Analyzing Elon Musk’s $2 Trillion US Government Spending Reduction Target

Elon Musk, the head of Tesla and the social media platform X, suggested last month at a Donald Trump rally in New York City that it would be feasible to cut “at least $2 trillion” from US government expenditure by eliminating “waste”. The incoming US president has since appointed Musk to co-lead a new Department of Government Efficiency, providing him with an opportunity to attempt to implement his proposals. According to the US Treasury, the US federal government spent $6.75 trillion (£5.3 trillion) in the most recent fiscal year, which ran from October 2023 to September 2024. This indicates that Musk’s proposed $2 trillion in cuts would constitute approximately a 30% reduction in total federal government spending, also known as national spending in other countries. The realism of that proposal can be assessed by dissecting the total spending figure. Approximately $880 billion, or 13% of total US government spending, is allocated to interest payments on the national debt. This particular category of expenditure cannot be reduced without placing the US government in default. About $1.46 trillion (22%) is directed towards Social Security, which primarily provides pensions for Americans who have reached retirement age. This spending line is designated as “mandatory,” meaning it is legally required to be spent on eligible individuals. Other significant mandatory government expenditures include Medicare, a government-funded health insurance program primarily serving Americans aged over 65. So-called “discretionary” US government spending—outlays that are not permanently established in law but must be voted on annually by US lawmakers—encompasses defence ($874 billion, 13%), transportation ($137 billion, 2%), and education, training, employment, and social services ($305 billion, 5%). Overall, discretionary spending accounted for approximately 25% of the total in the 2023 financial year, according to the Congressional Budget Office, with more than half of that sum allocated to defence. Theoretically, discretionary spending would be simpler for the incoming Trump administration to reduce than mandatory spending. Donald Trump has stated that Musk—and his co-head at the new Department of Government Efficiency, Vivek Ramaswamy—will achieve these savings by dismantling government bureaucracy, cutting excessive regulations, and restructuring government agencies. In an interview with the BBC in April 2023, Musk claimed to have reduced the staff of Twitter (now X) from 8,000 to 1,500 after acquiring the social network in 2022. However, analysts calculate that if the entire $2 trillion in US government expenditure savings targeted by Musk were to come from discretionary spending, it would necessitate the complete closure of various agencies, from transport to agriculture to Homeland Security. Discretionary spending amounted to only $1.7 trillion in 2023. Musk did not specify whether he aims to deliver $2 trillion in savings within a single year or over a longer period. Nevertheless, many US public finance experts, including those who are in principle supportive of reductions in US government spending, are skeptical that savings of such a scale can be achieved in the near term without either a collapse in the delivery of important government functions or the provocation of significant public resistance. After gaining control of the House of Representatives in 2022, Republican lawmakers have encountered difficulties in passing legislation to implement considerably smaller cuts of $130 billion in discretionary government spending, facing opposition from other Republicans. It is also important to note that Donald Trump campaigned on a platform of making Social Security more financially generous, not less, by removing the income tax payable on it. Furthermore, regarding defence, Trump stated he would build an “iron dome missile defence shield” around America, implying increased spending in this area, rather than cuts. Total US federal government spending as a proportion of the US economy in 2024 was approximately 23%, according to the US Treasury. This represents a considerably smaller share than national government spending in other developed countries. However, a large portion of government spending in the US, including almost all school spending, occurs at a state rather than a federal level, with states funded by local sales and property taxes. The International Monetary Fund has projected that total US “general government expenditure,” which includes spending by individual states, will be around 37.5% of its GDP in 2024. This compares with 43% in the UK, 48% in Germany, and 57% in France. The US government is currently operating with an annual deficit—a shortfall between its spending and tax revenues—equal to approximately 6% of its economy. Additionally, America’s national debt held by the public currently equals around 97% of the size of the economy. The non-partisan Committee for a Responsible Federal Budget (CRFB) think tank has projected that this figure is currently set to climb to 125% by 2035. The CRFB has also projected that, absent major spending reductions, Donald Trump’s planned tax cuts would considerably widen the US deficit in the coming decade and push up the US national debt to 143% by the middle of the next decade.