Debt Digest | How DOGE could cut $2 trillion
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Cato’s report to DOGE is here! Last week, the Cato Institute released the “Cato Institute Report to the Department of Government Efficiency (DOGE): How to Downsize and Reform the Federal Government,” which addresses 23 policy issue areas across three chapters: Bureaucracy and the Administrative State, Regulation, Spending Cuts and Tax Reforms. The final chapter “proposes numerous Spending Cuts and Tax Reforms, such as ending aid to states and subsidies for politically favored sectors of the economy, sharply reducing federal involvement in education, streamlining national security spending, reining in emergency spending, and reforming entitlements.” The suggested spending cuts would save about $2 trillion annually. Many of Cato’s proposals would require Congress to change legislation. Congress could also authorize DOGE at the front end, as I’ve argued here.
Government surveys underestimate the financial security of seniors. The American Enterprise Institute’s Mark J. Warshawsky highlights a new study by Irena Dushi and colleagues, which revealed that both the Current Population Survey Annual Social and Economic Supplement (CPS ASEC) and the Health and Retirement Study (HRS) significantly underreport retirement income, affecting key measures of the financial security of the elderly. “For decades, it was claimed, based on survey data, that half of the 65+ population (53 percent in 2015) received at least half of their family income from Social Security, and a quarter (26 percent in 2015) relied on Social Security for 90 percent or more of their income. The correct figures, however, are 42 and 14 percent, respectively—a significant shift in our understanding of the balance between social insurance and private income sources for seniors in the United States,” writes Warshawsky. The study also shows that senior poverty is overestimated, with actual rates at 6.4 percent rather than the reported 8.8 percent. These findings align well with 2014 research by Andrew Biggs and Sylvester Schieber, which revealed that the CPS data failed to factor in most income retirees receive from 401(k)s and IRAs and ignored at least 60 percent of their total income.
Treasury nominee is wrong about tariffs. Cato’s Scott Lincicome and Adam Michel criticize Treasury nominee Scott Bessent’s three-legged stool approach to tariffs, which aims to raise revenue, protect domestic industries, and serve as a negotiation tool. They point out that tariffs are a regressive and inefficient method of raising revenue (see the figure below, included in Lincicome’s previous work) that hinder economic growth. Lincicome and Michel also argue that tariffs would fail to protect domestic industries, as half of US imports are used in manufacturing, and raising import prices would harm US industry. With 80 percent of American manufacturing jobs in companies that import and export, tariffs and subsequent retaliatory measures from foreign governments would further damage US companies. Lastly, Lincicome and Michel note that tariffs have historically been an ineffective negotiation tool, including during the first Trump administration. They write: “In response to Trump’s tariffs, not a single nation lowered its tariffs on U.S. goods, while many responded with tariffs of their own.”
A federal Bitcoin reserve is pointless. George Selgin, senior fellow and director emeritus of the Center for Monetary and Financial Alternatives at the Cato Institute, argues that a “Bitcoin Strategic Reserve” wouldn’t bolster the dollar’s role as the global reserve currency. First, he challenges the claims of the dollar’s declining importance, noting that while its share in international reserve assets has decreased, it hasn’t been matched by an increase in the share made up of euros or yen—its main “competitors”—but in Chinese renminbi and Canadian dollars, which are still nowhere close to the dollar’s status (e.g., 58.4% USD vs 2.7% renminbi). Selgin attributes these shifts to factors like the dollar’s “weaponization,” which holding Bitcoin reserves wouldn’t address. Furthermore, he states the US government doesn’t need foreign exchange or gold reserves at all, as it doesn’t have an obligation to any fixed exchange rate arrangement, and “the dollar’s value hasn’t depended on the Treasury’s gold holdings since 1971 when it became inconvertible fiat money.” Selgin concludes: “If there’s no reason save inertia for the government’s vast gold stockpile, there’s no reason at all for it to acquire Bitcoin.”
Congress shouldn’t pursue a costly package during the lame duck. The Committee for a Responsible Federal Budget (CRFB) states that Congress should avoid passing “a large budget-busting” package alongside annual appropriations during the lame duck session. According to the CRFB, potential items in such a package include disaster relief for Hurricanes Helene and Milton, extending expiring Affordable Care Act (ACA) subsidies, and enacting the Social Security Fairness Act (see the full list below). Dominik Lett and I’ve emphasized that any disaster relief package should be strictly limited to responding to Hurricanes Helene and Milton, and Congress should offset this new spending elsewhere. We’ve further noted that the temporary ACA subsidies should be allowed to expire, as they increase federal spending without addressing the key drivers of health care costs. I’ve also argued against the Social Security (Un)Fairness Act, which would cost $196 billion over 10 years and could lead to a $25,000 lifetime benefit reduction for a typical couple retiring in 2033.
I made this comment on your prior post, but the only way to get Congress to fast-track authorization for DOGE is through budget reconciliation. As you know, that's the only way to escape a guaranteed filibuster from Democrats, but it is debatable whether it would be made "in order" by the Senate's Parliamentarian. She (Elizabeth McDonough) might consider it more "policy" than appropriation and tax-related, but we will see. It would be worth a try.
“In response to Trump’s tariffs, not a single nation lowered its tariffs on U.S. goods, while many responded with tariffs of their own.”
I’m sorry, this is either one of the most disingenuous or clueless sentences I’ve read this year.
Mexico and Canada renegotiated NAFTA based on the threat of tariffs!
Yeah, to use tariffs as negotiating leverage you have to be willing to impose them occasionally, and when you do of course you are likely to see some tariffs imposed in response.
But the implication that therefore tariffs cannot, let alone should not, be used as negotiating leverage is absurd.
It is the threat of tariffs that delivers leverage, not primarily the imposition of them.
Be clear I’m relatively negative on tariffs as revenue-generating tool (completely negative for intermediate goods, where you correctly point out the clear harm) and completely opposed to tariffs to protect domestic industry. Please continue to make those points strongly.
But when you throw in absurd claims that tariffs and the threat of them don’t offer leverage to get others to reduce their tariffs, you undercut your credibility here entirely.
Because whether you are demonstrating cluelessness or sophistry (incompetence or evil), you will turn those using basic common sense against you and bind them more strongly to those policies you oppose.