Social Security and Medicare are collapsing under their own weight. The best way to address these collapsing programs is to establish a fiscal commission with some teeth.
The Big Picture
Democrats and some in the media are attacking Elon Musk over comments he made during a recent interview with Larry Kudlow on Fox Business. The claim is that Musk suggested that he wants to cut spending on entitlement programs. Of course, that’s not what Musk said, but that hasn’t stopped the gross mischaracterization of his remarks. See The New York Times, Vanity Fair, and The New Republic for examples of the sensational headlines that don’t accurately reflect the comments.
Here’s the video of the relevant remarks.
“Well, we’re just getting things done as opposed to writing a report. Like I say, reports don’t mean anything. You’ve got to actually take action,” Musk told Kudlow. “So, I mean, the waste report in entitlement spending, which is most of the federal spending is entitlements. So that’s like the big one to eliminate. That’s the sort of half trillion, maybe 600, 700 billion a year.”
Zooming In
Musk isn’t talking about actual cuts to Medicare and Social Security benefits. He’s referring to “waste” and “fraud” in the programs, which he estimates is in the ballpark of $500 billion to $700 billion each year.
Now, this isn’t to say Musk is entirely accurate in the framing of his comments. Musk referenced a 2024 report published by the Government Accountability Office (GAO) earlier in the interview to back up the claim that there’s $500 billion yearly in “waste and fraud.” He said, “So during the Biden administration, which estimated the federal government fraud to be half a trillion dollars. So just to be clear, that’s not a Trump administration thing, that’s a Biden administration thing.”
This is a mischaracterization of the report. The GAO report estimated that the federal government lost between $233 billion and $521 billion yearly from FY 2018 through FY 2022. That five-year range covers three years of the first Trump administration and two years of the Biden administration.
The report also covers fiscal years in which federal spending ramped up for the COVID-19 pandemic, which the report notes “was at higher risk of fraud.” Indeed, GAO explains, “We estimated that between $100 billion and $135 billion (between 11% and 15% of total spending) in fraudulent unemployment insurance payments were made between April 2020 and May 2023. This analysis supported even higher fraud rates for the Pandemic Unemployment Assistance payments, which comprised a subset of the unemployment insurance payments included in our review. The Small Business Administration OIG reported that it estimated $200 billion in potentially fraudulent pandemic-related business loans as of May 2023.”
Musk also said that this spending is how Democrats “attract and retain” migrants. He said, “This is why the Democrats are so upset about the situation, because they’re losing, you know, if we turn off this gigantic money magnet for illegal immigrants, then they will leave.” It’s hard to say whether Musk is referring specifically to the larger effort undertaken by DOGE or specifically to programs like Medicare and Social Security.
Certainly, Democrats have generally opposed DOGE’s cuts. Some of that comes from the constitutional separation of powers. Article I, Section 9 of the Constitution makes clear that Congress controls the power of the purse. The Trump administration can’t simply ignore the law. If Musk and DOGE find areas to cut, the administration must come to Congress to rescind that spending. Now, there’s also a practical reason the administration needs to go to Congress. Otherwise, as Sen. Rand Paul (R-KY) has noted, the spending cuts aren’t real. Nothing prevents a future administration from simply reversing the cuts if the underlying authority remains in place.
If Musk is referring to eliminating “waste and fraud” in Medicare and Social Security, his criticism of Democrats, as it relates to migrants, is off base. Why? There’s not much to back up the claim. Only individuals who’ve reached the federal retirement age with a valid Social Security number and at least 40 quarters worked can receive Social Security benefits. This excludes migrants. Now, some migrants may work and pay into trust funds under fake Social Security numbers, but they can’t collect benefits. The same is true of Medicare.
None of this is to say there isn’t fraud in the system. There is. However, these incidents are very rare. For example, the Social Security Administration estimated that “[w]hile unauthorized immigrants worked and contributed as much as $13 billion in payroll taxes to the OASDI program in 2010, only about $1 billion in benefit payments during 2010 are attributable to unauthorized work.” Medicare paid a little more than $9 million for claims involving migrants in 2013 and 2014. That amount is lower than the $91.6 million paid for migrants from 2009 through 2011. This spending may not be fraud, at least in the technical sense, but may result from clerical errors resulting in improper payments.
Improper payments have come up when discussing waste in the federal government. As noted, what’s classified as an improper payment may not be fraud. More often than not, it’s an overpayment. The federal government is estimated to have made $2.8 trillion in improper payments since FY 2003. No question, that’s a lot of money. In context, the federal government spent almost $89 trillion over the same period and ran cumulative deficits of $22.5 trillion.
Looking more specifically at Medicare, in FY 2023, $51.2 billion in improper payments were made. In FY 2024, improper payments came in at $54.3 billion. Improper payments in Medicaid have actually declined from $50.3 billion in FY 2023 to $31.1 billion in FY 2024.
Musk Does Have a Broader Point About Federal Spending
Put aside the mischaracterizations about what Musk said to Kudlow or Musk’s own misleading or inaccurate statements and focus on this one point Musk made. He said, “[M]ost of the federal spending is entitlements.”
Some may choose to use another term rather than “entitlements.” Regardless of whether one calls them “trust fund programs,” “social insurance,” “earned benefits,” “entitlements,” or whatever, mandatory outlays, which include Social Security, Medicare, and Medicaid, is projected to be 60.2% of federal spending in FY 2025. What Trump, Musk, and Republicans in Congress are largely focused on is discretionary spending, which, as the chart below shows, has been and is projected to remain in decline as a share of gross domestic product (GDP) and all federal spending. (FY 2025 through FY 2055 are projections. The relevant data used to create this chart can be found here and here.)
We keep hearing about a “detox” from federal spending, but the spending that’s getting all the focus is already on the decline. The tiny reductions in federal spending that may come from DOGE aren’t what’s roiling the markets. The federal layoffs and workforce reductions may have had some effect on the stock market. Still, the more likely culprit is the uncertainty and uneasiness over trade and tariffs, which have had a negative impact on consumer sentiment.
The two budget categories that are rising are mandatory and net interest. The former drives the latter. In FY 2001, federal spending on mandatory outlays was 9.6% of GDP. By FY 2019, mandatory outlays had risen to 12.8% of GDP. In FY 2025, mandatory outlays are projected to be equal to 14% of GDP. That figure will rise to 15.1% by the end of the ten-year budget window.
Net interest is also a rising expenditure, in part, because of rising interest rates and rising budget deficits. Ultimately, the federal government, regardless of which party is in control, is addicted to debt. Borrowing costs were once relatively low. Even in the early 1980s, when interest rates peaked around 20%, net interest didn’t exceed 3%. Net interest outlays peaked at 3.2% in FY 1991 before slowly declining to under 2% in the 2000s.
In the 2000s and 2010s, borrowing costs were relatively low because the Federal Reserve kept interest rates down and took other aggressive actions, inflation remained low, and there was demand for Treasury securities. After the COVID-19 pandemic, interest rates began to creep upward and are projected to climb above 4% by FY 2034.
Growing mandatory and net interest outlays are sending deficits upward to a point where revenues cover only about 75% of federal spending. The rest is financed through borrowing, the funds of which are raised through the sale of Treasury securities.
Independent Lens
If Musk has done anything, he’s shifted the Overton window regarding wasteful spending. However, the shift hasn’t been as substantial as it could be for three reasons. The first reason is Musk isn’t focusing on the drivers of federal spending. Yes, he has acknowledged that Social Security, Medicare, and Medicaid are a large chunk of federal spending. However, besides his general acknowledgment, DOGE has done nothing to address those programs. Of course, the only way to really modernize Social Security, Medicare, and Medicaid is for Congress to come together in bipartisan fashion to do so.
The second reason is that he has been too susceptible to partisan talking points that often don’t reflect reality, much like what was outlined earlier in this post. The final reason is that Musk's “bull in a china shop” approach–which has resulted in some problematic cuts, particularly to agency staffing–has turned a lot of people off.
Although DOGE is making claims of cuts to wasteful spending, sending a rescissions package to Congress to codify reductions in spending is key. Otherwise, nothing will stop a future administration from simply bringing that spending back. That’s also required by the Constitution and by statute.
Social Security and Medicare are collapsing under their own weight. The Social Security Old-Age and Survivors Trust Fund is expected to be depleted by 2033, while the Medicare Hospital Insurance Trust Fund is projected to run dry in 2036. Both face immediate benefit cuts or bailouts from Congress if they’re not fixed. The best way to address these collapsing programs is to establish a fiscal commission with some teeth and make Congress vote on the recommendations that the commission releases. Otherwise, Musk’s concern about the United States going into bankruptcy will be a reality.
