Musk and Ramaswamy Hit Capitol Hill for DOGE ‘Brainstorming’

Musk and Ramaswamy Hit Capitol Hill for DOGE ‘Brainstorming’

Musk brought his son to Capitol Hill.
USA Today Network
By Yuval Rosenberg and Michael Rainey
Thursday, December 5, 2024

Happy Thursday! Here’s what we’re watching.

Musk and Ramaswamy Arrive on Capitol Hill for DOGE ‘Brainstorming’

Elon Musk and Vivek Ramaswamy met with congressional lawmakers on Thursday as they ramp up their agenda for DOGE, the new non-governmental Department of Government Efficiency, tasked with recommending ways to cut spending and regulations.

Details of the talks were scarce. “There won’t be a lot of detail for the press today, and that’s by design, because this is a brainstorming session,” House Speaker Mike Johnson told reporters.

Musk has said he thinks DOGE can cut almost a third of the federal government’s more than $6.5 trillion in annual spending. Analysts and budget experts have said that’s essentially impossible, at least not without inflicting massive economic pain. Many lawmakers reportedly have similar concerns. “Some members left the meeting highly skeptical that Musk and Ramaswamy will be able to get anything like $2 trillion in spending cuts through Congress,” The Hill’s Emily Brooks and Miranda Nazzaro report.

They add that the DOGE leaders failed to provide much of an answer to a question “about how feasible it is to cut $2 trillion in annual spending, given how hard it was to reach a deal to cut $1.5 trillion over 10 years in the 2023 Fiscal Responsibility Act that also raised the debt limit — and all without touching entitlement spending.”

Republican Sen. Thom Tillis of North Carolina explained that it was still “way too early” to lay out the priorities of the new DOGE Caucus, according to Politico, though he suggested that rolling back regulatory red tape would be on the incoming Congress’s initial agenda and he stressed that the effort to scale back the federal government would stretch throughout the four years of the Trump administration.

Musk, the Tesla founder, reportedly told the media that he is looking to eliminate tax credits, including those for electric vehicles.

After meeting with Musk, Republican Sen. Susan Collins of Maine told reporters that she was “very impressed” and that their conversation was about “how we could improve the efficiency and effectiveness of government to better serve the American people and to save taxpayer dollars.”

She added that they “did not go through any kind of list of cuts or anything like that."

Tennessee Republican Sen. Marsha Blackburn announced that she will be introducing legislation the “freeze federal hiring, begin the process to relocate agencies out of the D.C. swamp, and establish a merit-based salary system for the federal workforce.”

And Rep. Tom Cole of Oklahoma, chairman of the House Appropriations Committee, told reporters that there was some talk of allowing President-elect Donald Trump to use impoundment to cut spending authorized by Congress. “The top appropriator did not take issue with the president-elect potentially using executive power to usurp Congress and said he was ‘happy to have the help’,” The Washington Post reports.

Extending the Trump Tax Cuts Won’t Do Much for the Economy, CBO Says

Saying they want to fulfill a pledge made by President-elect Donald Trump and avoid burdening the economy with higher taxes, Republicans in Congress plan to extend the individual tax cuts passed in 2017 and set to expire at the end of 2025, at a cost of more than $4 trillion in lost revenues over 10 years. But a new analysis from the Congressional Budget Office raises questions about the economic value of extending the tax cuts, finding that it would do little to increase growth while producing a slightly smaller economy in the long run relative to allowing the tax cuts to expire as scheduled.

The tax increase produced by the expiration of the 2017 tax cuts — which mostly affect individual tax rates but also include provisions related to small businesses, estate taxes and the state and local tax deduction (see this summary from Brookings for a full list) — would slow economic growth, CBO said, with real gross domestic product being 0.1% smaller on average from 2025 to 2034, driven in large part by a reduction in aggregate work hours due to higher taxes.

At the same time, higher taxes bring in more federal revenue, reducing borrowing by the government and shrinking deficits by $3.7 trillion over 10 years. Over the long run, less government borrowing lowers interest rates and increases private investment, raising the growth rate.

Overall, the effects basically cancel each other out, CBO said. And by 2034, the economy would be slightly larger if the tax cuts were allowed to expire, relative to extending them. “In CBO’s current-law economic forecast, the expiration of the individual income tax provisions slows the growth of potential GDP in the short run but accelerates it in 2029 and beyond, as the crowding in resulting from smaller deficits offsets the reduction in the labor supply,” CBO said. “Expiration increases the long-term growth of potential GDP by about 6 basis points.”

The political battle ahead: The CBO analysis is not expected to slow the Republican effort to extend the 2017 tax cuts. The biggest hurdle for GOP lawmakers is likely the cost of the extension, though that may be dispensed with easily enough by simply changing the accounting basis for the extension from “current law,” which assumes the tax cuts will expire, to “current policy,” which includes the tax cuts as they currently are — a legal maneuver that would reduce the price tag to $0.

Still, the CBO report provides ammunition to those who oppose the tax cut extension. Saying “the looting has begun,” Senate Budget Chairman Sheldon Whitehouse issued a statement highlighting the analysis. “Far from unleashing record-breaking growth, the next Trump tax scam will make hardworking families worse off, shrink our economy, and blow a $4.6 trillion hole in the deficit,” he said.

Richard Phillips, the tax policy director for Sen. Bernie Sanders, noted on social media that the CBO analysis undermines the Republican argument that tax cuts always boost the economy and usually pay for themselves. “The best economic evidence shows that the Trump tax cuts will reduce, not increase economic growth,” he said. “The idea that growth will pay for the tax cuts is not even right directionally.”

Penn Economists Pitch Reforms to Cut Debt Without Economic Damage

Economists at the Penn Wharton Budget Model have constructed a package of 13 major tax and spending reforms that they say can grow the U.S. economy while also reducing federal debt and enhancing the social safety net.

In what they describe as “arguably one of the most ambitious computational public finance experiments performed to date,” the team of economists proposed wide-ranging changes that they say would reduce projected federal deficits by 38% over the next 30 years while also growing GDP by 21%, lowering health insurance premiums by 27% and reducing old-age poverty. After-tax incomes would rise for the bottom 20% of earners as of 2054 and climb for the top 1% of households but fall for those in the middle.

“A common misunderstanding is that serious debt reduction must come at the expense of economic growth or the social safety net,” the report says. “We show that this is incorrect. The reforms herein produce sustained debt reduction, grow the economy, reduce carbon emissions, almost fully close current gaps in working-age health-care coverage, and reduce poverty among retirees.”

The proposed changes include a simplified tax code that would lower the top individual tax rate to 28% while also taxing capital gains and dividends as ordinary income, expanding the payroll tax base to cover all pass-through income, eliminating “stepped-up basis” for inherited assets and taxing employer-sponsored health insurance premiums as income. The plan would also disallow itemized deductions, except for charitable contributions, and replace the standard deduction with a partially refundable tax credit.

The Penn Wharton team also float some major changes to shore up the long-term finances of entitlement programs. Their reforms would raise the Social Security retirement age from 67 to 70 in phases between 2037 and 2056 and lifting the Medicare eligibility age from 65 to 67 by 2036. The plan would also include a new minimum Social Security benefit at the federal poverty line and new maximum benefits. For people born in 1994 or after, Social Security would convert to a “retiree poverty-relief program.”

“The minimum benefit would ensure that retirees remain above the federal poverty line, reducing the retiree poverty rate from 11.3% in 2023 to zero,” their plan says. “Meanwhile, the new maximum benefit, significantly lower than under current law, would help secure Social Security’s long-term solvency. By flattening benefits across income levels, this policy would largely decouple Social Security payments from individual earnings history.”

Medicare, meanwhile, would convert to a “premium support” model of the sort favored by some Republicans, in which the federal government shares the cost of insurance premiums.

The plan also calls for major immigration reform that doubles the number of legal immigrants allowed each year and requires all immigrants to buy health insurance without federal funding. And it would levy a tax of $50 per ton of carbon emitted starting in 2025 with the aim of cutting greenhouse gas emissions by about 16% by 2054.

The bottom line: “The ideas in the report could be a difficult sell to federal policymakers,” Julie Zauzmer Weil writes at The Washington Post. “But Kent Smetters, who led the project, said the analysis shows that deficit reduction can coexist with economic growth and preserving social safety-net programs.”

“I view it as sort of a proof of concept,” Alan Auerbach, an economist at the University of California at Berkeley, told the Post. “If you’re willing to implement policies that have political opposition, then you can get somewhere.”

Send your feedback to yrosenberg@thefiscaltimes.com.

Fiscal News Roundup

Views and Analysis