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Highlights from the President's FY 2018 Budget Request: Sequestration - the other budget threat

May 26, 2017

One complication for the FY 2018 budget process is that discretionary spending is scheduled to decrease by billions from FY 2017 levels. The reason for this decrease is Congress’ solution to previous spending impasses: the Budget Control Act of 2011 (BCA). This act set limits on how much can be spent on defense and non-defense discretionary spending for future years. While Congress frequently authorizes additional spending beyond the caps the act sets, if they fail to alter the FY 2018 spending level, it would reduce the discretionary budget by $110 billion.

Federal spending on the “discretionary” portion of the budget is determined by BCA, which set limits on spending levels through 2021 as a means of ultimately achieving a relatively lower budget but delaying the policy decisions of how to apply the cuts. Discretionary spending is currently about 30 percent of the federal budget and comprises the appropriations for most initiatives apart from interest payments and mandatory spending (e.g., Social Security, Medicare).

BCA’s limits are placed separately on two categories. The “defense” category includes virtually all of the Department of Defense budget, about half of the Department of Energy (particularly the National Nuclear Security Administration) budget, and significant portions of the Department of Justice and Department of Homeland Security. “Non-defense” contains everything else including the Department of Commerce, the National Institutes of Health, the National Science Foundation, and the Small Business Administration.

Congress can increase the BCA’s statutory spending limits. While these limits have been increased at several points since 2011, no baseline increase has been approved for FY 2018 (or beyond). This means the caps for total discretionary spending for FY 2018 are $1.06 trillion, with $549 billion for defense and $516 billion for non-defense. Congress can also authorize emergency spending, which does not apply to the caps. Recently, this method has been used for Zika virus and CURES Act funding in 2016. The approved FY 2017 budget included an additional $117 billion in the discretionary cap for FY 2017.

If Congress does not increase the FY 2018 discretionary cap, it could mean reductions in spending from what was approved for FY 2017 of $72 billion for defense and $38 billion for non-defense. 

federal budget, fy18 budget