Source: ITR Economics April 2025
Federal spending cuts may sound impressive, but federal spending will continue to outpace tax receipts, leading to rising debt and interest expenses.
Conclusions:
- The estimated reduction in federal spending sounds more impressive than it is.
- The federal government’s interest expense is going to continue to rise.
- Federal spending will continue to outpace tax receipts.
1. Cost Savings
The estimated cost savings from firing federal employees, cutting Medicaid, and slicing other programs are touted as running anywhere from $250 billion (low-end estimate from labor costs alone) to $1.2 to $2.0 trillion or more depending on what happens to Medicaid and other programs. That is a lot of zeroes! However, all these cost savings are estimated to accumulate over 10 years. The federal budget deficit for FY2024 alone was approximately $1.8 trillion. In other words, the plan is what we have seen numerous times before: Slow the rate at which the national debt will rise.