Though your math is slightly off. 2.5% cut the first month would leave only 2.5% of 97.5% to cut the next month, 2.5% of 95.06% to cut the following month, and so forth. But the basic idea is sound.
I agree with your math. I misstated it. Whatever the 2.5% figure would be on month one, that same amount should be cut each month until you reach zero.
I would suggest we toss out the 5% figure, and just start lopping folks off the government payroll. If states want to pick up the slack, let them. States failing to do so should let folks know just how important those jobs were to begin with.
I would also suggest reorganization to be a very sound way to cut. Go to a federal sales tax. Eliminate the need for the IRS. Pay the states to oversee federal sales tax compliance, when they are checking on their own state compliance. That right there would cut a massive number off the federal government payroll.
Gut the EPA. Do the same to a myriad of other agencies across the fifty states. States would follow suit as their funding for such nonsense dried up.
In most instances, return federal land holdings inside states to the states.
You could go on for a year or two listing all the agencies to be cut.
Start on privatization of Social Security and Medicare. Get payroll deductions placed in funds controlled by individuals, that allowed for protection and great interest. All them to self-insure and make personal loans to themselves from those funds, subject to oversight.
In twenty years government cost of Social Security would be cut in half. In forty, it would be gone.