How does the US spend taxpayer money? What to know as DOGE, Elon Musk look for cuts

As the Department of Government Efficiency roots through federal computer systems for taxpayer-funded programs to cut, billionaire Elon Musk said his team is working toward a $1 trillion target.

"The overall goal is to try to get a trillion dollars out of the deficit, and if the deficit is not brought under control, America will go bankrupt," Musk said during a joint interview with President Donald Trump with Fox News’ Sean Hannity.

Musk said Trump was handed a $2 trillion deficit when he took office for a second time; officially, the deficit for fiscal year 2024 was over $1.8 trillion.

So does Musk have a shot at cutting $1 trillion from that deficit? Mathematically, yes. As a practical matter, it would be difficult.

As Musk and his critics toss around statistics, here are some points to know about how the government spends $6.8 trillion taxpayer money. 

The largest chunks of the federal budget go toward mandatory spending. These programs do not need annual outlays approved by Congress. They include:

• Social Security (about 20%).

• Medicare (about 15%).

• Interest on the federal debt (about 12%).

• Medicaid and other mandatory health programs (almost 11%).

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

• Food stamps and other safety net programs (more than 5%).

A separate category of spending covers discretionary programs that Congress approves annually.

Discretionary spending falls into two categories: defense and non-defense. Defense includes the military; non-defense includes every other federal agency, such as the Justice Department, Transportation Department and Environmental Protection Agency.

Mandatory and discretionary spending are not equal in size: About three-quarters of federal spending comes from either mandatory spending or interest on the debt. 

Mandatory spending programs run on autopilot until Congress passes a rule change and the president signs it into law. So they are a bit more protected than discretionary spending, which must do battle in Congress every year. But aside from interest payments — which can’t be ignored without serious harm to the nation’s creditworthiness around the world — being "mandatory" doesn’t mean being untouchable.

If Congress and the president want to slash Social Security benefits, Medicare benefits or any other mandatory program, they can.

Trump has promised not to cut either Social Security or Medicare. Combined with interest, those categories of federal spending collectively account for nearly half of the total. 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.

The options get trickier when it comes to discretionary spending.

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

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

If Trump follows through, it would mean that non-defense discretionary spending would take the brunt of the cuts. But non-defense discretionary spending totaled about $960 billion last year, which doesn’t add up to the $1 trillion Musk targeted, even if it was cut by 100%.

If Musk were to rely on non-defense discretionary spending to reach $1 trillion in cuts, it would mean getting rid of essentially everything the federal government does other than defense, mandatory programs and interest.

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

These departments manage virtually every federal service. Customs and Border Protection. The Food and Drug Administration. VA hospitals. Highway funding. The Strategic Petroleum Reserve. Federal prosecutors. Payments to farmers. The National Weather Service. The space-flight program. Every court and all of Congress.

Instead of cutting spending, the deficit could also be reduced by raising taxes (or by a combination of tax hikes and spending cuts). But Trump promised not to do that; he pledged to sign "a middle-class, upper-class, lower-class, business-class big tax cut."

The practical effect of a tax cut would be to increase the deficit, if everything else remained the same. 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 issue is that independent estimates of prospective tariff revenue are modest. The center-right Tax Foundation estimated that the first year of tariffs on China, Canada, Mexico and other countries would bring in $140 billion. 

The other issue is that the U.S. economy could lose enough tax revenue from the tariffs’ impacts to cut into or wipe out the gains to the treasury in tariff revenue. The Tax Foundation projected that Trump’s tariffs could reduce Americans’ incomes by close to 1%, which risks producing less revenue from taxes.

So far, some of the highest-profile cuts under Trump have come in the federal workforce, where tens of thousands of workers have either been laid off or have taken buyouts.

The federal workforce employs roughly 3 million people, or about 2.4 million without counting workers of the U.S. Postal Service, which has aspects of both a federal agency and a private business. The 2.4 million figure does not include roughly 1.3 million active-duty military personnel.

For civilians, the biggest employer is the Defense Department, followed by the Department of Veterans Affairs. (About three-quarters of the VA’s workers are directly employed at VA-run hospitals and health clinics.) The Department of Homeland Security is a distant third, followed by the Justice Department and the Treasury Department.

Estimates have consistently found that federal employee compensation adds up to roughly 6% of total federal spending, or roughly $350 billion in recent years.