Fewer federal workers yet more debt

Fewer federal workers yet more debt

It was to be expected that in his second term, the president’s cabinet would be engaged in producing chaos – but disarray? That they have done at every level. The cozy job security of federal employment has disappeared. Those deemed disloyal have been fired and the mission of virtually each agency has been rewritten. Department of Labor (DOL) data show that, by the end of 2025, federal civilian employment had fallen to the smallest share of the employed workforce on record in data going back to the 1930s. The Department of Education has been gutted with much of the funds routed to the states. I am totally in favor of this. The “Education” department has never been about education. Likewise, the “Energy” Department has never been about making the country energy self-sufficient. The Department of Justice has literally been gutted with around 80 percent of the department’s personnel being laid off or reassigned. The Commerce Department fired the members of its advisory boards and replaced the statisticians who report labor, employment and inflation data with people who generate results more favorable to the administration. The Department of Agriculture (USDA) experienced a larger decline in staffing in a matter of months than in any year since at least the 1970s. The President’s budget proposed cutting National Park Service (NPS) funding by 37 percent in 2026 and cutting National Science Foundation (NSF) funding by 57 percent. FEMA staffing was cut by 14 percent. The National Oceanic and Atmospheric Administration (NOAA), which hosts the National Weather Service, suffered a 19 percent cut in staffing. Farm Service Agency staffing was cut by almost 22 percent. The National Park Service, which had a workforce roughly 12 percent smaller in September 2025 than a year earlier. The Consumer Financial Protection Bureau was dismantled.

The Administration appears to have already exceeded its public goals in some agencies, such as Defense (data are for civilian workforce only), Health and Human Services, Justice, State, Treasury, Veterans Affairs (VA), and EPA. In other agencies, such as Agriculture, Education, HUD, Labor, and SSA, it appears to have gone most of the way to achieving the proposed reductions. And agencies like Commerce and Transportation saw significant losses even though the President’s proposed budget called for no staffing reductions. All total, there are now over 400,000 fewer federal workers now than when Trump took office. Do you miss them? The mere fact that we generally do not miss them is a testimony to how bloated the Federal government was – and still is.

You would think that with the diminution in the federal workforce and with republicans in the majority in the House and the Senate, there would a push to lower the deficit. But during Trump’s first year back in the White House the administration added $2.25 trillion to the deficit. Remember DOGE? It was disruptive but what good did it do? Elon Musk showed he cared more about the political limelight than he did for new car sales and his efforts turned out to be more for show than for substance. As of Jan 1, the national debt was $38.4 trillion. Do I hear $40 trillion by next January 1?

The president used to make clucking noises about lowering the deficit. Remember when he promised to eliminate the federal debt in 8 years? No more. He is proposing to increase the defense budget by $500 million. This was even before the war on Iran. Yet I bet that he gets very little of that. The few budget hawks left will demand offsets on the discretionary side but won’t get it because the democrats will once roll out the tired “You are balancing the budget on the backs of the poor!” Anyway few republicans have the stomach to cut the budget either. Consider where the administration’s proposals for fiscal 2026 ended up.  The administration asked for a 54% for the EPA and got 4%. It asked for a 41% reduction for the Centers for Disease Control and Prevention and got 1%. It asked for a 28% cut from Health and Human Services and got almost nothing. There’s no reason to think anything different will happen this time. Of course, since congress loves to spend more for “emergencies” maybe there will be more defense spending authorized on an “emergency” basis.

CBO (one of my old agencies) says that if we keep going down this path the deficit will be $56 trillion by 2036 or 120 percent of GDP. Since that is only 10 years away odds are that I may still be alive. Do you want to bet that CBO is wrong? I wouldn’t. Right now we are paying $1 trillion a year in interest on the current debt. It will be double that in 2036 and will amount to two thirds of federal borrowing. This is not sustainable. 

The president had been making noise about the Fed lowering the cost of borrowing by artificially lowering the Fed funds target rate. But since the bulk of Treasury borrowing is in the 10 year notes and not the 30 day bills, he needs to look elsewhere for lower rates. He should look in the mirror because his policies lead to higher long term rates as I have detailed many times in the past. The increase in the debt will also lead to increase in borrowing costs as inflationary expectations rise, the value of the dollar falls and bond holders demand higher rates given the higher risks.

Wouldn’t it be nice if the administration got serious about control of spending and paying down the debt? Wouldn’t it be nice if the president were to go on the air and tell the American public what is the plan to do this. Wouldn’t it be nice if he sat down with the members of both parties to lay out his vision and dare them to oppose it? I have long advocated how to do this. I have said that if we limit the growth in the budget to that of long term GDP to no more than 2.2 percent per year, that would be a start. Also since taxes stay around 20 percent of GDP no matter how the code is manipulated, I have proposed that the best plan for fiscal stability is have spending set at 18 percent of the previous year’s GDP. That would mean that the president would have to propose a budget within these limits and the congress would have to adhere to these limits. It will take some adjustment because as of now spending on the nondiscretionary side is almost equal to tax collections, meaning that everything else in the budget has to be paid for by borrowing. 

But apparently there is no plan – at least not an obvious one. The president did not even mention the national debt in his state of the union address. His economic message was “I don’t know why you feel so bad because things are better than they ever have been – and anyway it’s all Biden’s fault.” This is not encouraging. The debt is becoming unsustainable and in the famous words of Rev Jeremiah Wright, “These chickens will come home to roost.”