Elon Musk, Donald Trump and other officials held a joint press conference in the Oval Office to discuss the growing budget deficit of the United States. Musk stressed the urgency, saying the U.S. is facing a large, estimated $2 trillion budget deficit. He used this to justify potential, massive reductions of federal spending.
Responding to journalists’ questions, Trump, and SpaceX CEO explained their emphasis on widespread reductions across all federal agencies. This initiative is framed as a way to save money for taxpayers and simplify government bureaucracy.
Musk said that these cuts were necessary because the nation faces a deficit of $2 trillion. If we do not act, it will lead to bankruptcy. This statement is a strong indication of the concern the Administration has for the fiscal health of the United States.
Musk’s newly-formed Department of Government Efficiency is examining numerous departments and considering budget adjustments for the U.S. Agency for International Development, as well as other areas, to find potential savings.
Trump’s administration is focused on achieving an even budget, as the U.S. hasn’t had a surplus for over a decade. The administration wants to adopt what it considers responsible accounting practices for the government.
Musk’s call for tightening fiscal measures was notable in that it did not include any discussion of the history and trends surrounding deficits, or Trump’s previous record managing them.
Understand the U.S. Debt
Deficits in the United States occur when government expenditures, mostly taxes, exceed revenues. Surpluses, which are the exact opposite of a deficit, have been rare, occurring only four times between 1998 and 2000.
Government spending in fiscal 2024 exceeded revenue by an impressive $1.83 billion, a rise of $138 Billion from last year. Recent reports indicate that the government deficit is approaching $2 trillion.
U.S. Treasury figures show that the current fiscal year (starting on October 1, 2024), has a $711-billion deficit, with $1.79-trillion in expenditures and $1.08-trillion in revenues. This deficit is a major contributor to the debt of $36.22 billion as at December 2024. Interest payments on this debt are higher than Defense Department expenses, which was recently highlighted by Council on Foreign Relations – a think-tank that is specialized in U.S. Foreign policy.
In its Budget and Economic Outlook 2025-2035, the Congressional Budget Office (CBO) projects that this year’s deficit will reach $1.9 trillion.
Musk may face a challenge with his plans due to Trump’s first term deficit, which grew to a record $3.1 trillion by fiscal year 2020 because of the COVID-19 Pandemic. It decreased to $1.3 Trillion the following year. However, it was still above levels before the pandemic. Prior to the pandemic the deficit had reached historic levels, nearing one trillion dollars in 2019. Six months prior to COVID there was $743 Billion in deficit.
The current Trump administration continues to prioritize certain policies, including significant tax reductions, that have contributed to deficit growth, complicating efforts to reduce the government’s debt.
Strategies for Deficit Reduction
Bipartisan Policy Centre emphasizes interest payments made on national debt as a significant factor for the deficit. The Federal Reserve has raised interest rates to try to reduce inflation and this is driving the increase.
Musk’s plan to cut the deficit includes substantial reductions in federal spending. This will ease the burden on debt service. Musk originally suggested $2 trillion in potential savings, but he has since scaled that back, calling it the “best case outcome”. Now, Musk suggests a target of closer to $1 billion in savings. A few economists at first dismissed the proposal, as the budget of the United States for 2024 was $6.75 billion, and mandatory spending accounted for 60%.
Even after revising their expectations, many experts are still skeptical that such drastic spending cuts will be possible.
Trump’s promise to cut taxes and his extension of the Tax Cuts and Jobs Act 2017 could also hinder any efforts at deficit reduction. This nonpartisan Committee for a Responsible Federal Budget estimates that the tax cuts increased national debt by $2.5 trillion during Trump’s first term.