Debt Digest | A DOGE Dividend Could Fuel Inflation

Links & Fiscal Facts

Here are this week’s reading links and fiscal facts:

• Immigrants consume significantly less welfare and entitlement benefits than natives. Cato’s new paper by Alex Nowrasteh and Jerome Famularo finds that immigrants consumed 21 percent less welfare and entitlement benefits than native-born Americans in 2022—$7,803 vs $9,822 per capita. Notably, noncitizens, including lawful residents, those on temporary visas, and illegal immigrants, consumed 54 percent less on average than native-born Americans—$4,564 vs $9,822 (see figure below). However, naturalized immigrants consumed more than native-born Americans and noncitizens because they have the highest median age among the three groups, resulting in higher consumption of Social Security and Medicare. Nowrasteh and Famularo note: “If native-born Americans had consumed the same per capita dollar amount of means-tested welfare and entitlement programs as all immigrants, the total expenditures on these programs would have been about $569 billion less in 2022.”

  

• Air traffic control should be separated from the FAA. Brookings’ Dorothy Robyn argues that air traffic control is not an inherently governmental function and should be separated from the Federal Aviation Administration (FAA). She describes it as a “24/7 high-tech service ‘business’ trapped in a regulatory agency” constrained by budget rules, flawed funding mechanism, and political interference. She notes that past efforts to transfer air traffic control responsibility to a non-governmental entity have failed due to opposition from private pilots and corporate jet owners, who currently pay little to use the system. Meanwhile, over 60 countries, including Canada, have separated air traffic control from aviation regulators. As one expert on air travel observed: “[F]lying north to south over the U.S.-Canadian border ‘is like time travel for pilots (as) you leave a modern air-traffic control system run by a company and enter one run by the government struggling to catch up.’” The United States should follow these countries’ lead and separate air traffic control from direct federal control.

• A DOGE dividend could fuel inflation. James Fishback, a co-founder of investment firm Azoria, has proposed a DOGE Dividend—a refund check sent to all income taxpayers after the Department of Government Efficiency completes its work in 2026. According to Fishback, 20 percent of DOGE’s total savings should be distributed to nearly 80 million US households, amounting to $5,000 per household (a similar idea was mentioned by President Trump). However, this figure assumes DOGE will generate $2 trillion in savings—an unlikely outcome given DOGE’s focus on updating government technology, reducing fraud, waste, and improper payments, and downsizing the federal workforce. As I previously told the New York Times, “[F]ocusing on modernizing government technology could help address issues like improper payments. But [...] that would be likely to save only a couple hundred billion dollars at most, far less than Mr. Musk had promised.” Moreover, as I explained on CNBC (watch the clip below), “If we get another round of stimulus checks, it is quite likely that it will cause an uptick in inflation, which is something that the President said he wants to fight.” Researchers at the St. Louis Fed estimated that “U.S. fiscal stimulus during the pandemic contributed to an increase in inflation of about 2.6 percentage points in the U.S. [...].”

• Using inflation to raise revenue is a terrible idea. Josh Hendrickson, an associate professor at the University of Mississippi, highlights the problems with raising revenue through inflation (i.e., money printing). He explains that inflation tax revenue depends on real money balances, which shrink as inflation rises because people avoid holding money—limiting inflationary finance’s effectiveness as a revenue source. Additionally, inflation erodes money’s informational role as a unit of account: “When prices, on average, are relatively constant the dollar price conveys changes in relative scarcity or abundance. During periods of inflation, the dollar price becomes insufficient. One must constantly find new reference points in terms of frequently purchased items,” explains Hendrickson. In my critique of the Modern Monetary Theory (MMT), I’ve also emphasized another key issue with financing government spending through money printing—inflation disproportionately harms the poor.

• Reducing the scope of government is the best way to curb improper payments. According to OpenTheBooks, improper payments during President Biden’s term have totaled $925.7 billion—the highest since reporting began in 2004. While this is a bipartisan issue, with both parties enacting the Improper Payments Elimination and Recovery Act (IPERA) in 2010, improper payments have continued to grow. Now, DOGE has taken on the task of tackling this waste but is targeting the wrong program—Social Security. Despite its financing problems, Social Security’s rate of improper payments was only 0.84 percent between FY 2015 and 2022. Meanwhile, programs like Farm Service Emergency Conservation (45.2 percent), the Restaurant Revitalization Fund (30.3 percent), and Obamacare (28.5 percent) have far higher rates of waste. Beyond implementing specific reforms like better data sharing and stricter eligibility verification, policymakers should acknowledge the root issue: the federal government is inherently inefficient. Perhaps the best way to curb improper payments is to reduce the size and scope of the government itself.