Investor Danny Moses has sounded the alarm on a potential economic crisis arising from extensive job cuts within the federal government. Once a key figure during the 2008 financial crash, Moses, who gained fame from Michael Lewis' book-turned-movie 'The Big Short', has recently warned about the economic consequences of cuts implemented through the Department of Government Efficiency (DOGE), led by Elon Musk.
In a recent interview on CNBC's 'Power Lunch', Moses stated, "I think we are underestimating the impact to the economy of the cuts we're making at the federal government, and what that might mean [for] the knock-on effects into the economy," as reported by Fortune. His concerns revolve around the more than 24,000 federal workers let go under the Trump administration, with further cuts on the horizon, suggesting these layoffs will send ripples throughout the economy.
Moses elaborated that many of these workers are highly skilled, making it difficult for them to relocate into the private sector. Furthermore, around 75,000 employees have taken deferred resignation packages, which allow them to collect benefits until September 2025. He pointed out, "We're hurting the revenue side of the equation," quoted by Fortune. This downward pressure on revenue, coupled with systematic job cuts, could inhibit economic productivity overall.
While the immediate impact of layoffs is evident, Moses argued that the disruption extends beyond mere numbers of unemployed individuals. Federal contracts crucial for both employees and private enterprises are already being impacted. Citing his experience, he added, "I think we are being overly optimistic [as to] how this is going to play out," as reported by Fortune.
The cascading effects of these layoffs are likely to be compounded by a forecasted substantial drop in tax revenue for 2025. The IRS is bracing for a predicted decline of $500 billion, attributed to rising taxpayer reluctance to file taxes. Following the cuts from DOGE, a noted increase in online chatter has emerged, with taxpayers expressing intent to evade tax filings this year.
According to the Washington Post, IRS and Treasury Department officials have raised flags about the anticipated decrease in tax receipts, anticipating a decline of over 10% compared to 2024. This is alarming news considering that this drop is equivalent to more than a third of the U.S. military budget of $820 billion from the previous year.
IRS officials have attributed this increase in non-filing intention to the planned downsizing of IRS staff by nearly 20% by May 15, 2025. Currently, the IRS employs around 90,000 workers, many in taxpayer services and enforcement divisions that may be impacted by these cuts.
Following the IRS' attempts to alert the Trump administration about the impending consequences of DOGE's staff reductions, former IRS commissioners expressed serious concerns in a recent op-ed for The New York Times. They warned that the cuts needed to be reviewed, stating that, "Aggressive reductions in the I.R.S.’s resources will only render our government less effective and less efficient in collecting the taxes Congress has imposed."
Not just the IRS, but the entire economic landscape hangs in the balance, with Moses voicing that this situation warrants serious scrutiny. He emphasized that it is not solely about job losses, but the long-term health of various sectors dependent on a stable workforce.
In light of these warnings, questions arise on how policymakers will address the critical link between government employment and the overall health of the economy. Moses' insights, underscored by the IRS predictions, collide in a worrying trend for fiscal responsibility and economic stability.
The implications of DOGE's decisions loom large as the impact either erodes public confidence in financial systems or instills an urgent reassessment of governmental priorities and economic stability. As communities feel these cuts at a local level, the path forward necessitates a coalition of stakeholders to revitalize the economy in tandem with government reemployment strategies.
