This article is part of Macro Hive’s 2025 Grey Swan series, where we let our imaginations loose to try and predict low-probability, high-impact events that almost no one expects. You can read the full list here.
Could DOGE Do the Impossible?
In FY2024, total US government spending was $6.75tn against a total revenue of $4.92tn, resulting in a deficit of $1.83tn – an increase of $138bn from FY2023 (Chart 1).
Elon Musk, recently appointed to co-head the new Department of Government Efficiency (DOGE), has claimed to have a plan to cut $2tn in US spending (about 30% of total federal government spending). We are sceptical given Trump has promised not to cut entitlements, which are some of the largest line items in the budget (Chart 2). Even in the more optimist case, it will take years, but if Musk is successful, the US would get a small fiscal surplus, possibly during the Trump’s presidency, in particular if combined with other measures.
The Committee for a Responsible Federal Budget just published a report showing that reversing Biden executive actions could save up to $1.4tn, or up to $830bn (over the next 10 years) if certain rules are withdrawn and/or the courts rule various executive actions cancelling student debt to be illegal (Table 1). The report states that ‘Unlike most deficit reduction measures, reversing costly executive actions from the Biden Administrative would not require Congressional action, and could be done through the rulemaking process’.
Table 1 shows that policymakers could theoretically save up to $385bn by reversing healthcare actions, up to $550bn more by reversing student debt actions, and another $390bn by reversing other Biden administration actions. Finally, $80bn could be saved by restricting future executive actions, over the next 10 years.
While it is highly unlikely that Trump will hike taxes to reduce the deficit and stabilise the debt to GDP, Paul Tudor Jones has shown a combination of four measure would allow the incoming administration to increase revenues by about $1tn, but again over the next 10 years:
- Let the Trump tax cuts expire.
- Raise the payroll tax by 1% and apply to all wages.
- Increase the corporate tax rate from 21% to 25%.
- Increase the individual tax rate on top 4 tiers by 10% (top rate to 49.5%).
Together, these would enable the US to reach a primary balance without touching spending.
The bottom line, then, is that if the administration breaks a few electoral promises and allows for spending cuts, we should not completely dismiss the possibility of a fiscal surplus in the future, maybe before Trump’s presidency comes to an end. Yet if that does happen, the US economy will also likely experience slower growth, likely more Fed easing than currently priced, lower Treasury yields and a weaker dollar than otherwise.
+The SAVE plan was recently stayed in federal court, which will rule on its legality. The high number assumes SAVE is ruled legal and it is reversed both prospectively and retroactively. The middle number assumes it is ruled legal and reversed only prospectively (so those already enrolled are grandfathered). The low number assumes it is ruled illegal by the courts.
*These rules from the Biden Administration have not been finalized and some may be ruled illegal by the courts. The highest savings figure assumes the rules are finalized and ruled fully legal, the middle savings represents savings if enacted today given the Congressional Budget Office (CBO)’s “50% rule” for preliminary rules, and the $0 represents savings if these changes are withdrawn or struck down by the courts.
‘This is based on estimates from the Department of Education. CRFB estimates costs, and thus savings, would be much larger.
^These options appeared in an earlier CRFB analysis on easy deficit reduction options.
Source: The Committee for a Responsible Federal Budget.