5 Things You Need to Know About the Federal Budget Process
TOPICS DISCUSSED
In anticipation of discussing current budget proposals next week, we’re returning to our October 2019 episode on the federal budget process itself.
Budget Vocabulary
Mandatory vs. Discretionary vs. Tax Breaks
Deficits and Debt
The Process in Theory
The Process in Practice
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EPISODE RESOURCES
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FEDERAL BUDGET PROCESS
Overview:
Federal Budget Glossary (National Priorities)
What is the Federal Budget? (The Balance)
Budget of the U.S. Government (USA.gov)
The Essential Guide to the Federal Budget (Politico Pro)
Federal Budget 101 (National Priorities)
History:
History of the Budget Process (Tax Policy Center)
US Federal Budget History (Areppim)
A Short History of Government Taxing and Spending in the United States (Tax Foundation)
The Process:
Introduction to the Federal Budget Process (Center on Budget and Policy Priorities)
Federal Spending: Where Does the Money Go (National Priorities Project)
Debt and Deficit:
Why the U.S. may soon spend more on its debt than on kids (CBS News)
Federal Budget Deficit Tops $1 Trillion—With No End In Sight (Forbes)
Federal Revenue: Where Does the Money Come From (National Priorities)
Borrowing and the Federal Debt (National Priorities)
The outlook for US government debt (The Economist)
America's Fiscal Future (U.S. Government Accountability Office)
Introduction to Treasury Secretaries (TreasuryDirect Kids)
How much money did the federal government collect and spend in 2018? (Data Lab)
2020 Budget:
President Donald Trump's Economic Plan (The Balance)
Fiscal Year with Examples Using the Federal Budget (The Balance)
A Budget for a Better America (WhiteHouse.gov)
Government Shutdown 2019, 2018, and 2013 Explained (The Balance)
Interest on the National Debt and How It Affects You (The Balance)
US Federal Budget Breakdown (The Balance)
H.R.4378 - Continuing Appropriations Act, 2020, and Health Extenders Act of 2019 (Congress.gov)
Proposed Budget Agreement Could Cost $1.7 Trillion (Committee for a Responsible Federal Budget)
Appropriations Watch: FY 2020 (Committee for a Responsible Federal Budget)
Appropriations Status Table: FY2020 (Congressional Research Service)
Trump signs stopgap spending bill to avoid a shutdown (Politico)
TRANSCRIPT
Sarah [00:00:07] This is Sarah Stewart Holland.
Beth [00:00:08] And this is Beth Silvers.
Sarah [00:00:10] Thank you for joining us for Pantsuit Politics. Tis the season for the federal budget process with a healthy, heaping side of debt ceiling and has been the case practically since the beginning of our country. There are some partizan debates going on around proposed budgets. We'll discuss the administration's proposed budget as well as the Republicans response to it on Tuesday. But we thought today would be a good day to revisit our October 2019 episode on the federal budget process itself.
Beth [00:00:50] Before we get into that, a reminder, next week we're heading to Fort Worth, Texas, for our final speaking event of the spring. We'd love to see you there. If you're anywhere close to the Dallas Fort Worth area. You can get tickets through the link in our show notes.
Sarah [00:01:03] And we have heard from so many listeners on the West Coast that they want us to come out their way, and we would love to. If you're in the Washington, Oregon or California region of the country and would like for us to come speak to your organization, we'd love to come. Visit our website, pantsuitpoliticsshow.com, and check out the events tab for an overview of our talks. And email Alise at Hello@pantsuitpoliticsshow.com for more information. We have two dates available this fall, and we're already booking events for the spring of 2024. And we'd love to help all of us just have the best election year available. Okay. Let's talk about the federal budget. In some ways, it's budgeting we're all familiar with; money in money out. And in other ways, and it's infinitely more complex. And there's a lot of just sort of basic vocabulary. We thought we should run down before we get started. So, the first thing you need to know are the meanings of a couple of words. You have authorization, which is the first step in the process. Authorization bills create programs, continue programs. Agencies and programs have to be authorized before they can spend money appropriated to them according to the rules of the House of Representatives. Is this rule always followed? No, it is not. But that's the idea.
Beth [00:02:30] And then an appropriation is authorizing the expenditure of funds for a given purpose consistent with those authorizations. So, first we say this agency exists or this program is allowed to continue, and then we have to tie the specific funding to it through the appropriations process.
Sarah [00:02:51] We have the national debt, which is not to be confused with the national deficit. Why do they all start with the same letter? Authorization appropriation. Then you have debt and deficit. So, the debt is the money the government owes. The deficit is the amount we spend as exceeded by what we take in. So, the amount of by which the government expenditures are greater than the tax collections in a given year. Debt is sort of we're accumulating that all the time. A deficit is a year to year situation. And then, of course, we have the debt ceiling and that's the limit on the amount of debt the federal government allows itself to hold. And Congress, as you're probably aware from the news stories, raises the debt ceiling often. The first overall debt ceiling was passed in 1939, and since then we've raised the debt ceiling or amended it over 140 times, including a dozen times since 2000.
Beth [00:03:50] We're going to tell you today about how this process is supposed to play out. But I want to share with you three shortcut terms, because we don't usually get through this process as it is supposed to play out. And so, the word omnibus is important. This means a budget that encompasses more than one of the 12 appropriations bills that are supposed to go forward individually. And omnibus bills get used when Congress and the president can't agree on those individual bills, so they start stacking them up and tying together provisions that sort of leave people without a choice on what to vote for. Continuing resolutions are another shortcut we take. We're supposed to have the entire government funded by October 1st, the beginning of the fiscal year, and we almost never have that done. So, Congress passes and sends to the president for signature a continuing resolution. This is just stopgap funding for agencies and programs. They don't want to shut down the government. They want to keep it going at current levels until the regular budget process can be concluded. And then finally, sequestration is a term that you might hear. These are automatic across the board spending cuts that are in place in case Congress can't get its work done within limits on discretionary spending that have been decided in previous years. Sometimes as part of negotiations, Congress will say we're sick and tired of all this spending, but we're not going to do anything about it today. Future Congresses, you must live by these rules. And if you don't, here are these draconian cuts that are going to go into place. And that's what sequestration means.
Sarah [00:05:27] So, that's with regards to discretionary spending. The next thing we want you to know is the difference between mandatory spending, discretionary spending, and tax breaks, because that all affects spending and revenue. Okay. A third of the federal budget is discretionary. These are programs, agencies, activities that Congress chooses to fund every year. Now, the biggest category of this is military spending, but it sweeps up a lot of things. The Defense, Department of Homeland Security, Education, the Veterans Administration, Energy Department, HUD, the State Department, NASA. Every year we're deciding, yes, this is what we want to continue to spend money on. So, those are choices and priorities that can be made and often a source of major budget battles because that's what Congress is choosing or choosing not to fund every year. It's why we have to fight about Big Bird and PBS and the National Endowment for the Arts every time because it's discretionary.
Beth [00:06:30] And then the rest of the budget is mandatory. Congress cannot change it. When Congress created Social Security, Medicare, Medicaid, it mandated the eligibility for participating in those programs. And it said if people are eligible, you have to pay these benefits. That's why they're called entitlement programs. This also includes SNAP, the Supplemental Nutrition Assistance Program, and a pretty significant amount of federal spending on transportation. Now, Congress can change the rules to make people eligible for those programs, but it can't change what gets paid out to them. Every year we just have an estimate of what those costs will be, but it's not a number that Congress is actively moving unless it's considering eligibility change.
Sarah [00:07:17] And then the last really important component of funding mandatory and discretionary program, besides just writing the check, is that we are also technically spending money within the tax code. They're called tax expenditures. There are hundreds of tax breaks written into the federal code, and these tax breaks don't require annual approval or privatization like discretionary spending or even eligibility debates like mandatory spending. Once they're written in, they remain until modified. So, some tax expenditures are larger than the budgets of the programs or departments that spend money for those same purposes. The value of tax breaks, for example, from homeownership far exceed what HUD spends total. The largest tax expenditure in 2019 will be tax exclusions for employer sponsored health insurance. So, we don't have to pay taxes on the money, the value of our employer sponsored health insurance. And that's a huge bucket of money that doesn't come into the government that's not collected, so it's seen as basically a tax expenditure because we're not we're giving that tax break out. We're not taking in that revenue.
Beth [00:08:48] We asked on Instagram and Twitter what questions you all have about the budget. And many of you had questions about deficits and debt. So, let's dive into that a little bit more. For fiscal year 2019, the one that just ended, the Office of Management and Budget at the beginning of that fiscal year estimated that revenue (taxes, money coming into the government) would be about $3.4 trillion. The planned spending for 2019 was $4.5 trillion. In that one year cycle, we created a $1 trillion budget deficit. That is up 40% from 2018 and the largest deficit we've had since 2012. For this coming year, fiscal year 2020, which starts on October 1st and runs through September 30th of next year, the administration's budget request estimated $4.76 trillion in expenses, with revenue estimated at $3.6 trillion. So, again, a little over a trillion dollar deficit, $1.1 trillion. That's a lot of money that we're adding to the debt every year.
Sarah [00:10:02] That means we're spending more than we're taking in. As deficit years add up, and we've had lots in a row, the federal debt grows. The federal debt is the sum of all those past deficit years, minus any repayments. At the end of the 2019 fiscal year, the national debt was $22.687 trillion. The second straight year it has risen by trillion dollars. Where are we borrowing this money from? Most U.S. debt is held by investors who buy Treasury securities at different interest rates in different maturities. So, when they come due. Okay. These are both domestic and foreign investors-- you always hear a lot about China-- and both government and private funds. Foreign investors hold more than 40% of the total. China and Japan each hold more than $1 trillion of our debt. China is definitely our largest creditor.
Beth [00:11:00] A problem that we have right now is that our total debt is becoming larger than our economy. The only developed nations in the world with a higher debt to gross domestic product ratio than us are Portugal, Italy, Greece and Japan. Some of you ask, how are we so indebted and still one of the world's richest nations? And the answer is we have never defaulted on our debt, and so people are willing to keep loaning us money. In fact, there is a difference of opinion now about how big a problem the debt is among economists, because so far we just keep racking up debt and none of the doomsday predictions have come true. Some economists think that as long as our interest rates aren't ballooning, which typically happens when you take on too much debt, we're okay to just keep borrowing more. We're still a good bet for the global economy. And they also say that we kind of have what they call a gray wall against interest rates going up. Because the population of the United States is aging and older people, in theory, are less likely to take on new debt, which means that the demand for credit will fall as our population ages. Keeping the cost of borrowing money fairly low. That is one view of the world. Another view of the world is, hello, by 2050, we're going to be at 150% of our GDP in debt. Worse than World War Two Era. And Medicare and Social Security are going to keep getting more expensive as we get older. And so, we could see really high inflation and sharp increases in interest rate and slower growth. And our national security apparatus tells us the present situation where we are so indebted to China is unsustainable.
Sarah [00:12:51] We don't spend a huge amount of money on the interest on those debts, but it's just going to keep growing and growing and growing. I mean, we're already spending more on interest than we are on programs for children. So, if that tells us anything, if budgeting is about priorities, that should tell you something. Number four, so how is this process supposed to work? Okay, in theory, we're going to set out our spending priorities in a budget, just like you would if you were running your family budget or your business budget. What's the money coming in? In the government's case, that's taxes. Versus what's the money going out, a.k.a. spending. And it was pretty simple for most of our country's history. Now, Congress has the power of the purse, but they're not going to make individual spending decisions. They're certainly not going to be in charge of that as the size of the federal government gets larger and larger. For a long time, Congress took care of it and we only really had deficits during war times, during financial crisis. However, as you move into the 20th century, we faced the Great Depression, what had been a simple process, if not fragmented, taken by Congress, really wasn't working. Congress passes the budget, an Accounting Act of 1921, which establishes the executive budget process, which pushes a lot of this process to the executive branch. The president was required to submit his budget recommendations to Congress each year. And the Bureau of the Budget, which became the Office of Management and Budget, (the OMB, which you hear a lot about) was created to assist him or her in carrying out the budget responsibilities. The 1921 Act also established the General Accounting Office, headed by the Comptroller General, which was made the principal auditing arm of the Federal government, and the GAO was recently renamed the Government Accountability Office.
Beth [00:14:43] As with so many things that influence our present politics, Richard Nixon gets involved.
Sarah [00:14:49] His name comes up so much, man.
Beth [00:14:51] Richard Nixon gets his budget. And he believes Congress has appropriated too much for certain programs. And he says, I'm just not going to spend some of this money. And at the time, it was clear that a president needed Congress's permission to spend money. It was not clear if the president had to spend the money and all of it the way Congress said. And so, Congress looks at this situation as it's making its way through the court system and decides we're not really interested in letting the Supreme Court rule on this. We are going to change this process up. And they thought the executive branch has too much budget power and we are going to pass a new law, the Congressional Budget and Impoundment Control Act of 1974. And the principal purpose was to coordinate revenue and spending decisions, which at that point were all over the place. And so, it established the CBO, the Congressional Budget Office, and directed it to provide data and analysis of the federal budget. And it really set in motion the five main steps of the federal budget process today, which we're looking at, at a very high level.
Sarah [00:16:00] Right, because it never works like this. That's going to be number five. The president submits a budget request to Congress. And just a little time out, we're setting up the president submitting his budget as the first step in the process. But in reality, months before that, all the agencies and programs within the executive branch are submitting their budget request to the White House. Then the White House puts together the document and sends that to Congress, supposedly, and usually by the first Monday in February, then the Congressional Budget Office submits economic and budget reports to congressional budget committees. And if you remember, I mean, everybody was sort of waiting with bated breath for the CBO reports on the tax cuts. They're really seen as instrumental and usually nonpartisan and putting forth what they think will happen with this legislation. The purpose of the president's budget is for the president to recommend overall fiscal policy. It shares the president's priorities for federal programs and recommendations for spending and tax policy changes.
Beth [00:17:16] And then the House and Senate go to work. In each chamber, you have hearings going on, questions being put to officials, and each chamber drafts budget resolutions. Budget resolutions are kind of, like, here are our thoughts as we go through this process. They're guidelines and they set limits on how much each committee that's going to work in a more granular way on the budget can spend or how much they can reduce revenue and bills that they're going to consider. So much goes into this process, and sometimes Congress uses a special procedure called reconciliation to think about the big picture in terms of taxes or deficit reduction or in title programs. Sometimes they're considering those automatic across the board budget cuts, sequestration. And so, they work on their individual budget resolutions. They bring them together and reconcile them. And once they have a budget resolution, they give it to the congressional committees. It is not a law that goes to the president for signature. It's just guidance and direction to those committees that go to work.
Sarah [00:18:19] So, then the House and Senate Appropriations subcommittees markup these appropriation bills, and there are usually 12 of them, and they put those together in the omnibus. Recently, when we actually had some of these appropriation bills passed, they put them together in what they called minibuses. Not all 12 together, but in different groups. Then the president signs each of these appropriation bills and the budget becomes law.
Beth [00:18:43] That is how it's supposed to go. It often does not go that way.
Sarah [00:18:48] Yeah.
Beth [00:18:49] Since the enactment of this current process in the seventies, there have been a total of 22 funding gaps in the federal budget, and 10 of those have led to federal employees being furloughed.
Sarah [00:19:03] So, you have significant shutdowns. You have the 21 day shutdown in '95 and '96 with Bill Clinton over spending cuts, the 16 day shutdown in 2013 with Barack Obama's administration over the implementation of the Affordable Care Act. Then, of course, we have the 35 day shutdown in 2018 and 2019 during the Trump administration, caused by a dispute over funding of an expansion of the border wall.
Beth [00:19:28] One other quick thing. Someone ask us if Congress actually reads these budget bills and I don't know how to answer that question except to tell you that since those 12 sets of bills are so often combined into omnibus bills or continuing resolution, omnibus or CRomnibus bills, or minibus bills, and sometimes can be actually thousands of pages long. In 2006, a watchdog group drafted the Read the Bills Act, which would require members of Congress to at least get full copies of what they are voting on. So, there you have it. We'll be back with you here on Tuesday. Until then, keep it nuanced, y'all.
[00:20:16] Pantsuit Politics is produced by Studio D Podcast Production. Alise Napp is our managing director.
Sarah [00:20:21] Maggie Penton is our community engagement manager. Dante Lima is the composer and performer of our theme music.
Beth [00:20:27] Our show is listener-supported. Special thanks to our executive producers.
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