The United States federal budget is a proposal written by the president to the U.S Congress that details how the government plans to fund various projects in the following year. The congressional decisions on the budgets are governed by the federal budget process. The budget committees are responsible for setting the limits of the Senate and House committees. They are also instrumental in limiting the appropriation committees, which allocate funds for programs ran by the Federal government. When the appropriation bill successfully goes through Congress, it is presented to the president. The president may sign it into law or send it back to Congress for debate. If it is sent back to Congress, it has to be debated and supported by the majority in the house (Abellera and Michael 14).
When Congress is presented with different appropriation bills, it may combine them together and present them as one bill that is known as an omnibus reconciliation bill. The head of state may also demand the Congress to pass appropriations bills in emergency cases. Various government agencies are involved in making the budget. Several of these provide the budget data and analysis and include Government Accountability Office (GAO), Office of Management and Budget, and Congressional Budget Office (Auerbach 59). This paper will look at the United States Federal Budget. It will focus on the budget making process, principles used in making the budget, major sources of income for the Federal government, and the major expenditure programs in the Federal budget.
Making the Budget
The outline that is used to make the budget was instituted by the Budget and Accounting Act of 1921 and the Congressional Budget and Impoundment Control Act of 1974. Before 1974, there was no formal process for Congress to create a consistent budget. In reaction to President Richard Nixon refusal to spend the allocated funds by Congress, Congress formulated the Budget and Impoundment Control Act of 1974. The Act was designed to give more powers to the Congressional Budget Office (CBO) instead of the President’s Office of Management and the Budget. According to the Budget and Accounting Act of 1921, the head of state has to submit a financial statement to Congress in a yearly basis. The budget proposal presented by the president contains detailed accounts of how the government intends to spend and collect revenues. It also contains policy proposals and any other thing that may affect the budget (Maltese 99).
After the president has submitted the proposal, the House and Senate Budget Committees start deliberating on it. During these deliberations, other committees that have budgetary responsibilities also present their estimates. The House and Senate consider the proposals separately after which they pass the resolutions. The budget resolutions detail the funding levels for various appropriation committees and their sub-committees (Auerbach 75).The committees put the appropriations bills together, after which they are analyzed in the House. In cases of disparities between the House and Senate financial statements, then this is resolved by the conference committee. A conference bill is sent to the president and if he agrees with it he signs it into law, if not he sends it back to Congress. If this happens, Congress is required by law to formulate and pass another bill to prevent the government from shutting down (Maltese 120).
Principles used in the Federal Budget
According to the United States Constitution, “no money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time” (Scott 507). This makes it mandatory for the president to submit a budget request to Congress in accordance to the Budget and Accounting Act of 1921. The president is required to present a budget proposal on or after the first Monday of January and not later than the first Monday in the Month of February (Abellera and Michael 25).
The federal budget is mainly calculated on cash basis of revenue and expenditure. This means that, costs of various national programs including Social Security and Medicare are not included in the federal budget. In the budget, the cost of various federal loans and credit programs are calculated on a net present value (NPV) according to the provisions made in the Federal Reform Acts of 1990 (Maltese 215).
The law requires Federal agencies to seek appropriation and authorization before they can use funds. Usually, there are separate Congressional committees that are mandated to oversee the authorizations and appropriations. These Congressional committees are responsible for determining the amounts of money that will be used in various federal programs. For the appropriation bills to be signed into law by the president, they must first pass through the House and Senate. In most cases, regular appropriation bills are combined into omnibus bills. During emergencies and special times, Congress may pass certain appropriations. In times of emergencies, federal spending is excused from certain Congressional enforcement rules (Maltese 254).
Major sources of funds for the Federal Government
The major source of revenue for the government is taxes. This includes individual income taxes, corporate taxes, and Social Insurance taxes. Other incomes include excise duty, gift taxes, and estate taxes. The taxes collected by the federal government are significantly affected by the prevailing economic situation. For example, during a recession, there will be a decline in taxes collected as was witnessed during the 2009 recession (Konigsberg 152).
The federal government exercises various deductions and exemptions of tax on various household products. This is aimed at making many basic things affordable to the citizens. The federal payroll tax is used to fund both the Social Security and Medicare and is a flat tax. Legally, employers and employees are each required to pay 6.2% of the employee’s gross income to the Social Security fund. For Medicare, both the employer and employee are required to contribute 1.45% of the employee’s gross pay (Konigsberg 184). Many people praise the payroll tax and view it as a form of insurance to their future. This is because the money that is deducted from their paycheck is used to support them when they retire. One of the key changes in the payroll income tax was observed in 2011 when the employee’s portion of the tax was decreased to 4.2% in an attempt to stimulate the nation’s economy. Corporate tax is imposed on the profits made by corporations. Corporations are required by law to file their returns and pay taxes to the IRS (Internal Revenue Service) (Konigsberg 200).
Major expenditures Programs
The major expenditure programs funded by the Federal Government include Medicare and Medicaid, Social Security, and the Defense department. Other programs that are funded by the Federal government include non-defense discretionary and interest accrued on loans. The government is required by law to review payment amounts yearly as part of making the budget (Konigsberg 98).
Social security, Medicaid and Medicare are taken as mandatory spending and are funded by permanent appropriation (Konigsberg 105). Social Security is also known as social insurance and it is aimed at alleviating the lives of retirees, survivors and disabled people. In the coming years, the costs of these programs are expected to rise as many people from the baby boomer generation retire. The cost is also expected to rise as the numbers of workers continue to reduce compared to those receiving the benefits (Konigsberg 156).
Other programs that are allocated a large portion of the budget funds are the military and non-discretionary programs. The military uses the allocated fund to sustain various governmental agencies such as CIA and Homeland Security. Non-defense discretionary spending is aimed at paying services and departments that are not related to the military. These include Department of Education and EPA (Enviromental Protection Agency) (Konigsberg 160).
The greatest challenge facing the budget is that expenditure is increasing at a higher rate than income. The government has made several legislations that are aimed at keeping the deficit in the budget at manageable levels. One of the proposed ways has been to reduce spending on non-defense discretionary programs and strengthen the Social Security program. All this initiatives are aimed at reducing government expenditure, especially on interest, which is projected to reach to $1 trillion per year in the next ten years (Konigsberg 234).
Abellera, James and Michael, Boskin. The Federal budget: economics and politics. New Brunswick: Transaction Books, 1982. Print.
Auerbach, Alan. Federal budget rules: the US experience. Cambridge: National Bureau of Economic Research, 2008. Print.
Konigsberg, Charles. America’s priorities: how the U.S. Government raises and spends $3,000,000,000,000 (trillion) per year. Bloomington: AuthorHouse, 2011. Print.
Maltese, Gerry. The U.S. federal budget process: an overview and glossary of terms. New York: Nova Science Publishers, 1995. Print.
Scott, James. The United States of America: a study in international organization. New York: Wiley and Sons, 2002. Print.