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The Federal Budget Process in a Perfect World

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In Fiscal Year 2010, the U.S. federal budget will commit the expenditure of up to $3.55 trillion dollars, increasing the federal deficit to almost $1.7 trillion. Clearly, spending that much taxpayer money requires a carefully thought out and closely followed process. In a perfect world, the annual federal budget process begins in February, ends in October and goes like this:

The President’s Budget Proposal Goes to Congress

The President’s Budget Proposal informs Congress of the White House’s vision for the three basic elements of U.S. fiscal policy: (1) how much money the government should spend on public needs and programs; (2) how much money the government should take in through taxes and other sources of revenue; and (3) how large a deficit or surplus will result -- simply the difference between money spent and money taken in.

Congress Begins its Work on the Budget

With much and often heated debate, Congress hacks away at the president’s Budget Proposal to come up with its own version, known as the Budget Resolution. Like any other piece of legislation, the House and Senate versions of the Budget Resolution must match.

As a critical part of the budget process, the congressional Budget Resolution sets spending limits on discretionary government programs for the next 5 years.

Congress Creates the Annual Spending Bills

The meat of the annual federal budget is, in fact, a set of “appropriations,” or spending bills distributing the funds allocated in the Budget Resolution among the various government functions.

Roughly one-third of the spending authorized by any annual federal budget is “discretionary” spending, meaning it is optional, as approved by Congress. The annual spending bills approve discretionary spending. Spending for “entitlement” programs, like Social Security and Medicare is referred to as “mandatory” spending.

A spending bill must be created, debated and passed to fund the programs and operations of each Cabinet-level agency. Per the Constitution, each spending bill must originate in the House. Since the House and Senate versions of each spending bill must be identical, this always become the most time-consuming step in the budget process.

Congress and the President Approve the Spending Bills

Once Congress has passed all of the annual spending bills, the president must sign them into law, and there is no guarantee that will happen. Should the programs or funding levels approved by Congress vary too greatly from those set by the president in his or her Budget Proposal, the president could veto one or all of the spending bills. Vetoed spending bills slow the process greatly.

Final approval of the spending bills by the president signals the end of the annual federal budget process.

The Federal Budget Calendar

It starts in February and is supposed to be finished by October 1, the start of the government’s fiscal year. However, the federal budget process now tends to run behind schedule, requiring the passage of one or more “continuing resolutions” that keep the basic functions of government running and save us from the effects of a government shutdown.

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