Spending Cuts in the President's FY 2025 Budget

The President's Fiscal Year (FY) 2025 budget calls for $3.3 trillion of net deficit reduction through 2034, with $6.5 trillion of gross revenue and savings and $3.2 trillion of new initiatives. While the vast majority of offsets and deficit reduction in the budget comes from tax increases, the President also proposes more than $400 billion of mandatory spending reductions. Below, we itemize each policy that reduces spending by $500 million or more over the FY 2024 to 2034 budget window, based on the Office of Management and Budget's (OMB) scores. Many of these proposals have the potential for bipartisan support.  

Spending Reductions in the President's FY 2025 Budget 

Policy  2024-2034 Savings
Prescription Drug Savings $207.5 billion
Build on IRA prescription drug pricing provisions by expanding Medicare negotiations, inflation rebates, and out-of-pocket cost caps  $200 billion
Allow HHS to negotiate Medicaid supplemental rebates on behalf of states $5.2 billion
Apply Medicaid drug rebates to CHIP $2.3 billion
Other Health Care Savings $35.4 billion
Eliminate barriers to PrEP under Medicaid  $10.6 billion 
Require remittance of medical loss ratios in Medicaid and CHIP managed care  $10.1 billion
Increase mandatory HCFAC funding  $5.0 billion 
Establish National Hepatitis C Elimination Program  $4.0 billion 
Ban "facility fees" for telehealth and certain outpatient services $2.3 billion
Enhance Medicaid managed care enforcement  $1.7 billion 
Extend surprise billing protections to ground ambulances  $1.0 billion
Require 12 months of Medicaid postpartum coverage  $0.7 billion 
Extend Mandatory Sequester  $89.6 billion
Extend 2 percent Medicare sequester through 2034 $68.5 billion
Extend 5.7-8.3 percent mandatory sequester through 2034 $21.1 billion 
Offsetting Receipts  $72.9 billion
Extend spectrum auction authority through 2034 $54.4 billion
Extend expiring CBP user fees through 2033 $16.0 billion 
Increase civil monetary penalties for labor law violations $2.5 billion 
Other Spending Reductions  $5.6 billion
Improve UI program integrity   $3.2 billion
Fund Vocational Rehabilitation State Grants without inflationary increase $1.2 billion
Improve IRS data disclosures to tribal child support services and child support service contractors $1.2 billion

Sources: Office of Management and Budget and Committee for a Responsible Federal Budget.
Numbers may not sum due to rounding.

The largest spending reductions in the budget come from lowering the costs of prescription drugs. The budget claims $200 billion from expanding the drug savings in the Inflation Reduction Act (IRA). Specifically, the budget proposes to expand the number of drugs subject to negotiation, apply an effective cap on above-inflation price growth to the private sector, and expand inflation rebates. The budget saves an additional $7.5 billion from expanding negotiations and rebates to Medicaid and the Children's Health Insurance Program (CHIP).

In addition, the President's budget includes proposals to reduce other health care spending that would save $35.4 billion through 2034. It claims $10.6 billion of savings from removing barriers to access pre-exposure prophylaxis for Medicaid beneficiaries and another $10.1 billion from limiting the amount of Medicaid and CHIP managed care dollars spent on administration by establishing a minimum medical loss ratio of 85 percent. $5.0 billion of savings would come from increasing mandatory Health Care Fraud and Abuse Control (HCFAC) funding, $4.0 billion from establishing a five-year National Hepatitis C Elimination Program, and $2.3 billion from banning "facility fees" that health care providers often charge to cover their overhead for telehealth and certain outpatient services. The budget also proposes $1.7 billion of savings from increasing funding for Medicaid managed care enforcement by giving the Centers for Medicare and Medicaid Services additional authority to protect beneficiaries, $1.0 billion from expanding consumer protections against surprise billing to include services from out-of-network ground ambulance service providers, and over $700 million from providing 12 months of Medicaid postpartum coverage. 

The President's budget also includes $89.6 billion of savings from extending the mandatory sequester, which was originally enacted in the Budget Control Act of 2011, for 2033 and 2034. Of the total savings, $68.5 billion would come from extension of the 2 percent Medicare sequester and $21.1 billion from extending the 5.7-8.3 percent mandatory sequester (the amount of mandatory sequestration varies for different categories of mandatory spending). 

Besides many proposals to reduce health care costs, the President's budget proposes $72.9 billion of offsetting receipts. This includes extending radio frequency spectrum auction authority through 2034, saving $54.4 billion. It would also extend a series of expiring Customs and Border Patrol (CBP) user fees through 2033, saving $16.0 billion, and increase civil monetary penalties for labor law violations, saving $2.5 billion. 

Lastly, the President's budget includes $5.6 billion of other spending reductions. It claims $3.2 billion of savings from proposals to strengthen unemployment insurance (UI) program integrity by helping states to develop and test fraud prevention tools and strategies and to increase investigations of fraud rings targeting the UI program, saving $3.2 billion. It would fund Vocational Rehabilitation State Grants without an inflationary increase and would improve Internal Revenue Service (IRS) data disclosures to tribal child support services and child support service contractors, each of which would save $1.2 billion. 

With spending rising rapidly over time, it's discouraging that the President's budget fails to tackle the largest drivers of that growth and instead substantially increases net spending. Nonetheless, the modest spending cuts they do include in their budget may be helpful as lawmakers work to negotiate new budget deals or identify offsets. Policymakers should look at these proposals carefully as they consider how to put our high and rising national debt on a more sustainable path.