Perception versus reality for US DOGE

The creation of the Department of Government Efficiency (DOGE), along with the incoming Treasury secretary’s goal of halving the deficit as a share of GDP, lend downside risk to our baseline forecast for federal spending. We don’t fully buy the tough talk just yet. Simple budget math lays bare that spending cuts of the magnitude suggested are unrealistic.

The DOGE isn’t a new concept. Our review of past commissions tasked with recommending fiscal reforms raises some big questions as to whether DOGE will have the right ingredients that made prior commissions successful.

What you will learn:

• The baseline already assumes Republicans achieve some budgetary savings via work requirements for certain welfare programs and Medicare payment reforms. However, the risk is Republicans tackle even more cost reductions than anticipated.
• We modeled three DOGE scenarios: One in which Republicans embrace many savings proposals from the FY2021 budget request; another in which they achieve savings through strict caps on discretionary spending; and third in which programs totaling more than $500bn are eliminated.
• The economic impact under the first two DOGE scenarios is modest. Spending reductions are the most aggressive in the third scenario, but even still, the economy manages to grow by 2% in 2026, down from 2.7% in the baseline, despite the sudden program cuts.
• Under the third scenario, the debt-to-GDP ratio is 4ppts lower five years from now compared to the baseline. The fiscal impact under the first two DOGE scenarios is modest, especially in the second scenario, underscoring that discretionary spending is not a key deficit driver.

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