HYGO News Understanding the Federal Budget Process
Understanding the Federal Budget Process
Every year, the federal government spends trillions of dollars. Where that money comes from and how it gets allocated is determined through a structured process that involves the President, Congress, and dozens of committees and agencies. This guide explains how the federal budget works, from the President’s initial proposal through final appropriation.
The Basics
The federal fiscal year runs from October 1 through September 30. The budget process for each fiscal year ideally begins more than a year in advance, though Congress frequently misses its own deadlines [1].
The Constitution gives Congress the sole authority to appropriate money: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law” (Article I, Section 9). This means the President can request funding, but only Congress can authorize spending [2].
Types of Federal Spending
Federal spending falls into three categories:
| Category | Share of Budget | How It Is Funded |
|---|---|---|
| Mandatory spending | ~60-65% | Authorized by permanent law (no annual vote) |
| Discretionary spending | ~25-30% | Requires annual appropriations by Congress |
| Interest on the debt | ~8-12% | Determined by debt level and interest rates |
Mandatory Spending
Programs like Social Security, Medicare, Medicaid, and veterans’ benefits are funded by permanent statutes. Spending levels are determined by eligibility rules and benefit formulas, not annual votes. Changing mandatory spending requires changing the underlying law.
Discretionary Spending
Everything Congress votes on annually: defense, education, transportation, scientific research, foreign aid, federal agencies, and thousands of other programs. This is the spending that the annual budget process directly controls.
Interest on the Debt
The government must pay interest on the national debt. This amount is determined by the total debt outstanding and prevailing interest rates. It is not discretionary; it is an obligation.
The Budget Process: Step by Step
Step 1: President’s Budget Request (February)
The President submits a budget proposal to Congress on the first Monday of February. The Office of Management and Budget (OMB) prepares this document, which details the administration’s spending priorities, revenue projections, and policy proposals for the upcoming fiscal year [3].
The President’s budget is a request, not a mandate. Congress frequently ignores large portions of it. However, it frames the starting point for budget negotiations and signals the administration’s priorities.
Step 2: Congressional Budget Resolution (March-April)
The House and Senate Budget Committees each draft a budget resolution, a non-binding framework that sets total spending levels and revenue targets. Unlike regular legislation, the budget resolution:
- Does not require the President’s signature
- Is not a law
- Sets spending ceilings that guide the appropriations process
- Can include reconciliation instructions that allow certain tax and spending changes to pass the Senate with a simple majority (51 votes) rather than the usual 60
If the House and Senate pass different resolutions, a conference committee reconciles them [4].
Step 3: Appropriations Process (April-September)
This is where the actual spending decisions are made. The Appropriations Committees in the House and Senate divide the discretionary spending allocation into 12 subcommittee jurisdictions:
| Subcommittee | Covers |
|---|---|
| Defense | Department of Defense |
| Labor-HHS-Education | Health, education, labor programs |
| Homeland Security | DHS, border security, FEMA |
| Commerce-Justice-Science | DOJ, FBI, NASA, NSF |
| Agriculture | USDA, FDA, food programs |
| Energy-Water | DOE, Army Corps of Engineers |
| Interior-Environment | DOI, EPA, Forest Service |
| Financial Services | Treasury, IRS, judiciary, DC |
| Military Construction-VA | Military bases, Veterans Affairs |
| State-Foreign Operations | State Department, foreign aid |
| Transportation-HUD | DOT, HUD, FAA |
| Legislative Branch | Congress, Library of Congress, GAO |
Each subcommittee holds hearings, marks up its bill, and sends it to the full committee, then to the chamber floor for a vote.
Step 4: Conference and Resolution (September-October)
If the House and Senate pass different versions of an appropriations bill, a conference committee negotiates a compromise. Both chambers then vote on the conference report.
Step 5: Presidential Action
The President signs or vetoes the final appropriations bills. A veto sends the bill back to Congress, which can override with a two-thirds vote in both chambers.
When the Process Breaks Down
The budget process frequently fails to meet its deadlines. When appropriations bills are not enacted by October 1:
Continuing Resolutions (CRs)
Congress passes a continuing resolution that temporarily funds the government at previous-year levels. CRs can last weeks or months and are a routine part of the modern budget process [5].
Government Shutdowns
If Congress fails to pass either appropriations bills or a continuing resolution, federal funding lapses and a government shutdown begins. Non-essential federal employees are furloughed, and many government services are suspended.
Notable shutdowns:
- 2018-2019: 35 days (longest in history), triggered by a dispute over border wall funding
- 2013: 16 days, triggered by a dispute over the Affordable Care Act
Essential services (military, law enforcement, air traffic control) continue during shutdowns, but employees work without pay until funding is restored.
Debt Ceiling
Separate from the budget process, Congress must periodically raise the debt ceiling, the statutory limit on how much the government can borrow. Failure to raise it could result in a default on government obligations. Debt ceiling negotiations frequently become political leverage points.
Revenue: Where the Money Comes From
| Source | Share of Federal Revenue |
|---|---|
| Individual income taxes | ~50% |
| Payroll taxes (Social Security, Medicare) | ~35% |
| Corporate income taxes | ~9% |
| Excise taxes, customs, other | ~6% |
The IRS, a bureau of the Department of the Treasury, administers the collection of federal taxes. Tax policy is set by Congress through legislation.
The Deficit and National Debt
When the government spends more than it collects in revenue in a given year, the difference is the budget deficit. The accumulated total of all past deficits (minus surpluses) is the national debt.
The budget has been in deficit in most years since 1970. The last surplus occurred in fiscal years 1998-2001. The national debt has grown substantially, driven by tax cuts, spending increases, and emergency spending during economic crises.
Why It Matters
The federal budget determines:
- How much the military spends and where
- Funding levels for Social Security, Medicare, and Medicaid
- Investment in infrastructure, education, and scientific research
- The size of the federal workforce and the scope of government services
- Tax policy that affects every American
Congressional committees with jurisdiction over these areas shape policy through the budget process. Understanding how the process works is essential to understanding how policy decisions are made.
Key Takeaways
- Only Congress can appropriate federal funds; the President’s budget is a request, not a mandate
- Mandatory spending (Social Security, Medicare) makes up the majority of the budget and does not require annual votes
- Discretionary spending is controlled through 12 annual appropriations bills
- The process frequently breaks down, resulting in continuing resolutions or government shutdowns
- Revenue comes primarily from individual income taxes and payroll taxes
Next Steps
- Understand the broader government structure with our three branches guide
- Learn how laws are shaped in our congressional committees explainer
- Explore the agencies that execute the budget in our government agencies guide
Sources
[1] USA.gov, “The federal budget process,” usa.gov/federal-budget-process
[2] Congress.gov, “Introduction to the Federal Budget Process (R46240),” congress.gov
[3] Center on Budget and Policy Priorities, “Introduction to the Federal Budget Process,” cbpp.org
[4] House Committee on Appropriations, “The Appropriations Committee: Authority, Process, and Impact,” appropriations.house.gov
[5] Committee for a Responsible Federal Budget, “Appropriations 101,” crfb.org
This article is a factual reference guide to the federal budget process. It does not express political opinions or endorse any party, candidate, or policy position.