Debt Digest | DOGE’s Savings Claims Are Overstated
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
DOGE’s savings claims are overstated. At a recent American Enterprise Institute event, budget and legal experts raised questions over the Department of Government Efficiency’s (DOGE) headline savings and questionable legal activities. As AEI’s Nat Malkus noted, DOGE’s claimed savings are inflated by using maximum contract values instead of actual obligated amounts. There are also frequent clerical errors, sometimes of enormous magnitude, which make the claimed savings figure suspect. Accounting for these discrepancies roughly halves DOGE’s claimed savings derived from contract elimination. The New York Times recently quoted me on this issue: “‘They’re just spinning their wheels, citing in many cases overstated or fake savings,’ said Romina Boccia, the director of budget and entitlement policy at the libertarian Cato Institute. ‘What’s most frustrating is that we agree with their goals. But we’re watching them flail at achieving them.’” DOGE also faces legal challenges, particularly from the Impoundment Control Act, which limits the savings that the executive can achieve unilaterally. As Elon Musk has conceded, DOGE has moved from a $2 trillion savings target to just $150 billion in claimed savings (the actual savings are unknowable given limited transparency, but they are certainly lower than $150 billion). Substantial, lasting deficit reduction will require reforms that have credibility. That means Congress getting involved, mustering the courage to take ownership of the spending process.
Rescissions give the President and Congress a powerful tool to back DOGE’s waste-cutting mission. DOGE has done a great job bringing about a national conversation on spending and waste, but without action from Congress, major savings will never be realized. As EPIC’s Matthew Dickerson points out, agencies have $860 billion in unobligated discretionary budget authority available to cut as of February 2025. These unobligated balances could be cut using expedited rescissions, a process privileged under the Impoundment Control Act, which bypasses the Senate filibuster. As we’ve argued, the rescissions process can help the executive lawfully reassert control over wasteful spending and realize major savings. It also ensures that unspent appropriations aren’t quietly redirected to new priorities without legislative oversight, assuaging concerned lawmakers.
Does President Trump confuse trade deficits with budget deficits? President Donald Trump recently said (see from 1:20) this when discussing his now-paused reciprocal tariffs: “Hundreds of billions of dollars a year they [China] make on us on trade. [...] We have $36 trillion debt for a reason.” Cato’s George Selgin highlights a similar quote from Trump during his first term: “For many, many years the United States has suffered through massive trade deficits; that’s why we have $20 trillion in debt.” These statements raise a logical concern: Trump appears to conflate trade deficits—the gap between imports and exports—with budget deficits, which refer to the difference between government revenue and spending, and are the real driver of the federal debt. This confusion may partially explain his negative (and misguided) view of trade deficits and the harmful tariff policies that follow. We really ought to start calling it a capital surplus instead. Notably, tariffs won’t meaningfully reduce budget deficits. According to Fitch Ratings: “Tariff revenues will help narrow the US budget deficit in 2025, but the hit to economic growth and additional tax cuts are likely to limit the size of any lasting fiscal benefit [...].”
Social Security’s Ponzi-like structure has collapsed under demographic pressures. Manhattan Institute’s Chris Pope highlights how the 1950 Social Security amendments significantly expanded benefits and delivered phenomenal returns for early retirees. “The first generation of retirees under the program would receive a guaranteed return more than 12 times that to be had by investing in Treasury bonds,” writes Pope. He adds: “Economist Paul Samuelson argued that so long as the growth of wages and population exceeded the rate of interest, a pay-as-you-go pension system could provide each person with larger retirement benefits than they contributed in payroll taxes. ‘A growing nation,’ Samuelson boasted in Newsweek in 1967, ‘is the greatest Ponzi ever contrived’—and he predicted that these trends would continue ‘as far ahead as the eye cannot see.’” However, as the worker-to-beneficiary ratio has steadily declined, the Ponzi-like structure of Social Security has become increasingly unsustainable. While early generations enjoyed massive returns at the expense of younger workers, future beneficiaries are likely to receive much lower—or even negative—returns on their payroll taxes.
Americans want spending cuts—now it’s Congress’s turn to deliver. The first release of the Cato Institute’s 2025 Fiscal Policy National Survey provides timely insights for members of Congress as they navigate 2025, a pivotal year for America’s fiscal future. According to the survey, “More than three-fourths (76 percent) of Americans say the government spends too much money, while 8 percent say it doesn’t spend enough, and 16 percent says it’s about right.” Importantly, when asked how to reduce deficits and balance the budget, 64 percent support doing so primarily (15 percent) or exclusively (49) through spending cuts (see figure below). Notably, the same share (64 percent) also thinks that spending cuts would mostly help the economy. Americans’ opinions on spending cuts align with what we’ve argued before—the path to fiscal sustainability should rely on spending reductions, which can also boost economic growth. Importantly, the results of this survey should encourage GOP lawmakers to adopt serious spending cuts in the reconciliation package to avoid fiscal collapse.
