The Federal Budget and Budget Process

The budget process begins in the Executive Branch and then moves to Congress.

Part One: In the Executive Branch

Each year, the Federal Government must make a budget to plan how money will be spent the following year. The process begins with the President, the cabinet members and other advisers set goals and then figure the cost of these goals. The official name of these financial plans is the Budget of the U.S. Government.

The President’s Budget is a set of recommendations to Congress  to help them decide (1) how much money to spend, (2) what projects to spend it on, and (3) how to raise the money needed for the projects. According to law, the President must annually submit a budget to Congress by the first Monday in February. Besides the proposed spending plan, the President’s Budget must include:

  • How much money the Treasury had at the end of the last completed fiscal year. (The Treasury is the federal government keeps its funds.)
  • The funds the Treasury expects to have at the end of the current fiscal year.
  • The funds Treasury expects to have at the end of the next fiscal year if the budget plans are followed.

The Office of Management and Budget (OMB) helps the President create the Budget by gathering data from the various agencies as to how much money they’ll need. At the same time, the OMB recommends ways to cut costs.

The process of creating the President’s Budget takes from February until the end of the year. The law requires the President to submit the budget to Congress no earlier than the first Monday in January, and no later than the first Monday in February. 

The Budget Resolution

The next step is the drafting of budget resolutions. The United States House Committee on the Budget and the United States Senate Committee on the Budget draft these resolutions. By early April both committees must finalize their drafts and submit it to their respective chambers for discussion, debate and a vote.

A budget resolution is one kind of concurrent resolution. Concurrent resolutions do not require the President’s signature. They are the “blueprint” for the appropriation process. “Appropriation process” means the working out of the details of how much money is collected and spent and exactly where it’s spent.

Once both houses pass the resolutions, selected Representatives and Senators meet to work out the differences between the House and the Senate versions. Then end up with what’s called a conference report. The report, must be approved by both the House and Senate. This normally must be done before October 1st, which is the start of the federal government’s fiscal year. If it’s not done, the House and Senate must pass some extension of the previous year’s bill, usually spending at the same rate until the new budget appropriation package is formally approved.

 

Some Details of the Budget

Here’s a summary of the 2013 federal budget, both income and spending  (Source: Wikipedia)

Total receipts (in billions of dollars)::

Item Requested[38]
Individual income tax 1,359
Social Security and other payroll tax 959
Corporate income tax 348
Excise tax 88
Customs duties 33
Estate and gift taxes 13
Deposits of earnings and Federal Reserve System 80
Other miscellaneous receipts 21
Total 2902

 

Total outlays by agency (in billions of dollars):

Agency Discretionary Mandatory Total
Department of Defense including Overseas Contingency Operations 666.2 6.7 672.9
Department of Health and Human Services including Medicare and Medicaid 80.6 860.3 940.9
Department of Education 67.7 4.2 71.9
Department of Veterans Affairs 60.4 79.4 139.7
Department of Housing and Urban Development 41.1 5.2 46.3
Department of State and Other International Programs 56.1 3.4 59.5
Department of Homeland Security 54.9 0.5 55.4
Department of Energy 35.6 –0.6 35.0
Department of Justice 23.9 12.7 36.5
Department of Agriculture  [including food stamps] 26.8 127.7 154.5
National Aeronautics and Space Administration 17.8 –0.02 17.8
National Intelligence Program 52.6 0 52.6
Department of Transportation 24.0 74.5 98.5
Department of the Treasury 14.1 96.2 110.3
Department of the Interior 12.3 1.2 13.5
Department of Labor 13.2 88.4 101.7
Social Security Administration 11.7 871.0 882.7
Department of Commerce 9.5 –0.5 9.0
Army Corps of Engineers Civil Works 8.2 –0.007 8.2
Environmental Protection Agency 9.2 –0.2 8.9
National Science Foundation 7.4 0.2 7.5
Small Business Administration 1.4 –0.006 1.4
Corporation for National and Community Service 1.1 0.007 1.1
Net interest 246 0 246
Disaster costs 2 0 2
Other spending 34.0- 61.7 29.5
Total 1,510 2,293 3,803

 

Discretionary and Mandatory Spending

Discretionary spending requires an annual appropriation bill, which is a piece of legislation. Discretionary spending is typically set by the House and Senate Appropriations Committee and their various subcommittees. Discretionary spending is usually for one fiscal year, although some appropriations last for more than a year. For example some housing programs and some military procurement programs can cover more than one year.

Direct spending or mandatory refers to spending enacted by law, but not dependent on the annual or appropriation process. Most “mandatory” spending consists of entitlement programs such as Social Security benefits, Medicare, and Medicaid. These programs are called “entitlements” because any individuals that satisfy the requirements are entitled to these benefits or services. Congress can affect spending on entitlement programs by changing eligibility requirements or the structure of the entitlement programs.

If you look at the budget table above, note that the biggest spending is in the Departments.of Defense, Health and Human Services, Agriculture, and Veteran Affairs. Except for Defense, most of this spending is on entitlements.  Also, note that the overall spending is close to four trillion dollars a year, but the income is less, about three trillion. This spending more than you take it raises the national debt.

 

The Sequester

In 2011, because the government was nearing its debt limit, a bill was passed into law that required cuts to the budget starting in 2013. These cuts were “across-the-board cuts” meaning that it bypassed the process of trying to figure out the best way to cut spending. Different departments were dropped between 5.5% and 10% and they had to just deal with having less money. The sequester was meant to be an approach so harsh that it would inspire the U.S. government to work out a more sensible set of cuts. It didn’t. So, with a two-month delay the cuts went into effect in March, 2013. The cuts were about 85.4 billion, half of the cuts in defense, and the other half in domestic programs. Certain entitlements like Social Security and veteran’s benefits were exempt. If nothing is done, the sequester will last eight years and lower spending by $1.1 trillion over the eight years.  (Source: Wikipedia.) 

 

Authorization and Appropriations

According to the Constitution, Congress ultimately decides the policies and the President and the Executive branch carry out the policies. That’s because some committees authorize certain policies through bills, and then the committees mentioned above are supposed to appropriate the fund to pay people to carry out the policies and programs. In reality, however, sometimes a program is authorized but it doesn’t receive any appropriations and so is not funded, but in other cases, programs that are no longer official authorized do sometimes continue to receive funds because of an unspoken understanding that the program is necessary.  (We don’t understand this either!)

 

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