CBO’s Discretionary Savings Options

The Congressional Budget Office (CBO) recently released its Options for Reducing the Deficit, outlining a number of policy options to reduce the deficit. Our Budget Offsets Bank has already incorporated CBO’s options related to Medicare, Medicaid, and other mandatory spending. CBO also puts forward a number of options to reduce the cost of defense and nondefense discretionary spending.

Over the next decade, the federal government is projected to spend $9.6 trillion on defense discretionary programs and $11.5 trillion on nondefense discretionary programs. Discretionary spending is generally appropriated on an annual basis and thus could vary from year to year depending on Congressional action, but CBO’s baseline conventions assume that appropriations generally grow annually with inflation.

The options below could save up to a combined $2 trillion over a decade. However, savings would have to be annually implemented and continued through the appropriations process. To help ensure multi-year deficit reduction, lawmakers could extend and adjust the existing discretionary spending caps.

The table below is a menu of options and does not represent recommendations from the Committee for a Responsible Federal Budget, its board, or its staff. Nondefense discretionary savings are calculated relative to CBO’s June 2024 baseline and defense savings are calculated relative to CBO’s estimate of the Department of Defense’s National Security Strategy. Estimates are extrapolated through 2035 and include effects on mandatory spending.

Options to Reduce Discretionary Spending

Source: Committee for a Responsible Federal Budget projection based on Congressional Budget Office data
*Estimate includes impacts on mandatory budget outlays.
^Estimate assumes personnel positions are eliminated. Savings will be lower if these positions are reassigned.
 

One way to generate savings is through large across-the-board spending cuts. Based on CBO estimates, reducing active military personnel by 17 percent by 2034 would save $1.1 trillion over a decade – though these savings could also be achieved by reducing ground combat and air combat units or by de-emphasizing the use of U.S. combat forces and relying more on allies. On the nondefense discretionary side, reducing grants to state and local governments for transportation and education by one-third would save $390 billion through 2035. 

In terms of personnel, slowing automatic civilian pay increases from the employment cost index (ECI) minus 0.5 percentage points to ECI minus 1 percentage point would save $75 billion over ten years, while reducing automatic military pay increases from ECI to ECI minus 0.5 points through just 2030 would save $20 billion. Reducing the military housing allowance from 95 to 80 percent of average rent and utilities costs would save about $25 billion over a decade. Replacing 80,000 active-duty personnel performing civilian-like roles with 64,000 civilian workers would save $10 billion. Repealing the Davis-Bacon law requiring government contractors to be paid ‘prevailing wages’ would save $20 billion. And replacing the federal worker health care program with an inflation-indexed voucher would save about $45 billion – including roughly $25 billion on the discretionary side.

When it comes to weapons systems, CBO estimates that retiring the Air Force’s 186 F-22 stealth fighters and B-1B bomber fleet could save approximately $35 billion over a decade, while canceling plans to order a new Ford class carrier in 2030 could save approximately $20 billion over the same period. Additional changes to cancel development of a new nuclear cruise missile and development of a new long-range assault helicopter could save an additional $30 billion. Savings for these changes would be somewhat lower if personnel associated with these systems were retained and reassigned.

CBO also highlights savings from cutting various state and local government grant programs in half over a two-year period. Cuts to the Community Development Block Grant would save $25 billion over ten years, while reductions in funding for the Environmental Protection Agency’s grants for wastewater and drinking water infrastructure would save $20 billion. Cutting in half funding for Justice Department grants to nonprofits and state and local law enforcement, grants for 21st Century Community Learning Centers, and funding for weatherization and energy conservation would save a combined $30 billion over ten years.

CBO also finds that reducing the budget for international affairs - which funds foreign aid, diplomatic programs, global health initiatives, security assistance, and other programs - by 25 percent would save about $215 billion over ten years. Disenrolling the 1 million priority groups 7 and 8 veterans enrolled in the VA health system – with somewhat higher incomes and no service-related disabilities -- would save approximately $35 billion over ten years. Restricting Pell Grants (college aid) to only students eligible for the maximum amount would save $35 billion – $25 billion of which is on the discretionary side. And eliminating federal funding for national community services, which operates AmeriCorps and Senior Corps programs, would save $10 billion over a decade.

These and other policies could be enacted or implemented to help appropriators reduce overall discretionary spending and/or abide by spending caps. However, changes to revenue and mandatory spending would be needed to offset tax cuts or spending increases and will be necessary to put the debt on a sustainable path. Follow our Budget Offsets Bank for more deficit reduction options.