Options for Reducing the Deficit: Discretionary Spending
CBO recently published Options for Reducing the Deficit: 2014 to 2023. That report is now available in a fully digital version, so users can search the options according to major budget category, budget function, and major program category. The report included 28 options related to discretionary spending (apart from options primarily involving health); they are listed at the bottom of this post with estimates of their budgetary savings.
Trends in Discretionary Spending
Discretionary spending—the portion of federal spending that lawmakers control through annual appropriation acts—totaled about $1.2 trillion in 2013 or about 35 percent of federal outlays, CBO estimates. Those discretionary outlays pay for a wide variety of federal activities, including most programs related to national defense, transportation, elementary and secondary education, veterans’ health care, international affairs, and law enforcement.
Since the 1970s, the share of federal spending that occurs through the annual appropriation process has dropped considerably. Specifically, between 1973 and 2013, discretionary spending fell from 53 percent of total federal spending to about 35 percent. Relative to the size of the economy, discretionary spending declined from 9.6 percent of GDP in 1973 to a low of 6.0 percent in 1999 before rising back to about 7 percent in 2013, CBO estimates. Most of the decline over that period involved spending for national defense, which, as a share of GDP, reached a low of 2.9 percent around 2000. However, such outlays began climbing again relative to GDP shortly thereafter, reaching an average of 4.6 percent from 2009 through 2011. Roughly half of the growth in defense spending over the 2001–2011 period resulted from spending on operations in Iraq and Afghanistan. In 2013, discretionary spending for defense fell to 3.8 percent of GDP, CBO estimates.
Nondefense discretionary spending has generally ranged from about 3 percent to 4 percent of GDP over the past four decades. One exception was from 1975 to 1981, when such spending averaged almost 5 percent of GDP. Another exception was from 2009 through 2011, when funding from the American Recovery and Reinvestment Act of 2009 and from other sources associated with the federal government’s response to the 2007–2009 recession helped push nondefense discretionary outlays above 4 percent of GDP. Like defense discretionary spending, nondefense discretionary outlays as a share of GDP fell in 2013 to 3.5 percent, CBO estimates.
Under current law, most discretionary appropriations through 2021 are constrained by the caps put in place by the Budget Control Act of 2011. Assuming that future legislation adheres to the current caps (including the automatic reductions in those caps required by the act) and that discretionary appropriations grow at the rate of inflation after 2021 (the assumptions that underlie CBO’s baseline projections), outlays from those appropriations are projected to decline to 5.3 percent of GDP in 2023. That amount would be the lowest level of discretionary spending relative to GDP in more than half a century (since at least 1962, the first year for which comparable data are available). Under those projections, defense and nondefense discretionary spending would each equal 2.6 percent of GDP in 2023, which would also be the smallest share of the economy for each category in at least five decades.
Current Caps on Discretionary Funding and Their Relationship to Possible Deficit Reduction Goals
To achieve deficit reduction through changes in discretionary spending, lawmakers would need to reduce the statutory funding caps below the levels established under current law or enact appropriations below those caps. The discretionary spending options included here could be used to accomplish either of those objectives. Alternatively, some of the options could be implemented to comply with the existing caps on discretionary funding rather than to reduce deficits further. For example, savings from some of the defense options might bridge part of the gap between the costs of the Department of Defense’s (DoD’s) plans and the existing caps. (The savings shown for most of the defense options are measured relative to DoD’s plans rather than CBO’s baseline projections.) The savings from specific reductions in appropriations like those presented here also could be used to create room for an increase in appropriations for other, higher-priority purposes—while keeping total discretionary appropriations at or very close to the current statutory caps.
The 28 options encompass a broad range of discretionary programs, excluding those involving health care. Nine options would affect defense programs, and the rest are for nondefense programs. Some envision broad cuts—such as Option 1, which would reduce the size of the military to meet the caps specified by the Budget Control Act, or Option 25, which would reduce federal civilian employment. Others focus on specific programs, such as Option 12, which concerns the Department of Energy’s programs for research and development in energy technologies. Some options would change the rules of eligibility for certain federal programs, such as for Pell grants (Option 20). Option 26 would impose fees to cover the cost of enforcing regulations and providing certain services.
Discretionary Spending Options (Other than those primarily for health-related programs)
* The savings shown are the decrease in discretionary outlays.
Sunita D’Monte is an analyst in CBO’s Budget Analysis Division. The options related to discretionary spending are the result of work by various analysts at CBO, whose names can be found on the About the Document page.