Tuesday, January 25, 2011

Federal Budget: The Process and Its History

Article I, Section 9, Clause 7 of the Constitution of the United States sets out the budgeting authority of the federal government: “[n]o money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time."


The current system for the crafting of the federal budget was created through the Budget and Accounting Act of 1921 (Pub.L. 67-13), which “require[s] the President to submit a single, consolidated budget proposal for congressional consideration each year[1],” in a process known as the Executive Budget. The act also created the Bureau of the Budget, now called the Office of Management and Budget (OMB). Statute requires the president, with the aid of the OMB, to submit a draft budget to Congress “[o]n or after the first Monday in January but not later than the first Monday in February of each year[2].”

The draft is submitted to the House Committee on the Budget and the Senate Budget Committee for their review and markup. This process, and the committees themselves, were created by the Congressional Budget and Impoundment Control Act of 1974 (Pub.L. 93-344), which sought “to reassert the congressional role in budgeting, to add some centralizing influence to the Federal budget process[3].”

The federal fiscal year runs from October 1 – September 30, but rarely is the budget finalized by the end of September. As a result, the Congress must pass a Continuing Resolution (CR) to continue to fund the government until a new budget is passed and signed. If a CR is not passed and no budget is agreed upon the government enters a general shutdown. The most recent example of a federal shutdown took place between November 14 – 19, 1995 and December 16, 1995 – January 6, 1996, when Speaker of the House Newt Gingrich and President Bill Clinton were unable to agree to proposed cuts to Medicaid, Medicare, education and the EITC.

Federal Deficit

Since 1930, there have been only twelve years in which the federal budget was not in deficit: 1947–49, 1951, 1956–57, 1960, 1969, 1998–2001[4]. With the exception of the World War II years (1942-46), the relative size of the deficit has ranged between 10.6 (2010 estimate) to .01 percent (1938) of GDP; during the same period, and with the same constraints, the relative average size of the deficit was 2.7 percent of GDP[5]. While 2010 does represent a non-WWII high, much of this can be attributed to the significant bailout and stimulus spending undertaken as a policy response to the financial crisis which began in earnest during the autumn of 2008 and continued economic ills negatively affecting income tax receipts.

Public Debt

A distinction must be made between the federal deficit, which represents the difference between government revenues and expenditures in a given year, and the public debt, which represents all government borrowing in aggregate. Since 1951, the relative size of the public debt has ranged from 23.9 (1974) to 66.9 (1951) percent of GDP; during the same time period the relative average size of the public debt was 39.5 percent of GDP[6]. The 2010 estimate from the OMB is a debt equal to 63.6 percent of GDP.

[1] Joint Committee on the Organization of Congress. “Organization of the Congress.” December, 1993. http://www.rules.house.gov/archives/jcoc2w.htm

[2] 31 U.S.C. 1105

[3] Joint Committee on the Organization of Congress. “Organization of the Congress.” December, 1993. http://www.rules.house.gov/archives/jcoc2y.htm

[4] Office of Management and Budget. “Historical Tables FY2011: Table 1.2” February 2010. http://www.whitehouse.gov/omb/budget/Historicals/

[5] Ibid.

[6] Office of Management and Budget. “Historical Tables FY2011: Table 7.1” February 2010. http://www.whitehouse.gov/omb/budget/Historicals/

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