Study Notes on the Federal Budget Process (Reading)

Overview
- Annual federal budget is not established by a single piece of legislation.
- Congress employs a variety of legislative actions, evolved over more than two centuries.
- Key Authors: Richard Kogan and David Reich (May 6, 2022).

Types of Spending Practices
- Mandatory Spending
- Also known as "direct spending."
- Comprises about 61% of the federal budget.
- Funding is determined by laws that authorize programs, setting purposes, rules, and funding.
- Includes eligibility criteria for benefits.
- Examples include:
  - Social Security
  - Medicare
  - Medicaid
  - Federal military and civilian retirement
  - Veterans’ disability compensation
  - Supplemental Nutrition Assistance Program (SNAP)
  - Certain farm price support programs.
- Discretionary Spending
- Represents 26% of the federal budget.
- Authorized programs, agencies, or activities do not determine funding levels directly; instead, annual appropriations legislation sets them.
- Examples include:
  - Defense spending
  - Operating budgets of civilian agencies
  - Medical care for veterans
  - Educational grant programs
  - Low-income assistance programs (e.g., housing).
- Annual funding jurisdiction lies with House and Senate Appropriations Committees, which produce 12 appropriations bills.

Revenue Sources
- Comprising taxes and fees mainly governed by laws that persist until changed.
- Temporary tax policies exist which may expire (example: tax cuts from the 2017 law expiring after 2025).
- Jurisdiction primarily falls under House Ways and Means Committee and Senate Finance Committee.

Annual Budget Process Structure
- Mandatory and discretionary programs must have appropriations enacted annually.
- Congress is expected to renew funding, amend tax laws, or establish new programs yearly.
- A budget resolution is also required to guide budgetary actions.

Start of the Process
- The President submits a detailed budget request by the first Monday in February (or occasionally later).
- Interaction involves federal agencies and the Office of Management and Budget (OMB).
Three key roles:
1. Sets fiscal policy:
  - Total spending recommendation for public purposes
  - Total tax revenue recommendations
  - Deficit/surplus recommendations.
2. Outlines priorities across federal programs (specific funding levels for budget accounts).
3. Updates estimates for ongoing programs, even without proposed changes.

Development
- Congress holds hearings questioning administration officials and may draft its budget plan, known as the "budget resolution."
- Structure:
- Consists of spending categories (19 budget functions) and total revenue estimates.
- Excludes Social Security Trust Fund income and expenditures from the budget resolution.
Passage
- The resolution is a concurrent resolution—not a standard bill—and therefore does not require President's approval.
- Considered a simple document, it cannot be filibustered in the Senate (majority vote suffices).

Budget Authority
- Represents the amount Congress authorizes agencies to commit to spending (e.g., $50 million for a bridge).
Outlays
- Actual cash flowing from the treasury in a given year (may take longer to be realized than the budget authority granted).

Set by 302(a) Allocations
- Allocation table distributes spending totals among congressional committees based on jurisdiction.
- Appropriations committees develop spending limits further into sub-allocations (302(b)).

Post-Budget Resolution Actions
- Covers the annual appropriations process for discretionary programs.
- Legislation can change mandatory spending or revenue levels within prior limits.

Budget Points of Order
- A member in the House or Senate can raise a point of order against violating budget terms.
Historical Context
- The Senate perspectives differ as point of order leans heavily when spending exceeds committee allocations.

Consequences of Non-Completion
- Spending and revenue limits are extended from the prior budget resolution unless a new official resolution is agreed upon.
- Deeming resolutions or statutory provisions may fill the void of a budget resolution, often created with significant delay.

Impact of Non-Timely Actions
- Continuing resolutions (CRs) provide interim funding to avoid service disruptions.
- Past crises highlighted (e.g., Trump, Obama, Clinton administrations) when appropriations were not passed timely, leading to shutdowns.

Purpose
- Special procedure to expedite spending and tax legislation aimed at deficit reduction (often controversially expanded).
- More frequently utilized in modern contexts for most significant tax cuts.
Process Initiation
- Requires a budget resolution with a reconciliation directive.
Legislation Compilation
- Committees develop legislation aligned with directives, and the Budget Committee packages it into a reconciliation bill.

Usage Limitations
- “Extraneous” provisions may be stripped from a bill unless 60 senators vote to waive the rule, often limiting inclusion to directly fiscal changes.

Enforcement Tools
- Discretionary Funding Caps
- Imposed by acts like BEA and BCA to create caps, leading to enforced temporary limits on appropriations.
- PAYGO Legislation
- Mandates that any legislative changes raising projected deficits be offset by equivalent reductions elsewhere—enforced through automatic cuts (sequestration).

Borrowing Constraints
- Fixed limit exists on Treasury borrowing, creating fiscal conflicts with required payments mandated by law.
- Raising or suspending the debt limit often becomes contentious, impacting economic stability.

Overall Trends
- Congressional adherence to the Congressional Budget Act has declined with regard to adhering to structured processes, causing frequent delays and reliance on bypassing resolutions.
- The reconciliation process remains a vital avenue for enacting significant changes in fiscal policy without navigating typical legislative hurdles.