An Overview of the House FY 2024 Budget Resolution
The House Budget Committee has released and marked up its Fiscal Year (FY) 2024 budget resolution, a framework that purports to put the budget on a path to balance within a decade. In an upcoming analysis, we will discuss the good and bad of the budget resolution (see our press release for now). This analysis provides a summary of the budget resolution.
This analysis relies on the numbers provided by the House Budget Committee, incorporating our understanding of its economic assumptions and comparing it to the most recent Congressional Budget Office (CBO) baseline, incorporating the Fiscal Responsibility Act (FRA). As written and based on these assumptions and estimates, the House FY 2024 Budget Resolution proposes to:
- Balance the budget by FY 2033 while reducing debt to 70 percent of Gross Domestic Product (GDP) from the 115 percent projected under CBO's baseline.
- Reduce average annual spending over the FY 2024 to 2033 budget window to 19.3 percent of GDP (down from 23.6 percent under CBO's baseline) as a result of spending cuts and higher assumed GDP.
- Reduce ten-year deficits by $14.4 trillion relative to CBO's baseline, including $8.6 trillion of lower spending, roughly $1.0 trillion of lower debt service costs, and nearly $5.0 trillion from assumed dynamic effects, inclusive of lower assumed interest rates.
- Cut discretionary spending by $3.2 trillion, health care spending by $2.4 trillion, and other mandatory spending by $2.4 trillion.
- Improve budget enforcement, including estimates of debt service costs in CBO scores, renewing a limit on changes in mandatory programs, and changes in the budgetary treatment of general revenue transfers to the Highway Trust Fund.
- Establish a bipartisan debt commission.
Spending, Revenue, Deficits, and Debt
As written, the budget would achieve full balance by FY 2033. Deficits under the budget would fall from a peak of $1.5 trillion (5.9 percent of GDP) in FY 2023 to $7 billion (0.02 percent of GDP) by 2032 and finish the decade with a surplus of $130 billion (0.3 percent of GDP) in 2033. The budget achieves this deficit reduction in part with extremely rosy economic assumptions, including average real GDP growth of about 3 percent – roughly one percentage point above CBO's economic forecast – and lower interest rates than CBO projects. Removing these assumptions, the deficit would fall to about $930 billion (2.4 percent of GDP) by 2033. Under current law, deficits are projected to total $2.7 trillion (6.8 percent of GDP) in 2033.
Lower deficits under the House budget would cause debt to grow more slowly in nominal dollars and shrink as a share of the economy. In nominal dollars, federal debt held by the public would rise from $26.2 trillion today to $30.4 trillion by the end of FY 2033, compared to $45.2 trillion under current law. As a share of the economy, debt would fall from 98 percent of GDP in 2023 to 70 percent by 2033, compared to debt growing to a record 115 percent of GDP by the end of 2033. Without the budget's economic growth assumptions, debt would fall to 90 percent of GDP ($35.2 trillion) by the end of 2033.
The budget would achieve balance through a combination of lower spending and higher revenue, though the higher revenue would come entirely from more generous economic assumptions. Total spending under the budget would be $11.4 trillion lower over the next decade than under current law and would fall from 24.2 percent of GDP in FY 2023 to 17.7 percent of GDP by 2033 instead of rising to 24.8 percent of GDP under CBO's baseline. Assuming the $3.0 trillion of dynamic feedback appears on the revenue side, total revenue would be $3.0 trillion higher than in CBO's baseline under the budget, though revenue would change very little as a share of GDP due to higher assumed output. Under the budget, revenue would grow from a low of 17.2 percent of GDP in 2025 to 18.0 percent of GDP by 2033.
Deficit Reduction in the Budget
The budget resolution would reduce deficits by $14.4 trillion relative to CBO's baseline incorporating the FRA over the FY 2024 to 2033 budget window. Roughly one-third of this deficit reduction comes from economic effects, three-fifths from lower spending, and the rest from net interest savings.
We estimate that about $4.8 trillion of the budget's deficit reduction comes from its favorable economic assumptions, which are in part based on assumed feedback from the policies in the budget. Specifically, the budget assumes $3.0 trillion of additional revenue as a result of annual real GDP growth of roughly 3 percent (compared to 1.9 percent under CBO's economic forecast). We estimate another $1.8 trillion of savings comes from lower interest costs from lower interest rate assumptions.
On the tax side, the budget includes a call for revenue-neutral tax reform, which would include the extension of most or all parts of the Tax Cuts and Jobs Act, reinstatement of Research & Experimentation expensing, repeal of Inflation Reduction Act (IRA) energy provisions and IRS funding provisions, and other unspecified revenue offsets.
Meanwhile, on the discretionary side, the budget claims $3.2 trillion of savings over the next decade relative to CBO's baseline. These savings would be achieved by restoring FY 2024 base discretionary spending to the FY 2022 level of $1.47 trillion, limiting future discretionary spending growth to 1 percent per year, removing one-time emergency spending from the baseline, eliminating extrapolated bipartisan Infrastructure Investment and Jobs Act funding, and enacting a deficit-neutral solvency solution to the Highway Trust Fund. Importantly, the reductions to base discretionary spending are taken off topline discretionary spending and do not specify defense or nondefense levels.
The budget would also reduce health care spending by $2.4 trillion. This includes roughly $400 billion of Medicare savings from a number of bipartisan reforms such as moving toward site-neutral payments, cutting payments for bad debts, and reforming funding for uncompensated care and Graduate Medical Education. The budget would save another $1.9 trillion from Medicaid, including by rolling back the higher matching rates for coverage expansions under the Affordable Care Act (ACA), expanding work requirements, and instituting per capita caps on federal contributions. Another $57 billion of savings would come from rolling back the IRA's ACA subsidy expansion.
The House budget also includes $2.4 trillion of non-health mandatory savings over the next decade. About $800 billion of savings would come from strengthening work requirements for able-bodied adults in the Supplemental Nutrition Assistance Program (SNAP), reforming Temporary Assistance for Needy Families (TANF), and reinstating the public charge rule. Another $580 billion of savings would come from reforming the federal student loan system and an additional $1.0 trillion of deficit reduction is claimed from reducing improper payments by 50 percent.
Savings in the House FY 2024 Budget Resolution
|Budget Category||2024-2033 Savings|
|Set FY 2024 base discretionary spending at FY 2022 level and limit annual growth to 1 percent thereafter||$3.2 trillion|
|Establish per capita caps and work requirements in Medicaid and lower FMAP for expansion population||$1.9 trillion|
|Reduce improper payments by 50 percent||$1.0 trillion|
|Strengthen work requirements for able-bodied adults in Medicaid and SNAP, reform TANF, and reinstate public charge rule||$800 billion|
|Promote college affordability by reserving federal aid for those most in need and streamline grant and loan programs, remove regulatory barriers||$580 billion|
|Strengthen Medicare by equalizing payments regardless of site-of-service and improving uncompensated care payments, coverage of bad debts, and Graduate Medical Education||$400 billion|
|Remove extrapolated IIJA spending||$200 billion|
|Other savings||$500 billion|
|Revenue-neutral tax reform that includes extending the Tax Cuts and Jobs Act and repealing IRA||budget neutral|
|Interest savings||$1.0 trillion|
|Subtotal, Policy Savings||$9.6 trillion|
|Higher revenue assumed from economic assumptions||$3.0 trillion|
|Lower interest costs assumed from economic assumptions||$1.8 trillion|
|Subtotal, Claimed Savings with Economic Effects||$14.4 trillion|
|Memo: Claimed Deficit Reduction in House FY 2024 Budget||
Sources: House Budget Committee, Congressional Budget Office, and Committee for a Responsible Federal Budget. Savings estimates are relative to CBO's most recent baseline, incorporating the FRA.
We estimate the budget's policy savings would reduce net interest payments by $1.0 trillion over the next decade. As mentioned above, the budget claims an additional $1.8 trillion of interest savings, which likely come from lower interest rate assumptions.
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The House FY 2024 budget resolution calls for significant deficit reduction over the next decade. However, the budget includes unrealistic savings and economic assumptions that make it look much better on paper than in reality. In a future product, we will discuss the responsible and irresponsible aspects of the budget in more detail.