What Are Caps on Discretionary Spending and Do They Work?
Spending limits, or “caps,” on discretionary spending are one tool lawmakers have used in an effort to rein in deficits and stabilize the nation’s fiscal outlook. The most recent caps expired at the beginning of fiscal year 2026, which began on October 1, 2025. Let’s look at the trends in discretionary spending, how effective caps are in reducing the debt, and if lawmakers should consider implementing them again in the future.
What Are Discretionary Spending Caps?
Discretionary spending refers to programs that are subject to the annual appropriation process, as opposed to mandatory spending, which refers to programs governed by permanent law. More than three decades ago, lawmakers first introduced caps on discretionary spending, which place limits on subcategories of such funding. Typical subcategories divide total appropriations into defense and nondefense buckets.
Recent Trends of Discretionary Spending and Statutory Caps
Over the last three decades, discretionary spending has risen in terms of dollars but actually has fallen relative to the size of the economy. In 1991, discretionary spending totaled 8.8 percent of gross domestic product (GDP) but declined to 6.3 percent of GDP by 2024.
Discretionary caps were in place for approximately two-thirds of that period, suggesting that they contributed to restraining spending growth — at least during certain time periods.
In addition to caps, another factor that likely contributed to the decline in discretionary spending relative to GDP was the perceived “peace dividend,” where U.S. defense spending fell after the demolition of the Berlin Wall and the collapse of the Soviet Union. Funding for defense dropped from 5.5 percent of GDP in 1991 to 3.3 percent just five years later.
Though the overall trend has been a decline in discretionary spending relative to the economy, some years disrupted that trend. Notably, more funds were allocated to support the country during extreme emergencies, such as the financial crisis that began in 2008. That drove an increase in discretionary spending from 2009 to 2011, in which Congress allotted almost $693 billion in emergency funding over those years as part of the American Recovery and Reinvestment Act. A similar approach was taken in response to the COVID-19 pandemic where $860 billion in emergency discretionary funding was provided from 2020 to 2021, adjusted to 2025 dollars. Since 2020, discretionary spending has remained above pre-pandemic (FY 2019) levels even after the emergency programs wound down.
The History of Discretionary Spending Caps
Budget caps were first established in 1990 to help restrain appropriations and reduce the growing national debt. Since then, budget caps on discretionary spending have been enacted multiple times in an attempt to manage rising spending.
1991–2002
The Budget Enforcement Act (BEA) first established caps on discretionary spending (and added enforcement mechanisms on other spending) to help restrain the growing budget deficit. The caps set out in the BEA covered defense and nondefense spending. If the limits on defense and nondefense discretionary spending were exceeded, the BEA provided an enforcement mechanism, known as sequestration, under which the President would order the Office of Management and Budget (OMB) to cancel congressionally authorized spending to bring discretionary funding back to the cap levels. The caps were initially set to expire in 1995 but were extended and redefined in 1993 and 1997. While the 1990s represented a time of economic growth, budget surpluses were achieved at the end of the decade as tax revenues ballooned, and interest in enforcing the caps waned.
2012–2021
After 10 years without budget caps and growing debt, the Budget Control Act of 2011 (BCA) implemented caps from 2012–2021 as part of a deal to avert what was known as the “fiscal cliff.” The BCA also established a committee to develop a proposal that would reduce the deficit by $1.5 trillion over a 10-year period. When that committee failed to come up with a plan, the BCA’s contingency for deficit reduction went into effect, creating automatic spending reductions of $1.2 trillion. Most of those automatic spending reductions were applied to both defense and nondefense discretionary programs, thereby reducing the limits on appropriations below the amounts set in the BCA.
However, not all discretionary programs were constrained by the caps. Funds deemed “emergency spending,” along with a few distinct categories, were exempt and considered outside of the caps:
- Overseas Contingency Operations, which consisted mainly of funding for activities in Afghanistan and similar missions
- Disaster relief and, beginning in 2020, activities related to wildfire suppression
- Program integrity initiatives, which were intended to reduce overpayments in certain benefit programs
While the Budget Control Act was in effect, multiple pieces of legislation subsequently raised existing spending limits (the Bipartisan Budget Acts of 2013, 2015, 2018, and 2019, IIJA, the Consolidate Appropriations Act of 2023, and the Further Consolidated Appropriations Act of 2024), and the provision for caps expired completely at the end of fiscal year 2021. Discretionary spending had no caps in place for 2022 and 2023.
2024–2025 and Now
Most recently, the Fiscal Responsibility Act of 2023 (FRA) suspended the limit on federal debt and reinstated caps for fiscal years 2024 and 2025. Discretionary budget authority was originally capped at $1.59 trillion for 2024 and $1.6 trillion for 2025. The Congressional Budget Office estimated that discretionary funds did not exceed the caps set in the legislation, but those caps expired thereafter. In addition, the FRA set limits for fiscal years 2026 through 2029, but because the legislation expired in 2025, it did not establish enforceable caps for those years. Instead, it relied on points of order that could be raised during consideration of the annual spending appropriations approval process.
Have Spending Caps Been Effective at Reducing Discretionary Spending?
Evidence suggests that budget caps were somewhat effective at reducing discretionary spending, and, unsurprisingly, their impact was lessened when lawmakers weakened, removed, or otherwise circumvented them.
Overall, in periods with budget caps in place, discretionary budget authority grew at a slower pace year to year compared to times without caps. The average year-over-year growth rate for time periods with caps (1991–2001 and 2012–2021) was 2.8 percent and 3.7 percent, respectively, whereas the years without caps before the financial crisis (2002–2008) averaged 8.6 percent. Furthermore, discretionary outlays for years under the BCA were lower than pre-BCA projected levels. Discretionary outlays from 2012 to 2021 averaged 9 percent less than CBO’s projections before the BCA went into effect.
Under the FRA caps, discretionary spending increased by 1.0 percent in 2024 relative to 2023, but 2025 spending was 0.8 percent lower than 2023.
However, almost every year with caps in place, lawmakers used advance appropriations, obligation delays, timing shifts, and other funding gimmicks to increase discretionary spending above the limits. From 2013 to 2021, annual adjustments to the caps on budget authority averaged $90 billion. Additionally, funds deemed emergency spending was not subject to spending limits, which meant that funding could increase even further beyond the legislated cap increases. That explains the spikes in discretionary budget authority in 2009 and 2020 when emergency funds were enacted to stimulate economic recovery as a response to the 2008 financial crisis and COVID-19 pandemic. In 2020, lawmakers enacted an additional $624 billion in emergency spending on top of the original $1.1 trillion budget cap to mitigate the economic challenges of the pandemic. In 2024 and 2025, exempt spending and advanced appropriations were provided for several budget functions, including Health and Human Services, Labor, Interior and Environment, Military Construction, and Transportation, shifting budget authority to future fiscal years. As a result, discretionary spending that would have counted against the statutory caps of $1.59 trillion in 2024 and $1.60 trillion in 2025 was instead scored outside those years, allowing total discretionary budget authority to rise to $1.64 trillion and $1.76 trillion, respectively, without formally increasing the caps.
Conclusion
Discretionary caps are only as effective at reining in spending as lawmakers are committed to enforcing them. They are an available tool for lawmakers to address one key area of the budget, but it’s also important to remember that discretionary spending is not as significant a budgetary pressure points as other key drivers of the country’s total debt. With rising costs of government programs, major trust funds headed toward depletion, interest costs skyrocketing and revenue levels insufficient to keep up, budget caps on discretionary spending are potentially one element of a fiscally responsible package to address the country’s long-term budgetary path.
Image credit: Photo by dkfielding/Getty Images
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