How does the federal government allocate the trillions of dollars it spends every year? According to polls, the government spends a lot of money on foreign aid and welfare. But of course those polls are wrong. For an example drawn from 2015 polling data, the public on average believed that the US government spent 26 percent of its budget on foreign aid. In fact it’s always been in the low single digits.
When it comes to “welfare” spending the issue gets complicated. I like to distinguish means-tested programs (like Temporary Assistance for Needy Families - TANU) from spending that is not based on need but based on social insurance contributions (if you qualify for Social Security, it doesn’t matter how high your income is).
Thus, social security and Medicare and Unemployment compensation are earned not by demonstrating a need (having an income below the poverty level for example) but merely by paying in a certain amount of taxes to become “vested” in the program. Meanwhile, Medicaid, Food Stamps (SNAP), housing assistance, TANU and others are ostensibly only available to the poor. Politically, there is no question that there is more support among the general population for the spending that is “earned” by having contributed payroll taxes. Meanwhile, any program that is targeted towards the poor can be demonized by arguing that the poor “do not deserve” that money because --- they are lazy, they are engaging in fraud, etc.
Thus, Medicaid might be more politically vulnereable than Medicare. But this story is a bit complicated because a lot of Medicaid recipients are actually middle-class people who have divested themselves of their assets so they can qualify for Medicaid when living in assisted living facilities. This may explain why Medicaid is more popular than, say, “welfare” (TANU is the current version.)
[To get a sense of all the things Medicaid does, check this out.]
If we restrict the idea of welfare spending to those programs specifically targeted at the poor and leave out Medicaid, a little under ten percent of the federal budget goes to these programs. Most polling data shows that the typical citizen believes we spend a lot more of the federal budget on these programs.
Well, here are the facts. According to some very detailed tables in the New York Times for Monday, March 31, government spending on income security, which includes all welfare payments was just under ten percent of the budget. Social Security, Medicare, other health services including Medicaid, Interest on the Debt and National Defense added up to a whopping seventy four percent of the federal budget. [Details here.
Right now, the federal budget deficit is $1.8 trillion. To cut the deficit to zero, the Trump Administration would have to completely cut out everything else in the budget (26 percent of federal spending in 2023 was $1.76 trillion.
Notice that with all the noise being made by Musk and his amateur budget cutters, the actual reduction in spending has been miniscule. To take one example --- they are cutting the federal work force by tens of thousands --- yet the entire federal work force is 3 million. But more importantly even if they eliminated the entire federal workforce, that would only reduce total federal spending by FOUR PERCENT.
[For the federal job cuts so far, see ]
In other words, the meat axe approach of Musk and his amateurs as they attempt to cut the federal payroll will not make a significant dent in federal spending. As the TIIMES notes Trump has promised NOT to touch Medicare, Medicaid or Social Security which leaves almost NO WAY to cut the deficit by merely decreasing other spending. A month or so ago, my commentary discussed how at least one of the cuts in the proposed budget which tasked the Congressional Energy and Commerce committee to find $880 billion in cuts over the next ten years would be impossible without cuts to Medicaid.
[I recently received a letter from my (Republican) Congressman, Mike Lawler of NY’s 17th district in which he disingenuously asserted that in the recent bill passed by the House “there is no language that cuts Medicaid or any of these other crucial programs to our district.” This is disingenuous because though literally true about the language in the bill, the mandate to find $880 billion in cuts from the spending overseen by the Energy and Commerce Committee would REQUIRE cuts to Medicaid.]
Speaking more generally about ways to cut the Federal Budget, it is impossible to do that without cutting Medicare, Social Security and/or Medicaid. Way back in the 1990s when the Gingrich Congress and President Bill Clinton clashed over a proposed massive cut to Medicare Part B, it was clear that if one is serious about cutting federal spending, that’s where the money is.
[there were two government shutdowns as part of the conflict before they reached a compromise!]
Now it is true that many liberals have often argued that there is tremendous waste and over-spending in the defense budget. However, according to the Times’ table, defense spending is less than 13 percent of the federal budget --- and anyway I am doubtful that Musk and his whiz kids will be able to find significant ways to cut that budget. The House bill recently passed which included the mandated cuts from the Energy and Commerce Committee, actually boosted defense spending by $100 b.
In addition, some cuts in the federal work force will increase the deficit. For example, cutting the IRS work force will mean less enforcement of the tax law and therefore more successful tax evasion. Another even more dramatic example --- because Musk’s attempt to cut government spending is illegal, the government will probably spend a great deal of money on defending the lawsuits being filed to stop those spending cuts. And those who are suing have a very strong case. The Constitution is very clear that Congress determines how much money will be spent via the appropriation process. There is a law the Impoundment Control Act of 1974 which severely limits how much control a President has once Congress has actually appropriated money. [Details here ]
However, despite the fact that all the efforts of Musk and his amateurs will have a very small impact on overall federal spending, even those small cuts will seriously damage the programs that Trump has promised not to touch – Social Security, Medicare and Medicaid.
Take the case of Social Security. Why are there Social Security offices and why is there a phone number for citizens to call the Social Security Administration to get help? Because not everything runs smoothly via computers. Sometimes, a recipient gets “lost in the shuffle.” Sometimes, individuals’ circumstances change and the local Social Security Office is the place to go to fix things. By reducing the work force of the Social Security Administration and especially by closing offices, Social Security recipients will find it harder and harder to have their problems dealt with. If one cannot talk to a real person either in person or on the phone when a check doesn’t arrive or your disability status needs clarification, the result will be that many recipients will fall through the cracks. More people will lose out not because any benefits have been cut but because there will be no worker to help them solve whatever problem is interfering with their continued coverage.
None of what I have written above should be taken to mean it would be impossible to trim fat and waste from a variety of government programs. However, that takes time and effort and expertise. Musk and his amateur budget cutters are going in and just using a meat axe to arbitrarily reduce work forces and close offices. Anyone with half a brain would realize this will do more harm than good and save very little money.
Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies.
The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.