Donald Trump and “first buddy” Elon Musk aren’t even formally in power yet, but they already appear to be chafing at the spending constraints Congress could place on them.
So political and economic observers might be wise to familiarize themselves with the wonky concept of “impoundment,” which concerns what happens when Congressionally appropriated money simply isn’t spent by the president’s executive branch.
This bit of Washington-ese is important, as it could be determinative about whether Musk and Vivek Ramaswamy and their new extra-governmental “Department of Government Efficiency” can follow through on some of their bigger ideas, such as cutting the annual federal budget by at least $2 trillion.
Elon Musk and President-elect Donald Trump talk as he arrives to attend a viewing of the launch of the sixth test flight of the SpaceX Starship rocket on Nov. 19 in Brownsville, Texas. (Brandon Bell/Getty Images) ·Brandon Bell via Getty Images
Musk and Ramaswamy are looking to cut a lot but lack any formal authority to do so; it’s Congress that has the “power of the purse” to decide how governmental money is used.
But the incoming Trump team may aim to at least tweak that.
Just this week, in a Wall Street Journal op-ed focused on a range of strategies the two men are looking to employ, Musk and Ramaswamy noted the importance of impoundment to their plans and said the question may end up before the Supreme Court.
They argued that the current presidential limits are unconstitutional, saying Trump will challenge them “and we believe the current Supreme Court would likely side with him on this question.”
Trump has also weighed in on the issue in a campaign video in the summer of 2023, when he said that the law “wrongfully curtailed” the president’s powers in this area and called it “a blatant violation of the separation of powers.”
Whether justices indeed agree with Trump and Musk remains to be seen.
But what will be at issue if a case reaches their docket is a Watergate-era reform called the Impoundment Control Act of 1974.
The law laid out a process that the president must follow if he or she wishes to diverge from congressionally mandated funding for any program.
In short: The White House needs to go back to Congress to ask permission.
Impoundment was indeed a power that presidents enjoyed for most of US history, but it was traditionally used only to send back excess funds if Congress put aside too much.
That changed when then-President Richard Nixon attempted to stymie an environmental project using the impoundment process after Congress overrode his veto and allocated the money against his wishes.
Then-president Richard Nixon during the final night of the 1972 Republican National Convention in Miami. (Fairchild Archive/WWD/Penske Media via Getty Images) ·WWD via Getty Images
That action led to the 1974 law (part of a wave of post-Watergate reforms) and was further solidified by a Supreme Court ruling in 1975 that has been interpreted as saying the president can’t use impoundment to frustrate the will of Congress.
Trump has also toyed with impoundment authority before, most notably when he slow-walked funds to Ukraine as he pressured that country’s president, Volodymyr Zelensky, to help him politically by pushing for an investigation into Joe Biden.
Congressional Democrats responded then with a pledge to push back, vowing “Congress will not bend to executive overreach.”
This time around, Trump, Musk, and Ramaswamy appear very much interested in going even further.
“With impoundment, we can simply choke off the money,” Trump offered in his 2023 video. Musk and Ramaswamy have added that they want to eliminate entire departments (“delete as many as possible,” Musk recently posted) which could run into deep resistance in Congress.
Former presidential candidate Vivek Ramaswamy speaks at a Trump campaign rally at Madison Square Garden on October 27 in New York City. (Michael M. Santiago/Getty Images) ·Michael M. Santiago via Getty Images
In their recent communications, Musk and Ramaswamy have also laid out an array of alternate strategies to accomplish their goal in unorthodox ways. Their ideas range from overriding civil services protections to cut agencies to the “minimum number of employees required” to using a recent Supreme Court decision around federal regulations as a battering ram to more deeply cut red tape.
Musk and Ramaswamy have also floated cuts to annual federal expenditures where funding has technically lapsed, though experts have noted that the biggest-ticket item there is a politically popular one that provides veterans with healthcare.
Ben Werschkul is Washington correspondent for Yahoo Finance.
Every Friday, Yahoo Finance’s Rachelle Akuffo, Rick Newman, and Ben Werschkul bring you a unique look at how US policy and government affect your bottom line on Capitol Gains. Watch or listen to Capitol Gains on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
