Before the election, Elon Musk said he could find $2 trillion in federal spending cuts. After the election, he scaled that back to $0.5 trillion. Now that interest alone on the national debt is exceeding $1 trillion a year, a half-trillion cut isn’t going to be enough. Here are a few ways the federal government could save billions of dollars a year.
- End affordable housing programs. Research has shown that these programs, led by low-income housing tax credits, mainly benefit developers, not people who can’t afford housing. This is partly because they don’t significantly increase housing supply because, researchers have found, for every five subsidized housing units built, developers build four fewer non-subsidized units. As a result, and contrary to popular belief, these programs do nothing to improve overall housing affordability. Affordable housing programs have become particularly inefficient in recent years as spending on low-income housing has doubled even as the number of units built each year has declined. Savings: At least $11 billion a year.
- End public housing programs. These programs build expensive housing that is often poorly constructed and often seems aimed more at penning low-income people in particular neighborhoods than in improving their housing. As with affordable housing programs, they don’t make housing more affordable overall and the multi-family housing they do provide is widely considered to be undesirable. Savings: At least $10 billion per year.
- End federal transit capital grants and state of good repair grants. The capital grant program has turned transit agencies into construction companies that are no longer interested in actually carrying passengers. The state of good repair program encourages transit agencies to retain expensive and obsolete infrastructure when it should be replaced with modern, low-cost buses. Savings: $6 billion per year.
- Reduce federal highway funding to the amount collected in fuel taxes and other federal highway user fees. States should be able to maintain highways out of user fees and increase those fees if necessary to keep highways from deteriorating. Federal deficit spending on highways shields states from raising user fees. Savings: $5 billion per year.
- Stop wasting money on fire suppression. The Forest Service and other federal land agencies have perpetuated the false story that decades of fire suppression have led to a build-up of fuels that have forced the agencies to spend far more on fire suppression than they were spending two decades ago. In fact, this build-up of fuels is largely imaginary because most ecotypes don’t build fuels that way and even those that do haven’t built up much fuel because historic fire suppression programs haven’t been that effective. Before 2000, fire suppression costs averaged under $500 million a year. Today they are more than ten times that with questionable benefits for anyone other than the federal bureaucracies. Savings: At least $5 billion per year.
That’s $37 billion or just 1.85 percent of Musk’s $2 trillion target. But that’s also just five agencies or programs. The United States government lists well over 500 agencies on its web site. Many of them are smaller than the ones listed above, but many are much bigger.
The real obstacle to the $2 trillion target is that most federal spending — more than $5 trillion a year — is “mandatory”: things like interest ($1.2 trillion), social security ($1.5 trillion), and federal pensions ($0.2 trillion). Many of these can be reduced, but will require Congressional legislation to do so. Eliminating mandatory subsidies to agriculture, energy, telephone service, and community development alone would save nearly $100 billion a year.
The total of all discretionary programs, including most defense, is only $1.8 trillion a year, making it difficult to save $2 trillion on those programs alone. Still, Musk can save hundreds of billions of dollars in two ways. First, find programs that ought to be funded out of user fees such as highways, transit, and public lands and cut federal appropriations to those programs. Second, find programs that don’t work and are simply carried along by momentum and lobbying by the special interest groups that benefit from them, such as affordable housing and transit capital grants.
Musk’s argument is that Congress, not the president, sets the budgets and the president is required to spend the money. That’s a cop out especially considering that Musk ignored this when he made the $2 trillion promise before the election. In most cases, Congressional appropriations have loopholes that can allow the president to ignore them. For example, Congress requires that transit capital grants be cost-effective. All the president needs to do is find that no transit agencies have proven that the grants they have applied for are cost effective and he can save all of the grant money.
I can also think of ways of increasing revenues, such as by indexing fuel taxes to inflation and by allowed federal land agencies to charge fair market value for recreation and other resources, but in most cases such increases will require Congressional action. As the elected representative of all the people, and not just the ones who benefit from federal subsidies, the president should encourage Congress to take such actions.
Finally, don’t forget: Incentives count. The only way to make efficiencies last beyond Trump’s term in office is to change the incentives so that bureaucracies and, if possible, elected officials are rewarded for saving money, not spending it.
