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 President’s Budget 

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.

The 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.

During 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.

In 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.

Others 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 below).

Thus, 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.

The 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.

In 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.

In 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.

Congressional Action

Congress 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.

Congress 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 making appropriations,

Congress 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.

Congress 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.

In 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.

The 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.

Once 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.

The 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.

For 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.

• Political Magazines: The Almanac's links to political and public policy magazine sites.
• Public Policy Jobs: Sites listing public policy, lobbying, and media jobs in government and at major national organizations.
• Questia: Search over 400,000 books and journals at Questia online.

• Open Directory - National Budget
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• Yahoo - Tax Reform
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• Full Coverage: Taxes and the IRS (Yahoo)
• Full Coverage: U.S. Budget News (Yahoo)
• Washington Post: Special Report on Budget Policy
• Washington Post: Special Report on Tax Policy

• Congressional Budget Office
• House Appropriations Committee: The House committee responsible for writing each of the 13 annual federal appropriations (spending) bills.
• House Budget Committee: The House committee responsible for writing the overall budget plan for the year. This document helps guide the spending and tax committees in their work.
• House Budget Committee: Democrats: Web page of the House Budget Committee Democrats.
• House Ways and Means Committee: House committee charged with writing tax legislation and bills affecting Social Security, Medicare, and other entitlement programs.
• Internal Revenue Service (IRS)
• Joint Committee on Taxation: Advisory committee charged with monitoring federal tax policy and estimating the impact of proposed changes to tax policy.
• Office of Management and Budget: White House office responsible for devising and submitting the president's annual budget proposal to Congress. Organizations
• Senate Appropriations Committee: The Senate committee responsible for writing each of the 13 annual federal appropriations (spending) bills.
• Senate Budget Committee: The Senate committee responsible for writing the overall budget plan for the year. This document helps guide the spending and tax committees in their work.
• Senate Finance Committee: Senate committee charged with writing tax legislation and bills affecting Social Security, Medicare, and other entitlement programs. Government

• About.com: Federal Budget
• Brookings Institution - Budgeting for National Priorities
• Cato Institute - Fiscal Policy Studies: Libertarian organization dedicated to reducing government spending and lowering taxes.
• Center for American Progress - Taxes
• Center on Budget and Policy Priorities: Liberal policy organization specializing in federal budget issues from a low-income perspective.
• Center on Budget and Policy Priorities - Federal Budget
• Center on Budget and Policy Priorities - Federal Tax Policy
• Center on Budget and Policy Priorities - State Fiscal Policies
• Citizens for Tax Justice: Liberal public policy organization specializing in federal tax issues.
• Competitive Enterprise Institute - Corporate Welfare
• Concord Coalition: Bipartisan advocacy organization that works for balanced federal budgets.
• Heritage Foundation - Federal Budget and Spending
• Heritage Foundation - Tax Reform: Conservative analysis of federal budget and tax policy.
• Heritage Foundation - Taxes
• Hoover Institution - Capital Formation, Tax Policy, and Economic Growth
• International Budget Project
• Invest in America Campaign: Coalition of pro-spending advocacy organizations and unions working for increased federal investment in education, the environment, and low-income programs.
• National Priorities Project: Liberal public policy organization that specializes in reports on the state by state impact of federal budget decisions.
• National Taxpayers Union: Conservative organization that works for lower taxes and spending.
• OMB Watcher: Newsletter covering budget, regulatory, and government information issues from OMB Watch.
• PollingReport.com: Budget Polls: Latest opinion surveys on budget-related issues.
• Progressive Policy Institute - Economic & Fiscal Policy
• State Fiscal Analysis Initiative
• Taxpayers Against Fraud: Nonprofit public interest organization dedicated to combating fraud against the federal government through the use of the federal False Claims Act and the filing of whistleblower lawsuits.
• Taxpayers for Common Sense: Centrist organization that works to eliminate wasteful government spending. Articles and Reports
• Townhall.com - Budget, Taxes, and the Economy
• United for a Fair Economy: News and analysis from advocacy organization critical of economic polarization and inequities.Usenet sci.econ
• Urban Institute - Tax Policy
• Urban-Brookings Tax Policy Center: The Tax Policy Center provides timely, accessible analysis and facts about tax policy to policymakers, journalists, citizens, and researchers.

• Summary of the Working Families Tax Relief Act of 2004 (Senate Finance Committee: September 23, 2004) -- PDF File.
• New Congressional Budget Office Estimates Show Continued High Deficits and Further Fiscal Deterioration: Center on Budget and Policy Priorities analysis examines CBO's new budget estimates; it finds that the fiscal deterioration has been much greater over the past two years than in the first two years of any other recovery since World War II and projects deficits totaling $4.4 trillion over the next ten years. (Center on Budget and Policy Priorities: September 7, 2004)
• Deficits and the MidSession Review (Center on Budget and Policy Priorities: August 11, 2004)
• Administration's Latest 2004 Deficit Projection Appears Overstated; Will Final Deficit Figure Be Presented As Progress In Deficit Reduction? (Center on Budget and Policy Priorities: August 10, 2004)
• Administration Memo Confirms Plans for Budget Cuts in Many Domestic Discretionary Programs in 2006 (Center on Budget and Policy Priorities: June 1, 2004)
• Administration's Budget Would Cut Heavily Into Many Areas Of Domestic Discretionary Spending After 2005 (Center on Budget and Policy Priorities: February 27, 2004)

• 2001 Tax Cut: Description, Analysis, and Background (Congressional Research Service: December 9, 2002) -- PDF File
• A 125-Year Picture of the Federal Government's Share of the Economy (Congressional Budget Office: July 3, 2002)
• Across the Board Tax Cuts: Economic Issues (Congressional Budget Office: September 24, 2001) -- PDF File
• The Alternative Minimum Tax (Congressional Budget Office: April 15, 2004)
• Capital Gains Taxes and Federal Revenues (Congressional Budget Office: October 9, 2002)
• Deficit Grows to $445 Billion (8/2/04)
• Heritage Foundation - Budget Chart Book: Graphic representation of the growing federal government. Find out now what your taxes pay for.
• Heritage Foundation - Tax Calculator: Shows the 2003 savings to taxpayers from fully phased in marginal rate cuts, the personal dividend exclusion, reform of the marriage penalty, and increasing the child tax credit to $1,000.
• History of the US Tax System (US Department of the Treasury: undated)
• Inheritance Tax - Pros and Cons (Congressional Research Service: January 29, 2003)
• MidTerm and LongTerm Deficit Projections
• New CBO Study Finds That Estate Tax Repeal Would Substantially Reduce Charitable Giving: 8/3/04 A new CBO study indicates that if estate tax repeal had been in effect in 2000, charitable donations would have been reduced $13 billion to $25 billion, which exceeds the total amount of corporate charitable giving in the U.S. and approaches the total amount that foundations give.
• Passing Down the Deficit
• President’s Budget Contains Large Cuts In Domestic Discretionary Programs
• Proposed Changes in Budget Rules
• Revenue Options
• Spending Hits New High Under Bush (Cato Institute: July 15, 2003)
• State Taxes Increasingly Inequitable (Center on Budget and Policy Priorities: January 15, 2002)
• Studies Shed New Light on Effects of Administration's Tax Cuts: This report reviews the wide variety of new data and analyses released in the past few weeks that provide a more complete picture of how the 20012003 tax cuts are affecting the economy, the budget, and different income groups. (Center on Budget and Policy Priorities: 8/25/04)
• Summary of H.R. 1836 - The Economic Growth and Tax Relief Reconciliation Act of 2001 (House GOP Committee Central: May 25, 2001)
• Tax Returns Assessing Bush's Record
• US State and Local Taxes (US Department of the Treasury: undated)