The Federal Budget

The Federal Budget

A Challenge to Get OneMore of a Challenge to

Control Its Size

Ron [email protected]

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 “No money can be withdrawn from the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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Appropriation LawsOR

Omnibus Appropriation

ORContinuing Resolution Authority

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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.






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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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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?



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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.






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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

Composition of Non-Discretionary Outlays Over

Time

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($ in Billions)

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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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



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



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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The Federal Budget

Documents

federal spending

federal entities

federal treasury

federal deficit

federal programs

branches of federal

federal budgeta challenge

budget composition