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Home » Blog » Economic Impacts Expected Due to Reduced Federal Spending
  • Contents
  • Department of Education Cuts Workforce in Half
  • Internal Revenue Service Lets Go of 7,000 Workers
  • United States Postal Service Plans to Cut 10,000 Workers
  • Other Cuts and Impacts

Economic Impacts Expected Due to Reduced Federal Spending

Dori Zinn
By Dori Zinn
May 6, 2025
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Since Inauguration Day, Elon Musk’s Department of Government Efficiency (DOGE) has slashed federal programs and cut more than 220,000 jobs . While Musk declared that he would cut $2 trillion from government spending during Donald Trump’s presidential campaign last year, he has now adjusted DOGE’s expectations to $150 billion.  

With thousands of job cuts from more than a dozen federal agencies , the impact is more than just the job loss. These cuts could impact everything from protecting low-income students to postal deliveries. Here are some of the economic effects that could come from these federal spending cuts.

Department of Education Cuts Workforce in Half

In March, Trump and Secretary of Education Linda McMahon announced a department reduction of nearly 50%, down to almost 2,200 staffers . This drop includes 600 workers who have resigned since the administration took office and more than 1,300 terminated employees. 

The DOE manages programs for nearly 50 million K-12 students and 19 million postsecondary students in college and similar higher education programs. The Office of Elementary and Secondary Education (OESE) has cut 49 staffers so far who oversee financially and economically disadvantaged students and families. This loss means grants — including Title 1 grants — programs, and oversight of state and local agencies will most likely go away.

There were 243 staffers fired from the Office of Civil Rights (OCR), which oversees civil rights violations and discrimination in schools. Without enough workers, there may not be resolutions for the thousands of complaints the agency receives every year — there were more than 22,000 in 2024.

DOGE cut nearly $900 million in research contracts from the Institute of Education Sciences (IES) and fired more than 100 employees. Studying the impact of developing educational tools and assessments will all but completely disappear. The government can’t research certain instruction and testing materials without those contracts.

Internal Revenue Service Lets Go of 7,000 Workers

The IRS has already cut 7,000 workers and expects to let go of nearly half its 90,000-person staff. Congress pulled back $41.8 billion for 2024 and 2025 — more than half of the department’s funding — with threats of more cuts to come.

Without enough workers for auditing and collections, the government is missing out on a massive tax collection. One report from Yale found that these significant employment and budget reductions could mean up to $2.4 trillion in net foregone revenue over the next 10 years.  

The same report says the IRS earns more money than it spends. Without the right people in place to collect on taxes, the “tax gap” — the difference between taxes owed and taxes collected — will stay as is or continue to widen. It’s currently at $700 billion per year. 

The huge lack of oversight also hurts taxpayers’ privacy. Even though taxpayer data is protected under federal law, the Treasury Department agreed to share taxpayer information with Immigration and Customs Enforcement (ICE), as the immigration agency increases deportations.  This data breach impacts everyone — not just immigrants.

Undocumented immigrants still file taxes, bringing in $66 billion in tax revenue in 2023.  However, this step from the Treasury Department and ICE could mean that many folks skip filing, which could also cause a drop in revenue.

United States Postal Service Plans to Cut 10,000 Workers

Outgoing Postmaster General Louis DeJoy and DOGE are planning to eliminate 10,000 USPS workers and billions of dollars from the federal USPS budget. Currently, there are nearly 640,000 USPS employees and almost 8 million workers who manage USPS-adjacent jobs.

USPS is an independent, self-financing service that earns revenue from stamp sales, postage, and products and services. DOGE, Musk, and Trump have all expressed their interest in privatizing the USPS in hopes that the agency will turn a profit. The postal service lost $9.5 billion in 2024.  Trump has also expressed merging the USPS with the Commerce Department.

Most of the USPS changes are still up in the air, but some of the restructuring impact could be felt sooner in some places.

An increase in stamps — a measure DeJoy said he would do five times through 2027 — would start as early as this July . First-class mail is already struggling; usage has dropped 80% since 1997. The cost of other products and services could mean a drop in usage. If sending a letter or package costs more, fewer folks are likely to use the USPS. 

The changes could hit rural communities the hardest. With a massive cut in workers, it could take even longer to send and receive mail in far-to-reach places. Many communities rely on the USPS for deliveries. Without that link, some areas will take longer to receive their mail — if at all. 

Starting in April, the agency adopted new service standards it says should increase efficiency but could, in turn, slow down deliveries.  It’s too early to see if it’s made an impact yet.

Other Cuts and Impacts

Department of Defense: The DOD plans to terminate about 6,000 DOD workers every month until it reaches the estimated 50,000 to 60,000 total cuts in an effort to curb spending . The DOD also plans to cut spending by $580 million . The White House hasn’t said how those cuts will boost government efficiency.

Department of Veterans Affairs:  An estimated 80,000 VA workers will lose their jobs, which could severely impact healthcare and other services for veterans. Last year, the VA had its highest service level on record. Without enough workers, veterans wouldn’t get access to necessary healthcare, education, and housing assistance.

Consumer Financial Protection Bureau: In February, the CFPB was ordered to stop working entirely.  The agency has been around for almost 14 years and since that time, has saved Americans billions of dollars in consumer relief, canceled debt, and compensation by protecting them against predatory banks and lenders. 

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Dori Zinn

Dori Zinn is a personal finance journalist with more than a decade of experience covering college affordability, banking, borrowing, investing, credit, debt, and more. Her work has been featured in the New York Times, Wall Street Journal, CBS News, CNN, USA Today, Yahoo, Newsweek, TIME, and others. Before working for herself full-time, she was a writer for Student Loan Hero (now part of LendingTree). 

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