Yes, Musk is completely FOS!
Musk Wants $2 Trillion of Spending Cuts. Here’s Why That’s Hard.
Trimming U.S. government spending is tough, even by amounts that are much less astounding
By Justin Lahart and Rosie Ettenheim, WSJ
Nov. 26, 2024 5:30 am ET
The U.S. federal government spent $6.75 trillion in the most recent fiscal year ended Sept. 30, according to the Congressional Budget Office. Walk around town handing $20,000 to everyone you see. Now do that for the entire U.S. population, all 337 million of us. That is about how much the U.S. spent.
Elon Musk has been tasked alongside biotech company founder Vivek Ramaswamy with leading President-elect Donald Trump’s effort to reduce this government spending through the new Department of Government Efficiency.
Musk has suggested he could cut at least $2 trillion, though he didn’t specify whether he meant annually or over time. DOGE, as the organization is known, will sit outside the government and won’t have decision-making power.
Congress generally controls the government’s purse strings, not the president, though Trump has signaled he would like to change that. A lot of U.S. government spending is considered mandatory—benefits that are paid without any annual vote by Congress.
The government’s big-ticket items provide healthcare for Americans and money for retirees. Social Security benefits cost the government $1.45 trillion in the most recent fiscal year, according to CBO estimates published this month. Medicare and Medicaid were a combined $1.49 trillion.
Trump has promised to protect Social Security and Medicare benefits. Medicaid could be a target for cuts, but the politics of doing so could prove difficult. In June, the CBO estimated that 56% of Medicaid benefits in fiscal 2024 would go toward the aged, blind and disabled. Many nursing homes receive a substantial share of their revenue from the program.
The amount spent on these mandatory categories has gone up, driven by rising healthcare costs and an aging population tapping into Social Security and Medicare benefits. Mandatory spending was equal to nearly 15% of the U.S. GDP this past year, compared with about 10% two decades ago. These obligations will only continue to grow.
Other, smaller mandatory categories include items such as retirement benefits for military and federal employees, and support for states to help with foster care and adoption.
Beyond those mandatory spending categories, the U.S. must also pay the interest on its massive pile of debt. Its net interest payments came to about $950 billion this past year. Combined, mandatory spending and interest payments amount to about three-quarters of what the federal government spent.
What remains is discretionary spending, for which Congress votes every year. It breaks down into two main categories. The first is defense. The money spent on, among other items, maintaining equipment and bases, buying everything from aircraft carriers to mess-hall meals, and paying nearly 1.4 million uniformed military personnel, was about $850 billion, according to CBO estimates published in June.
The second category is nondefense discretionary spending, which includes everything else: funding for the National Aeronautics and Space Administration, farm programs, housing assistance, and on and on. Spending on this was estimated at about $950 billion.
Efforts to cut government spending are usually focused on nondefense discretionary categories. These are estimated to amount to about 14 cents of every dollar the U.S. spent this past year.
Musk and Ramaswamy have argued that some savings could come from cutting the number of federal employees. But pay represents just a fraction of spending.
Estimated pay and benefits for federal employees in the past year cost $384 billion, according to the White House Office of Management and Budget. That includes everyone from the president to air-traffic controllers in Cleveland, to Labor Department statisticians in Washington, to food-safety inspectors in Houston to park rangers in Yellowstone. Throw in military personnel, and it came to $584 billion.
Excluding the Postal Service, there are about 2.3 million people working for the federal government in civilian jobs in the executive branch. About one-fifth of them work for Veterans Affairs.
A large portion of the federal budget is spent on benefits that flow directly or indirectly to individual Americans, and come from direct contributions from workers. There are about 73 million people receiving retirement, disability, supplemental security or survivor benefits from the Social Security Administration each month.
There are about 68 million people enrolled in Medicare and 72 million enrolled in Medicaid. Those programs provide substantial income support for many communities in the U.S.
The government spends a huge amount on goods and services. A company that makes the screws and other fasteners that help keep a combat jet together is making money from the government. The same goes for landlords with tenants who receive housing assistance, farmers who receive subsidies and a university biochemistry lab that gets federal grants.
But American tax dollars don’t cover all that spending. A lot of it is paid for with debt. U.S. government receipts this past year, or what it took in from individual income taxes, payroll taxes, corporate income taxes and other sources, came to $4.92 trillion, according to the CBO. The difference between that and the $6.75 trillion spent is the budget deficit of $1.83 trillion. That is an amount equal to 6.4% of U.S. GDP.
The deficit-to-GDP ratio has been larger, but only rarely, such as during World War II or in crisis situations, when the economy was plunging into recession and the government was rushing in with support. When the pandemic struck in 2020, it swelled to nearly 15%. Mandatory spending is projected by the CBO to increase by over $2 trillion over the next decade, and net interest payments are expected to double.
Write to Justin Lahart at Justin.Lahart@wsj.com and Rosie Ettenheim at rosie.ettenheim@wsj.com
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