(Bloomberg) -- If Elon Musk were to get his way, President Donald Trump would preside over an economic overhaul befitting a fellow 1980s icon: Margaret Thatcher.
In his fast-moving attack on the role of government in America, Musk has targeted $1 trillion in cuts in the next year — a figure many economists and budget experts see as highly unlikely. That’s in part because of how difficult it’d be to slash that much spending without gutting entitlement programs like Medicare and Social Security that Trump promised to protect.
But the $1 trillion figure shows the scale of their ambition, and a willingness to undertake what effectively amounts to economic shock therapy. In fact, as a share of gross domestic product, the annual pace of cuts Musk envisions would surpass Thatcher’s in the 1980s, when the Iron Lady dramatically cut UK government spending to close budget deficits and fight inflation and ended up triggering a recession for which she was unrepentant.
Federal spending accounts for about one-quarter of US GDP, so even cuts a fraction as large as Musk has touted threaten to dent the economy just when markets are already on edge over the risk of a slowdown.
The efforts of the Trump administration also have a similar ideological goals to Thatcher’s: to substantially reduce government involvement in everything from infrastructure to innovation, on the belief that doing so will unleash private enterprise.
Treasury Secretary Scott Bessent has talked about the need to rapidly bring the budget deficit down to 3% of GDP, less than half of what it is now, and to get the government out of the way of businesses.
“Our goal is to reprivatize the economy,” Bessent said in a speech last month. Government, education and health care employment accounted for 95% of all job creation in the US over the past year, he said, and that’s “neither desirable nor sustainable.”
“The market and the economy have just become hooked, and we’ve become addicted to this government spending,” Bessent told CNBC in a March 7 interview. Which means that “there’s going to be a detox period.”
Markets have made a dim assessment of comments like those.
But that view of government as a less-productive drag is shared by Stephen Miran, the incoming chair of Trump’s Council of Economic Advisers, and Commerce Secretary Howard Lutnick, who has also floated plans to raise $1 trillion in additional revenues, largely through new tariffs.
In seven weeks in office, Trump’s administration has already laid out plans to eliminate more than 100,000 federal jobs; economists predict as many as half a million federal employees will be put out of work this year. The prospect of deep cuts is already setting off a fiscal reckoning for local governments, universities and other institutions around the country, which count on federal funds for everything from scientific research to social services to transit projects.
Analysts at the nonprofit Transportation for America estimate that more than $20 billion in federal grant payments in the transportation sector alone could be at risk of cancellation, as the administration uses its opposition to measures aimed at climate change and social justice as a rationale for cutting spending. That could mean halting or delaying hundreds of road and transit projects around the country.
“The federal government is an important part of the United States economy, and if you rip out a big chunk of that it's going to have ripple effects,” said Martha Gimbel, executive director of the Budget Lab at Yale. “Even if you're doing these things in a way that gives people time to adjust, it's still going to be really painful.”
That pain could have political consequences for a president who returned to power promising prosperity, not austerity — and who had long ago wrested control of his party from deficit hawks.
Trump has said he only aims to root out improper payments in entitlement programs, and Musk on Monday identified what he cast as widespread fraud at Social Security as a potential target for cuts.
“There's a massive amount of fraud,” Musk said in an interview with Fox Business’ Larry Kudlow, claiming without evidence that DOGE has uncovered evidence of people illegally claiming Social Security benefits and loans from the Small Business Administration, among others. “There's the number which is estimated to be on the order of 10% of federal expenditures, which is half a trillion dollars.”
Musk has portrayed his agenda as an act of financial prudence for a nation with a $36.5 trillion debt mountain that comes with an annual interest bill rivaling the Pentagon budget.
“It's not an optional thing. It is an essential thing. That's the reason I'm here,” Musk said at a Feb. 26 cabinet meeting in which he stated a goal of identifying $4 billion a day in spending cuts from now until September. “If we don't do this, America will go bankrupt.”
It also reflects a deep, long-simmering disdain for government that goes beyond the regulators who oversee his companies. Musk has implied federal workers are unproductive and suggested the public sector shouldn’t even be included in measures of the economy. He recently decried John Maynard Keynes as “a great evil,” suggesting contempt for the economist’s belief in government as a stabilizing force for economies. Often missing from his screeds is how his companies have benefited from government loans and contracts.
Musk’s belt-tightening plan comes as Republicans in Congress are proposing a tax bill that includes $2 trillion in cuts over 10 years while still increasing the deficit. Meeting his targets would likely involve slashing spending already authorized by Congress, to which the US Constitution gives the power of the purse.
Opponents argue that is illegal and lawsuits have also raised questions about the constitutionality of Musk’s culling of programs.
The risks of a looming new era of austerity have already drawn the attention of prominent investors like Point72 Asset Management’s billionaire founder Steven Cohen. “Wherever you lay on the DOGE issue, that’s austerity,” he told a conference last month. And austerity “has got to be negative for the economy.”
According to Bloomberg Economics, if a $1 trillion reduction in federal spending hit the economy this year, it would plunge the US into recession, with GDP contracting every quarter and the economy ending the year 3.3% smaller than expected.
It would also result in a 1.5 percentage-point increase in joblessness that would bring the unemployment rate to 5.7% by the end of the year, said Anna Wong, chief US economist. The good news for Republicans, perhaps, is that under this scenario “there will be a strong rebound in growth” next year, Wong said, just in time for the midterm election.
The Bloomberg Economics calculations don’t account for other policies that could be an economic drag, like tariffs or an immigration crackdown. (They also don’t factor in the potential positive impact that the Trump administration says would come from tax cuts and deregulation.)
The velocity of the cuts is one reason their impact would be so drastic.
Musk’s headline target implies a single-year spending cut equal to 3% of GDP. Even at the height of Thatcher’s austerity campaign, which prompted an economic crisis in the UK before the revival conservatives celebrate her for, the British government’s spending cuts were the equivalent of a single percentage point of GDP per year, said Robert Pollin, an economist at the University of Massachusetts who has studied government austerity efforts.
A retrenchment in spending as large as Musk is proposing would also have few precedents in modern US history. The only bigger pullbacks would be in the aftermath of World War II and in 2022, when there was a retreat from the pandemic stimulus spending that Trump and Joe Biden oversaw in 2020 and 2021.
“We would be in completely new territory,” Pollin says of Musk’s plans.
Of course, even if lawsuits don’t block his plans, Musk may come up short in his quest for $1 trillion in cuts. That has led economists and bond investors to be dismissive of Musk’s ambitious targets.
But even if he succeeds only partially, there’d be economic fallout. Some $100 billion in spending cuts would take 0.3% off US GDP this year, Bloomberg Economics found.
The impact is likely to be felt broadly in an economy in which federal spending accounts for about a third of state budgets.
It’s also likely to hit Trump’s own supporters. Thatcher won elections after launching her austerity drive, but that doesn't mean the GOP can pull off the same feat. According to Andrew Reamer, a public policy expert at George Washington University, 30 of the 31 states Trump won in November received more in federal revenues than they returned to Washington in taxes.
And, Reamer wrote in a recent post, “the budgets of states that voted for Donald Trump in 2024 are more vulnerable to federal aid cuts than are those of states that voted for Kamala Harris.”
--With assistance from Daniel Flatley.
©2025 Bloomberg L.P.
