This essay is a part of The Right Way Forward, Restoring America’s new think tank debate series in which leading conservative institutions argue the defining questions of the post-Trump era. Read about the series here.
Much is said about the decline in opportunity for young Americans, from the job market to home ownership. But the dire reality is that the present may be remembered as the good old days by the next generation because, without major policy changes, the economic outlook for America’s youth is set to deteriorate significantly in the decades ahead.
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Housing is an important focal point. After declining sharply for decades, mortgage rates have more than doubled since the pandemic. Higher interest rates and soaring home prices mean that in 2025, an American earning the median income must spend 31% of their income to afford the mortgage on a median-priced home, even after saving a 20% downpayment. In 2019, the figure was 26% of income. Meanwhile, the cost of renting has also risen faster than average wages over the last two decades.
Yet, even these challenges may look insignificant compared to what lies ahead if federal legislators fail to act. America is aging rapidly as birth rates plummet. The Congressional Budget Office projects that in just four years, deaths will outnumber births in America for the first time ever, with no reversal in sight. This demographic shift will place enormous pressure on federal finances, increasing the national debt and, with it, interest rates. The result will be more expensive mortgages, costlier business investments, slower economic growth, and fewer job opportunities.
It would be one thing if America’s youth lost economic opportunities due to rising federal debt to pay for investments in them, but the opposite is happening. They are paying for the cost of their own economic burial to finance the retirement of wealthy seniors. The reason for the ballooning debt is the cost, not of the military or aid for poor children, but of Social Security and Medicare for upper-middle-class retirees.
The numbers are already alarming. In fiscal 2025, the federal government spent a record 3.2% of GDP on interest payments alone — that is, one out of every seven dollars of federal spending going simply to paying interest to bondholders. Interest costs now exceed the entire defense budget and are projected to surpass Medicare spending imminently. This money does nothing to improve infrastructure, education, or national security. Rather, it is the cost of past fiscal irresponsibility, which will only compound.
Preventing this outcome requires confronting uncomfortable truths. First, spending cuts and tax hikes are unavoidable. The question is how to do it and who will bear the burden. If the Left gets its way, it will raise payroll and income taxes, perhaps even impose a cost-raising carbon tax, and further slow economic growth by taxing the productive investments we need.
If Republicans are serious about preserving the American dream, they must ensure that Social Security and Medicare are adjusted to reflect present realities. For the first time ever, high-income retiree couples are collecting over $100,000 in Social Security benefits. This is neither a safety net nor pro-growth. It is taxing young people for working to subsidize the non-working upper middle class. A pro-growth and just budget reform would cap Social Security benefits for rich retirees, rather than raise taxes on young workers.
Second, although Social Security reform is crucial, most future spending growth will actually come from Medicare and Medicaid. Most of these costs are not from healthcare inflation but from covering new services and the abuse of insurers. Medicare and Medicaid must be reformed so that insurers, states, and hospitals are discouraged from overcharging the federal government. Republicans can do this by restricting coverage for new products, ending Medicaid coverage for illegal immigrants, rooting out fraud, and turning both systems into either managed care or premium support.
Third, conservatives must also stop pushing for inefficient tax breaks that lower revenue while inducing no economic growth, or even discouraging growth. All forms of tax deductions and exclusions represent a larger sum than the entire budget deficit already. It does not make sense that thanks to the new tax break on tips, a waiter pays a lower tax rate than a construction worker making the same income. It also makes no sense for the tax code to subsidize mortgage debt and state tax hikes by allowing the upper class to itemize these costs in their tax returns. Congress can help raise revenue in an efficient and progressive way by ending itemized deductions and raising over $3 trillion over a decade.
Fourth, policymakers must pursue pro-growth economic policies. A dynamic economy is the only sustainable way to support both current retirees and future generations. This means reducing regulatory barriers, lowering taxes on investment and work, and encouraging innovation and entrepreneurship.
Finally, America must rethink its demographic trajectory. While fertility policy is complex, removing economic barriers to family formation, such as restrictive housing policies, would help, and so would shifting welfare away from single adults to married couples for having children. Immigration reform that prioritizes younger and highly educated workers over older and less educated immigrants can also partially offset demographic decline and strengthen the tax base.
THE RIGHT WAY FORWARD: THE ROLE OF THE STATE IN THE ECONOMY
None of these reforms will be politically easy. But the alternative — continued fiscal drift — is far worse. Every year of inaction compounds the problem, making eventual adjustments more painful and more abrupt.
Demographics may not be destiny in every area of life, but when it comes to the federal budget, they are an inescapable reality. A nation with fewer workers and more retirees cannot sustain ever-expanding promises without undermining its own economic foundation.
