Here’s a way for Trumpsters to show they are actually serious about reducing the national debt

Like a cruise ship steaming toward an iceberg, America’s economy is headed for disaster.

The federal government reports an interest-bearing debt of $37 trillion. However, the actual unfunded obligations of the government, according to the Medicare and Social Security Trustees’ reports, are an unfathomable $158.6 trillion.

Yet the band plays on. In the latest game of chicken to avoid the dreaded but largely imaginary “government shutdown,” Democrats stood fast on the theory that their electoral success depends on shipping the maximum number of dollars out the door. Republicans once again proved an inadequate bulwark. Those taking a principled stand against business as usual were denominated “far-right obstructionists” and run over.

The current Republican plan combines a $4.5 trillion tax cut with doubtful spending reductions of $2 trillion, a plan the Congressional Budget Office (CBO) projects will eventually raise the interest-bearing debt to $60 trillion. (Reminder: the R’s are the cost-cutting party.)

Trump’s deficit-busting credentials are suspect. During his first term he added debt at twice the annual rate that Barack Obama did. Nevertheless, he has unleashed a dramatic program of mass firings, contract cancellations and agency reduction/elimination.

Serious cost cutters know that the most effective strategy is to cut where the fiscal impact is high relative to the resistance produced. The DOGE strategy is the exact opposite, already producing highly publicized and resented cuts with no possibility, even if fully implemented, of resolving our debt crisis.

The elimination of all federal civilian employees, no matter how useless and overpaid many are, would save only 3% of the federal budget. To save money, you have to go where the money is. By far the largest “bucket” of federal spending is transfer payments, which are $3.19 trillion of the $6.7 trillion total budget in 2023.

Federal subsidies to states, including Medicaid, cost $1.15 trillion, while debt interest of $.9 trillion is not available for cutting. Purchases of supplies and salaries which fund the military and all other governmental functions cost a combined $1.4 trillion, yet provide relatively scant opportunity for significant reductions.

Meanwhile, the two parties dare each other to actually cut transfer payments and “push granny over the cliff.” Trump’s response is to adamantly repeat that he will never in any way “cut Social Security, Medicare or Medicaid benefits.”

This war of words has the unfortunate effect of handcuffing those legitimately trying to plan for the total depletion of the Social Security and Medicare trust funds, scheduled to occur within the decade. It also rules out some of the non-draconian solutions available, like work requirements for the able-bodied and gradually raising the retirement age.

When and if we get serious about cost-cutting and generational fraud, a good place to start would be Medicaid, the most abused and inefficient welfare program. Spending on Medicaid has grown an inflation-adjusted 671% since 1990. In fact, as Senator Phil Graham recently pointed out in the Wall Street Journal, the real purchasing power of total government transfer payments is 20 times greater than when the War on Poverty began in the 60s, while the official poverty rate remains at 11.6%.

How can that be? Gramm provides the key insight. Eligibility standards for means-tested programs, including Medicaid, are based on the Census Bureau’s calculations. But the Census vastly overstates the extent of poverty because it doesn’t count as income 88% of the transfer payments, including food stamps, refundable tax credits and Medicaid itself. This incoherent bias in calculating income eligibility has led to massive waste, far exceeding DOGE’s projected savings.

Interestingly, the CBO in January developed a new metric for determining “poverty” in the traditional sense of not having enough resources to meet basic needs. When transfer payments were deemed income, which they obviously are, the actual poverty rate fell to 0.8%.

This is an opportunity to save substantial sums without harming the truly poor. $1.48 trillion in welfare benefits annually go to families who do not actually qualify as poor, using the CBO’s calculation of counting transfer payments as income. Simply using the CBO methodology, combined with work requirements and limiting welfare benefits to those genuinely in need, would generate meaningful savings if we had the political courage to do so.