Congress appears poised to pass full-year appropriations for fiscal year (FY) 2026, dodging a looming January 30 funding deadline. The proposed $1.7 trillion discretionary budget represents a $38 billion increase compared to enacted FY 2025 levels and $50 billion above the 2023 Fiscal Responsibility Act’s non-binding budget targets. While Republicans tout cuts to “woke” agencies, Democrats are claiming wins on ICE accountability and the reversal of executive-led spending cuts.
These narratives distract from the bigger picture. Total federal spending remains trillions of dollars above pre-pandemic levels, Congress routinely skirts the fiscal rules it writes for itself, and billions of taxpayer dollars will flow to wasteful, parochial earmarks.
The Current State of Play
This week, House leadership released the legislative text for a bill to fund defense, homeland security, transportation, labor, education, and health and human services. The legislation accounts for nearly 70 percent of the House’s proposed $1.7 trillion discretionary budget for FY 2026. Passage of this package in the House would put the ball in the Senate’s court to approve the remaining appropriations bills and avoid a government shutdown.
Recall that late last year, part of the government was temporarily unfunded for 43 days, resulting in the longest government shutdown in US history. That shutdown ended when eight Senate Democrats voted with Republicans to pass a temporary funding patch lasting until January 30.
If last fall’s shutdown theatrics were any lesson, there is not much willpower or leverage in the Senate to substantially revise the House’s proposed legislation. The tight timeline adds further pressure on the Senate to close the deal. Thus, despite tensions over homeland security funding, it appears more likely than not that Congress will pass full-year appropriations for FY 2026.
Spending Without Guardrails
FY 2026 marks the first year since the passage of the Fiscal Responsibility Act of 2023 (FRA) that Congress will not have statutorily binding spending caps. Through the FRA, Congress established enforceable spending caps for FY 2024 and FY 2025 but set only non-binding targets for FY 2026 through FY 2029. These targets suggest a 1 percent annual nominal growth in discretionary spending. Congress is disregarding these targets entirely.
Compared to enacted FY 2025 levels, discretionary spending is set to increase by at least $38 billion—roughly a 2.4 percent increase year-over-year. The table below illustrates how budget authority—the amount of money Congress makes available to federal agencies—is split between the 12 appropriations subcommittee categories.
Transportation, Housing and Urban Development (+$13 billion), Labor, Health and Human Services, Education (+$11 billion), and Defense (+$7 billion) receive the largest year-over-year increases in budget authority. Only Homeland Security (-$2 billion) and the Legislative Branch (-$30 million) face an apparent decrease.
Critically, however, Republicans included nearly $300 billion in new defense and homeland security spending in the One Big Beautiful Bill Act (OBBBA). Including OBBBA spending, defense and homeland security spending could increase by $47 billion and $7 billion year-over-year, respectively—perhaps more, depending on the rate at which OBBBA funds are disbursed.
Congress also plans to add some $30 billion in additional new mandatory spending authorizations, primarily for health care programs like Medicare and Medicaid. This spending is deliberately excluded from the Pay-As-You-Go (PAYGO) scorecard, a budget mechanism that requires any new mandatory spending increases or revenue reductions be automatically offset with corresponding spending cuts. Excluding new mandatory spending from the scorecard isn’t particularly unusual—Congress just did it with the One Big Beautiful Bill—but it is a routine way Congress skirts fiscal rules. Note that the health care programs receiving additional spending are among the fastest-growing spending categories of the federal budget.
Additionally, the proposed appropriations include billions of dollars in earmarks—rebranded as community project funding—which channel federal taxpayer dollars to unnecessary and wasteful parochial projects. Earmarks under consideration include $1 million for elevators at New York City’s Met Opera, which has an annual operating budget of more than $330 million (Sen. Schumer, D‑NY). Another earmark allocates $1 million for a Civic Center in North Plains, Oregon, a relatively wealthy town with just 3,400 residents (Rep. Bonamici D‑OR). Community projects should be funded privately or by localities and states, not bankrolled by federal taxpayers.
Taken together, this appropriations cycle is one of missed opportunities. Many of the more promising spending cuts contained in the president’s FY 2026 budget are not reflected in these bills. Appropriators have not included any major fraud prevention reforms, opting to continue business as usual. Congress is likely to fail to reduce annual discretionary spending, let alone return to pre-pandemic levels, and adopt the binding statutory spending limits needed to credibly signal fiscal responsibility going forward.
A Dose of Fiscal Reality
The $1.7 trillion in new spending Congress is considering represents only a quarter of the overall federal budget. In FY 2026, the federal government is projected to spend close to $7 trillion, most of which is dedicated to Social Security, Medicare, Medicaid, and interest costs. The lion’s share of government spending will continue increasing on autopilot, whether Congress passes appropriations or not.
The US is running $2 trillion deficits (more than 6 percent of GDP) with nearly $30 trillion in debt held by the public (nearly 100 percent of GDP) and rising. That’s effectively a wartime budget during peacetime. Worse, the US faces a declining birth rate and increasing longevity—a demographic trend that will result in a shrinking tax base and expanding beneficiary population.
The US will continue down this unsustainable path, driven primarily by entitlement spending on the elderly and ballooning borrowing costs, until Congress gets its fiscal house in order.
Despite this looming fiscal threat, Congress is poised to deliver yet another budget that increases spending year over year. It’s a predictable and disappointing result from our deficit-prone legislature. Unless something fundamental changes—either in the American political ecosystem or the bond market—expect more of the same.
