Tesla CEO Elon Musk posted a quite simple query Dec. 7 on his X (previously Twitter) social media account: “Why are we doing this when our own country is so deeply in debt?”
The item of Musk’s curiosity? Worldwide humanitarian assist, which, in line with a United Nations estimate, america gave extra of than 9 different nations mixed, totaling virtually $9.5 billion in 2023.
As one in every of two co-chiefs of the nonetheless nebulous “Department of Government Efficiency” ― at this level, “DOGE” it’s extra of a social media account than an precise federal entity ― all eyes are on Musk and former Republican presidential candidate Vivek Ramaswamy and what they’ll deal with as potential areas the place the federal government can lower your expenses. However, because the international assist instance exhibits, to date Musk seems to be small however headline-grabbing proposals with little potential to meaningfully cut back the federal funds deficit.
“They’re not serious about controlling the deficit or the debt. What they’re serious about is helping people that would help them. That’s it,” Rep. Jim McGovern (D-Mass.) instructed HuffPost.
There may be little dispute the U.S. authorities debt load has entered almost unprecedented ranges, with fears it might result in a pointy monetary disaster or turn into an ever-larger drag on financial development. The federal debt held by buyers was 99% of the scale of the U.S. economic system in 2024, in line with the nonpartisan Congressional Finances Workplace (CBO) in June, and projected to hit 122% by 2034. For comparability, the debt load of the U.S. after World Conflict II was virtually 109%.
And the issue will get worse annually. The annual deficit (the distinction between how a lot the federal government brings in annually and the way a lot it has spent), and thus how a lot debt will get added to the federal government’s ledger, was $1.83 trillion in 2024. That mirrored spending of $6.75 trillion however income of solely $4.92 trillion.
Although the years instantly following the pandemic monetary disaster featured low rates of interest and sputtering development, making deficit spending sensible and essential, the excessive rates of interest and regular development of the years following the COVID-19 upheaval would seemingly be ideally suited for slicing spending.
That’s not what President-elect Donald Trump, who appointed Musk and Ramaswamy as co-chiefs of the advisory panel, has deliberate. He has targeted on extending and increasing the huge tax cuts for the rich and firms that had been handed throughout his first time period, which might explode the deficit even additional and danger reigniting inflation.
In idea, these tax breaks might be offset by spending cuts proposed by Musk. However the gadgets he has not too long ago posted about would do little or no to shut the hole. For instance, eliminating the $9.5 billion in worldwide humanitarian assist that Musk questioned would have decreased the 2024 deficit by solely about 0.5%. (1% of $1.83 trillion is $18.3 billion.)
Likewise, even when all international assist and worldwide relations spending had been scrapped — an unlikely prospect given U.S. commitments to worldwide organizations in addition to allies corresponding to Israel — that might have totaled near $72 billion in 2024. Although that will sound spectacular on paper, it might have decreased the deficit by solely a bit beneath 4%.
Equally, on Dec. 5, the DOGE social media account focused the Nationwide Institutes of Health for spending $759 million on workforce variety and outreach in 2023. If that very same quantity had been eradicated in 2024, it might have lower the deficit by lower than 1 / 4 of a proportion level.
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It will not be the primary time seemingly easy and politically common concepts have been proposed that might do little to alter the fiscal trajectory. Lawmakers on Capitol Hill have lengthy sought to focus on particular person cases of doubtless wasteful spending, relationship again to Sen. William Proxmire (D-Wis.), who gave out annual “Golden Fleece” awards to what he noticed as egregious examples of waste from 1975 to 1987.
The phenomenon is acquainted to old-time deficit hawks.
“We’re probably going to spend so much of our time looking at the things that make headlines — million-dollar hammers, gerbil racing, all of those things ― and it will keep us away from where everyone who’s serious in this area knows the real savings are,” Maya MacGuineas, president of the nonpartisan Committee for a Accountable Federal Finances (CRFB), instructed reporters in November.
These areas are spending on entitlement applications, corresponding to Social Safety, Medicare and Medicaid, and spending by the tax code within the type of charges, credit and deductions.
“We will hear a lot of ways to try to avoid the real, hard choices that ultimately are going to have to be part of a budget deal, the same thing many of us have been saying for many years,” MacGuineas stated.
Certainly, MacGuineas’ group put ahead an inventory of what it referred to as “$700 Billion of Easy Deficit Reduction” in November as a method to jumpstart the dialogue. They included concepts like spending more cash on the Inside Income Service’s tax enforcement (bringing in an additional $130 billion over 10 years), cease paying “excessive” tax credit for companies nonetheless attempting to say cash beneath the COVID-era worker retention program ($80 billion over 10 years), extending the Federal Communications Fee’s auctions of electromagnetic spectrum ($70 billion over 10 years) and lengthening an current however small across-the-board lower in entitlement spending set to run out in a number of years ($85 billion).
A extra complete record was dropped Dec. 12 by the CBO. Launched as soon as each two years after elections, it’s an inventory of choices for lawmakers on entitlement spending, annual discretionary spending and taxes, describing what modifications might be made and the way a lot they’d increase revenues or lower spending over 10 years.
Little-known exterior of funds wonk circles, the report’s choices, in step with CBO’s nonpartisan advisory to position to Congress, run the gamut, from imposing new taxes to huge cuts in entitlement applications.
For instance, its two greatest deficit-cutting concepts are on the tax facet, eliminating all itemized deductions for revenue taxes (elevating $3.42 trillion over 10 years) and imposing a European-style value-added tax (VAT) of 5% on items and providers (elevating $3.38 trillion over 10 years).
On spending, the largest choice CBO outlined was recalculating what the federal government pays Medicare Benefit medical insurance plans in relation to their individuals’ well being ($1.05 trillion over 10 years). Different huge spending lower choices within the report included trimming the annual protection funds by $959 billion over 10 years and capping how a lot the federal authorities spends on Medicaid for every particular person within the federal-state insurance coverage program ($893 billion over 10 years).
Invoice Hoagland, senior vp of the Bipartisan Coverage Middle and a former Capitol Hill Republican funds staffer, stated the choices was once checked out intently after they got here out.
“But once again, there’s not always much new about them.”
The issue with the CRFB and CBO concepts is that they’d be nonstarters politically. Republicans talked a giant recreation about tax reform in 2017 however ended up retaining most itemized deductions. And neither occasion is up for imposing a VAT in place of the present revenue tax system.
Equally, slicing Medicare could be tough within the wake of Trump’s guarantees that it and Social Safety could be off-limits in his second time period. Cuts to Medicaid would draw opposition from states that share the prices of this system, docs who see Medicaid sufferers and thousands and thousands of people that depend on this system.
These are only a few examples of the larger drawback, in line with Hoagland.
“This isn’t the first rodeo for a lot of us,” Hoagland stated. “We’ve been through this a lot, and where is the political will to follow through?”
MacGuineas had an identical concern. Although she stated some technological modifications, just like the rise of synthetic intelligence, might enhance financial development and make deficit discount simpler, she stated these sorts of concepts mustn’t distract from extra credible, even when politically more durable, ones.
“We know all the policies that are going to fix these fiscal situations. It’s just getting the political will. It’s just ending the polarization and partisanship enough that we can work together on this,” MacGuineas stated.
That might not be as unimaginable because it sounds. A couple of Democrats have joined the DOGE Caucus on Capitol Hill, although its membership is overwhelmingly Republican.
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And although McGovern, the Home Democrat, stated he doesn’t see the hassle as a severe one, he stated he was prepared to work with DOGE on areas the place they may agree, corresponding to protection spending after Musk criticized the price of the F-35 fighter jet’s improvement.
“If they want to talk about looking at the Pentagon budget, find savings there, I would welcome that,” McGovern stated.
