Introduction and summary
As a condition for averting default and suspending the debt limit, Speaker Kevin McCarthy (R-CA) and House Republican leaders struck a deal with the Biden administration to set budget caps on annual defense and nondefense appropriations.1 Although this deal, made in late May, was spearheaded by Speaker McCarthy and his caucus’ leadership,2 the 12 bills that House Republican appropriators have written and reported violate the negotiated terms in three key ways:
- The bills provide $58 billion less for ongoing nondefense programs than the levels agreed to in the debt limit deal—a 9 percent reduction.3 The proposed cuts would leave these programs at their lowest levels since at least 1962—the oldest year for which there are reliable data—when measured as a percentage of gross domestic product (GDP).4
- The bills rescind $115 billion of funding outside the jurisdiction of the House Appropriations Committee, significantly beyond the cuts agreed to in the debt limit deal.5
- The bills include new, controversial, nonbudgetary “riders.”6
While deals can be, and often are, changed with bipartisan support, the House Appropriations Committee deviations do not have any such support.7 In contrast, the Senate Appropriations Committee considered and approved all 12 of its appropriations bills with overwhelmingly bipartisan and often unanimous support.8 And while Senate appropriators have recommended funding plans that could be passed and implemented, the approach of House Republican appropriators greatly increases the likelihood of a federal government shutdown.
The budget caps in the debt limit deal are very tight
Congress enacted the debt limit deal—known as the Fiscal Responsibility Act (FRA)—with strong bipartisan support.9 Among its many provisions, the FRA suspended the debt limit through January 1, 2025, and established budget caps for fiscal years 2024 and 2025.10 These budget caps apply only to the “discretionary” part of the budget, which Congress funds in the annual appropriations process, and not “mandatory” programs such as Medicaid, Medicare, Social Security, and the Supplemental Nutrition Assistance Program (SNAP). The FRA set separate caps for discretionary defense funding and nondefense discretionary (NDD) funding with a handshake agreement to allow for $69 billion in additional programmatic funding for NDD outside Veterans Affairs medical care (referred to below as NDD*). On an apples-to-apples basis, then, after accounting for these adjustments, the top-line appropriation for NDD* would be $2 billion below last year’s level—just below a freeze.
The funding levels in the deal are even lower than they appear for two major reasons:
- The levels do not take into account changes in “offsetting collections.” Each year, the government receives money through voluntary, market-like transactions, such as entrance fees to national parks and mortgage insurance receipts for Federal Housing Administration loans.11 The money the government collects in this manner, called “offsetting collections,” is subtracted from the total NDD* appropriations, creating room for an equal amount of additional funding. Offsetting collections for fiscal year 2024 are expected to be roughly $8 billion less than in fiscal year 2023,12 which, when coupled with the $2 billion cut, leaves NDD* funding for ongoing programs roughly $10 billion below fiscal year 2023 levels.
- The levels do not keep pace with inflation or population growth. To keep pace with inflation and population growth, NDD* funding would need to increase by $39 billion.13
All things considered, the NDD* funding gap relative to last year is roughly $49 billion, or 7 percent, below the current services level. In short, the agreed-upon caps are very tight. In historical context, adhering to these levels would reduce funding for these programs to its second-lowest level as a percentage of GDP on record and its lowest level in nearly a quarter century.14 Yet, in violation of the deal, House Republicans’ appropriations bills would cut NDD* funding $58 billion below the level of the default avoidance deal, the lowest level in at least 60 years.15
Appropriations and shutdowns
By the beginning of each federal fiscal year (October 1 of the preceding calendar year), Congress must pass, and the president must sign into law, 12 appropriations bills. If these bills are not passed, Congress must pass and the president must sign a continuing resolution (CR) to temporarily keep the government running. Usually, though not always, those appropriations bills are enacted together in a single “omnibus” appropriations bill.
These bills provide funding for the discretionary portion of the budget, as well as any appropriated entitlements.16 If the fiscal year ends and Congress has not appropriated funding for the new fiscal year or passed a CR that temporarily continues spending, typically at the prior level, then the government shuts down any agency, department, or program without appropriated funding.
The Senate’s bipartisan work is largely consistent with the debt limit deal
The Senate Appropriations Committee finished its work on its 12 appropriations bills on July 27, 2023. Each of the bills received either unanimous or very strong bipartisan support,17 which positions the Senate package as a viable foundation for an eventual omnibus appropriations bill to fund the government in fiscal year 2024. The bills largely adhered to the levels set forth in the House-led budget caps, honored all $69 billion in agreed-upon NDD* adjustments outlined in side-deal handshake agreements, and did not add new, partisan, nonbudgetary riders.
Sens. Patty Murray (D-WA) and Susan Collins (R-ME), the chair and ranking member of the Senate Appropriations Committee, respectively, agreed to add an additional $13.7 billion to discretionary funding, with $8 billion for defense and $5.7 billion for NDD*.18 This method of changing specific levels 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” years19—Congress amended, on a bipartisan basis, the reduced caps to provide higher levels of funding for defense and nondefense programs.20
The Murray-Collins agreement proposed funding changes for key programs, relative to current levels—as enacted without adjusting for inflation:
- The Child Care and Development Block Grant (CCDBG), which provides funding to states to help low-income families afford child care, would receive a 9 percent increase, or $700 million.21
- Section 8 housing, which provides funding to help low-income households afford rent, would receive a 5 percent increase, or $2.4 billion.22
- The Wage and Hour Division of the Department of Labor, which, among other duties, is responsible for enforcing the minimum wage, ensuring workers are paid in full for their labor, and enforcing prevailing wage requirements in projects that receive federal support, would receive a 2 percent increase, or $4.5 million.23
- The Student Aid Administration, which runs most federal higher education financial assistance programs, would receive a 7 percent increase, or $150 million.24
- The Individuals with Disabilities Education Act (IDEA) state grant program, which provides funding directly to states to help students with disabilities succeed, would receive a 1 percent increase, or $175 million.25
- The Office on Violence Against Women, which implements the provisions in the Violence Against Women Act—including administering various grant programs responsible for sexual assault and domestic violence services and prevention—would receive a 5 percent increase, or $32 million.26
- The Office of Energy Efficiency and Renewable Energy, which drives the bulk of the United States’ clean energy research, would receive a 7 percent increase, or $227 million.27
- The Low Income Home Energy Assistance Program (LIHEAP), which provides funding to low-income households to help them afford energy costs, would receive a 2 percent increase, or $75 million.28
The House Republican appropriations bills break from the debt limit agreement in three major ways
Within a week of the passage of the FRA, House Republican leadership announced that they would not adhere to the levels they had negotiated—which had received the support of a majority of Republican Appropriations Committee members.29 The bills proposed by the House Appropriations Committee Republicans break from the agreement in three major ways, significantly increasing the likelihood of a government shutdown.
1. The top-line funding levels are significantly below the levels negotiated in the debt limit deal
In total, the House-reported bills called for $593 billion in funding for NDD*, a full $58 billion below the levels agreed to in the debt limit deal. This is a 9 percent cut below the levels agreed to in the debt limit deal and a 14 percent cut below the funding levels in the Congressional Budget Office’s (CBO) baseline, which accounts for inflation and related technical factors.30 As shown in Figure 2 above, the levels proposed by the House Appropriations Committee Republicans would leave NDD* funding at its lowest level as a percentage of GDP in at least 60 years.31
Relative to 2023 enacted levels, these cuts are particularly large in the Labor, Health and Human Services, Education bill; the State and Foreign Operations bill; and the Interior and Environment bill, even before adjusting for inflation.
Significant reductions in the House Appropriations measures, relative to current levels—as enacted without adjusting for inflation—include the following:
- Title I education grants, which provide funding for elementary and secondary schools in low-income neighborhoods, would be cut nearly 80 percent, or $14.7 billion.32 This cut would leave Title I’s funding at an all-time low when measured as a percentage of GDP. Moreover, a full one-quarter of all the proposed NDD* cuts come from Title I.33
- The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provides nutrition assistance for pregnant and post-partum adults, newborns, and toddlers. Under the plan that House Republican appropriators have advanced, the fruit and vegetable benefit would be cut between 56 and 70 percent for roughly 5 million recipients. Additionally, the underlying program would be underfunded, leaving some pregnant women, mothers, and children at risk of not receiving WIC benefits.34
- The Social Security Administration (SSA) would be cut by $183 million. The proposed reduction comes on top of more than a decade of inadequate funding and low staffing.35 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 waiting times for applicants to the Social Security Disability Insurance program, and to improve telephone and other services to the public.36
- The Workforce Innovation and Opportunity Act youth employment and training grant program would be eliminated—a cut of nearly $1 billion. The program helps youth who face barriers to employment by providing funding to states and local areas to support job training and employment services.37
- The National Institutes of Health (NIH), which conducts critical biomedical research, would be cut by $2.8 billion. Specific reductions include $216 million from the National Cancer Institute, $139 million from the National Institute of Neurological Disorders and Stroke, and $1.5 billion from the National Institute of Allergy and Infectious Diseases.38
- Head Start, which provides funding to local organizations to run free comprehensive preschool and school readiness programs for low-income families, would be cut by $750 million.39
- Preschool Development Grants, which provide funding to states to establish or enhance preschool programs, would be eliminated.40
- The U.S. Environmental Protection Agency (EPA), which works to ensure that all Americans have clean water, land, and air, would be cut by 39 percent, or $4.0 billion.41 Under this proposal, the EPA’s funding would reach an all-time low as a percentage of the economy.42 Programmatic reductions include a 59 percent, or $665 million, cut to the Drinking Water State Revolving Fund, which provides grants to state governments to help ensure that drinking water is safe.43
- The Refugee and Entrant Assistance program, which helps refugees, asylum-seekers, and victims of human trafficking gain employment and become self-sufficient, would be cut by 57 percent, or $3.7 billion.44
- The Migration and Refugee Assistance and the International Disaster Assistance programs, two of the United States’ major international humanitarian assistance programs, would see combined funding cuts of 23 percent, or $1.9 billion.45
2. The rescissions from programs funded outside regular appropriations go significantly beyond the deal
Each year, Congress rescinds some amount of previously appropriated funding, creating an offset to allow for an equal amount of additional funding room within appropriations bills.46 These are small offsets—usually about $15 billion47—and they almost always involve pre-negotiated gimmicks.48
The bills that House Republican appropriators are considering call for $115 billion of true offsets in the form of rescissions from existing appropriations that the appropriations committees did not enact.49 This breaks the debt limit deal. In addition to top-line funding levels, the debt limit deal handshake agreement set the level of offsets and gimmicks that would achieve the agreed-upon net funding level. Figure 1 shows the negotiated side-deal adjustments, which called for $21 billion of real offsets—not $115 billion of real offsets.50
Moreover, both the level of real offsets and where those offsets would come from were negotiated as part of the deal. House Republican leadership and the White House negotiated that $10 billion would come from the IRS and $11 billion would come from specific unspent COVID-19 relief allocations.51
The rescissions proposed in the House appropriations bills go significantly beyond the scope of the negotiated offsets and would impose real cuts to some important funding, such as the IRS (see text box below) and many important green energy programs.52 The cuts to the IRS are particularly deep, accounting for nearly 60 percent of the entire recissions proposal.53
3. The bills include many new nonbudgetary program changes
Beyond breaking the budgetary aspects of the deal, the House Republican appropriations bills have another glaring issue: They have new riders—even though Speaker McCarthy, his fellow negotiators, and the White House agreed that the appropriations bills would be limited to long-standing, existing riders that were approved by previous Congresses.54
Riders are typically related to the funding provided in a bill and set parameters around how that money can be spent. The House Appropriations Committee Republicans’ bills would impose new requirements and bans. Among the many dozen riders, these bills would impose new limitations on abortion access,55 actively undermine environmental efforts,56 hamstring the Biden administration’s ability to reduce gun deaths,57 and stop the IRS’ ongoing efforts to establish a no-cost option for online tax filing.58
House Republican appropriators particularly targeted the IRS
After more than a decade of deliberate disinvestment, the IRS received an infusion of $80 billion in new funding from the Inflation Reduction Act over 10 years to modernize the agency and boost tax enforcement.59 Previous budget cuts hindered the IRS’ ability to carry out its most basic functions, with the number of full-time agency staff positions dropping by 34 percent between 1991 and 2020, even as the nation’s population rose by 30 percent.60 These cuts translated into a sharp reduction in IRS audits of high-income individuals, corporations, and complex partnerships, despite research showing that these audits pay for themselves multiple times over.61 New studies show, for example, that each dollar spent auditing very wealthy individuals translates into $12 of revenue collected when the deterrence effect of additional enforcement activity is taken into account.62
The agreement to suspend the debt limit and avert default assumed that Congress would claw back $21 billion of the Inflation Reduction Act’s funding infusion. Preliminary estimates from the CBO estimate that the lost funding would reduce revenue collections by $40.4 billion from fiscal year 2023 to fiscal year 2033, for a net increase in the federal deficit of $19 billion.63 Other estimates, such as those released by the Treasury Department and others made by former IRS Commissioner Charles Rettig, suggest that the return on investment from additional enforcement spending could be significantly higher than the CBO’s estimates.64 Recently, the IRS reported that it collected $38 million in delinquent taxes from more than 175 high-income individuals during the past few months.65 Increased funding has also enabled the IRS to improve customer service, including by reopening 35 walk-in service centers, reducing phone wait times from 28 minutes to three minutes, and expanding customer service hours during the 2023 filing season.66
House Republican appropriators would increase the size of the rescission to $67 billion, the majority of the remaining Inflation Reduction Act investment. And rather than freeze spending at fiscal year 2023 levels, the House Financial Services Subcommittee appropriations bill would cut the base IRS appropriation by $1.1 billion relative to its fiscal year 2023 level.67 This funding reduction would cost far more than it would save and would worsen customer service for all tax filers, while allowing wealthy tax cheats to avoid paying what they owe. Senate appropriators, in contrast, maintained funding at the fiscal year 2023 level.
The Senate funding level should, at a minimum, be sustained as part of a final spending agreement. While this approach is not ideal, it would avert the added revenue loss that would occur from further recissions. The funding provided by the Inflation Reduction Act is intended to last for a decade, which would minimize the immediate impact of the clawback. To ensure continued progress, Congress should restore, not reduce, support for the IRS and should provide ongoing, adequate funding so that the IRS can provide quality service and collect the revenues that support the federal budget.
Lastly, the House Appropriations Financial Services and General Government Subcommittee also included a rider in its bills to limit the IRS’ ability to implement a tool that would allow tax filers to directly file their returns with the IRS for free.68 This rider would block a pilot program slated for implementation during the 2024 filing system that is part of broader efforts to modernize the IRS.69 Lawmakers should reject the rider and, instead, support commonsense efforts to save Americans money.
In 2023, for the first time in five years, the Senate Appropriations Committee approved all 12 individual appropriations bills with overwhelming bipartisan support.70 These bills are broadly consistent with the agreement to raise the debt limit and avoid default, and they would protect many important priorities. In stark contrast, the work of the House Republican Appropriations Committee members broke three core tenets of the debt limit deal, moving the federal government closer to a shutdown. House Republican appropriators should correct course and write spending bills that are consistent with the deal that they overwhelmingly supported.71
The authors would like to thank Kyle Ross and David Correa for assistance with research and fact-checking.