Sharpening the Axe: How the House and Senate Budgets Handle the Sequester

With the Murray-Ryan deal expiring at the end of September, the sequester will once again be a hot topic as lawmakers will be prompted to deal with the discretionary spending reductions it prescribes. Despite the House and Senate being controlled by the same party, their budgets take very different approaches to the sequester. The two budgets have large differences in the amount of defense and non-defense discretionary spending and slight differences in their approach to war spending. Although both only get a small portion of their deficit reduction from discretionary spending, the two budgets get there in different ways. In addition, the Senate budget provides a more realistic method for a future sequester relief deal, by establishing a deficit-neutral reserve fund for that purpose.

Both budgets abide by the sequester levels for non-war spending for FY 2016, although they would also effectively raise defense spending by creating a $38 billion slush fund in war spending so that their total defense requests equal the President's budget, which instead provides sequester relief through the normal channel, offset with other savings. After 2016, the budgets would remove the slush fund and make changes to the cap themselves.

The House budget calls for larger cuts in overall discretionary spending while also eliminating much of the defense sequester. It would decrease total budget authority through 2025 by $372 billion, the net result of $387 billion in defense spending increases and $759 billion of non-defense cuts. The cuts would result in budget authority remaining largely flat – budget authority in 2025 that is only $4 billion higher than in 2015. These changes in total result in about $350 billion of outlay savings, which are a small portion of the budget's $5.5 trillion of policy savings.

The Senate budget, by contrast, would maintain the defense sequester through 2021 and then reduce it below sequester levels by $14 billion per year after that, which does not seem to be a particularly realistic assumption since it calls for a $70 billion drop in the war spending category between FY 2016 and FY 2017. Nonetheless, the budget shows a commitment to sticking to the precedent of either living with the defense caps or paying for them by establishing a deficit-neutral reserve fund for sequester changes. Sen. Tim Kaine (D-VA) also offered an amendment, which was incorporated into the budget by a narrow 50-48 vote, that provides a reserve fund specifically for a FY 2016 and 2017 sequester relief deal split evenly between defense and non-defense spending and offset with "targeted changes in mandatory or discretionary spending programs and tax expenditures." In addition to the $56 billion of defense cuts, the Senate budget reduces non-defense budget authority through 2025 by $236 billion below sequester levels, leaving 2025 budget authority at $558 billion, $55 billion below the sequester level but $62 billion above the House level.

Like the President's budget, both budgets would not halt the decline in discretionary spending as a share of GDP built into current law, although the decline in non-defense spending is made much steeper in the Congressional budgets. Defense budget authority in the Senate budget would fall from about 3 percent of GDP in 2015 to about 2.3 percent by 2025, with the House having two-tenths of a percentage point higher spending. At the same time, non-defense budget authority would fall from 2.7 percent of GDP in 2015 to 1.8 percent and 2 percent in 2025 in the House and Senate budgets, respectively. As a share of GDP, both defense and non-defense spending would be at modern-era historical lows.

In short, both the House and Senate budgets would keep relatively tight limits on discretionary spending and particularly non-defense spending. Both budgets – but especially the House – would accelerate the decline in non-defense discretionary spending as a share of GDP. However, the Senate does provide an escape hatch with the reserve funds, leaving open the possibility of sequester relief in the vein of Murray-Ryan to be done later this year.