management’s stock options worthless.

The second major source of potential revenue is tariffs. Of course they are unpopular; they are taxes. However, they serve two very valuable purposes. First, they prevent U.S. companies from going bankrupt or outsourcing production unnecessarily; in future, only truly gigantic cost differentials will cause companies to outsource against a substantial tariff wall. Second, they provide revenue to reduce the Federal deficit, revenue that is all the more valuable because it comes from a separate source, not overloading the income tax burden on ordinary people. The Whiggish unilateral free trade ideal is utterly misguided in both these respects. Without a solid chunk of tariff revenue, governments are forced to place all their reliance on income and payroll taxes, especially when as at present the corporate behemoths have been all too successful in reducing their own tax burden.

Furthermore, corporations have in the last 30 years been encouraged to create long rickety supply chains involving unreliable Third World countries; these are of necessity temporary (because rising wages in the Third World make them eventually uneconomic) and a serious strategic threat in a world that is not composed of kumbaya-singing patsies. President Trump’s tariff policies are therefore correct, in moderation (very high tariff rates, like sanctions/embargoes, can be economically costly) and he should persist with Congress in establishing them beyond legal question.

In this respect, the Supreme Court has played a malign part, intervening on a subject on which they are wholly ignorant, and forbidding a policy that has been central to American economic management since Alexander Hamilton. What is more, they have cost American taxpayers $100 billion in pointless tariff refunds, almost all of which have gone to the corporate behemoths. Retailers such as Walmart and others are ostentatiously giving discounts to their shoppers in recompense, but the true losers in this idiocy are as always small businesses, which buy foreign goods through intermediaries and are therefore unable to get refunds even though they have borne the costs concerned. Trump has now reimposed the tariffs on a different basis; it is to be hoped if only for the U.S. fiscal position that the Supreme Court will not be so asinine again. With well designed tariffs, about $400 billion per annum should accrue to the Treasury; together with a proper level of corporate taxation this will fill half the $2 trillion fiscal gap.

I have written previously about the other major avenue for closing the fiscal gap: disallowing the deductions and exemptions for charities and other nonprofits, which now represent a very badly directed 6% of GDP and would yield a further $500 billion if they were put on the same footing as people and corporations. If that were done, the current deficit would be almost closed, and only a little careful management on the expenditure side would close it.

There remains the problem of Social Security and Medicare. Part of this problem is short-term; the Baby Boomers are the largest generation in U.S. history and so will pose a strain on the Social Security system until they die off in the 2040s. The main need then will be to cut back sharply on low-skill immigration, both illegal and through the blizzard of loophole visas issued annually (as well as the appalling Bush “diversity lottery.”) New immigrants with less than the average level of skills and more than the average number of dependents will cost the welfare system money over the long run, almost by definition, as well as driving up real estate prices and overcrowding costs. The U.S. is no longer in the blissful position of 1850, with an entire continent and only 23 million population; it should cease forming policy as if land, water, electricity and housing were in infinite supply.

By restricting immigration, the U.S. will greatly improve Social Security and Medicare’s long-term solvency and reduce the overbearing cost of Medicaid. Further tweaks can be gained by a modest rise in the income “ceiling” for social security contributions, which has not kept up with the bloat in asset prices since the 1980s, although a large rise of that limit would clash with higher income tax brackets, making the marginal tax rate well above 50%, and deterring economic activity. Also, we should resume the policy, in force until 2026, of raising the retirement age by 1 month per annum in line with rising lifespans, putting it at 70 by 2062.

The U.S. cannot keep running budget deficits at this level. For one thing, it has already incurred debt levels well over 100% of GDP, historic highs for the country and worryingly on track towards Japan’s 250% of GDP, which appears to be the maximum sustainable. As Trump was inaugurated, it seemed possible that tariffs and higher economic growth alone would solve the problem, but that has not happened, and the expensive mess in the Middle East leaves little hope of significant succor from the expenditure side. The bullet must be bitten, large corporations must be taxed back into their box, the Supreme Court must behave itself about Trump’s latest tariffs and nonprofits must be brought fully into the tax net. Only with such actions will the problem be solved, and they have now become urgent.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)