Can Elon Musk cut $2 trillion in US government spending?

Reuters

Elon Musk will co-lead a new Department of Government Effectiveness

Tesla and social network by eradicating waste.

Musk has now been named co-director of a new Department of Government Effectiveness by the new US president, giving him the opportunity to try to put his plans into action.

In the most recent fiscal year (October 2023 to September 2024), the US federal government spent $6.75 trillion ($5.3 trillion) according to the US Treasury.

That means Musk's proposed $2 trillion in cuts would represent about 30% of total federal government spending, also called national spending in other countries.

How realistic is this proposal?

To answer this question, it is helpful to break down the total amount of expenses.

About $880 billion (13% of total U.S. government spending) goes toward paying interest on the national debt, meaning this line of spending cannot be reduced without putting the U.S. government into default.

About $1.46 trillion (22%) is spent on Social Security, which is primarily the pensions of Americans past retirement age. This is a mandatory spending line, meaning it must be spent by law for eligible individuals.

Other mandatory government spending items include Medicare, a government-funded health insurance program aimed primarily at Americans over age 65.

So-called discretionary US government spending – spending that is not permanently enshrined in law but must be voted on each year by US lawmakers – includes defense ($874 billion, 13%), transportation ($137 billion, dollars, 2%) and education, training, employment and social services ($305 billion, 5%).

In total, according to the Congressional Budget Office, discretionary spending made up about 25% of the total for fiscal year 2023, with more than half of that going to defense.

In theory, it would be easier for the new Trump administration to cut discretionary spending than mandatory spending.

Donald Trump said Musk – and his co-head of the new Department of Government Effectiveness, Vivek Ramaswamy – would achieve savings from dismantling government bureaucracy, reducing excessive regulations and restructuring government agencies. In an interview with the BBC in April 2023, Musk claimed to have reduced the workforce of Twitter (now X) from 8,000 to 1,500 after acquiring the social network in 2022.

Yet if all of the $2 trillion in U.S. government spending savings currently targeted by Musk came from discretionary spending, analysts say entire agencies — from transportation to agriculture to homeland security — would have to be completely closed. Discretionary spending was just $1.7 trillion in 2023.

Musk has not said whether he would aim to achieve $2 trillion in savings in a single year or over a longer period, but many U.S. public finance experts, including those who favor a reduction in American public spending, are skeptical about savings. such scale can be found in the short term without a collapse in the exercise of important government functions or arousing major resistance from public opinion.

After taking control of the House of Representatives in 2022, Republican lawmakers struggled to pass legislation providing significantly smaller $130 billion in cuts to discretionary government spending after encountering opposition from other Republicans .

It's also important to note that Donald Trump campaigned on a platform to make Social Security more financially generous, not less, by eliminating the income tax owed on it. And, on defense, Trump said he would build an iron-domed missile shield around America, which would mean greater defense spending, not cuts.

According to the U.S. Treasury, total U.S. federal government spending as a percentage of the U.S. economy in 2024 was approximately 23%.

This is a considerably lower share than national government spending in other developed countries.

However, much government spending in the United States, including almost all school spending, is done at the state rather than federal level, and states are financed by local sales and property taxes.

The International Monetary Fund projects that total U.S. government spending, which includes state spending, will reach about 37.5% of its GDP in 2024.

This compares to 43% in the UK, 48% in Germany and 57% in France.

The US government currently runs an annual deficit – a gap between its spending and tax revenue – equal to about 6% of its economy. And the U.S. national debt held by the public is currently equivalent to about 97% of the size of the economy.

The nonpartisan think tank Committee for a Responsible Federal Budget (CRFB) projects that figure is currently expected to rise to 125% by 2035.

The CRFB projects that, absent major spending cuts, Donald Trump's planned tax cuts would significantly widen the U.S. deficit over the coming decade and raise the U.S. national debt to 143% by the middle of the next decade.

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