Image: House Budget Committee Chairman Paul Ryan
Brendan Smialowski  /  Getty Images file
Budget Committee Chairman Paul Ryan, R-Wisc., is the Republicans' leader on spending and tax questions.
By Tom Curry National affairs writer
msnbc.com
updated 2/14/2011 1:04:59 PM ET 2011-02-14T18:04:59

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.

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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.”

Interactive: Federal budget (on this page)

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.”

Reaction to Obama's budget

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.

Video: Cracks Over Debt Ceiling (on this page)

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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Video: Sen. on debt: “We've never been at this level before”

  1. Closed captioning of: Sen. on debt: “We've never been at this level before”

    >> many who ran vowing to cut federal spending, ohio director office of management under president bush , this was once your job to send a budget to capitol hill . i want to start with what it doesn't do. the president has chosen not to address the elephant in the room . titlement, social security , medicaid and medicare in this budget . republicans are not offering solution there is either. are both parties missing the boat?

    >> you talked earlier about this budget saving $1.1 trillion over 10 years and stated that this year's deficit is $1.6 trillion. clearly this does not rise to the challenge we face on three 41s one is annual spending and the second is the entitlements and it's over 60% of the budget now. it's not addressed. third is pro growth policies to help us to grow the economy and bring in additional revenues.

    >> senator, i know earlier to our colleagues, you criticized the president for not showing leadership on this and said if he comes forward, you will come forward. if the message was okay, republicans, it's your turn to come forward, why not you guys come to the table with a plan on entitlements now as well. if you say the president is not leading, then lead.

    >> republicans are leading. kelly did a report talking about this year's spending this is not what's going to happen in 10 years. let's have reductions right now.

    >> this is not entitlements? let's be real about this. a huge part of the budget --

    >> it's leadership. on the entitlement programs , i believe that. the fiscal commission that the president used as a way to say let's not make the tough choices, the commission comes out with specific recommendations on the entitlement side. five of the six senators on the commission supported including all the republicans. what happened is the president said we will reject the recommendations from the commission

    >> let me stop you there. the house budget committee chairman on that fiscal commission did not endorse the plan. at the end of the day , that is one of the reason yes this plan is considered politically doa. the senators agree, but house republicans

    >> why did he not support the plan? because it didn't go far enough and didn't address the health care challenges. not because it went too far, but it didn't go far enough. that's the dynamic. people are ready to make tough choices. the voters have spoken about two things one is they need to get the spending under control and need to working to o to address the problems. it takes presidential leadership and always has to deal with the programs and social security and with regard to medicare and health care . we need leadership there as well. i believe the commission is a good example. paul ryan 's commission didn't go far enough. he said it was in terms of health care . republicans are ready to talk about the issues, but the president in this budget missed an opportunity to do so.

    >> senator, setting aside the blame game and you were the budget directionor. you understand this probably better than most. if you can wave a magic wand , what would you advise on the issue of entitlements, would you raise the retirement age?

    >> dihave the job of budget director and that budget did include changes in medicare including means testing. that is not in the budget this year. admittedly, the deficit was $160 billion so we were in better shape.

    >> we didn't have a recession so the tax receipts were up and it's the hugest driver.

    >> we had a stronger economy and more spending restraints because we didn't see what we saw. a 24% increase in the discretionary spending that the president is talking about freezing. it was a different environment, but we did present entitlement change that is the congress did not accept. this is what is required now. the president needs to show leadership. he made a big point about our fiscal problem and has been eloquent about describing the problem ands his solution is not up to the challenge. we are looking for the president to match his rhetoric on the seriousness of our crisis and the solutions that really work. you don't see this. you talked about this in terms of the next 10 years, $1.1 trillion, a third of which is tax increases. it doesn't come close to meeting the challenge. it's less than 10% of the additional debt accumulated in that time period.

    >> is your experience as budget director, how often does the budget become law?

    >> actually most of it does. about 80% of the budget will become law, but it's the 20% that matters. what we are looking at is not a typical year. we are looking at a challenge we never faced before. the biggest deficit in the history of our country. it's $120 billion more this year than we heard from congressional budget office a few weeks ago. we have debts we never have been at this level before we are looking over the next 10 years to be at 100% of our economy. this is a situation that cries out for leadership and requires leadership on both sides of the aisle. this is the president's opportunity. this is his vision for the next 10 years and frankly is doesn't rise to the challenge.

    >> rob portman , former budget director. we appreciate your perspective.

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