A distinct pattern in the federal budget since the 1970s has been the diminishing share of spending that occurs through the annual appropriation process. Between 1973 and 2013 discretionary spending fell from 53 percent to about 35 percent of total federal spending. Relative to the size of the economy, discretionary spending declined from 9.6 percent of gross domestic product (GDP) in 1973 to a low of 6.0 percent in 1999 before rising back to about 7 percent in 2013, CBO estimates (see Figure 3-1).
Most of the decline over that period involved spending for national defense. In 1973, discretionary spending for defense was 5.7 percent of GDP. By the late 1970s, it dropped below 5.0 percent, but it rose again during the defense buildup from 1982 to 1986, when it averaged 5.9 percent. After the end of the Cold War, outlays fell relative to GDP, reaching a low of 2.9 percent at the turn of the century. Such outlays began climbing again shortly thereafter, reaching an average of 4.6 percent of GDP from 2009 through 2011. Roughly half of the growth in defense spending over the 2001–2011 period resulted from spending on operations in Iraq and Afghanistan; in 2011 such spending was equal to 1.0 percent of GDP. In 2012, discretionary spending for defense fell to 4.2 percent of GDP, and CBO estimates that it declined further in 2013.
Nondefense discretionary spending funds an array of federal activities in areas such as education, transportation, income security, veterans’ health care, and homeland security. Over the past four decades, spending in that category has generally ranged from about 3 percent to 4 percent of GDP. One exception was from 1975 to 1981, when such spending averaged almost 5 percent of GDP. Another exception was from 2009 through 2011, when funding from the American Recovery and Reinvestment Act of 2009 (ARRA) and from other sources associated with the federal government’s response to the 2007–2009 recession helped push nondefense outlays above 4 percent of GDP. Like defense discretionary spending, nondefense discretionary outlays as a share of GDP fell in 2012, to 3.8 percent, and CBO estimates that they declined further in 2013.
In 2012 and 2013, discretionary outlays declined not only relative to GDP but also in nominal terms. That decline stemmed largely from a waning of spending from ARRA, reduced funding for military operations in Afghanistan and Iraq, and constraints imposed by the Budget Control Act of 2011. Through 2021, most discretionary appropriations will be constrained by the caps and automatic spending reductions put in place by that act; in its baseline projections for 2022 and 2023, CBO assumed that discretionary appropriations would equal the 2021 amount, with increases for projected inflation. Under that assumption, outlays from discretionary appropriations are projected to decline from about 7 percent of GDP in 2013—already below the 40-year average of 8.4 percent—to 5.3 percent in 2023. That would be the lowest amount relative to GDP at least since 1962 (the first year for which comparable data are available). Under those projections, in 2023, defense and nondefense discretionary spending would each equal 2.6 percent of GDP—the smallest share of the economy for either category in at least five decades.