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James A. Dorn

When Chinese AI firm DeepSeek released its innovative R1 model in late January—an open-source model that performs strongly with models developed at much higher cost by leading tech firms—the AI world was taken by surprise. 

US venture capitalist Marc Andreessen called R1 “one of the most amazing and impressive breakthroughs I’ve ever seen.” It is built on DeepSeek’s V3 model, released in 2024, using lower-cost chips and optimized to run predictive large language models (LLMs) with reasoning capabilities. R1 roiled tech stocks on January 27, with superstar chip maker Nvidia’s market value falling by nearly $600 billion on the expectation that demand for its top-rated chips would fall in light of DeepSeek’s ability to economize on Nvidia chips while performing at high levels.

The Rise of DeepSeek

The emergence of DeepSeek as an important player in the tech sector is due to the efforts of 40-year-old Chinese billionaire Liang Wenfeng, who used capital from his quantitative hedge fund, High-Flyer, to launch DeepSeek in May 2023. As a nonstate/​private enterprise, DeepSeek made progress on its own by hiring talent from some of China’s leading universities and paying highly competitive salaries. The firm was set up as a research operation to advance AI models and eventually to build models to match human learning processes (known as Artificial General Intelligence or AGI). 

Early work led to LLMs V1 and V2, but the real breakthrough that brought worldwide attention to DeekSeek was the release of V3 in December 2024 and R1 a month later. The training costs for V3 were less than $6 million, far below the costs of training LLMs at major AI firms. AI models consist of algorithms and the data used to train them. Training consists of “the process of feeding an AI model curated data sets to evolve the accuracy of its output” (Chen 2023). 

The key features of V3 that make it attractive are its open-source AI, its exceptional processing speed and efficiency, and its ability to handle complex coding, math, and text creation. It is a versatile model that is expected to revolutionize AI. DeepSeek’s chatbot app, based on V3, is now a leader in the field, and V3 has distilled reasoning capabilities from R1, making it an even stronger model. 

When the United States imposed export controls in October 2022 to restrict China’s access to advanced semiconductors that might compromise national security, Chinese AI firms were determined to find ways to make progress without access to Nvidia’s most advanced chips. Liang Wenfeng surprised everyone by using less powerful chips along with innovative engineering to produce efficient AI models that could compete with OpenAI and other leaders in the field at much lower cost. 

One of the key innovations was to use an 8‑bit floating point (FP8) “mixed precision training framework” for DeepSeek’s V3 model. As Dirox reported, “This was the first time this framework has been used on such a large-scale model.” By doing so, DeepSeek economized on memory and achieved a dramatic increase in computation speed. 

Other features mentioned in the Dirox report that contribute to the success of V3 as a foundational AI model are:

“Mixture-of-Experts (MoE) Architecture,” which uses only the neural network (“expert”) needed to address a specific topic rather than tying up all the networks and parameters in the model for each task.
“Multi-Token Prediction (MTP),” which allows LLMs like V3 to speed up the time it takes to generate text.
“Multi-head Latent Attention (MLA),” which allows LLMs to capture key information from a body of text multiple times rather than just from a single sentence.

In addition, making V3 open-source means that its code is available to anyone for free and can be further refined to improve AI models, thus increasing the scope of knowledge available to individuals—even though DeepSeek’s transmission of information on sensitive political topics is restricted by the Chinese Communist Party (CCP).

From Follower to Innovator

Until DeepSeek’s innovations, it had long been held that only AI giants (like OpenAI, Google DeepMind, and Meta) could develop and run high-performance AI models. The popular mentality was that bigger models with more Graphics Processing Units (GPUs) perform better than lower-cost models, and that only wealthy AI firms could properly train the top models. 

That thinking turned out to be a myth with the development of DeepSeek’s V3/R1 models. As data scientist Sahin Ahmed notes, “By proving that smarter engineering can outperform brute-force computing, Liang Wenfeng has forced Big Tech to rethink their approach.” (On the technical innovations ushered in by DeepSeek’s models, see Dirox 2024 and Ahmed 2025.)

In an interview with media site 36 Kr in July 2024 (“We’re Done Following. It’s Time to Lead.”), Liang revealed his thinking on China’s march from imitation to innovation in the AI field. 

The following quotes from Liang’s interview are pertinent:

“We won’t go closed-source. We believe that establishing a robust technology ecosystem matters more.”
“More investment doesn’t necessarily result in more innovation. If that were the case, big tech companies would have monopolized all innovation.”
“DeepSeek remains entirely bottom-up. We also do not pre-assign roles; natural division of labor emerges. Everyone brings unique experiences and ideas, and they don’t need to be pushed. When they encounter challenges, they naturally pull others in for discussions. However, once an idea shows potential, we do allocate resources from the top down.”
“If someone has an idea, they can tap into our training clusters anytime without approval. Additionally, since we don’t have rigid hierarchical structures or departmental barriers, people can collaborate freely as long as there’s mutual interest.”
“The restructuring of China’s industrial landscape will increasingly rely on deep-tech innovation.”
“Hardcore innovation will only increase in the future. It’s not widely understood now because society as a whole needs to learn from reality. When this society starts celebrating the success of deep-tech innovators, collective perceptions will change. We just need more real-world examples and time to allow that process to unfold.”

At times, Liang sounds like F.A. Hayek when he speaks of the importance of “bottom-up” experimentation in designing AI models and the “natural division of labor that emerges.” Likewise, when Hayek talks about the competitive market process as a “discovery procedure,” it fits in well with Liang’s view of innovation. 

Nevertheless, Liang is restricted in what he can say about the use of knowledge in society and a true spontaneous order, like the free market, based on private property and the rule of law. DeepSeek’s LLMs avoid answering any questions that touch on sensitive political topics, such as any criticism of Xi Jinping or the CCP or what really happened at the Tiananmen protests. China’s lack of a free market for ideas is bound to hinder innovation, both in the quality of data used to train models and the interpretation of results.

China’s Future: Open or Closed Society? 

It is exciting to see DeepSeek develop open-source models that others can use to improve their own models, including “reasoning” models like R1. The fact that DeepSeek is a private/​nonstate research firm run by a self-made billionaire who favors the spread of knowledge bodes well for China’s future. 

The process of scientific discovery and innovation, however, cannot itself turn China into an open society where individuals are free to choose and express their ideas without the threat of political reprisal. As long as China’s leaders maintain the CCP’s monopoly on power and suppress freedom of thought, improvements in AI will be hampered by the state, as will the emergence of a harmonious society. 

Jeffrey A. Singer

Representative Nicole Malliotakis (R‑NY) has long opposed overdose prevention centers (OPCs). The City of New York and its Department of Health authorized the harm reduction organization OnPointNYC to open two OPCs, one in East Harlem and one in Washington Heights. They opened on November 30, 2021. Rep. Malliotakis opposed the move, and asked Attorney General Merrick Garland to intervene, citing the 1986 federal “crack house statute” (21 USC Sec. 856) banning people from owning or managing a “building or enclosure” where they know that people use federally prohibited substances. When her efforts failed, she introduced a bill in the House of Representatives nine days later to try to stop it. 

Exercising prosecutorial discretion, the US Department of Justice took no action against the OPCs, and by December 2024, the OPCs had reversed more than 1,600 overdoses—people who might otherwise have been fatality statistics.

Now Malliotakis is at it again. Hoping that the Trump administration’s Department of Justice would share her antipathy towards this harm-reduction strategy that has been saving lives in advanced countries like ours since 1986, she has written Attorney General Pam Bondi, asking her to enforce the crack house statute and close down the OPCs.

In a 2023 Cato Institute briefing paper, I reported that 147 OPCs operated in 91 locations and 16 countries. Since then, a new OPC recently opened in Providence, RI, after lawmakers there approved a pilot program. Last summer, Vermont lawmakers overrode the governor’s veto and authorized an OPC for the city of Burlington. Burlington’s mayor hopes to see it operating later this year. Minnesota’s legislature authorized up to 15 independently run OPCs in 2023, but none have opened thus far.

Researchers from the University of Pennsylvania and Brown University reported in the Journal of the American Medical Association in November 2023, “[T]he first 2 government-sanctioned OPCs in the US were not associated with significant changes in measures of crime or disorder. These observations suggest the expansion of OPCs can be managed without negative crime or disorder outcomes.”

In a study published in The Lancet in February 2024, researchers examined the overdose mortality rates in Toronto, Canada, between May 2017, when nine OPCs opened in the city, and December 2019. They found that overdose fatalities dropped significantly during that period in neighborhoods surrounding the OPCs but not in other neighborhoods.

In April 2024, scholars at the New York City Department of Health and Mental Hygiene reported in NEJM Catalyst on the city’s two OPCs’ first full year of operation:

“From November 30, 2021, to November 30, 2022, 2,841 individuals visited the two OPCs 48,533 times and staff intervened during 636 visits (1.3%) to prevent overdose-related injury and death. During this period, emergency medical services (EMS) were called only 23 times, and no overdose deaths occurred in the OPCs. Results suggest that the OPCs diverted up to 39,000 instances of public drug use and played a critical role in connecting participants to care, with 75% of participants accessing other harm-reduction, social, and medical services through OnPoint NYC.”

Besides saving lives and reducing public drug use, OPCs reduce the number of emergency medical services (EMS) calls and the costs associated with them.

Republicans have long espoused a commitment to federalist principles, i.e., “the division and sharing power between national and state governments.” In that spirit, Representative Malliotakis should respect the decisions of state and local governments as they grapple with the addiction and overdose crisis. She should let the “laboratories of democracy” experiment with harm-reduction strategies that have worked for 40 years in other advanced countries.

To that end, Congress should repeal the “crack house statute” or, at a minimum, carve out an exemption for local government-sanctioned overdose prevention centers. 

Adam N. Michel

House Republicans recently passed the first key legislative hurdle to modify and extend the 2017 Tax Cuts and Jobs Act (TCJA). The budget resolution allows a net $4.5 trillion tax cut, limiting the types of additional tax cuts Congress can include. Expanding the child tax credit (CTC) is likely one of the add-ons that will be curtailed.

Republican tax writer Blake Moore recently acknowledged that his almost $600 billion plan to expand and reform the child tax credit would likely not make the final cut. However, he remains hopeful that the credit will be “modernized.”

Republican proponents of family and child subsidies should focus on streamlining federal programs and leave any further expansions to states. This is not to recommend states create or expand welfare and other family subsidies—such policies tend to be wasteful and ineffective at any level of government—but leaving it to states to experiment would likely lead to less inefficient, more fiscally responsible, and more politically responsive policies than further federal expansion.

Child Tax Subsidies

The CTC is more than a simple family tax cut. The CTC is a direct spending program for the 24 million taxpayers with no income tax liability. These taxpayers benefit from the CTC’s “refundable tax credit.” In 2024, about 40 percent of the fiscal cost of the CTC is estimated to be direct spending instead of income tax cuts.

In 2017, the TCJA increased the CTC from $1,000 to $2,000 per child. This expansion was paired with eliminating the dependent exemptions, a $4,050 (for 2017) deduction for each household member, including children. The larger CTC for dependent exemption swap did not meaningfully increase the total fiscal cost of the tax code’s child subsidy. However, it shifted more of the subsidy to lower-income Americans, expanding the number of Americans who are net beneficiaries of the income tax system.

I’ve written, with Vanessa Brown Calder, about how the CTC is poorly targeted to meet most of its proponents’ policy goals, including boosting fertility, lowering costs, and fighting poverty. The tax code is not a well-tailored tool to address social policy goals.

Numerous similar tax provisions also subsidize families with kids. The earned income tax credit (EITC) offers a refundable tax credit to low-income workers, with the largest benefits going to households with kids. The tax code also includes a child and dependent care credit, a larger “head of household” standard deduction for single taxpayers with children, and employer tax subsidies for childcare and parental leave. Before further expanding any of these credits, they should be considered holistically.

Leave It to the States

States have increasingly taken the lead in implementing and expanding child and family subsidies. Most US states with income taxes have adopted versions of federal child tax subsidies, with many changing eligibility, refundability, and benefit amounts to better suit their citizens. For policymakers who favor additional child and family tax subsidies, this state-led approach allows for additional flexibility, innovation, and better resource targeting to meet the specific needs of families in different regions.

Of the 41 states and the District of Columbia with income taxes, 90 percent have implemented a state-level version of the CTC, EITC, or childcare tax subsidy. In 2024, 32 states had an additional EITC, 16 had a CTC, and 30 had a deduction or credit for childcare. Figure 1 shows the number of states by year with a state-level CTC or EITC. 

The data indicate that state-level policy is responsive to political demands. Following the temporarily increased child credit during the pandemic, many policymakers and activists pushed for permanently larger credits. The federal credit was allowed to expire, but between 2019 and 2024, 12 new states added their own CTCs.

For policymakers who support these tax credits, the state-level momentum suggests that federal expansion is unnecessary and may even be counterproductive to state efforts. States are showing they can design and fund their own family and child subsidies.

Leaving welfare spending and tax subsidy programs to the states allows them to create better policies and expand accountability. As Cato’s Chris Edwards notes in a report on fiscal federalism, state budgets tend to be much more fiscally disciplined than the federal government.

Rather than continuing to increase federal tax credits, lawmakers should let states take the lead on social policy and focus instead on reducing federal tax rates and simplifying the federal tax code.

Federal Focus

The federal tax reform effort should focus on permanent reforms that keep tax rates as low as possible by repealing as many targeted tax credits, deductions, and exemptions as possible. The Cato Tax Plan cuts trillions of dollars of tax preferences, including the CTC and the EITC. With the savings, it lowers tax rates to near 100-year lows.

Expanding the CTC should not be pursued at the expense of other broader reform efforts. In a pre-election poll asking likely voters to rank their tax policy preferences among six options, like reducing tax rates on the middle class and raising taxes on the wealthy, voters listed “extending and expanding the Child Tax Credit” dead last.

To modernize the CTC, policymakers could consolidate existing family tax programs to create more streamlined benefits. The current list of credits—each with its unique income requirements, definitions of dependent child, and other peculiarities—includes the EITC, dependent care tax credit, head of household status, adoption tax credits, and business credits for family leave and childcare.

Any modernization effort should simplify and shrink—not expand—the total fiscal cost of federal child subsidies. Repealing these entirely in favor of lower tax rates would return social and welfare policy to the states where it can be more fiscally responsible and better designed. 

Tad DeHaven

Department of Government Efficiency (DOGE) chief Elon Musk recently said the following:

“I think we do need to delete entire agencies as opposed to [leaving] part of them behind … If you leave part of them behind … It’s kind of like leaving a weed. If you don’t remove the roots of the weed, then [it’s] easy for the weed to grow back .… But if you remove the roots of the weed, it doesn’t stop weeds from ever growing back, but it makes it harder. We have to really delete entire agencies—many of them.”

Regardless of one’s opinion of Musk or Doge, he’s right. In time, agencies and programs will grow back. Thus, any reduction in the federal government’s size and scope will be fleeting.

The Federal Emergency Management Agency (FEMA), the Department of Education (DOE), and the US Postal Service are federal entities that the Trump administration may target for abolition or privatization. The administration is trying to shutter the US Agency for International Development (USAID) unilaterally, but abolishing USAID and other agencies will require congressional action. 

Getting Congress to abolish federal agencies is going to be a tall order. The budget resolutions the Republican-led House and Senate put forth would increase unsustainable federal debt levels, which is telling. However, they do provide for varying degrees of spending cuts.

Deficit hawks would be correct to say that abolishing every penny of FEMA, Education, and USAID spending wouldn’t substantially reduce federal spending—especially if spending increases occur elsewhere. However, the benefit of terminating agencies extends well beyond the price tag and would represent a welcome downsizing of the federal government’s scope.

Unfortunately, congressional Republicans are already pushing back on trimming any weeds, let alone pulling them out of the ground. House Agriculture Committee Chair G.T. Thompson (R‑PA) says there will be no cuts to Supplemental Nutrition Assistance Program benefits, which would jeopardize Democratic support for continuing the GOP’s flow of subsidies to farmers. And swing-district Republicans who are prioritizing keeping their job over supporting what needs to be done are saying no.

Even congressional Republicans who support abolishing agencies propose pulling weeds and planting them elsewhere in the federal bureaucracy. For example, there’s growing Republican support for abolishing the Department of Education. But they’re not actually proposing to get rid of the DOE’s programs; rather, the programs would be moved to other federal departments. That may be the most politically feasible option and would have its benefits, but it wouldn’t eliminate the federal government’s involvement in what is properly a state and local matter. 

Musk presumably knows Congress remains unserious about downsizing the federal government. DOGE’s attempts to work solely within the executive branch to eliminate USAID points to this. Contrary to what some in the Trump administration think, serious cutting requires Congress to get involved. Therefore, it would be useful for DOGE to focus more energy on prodding Congress to find the gumption to do its part.

Alex Nowrasteh

Congress is currently debating whether to spend about $175 billion on deportations to avoid future payments like the $650 million that Congress spent on shelter and other services for migrants last year. Poorly spending $650 million last year doesn’t justify spending 269 times as much to avoid similarly relatively small costs when Congress could just decide not to spend the money on migrant shelter and services in the first place.

The better policy would instead end noncitizen access to welfare and entitlement benefits, which could save over $109 billion in the first year.

Cato released a new paper today on immigrant consumption of welfare and entitlement benefits that will aid in such analysis. To put the following in context, the federal government spent about $2.8 trillion in welfare and entitlement programs in 2022, equal to approximately 45 percent of all federal outlays. Over $2 trillion on Social Security and Medicare, and another $784 billion on means-tested welfare benefits. States spent an additional $255 billion.

We find that all immigrants consumed 21 percent less welfare and entitlement benefits than native-born Americans on a per capita basis in 2022, based on data from the Survey of Income and Program Participation (SIPP). Immigrants were 14.3 percent of the US population and consumed just 11.9 percent of all means-tested welfare and entitlement benefits that year.

The biggest myth in the debate over immigrant welfare use is that noncitizens — which includes illegal immigrants and those lawfully present on various temporary visas and green cards — disproportionately consume welfare. That is not the case. Noncitizen immigrants consumed 54 percent less welfare than native-born Americans. Noncitizens were 7.3 percent of the population and consumed just 3.5 percent of all welfare and entitlement benefits. In total, noncitizens consumed $109.4 billion in benefits in 2022.

However, naturalized immigrants consumed 17 percent more welfare than native-born Americans because they are an older population—they consumed 7 times as much Social Security and 4.3 times as much Medicare as noncitizens on a per capita basis. Naturalized immigrants were 7 percent of the population and consumed 8.4 percent of welfare benefits. Figure 1 breaks out per capita welfare consumption per program.

The entitlement programs of Medicare and Social Security are the cornerstones of the American welfare state. Although immigrants use less than native-born Americans overall, naturalized immigrants use more than natives. However, the results are different when only means-tested programs are considered: noncitizens consume less means-tested welfare than native-born Americans (Table 1). Naturalized immigrants also use less means-tested welfare than native-born Americans.

As mentioned above, our new paper is an update of earlier Cato studies on this topic with a slight methodological improvement that adjusts underreported benefit use by demographic groups rather than uniformly adjusting across all groups. This leads to more accurate estimates. Our new paper also includes data on Earned Income Tax Credit consumption, and the results are broadly broken out by racial and ethnic groups.

This new brief is an analysis of the consumption of welfare benefits; it is not a net-fiscal impact analysis that considers the consumption of other government services or tax revenue. Please read Cato’s other research on the net-fiscal effects of immigration here, here, and here.

One of the tragedies of the welfare state is that it motivates the government and voters to see people as accounting pluses or minuses based on their net contributions to the welfare state. It ignores all the other positives that people, especially lower-skilled workers, contribute. For example, a janitor may have a low income and would likely consume more in welfare than he pays in taxes, but he contributes valuable services that others demand. There is a consumer surplus produced by his labor that is not measured by the welfare state’s bean counters. However, the economy-wide gains can be increased or the losses reduced (depending on the specifics in this scenario) by limiting access to welfare to the extent where even lower-skilled workers can turn into net taxpayers.

Rather than reaching toward expensive mass deportations as a solution to fiscal issues, the more free-market, libertarian, and fiscally responsible solution is to build a higher wall around the welfare state, as Cato scholars have long suggested. 

Noncitizens should have zero access to means-tested welfare and entitlement programs in the United States, but that policy goal shouldn’t also distract us from understanding the current state of affairs. The problems with the American welfare state are not imported and won’t be solved with mass deportations.

Nicholas Anthony and Norbert Michel

Senators Bernie Sanders (I‑VT) and Josh Hawley (R‑MO) have proposed new price controls on credit cards. They frame the proposal as something that will give the public relief, but it’s hard to imagine “relief” is what people will feel if they have their accounts closed.

The Democratic socialist and Republican populist built their case for price controls stating that concerns about the restrictions are “backwards,” interest rates shouldn’t be based on risk, and that interest rates are too high. Let’s break down each of these ideas to understand why the senators are wrong.

“It’s Not Me That’s Wrong, It’s Everyone Else”

In their commentary for Fox News, the duo argues that economists “have it backwards” when they explain that price controls lead to shortages. They say, “Our bill would restrict financial institutions from charging working-class Americans exploitative and predatory credit card interest rates that can trap them into a vicious cycle of debt.” Such paternalistic policies may sound nice to some people, but their argument is far from compelling.

A good place to start is by explaining why economists say price controls lead to shortages. In a basic supply and demand schedule, establishing a price control—or a price ceiling—means that the amount of a good or service that people want (the quantity demanded) will suddenly be greater than the amount companies want to provide (the quantity supplied) at a given price (Figure 1). In economics, this situation is called a shortage. What exactly the senators see as being “backwards” here is unclear. 

The risk of a shortage of credit is deeply concerning. At least one can choose to eat apples if there is a shortage of bananas. The same can’t be said for the people who are considered the riskiest borrowers and, therefore, pay higher rates. For them, a shortage of credit will likely mean losing access to credit completely. They may turn to family, friends, or other high-cost loans to bridge the gaps in their spending. Alternatively, they may pay bills late or skip payments altogether. And that’s not just economic theory; these problems are seen in practice as well.

“Different People Shouldn’t Get Different Rates”

Senators Sanders and Hawley also suggest that it’s a problem that “Big Banks can borrow money at less than 4.5% from the Federal Reserve” while “these same financial institutions are charging the average consumer 28.6% interest on credit cards.” From 30,000 feet in the air, these two cases might sound similar because they both involve one party loaning money to another. However, when it comes to how things work on the ground, these are vastly different scenarios.

The key difference is risk. The average bank has a robust history of borrowing, which serves to verify their creditworthiness. In contrast, the average person is likely to have a dramatically thinner credit file (or maybe none). Banks also have more assets than the average person. For example, a bank is considered “small” if it has less than $600 million in assets, but the median low-income American only has $900 in their checking account.

These differences only scratch the surface. However, these differences illustrate why it is misleading to suggest something wrong is taking place solely because one party is getting a lower interest rate than another party. Setting aside the differences between wholesale and retail pricing (an issue we will dive into next), interest rates should reflect individual risks. This flexibility allows the market to reach people no matter where they are.

“These Rates Are Just Too High”

The last argument to mention occurs throughout the commentary, where the two senators repeatedly describe interest rates above 10 percent as “exploitative” and “predatory.” They even accuse financial institutions of “extortion” and “loan sharking.” Setting aside the question of whether the senators have called for charges to be filed for these alleged crimes, it’s important to remember that value is subjective.

Consider what it takes to bring a good or service to the market. For lenders, covering the salaries of actuaries, navigating anti-money laundering regulations, and maintaining customer relationships is a costly process. Yet, running a business isn’t just about recouping costs. Lenders must also add value. Consumers will always want lower prices, but finding the right price means finding where both consumers and businesses are better off. 

Whether it is $20 for a sandwich or $100 for a haircut, there will always be prices that are high for some people but just right for others. What’s important is that people can freely choose what is best for them and reject what isn’t. It’s through this process of bargaining and experimentation that countless people can vote with their wallets and constantly move the economy in a better direction by improving people’s lives. For the senators to impose their own beliefs would be to effectively override everyone else’s vote.

Free the Financial System, Don’t Restrict It

Expanding affordable access to financial services, looking out for the best interests of others, and creating a level playing field for competition are all worthy ideals. A market economy is the best way to achieve those ideals fairly. Price controls, however, achieve the opposite of these intended effects. If Congress wants to improve the financial system, it should look to removing the legislative and regulatory burdens that have been weighing it down.

Jeffrey Miron and Jacob Winter

The Trump administration sparked controversy this month by reducing grant funding from the National Institutes of Health. The move, currently blocked by a judge, caps the percentage of grant funds that can be used for indirect costs at 15 percent.

There are legitimate debates about a universal cap on funding for indirect costs, as well as about President Trump’s wrecking-ball approach to reforming government.

But it is also worth asking whether governments should fund research at all.

In a previous piece, we argued they should not. Read it here.

Chris Edwards

Republicans criticized President Biden for his huge spending and deficits, which spurred inflation and jacked up debt to dangerously high levels. The GOP are now in the driver’s seat and must reform the budget to ward off a fiscal crisis. Inflation is ticking up, borrowing costs are rising, and annual interest spending is now so huge it surpasses defense spending.

Last week, the House Budget Committee released a plan to extend the Trump tax cuts, boost spending on defense and security, and trim other spending. But the plan would make the government’s debt crisis worse! Debt held by the public would rise from $30 trillion in 2025 to $54 trillion by 2034. That huge 2034 debt load would be even larger than the $50 trillion in baseline debt projected by the Congressional Budget Office.

Many Republicans are not grasping the seriousness of the coming fiscal crunch. Relative to the size of the economy, reckless spending since 2001 has pushed federal debt to almost the peak reached during World War Two. The debt fell after the war, but today it is spiraling upwards even with steady economic growth and without a war.

With control of the House and Senate, now is the time for Republicans to cut. They should eliminate dozens of agencies that spend on activities that should be handled by the states or the private sector. President Trump appears open to major reforms, including abolishing the Department of Education. Congress should jump on the opportunity and deliver major downsizing legislation to the president’s desk.

How much should Republicans cut? The chart shows possible 2034 debt targets measured as a percentage of gross domestic product (GDP). A good target would be to cut spending enough to stabilize debt at the current 100 percent of GDP, which would avert a debt crisis.

Another goal would be to limit debt to no more than the CBO baseline. But in that case, we would still be on an unsustainable path with debt rising to 117 percent of GDP by 2034. 

Remarkably, the House Budget Committee chose a path of even larger debt growth than the CBO baseline, thus hastening the coming fiscal crisis. The plan would cut taxes by $4.5 trillion by 2034, increase defense and security spending by $300 billion, and cut other spending by a paltry $1.5 trillion. The net effect would be to boost the debt to 126 percent of GDP by 2034.

Without any law changes, total spending over the next 10 years (2025–2034) is projected to be $86 trillion. The GOP plan to cut spending by $1.5 trillion would be just a two percent cut. That would be pathetic, weak, and nowhere near enough to meet the nation’s massive fiscal challenge.

Americans voted for Republicans to tackle overspending, debt, and inflation. This year, Republicans can pass major spending cuts with majorities in the House and Senate. They have a supportive president in Trump and the tailwind provided by his DOGE initiative. Republicans must seize the moment.

Cato scholars examine the House and Senate budget plans here and here and propose major budget reforms here.

Mike Fox

This blog is an update of the Dec. 24, 2024 post, “DOJ Jumps the Shark.”

Imagine you were operating a shark diving charter boat in Florida and came across a long fishing line that you believed to be the work of poachers. You haul in the line, release a number of fish, and take the rig back to the marina after notifying state officials.

If it turns out you were mistaken and had actually stumbled onto a bona fide research project, would it be fair to charge you with “stealing” the line you hauled in and left on the dock? The US Department of Justice thought so and pursued felony charges against the two boat operators, John Moore and Tanner Mansell, for theft of property within the “special maritime jurisdiction” of the United States.

Defense counsel asked the trial judge to instruct the jury that stealing property means wrongfully taking it “[w]ith intent to deprive the owner of the use or benefit permanently or temporarily and to convert it to one’s own use or the use of another.” That instruction was not given, and a jury reluctantly convicted Moore and Mansell after deliberating for longer than the entire trial, sending out seven notes to the judge, and nearly deadlocking.

The Eleventh Circuit Court of Appeals reluctantly affirmed, holding that the statute’s definition of stealing does not require evidence that the defendant “carried away” property for his “own use or the use of another.” Judge Barbara Lagoa—herself a former federal prosecutor—castigated the Assistant United States Attorney by name in her concurrence for “taking a page out of Inspector Javert’s playbook.” She noted that Moore and Mansell “never sought to derive any benefit from their conduct” and have been branded as lifelong felons “for having violated a statute that no reasonable person would understand to prohibit the conduct they engaged in.”

In December, the Cato Institute filed an amicus brief urging the Eleventh Circuit to grant en banc review and reverse the convictions. The brief explains that for centuries, the greatest protection against unjust convictions and punishments was the institution of jury independence, including so-called “jury nullification.” But because modern judges have effectively nullified the power to nullify, it is all the more important that other defendant-protecting doctrines—such as the rule of lenity—be applied robustly.

At common law, prosecutors were required to prove that a defendant had a guilty mind—meaning that the accused knew or intended to commit a crime. This is known as mens rea. Dispensing with the mens rea requirement has led to the criminalization of totally innocent conduct and to destroying the lives of well-meaning people like John Moore and Tanner Mansell, who genuinely believed they were doing the right thing.

Members of Congress have long understood the need for mens rea reform. Senators Mike Lee, Rand Paul, and Thom Tillis have championed legislation that would require prosecutors to show that the accused didn’t just commit a “criminal” act but had a guilty mind. If reintroduced and enacted, the law would establish a default setting requiring prosecutors to prove intent—even in instances where the law at issue lacks an intent element. Had this law been in effect at the time, it’s doubtful Moore and Mansell would have been convicted.

Because the jury instructions in this case reflected a broad conception of the word “steal” rather than a narrow one, Moore and Mansell are entitled to a new trial with a properly instructed jury. Unfortunately, the Eleventh Circuit recently denied their petition for en banc review, so they will be asking the Supreme Court to hear their case. 

Walter Olson

The US Department of Justice (DOJ) is unique among federal agencies in the extent to which its core mission is to safeguard the integrity of the law, and virtually the definition of a crisis event there is a mass resignation or firing of senior officials occasioned by their belief that they are being ordered to act in disregard of what the law requires. 

Richard Nixon’s “Saturday Night Massacre,” which caused public opinion to turn sharply against him in the Watergate affair, fell into this category. In January 2021, it was the threat of mass resignations by senior staff that stayed Donald Trump’s hand from installing an acting attorney general who would declare, in line with Trump’s wishes but against the findings of the department’s professionals, that the results of the election were suspect. 

In Trump’s second administration, it has taken only three-and-a-half weeks to bring the DOJ to a mass resignation event. Yesterday, as the New York Times reported, Danielle R. Sassoon, interim US attorney for Manhattan, “quit after the Justice Department told her to withdraw corruption charges against Mayor Eric Adams.… Ms. Sassoon, 38, joined the Southern District in 2016. A graduate of Harvard College and Yale Law School, she clerked for Justice Antonin Scalia on the Supreme Court and is a member of the Federalist Society, the conservative legal group.” Earlier, Sassoon had clerked for noted conservative judge J. Harvie Wilkinson of the Fourth Circuit. 

It was a high-visibility resignation. Handling a large volume of complex cases and high-level white-collar crime investigations, the Southern District of New York is regarded as a premier US attorney’s office. Sassoon, who had been named interim chief by the incoming administration itself, most recently co-led the district’s appeals unit and is perhaps best known for successfully prosecuting crypto founder Sam Bankman-Fried.

The background is the incoming administration’s decision to drop bribery and corruption charges against New York City Mayor Eric Adams. The case is complex, but Andrew McCarthy of National Review, who’s anything but a reflexive critic of Trump’s legal moves, dismisses as “ridiculous” and “laughable” the department’s cover story for dropping the charges, a decision he says was instead reached on “explicitly political grounds.”

But prosecutors’ decisions to drop cases, like their decisions to bring cases, are not supposed to rest on calculations as to what might politically help their elected overseers. As Sassoon points out in a parenthetical cited (top of p. 8) in her resignation letter, the Arizona Supreme Court “disbarred the elected chief prosecutor of Maricopa County, Arizona, and his deputy, in part, for misusing their power to advance the chief prosecutor’s partisan political interests.” (I wrote about that case.)

Sassoon’s letter (NYT annotated version) is an extraordinary and finely crafted document well worth reading in its entirety. It makes a case for why, under the Department’s own rulebook, she was neither authorized nor permitted to participate in the dropping of charges. Footnote 1 in particular is quietly devastating. On page six she notes that the judge in the case may not, in fact, approve the dismissal, which would in her view be “to acquiesce in using the criminal process to control the behavior of a political figure.”

Within a day Sassoon had been joined in resignation by five senior officials at the Justice Department’s headquarters in Washington, including the acting chief of the criminal division, the acting chief of the public integrity section, which handles bribery and other misconduct charges against public officials, and three other senior lawyers in the public integrity section. The resignation letter from AUSA Hagan Scotten, a Bronze Star recipient and Kavanaugh-Roberts clerk, is particularly pungent: “I expect you will eventually find someone who is enough of a fool, or enough of a coward, to file your motion. But it was never going to be me.”

In response to Sassoon, Deputy Attorney General Emil Bove fired off a response that is quite a document in itself. It accuses her of insubordination and vows to investigate both her and other lawyers who declined to take part in the dropping of charges against Adams. In the second paragraph, it asserts, “You lost sight of the oath that you took when you started at the Department of Justice by suggesting that you retain discretion to interpret the Constitution in a manner inconsistent with the policies of a democratically elected President and a Senate-confirmed Attorney General.”

There, in a nutshell, is the difference between Bove and the officials who resigned. The oath Danielle Sassoon took was to the Constitution and laws, not to President Donald Trump or his line of command, and she did not agree, nor does the oath arguably even permit her, to suspend her independent judgment so as to follow orders and take a step she believes to be not authorized by law. Her integrity, and that of the other five officials, deserves our applause.

Some readers may be inclined to pass over the matter on the grounds that it’s better to have a general presumption against prosecution or that some of the charges against Adams rest on laws that might not warrant federal as distinct from state enforcement. But once explicitly political considerations can override professional legal judgment in a prosecutor’s office, the problem is not going to be confined to decisions to drop cases; it will inevitably get into affirmative decisions to prosecute persons who would have gone free had professional legal judgment prevailed.

“In any normal administration,” notes former DOJ official Alan Rozenshtein, “the Adams scandal would lead to the immediate resignation of the Attorney General and Deputy Attorney General.” But this is one of many ways in which it looks as if Trump’s second administration is not going to be like other administrations.