Federal

 

ESSAY (200-300 words): Describe the problems with the Federal budget process.

 

Mc Eachem, W.A (2009). Econ for Macroeconomics. (2010-2011 ed, pp.183-185). Mason, OH: South-Western Pub

How big is the federai
budget’ T1-*h:1:-i:::”T,ff[“J”‘Tf$::-*j]i::#

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web? ln *nul,

a sruggish economy
like an empty res-

odds with discreilonary
fr.ttilpi]:ty? How ]

fffitl *r,}-l'”t ttt” federai bud-
;”;’il” in ientit most Years’ and
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ot trre r99os? *l?: l:
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ffi”ting in theory and Practtce
The word budget derives

from

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trilli

on

means
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iiffru; mo'” ti’11

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north-

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ern Maine to southern”THJ”; i;;;h;t way to e'”tp ,h.t.ti1T:]0″, rates of geoo perH;;t*”;ts for the Year’ Here’s “l?thit:

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crsctissecl in

our focus in rhis .i,lft”,
w*i.be ci.rpi”; i3 inclucll.’ .,,,,.. , . r,

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the federat budget,’ beginning .,.-. ‘ 1Cn*gOinq{o”iailry*l in
with the budg”, pro.L,”fi’:

tl”-; e .theiiilderaibudqet Froqes$ ‘
.”,Tll3;;;i;ffiit

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look ar the source of
federai defi- e,gaticnaietordefnitspe*{ing, siTht€hql*ed:q11-:ff

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;;r-;;;*theybrieflybecame
e rru’: :” .’

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on

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Fs*e*xs

Thefederalbudgetisaplanofoutlaysandrevenuesforaspecifiedperiod’
usualiy a year’ ‘”0″‘”i

JJo” include uolt’ gou””‘ment
pxrchases and transter

Davments Exhibit ‘ ‘;fi$];]ilJ”‘a fiyi
if *”i”‘:”*?:? since re6o’ As vou

Iui., ,””, the share “t’;;;;u’;”i”c
t” 1i:”,:1ei$:i”n3::?ff1 :-i:;?l,i:*ffi’,”‘

ilil;;;lf in re6o to only
22 perce’ntli

;”;;;t care for the *in*unt outravs ano.-
,r,”,. r.,u, s,9*’ :’:;r. ff’,X1? $”fi.TJ?,::=;;;” ;i;.: ll_ll; ;.-1ffiti;:n’ff:il-‘
elderly, was introdu:”o

tt,:’:tr,:’^:’;-*”*-,
aimed primartLy

pe;ruu’ r!rr””‘

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rvrsu*u^ -‘ r = leral outiays \Tr 2oo9’

l-. .l-‘=ta.*’.* combined
for 34 percent of

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i:xlrii:il :.
Defense’s Share of Federal 0utlays Declined Since 1960 and Redistribution lncreased

10

0%

80%

60%

40%

20%

rgiil ”Jtf/ ‘5ltf ‘9t’? f$,?tf fJaRt fS9/ t9i9 t$t? t$flf Atdo A9rl AtU}9
SoURCES: Computed based an budget totals from fconornlc Bepoft af the President February 2009, Table B-80; and the Office of Manage-
ment and Budget. For the latest data, go to Percentage shares for 2009 are estimates.

For the last two decades, welfare spending, which
consists of cash and in-kind transfer payments,

has

remained relatively stable and in zoog accounted
for r4 percent of federal outlays. And, thanks to low
interest rates, interest payments on the national
debt were 7 percent of federal outiays in zoo9, down
from 15 percent as recently as 1996. So 48 percent, or
nearly half the federai budget tn zoo9, redistributed
income (Social Security, Medicare, and welfare); zz
percent went toward defense; Z percent serviced the
national debt; and the remaining 23 percent paid for
everything else in the federal budget-from environ-
mental protection to federal prisons to federal aid to
education. The federa] government has shifted the
focus from nationai defense to redistribution.

The Fresidentia| and
Congressl<>nal RoEes
The president’s budget proposai begins to take shape
a year before it is submitted to Congress, with each
agency preparing a budget request. In late January
or early February the president submits to

Congress

budget resolution
a congressicnal agree-
men! ab*ut tatal out”
Iays. spendi,]g by mefor
cetegory” and expeeted
revenues: it guides
spending and revenue
decisions by the many
congressional commit-
tees and subcon:nrittees

The Budget of the United States
Government, a big pile of books
detailing spending and reve-
nue proposals for the upcom-
ing fiscal year, which begins
October r. At this stage, the
president’s budget is little
more than detailed sugges-
tions for congressional consid-
eration. About the same time,

the president’s Council
of Economic Advisors
sends Congress the
Economic Report of the
President, which offers
the president’s take on
the economy.

Budget commit-
tees in both the House
and the Senate rework
the president’s budget
until they agree on
total outlays, spend-
ing by major category
and expected reve-
nues. This agreement,
called a budget resolu-
tion, guides spending
and revenue decisions
made by the many
congressional com-
mittees and subcom-

mittees. The budget cycie is supposed to end before
October r, the start ofthe new fiscal year. Before that
date, Congress should have approved detailed plans
for outlays along with revenue projections. Thus, the
federal budget has a congressional gestation period
of about nine months-though, as noted, the presi-
dent’s budget usually begins taking shape a year
before it’s submitted to Congress.

The size and composition of the budget and the
difference between outlays and revenues measure
the budget’s fisca1 impact on the economy. When
outlays exceed revenues, the budget is in de-fcit. A deficit
stimulates aggregate demand in the short run but reduces
national saving, which in the long run could impede eco’
nomic growth. Alternatively, when revenues exceed. out-
lays, the federal budget is in surplus. A surplus dampens
aggregate demand in the short run but boosts domestic
saving, which in the long run could promate economic
growth.

Frsblems larith the Federel
Budget Froeess
The federal budget process sounds good on paper,
but it does not work that well in practice. There are
several problems.

Continu ing Resolutions
lnstead of Budget Decisions

Congress often ignores the timetable for develop-
ing and approving a budget. Because deadiines are
frequently missed, budgets lgpically run from year

0%

144 PART 3 Fiscaj ariii ivioretary Policy

to year based on continuing
resolutions, which are
agreements to aliow agen-
cies, in the absence of an

* :l1% overlyDetaired
, ‘ t l l.( )ri rrl.i: .?.’.l9g”gtL\r:r, – ”rr\tll-l\ 1 r—i-^r j.

approved budget, to sPend at

the rate of the Previous Year’s
budget. PoorlY conceived Pro-
grams continue through sheer

The federal budget is
divided into thousands of
accounts and subaccounts’
which is whY it fills voiumes’
To the extent that the budget
is a waY of making Political
payoffs, such micromanage-
ment ailows elected officials
to reward friends and Punish
enemies with great Preclslon’

expand. On occasion, the President
must temporarilY shut down some
agencies because not even the continu-

irig resoiution can be approved on time-‘

Foi example, in late 1995 and early i996′

most federal offices closed for z7 days’

!g.l.qtf v. Ps9 gsl
P,’gq9?P

You can imagine the difficuity of using

the budget “i ”
tool of discretionarY fis

.

ry.e. I e”p”e lPJe. kPi:31 .?=q f,
gst

inertia; successful programs cannot

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F

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I

For examPle, a recent bud-
get included $176,ooo for the Reindeer

ierders Association in Alaska, $4oo’ooo
for the Southside Sportsman Club in
New York, and $S million for an insect-

rearing facility in Mississippi’ By bud-
geting in such detail, Congress *1I Jot”

cal poliJy when the budget process takes.

t” fi”g. Ci r”n that the “””t”gu
recession lasts only

io *oirftt and that budget preparations begin more
iir””

”
y”tt and a haifbefore the budget takes effect’

pl”””i”g discretionary fiscal measures to reduce

“.ono*i.
fluctuations is difficult’ That’s one reason

*fly u,r”*pts to stimulate an ailing economy often
,””‘* ,o haUhearted; by the time Congress and the
president agree on a fistai remedy, the economy

has

often recovered on its own’

“V”l e.g.!Irg I le F !e.
H s 9.g.el.

r”en :.
”

. .

Congress has oniy limlted control over much of
the

U”Ji*. Abovt tht;e-fourths of federal budget outlays are
deteiminedbyexisting lau;s’ For example’ once

Congress

establishes eiigibility criteria, etrtitiement prc
gre’ms’

such as Social iecurity, Medicare, and Medicaid’
take

onlivesoftheirown,witheachannualappropriation
ri*pfy reflecting the amount required to support the

“rpeciua
number of entitled beneficiaries’ Congress

tru, tto say in such appropriations unless it chooses
to change benefits o;;ligibility criteria’ Most entitle-
ment piograms have such politically powerful con-

stituencies that Congress is reluctant to mess with

the structure.

sight of the 6ig pi-.t.,t”‘ When economic
conditions

.n'””g”
“t

*h”ilift” demand for certain public goods
shifts] the federal government cannot easily

real-

io.”,” funds. oetaiied budgeting is not only time
consuming, it reduces the flexibility of discretionary

fisca1 poliry and is subject to political abuse’

FossEb&e Eudget Refsrms
Some reforms might improve the budget

process’ First’

ii.”
“”””rr

budgel could become a two-yearbudget’
or

ii^”:”tbudget.is it is, Congress spends near$ all
of

;;; ;;;.;”;king on the budget’ rhe executive
branch

;;#”yt dealiniwith three budgets: ad-rninistering an
;;;;”h ilJg”l, a”ru”aing a proposed budgetbefore
congessior.al committees, and preparing

the next

budlet for submission to Congress’ With-.a
two-year

budget, Congress would not bL continually
involved

;j,liildg”, l”tiu”t”,io”s, and cabinet members could
focus more on runnlng their agencies (many

states

have adoptea two-yeaibudgets)’ A two-year
budget’

Congress approves a single budget that mixes
capital

“tpJnaitrrr”i,
tii.” new iederal buildings or aircraft

.”iti”tt, with operating expenditures’ like employee
payroils or military meals’ Budgets for businesses

“r.t
fot state and local governments usually distin-

gulst] uet*een a capital budgeland an operatingbudget’

ihe federal government, by mixing the two’ offers a

fuzzier picture of what’s going on’

however, would require lon-
ger-term economic forecasts
and would be less usefui than

a one-Year budget as a tool of

discretionary fi scal Poliry’
Another Possible reform

would be to simPlifY the
budget document bY con-
centrating onlY on major
groupings and eliminating
line items. Each agencY head

would receive a total budget,

along with the discretion
to allocate that budget in a

coniinuing
resolutrons
h*dget agree$le*ts that
allow ageneies” in tlr*
a!:sence o{ ** eg:Proved
bilclget, tc cpend at
ih€ i6t€ *f the Previous
Vear’s budaet

entitiernent
programs
suaraEteed benetits tor
i”,*se who qrialilY for
fioverntnant iransier
irogru*u sq’lclr as social
5*euritY *nri fdedirare

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