The Trump administration may consider excluding government spending from GDP reports, potentially obscuring the effects of cuts to the Department of Government Efficiency (DOGE), reports AP>
Commerce Secretary Howard Lutnick mentioned on Sunday that government spending could be separated from GDP figures in response to concerns about whether cuts advocated by Elon Musk's DOGE might lead to an economic downturn.
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"Governments have historically manipulated GDP," Lutnick stated on Fox News Channel's “Sunday Morning Futures.” "They include government spending as part of GDP. I plan to separate the two and make this clear."
This move could complicate or distort a key economic measure. Government spending is usually part of GDP because changes in taxes, spending, deficits, and regulations can influence overall economic growth. Current GDP reports already provide detailed information on government spending, offering transparency for economists.
Musk's push to reduce federal agency sizes could result in the layoff of tens of thousands of federal employees. Their loss of income could reduce spending, potentially affecting businesses and the broader economy.
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Lutnick's comments align with Musk's earlier remarks on X, where he argued that government spending does not generate economic value.
“A more accurate GDP measure would exclude government spending,” Musk posted on his social media platform. “Otherwise, GDP can be artificially inflated by spending on things that don’t improve people's lives.”
This viewpoint, as expressed by Trump administration officials, downplays the economic benefits of certain types of government spending that can influence economic growth.
“If the government buys a tank, that counts as GDP,” Lutnick said. “But paying 1,000 people to think about buying a tank is not GDP. That’s wasted inefficiency, wasted money. And cutting that, while it shows up in GDP, we’re going to eliminate it.”
The Commerce Department’s Bureau of Economic Analysis released its latest GDP report on Thursday, showing a 2.3% annual growth rate in the final quarter of the previous year.
The report highlights the economic forces at play, showing that the year-end gains were largely due to increased consumer spending and a revision to federal defense spending. However, the federal government's contribution to GDP growth in 2024 was 2.6%, slightly lower than the overall economy's growth of 2.8%.
Government spending accounted for nearly one-fifth of personal income, totaling over $24.6 trillion last year. This includes Social Security, veterans' benefits, Medicare, Medicaid, and other programs, while also accounting for taxes paid to the government.
Government spending doesn't always contribute to GDP growth and can sometimes detract from it, as seen in 2022 when pandemic-related aid ended.
Lutnick said that the Trump administration would balance the federal budget through spending cuts, aiming to promote growth and reduce consumer interest rates.
"When we balance the United States budget, interest rates will drop significantly," Lutnick said. “This will lead to the best economy anyone has ever seen, and betting against it would be foolish.”