The complexities and drivers of the federal budget are vast and intimidating to understand. However, it is very difficult to have discussions about our federal deficits and national debt unless the process is first understood. I want to initiate this discussion to help readers understand our nation’s budgetary process and to foster more informed dialogue. Hopefully this explanation will dispel partisan rhetoric and break down unfounded talking points.
The Federal Budget: Our nation’s budget can be divided into two major segments; mandatory and discretionary spending. Mandatory spending is authorized by law and not subject to annual review or appropriations. This falls outside of the Executive Branch’s control as the President cannot unilaterally change laws and is incapable of creating spending bills per the Constitution. Mandatory spending is the largest part of our nation’s budget composed of entitlement programs like Medicare, Social Security, and welfare. Mandatory spending is also incredibly difficult to alter given complexities and integration with society.
Discretionary spending is subject to the budgetary process and controlled by the Executive Branch. Over half of our discretionary spending is allocated to the military and the other half is divided according to department need. Since the President maintains control of the discretionary budget he should be held accountable for increasing or decreasing spending. The current discretionary budget today is $1.1 trillion, slightly less than in 2008.
The Calendar: The federal government reports on a fiscal year outside of the calendar year. This is common for many corporations as fiscal years can be planned around inventory fluctuations or revenue patterns. Regardless of the reason, our national budget runs annually from October 1st to September 30th. All accounting procedures are completed shortly after the fiscal year closes and the Office of Management and Budget (OMB) compiles reports made available to the public.
The Basic Process: At the beginning of the year the President initiates the process by submitting a budget to Congress. The budget is typically provided the first week of February. Once Congress receives the budget they send it to the Congressional Budget Office (CBO), a nonpartisan organization, to evaluate assumptions and quantify changes. Once the CBO evaluates the budget a report is published for the public and Congress (typically in March). The House of Representatives then adds any additional amendments, and begins confirmation with the Senate.
The Senate also receives the federal budget and may pass as submitted or add additional amendments. Discrepancies between chambers are typically worked in committee and once aligned the budget is voted on and sent back to the President’s desk. If the President aligns with the changes he signs the budget and it is implemented for the upcoming fiscal year. If the President is not aligned the budget is sent back to Congress for revision.
Continuing Resolutions: As we have seen in previous years the Senate, House, and Executive Branch might not agree on the budget. This lack of cooperation is typically pinned on the Chief Executive unfairly. However, there is a critical secondary process to keep the government operating without an annual budget; continuing resolutions (CR). A CR is passed by Congress and the President to continue operations at the same levels already agreed upon by a previous budget (a de facto budget). There are several CRs that need to pass to sustain spending in the Executive Branch. Simplified, there is a CR for every cabinet department (Defense, Homeland Security, Education, State, etc).
Do you remember when government shutdown in October of 2013? The beginning of the fiscal year (October 1st) came and our government did not have a completed budget or CR to authorize spending. With no authorization workers were furloughed and major departments of the Executive Branch closed. Again this only impacted the discretionary portion of total budget; mandatory spending is not reviewed annually and continued to be spent.
Avoid the Political Spin: No government branch has more control than another when it comes to passing the annual budget. I have often heard explanations arguing either the House or President controls the budget when results are favorable. For instance, when Clinton was president and the Republicans controlled the House, arguments were made justifying either branch's impact on the budget. Once the process is understood, it becomes clear that both branches need to work together to pass a budget.
This explanation might prompt readers to question the House’s role in spending per the Constitution. As directed by our founding document all spending bills must originate in the House. Bills are prelininary laws so new spending is first passed by the lower chamber. Once the bill becomes a mandatory law spending falls outside of the annual budgetary process.
A great example of the House’s constitutional power was witnessed when the Immigration Bill passed by the Senate in 2013. Once passed the bill was retained, waiting for the House to pass their own version and use reconciliation to put the bills together. If the Senate had sent their bill to the House, it would be immediately stamped unconstitutional and discarded.
My last admonishment for readers who have made it this far – know the actual budget and what is driving the annual deficit and the national debt. Although it seems easy to blame any one individual or party, it requires significant compromise and bipartisanship to change either mandatory or discretionary spending. Office of Management and Budget