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The federal budget describes the U.S. government’s spending plans each year, including how it will pay for that spending.
Federal spending falls into two major categories:
Discretionary spending must be explicitly authorized by Congress every year, with specified dollar amounts. Total discretionary spending usually makes up about a third of the federal budget, mostly funding for defense. In 2010, total discretionary spending was $1.3 trillion, of which $699 billion went to defense, while non-defense domestic discretionary funding made up $530 billion, just 15 percent of the entire federal budget. Discretionary funds pay for a wide variety of programs and services such as Head Start, K-12 education, Pell grants, job training and housing programs, the Low Income Home Energy Assistance Program (LIHEAP), and highway projects. Learn more about what discretionary spending is and how it is distributed.
Entitlement spending is not subject to annual Congressional approval, and varies each year depending on the number of people receiving services. In 2010, entitlement spending amounted to more than $2 trillion in federal spending. Entitlements provide critical services for children, families, seniors, and veterans, such as Medicare, Medicaid, and Food Stamps. Learn more about entitlement spending.
Interest on the debt comprises between five and six percent of the federal budget.
Step 1: The President's Budget
Each year in February, the President delivers to Congress his administration’s recommendations for spending for the following “fiscal year” (October 1 through September 30). Because the power of the purse ultimately lies with Congress, the President’s budget is simply a statement of the administration’s priorities and is non-binding. A summary of what President Obama’s FY 2013 budget would mean for children and low income families is available here.
Step 2: The Congressional Budget
Shortly after the president releases his budget, it’s Congress’ turn. Both the House and the Senate can use the president’s budget as an outline to build their own budgets, or they can ignore it completely. Ordinarily, the House and Senate are expected to pass their own non-binding budget resolutions and then go through a conference process to reconcile their differences. The resulting conference report becomes binding once both bodies have approved it. Because it is not a law, it does not require the president’s signature.
However, in recent years, the budget process has not followed this path. Last year, Congress sidestepped the budget process in the Senate and set budget spending levels for fiscal year 2012 and beyond in the context of a broader budget bill known as the Budget Control Act of 2011. Learn more about the Budget Control Act (BCA) here.
Step 3: The Appropriations Process
In a normal year, after the House and Senate come to agreement on a conference report, the House and Senate appropriations committees are in charge of “appropriating” or setting aside specific dollar amounts to authorized federal programs. There are 12 separate appropriations subcommittees in both the House and the Senate. For instance, the Labor, Health, and Human Services, and Education Appropriations Subcommittee is responsible for allocating funds for programs including job training programs, the Child Care and Development Block Grant, Head Start, Title I of the Elementary and Secondary Education Act, the Maternal and Child Health Block Grant, and many others.
In the appropriations process, the House and Senate are each supposed to pass 12 spending bills—one for each of the subcommittees—to fund spending in their unique domains for the following fiscal year. In years when Congress fails to pass some or the president fails to sign all 12 spending bills, the government can remain in operation by passing an “omnibus” spending bill which rolls all remaining spending into one bill, or a “continuing resolution” (“CR”), as has occurred in recent years. To avert a government shut–down, a spending bill for FY 2013 must be in place before October 1, 2012, and while Congress has reportedly come to agreement on a CR that would fund the first half of FY 2013 at 2012 levels, it has not yet passed. If this CR moves forward as expected in September, it would require Congress to take further action before funding for the remainder of FY 2013 expires on March 31, 2013.
More in-depth information about the Federal Budget process is available here.
There is agreement across the political spectrum that the total federal budget debt and annual deficits have risen to unsustainable levels and that serious measures to reduce the imbalance between spending and revenues must be taken. However, there is little bipartisan agreement on how to achieve deficit reduction. Republicans believe that savings should be found exclusively through spending cuts, while Democrats seek a more balanced approach consisting of both strategic spending cuts and revenue increases from the wealthiest Americans and corporations that have benefitted disproportionately from recent tax policies. Extensive analysis shows that at a time when revenues from taxes are at historically low levels, it is near impossible to achieve the magnitude of deficit reduction that is needed today through solely spending cuts and would substantially shift costs to states and localities.
Bipartisan agreement to do something about the deficit coincided with another must-pass budget action – the need to raise the debt limit before the U.S. government reached its credit limit. Failure to act on this would have resulted in the unthinkable – the U.S. government defaulting on its obligations for the first time in history. In late 2011, Congress used the fight over raising the debt ceiling as leverage to develop a sweeping piece of legislation that would raise the debt ceiling and achieve more than $3 trillion in deficit reduction over the next 10 years. After months of intense negotiations, Congress passed “The Budget Control Act of 2011” (BCA) which:
Since passage of the BCA and with 2013 rapidly approaching, both parties are now hoping to “turn off” sequestration. This can be accomplished if Congress can pass legislation that the President will sign to replace sequestration by achieving the same amount of deficit reduction through other means. However, once again, Democrats are largely in favor of turning off the sequester by replacing it with a combination of tax increases for the wealthiest Americans and corporations and targeted strategic cuts, while Republicans have thus far refused to consider any package containing revenue (tax) increases. Additionally, there is growing pressure from Congressional Republicans to turn off only the automatic cuts to defense. This would shift the entire burden of cuts to non-defense discretionary spending, which would have dire consequences for programs providing crucial services and supports for children and low-income families.