Introduction
The federal budget of the United States consists of the spending and revenues of the U. S. federal government. As of now, the US government’s primary expenses include healthcare, retirement, and defense programs. Among the leading trends of the last five decades, the nonpartisan Congressional Budget Office reports the unprecedented debt growth that reached 78% of GDP in 2019 and is projected to amount to 144% by 2049.
This makes the United States a country with the most massive external debt in the world (Pew, 2020). Pew (2020) points out a few more optimistic tendencies: by the end of 2018, the States had been able to put more savings aside in the preparation for a possible recession. In 2020, an increase in tax receipts allowed for widespread budget relief for the second year in a row. This essay seeks to explain the US budgeting process from various angles and explains why zero-based budgeting is a superior method compared to more traditional ones.
US Federal Budget Process vs Local Budgeting
It is clear from the definition that the federal government encompasses the country in its entirety. The overwhelming majority (80%) of federal budget revenue is generated from the individual income tax and payroll taxes that later are used for funding social insurance programs (Pew, 2020). Another 9% comes from corporate income taxes with the rest being a mix of various sources (Pew, 2020). In contrast, the state and local government only control their own state, districts, counties, and towns.
It is property taxes that make up the majority of revenue (35%) for state and local governments. Sales and gross receipts are the second close income source, accounting for 34% of revenue (Pew, 2020). The main difference between the federal budget process and local budgeting is that the federal government is able to run a deficit. Local governments, on the other hand, can never spend more than they bring in.
The Constitution of the US vests Congress with the power to generate revenue and borrow money. The executive budget process encompasses three main stages: development of the budget proposal by the president, submission and justification, and execution of budgetary legislation. Another theory that applies to US budgeting processes, though, to a lesser extent is constitutional economics. It suggests that constitutional economic standards be used for budget planning to ensure transparency and the rule of law.
Approaches to Budgeting
Line-item budgeting is a method of budget representation that bulks proposed expenses by department or cost center. The main advantage of this method is the convenience of communicating which departments or cost centers are absorbing the most of the finds. The presentation typically highlights the differences between the past history of expenditure and the proposed expenses. Even though this format allows for rolling the budget forward into a new period with ease, it lacks substantial insights, which is why with line-item budgeting, changes are rarely made.
In performance-based budgeting (PBB), budgets and funds are tied to specific objectives. Because goals and objectives are quantified, all stakeholders are held accountable for the process. However, PBB is often subjective and makes decision-makers act on their intuition rather than data. Zero-based budgeting (ZBB) provides a superior budgeting tool because it requires justification for each new expense. It allows for top-level strategic goals to be implemented and associated with specific functional areas. ZBB is detail-oriented and helps to avoid blanked increases and decreases and vast generalizations.
Budget and Finance Constraints
The Maryland constitution grants the Governor a great deal of executive leverage in the budget process as compared to most states. By January 3d each year, the Governor submits a budget proposal that encompasses all planned expenditures and is presented as both a budget bill and in-depth budget book volumes. The General Assembly has the right to cut the operating budget; however, it cannot add to it or rearrange any items to decrease or increase expenses in one area or another (Maryland Department of Budget and Management. n.d.).
The Dillon rule applies to the state of Maryland: the powers of the local governing bodies only go as far as they are explicitly defined by the federal government. From 1948 until 1954, the Maryland Municipal League had lobbied for the establishment of constitutional Home Rule (Maryland Municipal League, n.d.). That ensured that all municipalities are equal under state law and also have equal powers within the state.
Conclusion
The budget essentially represents what the government chooses to prioritize at the moment and reflects historical trends and various economic philosophies. The leading budget theory that explains US budgeting processes is executive budgeting. The executive budget process includes the development of the budget proposal by the president, submission and justification, and execution of budgetary legislation. The federal budget process differs from local processes in the federal government’s ability to run a deficit. There are many approaches to budgeting, each with its own advantages and disadvantages. Zero-based budgeting appears to be the most rational as it requires detailed financial data and justification for each expense. The State of Maryland is constrained by the State and has to provide a balanced budget that does not imply a deficit.
References
Maryland Department of Budget and Management. (n.d.). Maryland operating budget overview. Web.
Maryland Municipal League. (n.d.). Home rule in Maryland. Web.
Pew. (2020). Fiscal 50: State trends and analysis. Web.