How the US spends taxpayer money as Musk-led DOGE seeks cuts

The tech billionaire claims his team is working to reduce the deficit by $1 trillion as the Department of Government Efficiency (DOGE), headed by Elon Musk, searches through federal computer systems to reduce programs funded by taxpayers.

In a joint interview with President Donald Trump and Fox News’ Sean Hannity, Musk stated last week that the overall goal is to try to reduce the deficit by trying to get a trillion dollars out of it. If the deficit is not managed, America will go bankrupt.

As part of the Trump administration’s plan to reduce federal spending, thousands of federal employees have been fired, and a number of programs and departments have been shut down.

Trump’s second-term administration left him with a $2 trillion deficit, according to Musk, who claims that the government’s largest source of fraud and waste.

Officially, the deficit for fiscal year 2024 was more than $1.8 trillion.

Does Musk therefore have a chance to reduce that $1 trillion deficit? Mathematically, yes. As a practical matter, it would be difficult.

Here are some facts about how the government spends $ 6.8 trillion in taxpayer funds as Musk and his critics squabble about them.

What does the government fund?

The federal budget’s largest chunks are used for mandated spending. These initiatives do not require Congress’ approval for annual expenditures. They include:

Social Security (about 20 percent).

Medicare (about 15 percent).

Interest on the federal debt (about 12 percent).

Medicaid and other mandatory health programmes (almost 11 percent).

Veteran, military and civilian retiree benefits (under 6 percent).

More than 5% of safety net programs and food stamps.

Disciplined programs that Congress approves annually fall under a separate category of spending.

Discretionary spending falls into two categories: defence and non-defence. The Departments of Justice, Transportation, and Environmental Protection Agency are among the other federal agencies that are included in defense, which also includes the military.

The size of the federal spending budget differs between mandatory and discretionary spending budgets: about 30% of both are financed by either mandatory or interest on debt.

How ‘ mandatory ‘ is mandatory spending?

Until a rule change is approved by Congress and the president signs it into law, mandatory spending programs operate on autopilot. They are therefore a little more protected than discretionary spending, which must battle with Congress each year. But aside from interest payments – which cannot be ignored without serious harm to the nation’s creditworthiness around the world – being “mandatory” doesn’t mean being untouchable.

They can if Congress and the president want to reduce Social Security, Medicare, or any other stringent program.

Trump has pledged to keep Medicare and Social Security separate. Nearly half of the total comes from these categories of federal spending, when combined with interest. If that promise holds, it narrows DOGE’s options for cutting spending by $1 trillion.

Trump said in the Hannity interview that Medicaid won’t be “touched”. If that’s off-limits, too, then the options narrow further.

What about cutting discretionary spending?

When it comes to discretionary spending, the options become more difficult.

Discretionary spending accounted for about $1.8 trillion in 2024, roughly half in defence and half in non-defence.

Trump promised to sign “record-breaking” military funding on the campaign, which would mean an increase on current levels.

If Trump makes the necessary adjustments, discretionary spending in non-defence would bear the brunt of the costs. But non-defence discretionary spending totalled about $960bn last year, which doesn’t add up to the $1 trillion Musk targeted, even if it were cut by 100 percent.

What would it mean to cut non-defence discretionary spending?

If Musk relied on discretionary non-defence spending to reach $1 trillion in cuts, that would mean eliminating essentially everything the federal government does, excluding defense, mandated programs, and interest.

Aside from the Pentagon, no single department or agency accounts for more than 7.3 percent of discretionary spending. The biggest is Veterans Affairs, followed by Health and Human Services at 7.2 percent. Departments with shares between 3 percent and 5 percent include Homeland Security, Education, Housing and Urban Development, Transportation, and Energy.

What about cutting spending instead of increasing revenue?

The deficit could be reduced by raising taxes (or by combining tax increases and spending cuts) with lowering spending. But Trump promised not to do that, he pledged to sign “a middle-class, upper-class, lower-class, business-class big tax cut”.

If everything else remained the same, a tax cut would have the opposite effect in terms of a real increase in the deficit. So if there’s a tax cut, Musk’s recommended spending cuts would have to work even harder to reach his $1 trillion target.

Trump does have one other revenue raiser to work with: tariffs. But when it comes to dealing with the deficit, tariffs face two challenges.

One problem is that the potential tariff revenue is only modestly based on independent estimates. The centre-right Tax Foundation estimated that the first year of tariffs on China, Canada, Mexico and other countries would bring in $140bn.

The impact of the tariffs could have a significant impact on the US economy, which would reduce or eliminate the gains in tariff revenue made by the US economy. According to the Tax Foundation, Trump’s tariffs could reduce Americans’ incomes by nearly 1%, which could lead to lower tax revenue.

How much money can Musk save by reducing the federal workforce?

Tens of thousands of federal employees have been laid off or have been forced to take buyouts, which has historically been the subject of some of Trump’s most prominent cuts.

Without including the US Postal Service, which has ties to both a federal agency and a private enterprise, there are roughly 3 million people working for the government, or about 2.4 million. The 2.4 million figure does not include roughly 1.3 million active-duty military personnel.

The Department of Veterans Affairs is the government’s top employer for civilians, followed by the Department of Veterans Affairs (roughly three-quarters of VA employees work for themselves in VA-run hospitals and health clinics directly). The Justice Department and the Treasury Department are in second place, barely a distant second.

Source: Aljazeera