Budget Resolution Relies on Overly Optimistic Assumptions About Discretionary Spending
Last Updated February 19, 2025
The budget resolution released by the House Budget Committee on February 12 primarily serves as a vehicle for reconciliation instructions to allow for extension of expiring tax provisions and other policy objectives. However, the tables released with the legislative language also contain targets for discretionary spending over the upcoming decade. While discretionary spending is not part of the reconciliation process, some policymakers may point to savings from that category as “offsets” for other policies.
The assumptions associated with the House resolution, though, could prove optimistic — especially for nondefense discretionary spending and without statutory caps to enforce them. They should not be counted upon to mitigate the deficit impact of reconciliation legislation that Congress will consider pursuant to the resolution.
Budget Resolution Compared with Historical Trends
The tables associated with the House budget resolution include an unlikely assumption that discretionary spending will be reduced by $1.8 trillion between 2025 and 2034 relative to the Congressional Budget Office’s (CBO’s) baseline — all from nondefense programs. Those savings would occur by reducing such appropriations by 15 percent next year and by 6.5 percent the year after; in subsequent years, nondefense appropriations would grow by around 1.6 percent annually.
That level of decline in funding for appropriations would be extremely rare. Nondefense appropriations have only been reduced by more than 15 percent twice in the past 45 years — following a huge increase related to the financial crisis and again after the enormous expenditures in response to the pandemic. In only five additional years did appropriations drop by more than 6.5 percent. Furthermore, the anticipated growth in nondefense discretionary spending is less than half of the average annual rate of growth since 1980 (4.1 percent).
Defense appropriations, on the other hand, would adhere to CBO’s baseline, which projects that such spending grows at the rate of inflation, around 2.4 percent annually. That growth would be well below the rate seen since 1980, during which time defense appropriations grew at an average annual rate of 4.6 percent.
Overall, the House budget resolution incorporates the assumption that appropriations would be reduced by $2.5 trillion through 2034 and that such reductions would lower outlays by $1.8 trillion over the upcoming decade.
How to Achieve Reductions in Discretionary Spending
Reductions in discretionary spending should certainly be part of a comprehensive package to address the U.S. fiscal situation, even if such reductions cannot be part of a reconciliation package. However, because appropriations are addressed annually, it is difficult to achieve savings over an extended period without a mechanism in place to control such spending.
One approach is to impose caps on discretionary spending. Caps have been helpful in the past when consensus existed to adhere to them and, in general, evidence suggests that budget caps were somewhat effective at limiting discretionary spending. However, even when caps have been in place, their impact was often reduced because it has been easy for legislators to augment them by using emergency declarations, advance appropriations, timing shifts, and other funding devices to increase discretionary spending above the limits.
Specific options to reduce discretionary spending also exist. For example, the CBO every two years publishes a compendium of options to reduce the deficit, including many that address appropriations. The Committee for a Responsible Federal Budget has also highlighted a number of those options. In addition, Solutions Initiative 2024 addresses approaches to addressing discretionary spending.
Use Realistic Offsets to Improve the Fiscal Situation
Future discretionary spending cuts, which cannot technically be included in reconciliation bills, are difficult to achieve as credible offsets to the increased deficits incorporated in a budget resolution. There are plenty of options available for lawmakers to fully offset the cost of policies they wish to extend or enact, and they should avoid budget gimmicks or other fiscal shortcuts. As legislators consider policy initiatives to address this year, they should keep in mind the unsustainable fiscal situation that already exists and, at the very least, do no fiscal harm.
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Further Reading
Long-Term Budget Outlook Leaves No Room for Costly Legislation
As lawmakers consider costly legislation to extend expiring tax provisions this year, CBO’s latest projections serve as a warning that our fiscal outlook is already dangerously unsustainable.
Full Array of Republican Tax Cuts Could Add $9 Trillion to the National Debt
Fully extending the TCJA would cost approximately $5.0 trillion, while other elements of the Republican tax agenda also have large price tags over ten years.
Moody’s Warns Recent Policy Decisions Worsen U.S. Fiscal State, Maintains Negative Outlook Rating
Moody’s says that the United States is in fiscal deterioration, warning that government policy decisions in the near term could contribute to higher interest rates and worsening national debt.