The Growing National Debt is Punishing Poor Americans
There is no way to reduce budget deficits, and ultimately the debt, without making difficult and likely unpopular choices.
America’s debt is projected to reach $40 trillion (yes, with a T) by the midterm elections in November. It’s predicted to surpass $60 trillion by 2036.
FREOPP’s Senior Fellow of Social Mobility, Michael Tanner, says that if we want to fix the debt and deficit, it’s time for policymakers to start making hard decisions. “There are few clean hands when it comes to blame for the debt,” Tanner said. So, when does the finger pointing stop and change begin?
The growing national debt is punishing poor Americans
Ultimately, there is no way to reduce budget deficits, and ultimately the debt, without making difficult and likely unpopular choices.
Why it matters: As federal debt grows, the government spends more on interest payments, which can contribute to inflation, higher borrowing costs, slower wage growth, and reduced resources for programs that benefit working families. The people with the fewest assets and the least financial flexibility often bear the greatest burden.
What we found: Excessive borrowing hurts poor Americans today by fueling inflation and crowding out productive investment in the broader economy. Rising prices disproportionately affect low-income households because they spend a larger share of their income on necessities such as housing, food, and transportation. At the same time, growing interest payments consume an increasing share of the federal budget, limiting resources available for other priorities.
Key policy findings:
Inflation acts as a hidden tax on low-income Americans.
Debt-driven inflation compounds over time.
Even modest inflation can significantly erode purchasing power when sustained over many years, making it harder for working families to get ahead.
Rising debt increases federal interest costs.
More tax dollars must be devoted to paying interest on past borrowing rather than funding public services, infrastructure, or tax relief.
Wealthier Americans are generally better positioned to protect themselves from inflation through investments and appreciating assets, while lower-income families feel the effects more directly through rising living costs.
What policymakers should do: Policymakers should treat debt reduction as an anti-poverty issue, not just a budget issue. Reducing chronic deficits can help limit inflation and prevent future interest costs from crowding out priorities that benefit working families.
Lawmakers should pursue long-term fiscal reforms that bring spending and revenues into better balance rather than relying on continued borrowing. A more sustainable fiscal path would reduce pressure on interest rates and strengthen economic growth.
Federal policymakers should also pay closer attention to how inflation affects different income groups. A 3 percent inflation rate does not affect all Americans equally, and policies should account for the disproportionate burden placed on lower-income households.
The U.S. Housing Shortage and How Zoning, Building Codes, and Permitting Created It
The housing shortage is a case study of unfortunate regulatory success, not failure: a ruthlessly effective system doing what it was designed to do.
Why it matters: Since the 1970s, the United States has generally built fewer homes relative to the number of households than in previous decades, even as the population grew by more than 50 percent. The result is a nationwide housing shortage that has pushed rents and home prices beyond the reach of millions of families. Gattoni-Celli states that zoning regulations, building codes, and permitting requirements have made housing artificially scarce by making it harder, slower, and more expensive to build.
What we found: America’s housing shortage is not a market failure—it’s a policy outcome.
Over the last century, local governments adopted rules that restricted where and how housing could be built. Large minimum lot sizes, bans on townhomes and apartments, lengthy permitting processes, and increasingly complex building requirements have all combined to suppress housing production.
Policy points:
Restrictive zoning is the largest barrier to housing production.
Many cities reserve most residential land exclusively for detached single-family homes.
Minimum lot size requirements often make traditional starter homes illegal to build.
Townhomes, duplexes, and small apartment buildings are frequently prohibited.
Building codes often increase costs without proportional benefits.
More housing leads to lower housing costs.
Austin’s recent building boom and Houston’s lot-size reforms as examples where increased supply helped improve affordability.
Research consistently finds that places permitting more housing tend to experience lower rents and slower price growth.
What policymakers should do:
Legalize more housing by right.
Allow duplexes, triplexes, fourplexes, townhomes, and small apartment buildings in residential neighborhoods.
Reduce or eliminate minimum lot size requirements.
Allow starter homes on smaller lots.
Reform building codes, creating a simpler regulatory pathway for small multifamily housing, single-stair apartment buildings, and review code provisions to ensure they are evidence-based and cost-effective.
Fix permitting by replacing discretionary approvals with predictable, rule-based processes and establish firm timelines for permit review.
Fragmented systems, predictable failures
Current policy fails to serve vulnerable families even when they interact with government agencies.
Why it matters: Families in crisis often interact with multiple systems—child welfare, behavioral health, education, housing, substance abuse treatment, and social services. When those systems operate in silos, vulnerable families fall through the cracks. The result is predictable failure: no one sees the full picture, accountability fails, and children face greater risks despite extensive system involvement.
What we found: Many child welfare failures are not the result of a lack of services, but of fragmentation. Different agencies collect information, provide services, and make decisions independently, often without effective coordination. Families with complex needs end up navigating disconnected systems that are not designed to work together, increasing the likelihood that warning signs are missed and opportunities for intervention are lost.
Key policy findings:
Families often interact with multiple agencies that operate independently rather than as part of a coordinated system.
Crucial information may exist across schools, health providers, social services, and child welfare agencies without being effectively shared.
When many systems are involved, it becomes difficult to determine who is responsible when children and families do not receive the support they need.
Challenges such as addiction, mental illness, domestic violence, and poverty often span multiple systems and cannot be solved by a single agency acting alone.
Better outcomes require systems that work together.
What policymakers should do: Policymakers should prioritize system integration rather than creating new standalone programs. Agencies serving children and families should be able to share information, coordinate services, and develop unified plans for families with complex needs.
States should establish clear lines of responsibility so that agencies understand who leads, who supports, and who is accountable when problems arise. When everyone is responsible, no one is responsible.
Lawmakers should also invest in data systems and cross-agency collaboration that allow decision-makers to see the full picture of a family’s interactions across government programs. Better information and coordination can help prevent crises before they escalate.
President Trump’s child care reset is a step toward family-centered reform
The proposals reflect a clear philosophical bet that the federal government cannot mandate its way to a flourishing care economy
Why it matters: Child care has become one of the largest expenses facing American families, yet policymakers continue to debate whether the solution is more federal regulation or greater flexibility. The Trump administration's recent child care reforms represent a shift away from national mandates and toward a family-centered approach that gives states, providers, and parents more control over how care is delivered.
What we found: The administration is rolling back Biden-era rules governing child care subsidies and proposing changes to federal Head Start regulations. Washington should set broad goals but allow states and providers to determine what works best in their local communities. While the reforms do not solve challenges such as affordability, provider shortages, or workforce retention, they move policy in a more family-centered direction.
The policy points:
The administration rescinded portions of a 2024 rule that required states to reimburse providers based on enrollment rather than attendance, returning more discretion to states.
Parents rely on a mix of center-based care, family members, faith-based providers, home-based care, and other arrangements that may not fit a one-size-fits-all federal model.
Child care providers face real financial pressures, and states should have flexibility to develop solutions that fit local conditions.
Workforce shortages remain a challenge.
States and local providers may be better positioned than federal regulators to experiment with new approaches to affordability, access, and workforce development.
What policymakers should do: Policymakers should give states greater flexibility to design child care systems that reflect local needs rather than imposing uniform federal rules nationwide. Families and providers often face different challenges depending on geography, workforce conditions, and available care options.
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