Every year in the annual appropriations process, Congress negotiates the funding levels for roughly one-third of the budget, known as the “discretionary” portion of the budget. The Fiscal Responsibility Act set statutory limits on the discretionary part of the budget for fiscal years 2024 and 2025 on both the defense and nondefense portions of the budget. For this coming year, both the defense and nondefense budget caps are set to grow just 1 percent above last year’s levels, leading to a real cut in services after adjusting for inflation, population growth, and other increased costs.
Due to the wide agreement that these levels are insufficient, Congress is considering negotiating higher funding levels for the fiscal year 2025 budget. Any budget deal must preserve parity, giving as much additional funding to nondefense programs as to defense programs.
The tight budget caps will leave many domestic needs unmet
In exchange for avoiding a default by temporarily suspending the debt limit, then-House Speaker Kevin McCarthy (R-CA) and House Republican leaders struck a deal in May 2023 with President Joe Biden to set budget caps on annual defense and nondefense appropriations for fiscal years 2024 and 2025. In 2024, the defense cap grew with inflation, and the nondefense cap, after incorporating the budget side deal, was roughly frozen at the 2023 level. In 2025, both the defense and nondefense caps are set to grow by 1 percent.
After adjusting for inflation, population growth, and other increased costs, the nondefense cap is $27.3 billion, or 3.4 percent, below current levels, and $77.0 billion, or 9.0 percent, below 2023 levels.
Even at current funding levels, before the impending 3.4 percent cut in real services, many needs are unmet:
- Education: Adequately funding children’s education is an investment in the future. While a majority of the funding comes from state and local governments, the federal government’s contribution is significant: $79 billion each year. Federal Title I education grants help state and local education agencies support programs for low-income students. After adjusting for inflation and the population growth of school-aged children, Title I funding lags 6.2 percent below its level 20 years ago. The Individuals with Disabilities Education Act (IDEA) grant program, also funded by the federal government, provides funding to help ensure appropriate education for students with disabilities. When IDEA was first enacted, Congress determined that federal funding should make up 40 percent of the cost for students with disabilities. Congress has never met its target, and IDEA funding today makes up less than 13 percent of the total need.
- Child care and early learning: Through the Child Care and Development Block Grant (CCDBG) and Head Start, the federal government provides funding to help low-income families afford and access early care and learning services. Fewer than 1 in 5 eligible families receive support through the CCDBG, and Head Start and Early Head Start reach only 33 percent and 10 percent of those who qualify, respectively. Increased funding for child care and early learning has been shown to lead to greater health for both children and parents, to higher future earnings for children, and to higher employment and financial stability for parents.
- Clean water: Through both the Drinking Water State Revolving Fund and the Clean Water State Revolving Fund, the federal government provides low-cost, flexible funding and a modest amount of grant funding to local and Tribal governments to ensure Americans’ drinking water is safe and that the United States’ lakes and rivers are clean. This includes maintaining and testing drinking water, operating wastewater treatment systems, mitigating stormwater runoff, and conducting other critical clean water programs.
- Nutrition: The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provides nutrition assistance for pregnant, postpartum, and breastfeeding adults, as well as children from birth to age 5. WIC contributes to better health outcomes for newborns and higher academic success for students. The program currently receives enough funding for its expected caseload, but the Biden administration’s budget request has estimated it could need as much as nearly a 10 percent increase in funding to meet expected need in the coming year. Budget experts will have a better sense of the need for next year as more data are collected, but they agree additional funding is needed for WIC.
- Social Security Administration (SSA): The SSA runs the Social Security program and parts of the Medicare program, but poor customer service delivery due to underfunding has led to poor outcomes for beneficiaries. Those seeking an initial disability insurance determination face a record high wait time of nearly eight months. The average hold time for phone calls is nearly 40 minutes and higher during peak hours. Between 2010 and 2024, funding for customer service has fallen 19 percent after adjusting for inflation, while the number of beneficiaries has increased by 25 percent. Adequate SSA funding is needed to ensure that Social Security checks go out on time and in the right amounts; to reduce backlogs and long wait times for applicants to the Social Security Disability Insurance program; and to improve telephone and other services provided to the public. Adequate funding is also needed to ensure that older adults and people with disabilities are properly enrolled in Medicare and to help improve services for enrollees seeking help.
- Housing: The Section 8 housing program provides funding to help extremely poor households afford rent. The current level of funding covers roughly only one-quarter of eligible households, leaving about 20 million eligible people without Section 8 benefits.
- Transportation safety: Much of the U.S. transit system was built many decades ago and needs repair or replacement. The United States, bolstered by the Infrastructure Investment and Jobs Act, is reversing some of the decay, but much work rema In its annual nondefense discretionary appropriations, the federal government provides funding to states and local governments, as well as to road, airport, and transit operators.
There is significant precedent for increasing budget caps on a bipartisan basis
Budget caps are bad policy. They are set years in advance in an attempt to bind future Congresses to specific funding levels without knowledge of the future conditions of the world and future needs. They constrict funding to programs that invest in the future, that help alleviate poverty, and that help society run smoothly.
The past two sets of budget caps were created as a House Republican leadership demand for not forcing the U.S. government into default. Each set unrealistically low budget caps, and each saw bipartisan calls to increase those caps.
Increasing the budget caps on a bipartisan basis has a strong tradition in the world of appropriations funding. For instance, for each year between 2013 and 2021—that is, in all nine post-Joint Select Committee (JSC) sequestration years—Congress on a bipartisan basis raised the budgets caps for defense and nondefense programs.*
Of particular importance, in a majority of the years, Congress called for parity between nondefense and defense and raised both caps by an equal dollar amount. That principle should be adhered to again.
Conclusion
There is strong bipartisan agreement that the fiscal year 2025 budget caps are too low. Should Congress adhere to the budget deal as negotiated, nondefense discretionary programs will be able to carry out 3.4 percent less than they were able to last year, after adjusting for inflation, population growth, and other changes in costs, and 9.0 percent less than they were able to the year before. As Congress looks to amend the caps, it should stick to the budgeting tradition of ensuring that each additional dollar of defense funding is met with an equal amount of increased nondefense funding.
The authors would like to thank Jean Ross, Brendan Duke, Weadé James, Kevin DeGood, Casey Peeks, Alan Cohen, Kyle Ross, Madeline Shepherd, and Emily Gee for their thoughtful comments.
* The Budget Control Act of 2011 created budget caps for 10 years, from fiscal years 2012 through 2021. After the Joint Select Committee on Deficit Reduction—sometimes called the “supercommittee”—failed, the budget caps were automatically decreased for the remaining nine years.