Spending since 21 January is up 8.7% over the equivalent period in 2024, 7.2% 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% through April over the same period a year earlier.
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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 not really spending.
Some high-profile cutbacks show up as sharp spending declines at the Department of Education and the US Agency for International Development. Others don’t because the affected agencies are folded into larger departments, as with the $1.2 billion, 7.7% 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 (DOGE), Office of Management and Budget and department heads probably isn’t showing up in the numbers yet because firing workers and shutting down programmes costs money up front, plus court orders have halted many cuts, at least temporarily.
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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 programmes, as well a significant new contributor since interest rates went up in 2022—interest payments on the federal debt.
The US 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, defence and interest payments have together accounted for 76% of spending since Trump took office and 74% of the increase over 2024.
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The Trump-backed tax and spending bill that passed the House last week takes aim at Medicaid, the health insurance programme for the poor and the Agriculture Department’s Supplemental Nutrition Assistance Program—also known as food stamps—in both cases mainly by making it harder to qualify for benefits.
Most of the other big spending categories 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% increase in federal revenue. Is that sustainable?
Revenue from customs and certain excise taxes—such as tariffs—is up 82%. Last week the Budget Lab at Yale estimated average annual tariff revenue of $280 billion over the next decade, way up from fiscal year 2024’s $77 billion. But that’s now in doubt after the US Court of International Trade ruled most of President Trump’s new tariffs illegal [a decision that has been stayed while it is examined], and is in any case a drop in the bucket next to federal income and payroll tax revenue that totalled $4.6 trillion last year.
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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 21 January, it’s a remarkably familiar picture. Federal income tax revenue is volatile, and spending on Social Security, Medicare and other social insurance programmes just keeps going up. ©Bloomberg
The author is a Bloomberg Opinion columnist covering business, economics and other topics.
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