The Trump administration may exclude government spending from GDP,
obscuring the impact of DOGE cuts
[March 03, 2025] By
JOSH BOAK
WEST PALM BEACH, Fla. (AP) — Commerce Secretary Howard Lutnick said
Sunday that government spending could be separated from gross domestic
product reports, in response to questions about whether the spending
cuts pushed by Elon Musk's Department of Government Efficiency could
possibly cause an economic downturn.
“You know that governments historically have messed with GDP,” Lutnick
said on Fox News Channel's “Sunday Morning Futures.” “They count
government spending as part of GDP. So I’m going to separate those two
and make it transparent.”
Doing so could potentially complicate or distort a fundamental measure
of the U.S. economy's health. Government spending is traditionally
included in the GDP because changes in taxes, spending, deficits and
regulations by the government can impact the path of overall growth. GDP
reports already include extensive details on government spending,
offering a level of transparency for economists.
Musk's efforts to downsize federal agencies could result in the layoffs
of tens of thousands of federal workers, whose lost income could
potentially reduce their spending, affecting businesses and the economy
at large.
The commerce secretary's remarks echoed Musk’s arguments made Friday on
X that government spending doesn’t create value for the economy.
“A more accurate measure of GDP would exclude government spending,” Musk
wrote on his social media platform. “Otherwise, you can scale GDP
artificially high by spending money on things that don’t make people’s
lives better.”
The argument as articulated so far by Trump administration officials
appears to play down the economic benefits created by some forms of
government spending that can shape an economy's trajectory.
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 “If the government buys a tank,
that’s GDP,” Lutnick said Sunday. “But paying 1,000 people to think
about buying a tank is not GDP. That is wasted inefficiency, wasted
money. And cutting that, while it shows in GDP, we’re going to get
rid of that.”
The Commerce Department's Bureau of Economic
Analysis published its most recent GDP report on Thursday, showing
that the economy grew at an annual rate of 2.3% in the final three
months of last year.
The report makes it possible to measure the forces driving the
economy, showing that the gains at the end of last year were largely
driven by greater consumer spending and an upward revision to
federal government spending related to defense. Still, the federal
government's component of the GDP report for all of 2024 increased
at 2.6%, slightly lower than overall economic growth last year of
2.8%.
In the GDP report, government spending accounts for almost one-fifth
of people's personal income, which totaled more than $24.6 trillion
last year. This includes Social Security payments, benefits for
military veterans, Medicare and Medicaid and other programs. But the
report also measures the amount of people's personal incomes that
are paid in taxes to the government.
The government is not always a contributor to GDP growth and can
subtract from it, which is what happened in 2022 as pandemic-related
aid expired.
Lutnick said that the Trump administration would balance the federal
budget with spending cuts, saying that would help growth and reduce
the interest rates paid by consumers.
“When we balance the budget of the United States of America,
interest rates are going to come smashing down,” Lutnick said. “This
is going to be the best economy anybody’s ever seen. And to bet
against it is foolish.”
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