Trump to propose $163 bln cut in non-defense spending in 2026 budget – WSJ

President-elect Donald Trump’s incoming administration is developing a budget plan that would implement a significant $163 billion reduction in non-defense federal spending for the 2026 fiscal year, according to recent reports from financial media outlets.

Scale and Scope of Proposed Budget Cuts

The planned $163 billion reduction would represent approximately a 13% decrease in non-defense discretionary spending compared to current levels, marking one of the most substantial budget adjustments in recent fiscal history. This approach aligns with the president-elect’s campaign promises to significantly reduce federal government expenditures outside of military and defense programs.

According to individuals familiar with the planning process, this initial proposal represents the first step in what is expected to be a comprehensive review of federal spending priorities under the incoming administration. The cuts would affect numerous federal agencies and programs that fall outside the national security apparatus.

The sources, speaking on condition of anonymity due to the preliminary nature of the discussions, indicated that this budget framework is currently being developed by Trump’s transition team in consultation with policy advisors and potential cabinet nominees.

Strategic Focus Areas and Department Impact

While specific departmental allocations have not been finalized, the budget reduction strategy is expected to concentrate on several key areas that align with the president-elect’s stated priorities. Environmental programs, foreign aid allocations, and certain social services are anticipated to face substantial funding reductions.

The Department of Education, Environmental Protection Agency, and Department of Energy are among the federal entities that could experience the most significant budget constraints under the proposed plan. Conversely, the Department of Homeland Security might see relatively smaller reductions or potentially even increases in certain areas related to border security and immigration enforcement.

These budgetary shifts reflect the administration’s focus on reshaping federal priorities toward domestic security, economic growth initiatives, and regulatory reduction, according to transition team sources.

Legislative Process and Political Considerations

The proposed budget cuts would need to navigate a complex legislative process before implementation. While Republicans have secured control of both chambers of Congress, the narrow margins in the Senate could present challenges for passing such substantial spending reductions without modifications.

Political analysts note that the administration may face resistance even from within its own party for cuts to popular programs or those with significant constituencies in key states. The proposal likely represents an opening position that will evolve through negotiation with congressional leaders.

Budget experts have pointed out that discretionary non-defense spending represents only about 15% of total federal expenditures, with mandatory programs like Social Security, Medicare, and interest on the national debt comprising the majority of government spending.

Economic Implications and Market Response

Financial markets are closely monitoring these budget developments for potential economic impacts. Reduced federal spending could contribute to lower government borrowing requirements, potentially influencing bond markets and interest rates.

Some economists have expressed concern about the macroeconomic effects of substantial spending reductions, particularly if implemented rapidly. They note that significant federal spending contractions could impact economic growth in sectors dependent on government contracts or programs.

Others view the proposal as a necessary step toward fiscal discipline after several years of expanded federal expenditures. These perspectives highlight the balancing act the administration faces between addressing budgetary concerns and maintaining economic momentum.

Timeline and Next Steps

The full budget proposal is expected to be refined in the coming weeks as the transition team continues its preparations ahead of the January inauguration. Once the administration takes office, a more detailed budget request would typically be submitted to Congress within several months.

The 2026 fiscal year referenced in the budget planning begins on October 1, 2025, providing the administration and Congress approximately 11 months to negotiate and finalize spending levels after the inauguration.

As these budget discussions advance, stakeholders across government agencies, affected industries, and public interest groups are preparing to engage in what promises to be one of the most consequential fiscal policy debates of the incoming administration’s early tenure.