Friday, January 27, 2012

The U.S. Budget Process & the Debt Ceiling

It is no secret that the U.S. Congress rarely meets itsbudget deadline. There are a number ofideas about how to change the processwhich could facilitate better progress and enable Congress to meet deadlines.However, timing is not the only problematic aspect of Congress’ budget process.

Adjusting for inflation, spending in a number of budgetareas has actually been less under President Obama than it wasunder President Reagan over 30 years ago. However, this has not been the case with all or evenmost government programs.

Because overall government spending exceeds the revenuescollected, the government must have a mechanism in place for meeting its expenditureobligations. Although the government can do this in a variety of ways,it is often the case that Congress borrows from the entitlement trust fundsthat have been invested in U.S. Securities to make up for the shortfall.

However, there is a limit to the amount of money thatCongress can borrow, that is, the amount of debt the federal government canincur, regardless of where it borrows from. That amount is referred to as the “debt ceiling”.

In the fall of 2011, Congress’ borrowing ran up against thedebt ceiling, which at the time was $14.7 trillion. In order for the federal governmentto be able to pay its bills, therefore, Congress needed to increase the amountit was allowed to borrow. The process to raise the debt ceiling was bothpartisan and protracted, but ultimately a deal was reached between the WhiteHouse and Congress that among many things included the creation of a so-called “SuperCommittee” of 12 members of the U.S. House and Senate tasked with identifying$1.2 trillion in federal spending cuts.

Unfortunately, the Super Committee did not succeed inidentifying the spending cuts and as a result, triggered automatic,across-the-board budget cuts that total $1.2 trillion. The cuts begin in FY2013 and phase in over the next 10 year period. The speculated impacts of thesecuts are currently being debated, but what is certain is that they will affectgovernmental programs at every level from the national defense to communityhealth centers.

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