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Budgets and Taxes
Excerpt from Budget of
the United States Government, FY 2004
The budget system of the United States Government
provides the means for the President and Congress to decide how much money
to spend, what to spend it on, and how to raise the money they have
decided to spend. Through the budget system, they determine the allocation
of resources among the agencies of the Federal Government. The budget
system focuses primarily on dollars, but it also allocates other
resources, such as Federal employment. The decisions made in the budget
process affect the nation as a whole, State and local governments, and
individual Americans. Many budget decisions have worldwide significance.
The Congress and the President enact budget decisions into law. The budget
system ensures that these laws are carried out.
This chapter provides an overview
of the budget system and explains some of the more important budget
concepts. It includes summary dollar amounts to illustrate major concepts.
Other chapters of the budget documents discuss these amounts and more
detailed amounts in greater depth. A glossary of budget terms appears at
the end of the chapter. Various laws, enacted to carry out requirements of
the Constitution, govern the budget system. The chapter refers to the
principal ones by title throughout the text and gives complete citations
in the section just preceding the glossary.
The budget process has three main
phases, each of which is interrelated with the others: (1) Formulation of
the President’s proposed budget; (2) Congressional action on the budget;
and (3) Budget execution.
Formulation of the
The Budget of the United States
Government consists of several volumes that set forth the President’s
financial proposal with recommended priorities for the allocation of
resources by the Government. The primary focus of the budget is on the
budget year—the next fiscal year for which Congress needs to make
appropriations, in this case 2004. (Fiscal year 2004 will begin on October
1, 2003 and end on September 30, 2004.) The budget also covers at least
the four years following the budget year in order to reflect the effect of
budget decisions over the longer term. It includes the funding levels
provided for the current year, in this case 2003, so that the reader can
compare the President’s budget proposals to the most recently enacted
levels, and it includes data on the most recently completed fiscal year,
in this case 2002, so that the reader can compare budget estimates to
actual accounting data.
President begins the process of formulating the budget by establishing
general budget and fiscal policy guidelines, usually by the Spring of each
year, at least nine months before the President transmits the budget to
Congress and at least 18 months before the fiscal year begins. (See the
Budget Calendar below.) Based on these guidelines, the Office of
Management and Budget (OMB) works with the Federal agencies to establish
specific policy directions and planning levels for the agencies, both for
the budget year and for at least the following four years, to guide the
preparation of their budget requests.
the formulation of the budget, the President, the Director of OMB, and
other officials in the Executive Office of the President continually
exchange information, proposals, and evaluations bearing on policy
decisions with the Secretaries of the departments and the heads of the
other Government agencies. Decisions reflected in previously enacted
budgets, including the one for the fiscal year in progress, reactions to
the last proposed budget (which Congress is considering when the process
of preparing the upcoming budget begins), and how programs are actually
performing influence decisions concerning the upcoming budget. So do
projections of the economic outlook, prepared jointly by the Council of
Economic Advisers, OMB, and the Treasury Department.
early Fall, agencies submit their budget requests to OMB, where analysts
review them and identify issues that OMB officials need to discuss with
the agencies. OMB and the agencies resolve many issues them-selves.
require the involvement of the President and White House policy officials.
This decision-making process is usually completed by late December. At
that time, the final stage of developing detailed budget data and the
preparation of the budget documents begins. The decision-makers must
consider the effects of economic and technical assumptions on the budget
estimates. Interest rates, economic growth, the rate of inflation, the
unemployment rate, and the number of people eligible for various benefit
programs, among other things, affect Government spending and receipts.
Small changes in these assumptions can affect budget estimates by billions
of dollars. (Chapter 2, ‘‘Economic Assumptions,’’ provides more
information on this subject.) Statutory limitations on changes in receipts
and out-lays also influence budget decisions (see Budget Enforcement
the budget formulation process involves the simultaneous consideration of
the resource needs of individual programs, the allocation of resources
among the agencies and functions of the Federal Government, the total
outlays and receipts that are appropriate in relation to current and
prospective economic conditions, and statutory constraints.
law governing the President’s budget specifies that the President is to
transmit the budget to Congress on or after the first Monday in January
but not later than the first Monday in February of each year for the
following fiscal year, which begins on October 1. This gives Congress
eight to nine months before the fiscal year begins to act on the budget.
some years, for various reasons, the President can-not adhere to the
normal schedule. One reason is that the current law does not require an
outgoing President to transmit a budget, and it is impractical for an
incoming President to complete a budget within a few days of taking office
on January 20th. President Clinton, the first President subject to the
current requirement, submitted a report to Congress on February 17, 1993,
describing the comprehensive economic plan he pro-posed for the Nation and
containing summary budget information. He transmitted the Budget of the
United States for 1994 on April 8, 1993. President George W. Bush
similarly submitted an initial document, A Blue-print for New
Beginnings—A Responsible Budget for America’s Priorities, to
Congress on February 28, 2001, and transmitted the Budget of the United
States for Fiscal Year 2002 on April 9, 2001.
some years, the late or pending enactment of appropriations acts, other
spending legislation, and tax laws considered in the previous budget cycle
have delayed preparation and transmittal of complete budgets. For this
reason, for example, President Reagan submitted his budget for 1988
forty-five days after the date specified in law. In other years,
Presidents have submitted abbreviated budget documents on the due date,
sending the more detailed documents weeks later. For example, President
Clinton transmitted an abbreviated budget document to Congress on February
5, 1996, because of uncertainty over 1996 appropriations as well as
possible changes in mandatory programs and tax policy. He transmitted a
Budget Supplement and other budget volumes in March 1996.
considers the President’s budget proposals and approves, modifies, or
disapproves them. It can change funding levels, eliminate programs, or add
pro-grams not requested by the President. It can add or eliminate taxes
and other sources of receipts, or make other changes that affect the
amount of receipts collected.
does not enact a budget as such. Through the process of adopting a budget
resolution (described below), it agrees on levels for total spending and
receipts, the size of the deficit or surplus, and the debt limit. The
budget resolution then provides the framework within which congressional
committees prepare appropriations bills and other spending and receipts
legislation. Congress provides spending authority for specified purposes
in several regular appropriations acts each year (traditionally thirteen).
It also enacts changes each year in other laws that affect spending and
receipts. Both appropriations acts and these other laws are discussed in
the following paragraphs. In making appropriations, Congress does not vote
on the level of outlays (spending) directly, but rather on budget
authority, which is the authority provided by law to incur financial
obligations that will result in outlays. In a separate process, prior to
usually enacts legislation that authorizes an agency to carry out
particular programs and, in some cases, limits the amount that can be
appropriated for the programs. Some authorizing legislation expires after
one year, some expires after a specified number of years, and some is
permanent. Congress may enact appropriations for a program even though
there is no specific authorization for it.
begins its work on the budget shortly after it receives the President’s
budget. Under the procedures established by the Congressional Budget Act
of 1974, Congress decides on budget totals before completing action on
individual appropriations. The Act requires each standing committee of the
House and Senate to recommend budget levels and report legislative plans
concerning matters within the committee’s jurisdiction to the Budget
Committee in each body. The Budget Committees then initiate the concurrent
resolution on the budget. The budget resolution sets levels for total
receipts and for budget authority and outlays, both in total and by
functional category (see Functional Classification below). It also sets
levels for the budget deficit or surplus and debt.
the report on the budget resolution, the Budget Committees allocate the
amounts of budget authority and outlays within the functional category
totals to the House and Senate Appropriations Committees and the other
committees that have jurisdiction over the pro-grams in the functions. The
Appropriations Committees are required, in turn, to allocate amounts of
budget authority and outlays among their respective sub-committees. The
subcommittees may not exceed their allocations in drafting spending bills.
The other commit-tees with jurisdiction over spending and receipts may
make allocations among their subcommittees but are not required to. The
Budget Committees’ reports may discuss assumptions about the level of
funding for major programs. While these assumptions do not bind the
committees and subcommittees with jurisdiction over the programs, they may
influence their decisions. The budget resolution may contain
‘‘reconciliation directives’’ (discussed below) to the committees
responsible for tax laws and for spending not controlled by annual
appropriation acts, in order to conform the level of receipts and this
type of spending to the levels specified in the budget resolution.
congressional timetable calls for the whole Congress to adopt the budget
resolution by April 15 of each year, but Congress regularly misses this
deadline. For 2003, Congress did not
enact a budget resolution. Once Congress passes a budget resolution, a
member of Congress can raise a point of order to block a bill that would
exceed a committee’s allocation. A concurrent resolution, such as the
one on the budget, is not a law and, therefore, does not require the
President’s approval. However, Congress considers the President’s
views in preparing budget resolutions, be-cause legislation developed to
meet congressional budget allocations does require the President’s
approval. In some years, the President and the joint leadership of
Congress have formally agreed on plans to reduce the deficit or balance
the budget. These agreements were reflected in the budget resolution and
legislation passed for those years.
Congress approves the budget resolution, it turns its attention to
enacting appropriations bills and authorizing legislation. Appropriations
bills are initiated in the House. They provide the budget authority for
the majority of Federal programs. The Appropriations Committee in each
body has jurisdiction over annual appropriations. These committees are
divided into subcommittees that hold hearings and review detailed budget
justification materials prepared by the agencies within the
subcommittee’s jurisdiction. After a bill has been drafted by a
subcommittee, the committee and the whole House, in turn, must approve the
bill, usually with amendments to the original version. The House then
forwards the bill to the Senate, where a similar review follows. If the
Senate disagrees with the House on particular matters in the bill, which
is often the case, the two bodies form a conference committee (consisting
of Members of both bodies) to resolve the differences. The conference
committee revises the bill and returns it to both bodies for approval.
When the revised bill is agreed to, first in the House and then in the
Senate, Congress sends it to the President for approval or veto.
President can only approve or veto an entire bill. He cannot approve or
veto selected parts of a bill. In 1996, Congress enacted the Line Item
Veto Act, granting the President limited authority to cancel new spending
and limited tax benefits when he signs laws enacted by the Congress.
However, in 1998, the Supreme Court declared the authority provided by the
Act to be unconstitutional.
21 of the last 22 years, including 2003, appropriations bills have not
been enacted by the beginning of the fiscal year. When Congress does not
complete action on one or more appropriations bills by the beginning of
the fiscal year, it usually enacts a joint resolution called a
‘‘continuing resolution,’’ which is similar to an appropriations
bill, to provide authority for the affected agencies to continue
operations at some specified level up to a specific date or until their
regular appropriations are enacted. In some years, a continuing resolution
has funded a portion or all of the Government for the entire year.
Congress must present these resolutions to the President for approval or
veto. In some cases, Presidents have rejected continuing resolutions
because they contained unacceptable provisions. Left without funds,
Government agencies were required by law to shut down operations with
exceptions for some activities until Congress passed a continuing
resolution the President would approve. Shutdowns have lasted for periods
of a day to several weeks.
As explained earlier, Congress
also provides budget authority in laws other than appropriations acts. In
fact, while annual appropriations acts control the spending for the
majority of Federal programs, they control only one-third of the total
spending in a typical year. Permanent laws, called authorizing
legislation, control the rest of the spending. A distinctive feature of
these laws is that they provide agencies with the authority to collect or
to spend money without first requiring the Appropriations Committees to
enact funding. This category of spending includes interest the Government
pays on the public debt and the spending of several major programs, such
as Social Security, Medicare and Medicaid, unemployment insurance, and
Federal employee retirement.
Almost all taxes and most other receipts result from permanent laws. The House initiates tax bills, specifically in the Ways and Means Committee. In the Senate, the Finance Committee has jurisdiction over tax laws. The budget resolution often includes reconciliation directives, which require authorizing committees to change permanent laws that affect receipts and outlays. They direct each designated committee to report amendments to the laws under the committee’s jurisdiction that would change the levels of receipts and spending controlled by the laws. The directives specify the dollar amount of changes that each designated committee is expected to achieve, but do not specify the laws to be changed or the changes to be made. However, the Budget Committees’ reports on the budget resolution may discuss assumptions about how the laws would be changed. Like other assumptions in the re-port, they do not bind the committees of jurisdiction but may influence their decisions. The committees subject to reconciliation directives draft the implementing legislation. Such legislation may, for example, change the tax code, revise benefit formulas or eligibility requirements for benefit programs, or authorize Government agencies to charge fees to cover some of their costs. In some years, Congress has enacted an omnibus budget reconciliation act, which combines the amendments to implement reconciliation directives in a single act. These acts, together with appropriations acts for the year, often implement agreements between the President and the Congress. They may include other matters, such as laws providing the means for enforcing these agreements.