Comment: DOGE has failed; federal spending has only increased

By Justin Fox / Bloomberg Opinion

Amid the layoffs, canceled programs and other cutbacks in Washington, D.C., since Donald Trump moved back into the White House in January, one thing hasn’t changed: Federal spending has just kept going up.

Spending since Jan. 21 is up 8.7 percent over the equivalent period in 2024, 7.2 percent over 2023. Some kinds of federal spending are irregular and intermittent, and any comparison like this can be affected by the timing of payments, but the Congressional Budget Office’s latest monthly budget review made adjustments for timing shifts and estimated that spending in the 2025 fiscal year, which began in October, was up 7 percent through April over the same period a year earlier. The increase appears to be real.

What’s driving it? The Daily Treasury Statement from which these numbers are derived breaks down what it calls “withdrawals” into 102 categories, one of which — public debt cash redemptions — is excluded here because it’s not really spending. (I’ve used data from the Hamilton Project’s federal-expenditure tracking website but also downloaded numbers directly from the Treasury Department just to be sure.) I’ve consolidated the other 101 into cabinet departments plus a few agencies and programs with large spending changes relative to the equivalent period last year.

Some high-profile cutbacks show up here as sharp spending declines at the Department of Education and the U.S. Agency for International Development. Others don’t because the affected agencies are folded into larger departments, as with the $1.2 billion, 7.7 percent decline in spending at the National Institutes of Health, which falls under the Department of Health and Human Services. Also, the full impact of the cutbacks imposed by the Department of Government Efficiency, Office of Management and Budget and department heads probably isn’t showing up in the numbers yet because firing workers and shutting down programs costs money up front, plus court orders have halted many cuts, at least temporarily.

These numbers also reflect a fair amount of what you could call fiscal noise. The sharp decline in spending at the Office of Personnel Management seems to be a timing issue with payments for federal employees’ health insurance, not a policy change. The big increase in spending at the Treasury Department seems similarly flukey.

As already noted, the overall spending increase appears to be real, driven by familiar forces like the seemingly inexorable growth of Social Security, Medicare and other social insurance programs, as well a significant new contributor since interest rates went up in 2022; interest payments on the federal debt.

The U.S. government is, as the saying goes, “an insurance company with an army,” and by my somewhat idiosyncratic accounting (I’ve included tax refunds because they encompass the nation’s biggest antipoverty program, the Earned Income Tax Credit), social insurance, defense and interest payments have together accounted for 76 percent of spending since Trump took office and 74 percent of the increase over 2024.

The Trump-backed tax and spending bill that passed the House last week takes aim at Medicaid, the health insurance program for the poor, and the Agriculture Department’s Supplemental Nutrition Assistance Program, aka food stamps, in both cases mainly by making it harder to qualify for benefits. Most of the other big spending categories shown above appear to escape largely unscathed, and because the legislation also includes tax cuts, most projections indicate that it will increase the deficit and federal debt.

Since Trump took office the deficit has actually been shrinking, though, thanks to a 13 percent increase in federal revenue. Is that sustainable?

Revenue from customs and certain excise taxes — aka tariffs — is up 82 percent. Last week the Budget Lab at Yale estimated average annual tariff revenue of $280 billion over the next decade, way up from FY 2024’s $77 billion. But that’s now in doubt after the U.S. Court of International Trade ruled most of President Trump’s new tariffs illegal, and is in any case a drop in the bucket next to federal income and payroll tax revenue that totaled $4.6 trillion last year.

Individual income taxes have generated most of this year’s revenue gains, the bulk of them in the form of increases in non-withheld taxes that cannot be relied upon to continue. Non-withheld tax revenue tends to jump after financial markets do, with the beneficiaries of capital gains, employee-stock-option exercises and big bonuses often owing large amounts at tax time. The performance of the stock market so far this year points to fewer such happy events in coming months.

For all the action in Washington since Jan. 21, it’s a remarkably familiar picture. Federal income tax revenue is volatile, and spending on Social Security, Medicare and other social insurance programs just keeps going up.

Justin Fox is a Bloomberg Opinion columnist covering business, economics and other topics involving charts. A former editorial director of the Harvard Business Review, he is author of “The Myth of the Rational Market.”