Investing

Scott Lincicome and Tad DeHaven

President Donald Trump’s decision this week to implement a “permanent” 25 percent tariff on imported automobiles and automotive parts represents one of his most brazen—and foolish—moves yet. For the moment, we’ll leave aside that the president relied on data at least eight years old to ridiculously argue that imported cars threatened national security, that his latest move blows up his own USMCA trade agreement, and that his tariffs can’t both raise substantial revenues (which requires more imports) and boost domestic jobs and investment (which requires fewer imports) as he claims. 

Instead, we’ll focus today on just the tariffs’ economics, which—given the reality of global automotive manufacturing and reams of prior analysis—most likely portend higher prices for American consumers, chaos for the US automotive industry, and less domestic production and fewer American automotive jobs in the future.

A Globally Integrated Automotive Industry

To grasp why Trump’s tariffs will cause massive disruptions, consider how integrated the global automotive industry is today, particularly in North America, thanks to decades of open trade (zero tariffs, streamlined procedures, etc.).

Today’s industry is characterized by sophisticated and highly interconnected regional supply chains spanning multiple national borders. In the North American supply chain, the manufacturing of a component like a transmission or engine may require it to travel between the United States, Canada, and Mexico multiple times before finally being incorporated into a finished vehicle.

When tariffs are applied in such an integrated market, costs do not simply rise incrementally—they compound. A single component could therefore be subjected to multiple rounds of tariffs, resulting in exponential increases in the overall cost of manufacturing. In a previous Cato blog post, for example, we showed how a simple car seat capacitor crossed borders five times. According to Canadian manufacturer Linamar, which produces transmissions via factories in the US, Mexico, and Canada, parts cross the three borders seven times, with the transmission finally assembled in Michigan.

Even if cars and parts don’t cross borders multiple times, the tariff costs for American vehicle manufacturers will be significant because they source significant quantities from abroad. Like a “Made in China” iPhone that contains parts from all over the world, an automobile that’s “Made in America” is assembled with parts from the United States, Canada, Mexico, and elsewhere. Here, for example, is the rear suspension of a vehicle manufactured in North America:

(Source: Flavio Volpe)

As shown in the following charts, this kind of global sourcing is standard practice in today’s automotive industry. Table 1 provides an indicative list of popular US-assembled automobiles that have foreign content shares of anywhere between 30 and 91 percent. (Note that the US and Canada are so interconnected that the government’s data collectors don’t bother to separate the two countries.)

As we see in Figure 1, moreover, imported parts account for more than half of the content in what people would call an “American” vehicle (e.g., Ford and Tesla) made in the USA.

Figure 2 tells a similar story for foreign-nameplate vehicles assembled in the United States.

This does not mean, as TV personality Jim Cramer recently alleged, that US automotive production involves merely the rudimentary assembly of foreign-made engines, transmissions, and other parts. For starters, assembly itself is economically valuable. The BMW plant in Spartanburg, SC, for example, employs more than 11,000 Americans (with junior production roles today starting at $22/​hour with benefits), annually produces more than 400,000 vehicles, and was the United States’ top automotive exporter by value ($10 billion) last year.

Domestic automotive manufacturing also entails far more than assembly. In fact, NHTSA data show that the engines/​motors in 80 of 143 US-assembled models are made entirely (64) or partly (16) in America, while 82 of those same models have transmissions made here (75 in full; 7 in part).

Collectively, these data reveal the interdependent and complementary nature of US and global automotive production and trade: vehicles and parts are made here; vehicles and parts are made abroad; and both producers and consumers are better off for it.

Imports and Foreign Investment Complement the US Automotive Industry

On the production side, it is widely accepted among automotive industry experts that open trade has been a boon for US manufacturers, and that imports and exports complement domestic sales and production. As shown in Figure 3, for example, automotive imports into the United States have corresponded closely with an overall increase in US automotive production. Contra the (mistaken) White House view of trade deficits, moreover, US deficits in automotive goods have aligned with enhanced domestic output and greater production capacity.

As Lincicome detailed in December, these and other data show why industry insiders and analysts uniformly agree that open markets—not costly Reagan-era protectionism—have fueled the growth and stability of North American automotive production since the 1990s and helped American companies and workers better compete against automotive supply chains in Europe and Asia. By permanently reducing trade barriers, trade agreements like NAFTA have been credited with attracting more foreign investment and boosting overall industry competitiveness by lowering production costs (e.g., via imported inputs), utilizing national comparative advantages, and opening overseas markets. In fact, US automotive manufacturing output and employment were stronger in the 1990s and early 2000s than in the quota-ridden 1980s and stronger than US manufacturing overall during that latter period.

The industry’s need for open markets underscores why economists and industry experts today strongly oppose Trump’s new tariffs and why, as Lincicome documented weeks ago, all automakers producing here expressed similar views during the 2018–19 investigation that underpins them. Even Elon Musk noted this week that Tesla, which has substantial US production, will face a “significant” tariff cost. Burdened with such costs, as well as those from other Trump tariffs (e.g., on steel and aluminum), continued policy uncertainty, and foreign retaliation, it’ll be many US-based automotive manufacturing plants from Michigan to Georgia—and their workers—that suffer. 

Impact on American Consumers

Of course, consumers will suffer too from higher automobile prices. As Cato scholars and many others have discussed, tariffs operate as a hidden tax on American consumers—one that they pay directly on imported goods and indirectly via higher-priced domestic alternatives that face less import competition. Given the aforementioned supply chains, moreover, domestic alternatives will face higher-priced parts and equipment, adding further price pressures.

The impact on consumers will be significant. Bryan Riley of the National Taxpayers Union estimates the new tariffs could add an average of $6,500 to the price of vehicles imported from Europe, Japan, and Korea. Vehicles imported from Mexico might see price hikes averaging around $4,500. Anderson Economic Group estimates that the cost increase for cars assembled in North America would range from $4,000 to $12,000 or more. Other estimates show similar pain, which even President Trump himself has recognized, reportedly warning automakers against raising prices in response to his new tariffs.

Tariffs will also limit consumer choices. History shows that manufacturers facing new tariffs often reduce available options or eliminate certain models altogether due to higher costs and potential retaliatory tariffs from trading partners. This helps to explain why, thanks to a longstanding 25 percent US tariff on imported pickup trucks, many smaller truck models aren’t available here. And just today, Reuters reported that industry analysts expect automakers to “spread [tariffs’] cost between US-produced and imported models, cut back on features, and in some cases, stop selling affordable models aimed at first-time car buyers, as many of those are imported and less attractive if they carry a higher price tag.” 

As is so often the case with tariffs, the biggest losers will be lower- and middle-income Americans.

Jeffrey Miron and Jacob Winter

Peter Van Doren

The New York Times recently described a forthcoming election for the Wisconsin Supreme Court and the role of Elon Musk as the leading contributor to one of the candidates. His interest stems from the role of the court in adjudicating the fate of a Wisconsin law that mandates that cars be sold through franchised dealers. Tesla’s business model uses direct sales rather than dealers.

The Wisconsin law and those in other states date from the 1930–1950 period when there were few manufacturers and many dealers, and the dealers felt the terms of their relationship were one-sided: dealers were not guaranteed any inventory, manufacturers could terminate dealers without cause, and dealers could be forced to accept cars regardless of whether they could sell them. Dealers also worried about manufacturers distributing cars directly and competing with franchised dealers.

An article in Regulation examines the history of auto dealer franchise laws and recent attempts to reform them. Even if the dealers needed a thumb on the scale when the laws were adopted, in today’s highly competitive auto market such laws stifle competition. They protect existing dealers and hurt consumers.

Colleen Hroncich

For centuries, churches and homes were at the forefront of education in Europe. The early settlers brought those traditions with them when they established colonies in the New World. From colonial days through the mid- to late-1800s, children were often educated in local churches or at home.

In 1852, Massachusetts passed the nation’s first compulsory schooling law. Other states followed suit, and by 1918 every state had compulsory schooling laws. With most of the public schools incorporating non-denominational Protestant teachings, the Protestant majority largely went along with the new system rather than paying for tuition on top of school taxes.

The increasing secularization of public schools has resulted in a growing disconnect between religious parents and the values that are being taught in public schools. Parents who are caught in the values clash and can afford other options often turn to Christian schools or homeschooling. But not everyone has those options. To help bridge that gap, there is a growing movement encouraging churches to create affordable Christian educational options.

Given the role Massachusetts played in instituting compulsory schooling laws, it’s fitting that a group in Massachusetts is leading the way in the effort to reclaim the role of parents and churches in education. The Massachusetts Family Institute’s church-based learning center initiative is helping churches create and sustain low-cost educational options.

“What sets the church-based learning centers apart is that the kids are registering as homeschoolers; typically it’s at a church, and typically it’s volunteer-based,” explains MFI President Michael King, who leads the initiative. Because the students are homeschoolers, the learning centers are simpler to start and run compared to traditional private schools. There are fewer regulatory and recordkeeping burdens since parents are responsible for meeting attendance and reporting requirements.

The costs are low because the learning centers function as a ministry of the church. And that’s intentional. “We have a goal of getting affordable K‑12 education in Massachusetts. And when we say affordable, we are looking at $100 to $200 a month per student,” Michael explains. As an example, he adds, “The largest Hispanic church in Worcester has a learning center, and 60 percent of the kids that attend that learning center live under the poverty line.” He sees that as proof of concept that church-based learning centers can work in high-poverty areas.

In addition to the already low cost, there is a pilot program for income-based scholarships. “We’ve built our own education freedom ecosystem with the Children’s Scholarship Fund, which is one of the largest scholarship-granting organizations in America,” says Michael. “And now they’re offering 50 percent scholarships up to $1,000 for students who want to attend a church-based learning center in Massachusetts.” CSF facilitates the program directly with the churches.

There are currently 22 church-based learning centers in Massachusetts educating around 600 children. Given that there are thousands of churches in Massachusetts and hundreds of thousands in America, the growth potential is huge. And while church attendance is in decline, Michael thinks it turned out to be a good thing that they built all these buildings because it will help create new options for families who want to exit the public school system. 

Romina Boccia

I was thrilled to learn that Charles Koch will receive the Milton Friedman Prize for Advancing Liberty from the Cato Institute this May in Washington, DC. Mr. Koch’s impact on advancing free markets and individual liberty is undeniable—but for me, it’s also deeply personal. Mr. Koch’s investments in developing policy talent through the Koch Internship and Associate Programs profoundly shaped the way I think and work today.

One of the most valuable lessons I learned from Mr. Koch is that lasting success—whether in business, policy, or social change—comes from creating real value for others. His emphasis on integrity, principled decision-making, and entrepreneurial thinking continues to guide how I approach policy challenges and opportunities. Importantly, I learned how to give clear, constructive feedback and receive it with gratitude, using principle-based management tools like the situation-behavior-outcome (SBO) model, which has also been key to recruiting aligned talent. Mr. Koch’s books and programs equipped me with actionable skills for becoming a lifelong learner and mentor.

This award is a well-deserved recognition of Mr. Koch’s unwavering commitment to empowering people, fostering innovation, and expanding freedom. I’m grateful for the impact his work has had on my own life, and I hope you’ll join us in celebrating his legacy.

Nicholas Anthony

Congress is currently weighing the future of overdraft services. During the final hours of the Biden administration, the Consumer Financial Protection Bureau (CFPB) established price controls for overdraft services that would take effect on October 1, 2025. If allowed to proceed, the rule will force banks and credit unions to choose between reducing prices by more than 80 percent, pricing at cost, or changing overdraft services to a loan program.

For many Americans, these requirements are likely to mean the end of overdraft services. If they spend more than they have, the transaction will be denied on the spot.

While the CFPB has claimed it seeks to protect consumers, it’s hard to understand how eliminating access to financial services can be considered an act of “protection.” It’s even harder to understand this framing when one remembers consumers must actively choose whether or not to have overdraft services and may opt-out at any time.

Beyond the opt-in nature of the service, surveys have also shown that people value overdraft services. In one survey conducted by the American Bankers Association, 88 percent of consumers said that overdraft protection is a valuable service. The survey further found that 77 percent of consumers who had paid an overdraft fee in the past year preferred paying the fee over having the transaction denied.

For many of these people, the end of overdraft services could mean the end of a crucial lifeline. In 2023, the Financial Health Network found that, “Many households report few alternatives to overdraft, and a consistent majority report a preference for incurring the fee versus having the purchase declined.” When surveyed by the Consumer Bankers Association, more than 60 percent of the people who overdrafted their account in the last year had also been denied a credit card.

As customers, it’s only natural to want prices to be lower. However, the CFPB should not be allowed to restrict what prices are permitted. It is not the government’s job to pick and choose which prices are too high and which prices are too low. That role should be left to the market.

Whether that role will be left to the market is still to be seen. The Senate just passed a Congressional Review Act resolution to overturn the rule. Now it’s up to the House, and then the president, to decide whether the CFPB’s price controls will be upheld or struck down. 

James Bacchus

In one more sign of its reckless retreat from responsibility in international trade, the United States is reportedly refusing to pay its agreed share of the budget of the embattled World Trade Organization (WTO). In Geneva, US delegates have evidently told other members of the WTO that its payments for the 2024 and 2025 WTO budgets are on hold pending a review of all US contributions to international organizations.

So far, no one in Geneva is saying much about this latest insult by the Trump administration to trade multilateralism (following Trump’s previous insults and those of Joe Biden for nearly a decade). The 165 other member countries of the WTO are doing their best to pretend the United States is not acting as badly as it is in international trade governance, as they have been doing for some time now. But it is getting harder for them to pretend that all is still well with the rules-based multilateral trading system that the United States played a major role in creating but seems now to be bent on wholly abandoning.

Why would the United States refuse to pay its WTO dues?

The White House has not said.

It is not because the amount of the dues would break the US budget. Overall, the WTO has an annual budget of about $232 million. By longstanding agreement, every year this amount is allocated proportionately among the 166 WTO members according to their share of world trade in the preceding year. Accordingly, the United States is supposed to pay about 11 percent of this WTO budget—about $24 million per year.

This is probably less than US taxpayers fork over to pay for President Trump’s frequent golf trips. Those costs reportedly total tens of millions of dollars. Indeed, one report reckons that Trump’s golfing has already cost the US budget $18 million since he was sworn into his second term as president on January 20. If Trump’s team is truly looking to save Americans money by acting more efficiently, they would be better off looking in Mar-a-Lago than in Geneva. 

Nor is it because the amount of the WTO dues is unfair. If the US thinks the current system of dues allocation is unfair, it has not said so. What could be more fair than divvying up payment for the total budget according to the respective amounts of trade represented by the participating countries? The approximately $24 million in US dues is the most paid by anyone because the United States has the largest share of world trade. (China is close behind.) As the largest dues payer, the United States chairs the WTO budget committee, a role it is evidently willing to forfeit by nonpayment.

What does the United States get in exchange for these annual dues? It gets a system that has enabled American and other trade in the world to flow smoothly and fairly. This is because this system is based on agreed rules that have been backed for the past quarter of a century by the last resort of economic sanctions against trading countries that refuse to uphold them. Among other benefits, this rules-based multilateral trading system provides—in the words of the WTO treaty—“security and predictability” in world trade so that producers and traders can feel confident in sending their goods and services across international borders. And, as I explained in a 2023 essay, none of the most common populist broadsides against the organization, such as its supposed bias against US interests, are true (though it still needs reform).

Is this important to the United States? Consider another recent event. Earlier this month, the United States bombed Houthi militants in Yemen because they had been attacking oil tankers and container ships crossing the Red Sea through the Suez Canal. According to Vice President JD Vance in the infamous Signal chat that has been grabbing headlines, these attacks affected 3 percent of US trade. Apparently, he thought this did not justify the bombing; but President Trump did. In contrast to this 3 percent of US trade, the WTO affects 100 percent of US trade. About 98 percent of all world trade falls within the scope of the WTO rules that provide “security and predictability” for trade, and around 80 percent still occurs under the organization’s multilateral rules.

Of course, the Trump administration looks askance at these international trade rules, much as it does at almost everything relating to international institutions of all kinds. Beginning under Barack Obama, intensifying under Trump, continuing with Biden, and now worsening significantly under Trump now that he has returned to the presidency, the United States has betrayed its history and its ideals by becoming a scofflaw in international trade. It has weakened the international rule of law in trade by undermining the WTO dispute settlement system. It has ignored a series of WTO rulings that have rightly gone against it. And it has shown little or no interest in modernizing the trading system to make it more fit for purpose in the 21st century.

Given all this, it should come as no surprise that the Trump administration is now refusing to pay its WTO dues. 

The larger question looms: Is this but a prelude to US withdrawal from the WTO? As I’ll explain in a forthcoming paper, the United States could, under the WTO treaty, withdraw from membership in the WTO by giving the other members six months’ notice.

Sen. Josh Hawley (R‑MO) has already announced that he will be submitting a resolution soon calling for US withdrawal from the WTO. The Trump administration has not yet taken a position on this proposed resolution. If Trump endorses this effort, and if this withdrawal happens, then it would be by far the worst mistake yet by Trump—among many, many—on international trade. 

Meanwhile, the other members of the WTO are reportedly working on a “Plan B” if, following the conclusion of its current contributions review, the United States ultimately decides not to pay its dues. As part of this emerging plan, expect China to step up and offer to pay more while perhaps also assuming the chairmanship of the WTO budget committee. It is unclear how this would be in the national interest of the United States of America, in trade or otherwise.

Gene Healy

Man, libertarians are a difficult bunch. Give them a government agency tasked with “delet[ing] entire agencies,” and they’ll start yowling about the agency-deleting agency.

The zanier version of John Galt has been set loose on the permanent bureaucracy, invoking Milton Friedman while he throws the US Agency for International Development (USAID) “into the woodchipper.” Yet rather than welcoming the new Department of Government Efficiency (DOGE), a lot of libertarians are filled with dread:

• Is DOGE “just the Deep State by a different name?”
• Or is it a modern-day CREEP, Nixon’s dirty-tricks-campaign operation, “on steroids”?
• Does Elon Musk think he’s “Dictator of America”? What he’s doing “bears all the hallmarks of a coup d’état”!

“You just can’t please these people,” I can hear our critics on the right saying, “It’s the Movement that Would Not Take Yes for an Answer.” But I like to think DOGE skepticism comes from a good place: Libertarians take “eternal vigilance” really seriously.

Even so, I am unconvinced—to put it mildly—that the agency-for-eliminating-unconstitutional-agencies is a serious threat to constitutional government. DOGE’s legal defects are a far bigger threat to the agency’s bureaucracy-slashing mission than they are to our liberties. And since a lot more than USAID deserves to go into the woodchipper, libertarians should want those defects cured because we want DOGE’s mission to succeed.

The Stuff of Libertarian Nightmares?

Be careful what you wish for, Veronique de Rugy cautions in Reason. When one president “circumvents legal constraints to impose libertarian-leaning policies,” the next can use “the same unchecked powers to expand government.” In the worst case, DOGE could leave us with a “presidency on steroids,” “opening the door to the same abuse when the left is in power.”

That’s sound advice in general, but in this particular case, I’m struggling to come up with true nightmare scenarios.

There are three main areas where DOGE might further weaken the remaining constraints on executive power:

• Impoundment: The administration insists the “power of the pen” trumps Congress’s power of the purse, and the president can simply nullify appropriations he doesn’t like.
• Bypassing Senate confirmation: They’ve also played fast and loose with Musk’s legal status, arguably flouting the Constitution’s Appointments Clause.
• Expanded removal powers: And they’ve claimed sweeping authority to pink-slip federal employees en masse, civil-service protections notwithstanding.

Which of these moves, if successful, would spell doomsday for libertarians when “the left is in power”?

Is the big threat here impoundment? Beware, lest come 2029, President Gavin Newsom starts zeroing out all the agencies libertarians like? (NASA geeks and “state capacity libertarians” hardest hit).

Is it bypassing the Senate? Will Newsom govern through unconfirmed apparatchiks? What if he enthrones a “pay czar” to determine CEO salaries or a “car czar” who calls the shots for US auto manufacturers?

Or is it the threat to federal civil-service laws that’s supposed to keep libertarians up at night? If Trump’s “Schedule F” gambit succeeds, will President Newsom pack the commanding heights of the administrative state with Democratic loyalists?

He could, I guess. I doubt we’d notice the difference. In the 2024 cycle, 84 percent of federal employees’ campaign contributions went to Harris-Walz—99 percent of EPA donations, 100 percent at the Department of Education. Americans are already governed by a bureaucratic class well to the left of the median voter.

Are there risks to Musk’s berserker approach? Sure, but given where we are now, catastrophizing about DOGE is a little like telling Javier Milei to slow down because his successor might be a Peronist.

To be fair, I think impoundment is a power grab worth worrying about—but not because I fear a future president may cut too much (don’t threaten me with an imaginary good time). Instead, the risk is that presidents will use budget-slashing authority to punish legislators who don’t fall into line—further accelerating our slide toward one-man rule.

The other two issues—Musk’s slippery constitutional status and the push for greater authority to fire bureaucrats—cause me far less agita, for reasons I’ll explain below.

What Is Elon Musk?

Trump’s legal team has proved comically incapable of a straight answer to that question. “I don’t have any information beyond he’s a close adviser to the president,” an administration lawyer burbled in a DC district court hearing last month. But he’s definitely not the DOGE administrator—that’s somebody named Amy Gleason. 

If a federal officer exercises “significant authority,” he’s supposed to go through the constitutional appointments process; for “principal officers,” that means getting confirmed by the Senate. Musk hasn’t been, to the consternation of multiple federal judges.

The constitutional formalities matter; still, in this case you might have a hard time explaining to a normal person how skirting them has made Musk uniquely dangerous: “What do you mean he’s not under democratic control? He works for the president. Trump can overrule anything he does and fire him at any time.”

And is Musk exercising “significant authority” in the constitutional sense: making final decisions that bind the government? The legal scholar Michael McConnell argues that he’s basically another executive-branch “czar” with “no line authority but a great deal of influence.” DOGE’s power “is simply to make recommendations to the agency”—a point that seems to have been impressed on Musk at a contentious Cabinet meeting on March 6.

Either way, it seems to me that the best reason to follow the formalities is that it would put DOGE on sounder legal footing and help ensure that the cuts and the firings stick.

“You’re Fired”

Then there’s the administration’s bid for expanded removal authority: Trump’s “Schedule F” order authorizes stripping civil-service protections from thousands of senior executive-branch officials and shifting them to employment-at-will.

Proponents of Unitary Executive Theory insist that’s perfectly constitutional: Federal civil service laws can’t “limit the president’s power to remove policymaking officials” without encroaching on core Article II authority. And while Unitarians have made all manner of extravagant claims about the scope of “the executive power,” their narrowest and most defensible position is that Article II makes the president the boss of the executive branch, with the power to fire anyone using their borrowed authority in ways he disapproves.

Still, you don’t even have to reach the constitutional question if, as my colleague Bob Levy suggests, Trump already has statutory authority to make the change. “The president’s legal argument seems well-grounded,” Bob writes: “The Civil Service Reform Act of 1978 exempts positions ‘determined to be of a confidential, policy-determining, policy-making or policy-advocating character.’” Likewise, Trump’s bid for “the restoration of presidential authority over so-called independent agencies … seems consistent with our tripartite constitutional plan.”

That these moves are legally defensible doesn’t mean they’re risk-free. Even the narrower versions of Unitary Executive Theory offer presidents broad latitude for mischief.

But the biggest risks of “a presidency on steroids” aren’t coming from DOGE. Trump’s initial flurry of executive orders includes several that assert a George W. Bush–style royal prerogative to ignore or rewrite the law. Another order dusts off the 1798 Alien Enemies Act as authority for summary deportations and, apparently, warrantless searches of homes. Then there’s Trump’s attempt to convert the International Emergency Economic Powers Act of 1977 (IEEPA) into a trade-war weapon. No prior president has ever used IEEPA for across-the-board tariffs on allies and major trading partners. But that’s exactly how Trump is using it, in service of “the dumbest trade war in history.” If, amid the excesses of George W. Bush’s “Terror Presidency,” libertarians spent their time fretting about whether Dick Cheney’s National Energy Task Force was FACA-compliant, you’d worry they’d lost the plot.

It’s Illegality All the Way Down

To put things in perspective, look at the agencies DOGE has gone after hardest: USAID, the National Endowment for Democracy (NED), the Consumer Financial Protection Bureau (CFPB), Federal Emergency Management Agency (FEMA), and the Department of Education.

They’re all unconstitutional. Some, like CFBP, wield lawmaking powers Congress has no business delegating; others, like the Department of Education, commandeer responsibilities the Constitution leaves to the states and the people. Not one has an enumerated power that can plausibly support it.

What’s more, they’re all agencies Cato scholars have called for shuttering, in most cases for at least three decades. FEMA has been a perennial target of Chris Edwards’ Downsizing Government project; CFPB the target of multiple Cato amicus briefs from its inception. USAID, NED, and the Department of Education were on the Institute’s hit list in the first Cato Handbook for Congress (1995), the last time Washington was forced to have a serious conversation about serious cuts.

The agencies in DOGE’s crosshairs shouldn’t exist. That doesn’t justify a by-any-means-necessary approach to eliminating them. To the contrary: Since the federal leviathan is a creature of statutory law and congressional appropriations, there’s no dismantling it without buy-in from the branch that got us into this mess.

DOGE Needs Congress

DOGE’s legal defects are fixable, but they need to be fixed by Congress. I offered one method in a recent piece for Reason: renewed reorganization authority of the sort Congress delegated to multiple presidents from 1932 to 1984. The Reorganizing Government Act of 2025, introduced last month by Sen. Mike Lee (R–UT) and Rep. James Comer (R–KY), would give the administration sweeping power to restructure and downsize the bureaucracy, subject to a fast-tracked approval vote in Congress. It would also insulate those cuts from legal challenges.

Other ideas come from Sen. Rand Paul (R‑KY), who’s said DOGE’s cuts should be “bundled into a rescission package and sent back to Congress”; and Yale Law’s Jed Rubenfeld, who argues that “Congress Can Easily Green-Light DOGE” via a single sentence approving cuts in a reconciliation bill. 

Is any of this about to happen? Don’t hold your breath. Two weeks ago, when Senator Paul forced a vote on codifying DOGE’s USAID cuts, nearly half of the GOP caucus balked. Congress shows every inclination to keep kicking the can down the road, using media hyperventilation about DOGE as cover for doing nothing.

We should be clear-eyed about this: The smart money says DOGE will probably fail, leaving the permanent bureaucracy little worse for the wear. But realism shouldn’t mean fatalism. In this town, opportunities for radical cuts come maybe once a generation. Libertarians should be looking for ways to even up the odds.

Adam N. Michel and Joshua Loucks

When Congress passed the Inflation Reduction Act (IRA), it was told the new energy tax credits would cost about $270 billion over a decade. Revised official estimates put the cost at multiple times that amount, as much as $786 billion. But congressional scorekeepers may still be getting the long-term cost of the IRA energy subsidies wrong, and fixing this mistake is key to unlocking permanent pro-growth tax cuts.

A new Cato report by Travis Fisher and Joshua Loucks (one of the authors here) argues that two of the most expensive IRA tax credits could be functionally unlimited subsidies, costing as much as $180 billion annually by 2050. With no expiration in sight, the total cost of the IRA green energy subsidies could accumulate to as much as $4.7 trillion by the middle of the century.

These infinite tax credits can offset permanent extensions to the most pro-growth features of the Tax Cuts and Jobs Act of 2017, which largely expires at the end of the year. Without bending long-standing budget rules, Congress must ensure that any permanent tax cuts outside the 10-year budget window are offset with spending cuts or higher revenue. This rule is why tax cuts are often temporary.

Repealing two of the IRA’s open-ended tax credits could more than offset the revenue loss from cutting the corporate tax rate to 15 percent, restoring R&D expensing, fixing the interest deduction limit, and enacting full expensing.

Budget Scorekeepers Blew It; Fixing Their Mistake Is Critical

The Joint Committee on Taxation (JCT) badly underestimated the cost of the IRA energy tax subsidies. It has since revised many of the original estimates to more accurately reflect the consensus estimates that put the 10-year cost of the IRA at roughly $1 trillion. Government scorekeepers are very likely still not fully incorporating the long-run, uncapped costs of the production tax credit (PTC) and the investment tax credit (ITC). 

As Fisher has repeatedly pointed out, the ITC and PTC are functionally uncapped because they are not time-limited, like most other temporary tax credits. The ITC and PTC only phase down when the level of greenhouse gas (GHG) emissions from the electricity sector is reduced by 75 percent of the 2022 baseline. 

Figure 1 is adapted from Fisher and Loucks’ recent report. It shows GHG projections from the Energy Information Administration, which show that electricity-sector emissions will remain far above the IRA’s target of a 75 percent reduction in the 2022 level through 2050. The GHG phasedown trigger is not met even in the scenario with a high uptake of IRA subsidies.

The Treasury Department’s most recent tax expenditure estimates explicitly state they assume the subsidies will begin to phase out as early as 2034. The JCT could have made a similar mistake in its original score of the IRA. Had the cost estimates appropriately accounted for both the magnitude and the open-ended credits, the bill could not have passed using the budget reconciliation process, which requires that legislation not increase the deficit beyond a 10-year window.

A Golden Opportunity for Pro-Growth Reform

As Republicans work to repeal or revise the IRA credits in reconciliation, it is critical that the JCT properly accounts for the full cost of the credits outside the budget window. By 2034, the ITC and PTC alone will cost about $130 billion per year—enough to permanently finance four of the most pro-growth tax cuts under consideration. 

Figure 2 compares Cato’s $130 billion cost estimate for the uncapped energy credits with the Tax Foundation’s static estimates of four pro-growth tax cuts that reduce revenue by approximately $113 billion in 2034. The four changes are (1) cutting the corporate tax rate from 21 percent to 15 percent, (2) renewing full investment expensing, (3) returning the interest limitation to its less restrictive definition, and (4) allowing full research spending deductions. 

The PTC and ITC are projected to continue to expand past 2034. In 2050, the two credits will cost as much as $180 billion annually.

Other pro-growth reforms, such as neutral cost recovery, have increasing static fiscal costs outside the budget window. Although neutral cost recovery is not included in our estimates, the escalating open-ended cost of the PTC, ITC, and other IRA provisions, such as the advanced manufacturing credit sub-provisions for critical minerals, would more than pay for neutral cost recovery even in the years beyond the budget window.

The IRA’s unlimited tax credits are a fiscal time bomb, costing between $2.04 trillion and $4.67 trillion by 2050. They represent an unchecked expansion of government spending with no clear end date. Policymakers have a rare opportunity to repeal these costly provisions and use the savings to fund permanent, pro-growth tax reform that benefits the entire economy—not just politically favored industries. Getting the scoring right is critical. 

Chris Edwards

Those acquainted with English history know that in 1215 AD, land-owning barons pressed King John to approve the Magna Carta, which limited his power and helped secure individual liberties. John “was a very poor king” who “levied frequent taxes,” according one history on my bookshelf.

However, an article in BBC History magazine informs me that “Magna Carta” historically referred to a revised 1225 version of the charter. It is this later version that influenced government and law in England for centuries. So, happy 800th birthday, Magna Carta.

The battles to rein in kings and limit government power went on for centuries. The Magna Carta formed the basis of subsequent statutes and played a key role in educating each generation about their liberties. But even before the early 1200s, the Magna Carta had precursors, including a “Charter of Liberties” issued by King Henry I in 1100 AD.

America’s limited-government Founding could not have happened without the centuries of struggle and progress made by the English. Our National Archives holds a 1297 version of the Magna Carta, courtesy of David Rubenstein. The Archives Foundation notes, “Magna Carta also guaranteed due process of law, freedom from arbitrary imprisonment, trial by a jury of peers, and other fundamental rights that inspired and informed the Founding Fathers of our nation when they wrote the Declaration of Independence, United States Constitution, and Bill of Rights.”

Some people worry that our current president is acting like an unhinged king, such as the chaotic way he is unilaterally imposing hefty trade barriers. Interestingly, the Magna Carta tried to guard against this precise abuse: “All merchants are to be safe and secure in departing from and coming to England, and in their residing and movements in England, by both land and water, for buying and selling, without any evil exactions but only paying the ancient and rightful customs.” (Clause 41 of the 1215 charter).

Here are excerpts from the BBC History article by David Carpenter, a professor of medieval history at King’s College, London:

That [1215] document, sealed under duress from rebel barons and famously subjecting the king to the law and promising justice to all, is widely lauded today as a milestone in the establishment of English law. Yet the fact is that, in the centuries after 1215, the term Magna Carta was hardly ever used for John’s document. Rather, that was the name given to the charter issued nearly a decade later by King John’s son, Henry III, at Westminster on 11 February 1225.

Although Henry’s charter was based on his father’s, the earlier iteration was usually called simply the “Charter of Runnymede.” So when, in 1297 and 1300, Henry’s son Edward I confirmed Magna Carta, he meant the charter of 1225—and the same was true of all later confirmations.

King John quashed the 1215 charter, and the barons deposed him. In 1217, John’s minor son, King Henry III, and his court made another deal with the barons to issue a new version of the charter. This charter was

accompanied by an entirely new charter regulating the running of the royal forest. It was at this point that the term Magna Carta (“Great Charter”) was first introduced, referring not to its grandeur by to its size, to distinguish that larger charter from the smaller Charter of the Forest.

In 1225, a grown Henry III wanted to fight a war in France to be funded by higher taxes, and he needed buy-in from the barons. He agreed to a new version of the Magna Carta. The 1215 and 2025 versions were cowritten by Stephen Langton, the Archbishop of Canterbury.

For Langton, one of the great biblical scholars of the age, [the charter] responded to deeply held ideas about the need for rulers to be limited by the law.

… Langton, responding to ideas about how just rule should benefit the whole community, also did something to make Magna Carta more inclusive. The concessions in the charters of 1216 and 1217, like those in 1215, had been made only to people who were free—thus excluding the unfree peasantry who made up the largest part of the population. In 1225, this changed. The statement that the concessions had been made to the free remained, but it was qualified—indeed, contradicted by the new preamble in which these concessions were granted to “everyone in the kingdom.”

Carpenter notes that the Magna Carta was not without flaws, but

The texts of the charters also became widely known and, thus, sank deep roots into English society. Copies were made by religious houses, magnates, ministers, knights, freemen and lawyers. Of the various versions, that of 1225 was easily the most copied.

… Those examining the texts—and marginal annotations bear witness to intensive study—could see that Magna Carta was far more than just a baronial document. Chapters such as those regulating the levying of fines and the running of local government benefited wide sections of society.