Contents

• Defense Discretionary Spending Trends
• Nondefense Discretionary Spending Trends
• Mandatory Spending

This In Brief summarizes projections for major components of the federal budget from the February 2026 Congressional Budget Office (CBO) budget outlook,¹ the Trump Administration FY2027 budget submission² issued in April 2026, and CBO's June 2026 reestimate³ of Administration fiscal proposals. Scoring⁴ of legislative proposals compares the trajectory of spending and revenues relative to CBO baseline projections,⁵ which indicate the trajectory of federal spending under current law. Most CBO reestimates closely track Office of Management and Budget (OMB) levels for major budget aggregates.

Federal spending can be divided between discretionary and mandatory categories, which reflects how Congress provides that funding. Discretionary spending is provided for and controlled by annual appropriations laws. Other types of laws fund mandatory spending. Net interest is technically a form of mandatory spending but is typically reported separately. According to CBO baseline estimates⁶ for FY2026, discretionary budget authority (BA) will be 5.5% of gross domestic product (GDP), and discretionary outlays would be 5.9% of GDP. BA allows agencies to make financial obligations, such as contracts, grants, and salaries. Once those obligations come due, outlays are made. FY2026 mandatory outlays are an estimated 14.2% of GDP, and net interest accounts for 3.3% of GDP. Outlays are generally a better measure of the scale of mandatory programs. Over time, the share of mandatory outlays has increased and that of discretionary spending has decreased.

Since FY2002, federal outlays have exceeded revenues, resulting in a series of deficits (Figure 1). An updated CBO estimate⁷ projects the FY2026 deficit to be $2.1 trillion, or 6.6% of GDP.

Figure 1. Discretionary, Mandatory, and Net Interest Outlays with Revenues As percentage of GDP, FY1962-FY2031

Source: CRS calculations based on Office of Management and Budget (OMB) data. Note: BA = budget authority; BEA = Bureau of Economic Analysis; GDP = gross domestic product. See CRS Insight IN12691, President's FY2027 Budget Request in Historical Context: Outlays, by D. Andrew Austin.

Defense Discretionary Spending Trends

Defense discretionary spending is typically defined by the National Defense (050) budget function, which mostly covers Department of Defense (DOD) military activities and Department of Energy (DOE) nuclear weapons programs, as well as counterintelligence activities of the Federal Bureau of Investigation (FBI) and the Cybersecurity and Infrastructure Security Agency (CISA). (DOD is "using a secondary Department of War designation" under Executive Order 14347 dated September 5, 2025.) Mandatory spending had been a small fraction of defense spending until the 2025 reconciliation act (P.L. 119-21) provided $150 billion in net mandatory defense funding⁸ over the FY2025-FY2034 period.⁹ That act also provided $129 billion in funding to the Department of Homeland Security (DHS) over the same period.

Figure 2 shows defense discretionary BA as a share of GDP since 1980. Defense spending increased sharply after the Soviet Union's 1979 invasion of Afghanistan, but declined after the mid-1980s as concerns rose about expensive new weapons systems,¹⁰ procurement scandals,¹¹ and rising deficits.¹²

Figure 2. National Defense Discretionary Budget Authority As percentage of GDP, FY1980-FY2035

Source: Office of Management and Budget (OMB) FY2027 budget submission and February 2026 Congressional Budget Office (CBO) current-law baseline projections. Note: GDP = gross domestic product. National Defense is budget function 050.

Defense spending continued falling after Soviet-dominated communist regimes collapsed in 1989 and the Soviet Union dissolved¹³ in 1991. Spending again rose after the attacks of September 11, 2001, and the subsequent wars in Afghanistan and Iraq. Since the 2008 Status of Forces Agreement¹⁴ with Iraq, defense spending had been falling as a share of GDP. The baseline estimate for FY2026 discretionary defense BA was 2.8% of GDP. The Administration requested $1,154 billion in defense discretionary funding for FY2027, about 3.4% of GDP. The Administration has since requested¹⁵ $67.1 billion in war funding.¹⁶ Congress is considering whether and, if so, how and at what scale to provide war funding.¹⁷

Nondefense Discretionary Spending Trends

Nondefense discretionary spending, in general, covers costs of running government operations outside of the National Defense budget function. This includes most spending attributable to the Department of Veterans Affairs (VA), DHS, the Department of Health and Human Services (HHS), the Department of Transportation (DOT), the Department of Education (ED), and other agencies and offices. Some agencies, such as HHS, oversee large amounts of mandatory spending.

Figure 3 shows nondefense spending as a share of GDP. Nondefense spending as a percentage of GDP nearly halved in the 1980s before moving within the 3%-4% range for most following years.

Figure 3. Nondefense Discretionary Budget Authority As percentage of GDP, FY1980-FY2035

Source: Office of Management and Budget (OMB) FY2027 budget submission and February 2026 Congressional Budget Office (CBO) current-law baseline projections. Note: GDP = gross domestic product. Nondefense comprises budget functions other than National Defense (050).

Nondefense spending rose sharply as federal programs responded to the 2007-2009 Great Recession and the COVID-19 pandemic.¹⁸ The baseline estimated for FY2026 discretionary nondefense BA was 2.7% of GDP. The Administration has proposed significant reductions in nondefense discretionary funding, which would amount to less than 2% of GDP by FY2028.

Mandatory Spending

Large social insurance and health programs account for most mandatory outlays. Discretionary funding typically finances administrative operations. Figure 4 shows outlay trends for the largest mandatory program, Social Security.¹⁹ During severe recessions, such as in the early 1980s and the 2007-2009 Great Recession, those outlays rose. Demographics also play a role. The oldest cohort of baby boomers reached age 65 around 2011. As that generation's retirement has proceeded, the pool of Social Security beneficiaries has expanded. In recent years, Social Security outlays have exceeded its income, leading to concerns about its finances.²⁰

Figure 4. Social Security Mandatory Outlays As percentage of GDP, FY1980-FY2035

Source: Office of Management and Budget (OMB) FY2027 budget submission and February 2026 Congressional Budget Office (CBO) current-law baseline projections. CBO baseline and reestimate projections coincide. Note: GDP = gross domestic product.

Medicare²¹ (Figure 5), the largest federal health program, finances care for individuals over 65 years and some younger persons with specific medical conditions. Various parts of Medicare cover hospital care, medical services, drugs, and other health goods and services.

Since Medicare was established in 1965, outlays have been rising due to an expanding pool of beneficiaries and health care cost inflation. Medicare outlays have dipped when major health care reforms have been under consideration, such as in the late 1970s, mid-1990s, and 2009-2010. Outlays rose sharply at the onset of the COVID-19 pandemic. Going forward, the aging of the U.S. population²² and health care cost inflation are expected to increase Medicare outlays.

Figure 5. Medicare Mandatory Outlays As percentage of GDP, FY1980-FY2035

Source: Office of Management and Budget (OMB) FY2027 budget submission and February 2026 Congressional Budget Office (CBO) current-law baseline projections. CBO baseline and reestimate projections coincide. Note: GDP = gross domestic product.

Figure 6 shows outlay trends for other federal health programs, including Medicaid²³ and the Children's Health Insurance Program (CHIP).²⁴ Medicaid is a joint federal-state program that covers health care costs of low-income children, adults, elderly persons, and persons with disabilities. Children are nearly half of Medicaid and CHIP enrollment,²⁵ but most spending supports care for the aged and individuals with disabilities. In 2009, health care reforms²⁶ gave states incentives to expand Medicaid eligibility. During the COVID-19 pandemic, federal funding for Medicaid²⁷ rose, expanding enrollment for a while. The 2025 reconciliation act's policy changes along with state-level changes²⁸ are expected to reduce outlays and decrease enrollment.²⁹

Figure 6. Medicaid and Other Health Programs As percentage of GDP, FY1980-FY2035

Source: Office of Management and Budget (OMB) FY2027 budget submission and February 2026 Congressional Budget Office (CBO) current-law baseline projections. Note: GDP = gross domestic product. Outlays within budget function Health (550) support Medicaid, the Children's Health Insurance Program (CHIP), other health care services, health research and training, and consumer and occupational health. CBO baseline and reestimate projections largely coincide for this category.

Figure 7 shows trends for income support mandatory outlays, which include the refundable portions of the Earned Income Tax Credit (EITC),³⁰ the Child Tax Credit,³¹ the Supplemental Nutrition Assistance Program (SNAP),³² Supplemental Security Income (SSI),³³ and the federal portion of unemployment insurance.³⁴

Figure 7. Income Security Programs As percentage of GDP, FY1980-FY2035

Source: Office of Management and Budget (OMB) FY2027 budget submission and February 2026 Congressional Budget Office (CBO) current-law baseline projections. Note: GDP = gross domestic product. Budget function 600 includes the refundable portion of the Earned Income Tax Credit (EITC), the Child Tax Credit, the Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI), the federal portion of the unemployment insurance program, and various other family and nutrition programs. CBO baseline and reestimate projections largely coincide for this category.

Figure 8 shows trends for other mandatory outlays. As with many other mandatory categories, those outlays typically rise during recessions, as seen in the years following the 1999-2000 dot-com boom and the 2007-2009 financial crisis. Responses to the COVID-19 pandemic,³⁵ such as the CARES Act (P.L. 116-136), and other measures, such as the law commonly known as the Inflation Reduction Act (P.L. 117-169), increase other mandatory spending above previous levels. The small negative value for FY2010 reflects certain transactions with government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac,³⁶ which had been put under receivership, as well as the prefunding of U.S. Postal Service pension costs.³⁷ Defense and homeland security programs, as noted above, received large amounts of mandatory funding in the 2025 reconciliation act (P.L. 119-21).

Figure 8. Other Mandatory Outlays As percentage of GDP, FY1980-FY2035

Source: Office of Management and Budget (OMB) FY2027 budget submission and February 2026 Congressional Budget Office (CBO) current-law baseline projections. Note: GDP = gross domestic product. The figure reports mandatory outlays for budget functions other than Social Security (650), Medicare (570), and Health (550). Undistributed offsetting receipts are not included.

Figure 9 shows trends in net interest costs, which reflect federal debt held by the public and average interest rates. Interest rates rose sharply in the early 1980s, as the Federal Reserve³⁸ sought to dampen inflationary expectations. Interest rates then trended downward, approaching zero in 2020, as the COVID-19 pandemic slowed economic activity, as Figure 10 shows.

Since then, rates have risen to levels similar to those before the 2007-2009 financial crisis. Federal debt levels,³⁹ however, have been rising, apart from the late 1990s. Net interest costs as a share of GDP have doubled in recent years due to the combination of rising interest rates and debt levels.

Figure 9. Net Interest Outlays As percentage of GDP, FY1980-FY2035

Source: Office of Management and Budget (OMB) FY2027 budget submission and February 2026 Congressional Budget Office (CBO) current-law baseline projections. CBO did not estimate net interest costs associated with Administration fiscal proposals. Note: GDP = gross domestic product.

Figure 10. Interest Rates on 10-Year U.S. Bonds, 1980-2026

Source: Federal Reserve Bank of St. Louis (FRED), "Interest Rates: Long-Term Government Bond Yields: 10-Year: Main (Including Benchmark) for United States," https://fred.stlouisfed.org/graph/fredgraph.png?g=1XMXU, and National Bureau of Economic Research (NBER), "Business Cycle Dating," https://www.nber.org/research/business-cycle-dating. Notes: Shaded columns indicate U.S. recessions.

Footnotes