What is a federal budget?
For an accounting period, the budget thoroughly describes anticipated revenues and expenditures. The federal budget outlines priorities, expenditure levels, funding sources, and a strategy for administering finances.
Spending and earnings from the federal government are included in the United States federal budget.
What is a United States budget process?
Congress and the President use the United States budget process to create the federal budget. For each fiscal year, the budget estimates current-year revenues, expenditures, and projections for revenue and expenditure levels for the forthcoming fiscal year and the nine succeeding fiscal years.
Who handles the U.S. federal budget process?
The budget holder is the one who is accountable for finances and ensures that the allocated budget will be used properly. Several U.S. federal agencies act as the budget holders.
Office of Management and Budget (OMB)
Government agencies are audited, and the federal budget is administered by the Office of Management and Budget (OMB).
OMB is responsible for the following function:
- Development and implementation of a budget
- Overseeing how the government works, including how it buys things, how it spends money, and how it uses information technology
- Agency testimony, proposals for legislation, and other communications with Congress and coordination of the President’s other actions with Congress
- Clearance by agency heads of Presidential Executive Orders and memos before they can be implemented
The Congressional Budget Office (CBO)
Congress receives objective, neutral, and timely information, analysis, and estimates from the Congressional Budget Office (CBO) about federal economic and financial policies.
To help the Congressional budget process, the CBO conducts “independent studies of fiscal and economic issues.” The agency releases annual reports and cost estimates for proposed legislation without any recommendations for policy changes.
The U.S. Government Accountability Office (GAO)
The U.S. Government Accountability Office (GAO) assists Congress in fulfilling its constitutional duties and in enhancing the federal government’s efficiency and responsiveness to the American people. When it comes to government spending in general and the use of public monies in particular, the GAO is there to assist Congress in making informed judgments about the allocation of resources.
GAO works to continually enhance the Federal Government’s economy, efficiency, and effectiveness by conducting financial audits, program reviews and evaluations, analyses, legal opinions, investigations, and other services.
GAO’s mission is to ensure that the executive branch is accountable to Congress and the American people under the Constitution. The essential values of accountability, integrity, and reliability are at the heart of GAO’s dedication to good governance.
What responsibilities do OMB, CBO, and GAO share?
- CBO must reestimate the budget after OMB has submitted the President’s Budget.
- Establishing new Treasury accounts is a joint effort between the Office of Management and Budget and the Office of Management and Budget’s Fiscal Service.
- Federal financial managers rely on the Fiscal Service and the Government Accountability Office (GAO) guidelines.
- The Federal and Defense budgets are developed and analyzed by CBO and OMB, who are directly involved in these processes.
What are the four primary phases in the federal budget process?
The budget comprises a summary of revenue and expenditures for the previous fiscal year every year. The funding allows the government to decide which projects, programs, and policies to fund and implement based on available funds and economic conditions.
The four phases of the federal budget process are:
Phase 1: Budget formulation or preparation
It takes at least six months to prepare the president’s budget, 15 months to start the fiscal year, and 26 months to end it. When agencies start working on a new budget, they are already implementing the current budget and awaiting final allocations and other legislative decisions. The budget is created with uncertainty about economic conditions and congressional actions because of the extended lead times and the lack of resources for the following year.
OMB gives thorough instructions for submitting budget data and documents for the forthcoming fiscal year and nine fiscal years. The agencies identify priorities and produce budget requests sent to OMB.
OMB examiners schedule hearings or informal conversations after the Secretary transmits the budget to understand the Department’s request better. The OMB examiners offer recommendations to the OMB Director, who makes the first budget choices by late November or early December. The passback occurs when OMB returns initial budget decisions to agencies. These decisions may affect financing, program policy, and personnel.
Agencies may appeal decisions, and OMB and agencies may negotiate. The Department makes post-budget papers and special assessments after the final decisions.
Phase 2: Budget presentation and the congressional process
A budget procedure was established by the Congressional Budget and Impoundment Control Act of 1974 to help Congress coordinate its budget-related actions, such as appropriations and revenue initiatives throughout the year. A yearly concurrent budget resolution defines general budget principles and functional goals for the next five fiscal years.
Phase 3: Budget execution
That fiscal year’s appropriations act establishes the government’s financial plan. The execution and control phase is when the federal government can use the budget authority provided by appropriations.
During this phase, an agency must spend funds allocated by Congress to achieve program objectives in line with fiscal statutes, grants, and authorizing legislation. During this period, agencies will begin the budget phase.
After OMB distributes funds, the agency must distribute them following its financial control system and regulations. Principal Offices must submit an operating plan detailing the approximate dates monies will be required to the Budget Service.
Phase 4: Audit and evaluation
Individual agencies are responsible for ensuring that their responsibilities and expenditures comply with the authorizing and appropriations legislation and other laws and regulations controlling fund obligation and cost. OMB advises agencies on-budget execution. Some federal legislation also tries to improve agency financial management.
OMB examines program and financial reports and monitors agency progress. Congress monitors the executive branch through legislation, official hearings, and investigations.
Congress utilizes oversight hearings to assess a program’s efficacy and cost-effectiveness, ensure the agency carries out congressional intent, and uncover fraud and abuse.
The GAO routinely audits programs. It reports to Congress, OMB, and the agencies concerned with its conclusions.
The GAO can also settle all government accounts and give legal judgments and findings on the availability and usage of appropriated funds. Govt audit and internal control guidelines from GAO.
Two main categories of federal spending
In terms of expenditures, the federal budget is divided into two broad categories: mandatory spending and discretionary spending.
Laws dictate how the government spends its money, rather than relying on the federal budgeting process to allocate funds. For example, spending for Social Security is predicated on the program’s qualifying requirements. The annual appropriations process does not include mandatory expenditures.
Congress also sets mandatory spending, and it often lasts for years. It is mainly made up of the Social Security and Medicare programs, which provide income security and health insurance for retirees and some people with disabilities, their families, and sometimes their caregivers.
The best example of mandatory spending is the country’s smaller entitlement programs, such as:
- Unemployment benefits
- Retirement benefits for federal employees
- Student loans
- Deposit insurance
Discretionary spending is when the president requests a budget from Congress, like when he wants to buy something. It accounts for less than a third of the federal budget, while mandatory spending accounts for about two-thirds of the federal budget.
Annual appropriation acts give the Appropriations Committees in both the House of Representatives and the Senate the power to approve discretionary spending. Many federal programs and activities use this method to fund military, education, and transportation.
How does the federal budget process work?
A budget is a must for any organization. It helps to keep track of the company’s profits and expenses. It’s easier to evaluate performance when there is a predetermined goal or target to meet in the budget for the predetermined period.
It is possible to quickly take corrective action if income or expenses don’t meet the plan’s expectations. Using a budget process, the government can ensure that the federal budget is being spent and invested correctly and meets the financial goals.
Planning and forecasting, implementation, monitoring, control, and eventually evaluating the budget are all part of this process. A budget is a must for any company. It helps to keep track of the company’s profits and expenses.
Five stages of the U.S. federal budget process
Step 1: The president will request for budget
Each federal agencies and departments work with the White House’s Office of Management and Budget. The budget requests describe what each government agency’s officials believe they need to run for the year.
A budget request from the president is only a starting point. Congress then comes up with its own appropriations bills, which may or may not be similar to the president’s request. With the power to veto appropriations bills, the president wields considerable control over the budget. The next fiscal year’s budget is set once the president has signed these bills into law.
The OMB works with agencies to assemble the president’s budget request. The president’s proposal also includes desired tax regimes and revenue sources.
Step 2: The budget resolution will undergo thru the house and senate
Following the president’s budget request, the House and Senate Budget Committees develop and vote on their budget resolutions.
The budget resolution limits how much the federal government can spend on discretionary things this year. It also predicts how much tax revenue and other sources of money will be coming in.
Each house votes on its budget resolution. Then, at a joint meeting, people from both versions work out differences, which is a controversial and challenging process. It has to be voted on again in each house if they can agree on something.
Step 3: House and Senate will process the appropriation bills
Members of Congress serve on Appropriations Committees in both the House and Senate. For all federal discretionary programs, these committees are responsible for determining the exact budget authority or the amount of money spent on them.
There are 12 appropriations subcommittees in both the House and Senate Appropriations Committees. Each one of them is tasked with the creation of an appropriations measure. Committees for defense and energy and water use are in place. Each subcommittee holds a hearing to understand better how to fund government agencies and programs.
Following a budget resolution, the head of each subcommittee drafts its appropriations bill. All subcommittee members will then have the opportunity to make changes and vote on the measure. It will be up to the full Appropriations Committee to decide whether or not to bring each of the 12 proposals to them.
The larger committee can then make additional revisions and vote to submit the bill to the House or Senate for the last vote on the changes made.
Step 4: Members of Congress will then vote on appropriations bills
All 435 House members and 100 Senate members will get a chance to vote on the 12 appropriations bills following the committee’s decision.
Like budget resolutions, a conference committee convenes to resolve any disagreements between the House and Senate versions of each appropriations bill. The conference committee comes up with a reconciled interpretation of the law, which the House and Senate then vote on. This time, the two versions are the same. Appropriations bills are sent to the president for their signature after passing both houses of Congress.
Step 5: The president will sign each appropriations bill
Only after the president signs, an appropriations measure does it becomes law. After the president has signed all the appropriations bills, the budget process is over.
Congress has the option of passing a continuing resolution if the budget process isn’t finished by October 1. This way, agencies can keep getting money until the whole budget is set.
Sources of the federal budget
Congress, the White House, and most government agencies work together to create the federal budget every year. The budgeting process takes four years to establish, legislate, implement, and audit.
The federal government primarily came from taxes, fees, and other receipts from various areas of the economy. The three primary sources of the federal budget are:
Individual income tax
One of the most important sources of revenue for the federal government is income taxes paid by individual taxpayers. Taxes are progressive because the rich pay a higher percentage than middle- and low-income earners. However, this isn’t always the case due to the tax code’s complexities. In many circumstances, the wealthiest pay a lower percentage of their income in taxes than their employees.
Corporate income tax
A corporate tax, sometimes called corporation tax or company tax, is a direct tax placed on the income or capital of corporations or equivalent legal entities. Many countries have taxes like this at the national level, and there may be similar taxes at the state or local level.
United States corporations are taxed at a rate of 21% on their earnings in the United States, reduced from 35 percent by the 2017 Tax Cuts and Jobs Act.
Workers and employers both pay payroll taxes, which are determined as a percentage of the salaries paid out by companies to their employees.
On the other hand, payroll taxes are classified as trust funds rather than federal monies, as previously stated.
Except for paying for government benefits like Social Security and Medicare, trust funds can only be used for specific reasons. The Old-Age, Survivors, and Disability Insurance Program (OASDI) of the Social Security Administration was created to help the elderly and disabled avoid poverty. In the United States, Medicare is a government-run health insurance program for the elderly and those with disabilities.
Federal income tax, Social Security tax, Medicare tax, and federal unemployment tax are the four main types of payroll taxes. Payroll deductions for Social Security and Medicare taxes and national income tax contributions are mandatory for employees. Tax deductions vary depending on the employee’s withholding status, but all employees pay FICA tax at 15.3 percent of their wages. The IRS prohibits businesses from deducting the cost of federal unemployment insurance from their employees’ salaries.