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Understanding the Federal Budget: Part II

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In response to the president’s budget submission in May, the House Budget Committee has produced the 2018 Budget Resolution and reported it to the full U.S. House of Representatives.  This is the second step in producing the annual budget for the federal government and it reveals not only the spending priorities of the majority party but also lays out key tax policy.

What the president submitted to Congress in May was not “the budget” but a series of recommendations and ideas that Congress is free to use or ignore, and most often Congress ignores large swaths of what the president seeks in that budget plan.  Under the Budget Act of 1974 the president is required to provide his ideas for where he would like the budget to go.  It is the start of a conversation about spending priorities for the federal government for the fiscal year ahead.  Congress produces the actual budget.  Of critical importance to the president’s agenda, the House Budget Committee’s plan includes reconciliation instructions for the tax-writing Committee on Ways and Means to change the tax laws to reduce the tax rates on individuals and businesses.  The Constitution requires all tax legislation to originate in the House of Representatives.

In most years the budget is produced under the timeline set forth in the 1974 Budget Act.  According to the law, the president is supposed to provide his submission in February.  The House then begins reviewing the president’s submission and begins holding hearings on the various provisions.  The Senate follows suit and the House usually passes its version of the Budget Resolution in mid-March.  The Senate normally follows shortly thereafter and a conference committee between the House and the Senate works out any differences. The whole process is supposed to be completed by April 15 so that the Appropriations Committees of the House and Senate, which actually produce the annual spending bills that fund a significant portion of the government, can proceed with their work within the adopted budgetary framework.

The Budget Resolution actually only covers about one-third of federal spending.  The annual budget does not set funding levels for Social Security, Medicare, Medicaid, Obamacare, or the growing interest payments on our massive federal debt, which together make up a bit more than two-thirds of federal spending.  These programs are not subject to the budget.  They are referred to as “entitlements” because the law says if one meets certain criteria, he is entitled to the benefit regardless of the annual cost.  
As is often the case of the first presidential budget submission in a new administration, this one was quite late and the Congress is far behind where the Budget Act says the work should be completed.  However, the timing of adopting the Budget Resolution is critical this year in a way it often is not.   The current Fiscal Year 2017 Budget Resolution contained reconciliation instructions dealing with the repealing and replacing of the Affordable Care Act (ACA), also known as Obamacare.  There has been some speculation about the effect it would have on those instructions if a new budget with a new and different set of reconciliation instructions was passed before Congress completes action on the old instructions.  Many voices in the media have questioned why Congress has not taken up tax reform but at least part of the answer lies in the unfinished work on the ACA-related reconciliation instructions.

In the case of tax reductions or health care reform, the reconciliation instructions are crucial to the passage of the legislation.  Under the terms of the Budget Act, legislation considered as part of budget reconciliation is not subject to filibuster and therefore can pass in the Senate with a bare majority of fifty-one votes rather than the sixty needed if the filibuster is exercised.  The timing of the 2018 Budget Resolution has been handled judiciously, at least in part, to make sure the repeal and replacement instructions under the 2017 Budget Resolution are not called into question.

This story is just beginning to unfold with action pending on the ACA, the need for Senate action on the 2018 Budget Resolution, and the end of the fiscal year, September 30, rapidly approaching, which means the need for fresh appropriations to keep the government operating.  Federal spending is also approaching the legal debt ceiling and action will have to be taken to prevent exceeding that limit.  Stay tuned, the action is just starting.

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