By August 2026, the size of the federal workforce had dropped to its lowest level in six decades, reaching a headcount not seen since 1966. Data from the Bureau of Labor Statistics shows the government employed 2.67 million people, a sharp decline driven largely by an aggressive workforce overhaul during the administration’s first year.
However, the reduction in personnel has not yet resulted in a smaller budget. Despite having fewer employees on the payroll, federal salary spending during the first year of the Trump administration was 3% higher than during the first year of the Biden administration, according to analysis from the Partnership for Public Service. This fiscal paradox is tied to the high upfront costs of buyouts and a massive surge in paid administrative leave.
The Cost of the Deferred Resignation Program
A primary driver of both the shrinking headcount and the rising costs is the Deferred Resignation Program (DRP). Under this initiative, approximately 144,312 federal employees agreed to leave their positions. The program allowed these workers to stop performing their duties while remaining on the payroll for a transition period.
A Government Accountability Office (GAO) report from September 2026 found that agencies spent $6.7 billion in 2025 alone on salaries for DRP participants. The use of paid administrative leave across federal agencies surged by 435% between 2023 and 2025, largely due to the mechanics of these separations. In total, the GAO calculated that administrative leave costs reached $9.5 billion in 2025.
The immediate financial impact has been a net increase in spending. This is further complicated by a “rehiring gap,” where the government spent $12.1 million to rehire workers who had previously been removed during workforce reductions.
Revenue Declines and Institutional Knowledge
The workforce contraction has also impacted the government’s ability to collect revenue. At the Internal Revenue Service, a reduction in staff contributed to a significant drop in enforcement outcomes. Revenue from IRS examinations fell 35%, dropping from $10 billion in fiscal 2024 to $6.5 billion in fiscal 2025.
Beyond the immediate revenue loss, analysts are tracking a decline in institutional experience.
The impact of these cuts has been felt unevenly across the executive branch. While many agencies saw significant personnel losses—with the DRP accounting for 41% of all federal separations in 2025—some departments remained stable. Employment levels at the Department of Homeland Security, for example, have remained largely unchanged despite the broader push for a smaller federal footprint.
As the administration moves into its second year, the focus is expected to shift from the costs of separation to the realization of projected savings. For now, the transition has created a unique fiscal environment where a 60-year low in staffing is paired with a multi-billion dollar spike in transitional labor costs and a temporary hole in tax enforcement revenue.
