WEST PALM BEACH, Fla. — On Sunday, Commerce Secretary Howard Lutnick proposed a shift in how the government calculates the gross domestic product (GDP) by potentially excluding government spending from the reports. This suggestion arises as a response to inquiries over the possible economic repercussions of spending reductions advocated by the Department of Government Efficiency under Elon Musk.
In an appearance on Fox News Channel’s “Sunday Morning Futures,” Lutnick stated, “Governments historically have skewed GDP figures. Government spending is currently part of GDP. We’re considering separating these to create more transparency.”
The inclusion of government expenses as part of GDP is a traditional practice, as government actions related to taxes, expenditures, and regulations influence overall economic growth. GDP reports, by including detailed government spending information, provide transparency beneficial for economic analysis.
Government downsizing proposed by Musk could see significant federal workforce reductions, impacting individual incomes and, consequently, consumer spending, which could ripple through the broader economy.
Lutnick’s sentiments align with Musk’s standpoint expressed on X, where he argued that government spending does not create economic value. Musk commented, “An accurate GDP measure should exclude government spending since relying on it inflates GDP with expenditures lacking tangible benefits.”
Officials from the Trump administration seem to downplay the positive impacts certain types of government spending have on economic trajectories. Illustrating this, Lutnick remarked, “A government purchase like a tank counts towards GDP, but paying many to deliberate over such a purchase does not. It represents inefficiency and wasted funds,” stressing a need to remove such from GDP considerations.
This perspective surfaced shortly after a GDP report from the Commerce Department’s Bureau of Economic Analysis indicated a 2.3% growth at the close of the previous year. Growth appeared driven by consumer expenditures and a defense-related government spending surge. Meanwhile, government-related GDP growth for 2024 was revised to 2.6%, shy of the 2.8% overall growth logged the previous year.
In GDP calculations, government spending contributes to nearly one-fifth of national personal income, worth over $24.6 trillion last year. This comprises notable items such as Social Security and health benefits through Medicare and Medicaid. The GDP report also tracks how much personal income is siphoned off via taxes to the government.
Government actions can sometimes hinder GDP growth instead of boosting it, as demonstrated in 2022 when aid linked to the pandemic ceased.
Lutnick voiced plans for the Trump administration to achieve a balanced federal budget via fiscal restraints, positing that such actions would spur growth and drive down interest rates. “Balancing our nation’s budget will see interest rates drop dramatically,” Lutnick asserted, anticipating an economic high unparalleled so far. “It would be unwise to wager against it,” he concluded.
