DOGE Is a Dodge

Republicans have long been clear that the federal government has a spending problem. And they are right—to a point. The United States is currently experiencing a structural deficit, where government spending consistently exceeds its revenues, regardless of temporary economic fluctuations or exogenous shocks. Aside from a brief period from 1998 to 2001, the federal government has run a solid string of deficits over the past 60 years. In 2023, the U.S. government brought in revenues of $4.4 trillion. Total outlays stood at $6.1 trillion. The resulting deficit was $1.7 trillion or around 6.3 percent of GDP.

Yet spending is only part of our fiscal challenge. The U.S. government also faces a revenue problem, in that it generates less revenue as a share of GDP than it has in the past and less than many other advanced industrial democracies currently collect. Even a serious effort to curb government expenditure—and Elon Musk’s Department of Government Efficiency (DOGE) is far from that—is unlikely to result in recommendations that will actually curb our chronic deficits and put the nation back on a course toward fiscal solvency.

During a career in development banking spanning three decades and over forty countries, I spent countless hours sitting across the table from senior officials in various ministries of finance, planning, and public administration. Many of these countries were also in structural deficit. Development banks were willing to lend money to help these governments get back on the course towards fiscal sustainability, but only if they could demonstrate a credible plan for doing so. (As one former World Bank Country Director put it, “I’m willing to finance reform, but I’m not willing to finance the lack of reform.”) Our discussions inevitably centered around three sets of issues: (1) how to cut costs; (2) how to enhance revenues; and (3) how to achieve these objectives while not compromising the quality of government services, particularly for the most vulnerable.

What is striking with the current DOGE effort is how little serious attention is being devoted to these three basic questions. DOGE is ostensibly a cost-cutting effort, yet its focus to date has not been in the areas of greatest waste, fraud, and abuse. If it were serious, the obvious place to start would be the General Accounting Office (GAO) annual report, Fraud Risk Management. The latest report in April 2024 notes that the federal government loses an estimated $233 billion to $521 billion annually—low-hanging fruit and would be the first target in any serious cost-cutting exercise. GAO’s list of the top 37 High-Risk areas makes for a sobering read. Top priorities would include strengthening the management of the federal prison system, multiple Department of Defense programs, emergency loans for small businesses, NASA acquisition, federal food safety programs, the management of federal oil and gas resources, and VA health care and acquisition management. Health and Human Services is particularly vulnerable, and a ramped-up investment in audits could help reduce an estimated $100 billion annually in Medicare fraud.

Notably missing from the list are the actual areas of focus for DOGE’s efforts to date: USAID, the Department of Education, the Consumer Financial Protection Bureau, Voice of America, and others. DOGE’s moves have targeted only a narrow slice of the overall federal budget; rather than starting from where the money (and the fraud) are concentrated, they are instead going after programs and agencies that conservatives have long opposed.

DOGE’s promise to fire large numbers of civil servants is particularly quixotic. The size of the federal workforce has not increased markedly since the 1960s while the country’s population has grown by two-thirds and federal spending has quintupled. Some scholars now worry that there may, in fact, be too few government employees overseeing large numbers of contractors or grant programs, risking higher levels of fraud, abuse, and inefficiency. U.S. staffing across all levels of government is below OECD norms, and the federal government constitutes only a relatively small portion of this total. (More than 80 percent of government employment in the United States is at the state and local level.) Federal agencies may suffer from inappropriate skills mix and the odd redundancy. But there is no evidence that they are massively or even significantly overstaffed. And if they were, any reduction in force should have been narrowly targeted towards certain levels and categories of employees.

As any fiscal economist knows, expenditures are only half the story. At around 16 percent of GDP in 2023, federal revenues are relatively low compared to their historical levels.  America’s tax burden is also relatively low compared to other advanced industrial democracies. At around 25 percent of GDP in 2023, the United States was well below the OECD average of 34 percent in tax-to-GDP ratio (this figure also includes state and local taxes). Only two high income countries—Ireland and Chile—currently have a lower tax to GDP ratio.

One of the most consistent features of U.S. tax policy over the decades has been the reduction of taxes upon upper-income earners. Robert McCelland and Nikhita Airi note that, while average effective tax rates barely changed in the United States between 1945 to 2015, the average tax rates of high-income households fell sharply, dropping from about 50 percent to 25 percent for the highest .01 percent. Other scholars have noted that an extension of the Tax Cuts and Jobs Act (TCJA), whose benefits for individuals are currently scheduled to expire in 2025, would provide nearly half of the benefits to the top 5 percent of households currently making $450,000 or more. The non-partisan Congressional Budget Office estimates that extending the TCJA’s tax cuts for another 10 years will add over $3.7 trillion to the deficit.

Closing the tax gap through better enforcement of existing regulations would be a top priority in any serious deficit reduction exercise. The IRS estimates that in 2022, around 15 percent of taxes owed to the federal government under our existing tax code were not paid. Around 12 percent of this outstanding money was eventually recovered, but a whopping $606 billion was not. For this reason, many serious analyses of federal tax policy and enforcement—including some by conservative scholars—have argued for beefing up the IRS, with a particular focus on high-net-worth individuals and households. One recent study by Harvard University, the Treasury Department, and others found that the IRS pulled in $3.16 for each dollar spent auditing the top 1 percent and $6.29 for every dollar spent auditing the top 0.1 percent of filers. Yet Republicans in Congress and within the Trump Administration have shown scant interest in such measures.  Musk recently hinted that the IRS would be among DOGE’s next targets. At a time of large structural deficits and historic debt levels, gutting the agency responsible for collecting over 98 percent of federal revenues is a profoundly risky proposition.

DOGE may be well-crafted politically for this moment, as it is poised to deliver what key GOP constituencies want—tax cuts for the wealthy and revenge against the so-called “deep state” for the MAGA faithful—while conveniently ignoring the awkward fact that the fiscal math behind it simply doesn’t add up. In all likelihood, the fiscal legacy of the second Trump Administration will resemble that of the first. Plenty of promises, and even more red ink. And this time around, a less capable and more politicized federal workforce will be added to the mix. If a development bank were asked to support such a program, it would be a hard pass.

Robert P. Beschel Jr. is a Senior Non-Resident Fellow with the Middle East Council for Global Affairs in Doha. He was a Lead Public Sector Specialist with the World Bank and Global Lead for its Center of Government Practice.