Investing.com -- Investors should temper their expectations regarding the potential accomplishments of the Department of Government Efficiency (DOGE), according to Piper Sandler strategists.
DOGE is a central initiative under the incoming Trump administration created to dismantle federal bureaucracy, led by Elon Musk and Vivek Ramaswamy.
In a Tuesday note, Piper Sandler strategists describe Musk’s and Ramaswamy’s promises about achieving trillions in savings and large-scale bureaucratic reductions as "a fantasy."
“Mass firings of federal employees are not going to happen and would save far less than most people imagine if they did,” strategists led by Andy Laperriere said.
“There is a near-perfect correlation between exorbitant claims of the savings that can be achieved from rooting out waste, fraud and abuse and a lack of knowledge of the federal budget and a seriousness of purpose in tackling America’s budget problems. Skepticism of the DOGE is warranted,” they added.
While addressing waste and inefficiencies in federal spending is desirable, Trump and Musk’s claims of $2 trillion in annual savings without tackling entitlement programs are “nonsense,” strategists said.
The report highlights the structural constraints of the federal budget, with entitlements and interest on debt constituting three-quarters of total spending. Even extreme measures like shuttering the Pentagon and laying off all federal employees would fall short of the promised savings.
Another critical aspect of the note addresses the feasibility of reducing federal employment. Federal employees account for $430 billion annually, but significant cuts in workforce numbers would require bipartisan Congressional support—a challenging prospect given Democrats’ resistance to deep spending cuts and the razor-thin Republican majority in the House.
The investment bank also criticizes Musk and Ramaswamy’s claims regarding “unauthorized” federal expenditures, clarifying that such expenditures are legally appropriated despite expired authorizations.
It also dismisses their claims that the Supreme Court would overturn the 1974 Impoundment Control Act to grant the president unilateral control over Congress-approved spending.
“That is highly unlikely. The clear takeaway from recent Supreme Court rulings is that the Constitution means what it says and the law means what it says,” strategists commented.
Piper Sandler stresses that achieving meaningful budget reductions involves targeting real programs and constituencies, something it deems politically implausible.
“Real budget savings cannot be found without taking away money from real people and real constituencies,” Laperriere and his team said.
“President Trump spent the campaign playing Santa Claus, promising targeted tax breaks tailored to his audience. We strongly doubt he is ready to become the Grinch,” they concluded.
While skepticism dominates the report, strategists acknowledge a potential role for the DOGE in securing modest savings, including without the help of Congress.