Chart of the Week
Among Donald Trump’s many announcements since his election, the announcement of the creation of a new Department of Government Efficiency, co-directed by Elon Musk and Vivek Ramaswamy, stood out. Vivek Ramaswamy has set the goal of finding USD 2,000 billion in savings, which represents almost a third of federal level public spending. In the United States, federal spending accounts for only around 60% of public spending, with the remainder at state level.
In 2023, federal spending represented $6,100 billion, or 22.7% of GDP, according to CBO data. Spending that is considered mandatory because it is not subject to a budget vote each year represents 13.9% of the GDP. This is mainly social benefits and health spending. 6.4% of the GDP is represented by expenditure budgeted each year. This includes 3.4% for defense spending. Interest on debt represented 2.4% of the GDP. According to data from the Office of Management and Budget, transfers to households account for 68% of federal spending.
OUR ANALYSIS
This shows that it will likely be very complicated to significantly reduce federal spending unless transfers to households are affected, particularly the Medicare programs, which fund healthcare expenses for those over 65, and Medicaid, which is for vulnerable and low-income individuals. These programs remain very popular, with 70% of the population wanting to maintain them as they are. The Republicans’ efforts to roll back Obamacare in 2017 likely cost them the majority in the House of Representatives in the 2018 Midterms.
It will likely be difficult to find significant savings to finance the tax cuts promised by Donald Trump. Therefore, the risk is high that the budget deficit, currently at an average level of around 6%, will continue to widen over the coming years.
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Written on November 22 , 2024. This is not an investment advice. Opinions subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/at1-bonds-an-unprecedented-supply-surge/
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