Trends in Discretionary Spending
D. Andrew Austin
Analyst in Economic Policy
January 24, 2014
Congressional Research Service
7-5700
www.crs.gov
RL34424
CRS Report for Congress
Pr
epared for Members and Committees of Congress

Trends in Discretionary Spending

Summary
Discretionary spending is provided and controlled through appropriations acts, which fund many
of the activities commonly associated with such federal government functions as running
executive branch agencies, congressional offices and agencies, and international operations of the
government. Essentially all spending on federal wages and salaries is discretionary. Spending can
be measured by budget authority (BA; what agencies can legally obligate the government to pay)
or outlays (disbursements from the U.S. Treasury). This report mostly discusses trends in outlays.
Federal spending in fiscal year (FY) 2013 was just over a fifth (20.8%) of the U.S. economy, as
measured as a share of gross domestic product (GDP), which is close to its average share since
1962. (Years denote federal fiscal years unless otherwise noted.) Discretionary spending
accounted for 35% of total outlays in 2013 ($3,454 billion), well below mandatory spending’s
share (59% of outlays in 2013). Weak economic conditions in recent years as well as long-term
demographic trends have increased spending on mandatory income support and retirement
programs, while policy makers have acted to constrain the growth of discretionary spending. Net
interest costs were 6.1% of federal outlays in 2013, but are projected to rise sharply.
Discretionary spending’s share of total federal spending has fallen over time largely due to rapid
growth of entitlement outlays. In 1962, discretionary spending accounted for 67% of total outlays
and was the largest component of federal spending until the mid-1970s. Since then, discretionary
spending as a share of federal outlays and as a share of GDP has fallen. Under current law
projections, discretionary spending’s share of GDP will fall to 5.5% in FY2023. Discretionary
spending can be split into various categories to reflect broad national priorities or how federal
spending decisions are made. In 1962, discretionary spending was 12.7% of GDP, with defense
spending making up 9.3% of GDP. In 2012, discretionary spending was 7.6% of GDP, with
defense spending (including war) totaling 3.9% of GDP. Defense spending can be divided
between base budget and war expenditures, both of which grew sharply over the last decade. On
average, defense outlays grew 6.8% per year in real terms from 2000 to 2010, while real non-
defense discretionary outlays grew 5.6% per year. Discretionary spending has also been divided
into security and non-security categories. Non-defense security spending, which rose sharply after
2001 and Hurricane Katrina in 2005, was 1.1% of GDP in 2013, nearly twice its pre-2001 level.
Non-defense non-security outlays, which ranged between 3% and 3.5% of GDP since the mid-
1980s, were 2.8% of GDP in 2013. Security spending was 5.0% of GDP in 2013.
The Budget Control Act of 2011 (BCA; P.L. 112-25) reintroduced statutory limits on spending by
imposing a series of caps on discretionary BA from FY2012 through FY2021. The American
Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) modified limits for FY2013 and FY2014. The
FY2013 full-year funding bill (H.R. 933; P.L. 113-6) enacted March 26, 2013, conformed to those
limits. The Bipartisan Budget Act (H.J.Res. 59; P.L. 113-67) also modified BCA limits for
FY2014 and FY2015. On January 15, 2014, the House approved the Consolidated Appropriations
Act, 2014 (H.R. 3547; P.L. 113-76) to provide funding within those limits for the rest of FY2014.
The Senate passed it on the next day, and the President signed it into law the following day.
The direction of fiscal policy has been the focus of contention among macroeconomists. Some
contend that more spending would help reduce high unemployment levels, while others call for
imposing greater budgetary stringency. Over the long term, future growth in entitlement program
outlays may put severe pressure on discretionary spending unless policy changes are enacted or
federal revenues are increased. This report will be updated as events warrant.
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Contents
What Does Discretionary Spending Include? .................................................................................. 1
Budget Authority and Outlays ................................................................................................... 1
Categories of Federal Spending ....................................................................................................... 2
Recent Fiscal Policy and Discretionary Spending ........................................................................... 3
Fiscal Policy Complicated by Slow Recovery........................................................................... 4
Financial Crisis and Recession .................................................................................................. 4
Faster Growth on the Horizon? ................................................................................................. 5
Discretionary Spending Limits Reimposed in 2011 ........................................................................ 5
Budget Control Act of 2011 (BCA) ........................................................................................... 6
FY2013 Sequestration Triggered ............................................................................................... 6
Scaling Down Sequestration and the Fiscal Cliff ...................................................................... 7
Attempts to Avoid the Effects of Sequestration ......................................................................... 9
Congressional Initiatives ..................................................................................................... 9
Administration Proposals to Modify BCA Caps ............................................................... 10
BCA Sequester Issued March 1, 2013 ..................................................................................... 11
Full-Year Funding for FY2013 ................................................................................................ 11
Discretionary Funding for FY2014 ......................................................................................... 12
The Bipartisan Budget Act of 2013 ......................................................................................... 14
Final Appropriations for FY2014 ............................................................................................ 14
Preview of FY2015 Appropriations ......................................................................................... 15
Long-Term Trends in Discretionary Spending .............................................................................. 18
Discretionary Spending Now a Smaller Share of Federal Spending ....................................... 18
Discretionary Spending As a Share of GDP ............................................................................ 18
Discretionary Spending and National Priorities ............................................................................ 21
Defense and Non-Defense Spending ....................................................................................... 21
Discretionary Defense Spending ....................................................................................... 24
Non-Defense Discretionary Spending ............................................................................... 26
International Discretionary Spending ................................................................................ 27
Discretionary Security and Non-Security Spending ................................................................ 27
What Is “Homeland Security” or “Security” Spending? ................................................... 28
Trends in “Security” and “Non-Security” Discretionary Spending .................................. 30
Discretionary Spending by Functional Category ..................................................................... 33
Conclusion: Is the Declining Share of Discretionary Spending a Problem? ................................. 35

Figures
Figure 1. Outlays by Category as a Percentage of Total Outlays ................................................... 19
Figure 2. Components of Federal Spending, FY1962-FY2018 ..................................................... 20
Figure 3. Defense and Non-Defense Discretionary Spending, FY1977-FY2021 .......................... 22
Figure 4. Discretionary Budget Authority as % of GDP ............................................................... 23
Figure 5. How Defense and Security Intersect: A Schematic View ............................................... 29
Figure 6. Discretionary Budget Authority by Security Category................................................... 31
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Figure 7. Discretionary Outlays by Security.................................................................................. 32
Figure 8. Non-Defense Security Outlays by Component .............................................................. 33
Figure 9. Average Growth Rates for Discretionary BA by Subfunction ........................................ 34

Tables
Table 1. Schematic Division of Budget Categories ......................................................................... 3
Table 2. Defense and Nondefense Trends Under Revised BCA Constraints ................................. 16
Table A-1. National Defense and Non-Defense Spending, FY1977-FY2012 ............................... 36

Appendixes
Appendix. Defense and Non-Defense Spending, FY1977-FY2012 .............................................. 36

Contacts
Author Contact Information........................................................................................................... 37

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What Does Discretionary Spending Include?
Discretionary spending covers the costs of the routine activities commonly associated with such
federal government functions as running executive branch agencies, congressional offices and
agencies, and international operations of the government.1 Essentially all spending on federal
wages and salaries is discretionary.2 Discretionary spending also funds grants, purchases of
equipment and other assets, and contractor services that support various federal programs and
activities.
Congress provides and controls discretionary funding through annual appropriations acts, which
grant federal agencies the legal authority to obligate the U.S. government to make payments.
Budget authority (BA) is the amount that can be legally obligated. Outlays are the payments made
by the U.S. Treasury to satisfy those obligations. This report mostly discusses trends in outlays.
Budget Authority and Outlays
The distinction between outlays and BA is important to understanding the federal budget and,
particularly, discretionary spending. Appropriations legislation controls discretionary funding and
provides budget authority to fund specific programs. Congress exercises its constitutional power
of the purse by deciding what funds federal agencies can obligate on behalf of the U.S.
government, for what purposes and for specified time periods. While budget authority is available
for just a single year (such as for most personnel compensation costs), some appropriations (such
as for many military construction projects) provide budget authority for multiple years, or
indefinitely.3 Agencies obligate funds by signing contracts or hiring employees or contractors or
in other ways. Budget authority has been compared to funds deposited into a checking account,
which then can be used for specified federal purposes.
Outlays are disbursed federal funds. Outlays are recorded when the U.S. Treasury disburses
appropriated funds to purchase goods and services, pay employees, issue benefits, or make
interest payments. Agencies typically do not spend all of their budget authority in the year it
becomes available, which implies that outlays will lag behind budget authority.
Outlay data are used to assess the macroeconomic effects of the federal budget, whereas budget
analysis of specific federal programs is often based on budget authority, because that is what
Congress controls directly. Limits on discretionary spending set by the Budget Control Act of
2011 (BCA; P.L. 112-25) and modified by subsequent acts are defined in terms of BA.

1 Annual appropriations acts fall within the jurisdiction of the House and Senate Appropriations Committees.
2 Exceptions exist. For example, salaries for Members of Congress, the President, and federal judges are classified as
mandatory spending, as are essentially all federal retirement and disability costs. Direct spending is controlled by
committees with legislative jurisdiction.
3 While federal officials often have some discretion to choose how quickly appropriated funds are spent, they face
constraints imposed by legislation designed to protect Congress’s power of the purse. According to the Anti-Deficiency
Act, a federal official cannot spend government money beyond what is available through appropriations or a fund by
law. See Government Accountability Office, Antideficiency Act Background, available at http://www.gao.gov/ada/
antideficiency.htm for code citations and explanations. The Congressional Budget Act and Impoundment Control Act
of 1974 (P.L. 93-344) limits the ability of federal officials to withhold or delay spending of appropriated funds without
Congressional approval.
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Categories of Federal Spending
Federal spending can be divided into three basic budget categories:
• discretionary spending ($1,226 billion in FY2013 outlays);
• mandatory spending ($2,094 billion in FY2013 outlays); and
• net interest costs ($215 billion in FY2013).4
Mandatory programs and net interest costs are the other components of federal spending.5
Mandatory spending, also known as direct spending, funds entitlement programs, the
Supplemental Nutrition Assistance Program (SNAP; formerly known as the Food Stamps
program), and other spending controlled by laws other than appropriation acts.6 Spending levels
for mandatory programs generally depend on eligibility criteria, size of the eligible population,
and participation rates.
Different types of mandatory programs are set up in diverse ways, reflecting historical influences,
technical demands, and specific legislative authorities. While the term “entitlement” can be
defined to coincide with the mandatory programs, many would distinguish programs providing
benefits to large populations meeting set eligibility requirements from more special payments,
such as salaries of judges covered by Article III of the Constitution.
In some cases, mandatory and discretionary spending support similar activities. For example,
Medicare health care benefits are classified as mandatory spending, while most health care
benefits for veterans and military personnel are classified as discretionary spending.
Legislative procedures for funding discretionary programs differ from those for mandatory
programs.7 Congress provides discretionary funds (BA) each year through the annual
appropriations process. Other types of legislation, such as authorization measures, control
mandatory spending. Some mandatory programs, such as Social Security, are financed outside the
annual appropriations process. Other mandatory programs, such as Medicaid, are funded through
appropriations measures, while the level of spending reflects eligibility requirements and other
provisions set in authorizing legislation, as well as the pool of potential beneficiaries and program
participation rates.8

4 Office of Management and Budget (OMB), Mid Session Review, Table S-5, July 2013, available at
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/14msr.pdf. Total federal outlays, according to
preliminary final financial results for FY2013, were $3,454 billion, about $82 billion less than the Mid Session Review
estimate. A breakdown of spending by Budget Enforcement Act (BEA) categories, however, was not provided in those
preliminary final results. See U.S. Treasury, “Joint Statement of Secretary Lew and OMB Director Burwell on Budget
Results for Fiscal Year 2013,” October 30, 2013, available at http://www.treasury.gov/press-center/press-releases/
Pages/jl2197.aspx.
5 These categories are called BEA categories in some Office of Management and Budget (OMB) publications, because
they are defined in the Budget Enforcement Act of 1990 (P.L. 101-508).
6 The Government Accountability Office (GAO) notes that “A mandatory program is simply one that Congress directs
(rather than merely authorizes) the agency to conduct, but within the limits of available funding.” Principles of Federal
Appropriations Law
(Red Book), GAO-040261SP, vol. 1, p. 3-52. For an overview of mandatory spending trends, see
CRS Report RL33074, Mandatory Spending Since 1962, by Mindy R. Levit and D. Andrew Austin.
7 For an overview, see CRS Report 98-721, Introduction to the Federal Budget Process, coordinated by Bill Heniff Jr.
8 CRS Report RS20129, Entitlements and Appropriated Entitlements in the Federal Budget Process, by Bill Heniff Jr.
(continued...)
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Table 1 provides a simple division of federal spending (i.e., mandatory and discretionary
spending) by contrasting the type of budget authority needed for specific purposes.
Table 1. Schematic Division of Budget Categories
Budget Authority Provided by
Budget Authority Provided by

Law Other than Appropriation Acts Appropriation Acts
Entitlement
Medicare
Appropriated entitlements
Social Security
(e.g., veterans’ compensation, Medicaid, TANFa)
SNAPb (with caveats)
Not an
Salaries for Article III Judges
Discretionary spending
Entitlement
Mandatory non-entitlements
(defense, non-defense discretionary; covers most
(e.g., Forest Service payments to states)
costs of running agencies)
Source: Compiled by CRS.
a. Temporary Assistance for Needy Families.
b. The Supplemental Nutrition Assistance Program (SNAP) was formerly known as the Food Stamps program.
Recent Fiscal Policy and Discretionary Spending
Policy disagreements about fiscal policy challenges continue to influence trends in discretionary
spending. Fiscal policy describes how a government chooses to balance spending and revenues,
which can be used to influence the level of economic activity.9 Substantial evidence suggests that
fiscal policy can stimulate economic activity when an economy is operating below its potential
level of output and when short-term interest rates are near zero.10
Discretionary spending, which is controlled through an annual budget process, is potentially a
more flexible fiscal instrument than mandatory spending. Some features of mandatory programs
have often been changed to respond to economic conditions. For example, the period of eligibility
for unemployment insurance benefits has often been changed during recessions.11 Tax policy
changes have also been used to respond to macroeconomic conditions. In addition, as incomes
fall during recessions, tax revenues fall and more families become eligible for means-tested
mandatory programs, deficits rise which helps dampen economic shocks.12 When economic
growth resumes, those changes run in the opposite direction. Those changes are therefore known
as automatic stabilizers.

(...continued)
For one listing of permanent appropriations, see GAO, Inventory of Accounts With Spending Authority and Permanent
Appropriations, 1997
, OGC-98-23, January 19, 1998, available at http://www.gao.gov/assets/230/225159.pdf.
9 Monetary policy, which affects the money supply, interest rates, and credit conditions, is another key instrument of
macroeconomic management.
10 Estimates of the magnitude of stimulus effects vary. For a review of the literature, see CRS Report RL33657,
Running Deficits: Positives and Pitfalls, by D. Andrew Austin.
11 A recession occurs when an economy contracts. See National Bureau of Economic Research, “The NBER’s Business
Cycle Dating Committee,” available at http://www.nber.org/cycles/recessions.html.
12 CBO, The Effects of Automatic Stabilizers on the Federal Budget as of 2013, March 8, 2013, available at
http://www.cbo.gov/publication/43977.
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Fiscal Policy Complicated by Slow Recovery
Addressing short-term and long-term challenges simultaneously is difficult because additional
government outlays, according to most economic research, would boost economic recovery, while
reducing spending could help enhance fiscal sustainability—as would increases in federal
revenues. Some have called for linking a package of policies to provide short-term fiscal stimulus
with longer-term measures aimed at fiscal sustainability, although designing such packages to
ensure credibility and effectiveness could be challenging.13
Financial Crisis and Recession
The 2007-2009 financial crisis and the recession that followed continue to color current fiscal
policy debates. During the economic recession that followed the 2007-2009 financial crisis, the
federal government took several measures to stimulate the economy, in addition to an
extraordinary set of measures aimed at housing and credit markets. Some policymakers have
called for expansion or continuation of programs intended to alleviate economic vulnerabilities of
households and businesses, while other policymakers have argued that discretionary spending
should revert to pre-crisis levels. Whether the federal government should take immediate steps to
close the gap between spending and receipts or wait until the economy is more fully recovered
has been subject to debate among economists.
While much of the funds made available by measures responding to the financial crisis or the
subsequent recession were classified as mandatory or revenue reductions, discretionary spending
also rose sharply. Most notably, Congress in early 2009 responded to weak economic conditions
and dramatic job losses that sharply increased unemployment rates by passing a major fiscal
stimulus package. The resulting measure, the American Recovery and Reinvestment Act of 2009
(ARRA; H.R. 1, P.L. 111-5), enacted on February 17, 2009, included stimulus spending and tax
cuts estimated at the time to total $787.2 billion, including about $300 billion in discretionary
spending.14 ARRA included funds for discretionary spending on education initiatives, support for
state governments, public housing, infrastructure, and health care.15 In 2012, CBO estimated the
total budgetary effect of ARRA at $831 billion between 2009 and 2019.16
The recovery after the deep recession that followed the 2007-2009 financial crisis has been
relatively slow. Economic growth in the United States, however, has been faster in recent years
than in many other advanced economies.17 Economic recoveries following major financial crises

13 Peter R. Orszag, “History Shows U.S. Can Stimulate Now, Cut Later,” Bloomberg.com, May 22, 2012, available at
http://www.cfr.org/geoeconomics/history-shows-us-can-stimulate-now-cut-later/p28338.
14 The original CBO score of ARRA is available at http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/
doc9989/hr1conference.pdf.
15 Certain Supplemental Nutrition Assistance Program (SNAP) benefits were cut by P.L. 111-226 (H.R. 1546). For
details, see CRS Report R41374, Reducing SNAP (Food Stamp) Benefits Provided by the ARRA: P.L. 111-226 and P.L.
111-296
, by Randy Alison Aussenberg, Jim Monke, and Gene Falk; and CBO, “Budgetary Effects of Senate
Amendment 4575,” cost estimate, August 4, 2010, available at http://www.cbo.gov/ftpdocs/117xx/doc11756/
sa4575.pdf.
16 U.S. Congressional Budget Office, Budget and Economic Outlook, January 2012, Box 1-1, available at
http://www.cbo.gov/sites/default/files/cbofiles/attachments/01-31-2012_Outlook.pdf.
17 IMF, World Economic Outlook: Coping with High Debt and Sluggish Growth, October 2012, available at
http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdf.
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can be much less robust than recoveries following more cyclical downturns.18 Some continue to
call for a more expansionary fiscal policy to respond to high unemployment levels, which would
entail larger budget deficits in the short run.19 Other economists are skeptical that such fiscal
policies would ameliorate deeper problems caused by high personal and federal debt levels, and
therefore call for fiscal restraint as a first step towards addressing longer-term fiscal challenges, or
at least a transition to a less expansionary fiscal policy.20 A 2012 International Monetary Fund
(IMF) survey found that the experience of advanced countries during the recent recession
suggests that active fiscal policy can stimulate economic growth when economic resources are
not being fully used and when the effectiveness of standard monetary policy tools is constrained
by very low interest rates.21
Faster Growth on the Horizon?
Most macroeconomic forecasters expect faster economic growth in 2014 than in 2013, although
the recovery from the recent recession has been slower than most previous downturns.22
Reductions in government spending are expected to dampen economic growth in the short run,
although the recovery of key economic sectors such as housing are expected to strengthen.23
Serious risks to economic recovery persist, such as those linked to the Eurozone and signs of
decelerating growth in other countries such as China.24
Discretionary Spending Limits Reimposed in 2011
Recent trends in discretionary spending have been controlled by statutory limits reestablished in
the Budget Control Act of 2011 (BCA), enacted on August 2, 2011. Those limits, which originally
extended until FY2021, are expected to shape future trends in discretionary spending. Subsequent
legislation has modified those limits in ways discussed below.

18 See Carmen M. Reinhart and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly,
(Princeton, 2009); and “Sorry, U.S. Recoveries Really Aren’t Different,” Bloomberg News, October 15, 2012,
available at http://www.bloomberg.com/news/2012-10-15/sorry-u-s-recoveries-really-aren-t-different.html.
19 Christina Romer, “Not My Father’s Recession: The Extraordinary Challenges and Policy Responses of the First
Twenty Months of the Obama Administration,” remarks at the National Press Club, September 1, 2010, available at
http://www.whitehouse.gov/sites/default/files/microsites/100901-National-Press-Club.pdf.
20 Kenneth Rogoff, “Why America Isn’t Working,” Project Syndicate, September 1, 2010, available at
http://www.project-syndicate.org/commentary/rogoff72/English.
21 IMF, World Economic Outlook: Coping with High Debt and Sluggish Growth, October 2012, available at
http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdf. See discussion in Box 1.1 written by IMF chief
economist Olivier Blanchard and Daniel Leigh (pp. 41-43).
22 Forecasters surveyed by the Blue Chip Economic Indicators review on average expected growth of 2.8% in 2014
(fourth quarter over fourth quarter), while current estimates put 2013 growth at 1.8%. See Blue Chip Economic
Indicators
, January 10, 2014. Also see Oliver Blanchard, “Recovery Strengthening, but Much Work Remains,” IMF
Direct, January 21, 2014, available at http://blog-imfdirect.imf.org/2014/01/21/recovery-strengthening-but-much-work-
remains/.
23 Kris Dawsey and Hui Shan, “Housing Sector Jobs Poised for a Comeback,” Goldman Sachs US Daily, February 11,
2013; Mark Zandi, “U.S. Macro Outlook: Restarting the Engines,” Moody’s Analytics Dismal Scientist Blog, February
6, 2013, available at http://www.economy.com/dismal/article_free.asp?cid=237408&tid=5FCB4BBF-D759-422D-
BD25-BFF7D505D457.
24 For example, see Claire Jones, “Too Early to Declare Crisis Over, says Draghi,” Financial Times, January 9, 2014;
Joe Zhang, “Rising Rates Will Help Cure China’s Credit Addiction,” Financial Times, January 12, 2014.
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Budget Control Act of 2011 (BCA)
Provisions of the BCA are projected to bring discretionary spending as a share of GDP to levels
well below that seen in recent decades. In terms of real dollars (i.e., adjusting for inflation but not
for growth in population or the economy), discretionary base defense spending was slated to
revert to a level slightly above its FY2007 level, while non-defense discretionary spending was
slated to revert a level near its 2002 level.25
The BCA set limits on discretionary spending that were initially estimated to save about $900
billion over the next decade relative to a pre-BCA baseline.26 The BCA also established a Joint
Select Committee on Deficit Reduction (JSC), known as the “Super Committee,” to develop and
present a plan to Congress and the President that would achieve an additional $1.2 trillion or
more in savings. The BCA, in return, allowed a set of increases to the debt limit, subject to
congressional disapproval, enabling the government to borrow through February 2013.27 The
BCA tied the expected reduction in spending achieved through those discretionary spending
limits and other budget enforcement measures to increases in the debt limit of the same
magnitude.28
FY2013 Sequestration Triggered
The Super Committee (JSC) reached a deadlock shortly before a key November 2011 deadline,
thus triggering backup enforcement mechanisms set up in the BCA to reduce spending by $1.2
trillion. Those backup enforcement mechanisms have been modified by ATRA (more below). The
original BCA caps were then superseded by revised caps, which imposed separate limits on
defense (budget function 050) and non-defense spending. The sum of total discretionary spending
under the original and revised caps was the same. Further reductions of $109 billion for each year
from the revised cap levels, split between defense and non-defense, were slated to occur in each
year from FY2013 through FY2021. Those reductions, along with interest savings, were designed
to capture the $1.2 trillion in budget savings in the absence of a Super Committee plan.
For FY2013, the BCA had required a sequester on January 2, 2013—a cancellation of budget
authority relying on pro-rata cuts to most discretionary budget authority, Medicare, and certain

25 For details, see Congressional Research Service, “The Budget Control Act and Alternate Defense and Non-Defense
Spending Paths, FY2012-FY2021,” by Amy Belasco and Andrew Austin, November 16, 2012, available from authors.
This comparison is made in terms of budget authority. Before passage of ATRA, BCA provisions were slated to bring
discretionary base defense spending to its FY2007 level and non-defense spending to near its level in FY2003 or
FY2004. Inflation adjustments made using GDP price index.
26 CBO, “Letter to the Honorable John A. Boehner and the Honorable Harry Reid Estimating the Impact on the Deficit
of the Budget Control Act of 2011,” August 1, 2011, available at http://www.cbo.gov/ftpdocs/124xx/doc12414/09-12-
BudgetControlAct.pdf.
27 For an analysis of the provisions of the BCA, see CRS Report R41965, The Budget Control Act of 2011, by Bill
Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan. For details on debt limit provisions, see CRS Report RL31967,
The Debt Limit: History and Recent Increases, by D. Andrew Austin and Mindy R. Levit.
28 For two versions of the negotiations that led to the BCA, see Peter Wallsten et al., “Obama’s Evolution: Behind the
Failed ‘Grand Bargain’ on the Debt,” Washington Post, March 17, 2012, p. A1, available at
http://www.washingtonpost.com/politics/obamas-evolution-behind-the-failed-grand-bargain-on-the-debt/2012/03/15/
gIQAHyyfJS_story.html; Matthew Bai, “Obama vs. Boehner: Who Killed the Debt Deal?” New York Times Magazine,
March 28, 2012, p. MM22, available at http://www.nytimes.com/2012/04/01/magazine/obama-vs-boehner-who-killed-
the-debt-deal.html.
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other mandatory outlays. Most mandatory spending was exempt from sequestration and Medicare
patient care reductions are limited to 2%. Thus, the bulk of sequestration reductions applied to
discretionary programs.
For later years—from FY2014 through FY2021—the BCA-specified mechanisms set lowered
spending caps
that would apply to discretionary funding levels. Within limits set by those caps,
however, Congress would have flexibility to tailor the budget to suit its policy priorities. Amounts
above those caps, according to budget law, would be subject to a cap enforcement sequester.29
A continuing resolution (CR; H.J.Res. 117; P.L. 112-175) was enacted on September 28, 2012, to
fund the federal government for the first six months of the fiscal year.30 In general, funding levels
were set 0.612% above FY2012 levels, with exceptions for war funding and certain disaster relief
programs.31 Discretionary spending in the CR was scored at $1,047 billion, which equaled the
sum of the revised defense and non-defense caps. Base budget discretionary defense funding,
however, was scored at $557 billion (in BA), or $11 billion above the revised BCA cap, while
nondefense discretionary spending (BA) was scored at $490 billion, or $11 billion below its BCA
revised cap.32 Funding in the CR above cap levels would have been subject to a cap enforcement
sequester, absent subsequent changes.33 The American Taxpayer Relief Act (see below) delayed
both the Super Committee sequester and the potential cap enforcement sequester, in addition to
other changes in budget enforcement mechanisms.
Scaling Down Sequestration and the Fiscal Cliff
The American Taxpayer Relief Act (ATRA; H.R. 8; P.L. 112-240) delayed the sequester triggered
by the absence of a Super Committee (JSC) plan by two months, from January 2, 2013 to March
1, 2013.34 In addition, the size of those FY2013 sequestration cuts was reduced from $109 billion
to $85 billion.35 The remaining $85 billion sequester, as before, was divided equally between
defense and non-defense spending. Nearly all of the sequester reductions in defense spending fell
within discretionary spending, while about a third of non-defense sequester reductions fell within
the mandatory category.

29 Amounts above cap levels would be sequestered as specified in Balanced Budget and Emergency Deficit Control Act
of 1985 (BBEDCA; P.L. 99-177, as amended), §251(a)(1). A sequester would affect budgetary resources in addition to
new budget authority as well, such as defense unobligated balances. Non-exempted mandatory programs would
continue to be sequestered from FY2014 to FY2021 under provisions of the BCA.
30 H.J.Res. 117 passed on a 329-91 vote in the House on September 13, 2012, and passed on a 62-30 vote in the Senate
on September 22.
31 See CRS Report R42647, Continuing Resolutions: Overview of Components and Recent Practices, by Jessica
Tollestrup.
32 CBO, “Budget authority subject to $1,407 (sic) billion cap: CR as introduced,” September 2012.
33 BBEDCA (P.L. 99-177), §251(a)(1). For details, see House Appropriations Committee Ranking Member Norman
Dicks, “A Report on the Consequences of Sequestration,” Dear Colleague Letter, October 9, 2012, available at
http://www.naph.org/Links/ADV/House-Sequestration-Letter-10-9-12.aspx. Also see Amy Belasco and D. Andrew
Austin, The Budget Control Act and Alternate Defense and Non-Defense Spending Paths, FY2012-FY2021,
congressional distribution memorandum, available from authors.
34 For details, see CRS Report R42949, The American Taxpayer Relief Act of 2012: Modifications to the Budget
Enforcement Procedures in the Budget Control Act
, by Bill Heniff Jr.
35 Thus the size of the FY2013 sequester was reduced by $24 billion.
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Half of the $24 billion reduction in the size of the FY2013 sequester was offset by lowering
discretionary spending limits for FY2013 by $4 billion ($2 billion in security spending; $2 billion
in non-security spending) and lowering limits for FY2014 by $8 billion ($4 billion in defense; $4
billion in non-defense). The remaining $12 billion was offset by revenue changes affecting
retirement accounts.36
ATRA also altered discretionary spending limits on FY2013 discretionary spending. ATRA
delayed a potential cap enforcement sequester to enforce discretionary spending limits from early
January 2013 to March 27, 2013.37 The cap enforcement sequester was modified by ATRA to
apply to security/non-security categories, rather than the defense/non-defense categories
previously in effect.38 Because the full-year funding measure (H.R. 933; P.L. 113-6) was designed
to conform to these modified discretionary spending limits, the cap sequester was avoided.39 The
discretionary spending limits enforced by that sequester, however, effectively set top-line totals
for the FY2013 full-year funding measure.
The change in the FY2013 discretionary limits from defense/non-defense to security/non-security
may have shifted the allocation of spending reductions. Because the security category is broader
than the defense category, cap enforcement sequester reductions would have applied to a larger
pool of programs. The cap enforcement sequester would have reduced spending within security
programs by more than within non-security programs because the CR funded defense programs
above BCA cap levels. Without changes in spending levels, the cap enforcement sequester,
according to CBO estimates, would have reduced security spending by $7 billion and non-
security spending by $1 billion.40
ATRA also put in place a less restrictive fiscal policy by extending various expiring tax
provisions and extended unemployment benefits, while postponing across-the-board sequestration
until March 2013.41 Those increases in federal revenues and decreases in spending, often known
as the “fiscal cliff,” would have lowered the federal deficit dramatically, but could have led to a
new recession in 2013, according to CBO and other forecasters.42 Others, however, had expected
more modest macroeconomic consequences from those changes.43

36 See CBO, “Estimate of the Budgetary Effects of H.R. 8, the American Taxpayer Relief Act of 2012, as passed by the
Senate on January 1, 2013,” January 1, 2013, available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/
American%20Taxpayer%20Relief%20Act.pdf.
37 BBEDCA (P.L. 99-177), §251(a)(1) states that “(w)ithin 15 calendar days after Congress adjourns to end a session,
there shall be a sequestration to eliminate a budget-year breach, if any, within any category.”
38 The definition of the security and non-security categories is explained in more detail below.
39 Jeffrey D. Zients, Acting OMB Director, letter to President Barack Obama, March 27, 2013.
40 CBO, Budget and Economic Outlook, February 2013, Table 1-4, available at http://www.cbo.gov/sites/default/files/
cbofiles/attachments/43907-BudgetOutlook.pdf.
41 For details, see CRS Report R42894, An Overview of the Tax Provisions in the American Taxpayer Relief Act of
2012
, by Margot L. Crandall-Hollick; CRS Report R42884, The “Fiscal Cliff” and the American Taxpayer Relief Act
of 2012
, coordinated by Mindy R. Levit.
42 CBO, Economic Effects of Policies Contributing to Fiscal Tightening in 2013, November 8, 2012; Alex Phillips,
“And Now, on to the Fiscal Cliff,” Goldman Sachs Global Economics, Commodities and Strategy Research U.S. Daily,
November 7, 2012.
43 CRS Report R42700, The “Fiscal Cliff”: Macroeconomic Consequences of Tax Increases and Spending Cuts, by
Jane G. Gravelle.
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Attempts to Avoid the Effects of Sequestration
Many have objected to the consequences for federal programs and fiscal policy of the BCA’s
sequestration measures. Various proposals to delay, replace, or modify sequestration have been
put forth. The potential effects of defense and non-defense cuts have also been discussed in
various committee hearings.44 The Reducing Flight Delays Act of 2013 (P.L. 113-9), enacted May
1, 2013, authorized the Secretary of Transportation to transfer funds to Federal Aviation
Administration (FAA) appropriations accounts in order to reduce delays due to furloughs of FAA
personnel.
Congressional Initiatives
The House-passed FY2013 budget resolution (H.Con.Res. 112; agreed to on March 29, 2012, on
a 228-191 vote) called for the cancellation of the January 2013 sequester, conditional on
achieving savings in domestic programs through reconciliation procedures.45 Such reconciliation
procedures, however, would only come into play with the agreement of the Senate. On May 10,
2012, the House took another step to modify sequestration by passing the Sequester Replacement
Reconciliation Act of 2012 (H.R. 5652; 218-199, 1 present). The measure, according to CBO’s
analysis, would limit the effect of sequestration by an estimated $72.2 billion over the next 10
years, largely by protecting defense unobligated balances and certain non-defense advance
appropriations.46 The measure would also reduce the cap on FY2013 discretionary spending by
$19 billion, from its current level of $1,047 billion.
On December 19, House Majority Whip Eric Cantor introduced H.R. 6684, the Spending
Reduction Act of 2012. That measure resembles H.R. 5652, except that a flood insurance title,
which had been enacted separately, was omitted. In addition, certain effective dates were also
changed.47 In the 113th Congress, Representative Ellison introduced one bill to avoid
sequestration (H.R. 505) and Senator Whitehouse introduced two measures to replace the Budget
Control Act (S. 277 and S. 278).
On the day before that sequester was issued, Congress considered other measures that would have
modified or replaced it. The Senate considered S. 16, a sequester replacement bill introduced by
Senator Inhofe, and S. 388, introduced by Senator Mikulski. Neither measure was passed. The
budget resolution measure reported by the Senate Budget Committee (S.Con.Res. 8) on March

44 For example, see H.R. 3662, “Amending the Balanced Budget and Emergency Deficit Control Act,” December 14,
2011, available at http://armedservices.house.gov/index.cfm/files/serve?File_id=71803a67-5d45-4bfa-88b9-
80c6f5b42d82k2. See also U.S. Congress, House Budget Committee, Hearing on the 2011 Budget Control Act and
Potential Sequestration
, 112th Cong., 2nd sess., April 25, 2012. Also see U.S. Congress, Senate Committee on
Appropriations, The Impacts of Sequestration, 113th Cong., 1st sess., February 14, 2013 (documents available at
http://www.appropriations.senate.gov/ht-full.cfm?method=hearings.view&id=17d3dc99-c065-4bec-a7c8-
cfd374bf41a3); U.S. Congress, Senate Committee on Armed Services, Impacts of Sequestration and/or CR, 113th
Cong., 1st sess., February 12, 2013 (documents available at http://www.armed-services.senate.gov/hearings/event.cfm?
eventid=75b85d4058863364782faf917d08a08a).
45 H.Con.Res. 112, §201, §202.
46 CBO, “Sequester Replacement Reconciliation Act,” Letter to Rep. David Drier, May 9, 2012, available at
http://www.cbo.gov/publication/43234.
47 See “Summary of Changes between H.R. 6684 and H.R. 5652,” December 19, 2012, available at
http://www.rules.house.gov/Media/file/PDF_112_2/PDF/HR6684SummChang.pdf.
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14, 2013, proposed replacing sequestration reduction with a mix of other spending reductions and
revenue increases.
On February 27, 2013, Senator James Inhofe introduced S. 16, a bill that proposed that the
President submit a sequester replacement plan to Congress by March 15, 2013. The plan would
be subject to a joint resolution of disapproval that would be considered under expedited
procedures. A motion to proceed to consideration of S. 16 was withdrawn on February 28, 2013,
following an unsuccessful motion on cloture (38-62).
On April 23, 2013, Majority Leader Harry Reid introduced S. 788, which would cancel the
discretionary portion of the FY2013 BCA sequester (see next section) as well as some of the
across-the-board reductions included in the full-year FY2013 funding measure (H.R. 933; P.L.
113-6; discussed below).48 The bill would also change how BCA discretionary spending caps
would be adjusted for war funding (OCO/GWOT). Under current law, BCA caps are adjusted
upwards by the amount of OCO funds (and for other items such as certain program integrity and
disaster costs). The proposed legislation would limit the OCO adjustment to the BCA security cap
to the amount of current OCO funding proposed by the Administration, or the actual amount of
OCO appropriations if that were less than those proposed levels.49 The difference between those
proposed OCO cap levels and baseline spending projections would total nearly $135 billion for
FY2014-FY2016.
Numerous other measures to replace or modify the BCA sequester were also introduced in both
the 112th and 113th Congresses.
Administration Proposals to Modify BCA Caps
The President’s FY2013 budget request essentially conformed to the original BCA caps, but
argues that the January 2013 sequester and other backup enforcement measures should be
cancelled because Administration proposals would achieve savings in other ways. In February
2013, President Obama called for avoiding sequestration by substituting tax increases and
targeted spending cuts.50


48 See Steven Dennis and Humberto Sanchez, “Coburn Blocks Attempt to Bring Up Bill to Replace Sequester,” CQ
News, April 23, 2013.
49 For currently proposed OCO amounts, see Table 3 on p. 7 of the OMB FY2014 sequestration preview report,
available at http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/
fy14_preview_and_joint_committee_reductions_reports_04102013.pdf. The FY2014 amount is sum of $88,482 million
(OCO in budget function 050) and $3,807 million (OCO in international affairs).
50 White House, Office of the Press Secretary, “Averting the Sequester and Finding a Balanced Approach to Deficit
Reduction,” February 8, 2013, available at http://www.whitehouse.gov/the-press-office/2013/02/08/averting-sequester-
and-finding-balanced-approach-deficit-reduction.
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BCA Sequester Issued March 1, 2013
On March 1, 2013, the President signed a sequester order that cancelled $85 billion in budgetary
resources, a measure triggered by the absence of a JSC (“Super Committee”) plan to reduce the
federal deficit.51 Reductions were split equally between defense and non-defense categories.
Nearly all the defense reductions were taken in discretionary programs because less than $1
billion in defense mandatory spending was sequestrable.52 The President chose to exempt Military
Personnel accounts from sequestration, which required larger reductions in other defense
accounts. Non-exempt defense discretionary accounts were reduced by 7.8% for a total reduction
of $42.6 billion in budgetary resources. While war (Overseas Contingency Operations; OCO)
funding was not subject to BCA caps, it was not exempted from sequestration. Former Defense
Secretary Leon Panetta, however, indicated that the Defense Department would take steps to
protect funding for war operations by finding other cuts.53 In addition, unobligated balances in
defense accounts were also sequestered.
The sequester reduced non-defense discretionary program funding by 5.0%, which reflected a
$25.8 billion reduction in budgetary resources.54 The remainder of non-defense reductions ($16.9
billion) was absorbed by non-defense mandatory programs. A 2% reduction in Medicare patient
care accounted for most of the non-defense mandatory savings ($11.3 billion), while a 5.1%
sequester was applied to other non-exempt mandatory programs, yielding another $5.5 billion in
budgetary savings.
The Super Committee sequester reduced federal outlays in FY2013 by considerably less than the
total reduction applied to budgetary resources. This reflects the usual lag between reductions in
budget authority and reductions in obligations and outlays, as well as the time agencies require to
implement plans to reduce their spending. In addition, special budgetary rules delay the start of
the sequester of Medicare patient care outlays by a month.55 CBO has estimated that the BCA
sequester would reduce FY2013 outlays by $42 billion in FY2013.56
Full-Year Funding for FY2013
On March 6, 2013, the House passed a measure (H.R. 933) to fund the government for the
remainder of FY2013 by a 267-151 vote. The measure provided detailed appropriations levels for
Defense and Military Construction-Veterans’ programs. Other programs, with some exceptions,
were funded near FY2012 levels before taking into account a series of across-the-board

51 See OMB, Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013, March 1, 2013,
http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/fy13ombjcsequestrationreport.pdf.
52 Ibid., Table 2, p. 4.
53 Karen Parrish, “Panetta: Fiscal Crisis Poses Biggest Immediate Threat to DOD,” American Forces Press Service,
January 10, 2014, available at http://www.defense.gov/News/newsarticle.aspx?ID=118974.
54 Ibid., Table 3, pp. 6.
55 BBEDCA Section 256. See CRS Report R42051, Budget Control Act: Potential Impact of Sequestration on Health
Reform Spending
, by C. Stephen Redhead.
56 CBO, letter to Senator Sessions, March 12, 2013, available at http://www.cbo.gov/sites/default/files/cbofiles/
attachments/Sessions_Sequester_CR.pdf. Note that FY2013 outlays estimates may change to reflect details of the OMB
sequestration order of March 1, 2013.
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reductions.57 Spending reductions in the bill would not have affected the amount of reductions in
spending made through the March 1, 2013 (JSC/Super Committee) sequester.58
On March 11, 2013, a substitute measure for H.R. 933 was posted on the Senate Committee on
Appropriations website. According to Senate Appropriations Chair Barbara Mikulski, defense and
military construction-veterans provisions of the substitute measure matched those in the House-
passed H.R. 933.59 The measure would have provided more detailed spending adjustments in
other areas.
Both H.R. 933 and the Senate alternative were scored as conforming with discretionary spending
caps as revised by ATRA (totaling $1,043 billion for regular appropriations) and thus avoided a
cap enforcement sequester.60 That scored total did not include war funding, emergency-designated
spending, and program integrity funding.
The Senate passed an amended version of H.R. 933 by a 73-26 vote on March 20, 2013. The
Senate version of H.R. 933 included detailed changes in spending levels for programs within the
Agriculture, Commerce-Justice-Science, and Homeland Security areas, in addition to the changes
in Defense, Military Construction-Veterans that the House measure had included. Most other
programs received funding close to FY2012 levels. The House agreed to Senate changes the next
day on a 318-109 vote. While some of the effects of sequestration were adjusted by reallocating
spending reductions, the amount of the March 1 sequester cuts remained in place. The President
signed the measure (P.L. 113-6) on March 26, 2013.
Discretionary Funding for FY2014
Submission of the Obama Administration’s FY2014 budget was delayed until April 10, 2013, due
to substantial changes enacted by ATRA at the beginning of January 2013 and the demands of the
March 1, 2013, JSC sequester. The President’s FY2014 budget request proposed several
modifications of BCA caps on discretionary spending. The Administration proposed that FY2014
spending limits be set at revised cap levels (i.e., $552 billion for defense and $506 billion for non-
defense) rather than lowered cap levels (i.e., $498.1 billion for defense and $469.4 billion for
non-defense), which would have allowed higher levels of discretionary spending while the
economy is recovering from a major recession. Spending limits for the second half of the

57 H.R. 933, Section 1101 specifies an 0.16% across-the-board rescission the Department of the Interior, Environment,
and Related Agencies; a 0.189% across-the-board rescission the Departments of Labor, Health and Human Services,
and Education, and Related Agencies. In addition, a 0.109% rescission would apply to security programs (as defined in
the BCA) and a 0.0098% rescission in non-security programs (Section 3001).
58 See H.R. 933, Section 3002.
59 Senator Barbara Mikulski, floor statement, March 12, 2013, text available at http://www.appropriations.senate.gov/
news.cfm?method=news.view&id=5c19a6a3-4263-4cb6-99a6-38517e1cb00f.
60 For House version, see CBO, Total Discretionary Appropriations for FY2013, Including H.R. 933, the Department of
Defense, Military Construction and Veterans Affairs, and Full‐Year Continuing Appropriations Act, 2013 as
Introduced on March 4, 2013, and P.L. 113-2, the Disaster Relief Appropriations Act, 2013, March 4, 2013, available
at https://www.cbo.gov/sites/default/files/cbofiles/attachments/hr933.pdf.
For Senate version, see CBO, Total Discretionary Appropriations for Fiscal Year 2013, Including the Consolidated
and Continuing Appropriations Act, 2013 (an Amendment in the Nature of a Substitute to H.R. 933) as Posted on the
Senate Committee on Appropriations Web Site on March 11, 2013 and Public Law 113
2, the Disaster Relief
Appropriations Act, 2013
, March 12, 2013, available at https://www.cbo.gov/sites/default/files/cbofiles/attachments/
hr933AmendmentintheNatureofaSubstitute.pdf.
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FY2013-FY2021 budget window, in the Administration’s proposals, would have been lowered by
$60 billion each for defense and non-defense. In addition, discretionary caps would have been
extended to FY2022 and FY2023.
The Administration estimated that those spending cap modifications would reduce discretionary
spending by $202 billion over FY2014-FY2023.61 Thus, projected discretionary spending for
FY2014-FY2018 shown in the figures below, which presume the President’s budgetary proposals
are adopted, reflects an assumption that BCA constraints on discretionary spending would be
loosened in FY2014 and tightened later, starting in FY2017. The Administration’s FY2014 budget
plan also includes $260 billion in unspecified reductions in discretionary spending, mostly slated
for FY2015 through FY2023.62 If those reductions were carried out, discretionary spending levels
would have been less than those shown in figures below.
During the FY2014 budget cycle, the House and Senate responded to the budgetary challenges
presented by BCA caps in different ways. Just before the August 2013 recess, the gap between
House and Senate totals for FY2014 discretionary spending stood at about $90 billion. The House
Appropriations Committee set suballocations for its subcommittees that totaled $973.1 billion,
slightly above total discretionary spending at BCA lowered caps levels ($967.5 billion) for
FY2014.63 Senate Appropriations Committee guidance for its subcommittees, however, indicated
a total for FY2014 consistent with BCA revised caps (i.e., a total of $1,058 billion split between a
base defense subtotal of $552 billion and a non-defense total of $506 billion).64
Differences between House and Senate discretionary spending levels were not resolved before the
start of FY2014 on October 1, 2013, which resulted in a shutdown of most federal operations.65
Funding for federal operations was restored by passage of a continuing resolution (H.R. 2775) on
October 16, 2013, which was signed by the President the following morning (Continuing
Appropriations Act, 2014; P.L. 113-46). The measure provides funding on an annualized basis of
$986.3 billion before adjustments.66

61 OMB, FY2014 Budget of the U.S. Government, p. 45. See Table 6 of memorandum cited below for $800 billion
estimate for difference between BCA revised caps and lowered caps.
62 According to the FY2014 Mid Session Review, “(t)he 2014 Budget includes allowances, similar to the Function 920
allowances used in Budget Resolutions, to represent amounts to be allocated among the respective agencies to reach the
proposed defense and non-defense caps for 2015 and beyond. These levels are determined for illustrative purposes but
do not reflect specific policy decisions.” See fn. 5, to Table S-10, p. 58, available at http://www.whitehouse.gov/sites/
default/files/omb/budget/fy2014/assets/14msr.pdf.
63 See CBO, “FY 2014 House Current Status of Discretionary Appropriations as of August 1, 2013,” available at
http://www.cbo.gov/sites/default/files/cbofiles/attachments/44333_BY2014House_8-1.pdf; and OMB Sequestration
Preview Report (cited above). CBO estimated that the Homeland Security bill would include a $5.6 billion disaster
funding adjustment.
64 That Senate total excluded adjustments to caps for war funding (OCO), disaster funding, program integrity, and
emergency items. With those adjustments, the Senate total for FY2014 appropriations at the end of July 2013 was
$1,149.6 billion. See CBO, “FY 2014 Senate Current Status of Discretionary Appropriations as of August 2, 2013,”
available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/44399_BY2014_Senate_8-2.pdf.
65 For details, see CRS Report R43338, Congressional Action on FY2014 Appropriations Measures, by Jessica
Tollestrup.
66 That total excludes adjustments for war funding (OCO), disaster funding, program integrity, and emergency items.
Annualized funding reflecting those adjustments totaled $1,087.7 billion. See CBO, “CBO Estimate of the Continuing
Appropriations Act, 2014, as Introduced in the Senate on October 16, 2013, as an Amendment to H.R. 2775,” October
16, 2013, available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/
ContinuingAppropriationsAct2014.pdf.
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The Bipartisan Budget Act of 2013
The Bipartisan Budget Act of 2013 (BBA; H.J.Res. 59; P.L. 113-67) provided a reconciliation of
House and Senate discretionary spending levels for the remainder of FY2014 and for FY2015 as
well. Final House approval was obtained on a 332-94 vote on December 12, 2013, and the Senate
approved the final version on December 18, 2013, on a 64-36 vote.
The BBA set discretionary defense spending caps at $520.464 billion for FY2014 and $521.272
billion for FY2015. Non-defense caps were set at $491.773 billion for FY2014 and $492.356
billion for FY2015.67 The mechanism for reducing the revised BCA caps to lowered caps levels in
order to capture savings not attained by the Joint Select Committee on Deficit Reduction (JSC)
was turned off for both FY2014 and FY2015.68 Both modified defense and nondefense spending
limits for FY2014 were $22.4 billion above the lowered caps levels that would have applied in
the absence of the Bipartisan Budget Act, while FY2015 levels were about $9 billion higher.69
Final Appropriations for FY2014
The House and Senate Appropriations Committees announced an agreement on funding for the
remainder of FY2014 on January 13, 2014. The resulting measure (Senate Amendment to H.R.
3547) was scored as conforming to caps set in the Bipartisan Budget Act of 2014.70 The House
voted to accept the measure on January 14, 2014, on a 359-67 vote. On the following day, the
Senate approved that version on a 72-26 vote. The President then signed the measure (P.L. 113-
76) on January 17, 2014.
A short-term continuing resolution (H.J.Res. 106) was introduced by House Appropriations
Chairman Harold Rogers to extend federal funding from January 15 to January 18, 2014, to
provide more time for the consideration of final FY2014 appropriations. On January 14, 2014,
that measure passed the House on a voice vote and the Senate on an 86-14 vote. The President
signed the measure (P.L. 113-73) on the following day.
Table 2 summarizes discretionary funding and modifications of statutory caps on discretionary
funding for base defense and nondefense funding from for the period FY2013 through FY2021.
Levels are shown in terms of scored budget authority (BA) that excludes war (Overseas
Contingency Operations/OCO), disaster, program integrity, and emergency funding. The first two
rows in both the defense and nondefense categories show revised caps before and after the fiscal
cliff agreement (ATRA), which reduced the size of the JSC sequester. The next pair of rows show
estimates of post-sequester funding in FY2013 and OMB estimates of lowered cap levels in
subsequent years. Next, the modifications of the defense and non-defense caps enacted in

67 The defense category (National Defense budget function (050)) is called the “revised security category” in the BCA
and the Bipartisan Budget Act of 2013. The non-defense category is called the “revised nonsecurity category.”
68 BBEDCA Sec. 251A (2 U.S.C. 901a) directs OMB to lower the revised spending caps for FY2014-FY2021. Section
101 of the Bipartisan Budget Act of 2013 requires that the lowering of caps “shall not be implemented for fiscal years
2014 and 2015.”
69 CRS calculations based on CBO and OMB data.
70 CBO, “2014 Discretionary Appropriations Including H.R. 3547, as Posted on House Rules Website on January 13,
Excluding OCO, Disaster, Prog. Int. and Emergencies,” January 14, 2014. H.R. 3547, originally named the “Space
Launch Liability Indemnification Extension Act,” was used as the legislative vehicle for the final FY2014
appropriations act.
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December 2013 by the Bipartisan Budget Act are shown. That act turned off the mechanism that
lowers caps to recapture savings not obtained by the JSC for FY2014 and FY2015, but did not
change caps or the cap-lowering mechanism for later years. Finally, a pre-BCA Administration
projection (CBO reestimate of the FY2012 plan) and the totals for the FY2014 budget submission
are presented.
Preview of FY2015 Appropriations
The Bipartisan Budget Act (P.L. 113-67; sections 115 and 116) provides authority for budgetary
enforcement “in the same manner as for a concurrent resolution on the budget for FY2015” if no
budget resolution were agreed to by the House and Senate by April 15, 2014. In each chamber,
the chairman of the Budget Committee would then be mandated to submit information normally
contained in a budget resolution after April 15 but before May 15, 2014.
The President’s budget submission is due by the first Monday in February, although no sanctions
attach to late submissions.71 An OMB spokesman stated that the FY2015 budget proposal would
be submitted on March 4, 2014.72 Some attribute the delay in the budget submission to the
delayed completion of FY2014 appropriations, which then pushed back budget formulation
deadlines.73 The FY2014 budget, as noted above, was submitted on April 10, 2013. OMB
instructed federal agencies to submit plans that would reflect a 5% reduction in net discretionary
funding, along with measures to reach a 10% reduction in net discretionary funding.74 Treasury
Secretary Jacob Lew stated that the upcoming budget would reflect a “balanced approach to
having long-term fiscal policies.”75
The Congressional Budget Office stated that its budget outlook, which will contain updated
economic and budgetary baseline projections through FY2024, will be released on February 4,
2014.76

71 31 U.S.C. 11, §1105.
72 “WH: Obama to Propose Fiscal 2015 Budget One Month Late,” United Press International (UPI), January 23, 2014;
http://www.upi.com/Top_News/US/2014/01/23/WH-Obama-to-propose-Fiscal-2015-budget-one-month-late/UPI-
30221390502663/.
73 Marcus Weisgerber, “2015 US Budget Proposal Not Likely Until Late February,” Defense News, Jan. 6, 2014,
http://www.defensenews.com/article/20140106/DEFREG02/301060022/2015-US-Budget-Proposal-Not-Likely-Until-
Late-February. In normal budget cycles, OMB reviews agency proposals and issues “passback” guidance in late
November. For the FY2015 budget cycle, according to quoted sources, the “passback” guidance would occur in
January 2014.
74 Sylvia Burwell, OMB Director,FY2015 Budget Guidance, memorandum M-13-14,May 29, 2013, available at
http://www.whitehouse.gov/sites/default/files/omb/memoranda/2013/m-13-14.pdf.
75 “Secretary of the Treasury Lew Delivers Remarks on the U.S. Economy at the Council on Foreign Relations,” CQ
Financial Transcripts
, January 16, 2014.
76 “CBO to Release Budget and Economic Outlook on February 4,” CBO blog, January 22, 2014, available at
http://www.cbo.gov/publication/45034.
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Table 2. Defense and Nondefense Trends Under Revised BCA Constraints
Budget Authority in Billions of Dollars; Excludes OCO/War, Disaster, Program Integrity, and Emergency Funding
Defense (base)
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021
BCA revised cap










Pre-fiscal cliff deal (ATRA)
546
556
566
577
590
603
616
630
644

Post-fiscal cliff deal (ATRA)*
544
552
← unchanged →
Sequester/OMB Seq. Preview Reports









JSC Sequester/Auto Enforcement†
-42.6
-53.9
-54.0
-54
-54
-54
-54
-54
-54
Sequester/Lowered Caps*
517.9
498.1
512
523
536
549
562
576
590
BBA 2013 caps

520.5
521.3
← unchanged: same as pre-ATRA revised caps →

FY2014 final base defense funding scored
Caps not to be lowered
Subject to lowering of caps
as meeting FY2014 BBA cap
Administration Plans









Pre BCA: FY2012 Plan, (CBO reestimate, March 2011)
596
612
624
637
649
661
673
685
697
Most recent: FY2014 Plan (OMB April 2013)

552
566
577
586
595
604
614
624
Non-Defense
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021
BCA revised cap










Pre-fiscal cliff deal (ATRA)
501
510
520
530
541
553
566
578
590

Post-fiscal cliff deal (ATRA)*
499
506
← unchanged →
Sequester/OMB Seq. Preview Reports









JSC Sequester/Auto Enforcement†
-25.8
-36.6
0
0
0
0
0
0
0
Sequester/Lowered Caps*‡
470
469.4
520.0
530
541
553
566
578
590
BBA 2013 caps

491.8
492.4
← unchanged: same as pre-ATRA revised caps →

FY2014 final base nondefense funding scored
Caps not to be lowered
Subject to lowering of caps
as meeting FY2014 BBA cap
Administration Plans









Pre BCA: FY2012 Plan, (CBO reestimate, March 2011)
550
550
559
573
586
601
617
638
646
Most recent: FY2014 Plan (OMB April 2013)
503
506
536
545
556
568
581
599
603

Unspecified reductions**


-16
-15
-19
-23
-27
-37
-33

Net (see OMB Table S-10 nondefense category)

506
520
530
537
545
554
562
570
CRS-16


Source: CRS calculations based on the fol owing data sources: OMB Sequestration Report, March 1, 2013; OMB Sequestration Preview Report for FY2014 (Corrected
version); CBO, Reestimate of the President’s Budget, March 2011; CBO, “2014 Discretionary Appropriations Including H.R. 3547, as Posted on House Rules Website on
January 13, Excluding OCO, Disaster, Prog. Int. and Emergencies,” January 14, 2014. CBO, “Estimate of Discretionary Budget Authority for Fiscal Year 2013, Showing
Amounts for Defense and Nondefense Programs,” September 10, 2013, available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-10-2013-
Supplement%20_to_Table3_from_May_Outlook.xls; OMB, FY2014 Mid-Session Review, Tables S-9 and S-10, available at http://www.whitehouse.gov/sites/default/files/omb/
budget/fy2014/assets/14msr.pdf;OMB, FY2014 Analytical Perspectives, Table 31-1, “Policy Budget Authority and Outlay by Function, Category, and Program.” H.Rept.
113-290 (to accompany H.Res. 438).

Notes: CBO describes lowered caps as “Caps established by the Budget Control Act, including automatic spending reductions.” Above caps are “scored” numbers,
which will generally differ from non-scored budget totals. FY2013 caps revised as part of fiscal cliff deal, caps applied to security/nonsecurity basis. Defense and non-
defense post-ATRA caps were in effect used to calculate JSC sequester.
* ATRA redefined FY2013 discretionary spending caps using categories of “security” and “non-security,” which served to bind discretionary spending levels.
Defense and non-defense categories were used to calculate the March 1, 2013 sequestration, but did not bind discretionary spending levels.
† The JSC sequester/automatic enforcement discretionary spending reduction will not equal the difference between the revised cap and sequester/lowered cap level
because (i) for FY2013 the defense/non-defense cap was not binding; and (i ) some spending not covered by the defense/non-defense cap is subject to sequestration. For
example, war funding (OCO) is not covered by the defense cap, but is subject to sequestration under section 251A of the BBEDCA. More precisely, caps are adjusted
upwards to accommodate funding for war funding (OCO) and emergency items, and within specified limits, to accommodate funding for disaster relief and program
integrity initiatives.
** According to the FY2014 Mid-Session Review, “The 2014 Budget includes al owances, similar to the Function 920 al owances used in Budget Resolutions, to represent
amounts to be al ocated among the respective agencies to reach the proposed defense and non-defense caps for 2015 and beyond. These levels are determined for
illustrative purposes but do not reflect specific policy decisions.” See fn. 5, to MSR Table S-10, p. 58.
FY2014 OMB net nondefense discretionary proposal levels do not reflect proposed reclassifications between mandatory and discretionary categories. Unspecified
reductions for subfunctions 053 and 054 total $5.4 billion over FY2014-FY2023 and do not exceed $1 billion until FY2022. For the sake of compactness, those reductions
are not shown. Unspecified subfunction 051 and 053 reductions reported in OMB, FY2014 Analytical Perspectives, Table 31-1. No unspecified reductions are proposed for
subfunction 051 (Defense-Military).
‡ CBO estimated FY2013 nondefense spending at $483.6 billion in September 2013. That estimate excluded an $18.6 billion offset for changes in mandatory spending
(CHIMPs) and did not reflect a $5 billion increase in estimated Federal Housing Administration receipts due to higher mortgage insurance charges. The FY2013 estimate
of $470 billion includes those adjustments.





CRS-17

Trends in Discretionary Spending

Long-Term Trends in Discretionary Spending
Discretionary Spending Now a Smaller Share of Federal Spending
The composition of the federal budget has changed dramatically since the early 1960s. As Figure
1
shows, discretionary spending as a share of the federal budget has fallen, while mandatory
spending’s share has steadily increased.77 Discretionary spending will thus have gone from
comprising two-thirds of federal spending in FY1962 to only 35% of total outlays in 2013.78 That
share is expected to decline further to 24% in FY2023, according to CBO baseline projections.79
Mandatory spending, by contrast, has risen from 26% of total outlays in FY1962 to 59% in 2013.
Net interest accounted for 6% of federal outlays in FY1962 and in FY2012. Net interest costs,
according to CBO baseline projections, are expected to rise sharply to 14% in FY2023 as interest
rates return to more normal levels and the federal debt continues to expand.
Discretionary Spending As a Share of GDP
Trends in discretionary spending as a share of gross domestic product (GDP) provide another
perspective on how the composition of federal outlays has changed. Measuring budget
components as a share of GDP compares their size to the economy as a whole, and implicitly
incorporates inflation and population growth. When GDP falls, however, the percentage of
outlays to GDP tends to rise. Figure 2 shows components of federal spending as a percentage of
GDP since 1962.

77 These categories are defined in the Budget Enforcement Act (P.L. 101-508).
78 OMB, FY2014 Mid Session Review, Table S-4, July 2013.
79 CBO, Budget Projections—May 2013, May 14, 2013, available at http://www.cbo.gov/publication/44195. Years in
this report refer to federal fiscal years unless otherwise noted. Since 1977, federal fiscal years have started on October
1. Figures for FY1962-FY1968 from U.S. Office of Management and Budget, Budget for FY2014, Historical Tables,
available at http://www.whitehouse.gov/omb/budget/Historicals/. Figures for FY1969 and beyond from the U.S.
Congressional Budget Office, Historical Tables, available at http://www.cbo.gov/sites/default/files/cbofiles/
attachments/HistoricalBudgetData.xls.
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Trends in Discretionary Spending

Figure 1. Outlays by Category as a Percentage of Total Outlays
FY1962-FY2018

Source: CRS calculations based on OMB FY2014 data.
Notes: FY2012 values estimated; FY2013-FY2018 values reflect President’s budget proposals.
Total federal outlays as a share of GDP peaked in 2009 as a result of the current economic
situation and federal interventions. While discretionary outlays declined as a percentage of total
outlays in 2009, they rose as a percentage of GDP because the economy shrank in 2008 and early
2009. Since 2010, discretionary outlays have been falling, both in current dollar terms and as a
percentage of GDP. If caps on discretionary spending remain in place, discretionary spending will
continue to fall as a share of GDP. In May 2013, CBO projected that under current law
discretionary spending would fall to 5.5% of GDP by FY2023. That share would be about 15%
lower than its minimum share during the 1990s (6.2% in FY1999).
Congressional Research Service
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Trends in Discretionary Spending

Figure 2. Components of Federal Spending, FY1962-FY2018
FY1962-FY2018

Source: CRS calculations based on OMB FY2013 data.
Notes: FY2013 values estimated; FY2013-FY2018 values reflect President’s budget proposals and OMB GDP
projections.
Because of the decline in discretionary spending as a percentage of total outlays and as a
percentage of GDP and the resulting increase in the share of mandatory spending over time,
controlling the federal budget may have become more difficult for Congress. Roughly speaking,
discretionary defense and discretionary non-defense outlays each comprise about one-seventh of
the federal budget. In other words, because net interest payments and mandatory spending are set
automatically, less money is available to allocate to other government agencies and programs
unless revenues rise or Congress modifies eligibility requirements and benefits of mandatory
spending programs.
Because discretionary funding is provided through an annual budgeting process, this may have
made it easier to target spending restrictions on discretionary programs. Most large mandatory
programs are linked to people’s retirement decisions, so abrupt changes in benefit levels or
eligibility criteria could disrupt financial plans of those already retired or about to retire.80 In the
past, mandatory programs such as Social Security and Medicare have enjoyed broad bipartisan
support. Those considerations may complicate efforts to reduce funding for mandatory programs.

80 For one analysis of the effects of abrupt changes in retirement benefits, see Andries De Grip, Maarten Lindeboom,
and Raymond M. Montizaan, “Shattered Dreams: The Effects of Changing the Pension System Late in the Game,”
Economic Journal, vol. 122, pp. 1-25, 2012.
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Trends in Discretionary Spending

Costs linked to the retirement of the baby-boom generation, born in the years following World
War II, are a major cause of rising mandatory spending. As the U.S. population has aged, the
composition of federal outlays has evolved to reflect needs of the elderly. On the other hand, the
current trajectory of federal spending on health care appears unsustainable, and could place heavy
fiscal burdens on younger generations and generations not yet born.81
Discretionary Spending and National Priorities
Discretionary spending can be categorized in several different ways. These divisions provide a
rough indicator of national priorities as reflected in federal spending decisions. Some of these
categories play or have played a role in budget enforcement mechanisms.
Defense and Non-Defense Spending
One basic division of discretionary spending separates defense programs (budget function 050)
from non-defense programs (everything else). Discretionary spending caps now in place due to
the Budget Control Act, as modified, set separate limits for base budget defense funding and non-
defense funding. Defense spending is typically divided between base budget and war spending,
which supports activities within Overseas Contingency Operations (OCO) or Global War on
Terror (GWOT).82 Figure 3 shows trends in discretionary defense and non-defense BA in real
(i.e., inflation-adjusted) terms since FY1977.83 Projections in Figure 3 reflect spending paths
conforming to the original BCA caps. As noted above, ATRA and the Bipartisan Budget Act of
2014 reduced the scope of BCA spending constraints for FY2013 and FY2014.


81 For additional discussion, see CRS Report RL33623, Long-Term Measures of Fiscal Imbalance, by D. Andrew
Austin.
82 For details, see CRS Report RL33110, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations
Since 9/11
, by Amy Belasco.
83 Inflation adjustments calculated using GDP price index. Prices for some categories of goods and services purchased
by the government, such as health care, tend to rise faster than the overall price level. Maintaining current levels of
government services will require funding levels that increase faster than the overall price level, as measured by the
GDP price index. Figure does not reflect changes in ATRA (FY2013 caps reduced by $4 billion, FY2014 caps reduced
by $8 billion) or the supplemental funding (P.L. 113-2) for disaster relief for damage caused by Hurricane Sandy
(scored at $41.7 billion in emergency-designated budget authority). See discussion about of FY2013 full-year funding
measures for budget scoring information.
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Trends in Discretionary Spending

Figure 3. Defense and Non-Defense Discretionary Spending, FY1977-FY2021
In Billions of FY2012 Dollars of Budget Authority
850
Recovery
HISTORICAL
PROJECTIONS
800
Act
(ARRA)
750
Defense w/War
700
Iraq
650
Afghan war
war
starts
600
starts
Defense Base Budget USSR
550
dissolves
9/11
500
attacks
Berlin Wall
Recession
450
opens
Hurricane
begins
Katrina
400
BEA
FY11 Extrapolated
350
GRH
BEA
enacted
enacted
expires
FY13Seq./
300
dot-com
Lowered Caps
USSR
boom
250
invades
Non-Defense Budget
Afghanistan
200
150
100
50
0
7
79
81
9
1
93
1
3
05
3
5
17
197
19
19
1983
1985
1987
198
199
19
1995
1997
1999
200
200
20
2007
2009
2011
201
201
20
2019
2021

Source: CRS calculations based on CBO and OMB FY2013 historical budget data. See “An Update to the Budget and Economic Outlook: FY2012 to FY2022, August
2012, available at http://www.cbo.gov/sites/default/files/cbofiles/attachments/43539-08-22-2012-Update_One-Col.pdf. OMB data are available at
http://www.whitehouse.gov/omb/budget/Supplemental/. Estimates of war costs taken from CRS Report RL33110, The Cost of Iraq, Afghanistan, and Other Global War on
Terror Operations Since 9/11
, by Amy Belasco. Figure does not reflect changes in ATRA or the Sandy supplemental (P.L. 113-2).
CRS-22

Trends in Discretionary Spending

Spending trends can also be measured as shares of GDP, which reflects how federal spending
compares with the size of the economy. Figure 4 shows trends in base defense and non-defense
discretionary BA as a share of GDP over the period 1969-2017. BA as a percentage of GDP
reflects changes in population and growth in per-capita income, which may affect the costs of
federal programs. How population changes affect federal spending may also depend on whether
specific governmental services are subject to scale economies. For instance, a 10% increase in
population might require resources devoted to individual health care services to rise by 10% in
order to maintain the same level of service, other things equal. For many governmental services,
one might expect to find substantial scale economies. For example, an increase in population
would likely not be expected to raise the costs of information-generating activities, such as
medical and scientific research, or national defense activities.
Figure 4. Discretionary Budget Authority as % of GDP
FY1977-FY2021
8%
HISTORICAL
PROJECTIONS
7%
6%
Defense Base
5%
FY13 Seq/
Lowered
Caps

4%
3%
Non-Defense Historical
2%
7
9
1
3
85
87
89
1
3
5
7
9
1
03
05
7
9
1
3
15
17
9
1
197
197
198
198
19
19
19
199
199
199
199
199
200
20
20
200
200
201
201
20
20
201
202

Source: CRS analysis of OMB historical data and March 2012 CBO data.
Notes: Defense is base discretionary funding within function 050; al other budget functions are defined as non-
defense discretionary spending. FY2013-FY2021 reflect January 2013 sequester and later lowered caps. Estimates
of war costs, which were subtracted, are taken from CRS Report RL33110, The Cost of Iraq, Afghanistan, and
Other Global War on Terror Operations Since 9/11
, by Amy Belasco.
The Reagan Administration when it took office in 1981 sought to increase defense spending and
reduce spending on domestic programs.84 Budget enforcement measures were introduced in the

84 For an account written by President Reagan’s first budget director, see David A. Stockman, The Triumph of Politics,
(New York: Harper & Row, 1986).
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Trends in Discretionary Spending

mid-1980s to control rising federal deficits. In 1985, the Gramm-Rudman-Hollings (GRH) deficit
control legislation and subsequent measures were enacted with the aim of constraining federal
spending. In 1990, the Budget Enforcement Act (BEA; P.L. 101-508) set statutory caps on
discretionary spending and imposed other budgetary enforcement mechanisms, which many
analysts view as having helped constrain federal spending, increase federal revenues, and thus,
reduce deficits. In the decade after the attacks of September 11, 2001 and the expiration of
statutory spending caps at the end of FY2002, however, both defense and non-defense
discretionary spending rose in real terms. Trends in defense and non-defense spending are
discussed in more detail below.
Discretionary Defense Spending
Base budget defense spending in real terms has risen and fallen to reflect national security
challenges and changes in policy priorities.85 Defense spending increased sharply in the mid-
1960s as the United States’ involvement in Vietnam deepened. After large-scale withdrawals of
American troops from Vietnam began in 1969, defense spending as a share of GDP fell for the
next decade. In the mid-1970s, when the United States took a less confrontational diplomatic
stance towards the Soviet Union, termed détente, defense spending grew modestly. The Soviet
invasion of Afghanistan in 1979, however, prompted the Carter Administration, and then the
Reagan Administration during the early 1980s to boost military expenditures. By the mid-1980s,
however, concerns about large deficits helped constrain defense spending. After the fall of most
European communist regimes in 1989 and the dissolution of the Soviet Union in 1991, defense
spending declined. Costs of the first Iraq War (1990-1991) were shouldered by U.S. coalition
partners.86
After the attacks of September 11, 2001, defense spending rose sharply as the United States began
military operations in Afghanistan, but also included dramatic increases in non-war or base
budget funding. War in Iraq, which began in 2003, amplified demands for higher defense
spending. War costs have fallen since the drawdown of troops participating in the 2007 surge of
forces in Iraq and the withdrawal of combat troops from Iraq at the end of calendar 2011. Further
reductions in war costs are expected as troops are withdrawn from Afghanistan.87 Decisions about
major procurement programs and possible changes in Budget Control Act budget enforcement
mechanisms could also affect trends in defense spending.
Ups and downs in defense spending have primarily reflected changes in investment funding for
modernization of weapon systems and support equipment, and conducting Research,
Development, Test & Evaluation (RDT&E) on new systems.88 Defense investment typically
grows when support for defense spending is high, such as in wartime or the early 1980s, and then
falls as support dips and other issues become more pressing, with peaks in investment offsetting
later valleys. Trends in base defense spending over the past decade may not reflect the full extent
of the growth in defense costs, because it does not include about $300 billion in war-related

85 This section draws upon contributions from Amy Belasco, CRS Specialist in U.S. Defense Policy and Budget.
86 See CRS Report RS22926, Costs of Major U.S. Wars, by Stephen Daggett, Table 1, note b.
87 For details, see CRS Report RL33110, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations
Since 9/11
, by Amy Belasco; and CRS Report R40682, Troop Levels in the Afghan and Iraq Wars, FY2001-FY2012:
Cost and Other Potential Issues
, by Amy Belasco.
88 See Figure 1 in CRS Report R42334, A Historical Perspective on “Hollow Forces,” by Andrew Feickert and
Stephen Daggett.
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Trends in Discretionary Spending

investment in weapon systems, which will likely remain in the inventory for many years to come.
By contrast, wartime operating costs, such as training and support of personnel, do not contribute
to modernization.
Defense Spending as a Percentage of GDP
Discretionary defense spending accounts for a much smaller share of GDP in recent years than
during World War II, the Korean War, or the Vietnam War.89 At the height of the Vietnam War in
FY1969, defense outlays were 8.7% of GDP. Moreover, with compulsory military service, which
was in effect until 1973, the budgetary costs of war understated the full economic costs of
national defense, because many draftees were prevented from pursuing other opportunities.90
As noted above, defense spending fell during the 1970s, rose rapidly following the Soviet
invasion of Afghanistan, and fell after the collapse of most of the USSR’s Warsaw Pact allied
governments in 1989 and the dissolution of the USSR itself in 1991. Discretionary defense
outlays, which had fallen to 3.0% of GDP by the late 1990s, rose sharply to 4.0% of GDP in
2005, and reached 4.7% of GDP in 2011, divided between 3.6% for the base defense budget and
1.1% for war funding (Overseas Contingency Operations; OCO). In FY2012 and FY2013 defense
outlays as a share of GDP have been falling, in large part due to the withdrawal of combat troops
from Iraq that was completed in December 2011. A withdrawal of most troops from Afghanistan
is expected by the end of 2014.91
Increased defense outlays accounted for 53% of the real increase in total discretionary outlays
over the decade of 2000-2010, rising 6.8% per year on average in real terms.92
How Much Defense Spending Is Appropriate?
The appropriate size of the defense budget has long been a lively topic of debate. In 2007,
General Mike Mullen, then chairman of the Joint Chiefs of Staff, said that he considered 4% of
GDP “an absolute floor” for future defense spending.93 Some analysts have expressed some
doubts about the sustainability of current defense budget plans.94 Others contend that defense
expenditures as a proportion of GDP should fall over the long term because the cost of defending
the nation depends on factors that are largely independent of economic growth. Geopolitical

89 See Table 1 in CRS Report RS22926, Costs of Major U.S. Wars, by Stephen Daggett.
90 RAND, The Evolution of the All-Volunteer Force, issue brief, 2006; available at http://www.rand.org/content/dam/
rand/pubs/research_briefs/2006/RAND_RB9195.pdf. For an analysis of the full economic costs of the draft, see Walter
Oi, “The Economic Cost of the Draft,” American Economic Review vol. 27, no. 2 (1967), pp. 39-62.
91 Scott Wilson and David Nakamura, “Obama Announces Reduced U.S. Role in Afghanistan Starting this Spring,”
Washington Post, January 11, 2013.
92 Defense discretionary spending includes enacted supplemental requests. OMB, Budget for Fiscal Year 2011,
Historical Tables, Table 8.2, available at http://www.whitehouse.gov/omb/budget/Historicals/. 2010 spending includes
proposed $41.1 billion supplemental appropriation.
93 New York Times, October 22, 2007. Transcript available at http://www.nytimes.com/2007/10/22/washington/
22mullen-text.html.
94 Testimony of CBO Assistant Director J. Michael Gilmore, in U.S. Congress, House Budget Committee, The 2009
Future Years Defense Program: Implications and Alternatives
, hearings, 111th Cong., 1st sess., February 4, 2009;
Testimony of CRS Specialist in Defense Policy and Budgets Stephen Daggett, in U.S. Congress, House Budget
Committee, Sustainability of Current Defense Plans, hearings, 111th Cong., 1st sess., February 4, 2009.
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Trends in Discretionary Spending

challenges, wars, major procurement programs, and changes in national spending priorities have
spurred swings in defense spending in past decades.
Former Secretary of Defense Robert Gates called for cost-cutting measures within the
Department of Defense (DOD), although the stated aim is not to reduce the Department’s top-line
budget number.95 Former Secretary of Defense Leon Panetta has raised concerns that cuts
required by the Budget Control Act could have serious effects.96 On the other hand, the Budget
Control Act would have brought discretionary base defense spending in inflation-adjusted terms
back to its FY2007 level. With modifications made in the American Taxpayer Relief Act of 2012
(see above), real discretionary base defense spending after sequestration would revert to a level
between its FY2007 and FY2008 levels.
In early 2013, DOD leaders issued guidance on budget strategies to handle uncertainties raised by
sequestration and the FY2013 continuing resolution (P.L. 112-175) that provides funding through
March 27.97 DOD budget guidance includes protection of war operations and programs associated
with new strategic priorities; reduction of administrative and civilian personnel costs; and
deferring less critical maintenance. Some analysts argue that budgetary constraints may require a
larger reconsideration of strategic goals of DOD.98
Non-Defense Discretionary Spending
Non-defense spending supports the largest number of federal agencies and programs, including
science and technology research, natural resources, energy, education, and numerous others. None
of the individual programs within the non-defense discretionary category have approached 1% of
GDP since 1962, and funding for most of these programs was less than 0.5% of GDP during that
period.
Non-defense discretionary spending in recent decades has typically ranged between 3% and 4%
of GDP. In 1969, during the Vietnam War, non-defense spending was 3.6% of GDP. After rising
to a peak of 5.2% in 1980, non-defense discretionary spending’s share of GDP fell during the
Reagan Administration, reaching 3.5% of GDP in 1987.99 Since then it fluctuated between 3.2%
and 3.8% of GDP until 2009. Non-defense discretionary spending rose to 4.6% of GDP in 2010
reflecting a decline in GDP (reducing the denominator of that share) due to the economic
recession and policy responses such as the American Recovery and Reinvestment Act of 2009
(ARRA; H.R. 1, P.L. 111-5). Since that year, non-defense discretionary spending has declined in

95 U.S. Secretary of Defense, Memorandum for Secretaries of the Military Departments, OSD 09637-10, August 16,
2010.
96 Secretary of Defense, Leon Panetta, “Letter to Senator McCain and Senator Lindsey Graham,” November 14, 2011;
http://www.politico.com/static/PPM205_11_14_11_panetta_respsonse_to_mccain_graham_ltr.html (sic).
97 Deputy Secretary of Defense Ashton B. Carter, Memorandum on Handling Budgetary Uncertainty in Fiscal Year
2013, January 10, 2013.
98 Michael O’Hanlon, “What Cutting Defense Really Means,” Wall Street Journal, January 30, 2013, p. A13. See also
Gordon Adams, “Behind the Rhetoric: The Pentagon Starts to Manage the Defense Drawdown,” Foreign Policy,
January 15, 2013, available at http://www.foreignpolicy.com/articles/2013/01/15/behind_the_rhetoric.
99 For one view of the federal budget during the first years of the Reagan Administration, see David Stockman, The
Triumph of Politics
(New York: Harper&Row, 1986), pp. 401-411.
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Trends in Discretionary Spending

real terms and as a percentage of GDP. According to CBO current-law projections, non-defense
discretionary spending will fall to 2.7% in 2023.100
International Discretionary Spending
Some discretionary spending constraints in the 1980s and 1990s set separate caps for defense,
domestic, and international (budget function 150) spending.101 Demands for funding international
programs have varied dramatically with changing geopolitical conditions.
In the past decade, international spending (budget function 150) has been strongly affected by
wars in Afghanistan and Iraq. Discretionary spending for international programs since 1969 has
averaged 0.3% of GDP, reaching its peak of 0.5% of GDP in 1975. International spending had
trended downward from the early 1980s until the start of the Iraq war in 2003. Between 2001 and
2010, spending on international programs rose from 0.2% of GDP to 0.3% of GDP. The majority
of the funding in this category in recent times has been devoted to diplomatic missions, foreign
aid, and international finance. The future trajectory of international funding may depend on how
the role of the United States evolves in Iraq, Afghanistan, and neighboring countries.
Discretionary Security and Non-Security Spending
The G. W. Bush and Obama Administrations have each created their own division of security and
non-security discretionary spending as a way of communicating their budgetary priorities. The
Obama and Bush Administration budgets have presented summaries of discretionary funding that
split out security spending from non-security spending.102 Unlike the division of discretionary
spending into the categories of domestic, international, and defense, which has become routine in
budget analyses, several ways of dividing security spending from non-security spending have
been used. In particular, the G. W. Bush and Obama Administration definitions vary in significant
ways.
The Budget Control Act of 2011 includes two definitions of security spending: an original
definition (explained below) and a revised definition corresponding to the national defense budget
function (050) and non-defense (all other programs).103 These BCA security categories set up
“firewalls” to ensure that reductions in security spending cannot be used to fund increases in non-
security spending, and vice versa. The American Taxpayer Relief Act of 2012 (ATRA) switched
FY2013 caps to security/non-security from defense/nondefense.104

100 CBO, Budget Projections—May 2013, May 14, 2013, available at http://www.cbo.gov/publication/44195.
101 For instance, the Budget Enforcement Act of 1990 (P.L. 101-508) set separate caps on defense, domestic, and
international spending through 1993, with caps on total spending for later years.
102 For details, see U.S. Office of Management and Budget, Budget of the U.S. Government, FY2009, Tables S-2 and S-
4, and the “Homeland Security Funding Analysis” chapter in the Analytic Perspectives volume. In circular A-11, OMB
defines federal homeland security activities as those that “focus on combating and protecting against terrorism, and that
occur within the United States and its territories or outside of the United States and its territories if they support
domestically-based systems or activities. Such activities include efforts to detect, deter, protect against, and, if needed,
respond to terrorist attacks.”
103 BCA limits also include separate cap adjustments for program integrity and disaster assistance.
104 Caps in ATRA were set at $684 billion for defense and $359 billion for nondefense.
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What Is “Homeland Security” or “Security” Spending?
Any division of spending into security and non-security components would likely present
conceptual and practical difficulties.105 Moreover, the widely used term “homeland security,”
which comprises some but not all non-defense security spending, does not already readily
translate in budgetary categories.106 Figure 5 provides a schematic view of the relationship
between defense spending (budget function 050) and security spending as defined in the Budget
Control Act. That definition nearly coincides with the security definition used by the Obama
Administration. The Obama Administration has defined security spending as funding for
• Department of Defense-Military;
• Department of Energy’s National Nuclear Security Administration;
• International Affairs (function 150; includes State Department and U.S. AID);107
• Department of Homeland Security; and
• Department of Veterans Affairs.108
The Budget Control Act of 2011 (BCA), in addition to items on that list, includes the Intelligence
Community Management Account, which is far smaller than the other items. The BCA “revised
security” category for discretionary spending, as noted above, is national defense (budget
function 050) and non-defense (everything else).
Activities within budget subfunction 053 (Atomic Energy Defense Activities), aside from the
National Nuclear Security Administration (NNSA) by this definition are classed as non-security.
While the G. W. Bush Administration defined parts of the Department of Homeland Security
within its “security” classification, the Obama Administration includes all of that department’s
funding.
The G. W. Bush Administration defined security funding as spending on the “Department of
Defense, Homeland Security activities Government-wide; and International Affairs.”109 The
Obama Administration includes funding for the Department of Veterans Affairs and excludes
Justice Department agencies such as the Federal Bureau of Investigation (FBI) under its security
rubric, while the Bush Administration’s definition included the FBI and other law enforcement
bureaus and excluded the Department of Veterans Affairs.

105 For a discussion of defining security or homeland security, see U.S. Congressional Budget Office, “Federal Funding
for Homeland Security: An Update,” Economic and Budget Issue Brief, July 20, 2005.
106 CRS Report R42462, Defining Homeland Security: Analysis and Congressional Considerations, by Shawn Reese.
107 U.S. Agency for International Development.
108 See notes to U.S. Office of Management and Budget, Budget of the U.S. Government, FY2013, Tables S-11.
109 U.S. Office of Management and Budget, Budget of the U.S. Government, FY2009, Table S-2.
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Figure 5. How Defense and Security Intersect: A Schematic View

Source: OMB, Dept. of Defense, CRS. See text for explanations.
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Most homeland security spending, by either definition, takes place in the Department of Defense,
the Department of Homeland Security, and the Department of Energy. Many other federal
agencies spend at least some portion of their budget on what are arguably homeland security
tasks, so that a significant amount of homeland security spending takes place in agencies and
programs whose primary focus is not security oriented. Some federal activities, such as Coast
Guard patrols and research at the Centers for Disease Control and Prevention, advance interests
clearly linked to security objectives as well as those which are not. Moreover, some federal
programs tasked with non-security aims in normal times may respond to specific homeland
security challenges. These issues complicate budgetary analyses of homeland security spending.
The President’s budget submission must report homeland security spending.110 This definition,
drawn more narrowly than “security,” can exclude some DOD activities not closely tied to
security concerns, such as military bands, while including certain non-DOD activities such as
National Institutes of Health research on countermeasures against chemical or biological
weapons. OMB’s security spending estimates are based on reports from 32 agencies with
homeland security responsibilities. Those agencies provide OMB with budget reports that provide
a level of detail unavailable in publicly available data.
Trends in “Security” and “Non-Security” Discretionary Spending
Figure 6 shows trends in discretionary spending, divided into defense, non-defense security, and
non-security categories in terms of budget authority, while Figure 7 shows the same categories in
terms of outlays. Because budget authority can translate into outlays that stretch over several
years, changes in outlays tend to be more gradual. For example, a spike in non-defense security
spending for 2005, reflecting disaster spending following Hurricane Katrina and other
catastrophic events, appears in the budget authority figure, but not in the outlays figure. Similarly,
the spending spike reflecting Recovery Act spending is narrower for BA than for outlays.
Trends in non-defense security spending can also be decomposed to show how its components
have changed over time. Figure 8 shows outlays for non-defense security spending programs
since 1976.111
Non-defense security programs have been affected by a wide range of policy developments.
International program spending fell in the 1980s and 1990s, but rose sharply after the events of
September 11, 2001. Spending on federal operations now contained within DHS also increased
dramatically after that date. The costs of discretionary veterans’ programs also have risen rapidly
in the past decade, although more driven by the aging of Korean War and Vietnam War era
veterans and expanded access to VA medical care. Only a small part of the increase in VA

110 The Homeland Security Act of 2002 (P.L. 107-296) requires this report, which supersedes a report on anti-terrorism
activities mandated by the National Defense Authorization Act of 1998 (P.L. 105-85). An appendix (Homeland
Security Mission Funding by Agency and Budget Account
) is contained in the FY2013 Budget, Analytical Perspectives
volume, available at http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/homeland_supp.pdf.
111 Funding levels prior to the establishment of Department of Homeland Security (DHS) and National Nuclear
Security Administration (NNSA) shown in Figure 7 reflect imputations calculated by OMB or the author. Congress
established the DHS in 2003 (P.L. 107-296), which combined dozens of security-related offices under one agency,
including the Transportation Security Agency (TSA) to monitor airport security, a new high priority after the 9/11
attacks. DHS began operating on March 1, 2003. The NNSA, which handles nuclear weapon programs within the
Energy Department, was established in the FY2000 National Defense Authorization Act (P.L. 106-65, Title XXXII).
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discretionary costs is due to the costs of treating veterans from the wars in Afghanistan and
Iraq.112
Figure 6. Discretionary Budget Authority by Security Category
FY1976-FY2018, as a Percentage of GDP

Source: CRS analysis of OMB and BEA data.
Notes: The security category reflects BCA original definition, except that war funding (OCO) is included.
Defense here includes Dept. of Defense-Military spending. Non-defense security includes Dept. of Energy’s
National Nuclear Security Admin., International Affairs (function 150), Dept. of Homeland Security and Dept. of
Veterans Affairs, and Intelligence Community Management account. FY2012 values estimated; FY2013-FY2018
levels requested by the President. Historical data reflect certain OMB imputations.

112 Department of Veterans Affairs, “FY2012 Budget Rollout,” February 14, 2011.
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Figure 7. Discretionary Outlays by Security
FY1976-FY2018, as a Percentage of GDP

Source: OMB and BEA.
Note: See notes for Figure 6.
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Figure 8. Non-Defense Security Outlays by Component
BCA Definition; as a Percentage of GDP, FY1976-FY2018

Source: CRS analysis of OMB data.
Notes: Dept. of Defense-Military is budget function 051; NNSA is the Dept. of Energy’s National Nuclear
Security Administration; International Affairs are function 150; DHS is the Dept. of Homeland Security. FY2013
values estimated; FY2014-FY2018 are President’s requested levels.
Discretionary Spending by Functional Category
Federal activities are classified among budget functions. Analyzing trends by budget function
provides a more detailed view of how federal spending has evolved. Figure 9 shows average
annual changes in discretionary spending for the last three decades and for FY2011-FY2017.113
Spending in some policy areas, such as community and regional development, agriculture, natural
resources and environment, and general government, has grown very slowly or has been cut.
Spending in other areas, such as war costs, veterans’ programs, international affairs, and Medicare
administration, has expanded rapidly in the last decade.114 Unless this trend is restrained or
reversed, security-related non-defense spending could displace funding for other non-defense
programs. Similarly, protecting non-defense programs that have benefited from broad bipartisan
support could lead to deeper reductions in less prominent programs.

113 Spending levels for FY2013-FY2017 reflect the Administration’s FY2013 budget proposals.
114 For a more detailed analysis of spending trends, see CRS Report R41726, Discretionary Budget Authority by
Subfunction: An Overview
, by D. Andrew Austin.
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Figure 9. Average Growth Rates for Discretionary BA by Subfunction
Average Annual Percentage Change by Decade and for FY2011-FY2017
-9%
-6%
-3%
0%
3%
6%
9%
Defense Base budget
Intl. affairs
Gen. science, space, & tech
Energy
Natural resources & environment
Agriculture
Commerce & housing credit
Transportation
Community & regional dev.
Educ., training, empl. & soc. services
Health
Medicare
Income security
Social security
1981-1991
1991-2001
Veterans benefits & services
2001-2011
Admin. of justice
2011-2017
Gen. government

Source: CRS calculations based on FY2013 OMB data and projections.
Notes: Values for FY2011-FY2017 incorporate OMB projections that presume the Administration’s proposals
for FY2013-FY2017 are adopted. The Administration proposes modifications to BCA as part of a package of
budgetary changes. All years are fiscal years. The budgetary treatment of federal credit programs changed in
1990, affects comparisons of programs that include loans and loan guarantees. See CRS Report R42632,
Budgetary Treatment of Federal Credit (Direct Loans and Loan Guarantees): Concepts, History, and Issues for the 112th
Congress
, by James M. Bickley. Budget function data were designed to reflect funding for policy objectives across
various agencies. For example, the Department of Homeland Security includes programs that fal within many
budget functions, including Transportation, Administration of Justice, Community and Regional Development.

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Conclusion: Is the Declining Share of Discretionary
Spending a Problem?

While discretionary spending, which chiefly funds the operations of federal agencies, accounts
for about two-sevenths of federal outlays, it has been at the center of efforts to restrain federal
spending. In addition, long-term trends—to large extent baby-boom demographics and health
care costs—have helped tilt federal spending towards mandatory programs. Under current law,
discretionary spending is projected to shrink to 24% of federal outlays by FY2023.115 In that year,
discretionary spending is projected at $1.4 trillion (current dollars).
While the federal deficit is projected to fall in FY2014 and FY2015, higher interest costs and
mandatory spending are expected to increase fiscal pressures in later years. For example, in
FY2023, the federal deficit is projected to rise $900 billion. Closing the gap between federal
spending and receipts through reductions in discretionary spending, therefore, may be difficult.
The shift toward mandatory spending and away from discretionary spending may raise concerns
for two reasons. First, as the portion of the federal budget controlled on a year-by-year basis
shrinks, making adjustments in spending levels may become more difficult. Mandatory spending,
which requires changes in authorizing legislation, is not normally considered on an annual basis.
Moreover, existing budget enforcement mechanisms are largely designed to constrain
discretionary spending, while measures that can be used to reduce mandatory spending have been
more difficult to apply in recent years.
Second, the rise of mandatory programs’ share of federal spending reflects an aging population.
Policymakers may choose to adapt the structure of the federal budget to reflect the needs of a
growing segment of retired or elderly Americans. Such shifts in resource allocation, however,
could affect intergenerational equity and the federal government’s ability to respond to the needs
of future generations.

115 CBO, Budget Projections—May 2013, May 14, 2013, available at http://www.cbo.gov/publication/44195.
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Appendix. Defense and Non-Defense Spending,
FY1977-FY2012

Table A-1 shows National Defense (budget function 050) and Non-Defense (all other) spending
(BA) in current dollars and in constant FY2012 dollars (i.e., adjusted for inflation). These figures
exclude funding for the Iraq and Afghan wars and related activities.
Table A-1. National Defense and Non-Defense Spending, FY1977-FY2012
National Defense without Afghan and Iraq Wars
Non-Defense without Afghan and Iraq Wars
In Billions of Dollars of Budget Authority
In Billions of Dollars of Budget Authority
Fiscal Year
In Current $
In $FY2012
Fiscal Year
In Current $
In $FY2012
1977 110.4 340.6 1977 136.5 421.1
1978 117.3 339.3 1978 142.6 412.3
1979 126.9 339.5 1979 149.1 399.0
1980 144.5 355.3 1980 166.7 409.9
1981 180.4 403.8 1981 160.5 359.2
1982 217.2 454.9 1982 138.4 289.9
1983 245.0 491.6 1983 143.3 287.6
1984 265.6 513.9 1984 158.1 305.8
1985 294.9 552.6 1985 161.7 303.1
1986 289.6 530.5 1986 148.3 271.6
1987 288.0 513.7 1987 157.8 281.5
1988 292.5 505.6 1988 160.8 277.9
1989 300.1 499.3 1989 171.0 284.6
1990 303.9 487.8 1990 192.8 309.4
1991 332.2 513.7 1991 213.9 330.7
1992 299.1 450.8 1992 232.3 350.1
1993 276.1 407.2 1993 247.2 364.5
1994 262.2 378.7 1994 250.3 361.5
1995 262.9 371.8 1995 238.5 337.3
1996 265.2 367.9 1996 235.8 327.1
1997 266.2 362.7 1997 245.0 333.7
1998 272.4 366.4 1998 257.2 346.0
1999 288.3 382.8 1999 293.5 389.7
2000 300.8 391.5 2000 283.6 369.2
2001 313.4 398.6 2001 332.1 422.4
2002 346.2 433.1 2002 373.1 466.9
2003 377.6 463.0 2003 390.7 479.1
2004 413.3 494.2 2004 401.1 479.6
2005 397.2 460.1 2005 482.7 559.0
2006 439.7 492.5 2006 435.5 487.8
2007 457.5 497.7 2007 443.9 482.8
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National Defense without Afghan and Iraq Wars
Non-Defense without Afghan and Iraq Wars
In Billions of Dollars of Budget Authority
In Billions of Dollars of Budget Authority
Fiscal Year
In Current $
In $FY2012
Fiscal Year
In Current $
In $FY2012
2008 506.7 538.8 2008 487.3 518.2
2009 546.7 573.0 2009 790.2 828.2
2010 551.9 573.3 2010 538.0 558.7
2011 552.2 562.2 2011 498.0 507.2
2012 554.3 554.3 2012 489.0 489.0
Sources: OMB and CBO.
Notes: Deflated with OMB’s GDP price index. War funding estimates from CRS Report RL33110, The Cost of
Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11
, by Amy Belasco.

Author Contact Information

D. Andrew Austin

Analyst in Economic Policy
aaustin@crs.loc.gov, 7-6552


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