Skip to content

Understanding the Federal Budget

Share this Story on Facebook, X, Text, LinkedIn, Gmail, Yahoo Mail, or Outlook

The president released his budget submission to Congress and there will be plenty of heat surrounding it but not nearly enough light. There will be loud talking about budget cuts that hurt the poor, the sick, the elderly, children, and so on but what does that really mean? In reality, such claims will not mean nearly as much as the torrent of news stories scream. Let’s take a quick look.

The president has not submitted “the budget” to Congress. 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 year ahead. Congress produces the actual budget. The Budget Resolution adopted by Congress is not a law signed by the president but a resolution by Congress about how it will spend the people’s taxes in the coming fiscal year. It is a blueprint for the annual appropriations that Congress will pass later in the year to fund things like the military, transportation infrastructure, NASA, the judicial system, and a host of other things.

The Budget Resolution 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. Social Security, Medicare, Medicaid, Obamacare, and interest payments on the debt are the elements driving federal spending. In fact, interest payments on the debt are growing so quickly that within a few years the U.S. will spend more on interest payments to service our debt than we spend on national defense. If that doesn’t scare you, it should.

So what about those scary cuts to Medicaid and food stamps the media keep screaming about? They are not cuts in the sense that most people would understand a “cut”. The president’s budget proposal suggests that Congress pass legislation to slow the growth of spending on Medicaid and food stamps. In Washington the budget assumes that every program will grow by a certain amount every year. In other words, the budget rules presume that the budget will always grow and if it does not grow as much as assumed, that is a cut. In the real world, a budget cut means that less money is spent this year than last. In Washington, if we spent $100 last year, the budget rules assume the spending will grow to $106 next year. If we only spend $103, Washington calls that a cut. In the real world it is a spending increase.

The federal government will still spend more than $4 trillion, the largest amount ever. The so-called cuts which are only a slowing in growth is what all the wailing and gnashing of teeth is really about and this is only the first word in the budget conversation, not the last. Stay tuned because the actual budget is still far from set.

E-Mail this author.

Share this Story on Facebook, X, Text, LinkedIn, Gmail, Yahoo Mail, or Outlook

Join Our Email List

Sign me up for:
This field is for validation purposes and should be left unchanged.