Federal Budget
The recent years have shown several instances of the federal government failing to approve the budget on time, which on one occasion resulted in the shutdown of government operations (Brass, 2011). The reason for that is the somewhat imperfect structure of the budgeting procedure, which was unsuccessfully addressed several times. This paper aims at detailing, both by description and the comparison to state budgeting, the process of federal budget-making, including identification of its major actors, the key strategies, and tactics used in the process, as well as the most common constraints and problems.
In the broadest terms, the budget-making process can be broken down into four major steps: the president’s proposal, the appropriation of the budget by the House and Senate budget committees, the implementation of the budget, and the review and audit. Thus, the main actors of the process are the president and Congress. When looked into in detail, other participants emerge, like the Congressional Budget Office, which strengthens the role of Congress in the process by providing the fiscal impact statements and the long-term budget outlooks. Other actors, such as the Office of Management and Budget and Council of Economic Advisers provide additional information and analysis, thus influencing the process.
The procedure begins with the president submitting the budget to Congress on the first Monday of February. This is largely a formal action required by law and is used primarily as a guideline directive rather than a binding act. The budget submitted by the president contains the information on the performance of the country’s economy, the estimates of spending and revenue, and general recommendations and suggestions.
The House and Senate budget committees then proceed to create the budget resolutions based on the president’s proposal. They are aimed at meeting the revenues and spendings outlined by the president and propose the policies needed to meet the president’s demands. They also include an overall spending limit, discretionary spending limits and the component required for the next step – the allocations for each of the twelve appropriations subcommittees.
The proposed resolutions are voted upon by both committees, and the surfacing differences are resolved in the conference held by representatives of both committees. The resulting resolution should be submitted back to the president by April 15 (Keith, 2005), but due to the complexity of the process, this deadline is not always met. In case the resolution is not ready by the mentioned date, the House and Senate committees suggest separate budget policies that act as a substitute for it. Such policies rarely deviate from allocations and volumes of funding from previous years and remain in effect only if the committee agrees to uphold it.
The appropriations are the next phase. The appropriation committees determine the jurisdictions of the twelve subcommittees and divide the discretionary spending among them accordingly. The appropriations can be broken down into three categories: regular, which secure the spendings of the agencies during the federal fiscal year; supplemental, which provide funding for the disaster relief and other areas that have insufficient budget; and continuing, which provide funding for agencies which for some reason do not have the regular appropriations at their disposal. At this stage, the subcommittees conduct hearings on the programs assigned to them and produce a bill, which must be approved by the subcommittee before being passed to the floor. All the bills are then put to vote by the full House or Senate, or, if the differences arise, they are solved at the conference. The resulting report is sent to the president for approval and signature, but on this stage, the executive branch has little influence on the process.
The appropriations deal with discretionary spending. When the need arises to bring the revenue and spending policies by the existing resolution, reconciliation comes into effect. This process deals mostly with mandatory spending and instead of specifying the funding for each program, Congress reviews the eligibility criteria, thus regulating the deficit by determining the number of subjects to receive funds and the amount of money which is dealt.
The procedure is essentially the same, with authorizing committees of both the House and the Senate reviewing and authorizing the reconciliations, which are then reviewed by the budget committees and upon their agreement are sent to the floor for the approval. The differences are settled during the conference. The main concern of reconciliation is the deficit reduction, as virtually any action not resulting in such reduction of having any budgetary effect is prohibited by the Byrd rule for the Senate and similar regulation for the House (Rubin, 2008).
The budget is subject to a mid-session review on July 15 to rule out and address the possible changes. The deadline for completing all operations is September 31, the last day of the fiscal year. In case the date is missed, the president instead signs a continuing resolution to initiate stopgap funding. If for some reason the continuing resolution is not signed as well, the agencies deprived of funding must shut down the operation. The most recent example of such a shutdown occurred on October 1, 2013, and lasted for sixteen days (Brass, 2011). All of the deadlines mentioned above are frequently violated due to various reasons.
The most obvious one is the complexity of the process which leads to a time gap between the presidential proposal and the submitting of the appropriation bills back to him, at which point little time is left for the negotiation with lots of issues to resolve. The options include either a hasty decision or a thoughtful review at the expense of time spent, and the government resorts to the latter, which is arguably a better choice, but puts certain agencies at risk of shutdown, as described above. Another problem resulting from the complexity of the process is the lack of comprehension among the general public and arguably some of the policymakers.
As a result, some of the craftier actors take advantage of its loopholes and shortcuts without the knowledge of others. Finally, the budget is viewed differently by Democrats, who suggest the priority on the welfare of the state and support regulations, and Republicans, who advocate laissez-faire approach, with reduction of taxation, decreased regulations, and free enterprise (Bartlett, 2011).
However, both parties are slow at implementing the changes they advocate. Besides, some experts suggest that the whole system is designed with a bias toward higher spending and taxes, which leads to tedious situations when the logical steps such as decreasing taxation and simultaneously reducing the discretionary spending are impossible to implement (Riedl, 2005). At the same time, the reform attempts of recent years have all been unsuccessful, mostly for the same reason these problems exist in the first place: bureaucracy. The procedure is complicated enough to attain self-defending qualities, with certain elements rejecting changes when they threaten the loss or relocation of power and influence. In other words, the changes are needed but are not easily implemented.
Several key differences exist between the federal and state budgeting. The most obvious of them is balancing the budget. The state government is required to balance expenses and revenues. In other words, it is illegal for a state to create a fiscal deficit. The federal government, on the other hand, does not have this requirement. It is allowed to run with a deficit and to borrow funds. This allows for long-term planning but similarly prompts the adverse effects in the long run. The Great Recession has proven the benefits of the state model of balancing the revenues, which allows for adaptability to deficit shocks, mostly by cutting spending, which can be deemed as a valuable strategy on a federal scale (Poterba, 1994).
Another major difference is the control over the federal bank and is constitutionally granted to issue currency and coin money. This, in theory, allows it to coin money to find a way out of the fiscal deficit of other problematic situations. In reality, this is not an option because of the adverse effects it triggers, like inflation. Other differences are the technicalities like the distribution of funding, with some areas, like the military, being funded solely by the state. At the same time, state budgets have better options for revenue, like the sale taxes, alcohol and tobacco taxes, various fees, and fuel taxes.
The budgeting process is a fairly complicated one, with many of its stages threatening the effectiveness and reliability of its fundamental goals. While the procedure is constantly amended, the need for reform which could uproot some of the issues instead of addressing the symptoms is long due. The changes in policies suggested by the state budgeting can also prove a valuable strategy for dealing with the issues.
References
Bartlett, B. (2011). Are taxes in the U.S. high or low?
Brass, C. (2011). Shutdown of the federal government: causes, processes, and effects. Web.
Keith, R. (2005). The budget reconciliation process: the senate’s “Byrd Rule”.
Poterba, J. (1994). State responses to fiscal crises: the effects of budgetary institutions and politics. The Journal of Political Economy, 102(4), 799–821. Web.
Riedl, B. (2005). What’s wrong with the federal budget process.
Rubin, I. (2008). Public budgeting: policy, process, and politics. Armonk, NY: M.E. Sharpe. Web.