Axing the Fed: How Trump’s Layoffs Could Shake the Nation
- Tess Remai
- May 10, 2025
- 5 min read
As Trump returns to the White House, thousands of federal workers are not. The president’s plan to dramatically reduce the size of the federal government is bound to shake up Washington, and not just politically.
Following an executive order signed by Trump the day he took office, the new president issued a hiring freeze on all federal civilian workers that applies to the majority of departments and agencies. This order cannot impact Social Security, Medicare, or veteran’s benefits. Within ninety days of this decree, the Office of Management and Budget will submit a more permanent plan to decrease the number of national employees. Departments and groups that will face some of the largest numbers of cuts include the Internal Revenue Services, Department of Education, and workers hired within the last year. After examining economic data, Trump’s major cuts to the federal workforce in large agencies such as the IRS and the Department of Education as well as the target on probationary employees will lead to a decline in economic performance.
President Trump’s initiative to significantly downsize the IRS could hurt the ability of the department to raise revenue necessary to fund the United States government. As part of his greater plan to reduce the size of the federal government, the Internal Revenue Service is one of the largest victims to these cuts. Elon Musk, billionaire and head of the Department of Government Efficiency, says this plan includes downsizing the IRS by over 20%. Musk’s DOGE has been spearheading this campaign of workforce cuts, with the goal of aiding “efficiency” in the national government as well as reducing federal spending. As an agency of almost 100,000 employees, this puts over 20,000 IRS workers at risk in just the initial phase of firings. A study from Yale Budget Lab reveals that if the IRS shrinks by 50%, or 50,000 workers, the agency will lose 395 billion dollars in revenues over the next ten years and as much as 2.4 trillion dollars if these cuts also result in taxpayer noncompliance. This revenue loss stems from reduced IRS staffing. With fewer experienced and specialized workers, less audits can be conducted, leading to increased fraud. Wealthy individuals and businesses are more likely to evade taxes when they believe their risk of being caught is low, resulting in reduced federal government revenue. A reduced IRS presence may also undermine public trust in the government as fraud incidents are overlooked and it becomes harder for fairness and accountability to be ensured. Losing billions and possibly trillions of dollars in money generated from taxes because of a weaker IRS will hurt the government’s ability to raise revenue, ultimately weakening the overall economy.
Another large agency affected by this plan is the Department of Education. With President Trump ordering thousands of cuts to the Department of Education, the economy will be affected in both the short term and long term. An executive order signed by the president in mid-March called for Education Secretary Linda McMahon to start dismantling the Education Department. This means firing or laying off over 50% of employees, which amounts to around 2,000 positions in total, about 1,300 of which are federal employees. With this vast amount of
workers leaving the department, negative effects on education will arise.
A study from the National Bureau of Economic Research shows that a 10% increase in per-student spending leads to an average of 0.27 additional years of education, a 7.25% increase in adult wages, and a 3.67% reduction in adult poverty. When governments increase funding for education and students, economic benefits follow. A more educated society drives innovation, skilled workers, productivity, and employment. With thousands of workers being cut in the Education Department, funding going to educational programs and research will be greatly affected. Fewer staff means an increase in errors, delays, and inefficiencies in getting money to where it needs to be, leading to schools failing to receive federal money.
Without many officials to oversee if the department uses funds correctly and fairly, the chances of misuse or wasting of funds increases significantly, leading to a decrease in education and its benefits. This will also contribute to the public having less trust in the government and its ability to perform their duties correctly. With federal worker cuts in the Department of Education leading to a society where its members are less educated, the economy will hurt due to a decrease in productivity and innovation.
While not an official agency in the federal government, probationary employees are among the greatest groups falling victim to cuts, and without them, detrimental economic impacts could occur. Probationary employees are defined as employees who have served less than a year in their position and are still technically in their probationary working period. The Washington Post reports there are over 200,000 workers of this status in the federal government, making up approximately 10% of the federal workforce. Since Trump took office, over 24,000 of them have been terminated. Data from USA Facts reveals that Washington, D.C. is a highly concentrated area of federal employees, at around 160,000 with about 20,000, or 12.5%, being probationary employees. Targeting layoffs towards this large segment of the federal workforce could hurt local economies that host a high concentration of federal workers such as the D.C. area, suburban Maryland and Virginia, Los Angeles, Houston, Atlanta, and others. Firing employees causes unemployment, less consumer spending, and decreased disposable income in these areas, leading to economic downturn. Firing the large number of probationary employees will have negative effects on local economies where federal employees make up a large portion of the workforce.
The current administration’s widespread staff reductions will soon have negative economic impacts, with the IRS, Department of Education, and probationary employees being among the main targets. Effects of these cuts include lost tax revenue, reduced productivity and education, and higher unemployment paired with lower consumer spending in cities with high concentrations of federal workers. With the goal of reducing national spending in mind, there are numerous ways to achieve this without laying off employees in such significant amounts.
Reviewing and reforming government contracts to private contractors, modernizing technology by investing in digital infrastructure for the long term, tightening tax enforcement, and eliminating inefficient subsidies are just a few ways the government can decrease its expenses. Due to the immense negative impact that federal workforce cuts will have on economic performance, President Trump should dramatically scale back his ongoing plan to reduce the number of federal employees and shift towards alternate methods.
References:
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HAR, JANIE. “Two Judges in Mass Firings Cases Order Trump to Rehire Fired Probationary Workers.” TIME, Time, 13 Mar. 2025,
time.com/7268018/court-orders-trump-rehire-probationary-workers/. Accessed 9 Apr. 2025.
Hyatt, Diccon. “Here’s Where Federal Government Layoffs Will Hurt the Most.” Investopedia, 2025, www.investopedia.com/here-s-where-doge-layoffs-will-hurt-the-most-11695899/ . Accessed 5 Apr. 2025.
Ingle, Davis. “Hiring Freeze – the White House.” The White House, 20 Jan. 2025, www.whitehouse.gov/presidential-actions/2025/01/hiring-freeze/. Accessed 7 Apr. 2025.
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www.washingtonpost.com/politics/2025/04/08/supreme-court-halts-rehiring-probationary -federal-workers/. Accessed 5 Apr. 2025.
Kirabo, C, et al. NBER WORKING PAPER SERIES the EFFECTS of SCHOOL SPENDING on EDUCATIONAL and ECONOMIC OUTCOMES: EVIDENCE from SCHOOL FINANCE REFORMS. 2015. Accessed 6 Apr. 2025.
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