The Case Against a DOGE Tax Rebate

Elon Musk and his DOGE team have been taking a chainsaw to the federal bureaucracy over the past couple of months with a remarkable degree of success. DOGE deserves high praise for identifying vast government waste, but the savings generated by its work should be used to cut the deficit and limit the federal government rather than to fund a tax rebate skewed toward taxpayers who already pay very little in federal income taxes.

According to its website, DOGE thus far has identified $140 billion in expense cuts.  Given the relatively short time it has been in existence, and the magnitude of the federal leviathan, DOGE will likely identify hundreds of billions of more in waste, fraud, and abuse before it is finished. DOGE’s success so far has spawned the idea, promulgated by the Trump administration, of using 20 percent of the savings to give $5,000 tax refunds to taxpayers.  Here is the basic math underlying this proposal:

While this writer is almost always supportive of any tax policy that reduces the federal income tax burden, this proposal is problematic on several levels, the primary one being that it is antithetical to conservative tax policy.

Here’s why.

The United States has one of the most progressive income tax structures in the world, as demonstrated by the following federal income tax metrics from 2022:

Highlights:

In 2022, the top 1 percent of earners (in terms of Adjusted Gross Income) captured 22.4 percent of AGI and paid 40.4 percent of all federal income taxes. They had an effective income tax rate of 26.1 percent and paid $561,523 in federal income taxes.

• Moving down the AGI percentiles reveals that lower income taxpayers had a significantly lower tax burden, both in terms of dollars and effective tax rate.
• The bottom 60 percent (last two percentile buckets noted above) paid less than $5,000 in federal income taxes.
• The bottom 50 percent (last bucket noted above) each paid only $822 in federal income taxes and had an effective tax rate of only 3.7 percent.

Beyond completely debunking the left’s claim that the rich “don’t pay their fair share of taxes,” this tax data matrix provides a framework with which to evaluate possible methodologies to allocate a portion of DOGE’s savings to taxpayers.

The proposal most talked about is set forth above, namely paying taxpayers a $5,000 rebate.  Let’s see what would happen to the grid above if $5,000 rebates had been paid out to each tax filer who paid taxes in 2022:

As the new grid shows, this methodology amplifies the current progressivity of the tax code, yielding a scenario where the top 1 percent taxpayers pay 48.9 percent of federal income taxes (versus 40.4 percent before the rebates) and the bottom 70 percent pay almost no federal income taxes (versus the bottom 50 percent before the rebates).

It makes absolutely no sense to pay a $5,000 tax rebate to taxpayers who already pay a disproportionately low (in percent and dollar terms) amount of federal income taxes. Doing so amounts to government imposed wealth redistribution, a concept anathema to conservatives.

A more logical proposal would be to allocate the $40 billion rebate pool based on the amount of federal income taxes paid.  Let’s see how the grid changes utilizing this methodology:

While this methodology is mathematically cohesive, logical, and defensible, it is politically unpalatable given the skewing of the rebates (in dollar terms) to higher income taxpayers (see highlighted row above).  The shrieking from the left would be loud, immediate, and predictable ($100,000 federal tax rebates to millionaires and billionaires and crumbs to the rest of us!!).

Of course, there are multiple combinations and permutations of methodologies that could be employed to allocate the rebate pool, each having enough political and administrative challenges to render them divisive and contentious.

All of this serves as a backdrop to this author’s contention that paying out any DOGE tax rebate is both untenable and bad tax policy. Here is my reasoning:

• We have an astronomical national debt and annual deficit. Every dollar saved by DOGE’s efforts to root out and throttle federal government waste, fraud, and abuse should be used to bring the debt and deficit down.  Any federal tax rebate program would be counterproductive to this goal.
• Any talk about doling out $400 billion in tax rebates (using any methodology) is quite premature, given that the savings achieved to date is only $135 billion.
• Handing out a portion of DOGE savings to taxpayers under any scenario would be fraught with daunting administrative challenges, potential corruption and cheating, and partisan demagoguery.
• The national debt has accumulated for decades. To make a DOGE dividend payment to current taxpayers only ignores the reality that generations of taxpayers have been bearing the burden of federal government bloat.  Why should someone who just started paying federal income taxes get a rebate when the estate of a recently deceased taxpayer who paid federal income taxes for years gets nothing?

My sincere hope is that DOGE hits its savings targets relating to federal government waste, fraud, and abuse.  The positive political impact of DOGE’s activities will come from exposing and eliminating the unbelievably immense, corrupt, and inexcusable spending emanating from the federal levitation and not from a one-time federal tax rebate.

READ MORE:

DOGE Exposes Waste and Constitutional Drift

The Upside, Risks, and Limits of DOGE

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