DOGE Must Rethink Federal Spending: Prioritize Reducing Responsibilities v. Starving the Beast Through Tax Cuts

The U.S. federal government has a debt problem.  At $36.2 trillion (or about 125 percent of GDP), this burden is already so great that it cannot be paid back any time soon and would take decades of concerted efforts to do so. Further, it is abundantly clear that this is a spending problem, not a revenue problem. But what are we to do about this?

One answer floated about is to trim waste from the federal government.  To accomplish this, Donald Trump proposed creating the Department of Government Efficiency (DOGE).  This represents an opportunity to halt runaway (and potentially unconstitutional) federal spending and to finally take budget deficits seriously.

However, DOGE does not yet have a specific plan. Several targets have been bruited: addressing wasteful spending, especially for DEI tasks that are not central to an agency’s mission; auditing federal departments and agencies to find wasteful or diverted spending; ending remote work for federal workers; simplifying the tax code; reducing red tape and regulatory compliance costs; and setting up a hotline, inviting citizen watchdogs to submit their favorite regulations for DOGE scrutiny, supported by the relevant chapter in the CFR (code of federal regulations) and a summary of negative effects.

Beyond its vagueness, it’s not clear what DOGE can or will actually do.  Mr. Musk has already explained that entitlements (about 70 percent of the federal budget) are beyond the DOGE purview.  Likewise, it’s unlikely that a Trump administration would touch defense spending (13 percent of the budget), beyond trimming some waste at the margin.  That’s already almost 85 percent of the $6.8 trillion (FY2024) budget that DOGE will not touch.

The proposed spending cuts bring up an old debate about federal spending; since the days of Ronald Reagan, economists and deregulatory warriors have pondered the question of how best to address rampant federal spending.

Starve the Beast of Resources: A Failed Approach

One answer, popularized by the likes of Milton Friedman, Gary Becker, and Grover Norquist, is the so-called “starve the beast” approach. By enacting tax cuts, the thinking goes, Congress will be forced by budgetary pressures to reduce its overall spending, to be more frugal and wise with the money it spends, and to discipline itself from overreaching into areas best left to the private sector.  Friedman summarized this approach by comparing it to cutting the allowance of “spendthrift children.”

This has intuitive appeal. Just as a household cannot spend money it does not have, neither can, the thinking goes, the federal government.  This sort of approach was tried by Presidents Ronald Reagan and George W. Bush.  The result, however, was not a reduction in federal spending.  It was an increase in annual deficit spending and a massive increase in the overall federal debt. This result is only surprising if one does not take into serious consideration issues in political economy.

The problems with starving the beast of resources are twofold.  First, the federal government has the ability to issue debt to paper over any budgetary shortfalls. This gives rise to the now-too-familiar debates about government “shutdowns” versus raising the debt ceiling or otherwise getting a new budget resolution passed by some deadline. According to the U.S. Treasury, Congress has voted to raise the debt ceiling 78 times since 1960; on June 3, 2023, Congress voted to suspend the debt ceiling altogether until Jan. 2, 2025.  Thus, while we may think that we can simply stop spending by lowering the amount of money Congress has, the reality is that as long as policymakers can issue debt, this constraint is nullified.

The second problem is more deeply rooted and pernicious: the breakdown in what James Buchanan and Richard Wagner referred to as “that old-time fiscal religion.” In many ways, Americans now see federal spending as a result of political jockeying for political largesse, and completely divorced from taxes.  It would appear that few Americans care about deficits and the national debt.  Some contend that this is because half of Americans don’t pay federal income tax and that, for these people, there is simply no reason to worry about federal spending, the annual deficit, or the debt, because federal services are, essentially, free.

As Peter Calcagno and Edward López demonstrate in a forthcoming book, norms about deficits have changed over the past 30 to 40 years.  They conclude that the combination of informal norms and increasing federal “responsibilities” have created “increased demand for federal expenditures while creating budgetary commons, thus imparting strong motivations to spend through deficit finance in normal times.”

Starving the Beast of Responsibility

Starving the government of resources and hoping that the ensuing lack of funds will impel it to eschew runaway spending ignores reality and is tantamount to putting the cart before the horse.  Instead, we must first tackle the issue directly by starving the beast of responsibility. This will require serious and fundamental discussions about the nature and role of government in the first place.

We must reckon with the questions of what the federal government should be responsible for and how it is allowed to go about fulfilling those responsibilities. Then, we must compare this to the list of responsibilities the federal government has assumed.  In doing so, we would likely find a plethora of examples of responsibilities that have been ceded to the federal government — which it has no business attempting to meet.  After identifying those, we must purge them from the federal budget and wind down the organizations tasked with meeting these superfluous responsibilities.  Article 1, Section 8 of the Constitution would be a good place to start.

If we can do so, the amount of resources (read: taxes) that are necessary to fund federal operations will fall precipitously.  The Founders clearly understood the importance of a limited government and deliberately set up a system of governance in which both the size and scale of government would be limited.

Overall, making the federal government more efficient at the things that it does is not enough to actually limit government or to promote fiscal responsibility. Instead, we must reduce the scale of government activity by starving it of responsibilities.  In doing so, greater efficiency will necessarily follow, as the government sheds responsibilities it ought not to have in the first place, and retains responsibilities that it ought to have and that can be done more effectively (and efficiently) by the government.

READ MORE from David Hebert and Nikolai Wenzel:

Saving Us From Scheming Landlords? Biden DOJ Sues Real Estate Tech Company RealPage

From GDP to Reality: Putting the $35 Trillion Debt Into Perspective

David Hebert is a senior research fellow with the American Institute for Economic Research. Nikolai Wenzel is a professor of economics at Universidad de las Hespérides and an associate research faculty member at the American Institute for Economic Research.

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