Why People Are Freaking Out About Trump’s Federal Purge & The Billionaire Medicare Loophole Problem
PDS Published 02/17/2025
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Today is the first Presidents’ Day since Donald Trump took office for the second time.
And just around a month in, he’s already implemented countless policies that will define his legacy and change the landscape of the American political system forever.
Especially when it comes to the administrative state and Trump’s ongoing efforts — alongside Elon Musk — to dismantle American bureaucracy as we know it.
But this isn’t the first time a president has conducted a mass purge of the bureaucracy: it happened during the Red Scare as well.
Which is why we’ve seen countless comparisons between the McCarthy era and what we’re seeing now.
So on this Presidents’ Day, I want to take a closer look at the past, and what it might be able to tell us about the future.
Right, in the 1946 midterm elections, Republicans captured both the House and Senate after running campaigns centered on anti-communist attacks.
With one of the most notable among their ranks being Republican Sen. Joseph McCarthy, who would of course go on to be the main perpetrator of the Red Scare.
And under pressure to act, the following year, President Harry Truman signed what became known as the “Loyalty Order,” which directed the Civil Service Commission to screen the background of EVERY federal employee for evidence of “disloyalty.”
And those screenings covered EVERYTHING including records across the government, police departments, past employers, and even college transcripts.
With Truman also instructing his attorney general to come up with a list of “subversive” organizations that would be a huge red flag for anyone found to have been a current or former member.
Right, and if anything came up in those screenings, the FBI would then lead a full-fledged investigation into the person’s life, with any possible damaging information going into a file that was given to the department they worked for.
And while, hypothetically, the department was given the ability to decide what to do with the employees — including discipline or reassignment — most people who reached that point in these probes lost their jobs.
For example, a vet who lost both his legs in World War II was fired from the Veterans Administration because he had been a member of the Socialist Workers Party — an anti-Stalinist organization that had been put on the subversives list.
Other employees who had been involved in pro-labor activities also faced invasive probes, as did dozens of Black workers who were involved in civil rights organizations.
Gay and lesbian employees were also probed and purged as part of a parallel campaign that became known as the “Lavender Scare,” which targeted “homosexuals” because they were believed to be weak, security threats, and communist sympathizers.
Beyond that, these inquiries targeted top experts on U.S. foreign policy with China — a group of academics and Foreign Service officers known as the “China Hands.”
Right, in the late 40s, those experts cautioned the U.S. from getting too deeply involved in the Chinese Civil War.
Warning that Mao’s victory was inevitable and the U.S. should instead exploit fissures between him and Russia to counter communist forces in the region.
And in hindsight, that was probably good advice, but at the time, it was taken as evidence that they were soft on communism and part of a pro-communist conspiracy within the State Department, so members of the group were purged.
But it didn’t stop there — when Dwight Eisenhower took office in January 1953, marking the first Republican elected president in two decades, his administration continued these efforts in full force.
With Eisenhower signing an executive order mere months after taking office that launched an even more extensive campaign to investigate thousands of potential threats in the government.
And again, many gay employees were targeted as part of that order, which defined threats to national security as constituting:
“any criminal, infamous, dishonest, immoral, or notoriously disgraceful conduct, habitual use of intoxicants to excess, drug addiction, sexual perversion.”
So, all in all, historians have estimated that between 1947 and 1956, over 5 million federal workers were screened, with a total of 2,700 getting fired and 12,000 resigning.
But not a single spy was EVER discovered as a result of either Truman or Eisenhower’s efforts.
Now, defenders of the effort argued it was successful in deterring potential subversives from joining the government.
But many historians say that it likely discouraged many talented people from joining tool.
While also forcing out experts in fields who were crucial to shaping foreign policy as it related to communist countries and forces at the time.
Right, according to Clay Risen, a journalist who has expertise in the time period, these purges did nothing to actually improve America’s security — if anything, they actually had the opposite effect.
With him writing that the U.S. effectively “kneecapped itself” by “removing thousands of valuable employees and forcing those who remained into unhappy conformity” at a time of deep geopolitical turmoil.
Noting that while it’s impossible to know exactly how big of an impact these purges had, the cost:
“was clearly enormous and played out not just over the subsequent years but over decades.”
And going on to explain:
“For instance, had expertise not been purged and dissent not been punished so severely across the government during the early 1950s, wiser heads might well have raised the right objections to America’s short-sighted anti-communism in East Asia, above all its rush to intervene in Vietnam.”
With Risen then asking the key question at hand here:
“Does the Trump administration run the same risk of short-sightedness today?”
And that’s especially concerning given the MANY parallels between the Red Scare and what we’re seeing now.
Right, as many experts and historians have noted, “DEI” has effectively become a stand-in for “communism” as a scapegoat used to purge government workers and shutter entire offices — in many case s with questionable legality.
But there are also even more explicit 1-to-1 comparisons between then and now.
Right, while the Red Scare largely petered out eventually, there has always been a significant faction of the American right that continues to weaponize allegations of communism and socialism as scare tactics or to rile up their bases.
And this is something that we have seen increasingly more and more with the rise of Trumpism and the growing polarization between left and right over the last decade or so.
Right, you can hardly go on X without seeing certain Republicans and Elon Musk decrying some policy as “socialist.”
And that is something that’s even been emulated in official government directives.
In the memo that attempted to freeze federal spending, the Trump administration explicitly said that it was trying to stop “the use of Federal resources to advance Marxist equity,” among other things.
But beyond the obvious parallels, there are also some very notable differences between now and then that make the stakes arguably even higher.
As Risen points out, one important difference is that: “Loyalty then meant loyalty to the United States; today Trump demands loyalty to himself and his agenda.”
And in addition to getting rid of anyone who threatens his agenda, Trump is also installing his own loyalists to run government agencies.
With other experts saying that this is an explicit attempt to expand the powers of the presidency by disrupting nonpartisan civil servants who provide essential checks on those powers and replacing them with yes-men who will follow any orders.
With Donald Kettl, a professor at the University of Maryland who studies the civil service, arguing that Trump’s purges are:
“focused much more on shifting the balance of power than they are on improving the results of government.”[]
And saying that taken together, Trump is demonstrating a “blunt assertion of presidential authority, which the administration believes sits above everything else.”
So, as a result, experts say that the impacts of these efforts will go far beyond national security concerns and geopolitical threats.
They will also hamper our ability to respond to any future crisis — be it a pandemic, a natural disaster, a terror attack — anything, period.
Right, as Rogé (Rowj-Jay - here’s how to say it, hard to write phonetically) Karma, a staff writer at The Atlantic, explained in a recent article:
“Trump is committed to dismantling the federal bureaucracy as we know it—and, with it, the government’s capacity to handle the next crisis. Like an individual who chooses to forgo health or fire insurance, most Americans won’t feel the negative impact of this effort as long as everything in the world runs smoothly. What happens when the next crisis strikes is another story altogether.”
With Karma specifically using the COVID as an example, arguing that the few success the U.S. had in addressing the pandemic was all thanks to bureaucrats with area-specific expertise who, quote:
“helped limit the damage, often despite Trump’s own negligence and attempts to interfere.”
And going on to say that:
“These are exactly the sorts of experienced public servants whom Trump is trying to push out of government.”
Arguing that if Trump succeeds and pushes out career experts while installing his loyalists, we could be in a world of trouble when we actually have to face a crisis, writing:
“Imagine if Robert F. Kennedy Jr., an anti-vaccine conspiracy theorist, had been in charge of the nation’s public-health apparatus, and surrounded not by scientific experts but by hard-core Trumpists. How many more Americans would have died?”
But Karma and other experts say that the steps Trump is taking now to gut the American bureaucracy will have long-lasting impacts that go far beyond the next four years.
History literally shows us evidence of that—the impacts of Red Scare purges lasted for decades, and what Trump is doing now will likely surpass that in scale.
With Karma explaining:
“None of this means that a major crisis will inevitably strike next week, or even over the next four years. But Trump’s actions make that possibility far more likely.”
And adding, “In a crowded field, this might be the most alarming aspect of Trump’s second term. At first, most people won’t notice an agency gutted here or a program slashed there. But those cuts will make disaster more likely, and when that disaster strikes—whether during Trump’s presidency or his successor’s—the government will be far less capable of handling it. What we don’t know is how bad that crisis will be, and whether Trump will still be in office to face the consequences.”
But on that uplifting note, that’s where I’m going to end this one.
The stakes are incredibly high, and there’s no point in trying to pretend otherwise.
But with all this, I’d really love to know your thoughts in those comments down below.
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If y’all will allow me to grossly oversimplify the American economy for a second, most income earners can be roughly split into two classes:
Those who earn a living by working for a wage or a salary, and those who primarily live off of interest, dividends, capital gains, rents, royalties and other forms of passive income from investments.
Right, generally speaking, the first group tends to be much less wealthy than the second.
Yet for a very long time, Medicare Part A was funded almost entirely by taxing that first group, but not the second.
Right, because Medicare Part A, which mainly covers in-patient hospital care for tens of millions of Americans, relies for nearly all of its funding on the payroll tax.
Which shaves off 2.9% of a worker’s paycheck, or 3.8% above a certain income level, say 250,000 dollars for a married couple.
But if you were an investor in the company employing that worker, the income you raked in from your investments wouldn’t fall under that tax.
So in 2010, the Democrats in Congress finally decided to even the playing field a little between rich and poor. [B roll, 26:47]
With then President Obama signing an amendment to the Affordable Care Act that created a brand new tax meant to catch those passive income earners. [Same B roll]
It’s called the Net Investment Income Tax, and just like the payroll tax, it subjected married couples earning more than 250,000 dollars in investment income to a 3.8% tax.
With both now contributing to the Medicare Part A trust fund that keeps tens of millions of people on health insurance.
At least that’s how it was supposed to work, in theory.
But in practice, you shouldn’t be surprised to learn that things are a bit different.
Right, because while they were negotiating the bill, Democrats inserted a loophole for so-called “active” business owners.
Basically people who are not only invested in a business, but actively involved in the day-to-day operations.
With that meant to exempt small business owners — you know, your mom and pop shops, Main Street grocers, self-employed professionals and the like.
But that meant that if the owners of enormous corporations could make an argument, however flimsy, that they’re also “active,” then they may not have to pay the tax.
Even if the corporation they’re invested in is a financial institution whose job is to invest in other entities.
So to put it simply, they’re “actively” involved in a business making passive income.
And in fact, when Propublica combed through reams of IRS data, they found numerous examples of wealthy people doing this.
Like the former professional poker player, current billionaire, TikTok investor, GOP megadonor and 23rd richest man on Earth, Jeff Yass. [Webpage]
Right, he’s the co-founder of Susquehanna International Group [Pronounce 00:03], a giant investment firm that uses computers to get an edge of mere microseconds over other securities traders.
In other words, he’s exactly the kind of person Congress had in mind when they designed the Net Investment Income Tax in 2010.
Yet from 2013, when the tax went into effect, through 2018, Yass reportedly excluded 8.5 of the 9 billion dollars he made in capital gains from that tax. [Quote, find “8.5”]
Reportedly saving him more than 300 million dollars that would’ve otherwise gone toward people’s health insurance. [Same quote]
And that’s just him; right, Propublica also noted two of his firm’s partners who reportedly saved a combined 120 million dollars the same way. [Same quote]
Also, that’s just his capital gains; right, he reportedly excluded hundreds of millions of dollars in dividends and interest from the tax too. [Quote same link, find “$0”]
And when Propublica put these numbers in front of actual tax experts, the outlet said they “struggled to explain” how Yass and his partners could justify not paying the tax. [Quote same link]
In fact, the experts told the outlet they couldn’t think of a legitimate reason why any financiers making huge profits would be exempt from the tax. [Quote same link, find “legitimate”]
But the “active” business owner thing isn’t the only loophole written into the law.
Right, there’s also an exemption for capital gains made from the sale of passthrough businesses.
Which, again, primarily means smaller firms, but there are some huge ones that take advantage of the law.
So for example, Donald Sterling bought the Los Angeles Clippers for 12.5 million dollars in 1981, then sold the NBA team for two billion dollars in 2014.
Meaning nearly all of that money was taxable capital gain.
But while he paid income taxes on it, reportedly he didn’t pay the Net Investment Income Tax, saving him around 70 million dollars. [Quote, find “70 million”]
With Propublica finding other similar cases where four fossil fuel billionaires each saved between 45 and 87 million dollars in taxes after they sold off portions of their empires. [Quote same link, find “87”]
So all in all, the outlet identified 17 billionaires who collectively saved about 1.3 billion dollars in taxes using these loopholes over six years. [Quote, find “17 people”]
But that’s just the top sliver of investors; the numbers get way bigger when you include non-billionaires too.
Right, according to Propublica, closing the loopholes would increase tax revenue by an estimated 250 billion dollars over a decade. [Quote same link, find “250”]
Now sure, maybe the legal arguments these rich folks have to justify their exemption from the law are absurd, but if they never have to test them in court, it doesn’t matter.
Right, because the IRS is simply too underfunded and understaffed to pursue audits of all these investors and go to war with their teams of lawyers.
Now Biden’s Inflation Reduction Act sought to restore some of the agency’s teeth by giving it more money to hire thousands of new agents.
But with Trump in the White House now and a Republican Congress backing him, there’s still time to claw back those funds and pass more tax cuts.
Which could ultimately put the financial solvency of Medicare in jeopardy.
Right, because the trust fund that Medicare Part A draws from only contains so much money.
And when expenses start to outstrip revenues, which is projected to happen in 2030, the program has to dip into those reserves. [Graph]
And then, if that keeps up year after year and the reserves run dry, which is projected to happen in 2036, Medicare won’t be able to pay out people’s full benefits. [Same graph]
So by not paying the Net Investment Income Tax, wealthy investors aren’t just straining the government’s budget; they’re actively speeding up Medicare’s decline.
And it wouldn’t even take all that much to bring the Part A trust fund back into balance over the long term.
Right, according to the Medicare trustees who make these projections, simply raising the payroll tax from 2.9% to 3.25%, or cutting expenses by 8%, would do the trick. [Quote, find “3.25”]
And that’s without even touching the Net Investment Income Tax or a host of other economic factors that influence the program’s revenues and expenses.
But instead of doing that, Trump has proposed policies that critics say would dramatically tighten the financial squeeze on Medicare and other entitlement programs.
Most notably eliminating the tax on Social Security benefits that all but the poorest recipients pay. [Quote, find “current tax rules”]
Which, according to the nonpartisan Committee for a Responsible Federal Budget, would cut 1.6 trillion dollars from Social Security and Medicare over nearly a decade. [Quote same link, find “1.6”]
Meaning, if that estimate’s correct, Medicare would run out of money in 2030, six years ahead of current projections. [Same quote]
And that’s without considering any of Trump’s other proposals, like ending taxes on tips and overtime, yanking up tariffs and deporting undocumented immigrants who pay into the system but don’t receive benefits back.
All of which, according to Forbes, would add approximately 2.3 trillion dollars to Social Security’s deficit and deplete its fund by 2031. [Quote same link, find “2.3”]
But even assuming Medicare or Social Security became insolvent, that wouldn’t make them unsalvageable.
Right, Congress could still restore their balance sheets, or just take preventive action before they ever get to that point.
And both programs are extremely popular among the general public, even Republicans. [Quote, find “79” and quote, find “80”]
So it’s possible that if people losing their benefits becomes a real near-term prospect, the political pressure would be too great for politicians to let it happen.
Which is partly why, even though Medicare’s come within a decade of insolvency many times since the 1990s, the government’s consistently kept it afloat.
But that doesn’t mean they can’t chip away at its foundation, as they already have been for just as long.
So amidst all the other headline-grabbing chaos and political drama we’re about to see over the next several years, you may wanna keep your eyes peeled for this issue.
Links:
https://www.propublica.org/article/billionaires-net-investment-income-tax
https://www.propublica.org/article/medicare-tax-loophole-steve-cohen
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You know, since it's President's Day, I want to also share with you all a piece that I recorded during our holiday break that I never actually got around to putting out.
It's about just how much money was dropped on last year's election.
I think it's very important to talk about on a day like today.
Especially as we think about future elections, future congresspeople, and future presidents.
We all know that elections in America are very expensive.
But the details are insane.
Starting with the top surface level, the fact that the 2023-2024 election cycle cost more than $20 billion.
That is the combined total that was spent on both federal and state elections, according to a new analysis by the campaign finance tracking nonprofit OpenSecrets.
Regardless of how you feel about the outcome of the presidential election or any of the races, this is an astronomical number and one that shattered many records.
Also, with everything now said and done, I think it's important to take a deeper look at those numbers and who the money came from, where it was spent, how it influenced various contests, and the numerous records that were broken.
So let's break it down.
The nonprofit found that the vast majority of money poured into the election was spent on federal races, which raked in around $16 billion.
The other $4 billion was raised by state candidates, party committees, and ballot measure committees in all 50 states.
But big money does not always mean big wins.
Just look at the presidential race.
Kamala Harris's campaign and outside groups outraised Donald Trump by hundreds of millions of dollars.
According to the most recent Federal Elections Commission filings, Harris's campaign raised over $1 billion through mid-October.
That's almost three times the nearly $382 million that Trump's campaign raised in the same period.
That was just the money being brought in by the campaigns.
Dollar amounts raised by groups outside the campaigns, like super PACs, were actually much closer.
Outside groups supporting Trump or attacking his opponents reported about $1 billion in spending, while groups backing Harris or opposing Trump reported spending $1.5 billion.
Beyond that, there was a significant discrepancy between Trump and Harris when it came to donations from ultra-rich mega-donors who have an oversized influence on elections.
Unsurprisingly, Donald Trump got way more of those donations.
Around 44% of all the money raised to support Trump came from just ten individual donors.
Comparatively, the top ten donors to elect Harris only made up around 8% of total contributions to her campaign and outside groups.
Harris pulled in around $126 million from her top ten donors, which is actually less than Donald Trump got from his biggest donor alone.
The total donations that Trump got from mega-donors could actually be even bigger as the final disclosures are filed with the FEC.
Recent filings from December showed that Elon Musk actually contributed way more money to elect Donald Trump than previously known.
It was revealed that Elon Musk spent $260 million on outside groups for Trump.
That would mean Musk single-handedly accounted for more than a quarter of all the money outside groups spent getting Trump elected.
This is an objectively wild figure.
It's also notably more than double the $118 million OpenSecrets had recorded before this most recent disclosure.
That new data officially made Musk the single biggest individual donor in the 2024 election cycle by a long shot.
It wasn't just the presidential election that saw enormous amounts of money in circulation.
Spending on federal elections as a whole also broke several already ridiculous records.
Billions of dollars poured into the hotly contested House and Senate races that helped give Republicans narrow majorities in both chambers.
One of the records broken was the unprecedented $4.5 billion spent by PACs and other independent groups outside individual candidate campaigns.
That is over $1 billion more than the previous record of $3.3 billion in 2020.
These numbers could also grow as the final filings roll in.
The bulk of this money went to independent expenditures.
These are funds that outside groups spend advocating for candidates through constant TV ads or the bajillion mailers sent to voters.
The reason why so much was spent on independent expenditures is that there is no cap on the amount of money individual donors, organizations, unions, and other groups can give to those efforts.
Along party lines, conservative PACs outspent liberal ones by $2.2 billion to $1.7 billion.
The single biggest spender among outside groups was the Democratic hybrid PAC Future Forward USA, which spent $517 million.
Most of that was channeled into the presidential race, not congressional contests.
On the conservative side, the biggest outside spender was the Make America Great Again Inc PAC, which spent over $364 million on Trump.
The majority of MAGA PAC money, over $251 million, was spent on attack ads opposing Harris and Biden.
Just a quarter of that amount, around $58 million, actually went to support Trump.
Outside spending wasn’t just for presidential candidates.
Of the $2 billion these groups put toward congressional races, more than a quarter went to just three Senate elections.
Over $714 million went to the seats in Ohio, Pennsylvania, and Montana, all of which were flipped by Republicans.
Another wild record was a historic amount of dark money contributions.
Dark money is when money is spent to influence elections, but the source of funding is kept secret.
Super PACs must disclose their donors, but certain nonprofits and shell companies do not have to.
This creates a loophole where donors give funds to dark money groups, which then funnel the money to PACs, keeping the original donors anonymous.
There has been a massive increase in dark money spending since the 2010 Citizens United ruling, which reversed centuries of campaign finance rules and allowed corporate interests an outsized role in elections.
The 2024 election cycle followed this trend, with dark money contributions topping over $1 billion for the first time ever.
This crushed the previous record of $734 million in 2020.
A large chunk of these shady contributions actually went to Democrats, despite the common association of dark money with conservatives.
OpenSecrets revealed that Republican and Democratic super PACs received more than $250 million from four main dark money groups, with 62% of that money going to Democrats.
Spending in state elections also hit historic highs.
OpenSecrets projected that dollars put into state contests will hit a record of $4.6 billion.
State-level candidates were predicted to have raised $2.6 billion for the 2024 cycle, a 22% increase from 2020.
Unlike some federal trends, Republican candidates were expected to outraise Democrats by $1.3 billion to $1.1 billion.
This marks a reversal from 2021, when Democrats raised more than GOP candidates.
State-level spending on ballot measures also reached a record $1.4 billion.
A large chunk was spent on abortion and reproductive rights measures, which were on the ballot in ten states.
As of November 1st, abortion measures made up almost a third of all money raised by ballot measure committees.
Committees supporting abortion access massively outraised those opposed to it by $305 million to $96 million.
The most expensive ballot initiative was the effort to legalize recreational marijuana in Florida, which racked up over $179 million.
$153 million of that was spent by the committee supporting legalization, but the measure failed to pass.
Florida requires ballot initiatives to get 60% of the vote to pass, which also led to the state's abortion protection measure failing.
With all this, we see the enormous role money plays in our political system.
Analyzing these trends helps us anticipate what we may see in upcoming midterms and future elections.
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