Why It Matters

The federal government continues to spend more than it collects, as rising costs for major benefit programs and interest on the national debt put increasing pressure on the budget.

Federal outlays have exceeded revenues since fiscal 2002, and a Congressional Research Service report published Sept. 30 cites an updated Congressional Budget Office estimate projecting a current fiscal-year deficit of $2.1 trillion, or 6.6% of gross domestic product. The report also notes that Congress is considering whether and how to provide the $67.1 billion in war funding requested by the administration. The Congressional Research Service report draws on the Congressional Budget Office's (CBO) February baseline and its June reestimate of the administration's fiscal proposals, identifying rising mandatory spending and net interest costs as major components of the nation's long-term fiscal outlook. Discretionary spending is provided for and controlled through annual appropriations laws.

The Big Picture

The administration's budget request seeks $1.154 trillion in defense discretionary funding, roughly 3.4% of GDP, up from a current fiscal-year baseline of 2.8%, while proposing to reduce non-defense discretionary spending from a baseline of 2.7% of GDP to below 2% by fiscal 2028, a category covering much of the operating budgets of agencies including the Departments of Veterans Affairs, Transportation and Education.

The 2025 reconciliation law, P.L. 119-21, provided $150 billion in net mandatory defense funding and $129 billion for the Department of Homeland Security (DHS) over fiscal 2025 through fiscal 2034. The same law, along with state-level changes, is expected to reduce Medicaid outlays and enrollment, according to a CBO supplemental cost estimate cited in the report.

On the mandatory side, Social Security outlays have recently exceeded program income as baby-boom retirements expand the beneficiary pool, and Medicare outlays are projected to keep rising because of population aging and health care cost inflation. Net interest costs as a share of GDP have doubled in recent years because of rising interest rates and growing federal debt, yet CBO did not estimate net interest costs associated with the administration's fiscal proposals, leaving that dimension unquantified.

The Bottom Line

The report shows that mandatory programs and net interest represent significant components of the federal fiscal outlook as the administration proposes substantial reductions in non-defense discretionary spending and increased defense funding. Congress is still considering whether and how to provide the administration's $67.1 billion war-funding request, while CBO did not estimate the net interest costs associated with the administration's fiscal proposals.

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