Federal Budget Guide What is the Federal Budget The Federal

Federal Budget Guide What is the Federal Budget? The Federal Budget is the government's annual plan for spending of tax revenues. Ninety percent of the government's revenues come from three major categories of taxes: individual taxes, corporate income taxes, and payroll taxes. The Federal Budget outlines the amount of this money to be spent on programs and agencies of the government such as defense, Medicare, education, community development, and protection of the environment. The Federal Budget is comprised of a mandatory and a discretionary budget. Mandatory spending accounts for two-thirds of all spending and is authorized by permanent laws. It includes entitlements such as Social Security, Medicare, veterans' benefits and Food Stamps. Mandatory Spending also includes interest on the national debt, which the Government pays to individuals and institutions that hold Treasury bonds and other Government securities. The President and Congress have the ability to alter laws in order to change the funding of entitlements and other programs. The remaining funds constitute the discretionary budget and supply funding for various other agencies and programs within one specific sector. The discretionary budget is divided into 13 annual appropriations bills, which are debated, amended, voted on, and appropriated every year. The Budget Creation Process The President and Congress both play a role in developing the Federal Budget. First, Congress passes a budget resolution that estimates annual revenues and proposes spending targets. After reviewing the President's proposed budget, Congress develops its own budget. Once Congress passes the budget resolution, it turns its attention to passing the 13 annual appropriation bills. Each year the President is obligated to submit to Congress, by the first Monday in February, a proposed federal budget for the following fiscal year beginning in October. After consulting with his senior advisors, cabinet officials, and other agencies, the President directs The White House's Office of Management and Budget (OMB) to prepare the budget proposal. Congress examines the President's budget in detail. The responsible committees and subcommittees of Congress hold hearings on proposals of appropriation bills under their jurisdiction. The Budget Director, Cabinet officers, and other Administration officials work with Congress as it accepts some of the President's proposals, rejects others, and changes others. After Congress has passed the Appropriations Bills, the information is presented to the President. The President has ten days to decide whether to sign the bill into law, allow the bill to become law without his signature, or to reject and veto the bill. A Presidential veto sends the bill back to Congress and the process of budget negotiations begins anew. Glossary of Budget Terms Appropriation An appropriation is an act of Congress that enables Federal agencies to spend money for specific purposes. Authorization An authorization is an act of Congress that establishes or continues a Federal program or agency, and sets forth the guidelines to which it must adhere. Balanced Budget A balanced budget occurs when total revenues equal total outlays for a fiscal year. Budget Authority (BA) Budget authority is the amount that the law authorizes, or allows, the Federal Government to spend for programs, projects, or activities. Budget Enforcement Act (BEA) of 1990 The BEA is the law that was designed to limit discretionary spending while ensuring that any new entitlement program or tax cuts did not make the deficit worse. It set annual limits on total discretionary spending and created "pay-asyou-go" rules for any changes in entitlements and taxes (see "pay-as-you-go") still valid? Budget Resolution The Budget resolution is the annual framework within which Congress makes its decisions about spending and taxes. This framework includes targets for total spending, total revenues, and the deficit, as well as allocations, within the spending target, for discretionary and mandatory spending. Budget Surplus The federal budget has a surplus when the revenue exceeds the spending. If the government spends more than it takes in, the budget reports a deficit. "Cap" A "cap" is a legal limit on annual discretionary spending. Deficit The deficit is the difference produced when spending exceeds revenues in a fiscal year. If the federal government runs on deficits over a long period of time, the national debt grows. A high debt, and the annual interest payments that follow, constrain the activities of the federal government and limits the amount of money spent on vital programs and activities. Discretionary Spending Discretionary spending is what the President and Congress must decide to spend for the next fiscal year through 13 annual appropriations bills. Examples include money for such activities as the FBI and the Coast Guard, housing and education, space exploration and highway construction and defense and foreign aid. Debt Held by the Public Debt held by the public is the total of all Federal deficits, minus surplus, over the years. This is the cumulative amount of money the Federal Government has borrowed from the public, through the sale of notes, and bonds of varying sizes and time periods until maturity. Debt the Government Owes itself Debt the Government owes itself is the total of all trust fund surpluses over the years, like the Social Security surplus, that the law says must be invested in Federal Securities. Debt Subject to Legal Limit Debt subject to legal limit, which is roughly the same as gross Federal debt, is the maximum amount of Federal securities that may be legally outstanding at any time. When the limit is reached, the President and Congress must enact a law to increase it. Entitlement An entitlement is a program that legally obligates the Federal Government to make payments to any person who meets the legal criteria for eligibility. Examples include Social Security, Medicare, and Medicaid. Excise Taxes Excise Taxes apply to various products, including alcohol, tobacco, transportation fuels, and telephone service. Federal Debt The gross Federal debt is divided into two categories: debt held by the public, and debt the Government owes itself. Another category is debt subject to legal limit. Fiscal Year The fiscal year is the Government's accounting period. It begins October 1 and ends on September 30. For example, fiscal 2004 ends September 30 2004. Gross Domestic Product (GDP) The GDP is the standard measurement of the size of the economy. It is the total production of goods and services within the United States. Mandatory Spending Mandatory spending is authorized by permanent law. An example is Social Security. The President and Congress can change the law to change the level of spending on mandatory programs - but they do not have to. "Off-Budget" By law, the Government must distinguish "off-budget" programs separate from the budget totals. Social Security and the Postal Service are "off-budget." "On-Budget" Those programs not legally designated as off-budget. Outlays Outlays are the amount of money the Government actually spends in a given fiscal year. "Pay-as-you-go" Set force by the BEA, "pay-as-you-go" refers to requirements that new spending proposals on entitlements or tax cuts must be offset by cuts in other entitlements or by other tax increases, to ensure that the deficit does not rise (see BEA). Revenue Revenues include the collections that result from Government activity, such as taxes. They do not include collections that result from the Government's business-like activities, such as the entrance fees at national parks. Business-like collections are subtracted from total spending to calculate outlays for the year. Social Insurance Payroll Taxes This tax category includes Social Security taxes, Medicare taxes, unemployment insurance taxes, and Federal employee retirement payment. Surplus A surplus is the amount by which revenues exceed outlays. Trust Funds Trust funds are Government accounts, set forth by law as trust funds, for revenues and spending designated for specific purposes. Unified Federal Budget The unified budget, the most comprehensive display of the Government's finances, is the presentation of the Federal Budget in which revenues from all sources and outlays to all activities are consolidated. Federal Budget and the Appropriations Process for Fiscal Year 2005 Each year, the Congress and the President formulate a budget proposal for the fiscal year, beginning on October first and ending on September thirty-first of the following year. Annually, two-thirds of tax revenues are immediately allocated for mandatory spending; on programs such as Social Security and food stamps. The remaining tax revenues are allocated to discretionary spending and distributed among thirteen appropriation bills. Spending for these bills falls into the following categories: • • • • • • • • • • • • • Agriculture, Rural Development, FDA and Related Commerce, Justice, State and the Judiciary Defense District of Columbia Energy and Water Foreign Operations, Export Financing and Related Homeland Security Interior Labor, Health and Human Services, and Education Legislative Branch Military Construction Transportation, Treasury, Postal Service and General Government Veterans Affairs, Housing and Urban Development, and Independent Agencies Typically, each of these categories is funded by a separate appropriations bill, which must pass through extensive negotiations and a series of votes in congress before being sent to the President to be signed into law. Bills must first be passed by a sub-committee and a committee in both the Senate and the House of Representatives. Committees are small groups of either senators or representatives who focus on a specific category of appropriations, such as homeland security. Bills must then be passed in a Senate vote and a House of Representatives vote, in which all members participate. After this, bills are reviewed in a conference made up of various committees from both the Legislative and Executive branches. After passing through this final review process, bills are sent to the President's desk for final passage into law. What bills have been passed? Of the thirteen bills, only four have completed this extensive process and signed into law: Department of Defense: On August 5, 2004, President Bush signed into law the Department of Defense Appropriations Act. The bill appropriated $416.9 billion for the coming fiscal year, which will end September 30, 2005. The appropriation is $900 million less than the President's request and $48.6 billion above the fiscal year 2004 sum. Please see the Cities for Peace factsheet on national military spending for more details on the U.S. defense budget. Military Construction Bill: On October 13, 2004, President Bush signed into law the military construction bill, which appropriated a total of $10 billion to an array of military construction projects. $5.5 billion went to military construction, $4 billion for family housing, $160.8 million for NATO infrastructure improvements, and $246.1 million for costs associated with base closings and realignments. The appropriation is $450 million, or five percent, more than Bush requested, and $687 million, or seven percent, more than the fiscal year 2004. Attached to the Military Construction bill was the fiscal year 2005 Disaster Aid package of $14.5 billion, $11.6 billion of which was emergency funding. Here's the breakdown of this emergency funding: • • • • $6.5 billion for the Federal Emergency Management Agency $1.5 billion for repairs of road damage caused by hurricanes Charley, Ivan, Frances, Jeanne, and Gaston. $1.1 billion for defense department repairs and the costs of evacuation, base preparation, and base recovery. $929 million for small business administration disaster loans. • • • • • • $609 million for agricultural and rural assistance, including $250 million for the Emergency Watershed Protection Program, $10 million for cottonseed producers and handlers, $8.5 million for pecan producers, $10 million in dairy production loss payments and $40 million in sugar cane payments. $377 million for the Army Corps of Engineers and the Bureau of Reclamation to restore navigation channels, repair coastal areas and restore beaches. $126 million for NASA, in part to repair and strengthen the Kennedy Space Center. $124 million for the Veterans Affairs Department. $100 million for Jamaica, Haiti and other Caribbean nations. $70 million for the American Red Cross. Homeland Security: On October 18, 2004, President Bush signed into law Homeland Security funding bill for the fiscal year 2005, while declaring that he will ignore many of the conditions Congress sought to put on the funding. The bill appropriates $33.1 billion for the Department of Homeland Security, which is $896 million more than President Bush requested, and $2.8 billion more than the fiscal year 2004 appropriation. District of Columbia: On October 18, 2004, President Bush signed into law the District of Columbia spending bill. The bill appropriates $8.2 billion, which is equal to President Bush's request, and a three percent increase over last year ($560 million). The remaining nine spending categories were combined into one "all or nothing" omnibus bill. This $388 billion appropriations bill has been passed by Congress. This omnibus bill will provide funding for all of the following programs: • • • • • • • • • Agriculture, Rural Development, FDA and Related Commerce, Justice, State and the Judiciary Energy and Water Foreign Operations, Export Financing and Related Interior Labor, Health and Human Services, and Education Legislative Branch Transportation, Treasury, Postal Service and General Government Veterans Affairs, Housing and Urban Development, and Independent Agencies Ok, then how does the 2005 budget affect Americans? Due to an economic recession, massive war spending, and excessive tax cuts, the U.S. budget deficit is the largest in history; $413 billion, as reported by the Congressional Budget Office. Meanwhile, the US treasury continues to borrow money and increase debt. Currently, the "debt ceiling," or amount at which the US, in theory, will stop borrowing money, was raised in November 2004 to $8.2 trillion. The debt ceiling has been raised a total of four times during the Bush Administration. (And, just 2 other times since the creation of the debt ceiling in 1917.) Since Congress has failed to pass nine of the thirteen appropriation bills by the end of the fiscal year, they have passed three continuing resolutions that will fund all non-governmental programs at current spending levels until December 8th. The greatest portion of the 2005 budget will fund Defense and Military Construction while crucial domestic programs will remain underfunded. In order to meet the Administration's tight budget cap, a blanket .8% cut has been imposed on all programs unrelated to defense or homeland security. These reductions represent the fourth consecutive fiscal year of program cuts. With rising inflation, vital social programs will receive substantially less money than in previous years. In addition, the omnibus bill includes certain provisions that have little to do with the allocation of funds. These provisions will also affect the lives of American citizens. Civil liberties One provision in the omnibus bill would give Congress's Appropriations Committee and their agents the right to examine individual American's tax returns. The IRS-drafted provision is said to have been slipped into the Omnibus bill secretly and initially escaped the attention of individual Congressmen and Senators. On December 6th, members of the House will vote on a resolution to repeal this provision before the omnibus bill is sent to the President and signed into law. Women's rights Also included in the final bill was a provision that would exempt federal, state, and local heath care providers, hospitals, HMOs and insurers from laws that require them to provide or pay for abortions or give referrals. Opponents in Senate agreed not to block this provision from entering the omnibus bill when Senate Majority Leader Bill Frist promised to schedule a vote on a bill that would repeal the provision. Affordable Housing Community planning and development, and programs which fund housing for the elderly, and disabled, for those suffering with AIDS, and for Native Americans and low-income Americans has been reduced by $378 million in 2005. Funding for section 8 housing vouchers increased slightly to $13.36 billion for 2005. However, the budget includes rules that regulate the budgets of housing authorities and effect how HUD may distribute money to housing authorities. Environment Language in the bill authorizes the opening of Alaska's Wildlife Refuge to oil and the opening of Georgia's Cumberland Island (a previously protected wilderness area) to commercial fish hatcheries. It also exempts some large dairies and livestock owners from environmental restrictions. Education Funding for the largely unpopular No Child Left Behind Act has increased by $500 million to $12.8 billion, which is $7.7 billion less than the amount authorized by President Bush. Language in the bill also allows for the reduction of grants to low-income college students. Disabled Funding for the Individuals With Disabilities Act increased by $607 million to $10.7 billion. The program, which was intended to reimburse 40% of each state's costs, will only supply a 19% reimbursement. Energy With fuel prices expected to continue to rise, the Omnibus bill has increased funding for LIHEAP (Low Income Home Energy Assistance Program). The program, which serves just 17% of the 30 million eligible households, has been raised to $2.2 billion. Children Funding for childcare remains at less than $2.1 billion, and funding for Head Start increased slightly to $6.841 billion. Neither amount is enough to provide the same level of service as in 2004. Twenty-first Century Community Centers, an after-school care program received $990 million. These insufficient funds will result in 40,000 children loosing access to the program. Juvenile Delinquency Prevention (JABG) has been cut to $54.5 million, down from its $249.5 million funding levels in 2002. Families The supplementary nutrition program, Women Infants and Children (WIC) is given $5.3 billion, 10% more than President Bush's request. Workers Job training and worker education programs such as the Workforce Investment Act, vocational technical and basic adult education, and Job Corp have all incurred the blanket .8% funding cut. Health Insurance The State Children's Health Insurance Program (SCHIP), which may provide health care to 750,000 uninsured children, was set to receive $1.1 billion. However, no action was taken to allocate this money, and funds have been transferred to the U.S. Treasury. To put it in perspective The United States' 2005 budget gives priority to Defense, Military Construction, and Homeland Security. With the promise of "protecting the American people," programs that defend Americans against hunger poverty and homelessness have been drastically cut. There is a startling discrepancy is between the amount of money that funds social programs and the amount that funds the industrialmilitary complex. Here is a breakdown of the nation's priorities according to the 2005 fiscal budget contrasted with alternative uses of the funds. • • $388 billion - Funding for the omnibus bill which covers domestic programs such as education, and healthcare and spans nine of the thirteen spending categories $413 billion- The current deficit • • • • $416.9 billion - The 2005 appropriated funds for the Department of Defense. This was the first bill passed and clearly a priority of this administration. $2.2 billion - Cost of one B-2 Bomber $2.1 billion - 2005 budget appropriations for child care in the US $1.7 billion - World Food Programs annual budget to assist 77 million people in 82 countries The Borgen Project, a nonprofit research group working to bring political attention to issues of world poverty and hunger, estimates that annually it would require: • • • • • $19 billion - to eliminate starvation and malnutrition from the world $21 billion - to provide shelter to the world's homeless $10 billion - to provide clean safe water $4 billion - to remove land mines around the world $7 billion - to eliminate nuclear weapons worldwide In contrast, by the end of 2004, the US will have spent $152 billion on the war in Iraq. Informational Resources: The Federal Budget and Appropriations Process A Citizen's Guide to the Federal Budget: From the U.S. Government Printing Office http://www.gpoaccess.gov/usbudget/fy02/pdf/guide.pdf Library of Congress: Status of appropriation bills http://thomas.loc.gov/home/approp/app04.html National Priorities Project: The Federal Budget Explained http://www.nationalpriorities.org/budget/index.html OMB Watch: Updates and analysis on the appropriations process http://www.ombwatch.org/budget Tax Foundation: Factsheets on fiscal policy http://www.taxfoundation.org/ff/FY2005perspective2.html University of Michigan: Great overview, links, resources about the budget http://www.lib.umich.edu/govdocs/fedbud.html U.S. House of Representatives: An introduction to the budget process http://www.house.gov/rules/96-912.htm U.S. House of Representatives: Budget rules and process http://www.house.gov/rules_bud/annual.htm Federal Budget Updates April 18, 2005 - House Republicans debate Medicaid cuts from CNN.com March 21, 2005 - Bush, Congress Hide True Cost of Permanent Tax Cuts by OMB Watch March 21, 2005 - House, Senate Pass Irresonsible FY06 Budget Resolutions by OMB Watch March 18, 2005 - Women's Actions for New Directions information and tool kit on the 2006 Federal Budget March 17, 2005 - Federal Spending Cuts, Caps to Hurt States Facing Own Deficits by OMB Watch March 8, 2005 - Bush Budget to Increase Deficits $1.6 Trillion over 10 Years by OMB Watch February 16, 2005 - "Local Costs of the Iraq War" A comprehensive state, city, and county breakdown of the Iraq and Afghanistan Wars on a current estimated cost of $207.5 billion. February 16, 2005 - Federal Budget Trade-Offs from the National Priorities Project Database on how tax dollars spent in the military and defense budget could be used for different areas of domestic spending. February 12, 2005 - State-by-state impact of the 2006 federal budget by the National Priorities Project February 11, 2005 -- Agency breakdown of the 2006 budget proposal from the Washington Post. February 11, 2005 -- How does the federal budget affect local communities? Talking points by the Center for American Progress. February 10, 2005 - Department of Housing and Urban Development Factsheet on Fiscal Year 2006 Budget February 9, 2005 - Assesing President Bush's New Budget Proposals from the Center on Budget and Policy Priorities February 9, 2005 - How the Budget Affects Human Needs Programs from the Coalition on Human Needs February 7, 2005 - The Official Federal Budget for Fiscal Year 2006 from the White House February 7, 2005 -- Federal Budget Update from OMB Watch January 31, 2005 - Talking points on Federal Budget by the Center for American Progress January 26, 2005 -- Update from the Center on Budget and Policy Priorities: CBO Data Show Tax Cuts have Played Much Larger Role than Domestic Spending Increases in Fueling the Deficits January 14, 2005 -- The Back to Basics weekly summary from the Campaign for America's Future. December 13, 2005 -- Robert Borosage's article "Shafting Kansas" comments on the omnibus bill, and how republicans have been successful in arousing social conservative backlash while trampling economic interests. Social Security National Social Security Factsheet May 12, 2005 - "“Progressive” Social Security Benefit Cuts Would Fall Heaviest on Middle Class" by The Center for Economic and Policy Research April 15, 2005 - "Bush Keeps Social Security Specifics to Himself" by Terence Hunt in the Miami Herald April 14, 2005 - "Private Account Buy-In Hasn't Sold-Out" by Marty Goldensohn in the Maketplace "Morning Report" April 12, 2005 - "A Misinformed Public: The Real Problem" by Dean Baker, Mark Weisbrot, and David Rosnick of the Center for Economic and Policy Research February 2, 2005 - Pacifica Radio with guest Karen Dolan on topic: Social Security: Collapse or Crisis? Download the show in .mp3 format, or listen to the streaming version. January 26, 2005 - Karen Dolan's Op-Ed piece, "Goodbye New Deal; Hello Raw Deal" on Commondreams.org November 16, 2004 - Brief Outline of Basic Facts on Social Security and Privatization by Dean Baker and David Rosnick of the Center for Economic and Policy Research