Editorial 2: ​​The difficult path for Trump’s ‘one big budget bet’

Context

Increasing government revenues is crucial for successfully lowering America’s deficit and debt alongside DOGE-style expenditure reforms.

Introduction

One of the most debated government downsizing reforms in recent history is the Department of Government Efficiency (DOGE) initiative launched during the second term of the Donald Trump administration. This initiative focuses on reducing federal spending, lowering the deficit and debt, and cutting the interest burden on the government. It also aims to streamline government operations and improve overall efficiency. The initiative gained significant public attention with the appointment of Elon Musk as an adviser, who emphasized that the primary goal is to create a leaner government by reducing the number of federal agencies from over 400 to just 99, thereby cutting the deficit substantially.

Root cause of deficit and debt

• The U.S. government size as a share of GDP is the smallest among the seven major advanced economies (MAE).
• Despite its smaller government size, the U.S. has a higher fiscal deficit (-6.0%) and higher debt burden (119.5%) compared to the MAE average (-4.1% deficit and 108.6% debt).
• The lower revenue collection in the U.S. explains this disparity, with total government revenue and tax-GDP ratios being significantly lower than other MAE countries.

Major Expenditure Reforms by DOGE

• Termination of unused federal office space leases to reduce overhead costs.
• Cancellation of wasteful contracts and recovery of misallocated funds.
• Federal workforce optimisation through:
  • Hiring restrictions
  • Workforce reductions
  • Voluntary buyouts
• Deregulatory measures aimed at reducing bureaucracy and ensuring lawful governance.
• Use of Artificial Intelligence for:
  • Monitoring federal employee activity
  • Productivity assessment
  • Detection of inefficiencies
• Identification and consolidation of overlapping functions across departments.
• Reduction of overseas humanitarian and development spending.

Transparency and Communication

• DOGE maintains a transparent communication strategy by sharing updates publicly on platforms like X and DOGE’s portal.
• Distribution of government grants is made transparent via a payments portal, allowing citizens to view recipient-wise federal grant payments.
• The Workforce Portal provides data on the agency-wise size of the U.S. civilian workforce.

Workforce Reshaping and Layoffs

• Implemented the “Workforce Reshaping Tool”, an upgraded version of the Pentagon’s AutoRIF software to streamline layoffs based on seniority and performance.
• Approximately 260,000 federal employees have been laid off, retired early, or accepted buyouts.

Regulatory Reforms and Cost Savings

• Several federal regulations were repealed or modified, resulting in $30.1 billion in cost savings due to reduced compliance burdens.
• Over 1.8 million words have been deleted from federal regulatory texts to simplify governance.
• DOGE publishes a unique Unconstitutionality Index (UI) showing bureaucracy’s influence, with about 19 rules created by bureaucracy for every law passed by Congress in 2024.

Estimated Savings Overview

The path ahead

• Elon Musk publicly disagreed with U.S. President Donald Trump over a provision in the OBBB to remove tax credits for electric vehicles.
• The OBBB is a legislative extension of the DOGE reform, aiming to combine various fiscal priorities and government efficiency reforms into a single law.
• Musk’s opposition to the OBBB contradicted his initiatives as an adviser to DOGE.
• The bigger challenge is that the OBBB’s proposed tax cuts far exceed spending cuts.
• This imbalance is expected to add approximately $3.2 trillion to the U.S. national debt over the next decade.
• As a result, the OBBB is unlikely to effectively resolve the U.S. deficit and debt problem.

Conclusion

Currently, the U.S. has the lowest and below-OECD-average corporate tax rates among major advanced economies (MAE), along with lower effective tax rates on the wealthy. Additionally, tighter secrecy laws facilitate tax evasion by affluent individuals and corporations. Therefore, without significant efforts to increase government revenues, Mr. Trump’s ‘One Big Budget Bet’—aiming to reduce America’s deficit and debt through DOGE-style expenditure reforms—is unlikely to succeed.