Elon Musk launched a $2 trillion challenge, saying he could cut federal spending by that much. While the billionaire’s proclamations about X often generate more heat than light, one can only hope that he gets his way.

The real question is not whether we can cut $2 trillion from a bloated $6.8 trillion federal budget – we absolutely can. After all, the government managed to operate on $4.4 trillion five years ago, and American civilization did not collapse. The economy was humming, wages were rising and poverty was falling.

Just because it’s achievable, however, doesn’t mean Musk will actually succeed. Before Washington’s army of spending advocates, many of them Republicans, start whining about the draconian cuts, let’s discuss the real question: how to reduce fat without harming muscle.

Theoretically, one of the simplest budget reduction approaches is a blanket or uniform reduction rule. There is much to cut everywhere in the budget, including the large portion that funds the Department of Defense. The Congressional Budget Office’s biennial Options for Reducing the Deficit report lists cuts to the Pentagon budget that would save $995 billion over ten years.

The best way to cut $2 trillion from the budget is to eliminate everything the federal government does that it shouldn’t be doing in the first place. It’s time we rediscovered the practice of thinking critically about government and the role it should or should not play in our lives. Questions like “Is this the government’s role?” or “Should the federal government pay for this?” have not been seriously considered for years. The strength to fight for fundamental principles has atrophied among Republicans, as it is no longer fashionable to call for small government.

Once you ask these questions, it’s obvious that most of what government does shouldn’t be done. For example, a lot of spending goes on activities that are supposed to be the responsibility of the states in our federalist model of government. So federal grants to states are the first programs I would cut. These subsidies undermine federalism, create perverse incentives, and reduce the efficiency and accountability of state and local governments.

Consider, for example, federal grants to state departments of education. Federal aid incentivizes schools to shift their priorities to meet federal grant requirements rather than local educational needs. Schools also waste time and money complying with these complex federal requirements. Another example is federal transportation grants, which incentivize states to build mass transit systems to get federal matching funds when roads could better serve their communities. There are many other examples.

Chris Edwards of the Cato Institute calculated that “federal aid to states totaled $721 billion in 2019.” This number exploded during COVID-19 and, like everything else, remained high. According to the National Association of State Budget Officials, federal funds accounted for 35 percent of total state spending in fiscal year 2023. If I were in charge, I would end most federal grants to states and, at the very least, suggest serious reforms, such as overall Medicaid spending grant.

Next, I would end federal spending on programs and functions that subsidize the private sector. On the one hand, it is not the role of government to finance private business interests. The argument against favoring private companies with federal money also has an economic and ethical angle. From an economic perspective, when the government intervenes by financing certain private companies, it distorts the natural allocation of market resources, based on merit and consumer preferences. Businesses should succeed by best serving their customers rather than currying political favor – a dynamic that encourages wasteful lobbying and cronyism over productive innovation. The aerospace giant in difficulty Boeing is a good example.

The ethical question is just as crucial. It is fundamentally unfair to force taxpayers to invest in private companies against their will, especially when that deal typically privatizes profits while socializing losses (think of the bank bailout during the Great Recession). It also undermines support for a market economy, creating the impression that capitalism rewards politically connected businesses at the expense of ordinary Americans.

Several years ago, I calculated that federal “corporate welfare” was about $150 billion a year. This figure included agricultural subsidies, manufacturing subsidies and government companies like Amtrak. It also included agencies subsidizing private businesses, such as the Small Business Administration, the Export-Import Bank, and the Department of Commerce. That number has undoubtedly increased with the Biden administration’s green energy and billions of dollars for companies like Intel to build semiconductor factories in the United States that they would have built anyway.

Many other tax expenditures (targeted tax breaks, often in favor of special interests) should also be eliminated. Between 2021 and 2024, the cost of these breaks increased from $1.2 trillion to almost $2 trillion, so there is a lot of room for improvement. These exclusions also make the tax code more complicated, less efficient and more unfair. These new tax subsidies include tax breaks for green energy companies and electric vehicle consumers.

Federal government subsidies to health care companies should be a target. Health care spending is a significant contributor to our future debt and should be on the table for budget cuts. Health care subsidies have fostered a complex set of market distortions that inflate costs while masking real prices. The pharmaceutical industry, for example, benefits from federal research grants from the National Institutes for Health and certain tax credits for drug development. Insurance companies take advantage of the Affordable Care Act’s premium subsidies while indirectly benefiting from employer-provided insurance tax benefits. And medical device manufacturers benefit through research grants, tax credits and preferential government procurement policies. The result is a health care sector in which competition is stifled, innovation follows political rather than commercial incentives, costs are shifted to taxpayers, and market signals are so distorted that providers and patients cannot make informed economic decisions.

END all corporate well-being should be a priority. However, there are reasons to fear that Musk may engage in favoritism and instead seek to eliminate subsidies to companies considered enemies while doubling subsidies to friends of the administration.

Many tax subsidies granted to individuals are also problematic. They mean that two taxpayers earning the same income do not pay the same amount of taxes depending on whether they carry out activities that please the government, such as having children or buying an electric car. President-elect Donald Trump’s 2017 tax reforms limited mortgage interest and state and local tax deductions, but they are expected to be eliminated entirely.

Also among the priorities are tax preferences for employee health benefits over wages, which puts upward pressure on demand for health care and, therefore, prices. Another focus should be the federal government’s substantial subsidies to Medicare Part B beneficiaries. Beneficiaries pay premiums that cover only a quarter of the costs, with the remaining three-quarters paid by the taxpayer. Typically, only a tiny percentage of all healthcare spending is financed out of the consumer’s pocket. Removing the incentive for consumers to consider costs when making health care decisions leads to overutilization and, therefore, unnecessary spending compared to a market system.

But let’s be honest here. If Musk is truly serious about fiscal discipline, he will advise the president-elect to avoid the policy outlines he promised on the campaign trail. According to the Committee for a Responsible Budget, Trump’s proposed policies would add $7.7 trillion to the debt over the next 10 years, including $1.05 trillion in interest costs (these numbers are net of new customs revenue). . Although extending many of Trump’s 2017 tax cuts, which are set to expire next year, would boost growth, the campaign’s proposals (like banning tipping and overtime, a credit tax for first-time home buyers, etc.) would constitute gifts of special interest.

Cut $2 trillion from the federal budget should be easy. Of course, that will be anything but, given Congress’s continued lack of interest in discussing spending cuts and the president’s dismal record. If anything, let’s hope this Musk-led spending-cutting effort reintroduces seemingly forgotten rationales for cutting the federal budget.