Navigating the budget battles ahead

Obama's ten-year blueprint sees sharp cut in deficits, but rests on optimistic assumptions

Federal budget: Obama outlines spending priorities

Right now, Congress is working on two spending plans at once: one for the second half of the current fiscal year, which ends in September, and another one for the next fiscal year. Here's a guide to help understand the budget struggles that will intensify in the coming weeks.

To what year does President Obama's budget proposal released on Monday apply? It applies to fiscal year 2012, which starts on Oct. 1, 2011 and ends on Sept. 30, 2012.

Obama’s proposal sets a fiscal course that would reduce the budget deficit to less than three percent of gross domestic product by 2018, down from more than 10 percent of GDP in the current fiscal year.  But it is based on assumptions that are rosy at best.

He'd accomplish his projections partly by raising taxes on upper-income people, starting in 2013, which would generate more than $700 billion in tax revenues over ten years. It's highly unlikely that a Republican-controlled House would agree to do that.

Obama’s proposal also hinges on forecasts of Social Security and Medicare spending over the next ten years that are significantly more optimistic than those of the non-partisan Congressional Budget Office.

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Obama’s budget plan assumes that projected Medicare outlays over the next ten years will be nearly 16 percent lower the CBO's forecast. That's partly because he assumes the health care overhaul Congress passed last year will more effectively curb the growth in Medicare spending more than the CBO does.

Read the full budget (.pdf)

How does Obama’s budget proposal differ from the budget resolution that is usually passed by Congress? His budget proposal reflects what the executive branch thinks it needs to fund the operations of the government for the fiscal year that starts in October.

As a Congressional Research Service report put it, any president’s budget proposal “is only a request to Congress; Congress is not required to adopt his recommendations.”

Congress, in theory, will adopt its own budget blueprint, called a budget resolution. A president’s budget plan can influence congressional revenue and spending decisions even though it is not binding.

Will the amounts detailed in Obama’s budget proposal end up being the amounts of money that are actually spent in FY2012? Maybe, but not necessarily.

Former Senate Budget Committee staffer Stan Collender said, “In most years, 95 percent of what's in the president’s budget is largely non-controversial and will be approved with little change. That may be different this year on domestic appropriations if the GOP succeeds in cutting as much as it wants. But even with that, we’re probably not talking about more than a 10 percent reduction in the aggregate for these programs.”

So, what is the annual budget resolution which is usually passed by Congress? Simply put, the budget resolution is the plan for spending and revenues for the coming year. It also sets spending and revenue goals for the next five years.

In theory — and the theory has diverged from what has happened in recent years — the budget resolution provides a framework for Congress to see what it is spending the taxpayers’ money on, and how much revenue it expects to have to work with in the coming fiscal year.

When Congress adopted the current budget law in 1974, the intent was that each year Congress would agree on a big-picture budget framework before it considered new revenue or spending bills.

In theory, the budget resolution ought to be adopted by Congress in April, six months before the start of the fiscal year.

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So far we’ve been referring to a budget for fiscal year 2012. But isn’t Congress still wrestling with a budget for fiscal year 2011, which began on Oct. 1, 2010? Yes, it is. The battle over spending concerns both the current fiscal year and the next one, as well as the long term fiscal imbalances of the federal government.

Congress never enacted a budget for FY2011, so to cover the remaining months of the current fiscal year House Budget Committee Chairman Paul Ryan has proposed a plan to reduce spending by about $35 billion.

But fiscal conservatives among the House Republicans have pushed House leaders to propose cuts of about $100 billion.

The cuts would apply only to discretionary spending.

Ryan does have a plan to reduce long-term growth in Medicare spending, which has been endorsed by a prominent Democrat, former CBO chief Alice Rivlin, but House GOP leaders haven't backed it, and right now it's not slated for debate in Congress.

Why can the government still operate even though there was no budget resolution passed for this fiscal year? Because Congress approved a continuing resolution, which allows for spending to continue at prior year's levels. It expires on March 4.

Does it really matter that Congress never passed a budget resolution for the current fiscal year? “A cynic may argue that it does not matter much. A budget resolution simply sets targets for aggregate spending, receipts, and the deficit, and those targets have often been violated,” said Rudolph Penner, the former head of the CBO, and John Palmer, a budget expert at Syracuse University, in an analysis they did last October.

Vote: Does the budget take the right steps?

But, they said, the budget resolution does serve an important purpose: it “gives a sense of congressional priorities” by dividing total spending between mandatory programs such as Medicare, and discretionary programs, which must be funded by Congress every year, such as the annual budget for the Environmental Protection Agency, the Corporation for Public Broadcasting, or other agencies.

“The failure of Congress to pass a budget provides just one more indication that the congressional process is broken,” they said.

Pessimistically they added, “We have stepped backward, since Congress has not been able to pass any budget at all. Given that Congress has not been disciplined by its own rules, it is hard to imagine making any progress unless spurred by a full-blown financial crisis.”

What’s “mandatory spending” and what’s “discretionary spending” — and why do those labels matter? Mandatory spending, which includes Medicare, Social Security, Medicaid, and federal employee retirement programs, involves a binding obligation by the government to pay benefits to anyone eligible for them.

These programs are on a kind of fiscal automatic pilot. For example, almost anyone who turns 65 this year is eligible for Medicare and will get Medicare benefits.

When Medicare enrollment increased by 1.1 million people in 2009 due to those people turning age 65 or becoming disabled, it didn't require a spending bill passed by Congress to pay benefits to those new enrollees. They automatically got benefits, and spending on Medicare went up as a result.

Discretionary spending bills, by contrast, must be passed each year by Congress. It can raise or lower each year’s spending for a particular agency.

The long-term and demographic-driven nature of the mandatory programs such as Medicare creates an enormous budgeting problem. It’s easier for Congress to focus on discretionary spending since those programs must be re-funded every year.

Which is greater, mandatory or discretionary spending? Mandatory spending is more than 55 percent of all federal spending, according to the Congressional Budget Office. Mandatory spending has exceeded discretionary spending since the late 1980s.

CBO director Douglas Elmendorf said mandatory spending will keep growing in the coming decades due “in roughly equal parts” to the cost-of-living adjustments to benefit payments, increases in enrollment “largely because of the aging of the baby-boom generation” and the rising cost of medical care.

How does the budget resolution control spending — or does it not control spending? The budget resolution sets spending limits which can be enforced by killing spending bills that don’t fit within those limits.

Any member can do this by using a parliamentary device called a Budget Act point of order. This point of order may be waived only by a three-fifths vote.

But Congress sometimes finds ways around it own rules.

So the budget process isn’t working as Congress intended it to in 1974 when it passed the Budget Act.

Even in years that a budget resolution is passed, as in fiscal year 2009, there can be emergencies which trigger massive spending that the budget blueprint didn't anticipate: both the 2008 Troubled Asset Relief Program and the 2009 stimulus were enacted after the FY2009 budget resolution had been adopted.

Can the president veto the budget resolution passed by Congress? No, the budget resolution is agreed to by both houses of Congress, but is not sent to the president for his signature. But of course the president can veto individual spending bills if he thinks Congress is spending too much money, too little money, or spending it in the wrong place.

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