Elon Musk’s $2 Trillion Spending Cut Proposal: A Bold Plan or a Tall Order?

Elon Musk, CEO of Tesla and X (formerly Twitter), has proposed an ambitious plan to slash U.S. government spending by $2 trillion, a move he claims is achievable by tackling “waste” within federal expenditures. Musk floated the idea during a recent appearance at a New York City rally for former President Donald Trump. With Trump’s return to the White House, Musk has now been appointed as co-head of the newly created Department of Government Efficiency, offering him the opportunity to attempt these extensive budget cuts.

The U.S. government’s spending reached $6.75 trillion for the fiscal year 2023, making Musk’s proposed cuts nearly a 30% reduction in federal outlays. However, fiscal experts point out that about 75% of federal spending is locked into mandatory programs and debt interest, limiting areas Musk could target. Nearly $1.46 trillion is earmarked for Social Security, while Medicare and other mandatory programs account for additional significant portions. Only 25% of the budget, classified as discretionary spending, is subject to annual congressional review, and nearly half of this is allocated to defence.

With discretionary spending for 2023 at $1.7 trillion, analysts suggest that achieving Musk’s targeted $2 trillion cut would require reductions beyond discretionary budgets. Entire departments, such as Homeland Security or Education, could face shutdowns, which experts warn could trigger disruptions in essential services. Moreover, some of Trump’s own campaign pledges—such as expanding Social Security benefits and building an “iron dome” for defence – would require additional spending, complicating the feasibility of cuts.

Despite Musk’s track record of aggressive cost-cutting at X, where he reduced staff by 80% post-acquisition, economists are sceptical about the scale of savings required without risking significant backlash. In the political arena, Republicans, who currently control the House, have already struggled to pass a comparatively modest $130 billion reduction due to internal resistance.

While U.S. federal spending is lower than many other developed nations when measured as a share of GDP, the country’s growing debt-to-GDP ratio remains a concern. The non-partisan Committee for a Responsible Federal Budget (CRFB) warns that rising debt, combined with anticipated tax cuts, could push the national debt to 143% of GDP by 2035 unless substantial budgetary reforms are enacted.

As Musk and his co-head, entrepreneur Vivek Ramaswamy, prepare to lead the Department of Government Efficiency, public finance experts question whether they can achieve the substantial savings Musk has outlined without compromising essential federal functions.