The U.S. Federal Budget Process

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The annual federal budget process begins the first Monday in February of each year and should be concluded by October 1, the start of the new Federal Fiscal Year. The ideals of democracy envision that the federal budget, like all aspects of the federal government, will speak to the needs and beliefs of the majority Americans. Clearly, that is a difficult standard to live up to, especially when it comes to spending nearly four trillion of those Americans’ dollars.

To say the least, the federal budget is complicated, with many forces affecting it. There are laws controlling some aspects of the budget process, while other less well-defined influences, like those of the president, Congress, and the often-partisan political system play key roles in deciding how much of your money is spent on what.

Over the years of government shutdowns, threats of government shutdowns, and last-minute resolutions passed by Congress to keep the government running, Americans have learned the hard way that the budget process actually operates in a far from perfect world.

In a perfect world, however, the annual federal budget process begins in February, ends in October and goes like this:

The President Submits a Budget Proposal to Congress

In the first step of the annual U.S. federal budget process, the President of the United States formulates and submits a budget request for the upcoming fiscal year to Congress.

Under the Budget and Accounting Act of 1921, the president is required to submit his or her proposed budget to Congress for each government fiscal year, the 12-month period beginning on October 1 and ending on September 30 of the next calendar year. Current federal budget law requires the president to submit the budget proposal budget between the first Monday in January and the first Monday in February. Typically, the president’s budget is submitted during the first week of February. However, especially in years when the new, incoming president belongs to a different party than the former president, submittal of the budget may be delayed.

While the formulation of the president’s annual budget proposal takes several months, the Congressional Budget and Impoundment Control Act of 1974 (the Budget Act) requires that it be presented to Congress on or before the first Monday in February.

In formulating the budget request, the president is assisted by the Office of Management and Budget (OMB), a major, independent part of the Executive Office of the President. The president’s budget proposals, as well as the final approved budget, are posted on the OMB website.

Based on the input of the federal agencies, the president's budget proposal projects estimated spending, revenue, and borrowing levels broken down by functional categories for the coming fiscal year to start on October 1.The president’s budget proposal includes volumes of information prepared by the president intended to convince Congress that the president’s spending priorities and amounts are justified. In addition, each federal executive branch agency and independent agency includes its own funding request and supporting information. All of these documents are also posted on the OMB website.

The president's budget proposal includes a suggested level of funding for each Cabinet-level agency and all programs currently administered by them.

The president's budget proposal serves as a "starting point" for the Congress to consider. Congress is under no obligation to adopt all or any of the President's budget and often makes significant changes. However, since the President must ultimately approve all future bills they might pass, Congress is often reluctant to completely ignore the spending priorities of the President's budget.

House and Senate Budget Committees Report the Budget Resolution

The Congressional Budget Act requires passage of an annual "Congressional Budget Resolution", a concurrent resolution passed in identical form by both House and Senate, but not requiring the President's signature. 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 becomes the most time-consuming step in the budget process.

Both the House and Senate Budget Committees hold hearings on the annual Budget Resolution. The committees seek testimony from presidential administration officials, Members of Congress and expert witnesses. Based on testimony and their deliberations, each committee writes or "marks-up" its respective version of the Budget Resolution.

The Budget Committees are required to present or "report" their final Budget Resolution for consideration by the full House and Senate by April 1.

What is Budget Reconciliation?

Created by the Congressional Budget Act of 1974, budget reconciliation allows for expedited consideration of certain tax, spending, and debt-limit legislation. In the Senate, bills considered under the rules of reconciliation may not be filibustered and the scope of proposed amendments is strictly limited. Reconciliation offers a great advantage for passing controversial budget and tax measures.

1980 marked the first year the process became available to lawmakers. In 1981, Congress used reconciliation to pass several of President Ronald Reagan’s controversial government spending cuts. Throughout the rest of the 1980s and 1990s, several deficit-reduction bills used reconciliation, as well as welfare reform in 1996. Reconciliation continues to be used in Congress to this day for the passage of certain budget-related bills, though often not without serious debate over what can and cannot be included.

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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Longley, Robert. "The U.S. Federal Budget Process." ThoughtCo, Oct. 8, 2021, Longley, Robert. (2021, October 8). The U.S. Federal Budget Process. Retrieved from Longley, Robert. "The U.S. Federal Budget Process." ThoughtCo. (accessed April 1, 2023).