Debt Digest | DOGE Scales Back Cuts To Update GovTech
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
The New York Times quotes me on DOGE. A recent New York Times piece discusses the Department of Government Efficiency (DOGE) replacing the United States Digital Service, a White House unit focused on improving government technology. The article suggests that DOGE may be scaling back its ambitions for spending cuts, focusing instead on technological modernization. The article quotes me: “Romina Boccia, the director of budget and entitlement policy at the libertarian Cato Institute, said focusing on modernizing government technology could help address issues like improper payments. But she said that would be likely to save only a couple hundred billion dollars at most, far less than Mr. Musk had promised. ‘The cynic in me says that DOGE realized that they were perhaps too ambitious and it would be much more difficult to accomplish their initial goals of reducing spending by $2 trillion,’ Ms. Boccia said. ‘They’re narrowing their scope to something more manageable.’
Hiding costs of TCJA extensions with baseline gimmicks won’t change fiscal reality. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, pushes back against efforts to adopt a current policy baseline in reconciliation—a gimmick that would let Congress extend the expiring Tax Cuts and Jobs Act provisions without acknowledging the trillions in added costs: “Showing a $0 impact on paper by changing the rules doesn’t actually prevent the $4 to $5 trillion of additional borrowing from taking place. And it doesn’t stop that borrowing from pushing up interest rates, slowing economic growth, and putting our debt sustainability at risk.” As we’ve written in a previous edition of Debt Digest: “Using a ‘current law’ baseline to score the original tax law (which disguised long-term revenue implications by assuming temporary tax cuts would expire as scheduled) and then switching to a ‘current policy’ baseline when extending current tax cuts so as to hide their deficit impact is fiscal hypocrisy of the highest order.”
Congress catering to special interests comes at a high cost. Tom Margenau, a former Social Security Administration employee, writes: “Congress just passed a law that will give me (and millions of people like me) extra Social Security benefits that we simply do not deserve and haven’t earned.” Margenau is referring to the Social Security Fairness Act, which repealed the Windfall Elimination Provision and the Government Pension Offset, unfairly benefiting public sector workers. He notes: “[B]owing to relentless pressure from government employee unions and advocacy groups, a more naïve and vote-seeking Congress has repealed WEP and GPO.” As I’ve explained, this $200 billion giveaway over the next decade reflects a classic case of public choice theory: “Public choice theory helps explain why Congress prioritizes the demands of well-organized interest groups over the recommendations of policy experts. Politicians are incentivized to back proposals that offer visible and immediate benefits to vocal constituencies, even if they impose long-term costs on the broader public.”
Scaling back Biden-era welfare expansions can help Republicans achieve significant savings. A Wall Street Journal (WSJ) opinion piece argues that Republicans can achieve meaningful taxpayer savings by rolling back pandemic-era welfare expansions. “Mr. Biden and the Democrats used the pandemic as an excuse to turn Medicaid into another entitlement for the middle class,” states the article. According to the WSJ, annual Medicaid spending has grown by 60 percent over the pandemic because “the Biden Administration let Democratic states ease eligibility verifications and use federal Medicaid funds to pay for other social spending like homeless housing, food and mini-refrigerators.” The WSJ estimates that returning Medicaid spending to pre-pandemic levels, adjusted for inflation, could save over $1.4 trillion over a decade. Marc Joffe and Krit Chanwong from the Cato Institute have outlined potential reforms to achieve Medicaid savings, including converting Medicaid into a block grant program and ending the Biden Administration’s ban on Medicaid work requirements.
There are better ways to trim the budget than underfunding statistical agencies. NPR highlights how funding challenges could undermine federal data quality, quoting William W. Beach from the Economic Policy Innovation Center (EPIC): “The statistical system doesn't need just more money. It needs modernization, the surveys part particularly. And if we did that, over the years, we would probably spend less money on the statistical system and get a better product.” Flawed data can have costly consequences—errors in the Consumer Price Index (CPI), for example, could misallocate billions in Social Security payments. Reliable data is also crucial for challenging widespread economic misconceptions. For example, Cato’s Ryan Bourne and Jai Kedia used BLS data to refute President Biden’s claim that “shrinkflation” is driving inflation: “Fortunately, the Bureau of Labor Statistics (BLS) provides other data to assess this. [...] BLS data shows that excluding product resizing impacts [“shrinkflation”] on unit prices barely changes the annual inflation rate for this category [see Figure 3].” To ensure statistical agencies continue producing useful and reliable data, the American Statistical Association stresses the need for budgets that align with agency responsibilities and support modernization.
