What Are Key Milestones and Decisions Affecting U.S. Defense Spending in 2025?
Congress and the White House face a host of fiscal challenges over the course of 2025 that will impact U.S. defense spending. Congress has yet to appropriate funding for fiscal year (FY) 2025 as the Department of Defense (DOD) continues to operate under a continuing resolution (CR). The Trump administration must also submit its budget request to Congress for FY 2026.
However, action on the FY 2025 and FY 2026 defense budgets must also be taken amidst the backdrop of other major fiscal issues. The administration and Congress must negotiate over suspending or increasing the debt ceiling to prevent the government from defaulting on its debt. Congressional failure to pass appropriations for FY 2025 or at least another CR by March 14 would lead to a government shutdown, while DOD faces the threat of sequestration if full-year appropriations are not passed for the entire government by April 30. Finally, the expiration of tax cuts passed under the first Trump administration at the end of the year, and their possible extension will be another point of negotiation.
Congress and the administration could try to tackle some combination appropriations for FY 2025 and FY 2026, the debt ceiling, and tax cut extensions in a grand bargain. Republicans in both the House and Senate are considering using the budget reconciliation process to do so.
However, the convergence of all of these fiscal issues in 2025, along with narrow majorities in both chambers of Congress and political divisions between and within the two parties, poses a major challenge to effectively funding DOD and the rest of the federal government.
Below are the key dates for fiscal milestones that could impact defense spending in 2025.
January 2: Federal debt ceiling comes back into force.
The debt ceiling was previously suspended under the terms of the Fiscal Responsibility Act of 2023 (FRA), which then-President Biden signed into law on June 3, 2023, before the government could no longer afford to pay federal obligations. The FRA lifted the ceiling through January 1, 2025, meaning that the limit was reinstated the following day, and the government was again at risk of reaching it and defaulting. The size of the federal debt is an area of concern for budget hawks among Republicans, particularly those in the House of Representatives, who seek to reduce deficits. In exchange for increasing the debt limit, the FRA established limits on discretionary spending for defense and nondefense programs in FY 2024 and FY 2025. Funding for national defense in FY 2025 is capped at $895 billion, the level requested by the Biden administration. Before taking office on January 20, then-President-elect Trump called for Congress to raise or even abolish the debt ceiling—including during negotiations on the extension of the CR for FY 2025 in December. Budget hawks oppose abolishing the ceiling, and the House Freedom Caucus has instead offered a plan to increase the debt ceiling for two years in exchange for “dollar-for-dollar savings over 10 years.”
January 21: The Department of the Treasury enacts extraordinary measures.
On January 17, outgoing Secretary of the Treasury Janet Yellen notified congressional leaders that the department would begin taking “extraordinary measures” on January 21 to prevent the federal government from reaching the debt ceiling and allow it to pay obligations. The duration that the government can operate under extraordinary measures is “subject to considerable uncertainty” and is consequently difficult to estimate. During the last debt ceiling crisis, extraordinary measures that were deployed beginning January 19, 2023, were estimated to last until June 5, 2023, but the FRA was signed into law before funding was exhausted and the government defaulted on its debt.
February 3: The White House is (technically) required to submit its FY 2026 budget request to Congress.
The White House is statutorily required to submit its budget for the forthcoming fiscal year to Congress by the first Monday of February. However, administrations rarely submit their requests on time, particularly in the first year of their tenure, as they make changes to a budget that was developed by the outgoing administration over the previous year. The second Trump administration did not submit its request by the statutory deadline of February 3.
Figure 1 compares the submission dates of full budget requests (not “skinny” budgets or guidance) by the White House since FY 2000. The Biden administration submitted its first full request for FY 2022 on May 28, 2021, making it the latest budget submitted since annual submissions to Congress became part of the regular budget process in the 1920s. It took that distinction from the first Trump administration, which submitted its request for FY 2018 on May 23, 2017.
The tardy submission of the annual budget request has proliferated under the last three administrations. The White House last submitted a budget request on time in FY 2016—10 years ago—during the Obama administration. The Biden and first Trump administrations failed to submit any requests on time while the Obama administration only submitted two on time. By comparison, the George W. Bush administration submitted six of seven budget requests on time.
Given that the White House will make adjustments to the outgoing administration’s FY 2026 plans while working with Congress to address the other aforementioned fiscal issues in 2025, the submission of the FY 2026 budget request will likely face a lengthy delay.
March 14: Continuing resolution for FY 2025 funding expires.
DOD and the rest of the federal government continue to operate under a CR for FY 2025 through March 14. Congress has passed two CRs to fund the government at FY 2024 spending levels since the start of the fiscal year on October 1, 2024. If Congress fails to pass full-year appropriations or another CR, the government will shut down.
Figure 2 compares delays in defense appropriations since FY 2000. In those 26 fiscal years, DOD started the fiscal year with regular appropriations only six times and only once since FY 2010 (in FY 2019). Since the start of the fiscal year was moved to October 1 in FY 1977, the longest delay in appropriations occurred in FY 2017, when President Trump was first elected and took office, as the government operated under CRs until May 5, 2017. Some lawmakers have raised the prospect of a full-year CR that would fund the entire government and DOD at FY 2024 spending levels through the September 30 end of the fiscal year. DOD has never been funded for an entire fiscal year under a CR. According to House Appropriations Chair Tom Cole (R-OK), a full-year CR would “count the same as 12 [appropriations] bills” and not trigger sequestration under the terms of the FRA (see April 30 note below).
April 15: Congress must (notionally) pass a budget resolution to trigger the reconciliation process.
Congressional Republicans have proposed using the reconciliation process to address several fiscal issues, including providing additional funding for defense and border security and extending tax cuts, among other priorities, while also pursuing major spending cuts to pay for them. Reconciliation “provides fast-track procedures in the Senate for consideration of certain mandatory spending, tax, and debt limit legislation” and requires only a simple majority for passage rather than the standard 60 votes typically required.
In order to do so, both the House and Senate would first have to agree on and pass a budget resolution by April 15, as required in statute (2 U.S.C. § 631), although in practice, this deadline has not been adhered to. However, Republicans in the House and Senate do not currently have a unified approach on whether to tackle both the administration’s spending priorities and tax cuts extension in one or two reconciliation bills and whether to use the reconciliation bill as a vehicle for increasing the debt ceiling.
In terms of defense spending, the draft budget resolution put forward by the Senate Committee on the Budget provides an additional $150 billion in funding for national defense between FY 2025 and FY 2034 that would be directed by the armed services committees. The House version provides $100 billion over the same period. If passed, the additional funds allocated for defense under reconciliation would be considered mandatory spending rather than discretionary funds passed in the regular appropriations process.
April 30: Sequestration occurs if any part of the government is still funded under a continuing resolution.
The terms of the FRA include sequestration as an enforcement mechanism to ensure discretionary funding for defense and non-defense programs falls under the spending limits for FY 2025. Emergency supplemental funding is exempt from the budget caps.
However, the FRA also mandates that if any part of the government continues to operate under a CR by April 30—meaning that Congress fails to pass all 12 regular appropriations bills—funding for both defense and nondefense programs would automatically adjust to FY 2023 levels minus 1 percent. Under this cut, total national defense funding would be reduced by $45 billion, entailing a 5 percent across-the-board cut.
As discussed above, a full-year CR for the entire government in place on April 30 may not trigger sequestration under the FRA, which stipulates that cuts will occur if there is a CR in effect “for part of fiscal year 2025.” However, a short-term CR in place on April 30 will still trigger sequestration. Ultimately, the enforcement of sequestration falls to the White House’s Office of Management and Budget.
Early June: Extraordinary measures likely exhausted, and the Department of the Treasury has insufficient funds to pay federal obligations.
If Congress and the White House fail to reach an agreement to extend the debt ceiling, funding for the government provided by the extraordinary measures enacted by the Department of the Treasury could run out by early June (if not earlier) based on the estimates from the 2023 debt ceiling crisis. Consequently, the government would default on its debt and obligations.
October 1: Start of the FY 2026 fiscal year.
Congress must pass appropriations for FY 2026 or a CR to temporarily fund the government at FY 2025 spending levels (assuming appropriations for FY 2025 have been passed). Otherwise, the government will shut down.
December 31: Tax cuts passed in 2017 under the first Trump administration expire.
Most of the individual tax income provisions and some other provisions of the tax cuts passed in 2017 during the first Trump administration will expire at the end of 2025. Extending all of the tax cuts from that act could add almost $4 trillion to the national debt over the 10-year period between 2025 and 2029, according to the Congressional Budget Office and the Joint Committee on Taxation, in addition to added interest costs on the debt. This increase in federal deficits over the long term could lead to greater downward pressure on the defense budget as fiscal hawks seek to pay for tax cuts with reductions in federal spending.
(Photo Credit: Architect of the Capitol)