Making the Federal Budget

The Federal Budget Process – A Primer Dr. Jason J. Fichtner Senior Research Fellow Mercatus Center

Federal Budget Process – Important Terms Authorizing Legislation Appropriating Legislation Budget Resolution Budget Authority Budget Outlay Impoundment Mandatory Spending (Direct) Discretionary Spending Rescission Section 302(a) Allocation Section 302(b) Allocation Sequestration Off-Budget vs. On-Budget Omnibus Appropriation Bill

Administration Development of the Budget Budgeting is Politics February 7, 2011 – President’s Budget (FY’12) due 1st Monday of 1st full week of February Agency Formulation 10 Months Prior to being submitted to Congress; 18 months before start of fiscal year Office of Management & Budget (OMB) July 15 - Mid-Session Review of the Budget

Congressional Development of the Budget “Views & Estimates” – Within 6 weeks Budget Resolution – Provides Revenue and Spending Framework Passed by April 15. ☺ No spending, revenue, debt-limit legislation can be considered before Budget Resolution passed or rules waived or May 15. 5-year window / sometimes 10 Budget Resolution can’t be filibustered in the Senate – Not a Law; President doesn’t sign

Congressional Development of the Budget – Con’t Budget Resolution – Established under Sec 301 (a) of the 1974 Congressional Budget Act, as amended, requires BR to include: Aggregate levels of new Budget Authority, Outlays, target levels for surplus/deficit and debt ceiling Aggregate levels of federal revenues Sec 302 Allocations – House and Senate Appropriations Committees subdivide the 302(a) allocation among the Appropriations Subcommittees – 302(b)

Congressional Development of the Budget – Con’t Budget Authority – Amounts Congress allows a federal agency to commit to spend. Outlays – Amount allowed to flow from the Treasury. Difference is mostly one of timing. BA represents limit on how much funding Congress provides

Congressional Development of the Budget – Con’t Points of Order – Once Budget Resolution Adopted, any legislation/amendment that violates aggregate levels is prohibited, unless waived. Reconciliation – Directives in Budget Resolution to initiate necessary changes in revenue, direct spending, and debt-limit laws – considered under expedited procedures that limit debate and amendments

Budget “Reconciliation” Process Procedure designed to facilitate passage of deficit reduction legislation – used recently to pass tax cuts. Single piece of legislation that typically includes multiple provision, all of which impact federal budget on spending or tax side. Like Budget Resolution, “Reconciliation Directive” can’t be filibustered in Senate – needs only majority vote “Byrd Rule” – No “extraneous” provisions – need direct fiscal implications – waived by 60 votes. No entitlement increases or tax cuts beyond window (5/10 years) in reconciliation directive, unless PAYGO. Why major tax cuts recently enacted have expired rather than made permanent.

Authorization vs. Appropriation Authorization: Congress exercises legislative power Can establish, continue, or modify an agency or program – responsibilities, etc. Bar usage of funds. Sets out the terms / boundaries for how spending in appropriations should occur Can’t have appropriation without authorization Rules prohibit inclusion of authorizing (legislative) language in appropriations bills. House – Not Senate – prohibits appropriations language in authorizing legislation. Can be waived under of rules Politics of Authorizing Legislation vs. Appropriation Legislation

Budget Enforcement “Point of Order” – Raised in House or Senate – prevents Congress from passing legislation not in line with Budget Resolution. House – Not really important – waived by simple majority. Senate – subject to filibuster – need 60 votes. PAYGO – Pay As You GO – Requires tax cuts and entitlement spending increases to be fully offset unless fit within targets of Budget Resolution PAYGO expired with the Budget Enforcement Act 1990, as amended. Extended twice – Expired after FY2002. House and Senate Rule in 111th Congress.

Budget Enforcement – Changes in the House ofRepresentatives for the 112th Congress Focus shifts from controlling the deficit to controlling spending CUTGO – new mandatory spending be offset by mandatory spending cuts alone; exempts tax reductions from needing to be offset under House rules Spending Reduction Accounts – “lockbox” in which discretionary spending cuts can be put aside for deficit reduction, rather than just freeing up room under spending limits to allow spending elsewhere

Budget Enforcement – Changes in the House ofRepresentatives for the 112th Congress, Continued Long-term Spending Point of Order – legislation that increases mandatory spending by more than $5 billion in subsequent 4 decades subject to point of order. Reconciliation – rule changes prohibit net increase in mandatory spending and allows tax reductions Elimination of Gephardt Rule – House will now have to vote explicitly for debt ceiling limit increase. No longer deemed passed with adoption of conference report on the budget

Budget Enforcement – Changes in the House ofRepresentatives for the 112th Congress, Continued Elimination of Highway Spending Guarantee – eliminate restrictions preventing the full House from cutting spending levels authorized by the House Transportation and Infrastructure Committee, which effectively guaranteed federal highway spending would rise each year Authority for Budget Chairman to Set FY11 Budget Levels – Chairman Paul Ryan has ability to set FY11 discretionary spending levels for the House Appropriations Committee in order to reduce FY11 spending and govern completion of FY11 appropriations process

Congressional Budget Office - Budget Surplus/Deficit Source: Congressional Budget Office

Deficit with Tax Rates Extended and AMT Indexed Source: Congressional Budget Office

Total Outlays and Revenues

Any Questions???Please Join us January 26, 2011“Breaking the Federal Budget”

Making the Federal Budget

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