Spending fight shows limits of Trump's power to change fiscal path

By Alan Rappeport

 

When Elon Musk and Vivek Ramaswamy, the businessmen that President-elect Donald J Trump tapped to lead his new Department of Government Efficiency, met with lawmakers in early December, they laid out their plans for cutting federal spending and eliminating waste. 

Less than two weeks later, they helped topple a 1,500-page spending bill and brought the federal government to the brink of a shutdown over objections to the billions of dollars of so-called pork spending in the legislation. But the streamlined package that lawmakers ultimately passed failed to offer spending restraint. 

During the negotiations, Trump even called for abolishing the nation’s statutory debt limit, which Republicans have long used as a tool for forcing painful budget cuts. The frenzy demonstrated the clout that Musk and Ramaswamy have as they establish their new waste-cutting enterprise. But the outcome also underscored the limits the initiative will face as it tries to curb spending. In recent decades, the federal government has become increasingly sprawling and Congress has become more fractious, making it difficult to put a dent in a national debt that has topped $36 trillion. 

 

In under a month, Trump will assume the presidential megaphone with Musk and Ramaswamy as his spending enforcers. But budget experts see little hope that the three will be able to meaningfully shift the nation’s fiscal trajectory. The Congressional Budget Office projects that the national debt will reach 166 per cent of gross domestic product by 2054, up from about 99 per cent of GDP at the end of 2024. 

“They have no authorities whatsoever,” said Douglas Holtz-Eakin, who served as the chief economist in President George W Bush’s Council of Economic Advisers. “They don’t control the scope of government. They don’t control the size of government.” 

Holtz-Eakin, who also served as the director of the Congressional Budget Office, noted that Congress has the power of the purse and suggested that the Department of Government Efficiency would be little more than a think tank. 

“They have the bully pulpit, but that’s truly it,” he said. 

Musk and Ramaswamy have said that they want to cut $2 trillion of federal spending over an unspecified period of time by shrinking government agencies and eliminating fraud and waste. That is nearly the size of the 2024 fiscal year deficit alone and just a sliver of $20 trillion that the US economy is projected to borrow over the next decade. 

House Republican leaders have floated a pledge to cut spending by $2.5 trillion in “mandatory” spending, which typically goes toward programs such as Medicaid and food stamps, and to raise the debt limit in separate legislation next year. The United States spent $6.7 trillion in 2024, including more than $800 billion on the military. But the bulk of the country’s spending comes from mandatory programs including Social Security and Medicare, along with soaring interest expenses. 

Trump has pledged not to cut entitlement programs and Republicans are loath to slash military spending. That leaves scant space to scale back the biggest drivers of the debt. 

“While it’s good to improve the efficiency and effectiveness, to the extent that you are not focusing on the 50 per cent of the federal spending, which is entitlement programs, you’re not really going to make a big dent in our debt and deficits,” said William Hoagland, a senior vice president at the Bipartisan Policy Center. 

Trump has made clear that he wants to weaken the enforcement powers of the Internal Revenue Service, which would make it harder for the agency to track down tax evaders and to efficiently collect tax revenue. Rescinding the $80 billion that the IRS was allocated in 2022 to crack down on tax cheats and modernise technology is projected to add to deficits. 

As lawmakers talk about spending cuts and deficit reduction, they are preparing an expansion of the 2017 tax cuts that could cost more than $4 trillion over a decade. That would far surpass the $2.5 trillion of spending cuts that House Republicans pledged during the latest spending fight to enact early next year. 

Despite Trump’s recent interest in shrinking government, the self-described “king of debt” has not shown a propensity for fiscal restraint. The national debt grew by nearly $8 trillion during Trump’s first term as a result of tax cuts and increased government spending, including two rounds of pandemic aid.  In 2018, Trump called for a return to earmarks, the practice of stealthily stuffing funding for pet projects into legislation, to help ease gridlock in Congress. The Committee for a Responsible Federal Budget estimated that his policies could add as much as $15 trillion to the debt over a decade. 

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