Spending Fight Shows Limits of Trump Power to Change Fiscal Path

When Elon Musk and Vivek Ramaswamy, the businessmen selected by President-elect Donald J. Trump to head his new Department of Government Efficiency, met with lawmakers in early December, they outlined their vision for reducing federal spending and eliminating waste.https://wordpress.com/

Just two weeks later, they played a pivotal role in derailing a 1,500-page spending bill, pushing the federal government to the brink of a shutdown over concerns about billions of dollars in so-called “pork barrel” spending. However, the streamlined version of the bill that was eventually passed did not result in significant spending cuts.

During the discussions, Mr. Trump even advocated for eliminating the nation’s statutory debt ceiling, a tool traditionally used by Republicans to demand severe budget cuts.

The episode showcased the growing influence of Mr. Musk and Mr. Ramaswamy as they launch their waste-cutting initiative. Yet, it also highlighted the significant obstacles they face in curbing spending. Over recent decades, the federal government has become larger and more complex, while Congress has become more divided, making it increasingly difficult to reduce the national debt, which has surpassed $36 trillion.

In less than a month, Mr. Trump will take the presidential stage, with Mr. Musk and Mr. Ramaswamy by his side as champions of fiscal restraint. However, budget experts are skeptical that the trio will be able to meaningfully alter the nation’s fiscal path. The Congressional Budget Office projects that by 2054, the national debt will balloon to 166% of the GDP, up from approximately 99% at the end of 2024.

“They have no real authority,” said Douglas Holtz-Eakin, former chief economist in President George W. Bush’s Council of Economic Advisers. “They don’t control the scope or size of the government.”

Holtz-Eakin, who also led the Congressional Budget Office, pointed out that Congress holds the power over fiscal matters, suggesting that the Department of Government Efficiency might end up functioning more as an advisory body than a powerful policy-shaping entity.

“They have the bully pulpit, but that’s about it,” he added.

Mr. Musk and Mr. Ramaswamy have proposed cutting $2 trillion in federal spending over an unspecified timeline by reducing government agencies and eliminating fraud and inefficiency. This figure is roughly equal to the 2024 fiscal year deficit alone and a fraction of the $20 trillion the U.S. is expected to borrow in the next decade.

House Republican leaders have put forward a plan to cut $2.5 trillion from mandatory spending—funds typically allocated to programs like Medicaid and food stamps—and to raise the debt limit through separate legislation next year.

In 2024, the U.S. is projected to spend $6.7 trillion, including over $800 billion on defense. However, the majority of federal expenditures stem from mandatory programs like Social Security, Medicare, and rising interest payments. These costs are expected to continue increasing as the population ages and more people begin drawing benefits.

Mr. Trump has vowed not to cut entitlement programs, and Republicans are reluctant to reduce military spending, leaving little room to address the largest drivers of debt.

“While improving efficiency is important, if you don’t address the 50% of federal spending that goes to entitlement programs, you won’t make a meaningful impact on the debt or deficits,” said William Hoagland, senior vice president at the Bipartisan Policy Center.

Hoagland recalled that fiscal reform commissions have been attempted before with mixed success. For instance, in 1982, President Ronald Reagan established the Grace Commission, a group of business leaders tasked with finding inefficiencies. However, most of its recommendations were never implemented due to the need for congressional action.

Over the past 40 years, several fiscal reform commissions have come and gone, while the national debt as a percentage of the economy has only grown. The U.S. has not run an annual budget surplus since 2001.

The Department of Government Efficiency, which is not an official government agency, will not have any formal authority to cut federal spending. Its mission is to collaborate with lawmakers and the Office of Management and Budget to identify areas where rules can be changed to reduce costs. Mr. Trump has also suggested “impounding” funds allocated by Congress for certain programs, redirecting them to reduce the debt. Meanwhile, Mr. Musk and Mr. Ramaswamy have been reviewing Government Accountability Office reports to find government agencies that might be misusing taxpayer dollars.

Organizations advocating for fiscal restraint, such as the Committee for a Responsible Federal Budget, have recommended up to $700 billion in deficit reduction measures, though many of these proposals would be politically challenging to implement.

Some of Mr. Trump and the Republicans’ policies seem at odds with their stated goals of tightening the budget and eliminating waste.

The president-elect has indicated he wants to reduce the Internal Revenue Service’s enforcement powers, making it more difficult to track down tax evaders and collect revenue efficiently. Repealing the $80 billion allocated to the IRS in 2022 to combat tax fraud and modernize technology could add to the national deficit.

As discussions about cutting spending and reducing the deficit continue, lawmakers are also preparing to expand the 2017 tax cuts, which could cost over $4 trillion over the next decade—far exceeding the $2.5 trillion in spending cuts proposed by House Republicans.

“I’m concerned that they’ll talk about efficiency and spending cuts, but use the savings to fund things like tax cuts,” said Keith Hall, former director of the Congressional Budget Office.

Despite Mr. Trump’s recent focus on shrinking government, the self-styled “king of debt” has not shown much inclination toward fiscal restraint.

During his first term, the national debt rose by nearly $8 trillion due to tax cuts and increased government spending, including two rounds of pandemic aid. In 2018, Mr. Trump even called for bringing back earmarks—secretive funding for pet projects—to help break congressional gridlock. The Committee for a Responsible Federal Budget estimated that his policies could add up to $15 trillion to the debt over a decade.

During the most recent spending debate, Mr. Trump diverged from conservative tradition on the debt limit. Traditionally used by Republicans to extract spending cuts from Democrats, Mr. Trump suggested suspending the cap beyond his term or abolishing it altogether.

“For years, Congress and everyone else wanted to terminate ‘the Debt Ceiling,’ and this is the time to do it!” Mr. Trump said on social media.

Fiscal conservatives within the Republican Party rejected that idea this time, but Mr. Trump may try to align with Democrats in the future, who have long called for eliminating the debt ceiling.

Bharat Ramamurti, former deputy director of the National Economic Council under the Biden administration, said the outcome of the fiscal showdown showed that Mr. Musk and Mr. Ramaswamy would have limited influence over Congress’s spending decisions. The changes they helped impose on the legislation, he noted, did not significantly reduce its cost.

“I wouldn’t be surprised if we see a repeat of Trump’s first term, with more spending increases, tax cuts, and a growing national debt,” Mr. Ramamurti said.