The annual process of funding the government is a monumental task, and staying on top of the many moving parts can be complicated and time intensive. To help you make sense of how the federal budget is determined, we break down the theoretical timeline, explain the significance of each step, and highlight how details of the federal budget impact state budgets.
What are the major components of the federal budget?
- Mandatory and discretionary spending and interest payments going out
- Mandatory spending includes most entitlement programs such as Medicare, Medicaid, Social Security, and the Supplemental Nutrition Assistance Program (SNAP), and is not subject to annual review.
- Discretionary spending is decided through the annual appropriations process.
- In recent years, mandatory spending has comprised the majority of federal spending.
- Revenue coming in
- Resulting deficit or surplus
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Federal Budget Process Flowchart
Note: These are target dates, the actual budget process often deviates from this timeline.
What occurs during the appropriations process
The House and Senate appropriations committees are divided into 12 subcommittees, which hold hearings to discuss budget requests and needs. Each subcommittee comes up with a bill that must pass both chambers and be signed by the president to take effect. If a full-year appropriation isn’t in place by Oct. 1, the start of a fiscal year, a continuing resolution can be used to extend funding for a period of time, typically at the previous year’s level.
Congressional Appropriations Panels split jurisdiction among 12 Subcommittees.
3. Authorization bills — Authorization measures are used to create departments, agencies, and programs; set rules for how they’re operated; and set funding levels. Some authorization bills actually provide funding for one or more years without further action, known as a mandatory program. Most authorizations require congressional appropriations action and are referred to as discretionary.
4. Revenue measures — Congress doesn’t have to act each year on a measure raising revenue. Some tax laws are permanent, while others have expiration dates that cause Congress to revisit tax rates, credits, and other rules.
5. Budget reconciliation — The reconciliation process was created by the Congressional Budget Act of 1974. It allows lawmakers to advance spending and tax policies through the Senate with a simple majority.
How the budget reconciliation process works
Budget resolutions can include instructions to committees to report reconciliation legislation, often with a deadline, to meet spending and revenue targets.
The reconciliation instructions also can require reporting of debt-ceiling legislation, which can come in handy because of the simple majority factor.
If more than one committee receives instructions, then the individual committees first send their recommendations to the House and Senate Budget committees, which consolidate the proposals. If a single committee receives instructions (for example, just the House Ways and Means Committee on a revenue measure), its recommendation can be sent directly for a floor vote.
Senate debate time limits
In the Senate, debate is limited to 20 hours, meaning the measures can’t be filibustered. Proponents also only need a simple majority rather than the 60-vote supermajority that applies to most legislation under the chamber’s cloture rules – if everyone shows up, that means 51 votes.
These details make reconciliation bills an attractive target for policy changes that have a budgetary effect (such as health care programs).
6. Debt limit legislation and raising the U.S. debt ceiling — The federal government has a cap on how much debt can be incurred by the federal government. Congress considers legislation to either increase the dollar amount in law or, more recently, to suspend the debt limit for a period of time to allow the government to take steps to finance the difference between the amount of revenue brought in and the amount of spending required by law.
Medicaid falls under mandatory spending, as do programs such as Temporary Assistance for Needy Families (TANF), SNAP, adoption and foster care programs, and child nutrition programs that provide meals to low-income students in school. Examples of discretionary funding to states include Title I funds for high-poverty schools, Head Start, and public safety grants.
Unlike the federal government, states have balanced budget requirements. This means uncertainty or a delay in the federal budget can have significant consequences for states, given how much of their revenue depends on federal funds. For example, Covid-19 placed an unexpected strain on state finances as they grappled with the economic fallout of the pandemic. This caused declines in state revenues that needed to be balanced by more federal aid, and/or spending cuts.
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