The Budgeting Function of Congress

The Budgeting Process

Each year, the President of the United States submits his budget request to Congress.

Learning Objectives

Describe the key components of the budget process and the current fiscal position of the United States

Key Takeaways

Key Points

  • The Budget of the United States Government often begins as the President’s proposal to the U.S. Congress which recommends funding levels for the next fiscal year, beginning October 1.
  • Several government agencies provide budget data and analysis. These include the Government Accountability Office (GAO), Congressional Budget Office, the Office of Management and Budget (OMB) and the U.S. Treasury Department.
  • Social Security, Medicare, and Medicaid expenditures are funded by more permanent Congressional appropriations and so are considered mandatory spending.
  • During 2011, the U.S. spent more on its military budget than the next 13 countries combined.
  • The annual budget deficit is the difference between actual cash collections and budgeted spending (a partial measure of total spending) during a given fiscal year, which runs from October 1 to September 30.

Key Terms

  • Public Debt: The United States public debt is the money borrowed by the federal government of the United States through the issuing of securities by the Treasury and other federal government agencies.
  • budget: The amount of money or resources earmarked for a particular institution, activity, or time-frame.

Introduction

The Budget of the United States Government often begins as the President’s proposal to the U.S. Congress which recommends funding levels for the next fiscal year, beginning October 1. However, Congress is the body required by law to pass a budget annually and to submit the budget passed by both houses to the President for signature. Congressional decisions are governed by rules and legislation regarding the federal budget process. Budget committees set spending limits for the House and Senate committees and for Appropriations subcommittees, which then approve individual appropriations bills to allocate funding to various federal programs.

Several government agencies provide budget data and analysis. These include the Government Accountability Office (GAO), Congressional Budget Office, the Office of Management and Budget (OMB) and the U.S. Treasury Department. These agencies have reported that the federal government is facing a series of important financing challenges. In the short-run, tax revenues have declined significantly due to a severe recession and tax policy choices, while expenditures have expanded for wars, unemployment insurance and other safety net spending. In the long-run, expenditures related to healthcare programs such as Medicare and Medicaid are projected to grow faster than the economy overall as the population matures.

Major Expenditure Categories

During FY 2012, the federal government spent $3.54 trillion on a budget or cash basis, down $60 billion or 1.7% vs. FY 2011 spending of $3.60 trillion. Major categories of FY 2012 spending included: Medicare & Medicaid ($802B or 23% of spending), Social Security ($768B or 22%), Defense Department ($670B or 19%), non-defense discretionary ($615B or 17%), other mandatory ($461B or 13%) and interest ($223B or 6%). Social Security spending increased versus 2011 while Defense, Medicare and Medicaid spending fell.

Social Security, Medicare, and Medicaid expenditures are funded by more permanent Congressional appropriations and so are considered mandatory spending. Social Security and Medicare are sometimes called ” entitlements,” because people meeting relevant eligibility requirements are legally entitled to benefits, although most pay taxes into these programs throughout their working lives. Some programs, such as Food Stamps, are appropriated entitlements. Some mandatory spending, such as Congressional salaries, is not part of any entitlement program. Mandatory spending accounted for 57.4% of total federal outlays in FY2012, with net interest payments accounting for an additional 6.3%. In 2000, these were 53.2% and 12.5%, respectively.

Other Expenditures

The military budget of the United States during FY 2011 was approximately $740 billion in expenses for the Department of Defense (DoD), $141 billion for veteran expenses, and $48 billion in expenses for the Department of Homeland Security, for a total of $929 billion. Much of the costs for the wars in Iraq and Afghanistan have not been funded through regular appropriations bills, but through emergency supplemental appropriations bills. As such, most of these expenses were not included in the budget deficit calculation prior to FY2010. Some budget experts argue that emergency supplemental appropriations bills do not receive the same level of legislative care as regular appropriations bills. During 2011, the U.S. spent more on its military budget than the next 13 countries combined.

Non-defense discretionary spending is used to fund the executive departments (e.g., the Department of Education) and independent agencies (e.g., the Environmental Protection Agency), although these do receive a smaller amount of mandatory funding as well. Discretionary budget authority is established annually by Congress, as opposed to mandatory spending that is required by laws that span multiple years, such as Social Security or Medicare.

The annual budget deficit is the difference between actual cash collections and budgeted spending (a partial measure of total spending) during a given fiscal year, which runs from October 1 to September 30. Since 1970, the U.S. federal government has run deficits for all but four years (1998–2001) contributing to a total debt of $16.1 trillion as of September 2012.

Public Debt

The United States public debt is the money borrowed by the federal government of the United States through the issuing of securities by the Treasury and other federal government agencies. US public debt consists of two components: Debt held by the public includes Treasury securities held by investors outside the federal government, including that held by individuals, corporations, the Federal Reserve System and foreign, state and local governments. Individuals, corporations, the Federal Reserve System and foreign, state and local governments.

Debt held by government accounts or intragovernmental debt includes non-marketable Treasury securities held in accounts administered by the federal government that are owed to program beneficiaries, such as the Social Security Trust Fund. Debt held by government accounts represents the cumulative surpluses, including interest earnings, of these accounts that have been invested in Treasury securities.

Preparing the Budget

The Office of Management and Budget (OMB) performs key tasks in preparing the presidential budget request that is submitted to Congress.

Learning Objectives

Summarize the key role played by the Office of Management and Budget in shaping the President’s budget request

Key Takeaways

Key Points

  • The OMB’s primary mission is to assist the president in overseeing the preparation of the federal budget and to supervise the administration of that budget in executive branch agencies.
  • Tasks undertaken by the OMB, in order to help the president generate a budget, include evaluating the effectiveness of agency programs, policies, and procedures, and assessing competing funding demands among agencies.
  • The fact that the organizational structure of the OMB, and its staff, remain unchanged regardless of which party occupies the White House, facilitates the budget process.

Key Terms

  • legislation: Law which has been enacted by legislature or other governing body
  • budget: The amount of money or resources earmarked for a particular institution, activity, or time-frame.
  • Office of Management and Budget: The largest office within the Executive Office of the President, the OMB is in charge of overseeing the preparation of the federal budget and the administering of that budget within the federal branch.

Introduction

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U.S. Office of Management and Budget Seal: The Office of Management and Budget plays a key role in preparing the president’s budget request to Congress

A great deal of preparation goes into the president’s budget request submission, which is entitled, Budget of the U.S. Government. Before it is submitted, the president spends months working with the Office of Management and Budget (OMB) to formulate this budget request. The Office of Management and Budget is the largest office within the Executive Office of the President. The OMB’s primary mission is to assist the president as he or she supervises the preparation of the federal budget. It is also responsible, later, for administering that budget to executive branch agencies.

OMB’s Responsibilities

In order to aid the president in generating a budget submission, the OMB evaluates the effectiveness of various agency programs, policies, and procedures. The OMB also assesses competing funding demands among agencies in order to decide upon funding priorities. In preparation for submitting a final presidential budget request to Congress, the OMB also ensures that reports from individual agencies, along with any rules, testimony, and proposed legislation, are consistent with the president’s budget request and administration policies.

OMB’s Structure

The structure of the OMB facilitates the preparation of the budget and the later submission of that budget to Congress. OMB staff provide the Executive Office of the President with vital continuity, because they are among the several hundred career professionals that remain in their positions regardless of which party occupies the White House. The largest offices of the OMB are the four Resource Management Offices. Staff members from these offices are assigned to monitor federal agencies or topical areas, like issues associated with U.S. Navy warships. They perform in-depth program evaluations and review federal agency budget requests to decide which resource requests will be sent to Congress under the president’s budget. In addition to these departments, staff members from the Office of General Counsel, the Office of Legislative Affairs, the Budget Review Division, and the Legislative Reference Division provide important support for the general operations of the OMB.

The Election Year Budget

Budget proposals during election years are usually politicized to gain votes and increase constituency support.

Learning Objectives

Summarize the various conflicts that can plague the federal budget

Key Takeaways

Key Points

  • The Budget of the United States Government often begins as the President’s proposal to the U.S. Congress which recommends funding levels for the next fiscal year, beginning October 1.
  • The annual budget deficit is the difference between actual cash collections and budgeted spending (a partial measure of total spending) during a given fiscal year, which runs from October 1 to September 30.
  • The debate between the executive and the House has carried on into the presidential election, in which incumbent Democrat President Obama’s spending policies are compared against those of Republican vice-presidential candidate and current House Budget Committee chairman, Paul Ryan.
  • While both executive and House budget plans focus on deficit reduction, they differ in their changes to taxation, entitlement programs, defense spending, and research funding.

Key Terms

  • budget: The amount of money or resources earmarked for a particular institution, activity, or time-frame.
  • deficit: A situation wherein, or amount whereby, spending exceeds government revenue.
  • fiscal: Related to the treasury of a country, company, region, or city, particularly to government spending and revenue.
  • budget deficit: the difference between government revenues and spending, in which the government is spending more than it’s earning

Introduction

The Budget of the United States Government often begins as the President’s proposal to the U.S. Congress which recommends funding levels for the next fiscal year, beginning October 1. However, Congress is the body required by law to pass a budget annually and to submit the budget passed by both houses to the President for signature. Congressional decisions are governed by rules and legislation regarding the federal budget process. Budget committees set spending limits for the House and Senate committees and for Appropriations subcommittees, which then approve individual appropriations bills to allocate funding to various federal programs.

Understanding Deficits and Debt

The annual budget deficit is the difference between actual cash collections and budgeted spending (a partial measure of total spending) during a given fiscal year, which runs from October 1 to September 30. Since 1970, the U.S. federal government has run deficits for all but four years (1998–2001) contributing to a total debt of $16.1 trillion as of September 2012.

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Revenue and Expense to GDP Chart 1993 – 2008: Tax and Spend percent GDP in United States 1981-2012,

Many of the debates surrounding the United States federal budget center around competing macroeconomic schools of thought. In general, Democrats favor the principles of Keynesian economics to encourage economic growth via a mixed economy of both private and public enterprise, a welfare state, and strong regulatory oversight. Conversely, Republicans generally support applying the principles of either laissez-faire or supply-side economics to grow the economy via small government, low taxes, limited regulation, and free enterprise.

Election-Year Budgets

The 1996 United States federal budget was the United States federal budget to fund government operations for the fiscal year 1996, which was October 1995 – September 1996. This budget was the first to be submitted after the Republican Revolution in the 1994 midterm elections. Disagreements between Democratic President Bill Clinton and Republicans led by Speaker of the House Newt Gingrich led to the United States federal government shutdown of 1995 and 1996.

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U.S. President Bill Clinton: Official White House photo of President Bill Clinton, President of the United States.

The failure of Congress and the President to enact the remaining appropriations legislation led to government shutdowns during November 13–19, 1995 and December 15, 1995 through January 6, 1996. The shutdowns were triggered by the expiration of continuing resolutions. The first shutdown caused the furlough of about 800,000 federal employees, while the second affected 284,000 due to additional appropriations bills enacted in the interim.

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Paul Ryan: Rep. Paul Ryan is former head of the House Budget Committee, but now serves as the Speaker of the House.

The Obama Administration’s Budget Plans

The Obama administration’s 2012 budget request focused on reducing annual deficits to more sustainable levels by making certain cuts in spending while continuing to support areas that would promote long-term economic growth, such as education and clean energy. The plan did not contain proposals to rein in spending on entitlement programs expected to increase the deficit in future years, like Medicare, Medicaid, and Social Security. The 2012 budget plan was a shift from the Obama administration’s previous strategy of using increased government spending to stimulate the economy. Instead, the budget request was projected to reduce government deficits by 1.1 trillion dollars over the next ten years. Republicans have criticized the president’s plan for not going far enough to reduce future deficits.

The 2016 budget plan President Obama proposed requested 4 trillion in fiscal year 2016. His proposal called for 74 billion in additional discretionary spending above the sequestration caps set in place. The additional spending would be about evenly split between defense and non-defense discretionary programs.

This budget request is President Obama’s first on-time budget proposal since 2011. It included more than $1.15 trillion in discretionary spending, an increase of about 2 percent relative to 2015 enacted levels.

The president proposed $60 billion over 10 years for a new initiative that would allow students to attend community college for up to two years tuition free and would again provide expanded Head Start and universal pre-kindergarten.

The budget also includes $478 billion in additional infrastructure spending over the next six years, which would pay for surface transportation improvements such as roads and bridges. The president proposes to pay for this through various tax reforms.

Budget Resolutions

The budget resolution serves as a blueprint for the actual appropriations process and provides Congress with some control over the process.

Learning Objectives

Summarize the aims and shape of Congress’s annual budget resolution

Key Takeaways

Key Points

  • The budget resolution establishes budget totals, allocations, entitlements, and sometimes includes reconciliation instructions to certain House or Senate committees. Federal spending is apportioned among 20 functional categories such as national defense, agriculture, and transportation.
  • The budget resolution sets spending ceilings for the Congressional committees with jurisdiction over spending.
  • The budget resolution is created in response to the president’s budget request according to the Congressional Budget and Impoundment Control Act of 1974.
  • No penalty exists if the budget resolution is not completed by April 15th or if it is not completed at all.

Key Terms

  • fiscal: Related to the treasury of a country, company, region, or city, particularly to government spending and revenue.
  • budget resolution: In the United States Congress, a budget resolution is a legislation in the form of a concurrent resolution setting forth the congressional budget. The budget resolution establishes various budget totals, allocations, and entitlements. It may include reconciliation instructions to designated House or Senate committees.
  • appropriations: In law and government, appropriation (from Latin appropriare, “to make one’s own,” later “to set aside”) is the act of setting apart something for its application to a particular usage to the exclusion of all other uses. It typically refers to the legislative designation of money for particular uses in the context of a budget or spending bill.

Congress must create an annual budget resolution in response to the President’s budget request according to the Congressional Budget and Impoundment Control Act of 1974 (also known as the Congressional Budget Act). The budget resolution must cover the time span of a minimum of five fiscal years, which includes the upcoming fiscal year plus the four following fiscal years. The budget resolution establishes budget totals, allocations, entitlements, and sometimes includes reconciliation instructions to certain House or Senate committees. Federal spending is apportioned among 20 functional categories such as national defense, agriculture, and transportation.

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Nixon Departing the White House after His Resignation: The Congressional Budget and Impoundment Control Act of 1974 (Congressional Budget Act), created during the Nixon administration, established the current budget resolution process.

The budget resolution also sets spending ceilings for the Congressional committees that have jurisdiction over spending. Even though the budget resolution covers at least five fiscal years, the House and Senate Committees on Appropriations receive allocations only for the upcoming fiscal year because appropriations measures are annual. After the appropriations committees receive their spending ceilings, they are responsible for dividing the amount among their respective subcommittees.

The budget resolution binds Congress, but it is not law since it is not sent to the President. It does not provide budget authority or change the level of revenues. Instead, the budget resolution serves as a blueprint for the actual appropriations process and provides Congress with some control over this process.

April 15th is the target date for congressional adoption of the budget resolution set by the Congressional Budget Act. However, Congress has frequently not met this target date since the fiscal year 1977. In some instances, Congress has not adopted a budget resolution. No penalty exists if the budget resolution is not completed by April 15th or if it is not completed at all. However, some enforceable spending ceilings cannot be established until the budget resolution is completed. The Congressional Budget Act also prohibits House and Senate floor consideration of appropriations measures for the upcoming fiscal year before the budget resolution is completed. However, the House can bypass this prohibition after May 15th and the Senate can bypass it by adopting a motion to waive the rule by majority vote.

Authorization and Appropriation

Authorizations and appropriations functions are separate in principle, but this separation is often imperfect in reality.

Learning Objectives

Differentiate between authorization and appropriation

Key Takeaways

Key Points

  • Authorization acts establish, continue, or modify agencies or programs.
  • Appropriations acts provide new budget authority for programs, activities, and agencies that have been authorized by authorization committees.
  • The separation of authorization and appropriation functions are enforced through House and Senate rules that divide committee jurisdiction between authorization and appropriations bills.
  • The separation between authorization and appropriations measures is imperfect: prohibited language in appropriations bills can still be passed, some authorized programs receive no funding, and some unauthorized programs do receive funding.

Key Terms

  • appropriation: Public funds set aside for a specific purpose.
  • budget resolution: In the United States Congress, a budget resolution is a legislation in the form of a concurrent resolution setting forth the congressional budget. The budget resolution establishes various budget totals, allocations, and entitlements. It may include reconciliation instructions to designated House or Senate committees.
  • authorization: Permission, possibly limited, to spend funds for a specific budgetary purpose.

The budget resolution adopted by Congress provides a blueprint for later authorization and appropriations measures. These measures are distinct from each other and perform different functions. Authorization acts establish, continue, or modify agencies or programs. For instance, an authorization act could establish or modify programs within a federal department. Authorization acts also authorize subsequent appropriations for specific agencies and programs, often setting spending ceilings for them. Meanwhile, appropriations acts provide new budget authority for programs, activities, and agencies that have been authorized by authorization committees.

The separation of authorization and appropriation functions are enforced through House and Senate rules that divide committee jurisdiction between authorization and appropriations bills. Points of order also prohibit certain provisions in appropriations measures. For instance, the House and Senate prohibit language in appropriations bills that provides appropriations not authorized by law, also known as unauthorized appropriations. An unauthorized appropriation is a new budget authority for agencies or programs either without authorization or where the budget authority exceeds the authorized ceiling. Language in an appropriations bill that provides legislation on the bill is additionally prohibited. In other words, language in appropriations measures cannot change existing law; legislation is solely the jurisdiction of legislative committees.

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House Appropriations Committee Logo: Appropriations committees are distinct from authorization committees in principle, but the division is often imperfect in reality.

In reality, the separation between authorization and appropriation measures is imperfect. Authorization for many programs has long since expired, but these programs still receive appropriated amounts. Other authorized programs receive no appropriated funds at all. Meanwhile, the aforementioned language prohibitions in appropriations bills sometimes gets passed in the bills either because no one raised a point of order or the House and Senate waived the rules.