Bank of America highlights some harrowing numbers on the size of US government spending

March 13, 2025 at 03:17AM

Republicans are still riding high from an electoral victory but they will soon have to face some real facts: The US has a deficit problem.

At the moment, they appear to be living in a fantasyland where they can aggressively cut taxes while DOGE does a dog-and-pony show around saving money. In reality, there are only four places to cut US spending that will make any difference: the military, medicare, medicaid and social security.

Those are electorally sacred and leave them with a tougher choice: Roll back tax cuts or run a huge deficit.

The WSJ today reports that all the tax cuts are still on the table and that the price tag is enormous. There appears to be some kind of effort at creative accounting and I suspect that’s the direction they will go in.

If not, Bank of America highlights how dependent the US has been on growing jobs via deficits near 7% of GDP:

In 2024, the US had never been more government-dependent: for 85% of job growth, 33% of all spending, 6-7% budget deficits; all record highs ex-crisis. In 2025, the world is moving to revive the private sector, e.g. Japanese corp. reforms, Chinese pro-market signals, German defense spending, & Argentine fiscal cuts. The US “detox” of efficiency, deregulation, and trade may mean more market pain before visible GDP gains.

This isn’t going to be easy and I don’t think it will be pretty. Again, I think the path of least resistance (as usual) is running up the deficit but the Republican majority is slim and there may be some true deficit hawks out there.

This article was written by Adam Button at www.forexlive.com.