by JD Foster
With the election behind us, a huge win for President Donald Trump, it is time to get serious about policy. One of Trump’s best campaign lines was: “Kamala broke it. Trump will fix it.” To be sure, the federal budget was out of whack already, but the Biden-Harris administration really broke it through massive increases in federal spending.
Time to fix it, but if Republicans go about this as they have in the past, they will surely fumble and fail.
The breakage in this case was massive, starting with the topline: The 2024 deficit came in at a whopping $1.9 trillion.
Revenues of $4.9 trillion represented about 17.2 percent of GDP, well above the average of 16.9 percent since the millennium. As usual, the culprit is too much spending. Excluding the pandemic years, average spending as a share of GDP over that same period was 20.2 percent. In 2024 spending hit 23.9 percent of GDP.
The bottom line is that 2024 spending exceeded by $1 trillion a year the amount that would have been spent following the modern average. With respect to Elon Musk’s $2 trillion target, cutting $1 trillion would be good start and still a big nut to crack.
There is a lot of waste but there is no line in the budget labeled “Waste, Cut Here.” Still, it can be done mostly by reversing President Joe Biden’s spending splurges, but the approach matters. This is a budget exercise, but it is also a political exercise. It is critical to deal with the landmines first, even if the amounts involved are small relative to the task.
The biggest landmine is the complaint: “How can you cut popular program X when we still spend vast sums on dubious program Y?”
The first place to cut are the Ys, the low-hanging fruit, the programs tough to justify under the best of circumstances. For example, foreign aid is such low-hanging fruit that if hung any lower, it would be called a root.
To be sure, some foreign aid is effective in helping the world’s poor. But after spending so many billions for so many years, most of the world’s poor remain mostly poor. Using taxpayer dollars to signal virtue is unacceptable, especially when it doesn’t seem to make much difference.
Foreign aid also advances America’s international engagement, fancy terminology that translates to play money for diplomats so they can bribe foreign governments to like us. It also helps prop up luxury car sales throughout the developing world, if that appeals to you.
How much are we talking? In 2024, foreign aid hit about $70 billion, but much of this represents a surge in aid to Ukraine. Continued support for Ukraine is part of a separate discussion, so we set that aside for now. What about the rest?
As of 2020, the end of Trump’s first term, total aid obligations hit $52 billion. That provides a good baseline for the previously normal level of foreign aid. Assuming a little foreign aid can be defended, a good hard target would be to cut this by 95 percent, saving over $45 billion. Such a cut would be a drop in the bucket compared to the target, but it is a drop the vast majority of Americans would support.
America needs to get its fiscal house in order. Whether meritorious, dubious, or absurd, the one feature all foreign aid shares is that it cannot be defended when policymakers are looking to cut domestic spending. Cutting foreign aid dramatically will barely make a dent in the problem, but failing to cut foreign aid dramatically guarantees Congress will ultimately shrink from solving the problem. The hunt for the indefensible continues…
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J.D. Foster is the former chief economist at the Office of Management and Budget and former chief economist and senior vice president at the U.S. Chamber of Commerce. He now resides in relative freedom in the hills of Idaho.
