Whatever the outcome of President Donald Trump’s war on Iran, his push, along with Israel’s, to reinvigorate an American-led world order has only just begun.
Before what remains of the Iranian dictatorship agreed to a tenuous ceasefire, the White House released its fiscal 2027 budget, which demonstrates the Trump administration’s understanding that securing American hegemony, with all of its real economic benefits, requires a tradeoff between military and domestic spending.
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Trump’s new budget proposes a $440.9 billion, or 42% increase, in defense spending. With congressional Republicans’ plan to authorize $200 billion in supplemental war funding by using Senate procedures requiring only a simple majority rather than the usual 60 votes, the Pentagon’s budget would reach $1.5 trillion. Non-defense spending would be cut by 10%, or $73 billion.
Fiscal hawks may balk at some of the budget’s assumptions, such as relatively low unemployment rates and the 10-year Treasury yield remaining below 4% for the next decade, which would reflect widespread confidence in the economy. Or annual GDP growth surpassing 3% through the end of this decade.
But even if you exclude the budget’s rosy macroeconomic assumptions, potential tariff revenue, and instead adopt the much more pessimistic growth estimates of the Congressional Budget Office, the Committee for a Responsible Federal Budget still estimates that Trump’s proposed budget would save nearly $500 billion in deficit spending relative to the baseline over the next ten years. Trump’s budget proposal also doesn’t touch the mandatory entitlements that are driving up our deficit through autopilot.
During a closed-door Easter lunch just days before Iran conceded to the ceasefire, Trump was filmed dealing out some uncharacteristic fiscal discipline, recalling his past direction to the Office of Management and Budget that the states, not the federal government, be on the hook for funding child care if they please.
“We can’t take care of daycare, Medicaid, Medicare, all these individual things,” Trump said. “We have to take care of one thing: military protection. We have to guard the country.”
He’s right, not only because we cannot afford to stretch Uncle Sam’s bloated budget any further. Also, because the Iran war itself is a reminder of how much pain can be imposed on American pocketbooks as a result of national security threats.
Let’s start with the math itself. Of the $7 trillion the federal government spent in fiscal 2025, just $893 billion, or 13%, went to defense. The Penn Wharton Budget Model found that, of the $4.4 trillion that went to individual benefits and entitlements, 62% went to welfare programs for seniors such as Social Security and Medicare. So, no, we do not have the money to fund cradle-to-grave public assistance, especially not when the “grave” end of that welfare spending is only exploding.
Despite a 6% increase in revenue collection by the federal government in fiscal 2025, the budget deficit only fell about 3% from the year prior. Why? Because Social Security, Medicare, and Medicaid spending all rose by more than 8%.
Then there’s the fact that America’s military might makes our whole lives more affordable. Recall that in inflation-adjusted terms, American oil prices have remained much cheaper during the current Iran conflict than they had during Russia’s invasion of Ukraine. Although the U.S. had already regained its vaunted status as a net oil exporter under Trump’s first term, investors had zero confidence in the feckless Biden administration’s ability to find an off-ramp from Russia’s war, baking a risk premium into what became a genuine inflation premium. By contrast, American oil prices saw their largest one-day drop in six years after the Iran ceasefire was announced on April 7, signifying confidence in Trump’s command over the world order.
In just the last half-decade, we’ve seen former President Joe Biden’s weakness allow Iran’s terror proxies to take over the Red Sea, incurring real costs for Americans. And we’ve seen Trump’s strength secure diversified oil sources from Venezuela, somewhat insulating American consumers from the price spike we’d expect with a fifth of all global oil trade coming to a halt.
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Trump has historically been a weak disciple of fiscal discipline. Still, perhaps even this old dog has learned new tricks from the cautionary tale of our fair-weather friends in Europe. Despite the Europeans having less latitude for deficit spending than the U.S. has with the world’s reserve currency, Europe spent decades doubling down on welfare over warfare — France’s entitlements now amount to one-third of its entire economy, and Spain’s are more than one-quarter. If their refusal to allow the U.S. to use the naval and air bases that we literally bankroll and operate costs NATO America’s backing, it may be a price that most of Europe’s defenestrated militaries cannot afford.
A president’s budget proposal is always more of an ideological mission statement than a bankable blueprint, but in this case, the direction is clear: Freedom is not free, and Trump is willing to bravely burnish political capital to keep America from succumbing to imperial decline.
Tiana Lowe Doescher (@TianaTheFirst) is an economics columnist for the Washington Examiner.
