Latest Budget News and Federal Budget Overview

• See the President’s FY 2025 Budget here
• See Appropriations.com for real-time updates on the 12 annual appropriations bills and the national security aid bill.
• See our Debt Limit pages for a summary of HR 3746, the Fiscal Responsibility Act (the Biden-McCarthy agreement).
• See our Tax pages for the lastest Tax News
• Link to Supreme Court review of Consumer Financial Protection Bureau funding law here
• Link to Social Security news here
• Link to Healthcare news here  
• Link to information on other entitlement programs here

Send budget news or comments to ck@govbudget.com.

June 18, 2024: CBO to release Updated Budget and Economic Outlook

Recent Budget News (see Chron for budget news archives and Approps.com for current appropriation news):

• Thurs, June 27:  CBO released Analysis of the Discretionary Spending Proposals in the President’s 2025 Budget
• Tues, June 18: The Congressional Budget Office released its Update to the Budget and Economic Outlook: 2024 to 2034.  The Update increased the projected FY 2024 deficit from $1.6 trillion to $1.99 trillion, due primarily to executive actions projected to reduce student loan repayments, changes in deposit insurance recoveries, enactment of the emergency foreign aid supplemental, and increased Medicaid outlays. Additional highlights (with our parenthetical notes):
  • Budget deficit: $1.99 trillion in ’24 growing to $2.8 trillion in ’34 (but higher still if the 2017 tax cuts are extended without budgetary offsets).
  • In 2034, the deficit equals 6.9% of GDP; by comparison, the avg. for the last 50 yrs. is 3.7%.
  • Debt held by the public as % of GDP: 99% of GDP in ’24 increasing to 122% in ’34 (but higher still if the 2017 tax cuts are extended without budgetary offsets).
  • Debt held by the public in 2034 projected to be $51 trillion (but higher still if the 2017 tax cuts are extended without budgetary offsets).
  • Outlays: $6.9 trillion in ’24 growing to $10.3 trillion in ’34–due to rising interest costs, and Social Security and Medicare benefits increasing w/ aging of the population and rising healthcare costs.
  • Revenues: $4.9 trillion in ’24 (outyear projections are unreliable until Congress decides whether and how to extend the 2017 tax cuts).
  • Interest costs as a percent of GDP are higher than at any point since OMB began reporting; beginning in 2025, interest costs will exceed outlays for defense programs and for nondefense programs. By 2034, interest will account for one-sixth of all federal spending.
  • Social Security and Medicare growth: “The aging of the population causes the number of beneficiaries of Social Security and Medicare to grow faster than the overall population. In addition, federal costs per beneficiary for the major health care programs continue to rise faster than GDP.”
  • Immigration reduces deficits: “Deficits over the next decade are boosted by rising costs for Social Security and Medicare. One factor that is projected to reduce deficits in coming years is the ongoing surge in immigration…. that surge decreases the deficit by a total of $0.9 trillion over the 2024‒2034 period compared with what would have occurred without the surge.”
  • Inflation projected to fall from 2.7% in 2024 to 2% in 2026.
  • Growth in residential investment expected to rise from 6.2% in ’24 to an average of 9.3% in ’25 and ’26 as increases in immigration and declines in interest rates boost demand for housing.
• May 21, 2024:  CBO released “The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget“
• May 11, 2024:  AP reports “America’s debt tops $34 trillion, but a commission to address it appears dead in Congress.”
• May 8, 2024:  Congressional Budget Office released its analysis of alternative budgetary outcomes under alternative assumptions. “The report includes 10 alternative assumptions—3 about discretionary spending and 7 about policies affecting revenues.”  Notably, “most of the individual income tax provisions of the 2017 tax act (TCJA) are slated to expire at the end of calendar year 2025. The expiring provisions affect major elements of the individual income tax code, including the statutory tax rates and brackets, the allowable deductions, the size and refundability of the child tax credit, the 20 percent deduction for certain business income, and the income levels at which the alternative minimum tax takes effect. According to JCT’s (Joint Committee on Taxation’s) estimates, if the expiring individual income tax provisions of the 2017 tax act were extended, primary deficits over the 2025–2034 period would be $3.3 trillion larger….Increased net outlays for interest would add $467 billion to those deficits.”  See our Federal Tax News page for more details.
• Apr. 16, 2024: Bloomberg: IMF Steps Up Its Warning to U.S. Over Spending and Ballooning Debt–Annual report credits unsustainable spending for U.S. growth; U.S. fiscal stance risks global financial instability, IMF says.
• Apr. 10, 2024: A newly released Justice Dept. legal opinion will allow Treasury to maintain higher cash balances which could provide more leeway in delaying a cash crunch and potential default when the statutory limit on the public debt is re-set on January 2, 2025.

See the Chron page for chronological archives.

FEDERAL BUDGET OVERVIEW:

The federal budget divides nearly $6.9 trillion in annual federal spending into three broad categories as displayed below:

1. discretionary spending;
2. direct spending (Social Security, Medicare, Medicaid and other mandatory spending); and
3. net interest payments on the debt.

Data Source: Congressional Budget Office, Budget and Economic Outlook (June 2024)

Discretionary Spending: 26% of the Budget: 

• About 25% of federal spending is called “discretionary spending,” because the amount of spending flows from annual discretionary funding decisions by the House and Senate Appropriations Committees.
• Defense discretionary spending is $849 billion in projected outlays for FY 2024, or 12% of total outlays. It is funded by the Defense Appropriations bill and other appropriation bills that fund military construction and atomic energy.
• Non-defense discretionary (NDD) spending is $948 billion in projected outlays for FY 2024 or 14% of total outlays. NDD is funded by the 11 non-defense appropriations bills. Non-defense discretionary spending has been trending downward, except for temporary increases due to the Great Recession and COVID-19 response efforts.  As a percent of GDP, non-defense discretionary spending was 4.4 percent in FY 2010 and fell to 3.1 percent of GDP by FY 2019. Due to the COVID-19 pandemic response, NDD rose to 4.4 percent of GDP in FY 2020, but fell to 4.0 percent in FY 2021, 3.8 percent in FY 2022, and 3.6 percent of GDP in FY 2023.

Direct (Mandatory) Spending: 61% of the Budget

• The largest block of federal spending— about 61% and $4.191 trillion in FY 2024—is called “direct spending” because the outlays flow directly from legal obligations of the federal government established in authorizing laws. Direct spending is also referred to as “mandatory spending” because it is mandated by legal obligations written into law (such as Social Security benefits).
• Most direct spending is comprised of “entitlement programs”—where eligibility rules, benefit formulas and inflation adjustments enacted in permanent law determine annual outlays. Consequently, entitlements and other direct spending programs are on “auto-pilot” until underlying laws are changed.
• The three largest entitlement programs, together comprising 45% of the budget, are Social Security, Medicare and Medicaid.
• Social Security: nearly $1.5 trillion in outlays and 21% of the budget, pays old-age, survivors, and disability benefits from payroll tax receipts and trust fund reserves.
• Medicare: $900 billion and 13% of the budget is the national health insurance program administered by the federal government for seniors and disabled adults, and financed by payroll taxes, premiums, copayments, and general tax revenues.
• Medicaid: more than $600 billion in outlays and 9% of the budget, is the major health and long-term care program for low-income children, families, and seniors—financed jointly by the federal and state governments and administered by the states.

Net Interest Payments on the Debt: 13% of the Budget and Rising

• The third category of federal spending is “net interest,” projected to be $892 billion in FY 2024, nearly 13% of total federal outlays.
• Because of the rapidly rising public debt, net interest is projected to become the fastest growing portion of the federal budget, reaching $1 trillion per year by FY 2026 according to the Congressional Budget Office.   

As displayed in the figure below, federal revenues consist of governmental receipts from the individual income tax, payroll taxes, corporate income tax, federal reserve remittances, excise taxes, custom duties, and the estate and gift tax. Revenues in FY 2024 are projected to be $4.9 trillion.

  Data Source: Congressional Budget Office, Budget and Economic Outlook (June 2024)