Voters love free money from the government. But they don't love its consequences.
President Joe Biden learned that the hard way, and President Donald Trump may now be preparing to learn it all over again.
Trump has proposed that some of the savings secured by Elon Musk's Department of Goverment Efficiency (DOGE) be shared with taxpayers in the form of $5,000 cash rebates. That would be 20% of the savings, in theory, with the rest going to debt reduction or some other cause.
There are several leaps of logic here.
Offering every income-paying household $5,000 would require total savings of around $2 trillion per year, which was Musk's original target. That would be a 29% cut in federal spending, which is a massive chunk. Most federal spending goes toward Social Security, Medicare, Medicaid, and veterans benefits, which are all programs that Trump and key Republicans in Congress have vowed to protect. Defense is another big bucket of spending, and DOGE is reportedly looking for cuts there, but it's more likely Congress will increase, not reduce defense spending.
Musk has since lowered his target to $500 billion in annual savings, which is still a stretch of a stretch goal. The DOGE website says the effort has already netted $55 billion in savings, which serious budget analysts say is basically impossible. The Musk commission may never achieve that much in savings.
"You’ve got fraud, you've got things like contract and lease negotiations, grant cancellations, asset sales, and regulatory savings, and that is not going to total up to $55 billion even if you've got a list ready to execute," Terry Haines, founder of Pangaea Policy, said on the latest episode of Yahoo Finance's Capitol Gains. "This is going to take a lot more time than most people think, and the impacts are going to be a lot less."
If the total DOGE savings were just $55 billion, that would cut the 20% share each household gets to just $138.
But math is for losers, so let's assume Trump and his Republican allies who control Congress do manage to send each taxpaying household $5,000. We know what would happen: People would save a little of it and spend most of it. Then, inflation.
If Biden had his presidency to do over again, he'd probably slash the $1.9 trillion stimulus plan he signed into law after less than two months in office. That was the fourth major stimulus bill Congress enacted to address the COVID crisis, and all told, three sets of stimulus checks — aka free money — went out to taxpayers. Biden's stimmies were the most generous, at $1,400 for each qualifying individual. People who qualified for all three stimmies got $3,400, and in some households, several people got the money.
The runaway inflation that ensued wasn't entirely due to all the extra money Congress blasted into the economy, which turbocharged spending. But it was a significant factor. Jason Furman, who was the top economist in Barack Obama's White House, recently wrote a postmortem of the Biden economy in Foreign Affairs, arguing that "the predicted economic transformations ... fell considerably short of [Biden's] lofty goals."
Furman said a Biden stimulus package one-third the size of the actual bill — without all the free money — would have gotten the economy back on track with far less inflationary risk. "Policymakers decided to run the economy 'hot,'" Furman concluded. "Ultimately, the administration's plans to transform the United States would be waylaid by a punishing bout of inflation."
Trump ran for president last year saying he was the antidote to Biden's inflation. That may be the very reason he won. So why would Trump now risk the same kind of inflation that derailed the Democrats in 2024?
A couple of possible reasons.
One could be that Trump's early moves aren't especially popular with voters and he needs some positive spin. Recent polling by Morning Consult finds that most voters don't support the DOGE effort to hack away at government agencies, for instance. "That suggests a mismatch in priorities that could result in mounting voter backlash," analyst Eli Yokley wrote on Thursday.
Americans have also been souring on the economy since Trump won last year's election. The University of Michigan's sentiment survey has fallen for two straight months and is now at its lowest level since November 2023. Consumers hearing about Trump's plan to impose tariffs on imports fear worsening inflation, and that is marring their view of the whole economy.
Easy money? President Donald Trump speaks at the Governors Working Session in the State Dining Room of the White House in Washington on Friday. (Pool via AP) ·ASSOCIATED PRESS
Oh yeah: eggflation. This seems to be the great unmentionable of Trump's second presidential term. Egg prices are up 53% from a year ago, with a dozen eggs now going for more than $10 in many stores. Yet after blasting Biden for inflation, Trump now says of inflation on his watch, "I had nothing to do with that." Maybe he thinks the DOGE dividend will serve as a kind of egg subsidy that takes people's minds off the Waffle House egg surcharges.
Trump can also promise free money today with a ready excuse if it never happens. Congress would have to pass legislation allowing the rebates. Trump can't do it himself. And it's actually pretty unlikely Congress will send out more stimmies at the same time it's working up tax cuts that will balloon the national debt by anywhere from $3 trillion to $10 trillion.
So if the DOGE dividend never materializes, Trump can say it's Congress' fault. We might all end up better off.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
