The pile-up of budget-related issues during the current fiscal year, which began October 1, 2024, is reminiscent of the fiscal cliff drama of 2012. As was the case then, there is a need to secure funding to keep the government open, reconsider expiring tax cuts, address a looming sequester, and extend the national debt limit. However, the sheer volume of issues now in play elevates the fiscal landscape to a higher level of risk.
Avoiding the plunge in 2012 was accomplished through agreements between the White House and Congress to extend some tax breaks, reduce automatic cuts for discretionary programs, and suspend the debt ceiling. A path around this year’s version of the cliff may not be as easy to find.
Is A Budget Resolution In Place For 2025?
Although progress has been made toward adopting a budget resolution for fiscal year 2025, the House and Senate remain far apart on their competing versions. Perhaps the most significant difference is the inclusion of provisions to extend expiring tax cuts in the House bill, not addressed in the Senate version. Assuming agreement is reached soon on a unified approach, its passage should kickstart a flurry of budget activity.
The budget resolution is crucial because it gives congressional committees instructions along two tracks. One track provides appropriations committees with a top-line amount for discretionary spending. The other track instructs authorizing and revenue-raising committees to propose legislation that saves, spends, or generates revenues to match the budget resolution’s spending and revenue levels.
Both tracks are cluttered with obstacles.
Track One: FY 2025 Appropriations
The government is currently operating under a short-term continuing resolution that expires Friday at midnight. That means the Trump administration and both chambers of Congress will need to strike a deal to provide funding for the remainder of the year or much of the government will be forced to shut down.
Top-line spending levels from the budget resolution normally serve as a starting point for appropriations action. But this year’s process is on a schedule of its own. In fact, negotiations on full-year appropriations—perhaps in the form of a full-year CR—are occurring without the benefit of a budget resolution and are generally spinning off spending levels agreed to a year ago, though with significant revisions.
Relying on a CR instead of detailed appropriations is a risky way to fund the government. It can cause budget anomalies and unintended consequences. For example, during the 2024 appropriations process, lawmakers cut $20 billion from the extra funds provided to the Internal Revenue Service in 2022 for modernization. Although intended as a one-time cut that language remains in the House-passed CR for FY 2025, meaning another $20 billion reduction could occur if it becomes law.
Congress also needs to address automatic funding cuts, known as a sequester, scheduled to take effect if the government is operating under a stopgap CR on April 30. But if full-year funding is in place by then, those reductions will not occur.
In addition, lawmakers must decide how to handle ongoing Trump administration budget actions. Even without a funding pause or other unilateral moves, the administration is in a strong position to work with Congress on funding levels.
Although the House has already passed a full-year CR, prospects in the Senate (where 60 votes are needed to overcome a filibuster) are uncertain. If another CR is not passed, the government will move into shutdown mode, where only excepted staff—generally those who perform work involving the safety of human life or the protection of property—are allowed to remain on the job.
The most recent, and longest shutdown in history, occurred in FY 2019. Shutdowns are expensive: Many government services halt, but furloughed employees typically receive backpay after the government reopens. According to the Congressional Budget Office, the last shutdown cost about $3 billion to have roughly 300,000 federal employees stay at home and not work for five weeks.
Regardless of what a full-year funding measure might include, the president has statutory authority to propose spending reductions to Congress. With the Elon Musk-led DOGE office reviewing executive operations—and the White House pursuing staff reductions and agency wind-downs—some enacted funding could be targeted for rescission later this year. Such rescissions require only a simple majority for approval in Congress.
Track Two: FY 2025 Reconciliation
The House and Senate must reach agreement on how many reconciliation measures to advance. While President Trump has advocated for “one big, beautiful bill,” there could be up to three involving spending, revenue, and debt limit matters. The House version envisions one reconciliation bill while the Senate has proposed two.
Congress may also consider new funding for Trump priorities such as border security, deportations, and the military, while cutting spending for some entitlement programs. Extending a range of tax cuts from 2017 and increasing or suspending the debt limit are also likely to be included. (As explained in a previous post on Forbes.com, there is a critical and time-sensitive need to allow the government to continue to borrow to meet its financial obligations.)
Crucially, reconciliation measures can be passed with a simple majority if they follow certain rules, such as not worsening deficits beyond the 10-year window. Despite this advantage, some policymakers are considering a scorekeeping move—using a current policy baseline—to measure fiscal impact.
As pointed out in several recent publications from Arnold Ventures, those pushing for a current policy baseline want beneficial scoring at both ends of the Tax Cuts and Jobs Act of 2017: Current law treatment when it was enacted (limiting expected costs due to scheduled expirations), and current policy when extending it (ignoring the scoring benefit of those expirations). This approach would hide the true impact on taxpayers, undermine Senate rules against increasing deficits, and further harm the U.S. fiscal position.
When Will The 2026 Budget Process Begin?
As is the case with most incoming administrations, Trump’s budget request for the new fiscal year, beginning October 1, will be delayed by several months. Executive branch negotiations for next year’s budget are underway and the Office of Management and Budget may be preparing to pass back funding levels to agencies by late March, with the president’s formal request to Congress following in late April or early May.
After that, Congress will need to once again exercise its power of the purse for a new fiscal year: Adopting a budget resolution and passing appropriations and reconciliation (if needed) measures.
In a previous post on Forbes.com, I wrote about how an increasingly dysfunctional federal budget process deserves some of the blame for the chaos around U.S. budgeting. Assuming the United States once again avoids going over the fiscal cliff, many challenges remain—driven by rising entitlement program costs and skyrocketing interest expenses—to put the country on a sustainable fiscal path.
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