The Federal Budget
A Challenge to Get OneMore of a Challenge to
Control Its Size
January 28, 20141
Discussion Questions
Why do we have a Federal budget? What is in the Federal budget? How is the Federal budget developed and
approved, and who is involved in the process?
How has the budget composition changed over time?
Do we need to cut the size of the Federal deficit and, if so, how?
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Why is a Federal Budget Needed?
Founded in Law Constitution requires Congress pass
laws authorizing Federal spending. “No money can be withdrawn from the
Federal Treasury other than by rule of law.” Gave Congress “power of the purse.”
Spending authorized through: “Permanent” laws. Annual “appropriation” laws (currently 12).
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What Federal Entities Are Covered in the
Budget? Comprehensive
Covers all three branches of Federal Government.
“Unified Federal” budgets started in 1920’s.
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Legislative Branch Defense Homeland Security Agriculture Interior & Environment Commerce, Justice & Science Labor, HHS & Education Transportation & HUD Energy and Water Military Construction & Veterans Affairs State & Foreign Operations Financial Services & General Government
12 Appropriation Laws
(Functional Areas)
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What are the Purposes of the Federal Budget?
Sets forth the Government’s: Priorities for “financing” federal operations
and “spending” for federal programs and activities.
Priorities and allocation of resources for programs managed by the states, localities, and private sector.
Economic policies. Historical record and report to the people.
Discussion Questions
Why do we have a Federal budget? What is in the Federal budget? How is the Federal budget developed and
approved, and who is involved in the process?
How has the budget composition changed over time?
Do we need to cut the size of the Federal deficit and, if so, how?
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What are the Basic Components of the Federal Budget?
The federal budget is a compilation of numbers for: • Revenues come from taxes, duties, fines, fees,
licenses, and gifts.• Spending involves outlays stemming from
budget, offsetting receipts/collections, contract, and other authorities.
• Surplus occurs when annual revenues exceed annual spending.
• Deficit occurs when annual spending exceeds annual revenues (deficits require borrowing).
Debt is the accumulation of the deficits, less any surpluses.
Some Key Terms Discretionary Spending = Costs for operating
the Government; all 3 branches.The 12 annual appropriation laws provide discretionary “spending” authority.
vs. Mandatory (Non-Discretionary) Spending =
Costs for entitlements and interest on Government debt.
Congress passes or modifies permanent laws as needed to provide ongoing authority to pay entitlements.
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Some Key Terms
Revenue = Amounts Congress authorizes Government entities to collect.
vs. Receipts = What Government
entities actually collect annually and deposit into the Treasury.
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Some Key Terms
Budget Authority = Authority Congress gives to Federal entities to obligate the Government, i.e., enter into contracts, and to pay bills now or sometime in the future.
vs. Outlays = Payment of bills;
disbursements from the Treasury
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Some Key Terms Sequestration
Obligation authority is “canceled.” Put in special accounts; can not be used.
Started in 1985 as a way of controlling deficit.
If funds can not be obligated, i.e., contracts not awarded, no outlays will occur.
Budget Control Act of 2011 applied different approach
Last dollar vs. first dollar
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Individual Income Taxes
$1,316.4 / 46%
Social “Insurance" Taxes
$947.8 / 35%
Other Revenues$101.5 / 4%
Corp. Income Taxes
$273.5 / 10%
Excise & Estate Taxes & Duties
$134.8 / 5%
Total = $2.774 Trillion
Source: Treasury Year-End Stmt.
2013 Receipts
($ in Billions)
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2013 Outlays
Social Security$813.6 / 24%
Defense Discretionary$635.2 / 18%
Non-Defense Discretionary$552.7 / 16%
Other Mandatory(SNAP, SSI, etc.)
$537.3 / 15%
Medicaid$196.4 / 7%
Net Interest$221.2 / 6%
Medicare$497.8 / 14%
Source: Treasury Year-End Stmt.
Total = $3.454.2 Trillion
($ in Billions)
Enormity of Federal Deficits & Debt
Source: FY2014 President’s Budget & Treasury Year-End Stmt.
($ in Trillions)
2011 2012 2013
Receipts 2.303 2.450 2.774
Outlays 3.603 3.537 3.454
Deficit (1.300) (1.087) (0.680)
Debt (14.737) (16.051) (17.077)
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Discussion Questions
Why do we have a Federal budget? What is in the Federal budget? How is the Federal budget developed
and approved, and who is involved in the process?
How has the budget composition changed over time?
Do we need to cut the size of the Federal deficit and, if so, how?
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Building the Budget – A
Complex Process Many laws control the budget
development, approval, and execution processes.
Entails many sub processes, players, rules and procedures.
Requires efforts of almost everyone in Executive Branch and many in Legislative Branch.
(Good source of information – OMB Circular A-11)18
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App
Budget Formulation
Budget Execution
Review and Audit
Congressional Action
Phases of the Federal Budget Process
Prepare President’s Budget Request
Approve:Budget Reconciliation“Legal” Authority“Budget” Authority
Funds:Control &Management
Review/Audit Agency Finances & Performance
What is the Basic Budget Development/Approval
Timeframe? Feb President/OMB provides
Executive Branch components budget preparation guidance
Mar – Aug Components draft budget requests Sept – Dec OMB reviews/comments on budget
requests Jan Components finalize budget
requests 1st Mon Feb President submits unified budget
request to Congress Mar – SeptCongressional hearings, debates
& bill enactment 1 Oct Budget fiscal year begins
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Key Executive Branch Players in The Budget
Process President
☞ Determines size of and sets priorities for Executive Branch budget request.
☞ Submits budget request to Congress.☞ Approves or vetoes authorization and appropriation
laws passed by Congress. Office of Management and Budget
☞ Manages process for formulating and executing Executive Branch Budget.
☞ Reviews components’ performance. Components (departments, agencies, offices)
☞ Develop budget requests.☞ Execute authorities in accordance with laws.
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Key Congressional Players in The Budget
Process House & Senate Budget Committees
☞ Determine size of discretionary budget = Concurrent Budget Resolution.
House & Senate Authorization Committees☞ Propose new or modifications to existing
permanent laws dealing with revenue collection or entitlement programs.
☞ Propose “legal” authority for components to execute programs and activities.
House & Senate Appropriation Committees☞ Propose annual appropriation laws.
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Other Key Congressional
Players Senate Finance and House Ways and Means
Committees☞ Deal with legislation on revenue, public debt
and some entitlements. Conference Committees
☞ Resolve differences between House and Senate resolutions and bills.
☞ Separate ones for budget, authorization, appropriation, and revenue committees.
Congressional Budget Office☞ Prepares budget estimates for Congress.☞ “Scores” legislative and budget proposals.☞ Estimates budget deficit for Congress.
Discussion Questions
Why do we have a Federal budget? What is in the Federal budget? How is the Federal budget developed and
approved, and who is involved in the process?
How has the budget composition changed over time?
Do we need to cut the size of the Federal deficit and, if so, how?
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Discretionary/Non-Discretionary Outlay
Relationship Over Time
0
500000
1000000
1500000
2000000
2500000
1962 1970 1980 1990 2000 2005 2010 2013
Discretionary
Non-Discretionary
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$ in Millions
Outlay Types Related to Deficits Over Time
-1500
-1000
-500
0
500
1000
1500
2000
2500
1962 1970 1980 1990200020052010 2013
DiscretionaryMandatoryNet InterestDeficits
($ in Millions)
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Discussion Questions
Why do we have a Federal budget? What is in the Federal budget? How is the Federal budget developed and
approved, and who is involved in the process?
How has the budget composition changed over time?
Do we need to cut the size of the Federal deficit and, if so, how?
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Does the Deficit Need to be Cut?
Some argue don’t cut deficit now -- need Federal spending to support economy.
AND Deficit has been in a decreasing mode:
FY 2011 = $1.3 Trillion FY 2013 = $680 Billion FY 2014 = $560 Billion (CBO estimate) FY 2015 = $378 Billion (CBO estimate)
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Does the Deficit Need to be Cut? (cont’d)
BUTDeficit will begin increasing again:
FY 2016 = $432 Billion (CBO estimate) FY 2020 = $733 Billion (CBO estimate)
ANDDebt will continue to rise.
FY 2013 = $17.1 Trillion – 75.9% of GDP FY 2020 = $22.4 Trillion – 76.4% of GDP (CBO
estimate) FT 2038 = 108% of GDP (CBO estimate)
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How Can the Deficit be Cut?
(FY 2014 CBO Estimate = $560B)
Cut discretionary spending? FY 2014 approved = $1.110.7 Trillion*
Defense = $572 BillionEducation = $96.9 BillionTransportation = $94.4 BillionIncome Security = $66.8 BillionVeterans Benefits & Services = $62.4 BillionHealth = $57.7 BillionInternational Affairs = $56.5 BillionAdministration of Justice = $43.2 Billion
*Includes $98.4 Billion “contingency” funds 35
How Can the Deficit be Cut?
(FY 2014 CBO Estimate = $560B)
Cut non-discretionary spending? FY 2014 PB estimate = $2.310 Trillion
Social Security = $860.3 BillionMedicare = $523.8 BillionIncome Security = $475 BillionHealth = $385 BillionVeterans Benefits & Services = $85.9 Billion
Note - interest payments on debt must be paid! FY2014 estimate = $222.9 Billion (net) Only way to reduce interest payments is to
reduce debt36
How Can the Deficit be Cut?
(FY 2014 CBO Estimate = $560B)
Increase tax revenue? FY 2014 PB estimate = $3.022 Trillion
Individual income - $1.396 Trillion Corporate income - $0.333 Trillion
Social insurance - $1.030 Trillion
Excise & Other - $0.263 Trillion
Some combination of cuts and tax revenue?
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“Independently” ProposedDeficit/Debt Reduction
Options Bowles-Simpson*
Require $220 billion of defense and $165 billion of non-defense savings (pre sequester cuts) through 2023.
Limit discretionary spending growth to rate of inflation though 2025.
Multiple changes to Medicare and Medicaid -- $585 Billion.
Multiple changes to military and civilian federal employee pension and health care programs -- $100 Billion.
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“Independently” ProposedDeficit/Debt Reduction
Options Increase/improve user fees -- $50 Billion. Reduce agriculture subsidies -- $40 Billion. Require tax reform -- $585 billion. Adapt Chained CPI -- $280 Billion.
* Similar proposals made by The Debt Reduction Task Force (Rivlin/Domenici) and by Congressional Budget Office
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