The federal budget has been in the news more than usual lately. Congress early in 2013 postponed a 2 percent across-the-board cut in Medicare payments, 8 percent cuts for certain domestic spending, and 10 percent cuts in non-military personnel defense spending, using a measure called sequestration. But the deadline to avoid sequestration returns again in March, and the federal government is scheduled to hit its debt limit, or debt ceiling, in May.
Despite its recent notoriety, the federal budget remains an obscure, esoteric issue with many technicalities and terms. This post is a quick primer on federal budget processes, terms, and components.
Federal Budget and Appropriations Process:
The first thing to know is that the federal budget does not spend any money or raise any taxes. It is primarily a guide, establishing spending ceilings and revenue floors for Congress to follow in passing separate appropriations and revenue legislation. The budget is a resolution, not a law, so the President does not sign it.
Here is a basic timeline for the budget and appropriations process:
1) President Submits Budget to Congress
Each year, in the first or second week of February, the president submits to Congress his proposed budget for the following fiscal year. The federal fiscal year begins October 1, unlike many state fiscal years, which begin July 1. The President’s Office of Management and Budget (OMB) prepares the budget, and Congress can follow the President’s budget as much or as little as it likes.
2) CBO Economic and Budget Outlook
Around the time the President submits his budget, the Congressional Budget Office (CBO) publishes its estimates for the U.S. economic and budget outlook. The report includes 10-year projections for unemployment, federal spending and revenue, and budget deficits or surpluses under two scenarios: a baseline scenario and an alternative fiscal scenario.
The CBO baseline projection assumes current law continues with no changes. It assumes any law with an expiration date or automatic trigger – such as the Medicare physician payment rate cuts – will move ahead as planned. However, planned cuts in the Medicare physician payments - also called the Sustainable Growth Rate – are held off every year in a measure called the doc fix. A steep drop in Medicare physician payment rates would cause many providers to stop taking Medicare beneficiaries. Many physician organizations, such as the American Medical Association, have called on Congress to create a permanent solution to the doc fix.
3) Congress Passes Budget Resolution
The 1974 Congressional Budget Act says Congress should pass a budget resolution by April 15 each year. The House Budget Committee and Senate Budget Committee each draft their own versions of the budget, and the chambers reconcile their differences. Unfortunately, in recent years, the Democrat-controlled Senate has not adopted a budget plan. As result, there is no chance of the Congress having any kind of budget plan.
4) Congress Passes Appropriations and Revenue Laws
The House Appropriations Committee takes the first shot at appropriations bills. The Senate Appropriations Committee then takes up the bills after they pass the House. The House Ways and Means Committee and the Senate Finance Committee handle revenue legislation.
There are three basic types of appropriations:
- Regular appropriations, which fund agencies in the upcoming year
- Supplemental appropriations, which give additional money to agencies in the current fiscal year
- Continuing appropriations give full-year funding to agencies that do not already have a regular appropriation, usually when Congress does not make a regular appropriation before the new fiscal year begins
Congress has 12 regular appropriations bills to pass, for example one to fund the Department of Defense, another for the Department of Veterans Affairs, and another for the Departments of Labor, Education, and Health and Human Services (HHS). Recently legislators have combined one or more of those bills into an omnibus appropriations act.
Discretionary vs. Entitlement Spending:
Discretionary spending is money spent through the appropriations bills Congress takes up each year. Entitlement spending is money Congress must spend from year to year, sometimes called mandatory spending or direct spending.
Entitlement spending now accounts for about 60 percent of the federal budget. It includes programs such as Medicare, Medicaid, CHIP, and Social Security. Congress can, of course, change the benefits or payments those programs provide, but it does not choose each year how much to spend on those programs, as it does with discretionary spending.
Therefore, Medicare and most other mandatory programs do not have annual appropriations. A notable exception is Medicaid – which is a mandatory program with an annual appropriation. Veterans health benefits are another example of mandatory spending with an annual appropriation.
CRS Briefs on Budget Process:
The federal budget has many more dark alleys for the curious to explore, and those who are interested can read a series of Congressional Research Service (CRS) briefs on the federal budget process, entitlement spending, the authorization and appropriation process, and budget terminology. Those publications give detailed histories and explanations of sequestration, pay-as-you go (PAYGO) rules, the debt limit, and federal budget legislation.