Elon Musk has thrown down a $2 trillion gauntlet, claiming he can cut federal spending by that amount. While the billionaire’s proclamations about X often generate more heat than light, one can only hope he succeeds.

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

Just because it’s doable, however, doesn’t mean Musk will actually succeed. Before Washington’s army of spending defenders, many of them Republicans, start complaining about draconian cuts, let’s discuss the real question: how to trim the fat without damaging the muscle.

In theory, one of the simplest budget reduction approaches is a rule of thumb or uniform reduction. There’s a lot to cut everywhere in the budget, including the big way that funds the Department of Defense. The Congressional Budget Office’s biennial Deficit Reduction Options list cuts to the Pentagon budget that would save $995 billion over ten years.

The best way to cut the budget by $2 trillion is to eliminate everything the federal government is doing that it shouldn’t be doing in the first place. It is time to rediscover the exercise of thinking critically about government and the role it should or should not play in our lives. Questions like, “Is this the role of government?” or “Should the federal government pay for this?” have not been seriously considered for years. The muscle of fighting for first principles has atrophied among Republicans because it is no longer in style to demand small government.

Once you ask these questions, it’s obvious that most of what the government does shouldn’t. For example, there is a lot of spending that goes to activities that should be the responsibility of the states under our federalist model of government. Thus, federal aid grants to states are the first programs I would cut. These grants attack federalism, create perverse incentives, and reduce the efficiency and accountability of state and local governments.

Take, for example, federal subsidies to state education departments. 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 subsidies, which prompt states to build mass transit systems in order to obtain federal matching funds when roads could better serve their communities. There are many more examples.

Chris Edwards of the Cato Institute CALCULATED that “federal aid to states totaled $721 billion in 2019.” That number exploded during COVID-19 and like everything else, it stayed up. According to the National Association of State Budget Officers, federal funds accounted for 35 percent of total state spending in fiscal year 2023. If I were in charge, I would end most federal subsidies to states and, at the very least, suggest serious reforms such as granting the Medicaid spending block.

Next, I would end federal spending on programs and functions that subsidize the private sector. First, it is not the government’s role to fund private commercial interests. The case against privileging private companies with federal money also has an economic and ethical angle. From an economic perspective, when government intervenes by funding certain private companies, it distorts the market’s natural allocation of resources based on merit and consumer preferences. Companies should succeed by best serving customers rather than currying political favor—a dynamic that encourages wasteful lobbying and clientelism rather than productive innovation. The beleaguered aerospace giant Boeing is a good example.

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

A few years ago, I calculated that federal “corporate welfare” amounted to about $150 billion annually. That number included farm subsidies, manufacturing subsidies, and government businesses like Amtrak. It also includes agencies that subsidize private companies, such as the Small Business Administration, the Export-Import Bank, and the Department of Commerce. That number has undoubtedly increased with the green energy of the Biden Administration and billions of dollars for companies like Intel to build semiconductor factories in the US that they would have built anyway.

Much of the other tax spending (targeted tax cuts, often to special interests) should be similarly eliminated. Between 2021 and 2024, the cost of these breaks has risen from $1.2 trillion to nearly $2 trillion, so there’s a lot of work to be done. 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 big factor in our future debt and should be on the budget reduction table. Health care subsidies have fueled a complex web of market distortions that inflate costs while hiding real prices. The pharmaceutical industry, for example, receives federal research grants from the National Institutes for Health and some tax credits for drug development. Insurance companies benefit from Affordable Care Act subsidies while also indirectly benefiting from employer-provided insurance tax benefits. And medical device manufacturers cash in through research grants, tax credits and preferential public procurement policies. The result is a health care industry where competition is stifled, innovation follows political rather than market incentives, costs are shifted to taxpayers, and market signals are so distorted that providers and patients cannot make informed economic decisions.

Final all corporate welfare should be a priority. However, there are reasons to worry that Musk will indulge favoritism and instead seeks to eliminate subsidies for companies seen as enemies while doubling subsidies for the administration’s friends.

A lot of tax subsidies to individuals are also problematic. It means that two taxpayers who have the same income do not pay the same amount in taxes depending on whether they engage in activities that please the government, such as having children or buying an electric car. President-elect Donald Trump’s 2017 tax reforms limited the mortgage interest and state and local tax deductions, but they should be ended entirely.

Also on the chopping list should be tax preferences for employee health benefits over wages, which put upward pressure on health care demand and thus prices. Another goal should be substantial federal government subsidies for Medicare Part B beneficiaries. Beneficiaries pay premiums that cover only a quarter of the costs, the other three quarters being paid by the taxpayer. Overall, only a small percentage of all health spending is financed out of the consumer’s pocket. Removing incentives for consumers to consider costs when making health care decisions results in overutilization and thus unnecessary spending relative 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 major policies 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 figures are net of new tariff revenue). While extending many of Trump’s 2017 tax cut provisions, set to expire next year, would boost growth, campaign proposals (such as no tips and overtime pay, a homebuyer tax credit for the first time etc.) would be a gift of special interest.

Cutting $2 trillion from the federal budget should be easy Of course, it will be anything but, given Congress’ continued failure to discuss spending cuts and the president’s sorry track record. If anything, let’s hope this Musk-led effort to cut spending will reintroduce the seemingly forgotten rationales for cutting the federal budget.