How much government spending will Trump cut in 2025?
Short Answer
Both the model and the market expect Trump to cut at least 100 billion in government spending in 2025, with no compelling evidence of mispricing.
1. Market Behavior & Drivers
The price chart for market KXGOVTCUTS-25-1000 shows a consistent sideways trend, with the probability of a YES resolution trading within a very low and narrow range of 1% to 9%. The market opened at 3%, experienced a minor peak at 5% during its middle period, and has recently fallen to a new low of 2%. This price action has established a firm resistance level near $0.09, which has effectively capped any bullish sentiment, and a support floor around the $0.01-$0.02 level. The current price is testing the bottom of this historical trading range, indicating a significant increase in pessimism among traders.
The recent drop to the 2% level is likely a direct market reaction to the increased legal and political opposition to the administration's spending cuts. The filing of a multi-state lawsuit on February 18, 2026, challenging the termination of billions in federal funding, provides a concrete event that directly undermines the feasibility of large-scale cuts sticking before the market's resolution date. This legal challenge, coupled with polling data indicating broad public opposition even among the president's supporters, reinforces the narrative of significant headwinds. The market's high total trading volume of over two million contracts, despite the very low probability, suggests strong conviction and active participation. This high volume indicates that the current 2% price is not due to a lack of interest, but rather reflects a strong consensus that the administration's ability to enact massive spending cuts is severely constrained.
- OMB develops new legal interpretations to justify large-scale fund impoundments.
- Senior Republicans strongly opposed Trump's proposed non-defense discretionary cuts.
- The FY2026 President's Budget will release final FY2025 federal spending data.
- Specific non-defense budget functions experienced significant year-over-year spending reductions.
- The "One Big Beautiful Bill Act" includes significant legislative spending reductions.
Current Context
Trump's 2025 spending cuts face significant legal and congressional opposition. Discussions in the last seven days (February 13-20, 2026) highlight considerable cuts to non-defense programs and ongoing legal challenges to the administration's fiscal decisions. On February 18, 2026, New York Attorney General Letitia James and 12 other attorneys general filed a lawsuit challenging the "unlawful termination of billions of dollars" in federal funding for energy and infrastructure projects, specifically referencing the October 2025 cancellation of nearly $8 billion in "Green New Scam funding" [1], [2]. Public opposition is also significant, with a Colorado College poll on February 19, 2026, showing 85% of Western voters consider public lands, water, and wildlife important election factors, and 77% of Republicans, including "Make America Great Again" supporters, viewing cuts to public lands funding as a serious issue due to mass layoffs, including a quarter of the National Park Service's permanent staff [3]. Cuts to science funding have led to a "brain drain," with billions removed from research budgets, nearly 8,000 grants canceled at the National Institutes of Health (NIH) and National Science Foundation (NSF), and over 1,000 NIH employees terminated [4]. Despite these cuts, Congress rejected some of the administration's proposals, providing $79 billion for the Department of Education on February 19, 2026, which was $217 million more than the department's fiscal year 2025 funding and $12 billion above the President's request, signaling a bipartisan rebuke of efforts to dismantle the agency and cut programs like Pell Grants [5]. Legal experts and state attorneys general argue against the administration's unilateral power to terminate congressionally approved funding, noting the administration's willingness to disregard congressional funding directives [1], [6].
Discretionary spending shifts non-defense funds to defense, worsening deficits. The proposed FY2026 budget maintains overall discretionary base spending at 2025 levels but reallocates $119.3 billion from non-defense to defense programs [7], [8]. The Department of Defense sees a $113.3 billion increase for FY2026, reaching $961.6 billion, up from $848.3 billion in FY2025 [7]. Conversely, the State Department and international programs face an 83.7% cut in base discretionary funding, falling from $58.7 billion to $9.6 billion, with significant reductions in international aid and global health programs [7], [9]. Non-defense agencies have experienced average cuts of 22%, with some facing reductions of 30% or more [8]. Specific cuts include the elimination of $8 billion in "Green New Scam funding" in October 2025, an $18 billion cut to NIH funding (approximately 38%), a $1.3 billion cut to the NOAA research and operations budget (29%), and a $2.5 billion reduction in the IRS budget with a suggested cut of 19,000 positions [1], [4], [7], [8], [2]. The Congressional Budget Office (CBO) released its February 2026 Budget and Economic Outlook, projecting federal debt to increase from 99% of GDP at the end of fiscal year (FY) 2025 to 101% by the end of FY2026, reaching 120% by FY2036 [10]. Budget deficits for FY2026-FY2035 are estimated to be $1.4 trillion higher than CBO's January 2025 projections, with discretionary spending projections revised down by $1.0 trillion, primarily due to a $1.2 trillion decrease in nondefense discretionary spending, partially offset by a $174 billion increase in defense discretionary spending [10]. The FY2025 budget deficit was $1.78 trillion, and the CBO projects the FY2026 deficit to be $1.9 trillion [11].
Economic policies, tariffs, and job losses fuel ongoing debate. President Trump defended his tariffs on February 20, 2026, as beneficial for American manufacturing, while awaiting a Supreme Court decision on their constitutionality [12], [13]. The U.S. merchandise trade deficit reached a record $1.2 trillion in 2025, with the broader goods and services deficit at $901.5 billion, leading to continued debate on their effectiveness and economic impact [12]. FactCheck.org scrutinizes Trump's economic claims, noting that job growth between January 2025 and January 2026 was lower under his administration than in the previous year [14]. Mass layoffs have occurred in the National Park Service and over 1,000 NIH employees, alongside a loss of 58,000 U.S. manufacturing jobs since April 2025 [3], [4], [14]. Upcoming events include the Supreme Court decision on tariffs, expected on February 20, 2026 [12], and President Trump's State of the Union address on February 24, where economic policy claims are anticipated to be a central theme [14]. The federal tax filing season, concluding on April 15, is also relevant, as higher refunds are expected in 2026 due to tax cuts from the 2025 One Big Beautiful Bill Act (OBBB) [13]. Common questions revolve around the effectiveness of tariffs in reducing the trade deficit and the ongoing tension between presidential and congressional power regarding budgetary authority.
2. Price Chart
Historical Price (Probability)
Outcome probability
Date
3. Market Data
Contract Snapshot
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Market Discussion
People debated the potential for government spending cuts by Donald Trump in 2025 primarily in the context of his 2024 presidential campaign and his past fiscal policies [1]. One main viewpoint anticipated significant cuts, particularly to non-defense discretionary spending, driven by Trump's stated intentions to reduce the national debt and "wasteful" spending, although specific targets were often debated or remained vague [2]. Conversely, others argued that substantial cuts would be challenging to implement due to political resistance, the existing structure of entitlement programs, and potential increases in defense spending or new initiatives favored by a Trump administration, leading to skepticism about the extent of any actual reductions [3].
Sources (3)
4. How Will OMB's FY2025 Impoundment Strategy Impact Federal Spending?
| CDC PHIG Program Funding | Over $5 billion (through Dec 2025) [1] |
|---|---|
| Rescission Fund Freeze Period | 45 days of continuous session [1] |
| HUD FY2025 Income Limits | OMB determines geographic definitions [2] |
The Office of Management and Budget (OMB) is developing novel legal interpretations to justify large-scale fund impoundments. Under Project 2025 frameworks, OMB is formulating an aggressive strategy for large-scale rescissions and deferrals of congressionally appropriated funds for Fiscal Year (FY) 2025. This approach relies on novel legal interpretations of the Impoundment Control Act of 1974 (ICA), asserting an expansive view of executive authority. The strategy seeks to redefine terms such as 'unprogrammed funds' and 'excess balances,' and assert a requirement for 'executive direction' for fund obligation. This aims to bypass ICA procedural requirements by effectively rendering funds 'unavailable' rather than formally impounded, presenting a significant challenge to Congress's constitutional 'power of the purse.'
Targeted programs include climate, environmental, and public health initiatives. This impoundment strategy specifically targets programs deemed misaligned with the administration's policy agenda, particularly in areas of climate science, environmental protection, and public health. Key programs at risk include NOAA's Oceanic and Atmospheric Research, the U.S. Global Change Research Program, and funds from the Inflation Reduction Act. In public health, the Centers for Disease Control and Prevention (CDC), including its over $5 billion Public Health Infrastructure Grant (PHIG) program [1], and the National Institutes of Health (NIH) grant budget are slated for restructuring or defunding. Initial actions such as a White House order to freeze federal grants and the designation of Medicaid as a 'high-risk' program signal the preparatory phase for these changes. OMB's granular control over HUD's FY2025 income limits [2] further demonstrates its assertion of broad operational authority.
The aggressive impoundment strategy will face significant legal and political challenges. The OMB's aggressive strategy is expected to trigger substantial legal and political challenges. The Comptroller General, who heads the Government Accountability Office (GAO), is statutorily empowered by the ICA to sue the executive branch to compel the release of improperly withheld funds. Furthermore, affected states, universities, and businesses would likely file third-party lawsuits, arguing violations of the ICA and the Appropriations Clause. Congress is also expected to counter with aggressive oversight, legislative riders to block impoundments, and potential confirmation blockades. Prediction markets are already reflecting the perceived viability of these aggressive maneuvers, with their resolution dependent on the outcome of these multi-front conflicts.
5. Why Did Trump's FY2026 Non-Defense Budget Cuts Fail?
| Proposed NDD Spending Cut | $163 billion (23%) [1] |
|---|---|
| Senate Appropriations Committee Vote | 26-3 (against proposed cuts) [2] |
| Final FY2026 Discretionary Spending | $1.6 trillion (consistent with FY2025) [3] |
Senior Republicans strongly opposed Trump's proposed non-defense discretionary cuts. Significant opposition to President Trump's Fiscal Year 2026 (FY2026) non-defense discretionary (NDD) spending cuts emerged from within the Republican conference, particularly from senior members of the Senate Appropriations Committee. Senator Susan Collins (R-ME), who chaired the committee, publicly voiced "serious objections" to the proposed $163 billion (23%) NDD reduction, citing negative impacts on programs such as LIHEAP, TRIO, and biomedical research [4]. Under her leadership, the Senate Appropriations Committee decisively rejected the administration's core proposals in its markup of the FY2026 Labor, Health and Human Services, and Education bill, advancing it with a commanding 26-3 bipartisan vote that directly defied the President's budget [2].
State and local interests drove congressional resistance to proposed cuts. This strong congressional opposition was largely driven by the profound economic and political value of federal non-defense installations and programs within members' states. Proposed cuts to federal research and development (R&D), including a 40-43% reduction for the National Institutes of Health (NIH) and 56% for the National Science Foundation (NSF), along with a more than $1 billion cut to the National Park Service, threatened major employers and economic drivers in numerous districts. The successful effort by the Senate Appropriations Committee to instead increase the NIH budget to $48.7 billion demonstrates the powerful parochial interest at play [2]. Ultimately, the final enacted FY2026 appropriations totaled approximately $1.6 trillion in discretionary spending, showing little change from FY2025 levels and explicitly protecting targeted areas like medical research and education aid, confirming that the congressional position prevailed over the administration's proposed cuts [3].
Procedural limitations severely constrained the administration's budget reduction efforts. The administration's ability to enact its desired spending cuts was also severely constrained by procedural and legal limitations. Discretionary spending, funded by 12 annual appropriations bills, is not passed through reconciliation and requires 60 votes to overcome a Senate filibuster. The Byrd Rule further prohibits extraneous matters like specific appropriations from being included in reconciliation legislation. This meant that the opposition from Republican Senators was decisive, as the administration lacked a procedural pathway to force through cuts without broad bipartisan support.
6. How Do Federal Court Timelines Impact 2025 Spending Cuts?
| D.C. Circuit Appeal Ruling | 5 to 14+ months (e.g., 10 months post-argument in Obama v. Klayman) [1] |
|---|---|
| En Banc Rehearing Example | Arguments set for February 2026 (EPA grants case) [1] |
| Injunction's Effect on Deadlines | Tolls statutory spending deadlines, extending access beyond Q4 2025 [2] |
The D.C. Circuit preliminary injunction rulings face significant and variable timelines. The timeline for the D.C. Circuit to rule on an appeal for a preliminary injunction typically ranges from 5 to 14 months or more from the initial lawsuit filing. Historical cases, such as Obama v. Klayman, illustrate that decisions can take nearly 10 months even after oral arguments, making a definitive resolution before late Q4 2025 uncertain. Several factors, including jurisdictional challenges, multi-party litigation, and the evolving post-Chevron deference landscape, can substantially protract these timelines. Furthermore, procedural escalations like an en banc review have the potential to add a year or more to the process [1].
Preliminary injunctions are crucial for preserving funds and extending spending deadlines. If states secure a preliminary injunction before mid-2025, it would be critical as it effectively freezes an administration's ability to withhold funds, thereby preserving the status quo. Such an injunction would legally toll statutory spending deadlines, like those established under the Federal Funding Accountability and Transparency Act (FFATA), ensuring states retain access to funds beyond their original Q4 2025 expiration during litigation [2]. The timing of these judicial decisions also directly influences prediction markets concerning federal spending cuts, as funds prevented from being de-obligated by an injunction before market resolution would likely not be counted as 'cut' [1].
Sources (2)
7. How Will Trump's 2025 Budget Impact Disaster Relief Funding?
| Proposed NDD Spending Cut | $163 billion from 2025 enacted level |
|---|---|
| BRIC & FMA Program Elimination | $3.3 billion annually |
| Non-Disaster FEMA Grants Cut | $646 million |
Proposed budgets significantly reduce proactive disaster preparedness funding. The Congressional Budget Office (CBO) projects 2025 mandatory disaster relief spending through the Disaster Relief Fund at approximately $24 billion. In contrast, a potential Trump administration budget proposes a $163 billion reduction in non-defense discretionary (NDD) spending from the 2025 enacted level. This includes the explicit elimination of proactive disaster mitigation initiatives such as the $3.3 billion annual federal grants for the Building Resilient Infrastructure and Communities (BRIC) and Flood Mitigation Assistance (FMA) programs. Further reductions include a $646 million cut to non-disaster FEMA grants and a $240 million reduction from the ASPR Hospital Preparedness Program, signaling a shift from investing in resilience to a reactive response model.
Emergency supplemental appropriations can offset proposed disaster relief cuts. Historically, Congress consistently passes large, bipartisan supplemental appropriation bills in response to major natural disasters. These emergency funds are exempt from statutory budget caps and frequently amount to tens of billions of dollars, potentially overshadowing any planned discretionary cuts. For instance, the financial response to events like Hurricane Ian has far exceeded initial estimates. A proposed deep cut in "non-base" discretionary funding—which covers emergency requirements and disaster relief—from $218 billion in 2025 to $78 billion in 2026 further indicates a potential reliance on ad-hoc emergency legislation rather than pre-planned mitigation for significant disaster events.
8. How Do Non-Defense Outlays Align With the FY2025 Budget Request?
| Dept. of Education Outlay Decline | $20 billion (19%) year-over-year through April 2025 [1] |
|---|---|
| HHS-Other Outlay Decline | $13 billion (38%) year-over-year through April 2025 [1] |
| H1 FY2025 Budget Deficit | $1.3 trillion (up $245 billion year-over-year) [1] |
Specific non-defense budget functions experienced significant year-over-year spending reductions. The first half of Fiscal Year 2025 revealed a federal budget deficit reaching $1.3 trillion, marked by a 10% increase in total federal outlays. Despite this overall expansion, specific non-defense areas experienced targeted spending reductions. Notably, the Department of Education’s outlays declined by $20 billion (19%), and the "Other" category within Health and Human Services (excluding Medicare and Medicaid) saw a $13 billion (38%) decrease through April 2025. These contractions contrast sharply with the broader trend of fiscal growth, which is largely driven by mandatory spending programs.
Diverse factors explain the observed year-over-year non-defense outlay reductions. The reduction in Education spending likely stems from structural changes in student loan accounting, such as re-estimates or the expiration of pandemic-era programs, rather than direct appropriations cuts proposed in the annual budget. In contrast, the substantial 38% drop in "HHS - Other" is a direct consequence of the Fiscal Responsibility Act (FRA) caps on discretionary spending and the winding down of Public Health Emergency (PHE) funding. While the President’s FY2025 Budget projected overall HHS outlay increases, confirming mandatory spending growth, these specific discretionary cuts contradict its broader departmental narrative. The Congressional Budget Office (CBO) estimated that, after adjusting for timing shifts, outlays in March 2025 would have been $32 billion (5%) lower than in March 2024 [1], illustrating monthly volatility.
Federal budget analysis reveals the dominance of mandatory spending growth. This growth significantly outweighs non-defense discretionary reductions in shaping the federal budget's trajectory. The FRA's caps are proving to have a tangible impact, forcing real reductions in agency operations and public health initiatives. Furthermore, the nature of "spending cuts" is complex; significant reductions can result from accounting adjustments or expiring funds, distinct from deliberate policy choices made within the contemporary budget cycle. Any future efforts to meaningfully control the deficit would require legislative action targeting the larger, mandatory portions of the budget, as non-defense discretionary spending has already been considerably constrained.
Sources (1)
9. What Could Change the Odds
Key Catalysts
The prediction market on government spending cuts by Trump in FY2025 is primarily influenced by the final official consolidation and interpretation of spending figures. While much data is already available as of February 2026, the most critical remaining catalyst is the expected release of the President's Budget for Fiscal Year 2026 in late February or early March 2026. This document will contain the definitive "Historical Tables" providing comprehensive and final actual federal spending data for FY2025.
Potential bullish catalysts that could support a 'YES' outcome (indicating spending cuts) include the President's Budget prominently highlighting specific legislative cuts, such as the $1.1 trillion in ten-year reductions included in the "One Big Beautiful Bill Act" (OBBBA) [1]. Favorable analysis within the budget, identifying substantial cuts in specific discretionary spending categories for FY2025, could also influence the market positively [1].
Conversely, bearish catalysts reinforcing a 'NO' outcome (indicating no cuts or an increase in spending) involve the reaffirmation of an overall increase in federal government spending, which totaled $7.01 trillion in FY2025 [2]. Further emphasis on the OBBBA's estimated net increase of $4.7 trillion in deficits over ten years due to substantial tax cuts, as projected by the Congressional Budget Office (CBO) [3], would also weigh on the 'YES' outcome. Additionally, ongoing high mandatory spending and escalating interest payments, which the CBO projects to double by 2036 [4], make overall spending reductions challenging and could be highlighted in official reports.
Key Dates & Catalysts
- Expiration: March 31, 2026
- Closes: March 31, 2026
