Analyzing Billionaire Elon Musk’s $2 Trillion Impact on Public Spending

Mr. Musk has now been appointed to co-lead the Government Performance Board, giving him the opportunity to turn his ideas into reality.

US Government Spending

According to the US Treasury Department, the federal government spent a total of $6.75 trillion in the last fiscal year (October 2023 to September 2024). This means that Mr. Musk’s proposed $2 trillion cut would be equivalent to cutting about 30% of total government spending.

Currently, about 880 billion USD (13% of total spending) is spent on paying interest on public debt, an expense that cannot be reduced without causing the risk of default for the US Government.

The other big spending item was $1.46 trillion (22%) on social security, mostly pensions — a mandatory expense by law.

Another big mandatory expense is Medicare – the health insurance program for people 65 and older.

“Flexible” spending, meaning spending that must be approved by Congress each year, includes defense ($874 billion, or 13 percent), transportation ($137 billion, or 2 percent), and education and social services ($305 billion, or 5 percent).

According to the US Congressional Budget Office (CBO), “flexible” spending accounts for about 25% of total spending in 2023, of which more than half is for defense.

So in theory, it’s easier to cut “flexible” spending than mandatory spending.

President-elect Donald Trump has said Musk and his government efficiency co-director Vivek Ramaswamy will save money by streamlining the bureaucracy, cutting redundancy and restructuring government agencies.

However, if the US wants to save $2 trillion from “flexible” spending, according to analysts, the US would have to completely shut down agencies such as transportation, agriculture, and homeland security. The reason is that total spending on this category in 2023 is only about $1.7 trillion.

The key point, according to the BBC, is that Mr Musk has not made clear whether he wants to save $2 trillion in one year or several years. However, many public finance experts in the US, even those who support spending cuts, are skeptical about the ability to achieve such savings in the short term without causing a recession in public services or facing public opposition.

Challenges in fiscal policy

Trump campaigned on a promise to increase Social Security benefits by making them tax-free, rather than cutting them. He also pledged to build an “Iron Dome missile defense system” to protect the United States, a reference to increased defense spending, not cuts.

A report from the US Treasury Department released on November 13 showed that the budget deficit of the world’s largest economy in October increased 287% compared to the same period last year, from 67 billion USD to 257 billion USD.

In fiscal year 2024, the US Treasury Department recorded a budget deficit of up to 1,833 billion USD, an increase compared to 2023 ($1,695 billion) due to higher spending, including paying interest on public debt.

Meanwhile, US public debt just surpassed the $35 trillion mark for the first time last July, an increase of nearly $12 trillion compared to 2020.

Since the beginning of the year alone, public debt has increased by 1,000 billion USD, reaching 97% of GDP.

The Committee for a Responsible Federal Budget (CRFB) predicts that without major spending cuts, the budget deficit will increase significantly due to Mr. Trump’s tax cuts, pushing the public debt to 143% by the middle of the next decade.