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American Politics:
©Marc A. Triebwasser


The Budgetary Process

The Federal Budget and Impoundment Act of 1974 had many far-reaching effects in the way of budget reform. Throughout most of our national history, there has been no official budget of the UnitedStates whatsoever. When money had been needed, tax acts were passed; and when programs needed funding, appropriations acts were passed individually. Practically no attention was paid in general to the overall effect of either money-raising or money-spending bills.

If it turned out that more money was being spent than being raised, a budget deficit existed. However, the situation with the federal government with regard to budget deficits is quite different from that of individuals, corporations, or local or state governments. Since the federal government has the power to print money, when a deficit existed Congress could in effect pass legislation allowing money to be printed and spent even though sufficient funds were not being raised to cover these expenses. This extra money spent by the federal government is known as the public debt, and today this debt is more than four trillion dollars. Isn't it nice to be able to print money whenever you need it. You do not need to ask Mom or Dad, or your boss for a raise!

As we have noted, originally all money matters were handled in the House by the Ways and Means Committee and in the Senate by the Finance Committee. As the activities of these committees became too great, however, they were split up. In this way, money-raising matters are handled by the House Ways and Means Committee and the Senate Finance Committee, but money-spending matters are now handled separately by the House and Senate Appropriations Committees.

For a long time, there was no coordination of the federal budget in the Executive Branch either. However, as we shall see later, during this century presidents have begun to attempt to coordinate the federal budget through what was originally called the Bureau of the Budget. Under Nixon, this agency was transformed into a more powerful Office of Management and Budget. Through the use of this executive agency and through the preparation of annual presidential budget messages delivered to Congress, it was hoped that the budgetary process would be made at least somewhat more rational.

However, even if a President issued a well conceived overall federal budget and sent it on to Congress, up until 1974 Congress had no functioning mechanism for acting on this budget as a whole. Congress would simply take the total presidential budget and break it down into individual taxation and appropriations bills which would be discussed and voted on separately by the appropriate committees involved, without any serious effort at coordination.

Another interesting aspect of the lack of coordination in the fund-raising and fund-spending activities of the federal government involves the differences in the calendars according to which money is spent and raised. In the federal government money is raised according to a calendar year for taxation which begins on January 1 and ends on December 31. On the other hand, money is spent according to the fiscal year which used to begin on July 1 and end the next June 30. (It still does so for most states, but no longer for the federal government.) Since the time period according to which money is spent and that according to which money is raised differ, accounting and planning become more difficult.

In order to understand better how appropriated funds were being spent Congress had established its own agency, the General Accounting Office (GAO). As we have discussed, the major purpose of the GAO is to audit the spending of money by executive agencies, and to issue reports about the effectiveness with which federal money is being spent. This is, however, an after-the-fact operation. In no way does the GAO have the responsibility or authority to help plan the federal budget.

Congress had been aware of these problems of coordination for some time. Immediately after the Second World War, there was a great deal of reorganization within the Executive Branch in order that it be able to administer more effectively those programs which had evolved during the Great Depression and the Second World War. Congress, for its part, did pass an omnibus act in the late 1940s which was supposed to call for the establishment of a congressional budget. However, in subsequent years, Congress failed to carry out the provisions of this act. No budgetary resolutions were passed. And after a number of years, the whole idea was dropped. In many ways, the Federal Budget Act passed in1974 was a more effective reincarnation of this earlier attempt at congressional budget-making. It did set up a new and somewhat more coordinated budgetary process.

The Congressional Budget Committees (BCs)

Since there already existed within Congress four prestigious committees with budget-making authority--the House Ways and Means Committee, the Senate Finance Committee, the House Appropriations Committee, and the Senate Appropriations Committee--it was politically impossible to abolish these and establish entirely new committees with overall budgetary responsibilities. Instead two new committees were established by this act--one in each chamber--which interfaced with these already existing committees. These two new committees were known as the House Budget Committee and the Senate Budget Committee, respectively. The role of these committees is to establish budget resolutions placing ceilings on the amounts of funds spent in general budgetary areas and floors on the amounts of revenues raised. It was left totally to the discretion of the Appropriations Committees in each chamber to decide how specific programs within these broad budgetary categories would be funded. Similarly, the House Ways and Means Committee and the Senate Finance Committee were left with the responsibility and power to decide how the funds called for by the budget resolutions would actually be raised.

The roles which the House Budget Committee and the Senate Budget Committee have played since the passage of the 1974 Budget Act have differed markedly. This is due mainly to the difference in size of each chamber of Congress and to the importance which representatives and senators respectively place on committee assignments. As we have discussed, because there are 435 members in the House and only 100 members in the Senate, representatives tend to serve on fewer committees than do senators. They therefore tend to place a great deal more importance on the jurisdiction of those committees in which they participate than do members of the Senate. This difference is especially true with regard to the more powerful committees of either body.

Since the House Ways and Means Committee and the House Appropriations Committee are among the most prestigious committees in the House, it was particularly difficult to create a new committee in that chamber which might interfere with the powers and jurisdiction of these two powerful committees.

As a result, the actual activities of both committees in their respective chambers have differed significantly. In the House, the Budget Committee has tended to be extremely deferential to the wishes of the Ways and Means and Appropriations committees, tending to take few stands independent of House Leadership. As a result of all this, the actions of the House Budget Committee have tended to reflect a general partisan split between the Democratic and Republicans membership of the House.

The Senate Budget Committee, on the other hand, has pursued a far more independent role. It has often challenged positions of both the Senate Finance Committee and the Senate Appropriations Committee, as well as of Senate leadership. Its actions have also tended to be far more bipartisan--that is, independent of Republican or Democratic designation--as is true of the Senate in general.

The Congressional Budget Office (CBO)

In order to supply information upon which the Congressional Budget Committees could act and also potentially to supply some coordination of congressional budgetary activities, a Congressional Budget Office (CBO) was also established by the 1974 Budget Act. The exact role that this congressional agency was to play presented a major issue in the passage of the 1974 Act. Members of the Senate, placing somewhat less emphasis on the jurisdictions of the committees within that chamber, envisioned the Congressional Budget Office as having far more authority and were willing to give it a larger degree of administrative freedom and initiative than were members of the House. Many in the Senate saw the Congressional Budget Office (CBO) as the congressional equivalent of the Office of Management and Budget (OMB) in the Executive Branch. Members of the House, on the other hand, were far more concerned with maintaining as much authority as possible within the long-established House Ways and Means and House Appropriations Committees. The House, therefore, saw the CBO simply as research staff for the Congressional Budget Committees, with no authority to initiate suggestions regarding the federal budget. After much dispute, a compromise was worked out between the House and the Senate with regard to the powers, staffing, and funding of the CBO. The debate involved in the establishment of the CBO reflects a general tendency for Senate committees to rely more heavily on staff than do House committees.

Budget Resolutions

The main procedural tool for budgetary reform in the 1974 Budget Act was the adoption of the overall congressional budget resolution. The Budget Committees in each chamber report a concurrent resolution on the budget to their respective chambers early in the year. After this, the appropriations and fund-raising committees in each chamber pass various pieces of legislation, generally in line with the budget resolution. By September 15, Congress is supposed to complete action on reconciliation legislation. The purpose of this reconciliation legislation is to bring the various revenue and appropriations bills in line with the budget resolution. On October 1 (now nine months out of line with the fund-raising calendar year) the new fiscal (spending) year begins  . . . hopefully!

Continuing Resolutions and Their Political Implications

More often than not, Congress does not complete its action on the budget on time. October 1 comes around and there is no budget in place for the new fiscal year. At this point the government technically has no money with which to function, and must shut down. To avoid this, Congress tries to pass a continuing resolution. According to this resolution the government will function for a certain period of time in the new fiscal year according to the previous year's budget.

The passage of a continuing resolution, however, often presents difficult political problems. In recent decades, we have often had a president of one party while the majority in Congress is of the other party. In these cases, Congress and the President often have different budgetary priorities. One may prefer more spending on social services and the other might prefer more military spending, for example. At times, differences between this year's budget and last year's budget can reflect differences in priorities. For this and other reasons, the President and Congress often differ on whether a continuing resolution should be adopted and how long it should authorize the government's functioning on last year's budget.

If Congress and the President cannot agree on a continuing resolution, then the government is forced to shut down. This does not mean that the government will immediately stop functioning completely; it does mean, however, that some services directly affecting the public will halt immediately. Such government shutdowns have occurred several times in the last few decades. On of the most notable of these was in 1995 when a Republican Congress, largely under the leadership of Speaker Newt Gingrich, was at loggerheads with Democratic President Bill Clinton over the budget. This battle caused the government to shut down just around Christmas time. This prevented many holiday vacationers from visiting our national monuments in Washington, DC, as well as our national parks. The public tended to blame the Republican Congress for this shut down, and their reaction was reflected in the Republicans losing seats in Congress in the midterm election of 1998.

The Budget Deficit

While reforms in congressional budget making during the 1970s were taken to create a more centralized and coordinated process, the reforms of the 1980s were aimed at reducing an ever growing federal budget deficit. As a result of President Johnson's War on Poverty programs, the Vietnam War, and the poor economy which followed that war, the federal debt had grown to several hundred billion dollars. This began to cause concern in some circles, and one of the issues on which Ronald Reagan campaigned for President in 1980 was that of a balanced budget.

Ironically, the actions that Reagan took as President made the budgetary situation far worse than it had been. In 1981, he pushed through one of the biggest tax cuts in the nation's history--one mainly benefitting the wealthy. Later during his presidency, he dramatically increased military spending with the introduction of his Star Wars program. This program, officially known as the Strategic Defense Initiative (SDI), was supposed to shield the United States from a nuclear attack by the Soviet Union. However, most scientists said this goal could not be achieved. In any event, the combined effect of both of these actions left the federal debt at something like three-and-a- half trillion dollars by the end of Reagan's administration.

Alarmed by extremely large federal deficits and a rapidly increasing federal debt, Congress sought to curb federal spending. However, this proved to be well near impossible. Most representatives and senators receive financial backing from various economic special interest groups in terms of campaign finance. These special interest groups are specifically interested in seeing that certain specific federal programs and tax breaks are maintained which benefit them. Thus, although representatives and senators are interested in seeing the federal budget cut in general, they do not want to see cuts in their particular area of interest. This makes budget cutting almost impossible. In view of this, a rather draconian plan was adopted in 1985, officially known as the Balanced Budget and Emergency Deficit Control Act. This bipartisan measure was sponsored by Senators Gramm (R, TX), Rudman (R, NH), and Hollings (D, SC), and was popularly known as Gramm-Rudman-Hollings (or GRH). It called for across the board budget cuts if the budget did not attain the deficit reduction goals being called for a--process is known as sequestration. Since this process did not single out any one program, most senators and representatives could go all with it, at least theoretically.

Although this measure was challenged in the courts, a subsequent version did pass constitutional muster. A later budget reform intended to reduce the deficit introduced the concept of PAY-GO--a pay-as-you-go system. According to this system, if you introduce a new government program, you have to state where the money for the program will come from. Usually, this means cutting other similar already-existing programs. This, of course, severely cut down on the introduction of new programs.

Largely because of a very expanded economy in the 1990s, budget deficits have been eliminated recently, and we in fact are now projecting several year's of budget surpluses. However, many major budgetary problems still remain, including the need to protect the solvency of Social Security and Medicare.
 
 

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