How to "Save" $2 Trillion in Government Spending

From Dave Dayen here: 

Elon Musk wants to cut government spending. But the waste in the system goes to elites like him. Here’s a better way to bring down deficits….

This article should come with a warning label: We should not cancel the equivalent of 7 percent in annual GDP all at once, which would trigger a deep recession. But identifying the real sources of inefficiency in our government—the trillions funneled to elites—can preserve resources for programs to help those in need….

Ramaswamy has called for a 75 percent personnel reduction across federal agencies. This would hardly save anything. According to the Congressional Budget Office, there are about 2.3 million federal employees with total compensation in 2023 of $271 billion; that’s 4 percent of the U.S. budget. Federal employees were roughly 4.3 percent of all workers in 1960 and 1.4 percent today. As a result, we’ve seen an explosion in contractors undertaking tasks that government workers used to perform. Nearly three times as much money is spent on contractors than federal workers.

Slashing the federal workforce, almost two-thirds of which is at the Departments of Defense, Veterans Affairs, and Homeland Security, would likely lead to more expensive contractors, and also increase the $247 billion in improper payments the government makes every year….

Physicians for a National Health Program (PNHP), which advocates for a single-payer system, noticed even greater savings potential in the MedPAC report. Traditional Medicare sets a “benchmark” for spending on the average beneficiary. Several studies have shown that MA plans spend between 11 and 14 percent less, because they cherry-pick healthier patients, even after accounting for upcoding to make them look sicker. Increasing denials of care allows MA plans to rake in even more profit.

In all, PNHP found that MA plans charge the government at rates $140 billion per year higher than traditional Medicare….

The government also spends massive amounts of money on prescription drugs. In 2022, U.S. drug prices were 178 percent higher than in 33 other industrialized nations, according to a report funded by the Department of Health and Human Services. Some of these drugs are sold at 20 to 30 times the cost of production and distribution; pharmaceutical profit margins are significantly higher than private-sector counterparts…. Using federal statutes to seize certain drug patents and distribute them to generic manufacturers that charge less would also save billions. But more structurally, we could overhaul the monopoly patent system that gives drug companies exclusive rights to charge whatever they want for a set period….

Of course, moving to a single-payer system wholesale could yield over half a trillion dollars in savings from administrative expenses alone, per the People’s Policy Project. But even if the nation isn’t ready for single-payer, limiting private-sector profit-taking and boosting public provision comes to roughly $490 billion per year….

In 2021, the Congressional Budget Office offered a range of options to take the Pentagon budget down by $1 trillion over a decade. Gledhill estimated significant savings from service contracts, which make up close to half of all Pentagon obligations. Many are redundant or could be done more cheaply in-house. Other possibilities include unwinding ineffective contract orders and bringing in other firms to drive down costs through a competitive bidding process….

Putting a number on Pentagon savings is difficult, but using CBO’s conservative figures would net $100 billion per year. Some people I talked to think that could double. Let’s split the difference and say $150 billion a year.

The kind of procurement reform in service contracts and equipment orders needed at DOD could be replicated across the government, insourcing operations and ensuring that taxpayers aren’t routinely ripped off. The Project on Government Oversight has found that federal employees are almost uniformly less expensive than contractors. The Organization for Economic Co-Operation and Development estimates that one-fifth of government procurement globally is siphoned away through bid-rigging. In the U.S., that translates to $150 billion a year. As much as $521 billion a year is lost due to fraud, according to the Government Accountability Office. As Matt Stoller has written, management consultants with a tendency to do nothing but add bloat cost the government $70 billion in 2023.

…. the tax gap, the distance between tax liability in a given year and actual taxes paid. In 2022, the last year studied, the IRS put this number at an astonishing $606 billion per year. This gap is concentrated among the top 1 percent, who evade $163 billion per year, according to a 2021 Treasury Department report….

…A one-percentage-point increase in the corporate tax rate equals about $13.5 billion per year in revenue. Setting a 25 percent tax rate through stock returns would lead to almost no difference between the nominal and the effective tax rate. For the past couple of years, the effective corporate tax rate has been around 20 percent. Add five points and you’re up to $65 billion per year….

…There are several other major tax expenditures; the Tax Policy Center lists the top 13 as costing between $1.12 trillion and $1.38 trillion per year, depending on the estimate. It’s a dizzying amount of money, funneled mostly from working people to elites….