The Fiscal Loop Where AI Cuts and AI Spends

Earlier this year, the Department of Government Efficiency fed grant descriptions from the National Endowment for the Humanities into ChatGPT and asked it to flag anything containing keywords like "DEI," "gender," or "equity." The model returned a list. DOGE terminated more than 1,400 grants — over $100 million in funding for projects on Black civil rights, Holocaust education, and Native American history — without a human being reviewing the scholarly substance of a single one. ^[1] A federal judge later ruled the exercise "blatant viewpoint discrimination" and added that the government "cannot escape liability for DOGE's work by scapegoating ChatGPT."

What mattered to DOGE was not whether a grant lacked scholarly merit, failed to comply with its terms, or fell outside NEH’s statutory purposes. What mattered was that the grant concerned a ’minority group’ — Colleen McMahon

This week, the White House Office of Science and Technology Policy published a report titled "Science: A New Golden Age." It designates artificial intelligence the "primary instrument of discovery" and proposes redirecting the $200 billion annual federal research budget away from large universities toward individual scientists and fellowships, with political appointees given direct power over the granting process. ^[2]

Agencies should fund research that uses AI as a new instrument of scientific discovery, not merely as a tool to augment existing capabilities. — Russell Vought

The two events are not causally linked in any document the administration has produced. But they sit inside the same fiscal pattern. The technology that identified what to cut — ChatGPT, keyword filtering, automated screening — is the same technology category the cut money is being redirected to build. It is a loop, whether or not anyone drew it on a whiteboard. The loop runs on more than research grants. Across at least a dozen funding actions in 2026, the administration has been stripping money from one set of priorities and channeling it toward another, and the dollars are large enough to trace from source to destination. The National Institutes of Health attempted to cap indirect research cost reimbursements at 15 percent — a move the First Circuit permanently blocked after 22 state attorneys general challenged it, citing $120 million in cuts to Washington state alone and 74,000 clinical study participants affected nationwide. ^[3] At the University of California, federal agencies acknowledged using keywords like "diversity," "gender," and "COVID-19" to screen and terminate nearly $2 billion in research grants. ^[4] The OSTP overhaul completes the arc: money exits university labs and re-enters through a granting system where political appointees control the taps and AI is the designated priority. The same source-to-destination logic runs through funding aimed at Democratic-led states. The administration canceled $7.6 billion in clean energy grants targeting 16 states that voted for Kamala Harris. Judge Mehta found that officials "freely admit that they made grant-termination decisions primarily — if not exclusively — based on whether the awardee resided in a state whose citizens voted for President Trump in 2024." ^[5] Budget Director Russell Vought was less circumspect.

the Left’s climate agenda is being canceled. — Russell Vought

A separate attempt froze more than $10 billion in child care and social service funding to five Democratic-led states — California, Colorado, Illinois, Minnesota, and New York — by demanding beneficiary Social Security numbers on an impossible deadline. A judge blocked it. ^[6][7] On foreign aid, the United States cut its spending by 57 percent — roughly $37 billion — dissolving USAID, slashing Ukraine bilateral aid by 91 percent and UN contributions by 87 percent. ^[8] The US drove three-quarters of the largest annual contraction in global aid ever recorded. During the same period, the administration proposed defense increases of $415 billion and then $500 billion, explicitly pairing the latter with a 10 percent cut to non-defense discretionary spending. ^[9] No US document draws a line between the aid cuts and the defense buildup. But the UK, running a smaller version of the same play, was explicit: the Foreign, Commonwealth and Development Office stated that "to fund an essential increase in defence spending, the Government has taken the hugely difficult decision to reduce the UK Official Development Assistance budget." ^[10] Britain cut African aid by 52 percent — Mozambique and Malawi by 90 percent — and development minister Anneliese Dodds resigned in protest. ^[10] The redirection extends to physical military assets. The Pentagon is diverting Patriot PAC-3 air defense interceptors from Ukraine to the Iran war theater, and considering reallocating $750 million from the PURL program. ^[11] Trump described the logic plainly.

We have tremendous amounts of ammunition, we have them in other countries … and we take, sometimes we take from one and we use for another. — Donald Trump

It is the most candid description the administration has offered of the method: take from one, use for another. Where the money converges is no mystery. The US war budget reached $1 trillion for the first time this year. ^[12] The administration is seeking an additional $67 billion to $88 billion in emergency supplemental funding for Iran, part of a proposed $1.5 trillion defense budget for fiscal year 2027 — a 44 percent increase. ^[13][14] The $415 billion and $500 billion defense proposals were each explicitly paired with domestic cuts: the first offset by $73 billion in reductions to education, shelter assistance, and programs for vulnerable populations; the second by a 10 percent cut to non-defense discretionary spending targeting child care and Medicare. ^[15][9] Alongside the money, the administration is clearing the path for AI infrastructure through regulatory and directive channels. In April, Trump designated data centers as critical national security infrastructure, a classification that can override local zoning and environmental review. ^[16] In June, a National Security Presidential Memorandum directed the military and intelligence agencies to accelerate AI adoption for warfighting, mandating that the Defense Department update its autonomous weapons policies within 90 days and creating an AI National Security Strategic Reserve. ^[17] These are not budget lines. They are the scaffolding around the budget lines — the regulatory and doctrinal moves that ensure the redirected money has somewhere to land. The largest single redirection is legislative. The One Big Beautiful Bill Act cuts roughly $1 trillion from Medicaid over a decade — $326 billion from work requirements alone, projected to cause 7.5 million people to lose health coverage — and the cuts explicitly "serve to offset tax cuts and increase funding for immigration enforcement and the military." ^[18] The bill states the mechanism on its face. That distinction — legislative versus executive — is where the pattern's durability lies. Courts have blocked at least six executive-action versions of the redirection strategy: the state grant revocations, the blanket funding freeze, the HUD homelessness overhaul, the clean energy cancellations, the NIH research caps, and the AI-driven NEH cuts. ^{[4][1][19][20]} Each ruling rested on the Spending Clause or the Administrative Procedure Act — the president cannot unilaterally cancel money Congress appropriated, cannot treat federal funding "like a switch he can flip on and off," as New York Attorney General Letitia James put it. ^[19]

This decision is a clear reminder that the president cannot treat congressionally-approved funding like a switch he can flip on and off. — Letitia James

But the One Big Beautiful Bill Act is not an executive action. It is legislation, passed by Congress and signed into law. The Spending Clause analysis that undoes a unilateral grant termination does not apply to a statute that explicitly pairs a trillion-dollar cut with increased defense and enforcement spending. The courts can block the president; they cannot block Congress from writing a budget that moves money from Medicaid to the military. The administration has not always gotten its way. A $2 billion cut to mental health grants was reversed within 24 hours after bipartisan pressure. ^[21] The First Circuit's unanimous block of the blanket funding freeze stopped the most sweeping single attempt. But the reversals and the blocks have all come against the executive-action versions. The legislative version is law. The UK is now running the same template. The Labour government cut African aid to fund defense, triggering Dodds's resignation, and framed it in language that echoes the American model: a "Modern Development Approach" shifting from grants to "technical expertise and local leadership." ^[10] The scale is smaller, but the structure is identical — aid down, defense up, the connection stated openly. What is spreading is not merely a set of policies but a fiscal method: identify a funding stream, strip it, and route the savings to defense and AI infrastructure. Where the method runs through executive action, courts have stopped it. Where it runs through legislation, it has held. A second government is already driving the same vehicle. What survives judicial review is not the strategy but the chassis it rides in on.