Non-compulsory government spending approved during the appropriations process.
Fly Me to the Moon
Federal government spending can be broken down into two broad categories: mandatory and discretionary. Mandatory spending does not require an annual vote by Congress and is dictated by prior law. Discretionary spending, however, is subject to the annual appropriations process and includes funding for essential federal programs like national defense, social services, highways, and foreign aid, to name just a few.
That's Life
Two critical spending-related milestones are on the horizon: one that could lead to a government shutdown, and the other that could lead to a national default.
When Congress and the President cannot reach a spending agreement before current funding expires, the result is a government shutdown. The most recent government shutdown occurred in 2019 when former President Trump and Congressional leaders could not agree on border wall funding. Current appropriations expire on September 30, so the soonest a government shutdown could occur is October 1.
Separately, the debt ceiling represents the maximum amount of money the federal government can borrow. The US Treasury is presently avoiding a breach of the debt ceiling by using extraordinary measures, but there is a limit to how long that can continue. The debt ceiling is expected to be reached sometime this summer. If Congress and the President fail to come to an agreement to raise the debt ceiling, there is a risk of a national default, which could result in a global economic crisis.
My Way
The White House released the President's budget for FY2024 on March 9. It requests $1.7 trillion in discretionary spending. Because mandatory spending is guaranteed by law, discretionary spending is typically on the chopping block during negotiations to keep the government open or to increase the debt ceiling.
In recent years, spending and deficit issues have become increasingly polarized, and this year is teed up to be particularly complex with divided government and a razor-thin GOP House majority for Speaker McCarthy (R-CA). Whether blunt budget-cutting tools like sequestration, which once mandated tens of billions of dollars of automatic cuts to discretionary spending every year, are part of the conversation remains to be seen.
While the hope is that federal elected officials can resolve their differences in a timely and orderly manner, we could yet again face a significant budget crisis this year. And cuts to discretionary spending will likely be a core part of those discussions.
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