If you’ve been following federal budget news, it’s no secret that the United States is facing a ballooning deficit.
If you’ve been following federal budget news, it’s no secret that the United States is facing a ballooning deficit. The national debt currently exceeds $31 trillion, and the Congressional Budget Office (CBO) projects annual deficits above $1 trillion for the foreseeable future. While policymakers often focus on trimming discretionary spending—defense, education, and other annually funded programs—this typically represents only around 30% of the federal budget. The bulk of federal expenditures, roughly 60% to 65%, is tied up in mandatory programs such as Social Security, Medicare, and Medicaid. Cutting these programs by any meaningful amount would be politically charged and risk the benefits relied upon by millions of Americans.
Even so, modest cuts to discretionary spending and investments in efficiency measures could still help slow the deficit’s growth. One area attracting attention is the potential for AI to improve how the government operates. By automating repetitive tasks, analyzing large amounts of data to detect waste or fraud, and offering predictive insights on everything from healthcare costs to infrastructure needs, AI could free up resources and illuminate more effective ways to allocate funds. According to a McKinsey study, AI-driven solutions could boost worker productivity by as much as 20–30% for certain tasks, underscoring the potential for significant cost savings in administrative functions. Although these innovations may streamline government operations and spark useful reforms, AI on its own is unlikely to eliminate a structural deficit driven by escalating mandatory obligations and mounting interest payments on existing debt.
In looking for a model of fiscal discipline, we might consider how state and local governments manage their budgets. Unlike federal agencies, most states and municipalities must operate with balanced budgets, forcing immediate choices whenever revenues dip or expenditures spike. While this constraint can be painful—requiring either cuts to valued services or higher local taxes—it also instills a level of discipline and accountability that federal budgeting sometimes lacks. If Congress and federal agencies adopted a similar approach—through rigorous program-by-program analyses, public input on priorities, and closer oversight of spending—they might find more space for meaningful savings without undermining critical programs.
No discussion of the deficit is complete without briefly noting who holds U.S. debt. Contrary to popular belief, the bulk is actually held domestically by entities such as the Federal Reserve, mutual funds, and individual investors. Among foreign holders, Japan remains the single largest holder of U.S. Treasury securities, followed by China, both near the trillion-dollar mark. Yet that foreign portion pales in comparison to the extensive obligations the U.S. has incurred to itself—underscoring that the deficit problem is rooted more in our own spending patterns than in a single foreign lender.
Ultimately, while AI and leaner budgeting practices can help trim costs, there’s little room for major deficit reduction unless policymakers are willing to confront the toughest questions about mandatory programs and long-term spending commitments.
