The U.S. statutory debt ceiling is an absurd, arbitrary, and worthless political institution, yet it also poses a profound danger of throwing the economy into a full-blown crisis whenever it looms. Elon Musk’s behavior over the past month is eerily similar—including the exact mechanisms through which this behavior could cause a crisis. If the statutory debt ceiling is a potential economic crisis looking to leap off paper legislation, Musk and his Department of Government Efficiency (DOGE) team are a potential crisis blundering through the physical (and virtual) halls of government.

Let’s start with a quick recap about the debt ceiling and how it could cause a crisis. The U.S. Treasury draws on banking accounts at the Federal Reserve to fund federal governmental activities—remitting paychecks to federal government employees, sending Social Security checks to beneficiaries, reimbursing doctors for treating Medicare-covered patients, paying defense contractors and interest to bondholders, and so on. These accounts are fed on an ongoing basis by both tax revenues and the proceeds from selling bonds (debt). But because the United States has a statutorily imposed limit of how much outstanding debt is allowed, in theory the debt ceiling means that when it’s hit that Treasury would no longer be allowed to sell bonds and deposit these proceeds. In this scenario, accounts at the Federal Reserve would dwindle as they are now only fed by ongoing taxes, which are insufficient to cover all spending. It’s worth noting that this would be such a disastrous outcome that policymakers should feel obligated to engage in any possible workaround.

The U.S. is currently running a federal budget deficit of just over 6% of gross domestic product (GDP). If the debt ceiling was allowed to bind spending at levels that could be financed only by taxes, federal spending would have to be cut instantly by over $1.5 trillion (on an annualized basis—equal to roughly $130 billion per month). This $1.5 trillion is people’s incomes throughout the economy (whether they are federal employees or contractors or Social Security recipients or doctors and hospitals reimbursed by federal health programs). As incomes were slashed, these households would pull back on spending. Businesses losing customers would pull back investment. A vicious spiral leading to recession would begin with shocking speed.

Further, throughout U.S. economic history the downward spirals of economic crises were ended entirely because the federal government’s taxes and spending have acted as “automatic stabilizers”—taxes fell and spending rose as unemployment soared and the economy entered recession. But in a crisis driven by the debt ceiling, as taxes fall spending would have to fall further. Instead of acting as an automatic stabilizer, the federal government would act as a crisis amplifier.

This extremely grim set of totally predictable outcomes is why we’re so strident that the debt ceiling should be abolished. It serves no useful purpose and only provides a means through which extremists in Congress can do profound damage to working people. It also needs to be raised soon to avoid this kind of potential crisis.

But for now, another threat of political zealots and the crises they could cause looms even larger.

Elon Musk’s recent spate of illegal impoundments and firings can be seen as an attempt to mimic what a debt ceiling crisis would look like. Instead of spending being bound by a legal bar against issuing new debt, spending is currently being bound by the whims of a billionaire who bullied his way into accessing the Treasury accounts that distribute spending where it is legally obligated to go and shutting it down. But in terms of pushing the economy closer to crisis, how spending is suddenly constricted is less important than the result—sharp spending reductions can throttle economic activity and push the economy closer to recession and crisis. And because these spending reductions would only relent or reverse at the whim of Musk’s team, the automatic stabilizer function of the federal government could not be relied upon to kick into gear.

At this point, the illegal impoundments have not added up to a scale that would be comparable to a debt ceiling scenario, but, again, this is entirely because the Musk team has so far decided to not impound that much spending. If they decide that it would be fun to impound more and cause a crisis, what’s to stop them? Having one person in charge of whether or not the U.S. government actually spends the money that’s been legally obligated by Congress is not just a democratic disaster, it is absolutely a recipe for economic crisis.

To date, the real damage done by the illegal impoundments and firings is the valuable work of federal employees that is not being performed and the hollowing out of key state capacity. Our federal workforce was too small and too poorly paid even before the Trump administration allowed Musk’s teams to start arbitrarily hacking at it. Further constricting it will lead to a profoundly less functional government—and that matters a lot to people’s lives, cheap cynicism aside. But if the DOGE team isn’t stopped, their cuts won’t just sap the long-run productivity of the economy, it could easily cause a full-blown crisis in the near term.

In the first month of his new administration, President Trump has taken drastic steps to reduce the size of the federal workforce, from offering nearly all federal employees a “deferred resignation” buyout to illegally firing senior officials at several agencies. While many of these efforts are being challenged in court, the strategy behind them is clear: Villainize public servants, fire or push them out of their jobs, and then dismantle the federal services they were faithfully executing. By sowing public distrust in those who provide government services, the public’s faith in the goods provided by the government is at risk of eroding too, making it easier for the administration to eliminate core government functions that hundreds of millions of Americans rely on.

The public goods provided by federal agencies are so commonplace that we may not even recognize how prevalent they are in our lives. When we walk into the grocery store, we purchase our food knowing that it won’t make us sick because of the efforts of the Food and Drug Administration. When we travel in a car, we have confidence in reaching our destination safely because of the standards set and enforced by the Department of Transportation. We can evacuate areas in advance of life-threatening natural disasters because of the efforts of the National Weather Service and other federal agencies. These and countless other services provided by the federal government are possible because of the dedication and expertise of federal employees who are now under attack.

The impact of these attacks will be felt throughout the country. Every congressional district has federal workers. Below, we provide a snapshot from FedScope of the federal workforce and the actions the Trump administration has taken to undermine them.

Who are federal workers?

The federal workforce consists of roughly 3 million employees and represents the diversity of the country (see Tables 1 and 2). Individuals holding these jobs are hired and discharged based on their merit and are protected from undue political influence or reprisal. The last time Congress made comprehensive reforms to the civil service system was in 1978, following the Watergate era of abuse of powers, overt politicalization of the civil service system, and increased distrust in government. In many ways, the civil service system was designed with the express purpose of guarding against the very objectives the current administration seems to be pursuing.

Table 1 Table 2

While a significant focus has been on agencies headquartered in Washington, D.C., the vast majority of federal employees (93%) live and work outside of the nation’s capital (see Table 3).

Table 3

Nearly 50% of federal employees have been in federal service for more than a decade, acquiring deep expertise and knowledge. Tables 4 and 5 below highlight the educational attainment of the federal workforce and the top 10 most common occupational categories, accounting for more than 70% of all employees. 

Table 4 Table 5 Trump administration’s attacks on the federal workforce

The Trump administration has moved at a rapid pace to cut the federal workforce. Among others, these actions include:  

• Issuing a Schedule F executive order to make it easier to fire federal workers in jobs that are normally apolitical.
• Issuing an executive order that eliminates telework and remote work options for federal employees.
• Issuing an executive order that places a freeze on all hiring of federal civilian employees.
• Placing employees in Diversity, Equity, Inclusion, and Accessibility offices on administrative leave.
• Requiring all agencies to identify and review retention needs of all probationary federal employees and firing those workers at several agencies.
• Sending a mass email to all federal employees providing them with a “deferred resignation” option.
• Firing or ordering to retire senior officials at a number of agencies, including the Equal Employment Opportunity Commission (EEOC), National Labor Relations Board (NLRB), FBI, U.S. Coast Guard, and others.
• Firing Inspectors General at 17 agencies.
• Placing U.S. Agency for International Development (USAID) employees on indefinite administrative leave, firing contract workers, and recalling employees who are abroad.
• Revoking an executive order that protected the collective bargaining rights of federal workers.
• Revoking an executive order that protected workers’ job security on federal service contracts.

In the coming weeks and months, we will no doubt continue to see more attacks on the federal workforce. You can find a comprehensive catalogue of all policies relevant to working people and the economy at Federal Policy Watch, an EPI online tool documenting actions by the Trump administration, Congress, federal agencies, and the courts. You can subscribe to daily Federal Policy Watch updates here.

The clearest legislative priority of the Trump administration and the Republican-led Congress is to keep taxes low for the richest households and corporations. Last week, House Republicans submitted a budget resolution that calls for $880 billion in cuts to Medicaid—the program that provides health insurance for low-income Americans—to help pay for extending the 2017 Tax Cuts and Jobs Act (TCJA), which primarily benefits the highest earners. President Trump endorsed the House plan earlier this morning, despite vowing yesterday to not cut Medicaid.

Besides being unfair, the cost of this overall tax cut would be large enough to put huge stress on other parts of the economy, no matter how it is paid for. But the costliest way to pay for this would be to enact large cuts in spending programs like Medicaid that provide benefits to economically vulnerable families. These cuts would equal almost 11% of all Medicaid spending over the proposed time period.

In a forthcoming report, we highlight just how damaging these Medicaid cuts would be for typical families. Health coverage is expensive in the U.S., and the value of Medicaid’s coverage is equal to a huge share of the total income of poorer families. In fact, a family health insurance plan in private markets can cost more than what the bottom 20% of families earns in an entire year.

Figure 1 below shows the House budget resolution’s average cut to Medicaid benefits for the bottom 40% of the income distribution, expressed as a share of average income. It also shows how much extending the TCJA’s expiring provisions would boost incomes for these groups and the top 1%. The upshot is that the bottom 40% would be unequivocally worse off: Proposed cuts to Medicaid would reduce incomes for the bottom 40% more than extending the TCJA would boost them—and the lowest-income households would fare the worst. Strikingly, this is true even as the full $880 billion in Medicaid cuts would only pay for about 20% of the total cost of the TCJA—other cuts and economic damage falling on non-rich families stemming from tax cuts for the rich would still be forthcoming. Meanwhile, the TCJA boosts the incomes of the top 1% significantly, while these households do not rely in any way on Medicaid.

Figure 1

A table from our forthcoming report is reproduced below—it shows the cuts to Medicaid expressed as a share of total money income for the bottom 40% of the income distribution for each state. States with more generous Medicaid coverage will see larger cuts, while states that have been stingier to date with Medicaid will see smaller cuts. But in every single state, the proposed cuts are a disaster for the incomes of the bottom 40%. This policy trade-off of thousands of dollars in cuts for the bottom 40% in exchange for tens or even hundreds of thousands of dollars in tax cuts for rich families crystallizes the Republican priorities.

Table 1