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mostlysignssomeportents · 1 month ago

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It's pretty easy to cut $2 trillion from the federal budget, actually

Picks and Shovels is a new, standalone technothriller starring Marty Hench, my two-fisted, hard-fighting, tech-scam-busting forensic accountant. THIS IS THE LAST DAY to pre-order it on my latest Kickstarter, which features a brilliant audiobook read by Wil Wheaton.

If Elon Musk wants to cut $2t from the US federal budget, there's a pretty straightforward way to get there – just eliminate all the beltway bandits who overcharge Uncle Sucker for everything from pharmaceuticals to roadworks to (of course) rockets, and then make the rich pay their taxes.

There is a ton of federal bloat, but it's not coming from useless programs or overpaid federal employees. As David Dayen writes in a long, fact-filled feature in The American Prospect, the bloat comes from the private sector's greedy suckling at the government teat:

https://prospect.org/economy/2025-01-27-we-found-the-2-trillion-elon-musk-doge/

The federal workforce used to be huge. In 1960, federal employees were 4.3% of all US workers; today, it's 1.4%. Zeroing out the entire federal payroll would save $271b/year (while beaching the US economy!), a mere 4% of the federal budget.

On the other hand, zeroing out the budget for federal contractors would save over a trillion dollars – the US spends 4 times more on private sector contractors than it does on its own workers, and while some of those contractors are honest folks giving good value for money, the norm is for federal contractors to pick the public's pocket and then use the proceeds to lobby for more fat contracts.

One key job we ask our federal employees to do is root out private sector fraud in federal contracting. We should hire more of these people! Private contractors steal $274b/year from the public purse – nearly enough to pay for all the employees in the federal government:

https://www.gao.gov/assets/gao-23-106285.pdf

Musk doesn't know any of these, and he doesn't care to know. As Dayen writes, he's doing "policy by anecdote." Take Ashley Thomas, the director of climate diversification for the US International Development Finance Corporation. Musk sicced a mob on her, decrying her for doing a "fake job" that was somehow related to "DEI." But Thomas's job isn't employment diversification – it's crop diversification.

If Musk wanted to run DOGE as a force for waste-elimination, he wouldn't be attacking the Corporation for Public Broadcasting and PBS (whose budget accounts for 0.012% of federal spending). He wouldn't be attacking federal fiber subsidies (he's mad that he can't get more subsidies for his dead-end satellite service that caps out at one ten-millionth of the speed of fiber). He wouldn't be attacking high-speed rail (which competes with his Tesla swasticars). He wouldn't be fighting with the SEC (which defends the public from costly stock swindles, which is why they've been investigating Musk for seven years).

He could, instead, go after private sector Medicare waste. 33 million seniors have been suckered into switching from federally provided Medicare to privately provided Medicare Advantage. Overbilling from Medicare Advantage (whose doctors are ordered to "upcode" patients to generate additional bills) costs the public $83b/year:

https://www.medpac.gov/wp-content/uploads/2024/03/Mar24_ExecutiveSummary_MedPAC_Report_To_Congress_SEC.pdf

Medicare Advantage patients are, on average, healthier than Medicare patients (Medicare Advantage giants like Unitedhealtcare cream off the cheapest-to-service patients). Yet, this healthy cohort costs more to treat than their sicker cousins on the public plan – the fraud costs us about 11-14% of the total Medicare bill, and we could save $140b/year by zeroing that out:

https://pnhp.org/system/assets/uploads/2023/09/MAOverpaymentReport_Final.pdf

Zeroing out Medicare Advantage overbilling would pay for "an out-of-pocket spending cap, a public drug benefit, and dental, hearing, and vision benefits" for every Medicare patient with tens of billions to spare.

Of course, as Dayen points out, the guy in charge of Medicare is Dr Oz, who has spent years shilling for Medicare Advantage, while holding massive amounts of stock in Unitedhealthcare, the nation's largest Medicare Advantage provider, and the worst offender for Medicare Advantage overbilling.

Then there's Medicare itself. Rates for Medicare doctor reimbursement are set by committees of specialists, who award themselves sky-high rates while paying rock-bottom wages to the frontline general practitioners who do the heavy lifting. Lowering specialists rates to match the rates paid in Canada and Germany would save the federal government $100b/year:

https://cepr.net/rfk-jr-physicians-pay-schedules-and-the-elites-big-lie/

Then there's Big Pharma. For years, Congress legally forbade Medicare and Medicaid from negotiating drug prices, which is why the US government pays the highest rates in the world for drugs developed in the US, with US federal subsidies. US drug prices are 178% more than other wealthy countries, and many drugs are sold at 20-30x the cost of production:

https://aspe.hhs.gov/reports/comparing-prescription-drugs

A few of these drug prices are going to come down in the coming years, thanks to timid, but long overdue action from the Biden administration. To really tackle a source of government waste, the US government could use its "march in rights" to federalize production of the most expensive drugs:

https://prospect.org/day-one-agenda/force-drug-companies-to-lower-prices/

One possibility floated by economist Dean Baker is for the US government to invest $100b/year in clinical trials, keeping the patents for itself and licensing multiple manufacturers to compete to produce these publicly owned drugs, which would save an estimated $500b/year:

https://cepr.net/financing-drug-development-what-the-pandemic-has-taught-us/

Then there's price-gouging, useless middlemen like Group Purchasing Organizations who soak the public purse for $20b/year – a "moderate" enforcement action could cut that to $10b. Speaking of eliminating middlemen, community health centers are a way cheaper source of care than big hospitals – $2371/year cheaper per patient, per year. By subsidizing these, the US government could save another $20b/year:

https://www.ohiochc.org/news/310956/Landmark-Study-Confirms-Medicaid-Cost-Savings-at-Health-Centers.htm

Next, Dayen moves onto the Pentagon, which pulled in $841b last year but has failed seven consecutive audits:

https://thehill.com/policy/defense/4992913-pentagon-fails-7th-audit-in-a-row-but-says-progress-made/

The DoD firehoses money over private sector contractors, like the $3.6b it hands over to Musk's Spacex every year – a number Musk hopes to grow through Spacex's participation in a new consortium:

https://www.ft.com/content/6cfdfe2b-6872-4963-bde8-dc6c43be5093

Military contractor wastage is the stuff of legend, like the $2t F-35 Joint Strike Fighter, a lemon that has over 800 outstanding defects and was just greenlit for another year's worth of full funding:

https://www.bloomberg.com/news/articles/2021-07-13/lockheed-f-35-s-tally-of-flaws-tops-800-as-new-issues-surface

This kind of wasteage isn't merely shameful, it's illegal. The Nunn-McCurdy Act requires that these large-scale boondoggles be reviewed with an eye to shutting them down. But when beltway bandits like Northrop Grumman’s produce expensive lemons like Sentinel, the DoD continues to hand public money to them, citing "national security":

https://www.defense.gov/News/Releases/Release/Article/3829985/department-of-defense-announces-results-of-sentinel-nunn-mccurdy-review/

The DoD contracts out so much of its essential functions that it literally doesn't know what it has. It pays contractors and subcontractors to produce parts for its systems, but has no way to know if those parts have actually been produced. Meanwhile, private equity rollups like Transdigm have merged every single-source aerospace supplier and jacked up the price of spare parts for existing military systems, pulling down 4,500%+ markups:

https://theintercept.com/2019/05/28/ro-khanna-transdigm-refund-pentagon/

To estimate the easy military savings – the ones that won't require shutting down jobs programs scattered in every key Congressional district – Dayen takes the CBO's estimate and cuts it in half, to get an annual savings of $150b/year.

Then there's general prodcurement, where the GAO estimates the US loses $150b/year to bid-rigging and another $521b/year to fraud (the USG also spends $70b/year on management consultants who do no discernible useful work). Dayen estimates the annual savings from "stringently enforcing fraud and abuse, insourcing operations, and no longer paying for bad advice" at $150b/year.

Then there's tax cheating. The IRS estimates that it undercollects about $606b/year in taxes. The top 1% account for $163b/year of that (Elon Musk's own effective tax rate is just 3.27% as of the five years preceding 2021, the year for which we have his leaked tax return; he paid no taxes in 2018). Every dollar the IRS spends on auditing brings in $2.17 in tax, and every dollar the IRS spends auditing the wealthy generates $6.29 in tax. A dollar spent auditing the top 10% brings in $10:

https://www.timesfreepress.com/news/2024/dec/01/opinion-the-irs-shows-what-government-efficiency/

Audits are durable sources of tax. People who've been burned by an audit are far more honest in the decade after that audit.

The GOP has zeroed out Biden's IRS increases. The CBO estimates that a fully funded IRS could easily increase the taxes it collected by a net figure of $200b/year.

There's also new sources of tax. Dayen likes Dean Baker's proposal for taxes on stock returns: just add dividends and stock appreciation at the end of the year, then multiply by the tax rate. Baker says this is a loophole-free way to bring the effective corporate tax rate up from 20% to 25%, generating $65b/year:

https://cepr.net/winning-the-tax-game-tax-stock-returns/

This would be especially hard on heavily financialized companies with "impossibly high stock price/earnings ratios" – e.g. Tesla.

Dayen also proposes rejigging the tax rate on retirement and health insurance plans, where nearly all the tax breaks are scooped by the highest earners. The Tax Policy Center has $1.12-$1.38t/year worth of other tax reforms that would shift the tax burden from working people to the idle rich:

https://taxpolicycenter.org/briefing-book/what-are-largest-tax-expenditures

Dayen says, "let's ask for about 20% of that" and ballparks the tax income at $200b/year.

How about subsidy cuts? $10b/year in fossil fuel subsidies. Eliminating the notorious sources of fraud in crop insurance would save $5b/year:

https://www.gao.gov/assets/gao-06-878t.pdf

There's $7b/year in subsidies to the Home Bank Loan system and $5b/year lost to pass-through entity loopholes.

Add it all up and you're saving $1.4215t/year without even breaking a sweat, just by tacking (some of) the country's worst looting and tax evasion. Dayen points out US expenditures will fall even more than this, because it won't be paying as much T-bill interest if it doesn't spend this money. We could also just make the Fed stop using the blunt, expensive tool of interest rate hikes to manage inflation. There's plenty of scenarios where interest payments result in the remaining $580b/year in savings, bringing the total up to $2t.

Now, sucking $2t/year out of the US economy all at once – even $2t in waste and fraud – would not be good for America! That kind of economic shock would bring the US economy to its knees, for years to come. All that money still fuels the demand side of the economy. But a slow rampup, and more public spending on useful programs (say, climate resiliency and retrofitting), would strengthen the economy while still bankrupting the fraud sector.

DOGE is wildly unpopular with the American electorate – even large pluralities of Republicans think its stupid. Campaigning on cutting fraud and profiteering would be a wildly popular way for Democrats to separate themselves from Republicans. Few Democrats are rising to the occasion, though.

Check out my Kickstarter to pre-order copies of my next novel, Picks and Shovels!

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2025/01/27/beltway-bandits/#henhouse-foxes

Image: Steve Jurvetson (modified) https://www.flickr.com/photos/jurvetson/52005460639/

CC BY 2.0 https://creativecommons.org/licenses/by/2.0/

#pluralistic #doge #elon musk #Vivek Ramaswamy #beltway bandits #procurement #government efficiency #public sector capacity #gao #government accountability office #david dayen #the american prospect

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