Can the US budget be cut by trillions?

Elon Musk, the commissioner for government efficiency in the future Trump administration, believes it is possible to save trillions of dollars in the US federal budget.

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Bernd Weidensteiner, Dr. Christoph Balz

Commerzbank Economic Research

12/02/2024

We analyze the structure of spending and estimate the chances of such a government efficiency miracle being realized.

Saving with a chainsaw...

The future Trump administration has taken up the cause of reducing what it sees as the excessive size of the state and wants to significantly increase the efficiency of the government apparatus. To this end, Donald Trump has announced the establishment of a new commission, the Department of Government Efficiency (DOGE), to be led by Elon Musk and Vivek Ramaswamy. The two have explained their mission in an opinion article. They write that many spending decisions are made by unelected bureaucrats, and that most regulations are also set by them, bypassing the people's elected representatives. This ever-expanding bureaucracy is an existential threat to the republic. Therefore, a radical downsizing of the state is necessary.

Elon Musk estimates that $2 trillion could be saved each year, and a significant reduction in staff would also help to achieve this. Ultimately, this reflects an attitude shaped by the private sector: when costs get out of hand, tough decisions are called for. This is the only way to make an institution efficient again.

... to force a turn-around of the public budget

It is hard to dispute the diagnosis that the federal budget is significantly out of balance. Over the last twenty years, the US federal budget has shown significant deficits even at times of full employment and high growth rates. In the fiscal year just ended, the shortfall amounted to 6.4% of GDP. For the next ten years, the Congressional Budget Office (CBO) expects deficits of a similar magnitude. And the CBO's assumptions appear rather heroic. For example, it is assumed that the tax cuts from the first Trump administration will be reversed from 2026. This will not happen, however. Rather, Trump's promises make higher deficits more likely if no countermeasures are taken.

For full text see attached PDF-Version.