Introduction
Many individuals most likely assume that Congress, like a family, sits down yearly, takes an accounting of how a lot cash is more likely to are available in, after which determines how a lot cash it will probably afford to spend. This may need been how Congress used to function and the way the federal finances is meant to work on paper. In apply, nonetheless, Congressional budgeting works a lot otherwise.
At its core, a finances — whether or not for a family or a authorities — is an acknowledgement that the need to spend cash exceeds the power to spend it. This distinction necessitates prioritizing some spending whereas setting different issues apart. Nevertheless, whereas a household can settle budgetary questions on the dinner desk, Washington makes use of a year-long relay race involving the White Home, greater than 20 committees, and each chambers of Congress, every of which has its personal set of deadlines, procedural guidelines, and incentives.
This explainer will lay out the federal finances relay race course of. It examines the method that takes a proposed spending plan from a wishlist to an precise verify whereas working underneath guidelines designed to maintain complete spending in line.
The federal finances course of is ruled primarily by the Finances and Accounting Act of 1921 and the Congressional Finances and Impoundment Management Act of 1974. This explainer summarizes a very powerful elements of these legal guidelines. Some particulars are left apart for sake of brevity. For a extra full model of this course of and its nuances, see Allen Schick’s The Federal Finances: Politics, Coverage, Course of.
Step One: The President Asks
The finances course of begins about 18 months earlier than the finances takes impact. As an illustration, this explainer was written in the summertime of 2026. At that time, the finances course of for FY2028 — which begins on October 1, 2027 — is already underway. Every spring, the Workplace of Administration and Finances (OMB), in its capability because the President’s in-house finances lab, sends planning tips to federal companies. These tips lay out the administration’s priorities and supply path as to what it hopes to perform. The companies then construct their particular requests round these tips and ship them to OMB within the fall, a couple of 12 months earlier than the finances takes impact.
OMB then begins a “fall evaluation,” assembling every company’s requests and evaluating them with the President’s priorities and the sources more likely to be accessible. Companies can contest OMB’s selections about their requests, however in the end the President should submit the administration’s finances request to Congress no later than the primary Monday in February(about seven months earlier than the finances will go into impact), when the President should ship the completed finances proposal to Congress. In 2026, for instance, President Trump didn’t submit his FY2027 finances request till April, a full seven weeks later, inflicting controversy.
At this level, the President’s finances proposal is simply that: a proposal. It lays out the administration’s priorities and supplies an in depth plan for a way the federal government intends to allocate sources. However per Article 1, Part 8 of the Structure, Congress holds the last word energy of the purse. The President’s finances proposal shouldn’t be legally binding; it’s little greater than
Step Two: Congress Writes the Blueprint
As soon as the President’s finances request arrives, the Home and Senate Finances Committees start their work. The Congressional Finances Workplace(CBO) is given a possibility to weigh in with its personal evaluation of the financial outlook to Congressional finances committees by mid-February. The committees with spending jurisdiction then submit their very own “views and estimates” inside six weeks.
The Finances Committees are presupposed to report a finances decision by April 1, with Congress required to finish the passage of there answer by April 15. Once more, these dates are all set out in legislation. Nevertheless, Congress has solely met these deadlines 4 instances because the passage of the Congressional Finances and Impoundment Management Act of 1974: 1977, 1989, 1995, and 1997.
The finances decision is a blueprint outlined by two options. First, it’s a concurrent decision, which signifies that each chambers of Congress should conform to the identical model. As a result of it’s a decision somewhat than a legislation, nonetheless, it doesn’t require the President’s signature. It is usually vital to notice that the finances decision, by itself, doesn’t spend any cash. As an alternative, it creates a framework for subsequent spending, income, and different budget-related laws.
Second, the finances decision works in combination phrases somewhat than programmatically. It units complete spending and income targets for the approaching decade, divides spending throughout roughly 20 totally different classes, and lays out 4 required totals: income, spending, the ensuing deficit or surplus, and public debt. The decision might also embrace reconciliation directions, which direct committees to develop laws to deliver spending or income into line with the finances’s targets.
Right here, it’s price mentioning some specific quirks to this course of which might be distinctive to the US Senate. After the Senate’s Finances Committee stories the decision to the total Senate, a debate interval begins. Beneath Senate guidelines, debate is restricted to 50 hours. Senators can supply amendments throughout this era which might be germane to the decision, which signifies that they’ll strike a provision or change a quantity or date however can not add unrelated matters. On the finish of this debate interval, the Senate holds a rapid-fire sequence of modification votes, colloquially generally known as “vote-a-rama.” These votes are “up or down,” that means that the Senators both approve the amendments as written or they don’t. This course of can generally go by way of the night time.
The reconciliation directions enable for a course of generally known as “finances reconciliation.” Beneath these guidelines, Senate committees can draft laws that brings spending or income into line with the budgetresolution’s targets. That laws then strikes on to the Senate ground, that means it doesn’t require the standard 60-vote cloture and could be handed with a easy majority.
This makes finances reconciliation a robust legislative instrument. As a result of reconciliation laws can go the Senate with a easy majority, the Senate has positioned limits on what it will probably include by way of the Byrd Rule, which permits the generally maligned Senate Parliamentarian to advise the presiding officer to strike any provision deemed“extraneous” to the finances. The One Huge Stunning Invoice Act, for instance, was handed utilizing finances reconciliation.
Lastly, as soon as the Home and Senate go similar language, Congress has accomplished the finances decision. Evaluating this to a family, Congress has now created the equal of a spreadsheet that accommodates broad spending classes like “trip fund” and “housemaintenance/repairs,” together with the quantities it plans to allocate to every. It has not approved the federal government to chop checks. The finances decision supplies the framework; the spending payments come subsequent.
Step Three: The Appropriators Start Their Work
The place the decision determines how a lot cash will probably be spent in service of broad classes, the Appropriations Committees decide how a lot cash will probably be allotted to particular tasks inside these classes. To do that, they divide the work amongst their varied subcommittees, every of which has jurisdiction over specific features of the federal government. In each the Senate and the Home there are twelve such subcommittees. Every writes a spending invoice for its space, topic to the spending limits established by Congress.
At this stage, two distinctions can confuse even cautious observers. The primary is between authorizing and appropriating. An authorization invoice creates or continues a program. Typically, an authorization invoice will include a greenback quantity. Nevertheless, authorization payments don’t really present cash to spend. An appropriations invoice does that. A program can due to this fact be absolutely approved however nonetheless unfunded, which is why a program could be on the books however concurrently starved of money.
The second distinction is between common appropriations and supplemental appropriations. Common appropriations present funding for the upcoming fiscal 12 months and have to be enacted by October 1 when the fiscal 12 months begins.
If Congress misses that deadline, it will probably go a seamless decision to quickly lengthen the prior 12 months’s funding ranges till the brand new, common appropriation invoice is handed. If Congress fails to go a seamless decision, affected companies could shut down. Supplemental appropriations present further funding for wants that come up throughout a fiscal 12 months, equivalent to catastrophe aid, and don’t have any fastened deadline.
The ultimate level is that the appropriations committees solely management what is called discretionary spending. For FY2025, discretionary spending totaled $1.9 trillion, which is about 27 % of the overall finances that 12 months. Non-discretionary spending totaled about $5.1 trillion and consists of necessary spending on applications equivalent to Social Safety, Medicare, and Medicaid, in addition to internet curiosity funds on the nationwide debt.
In different phrases, most federal spending isn’t really on the desk for dialogue. It’s ruled by current federal legislation.
Financing the Spending
Spending cash is one facet of the federal finances. However the place does the federal authorities get the cash that it really spends? The Treasury supplies the next determine to assist visualize the place federal income comes from.
Determine 1
The majority of federal income comes from two sources: particular person earnings taxes ($2.66 trillion for FY2025) and Social Safety and Medicare taxes($1.75 trillion). All instructed, for FY2025, the federal authorities collected $5.23 trillion in income. Their spending for that 12 months was $7.01 trillion. This raises the plain query: in a world the place spending exceeds revenues, how does Congress cowl the distinction?
When federal spending exceeds income, the Treasury should borrow cash. How a lot cash they’re allowed to borrow is decided by what is called the debt restrict.
The debt restrict is a comparatively fashionable invention. On the founding, the Structure did give Congress the ability of the purse, nevertheless it didn’t create a standing line of credit score for the federal government to attract upon. When the federal government needed to borrow, even to finance main tasks just like the Louisiana Buy or the Panama Canal, Congress needed to authorize these money owed by way of “project-specific debt authorization.”
Through the First World Warfare, Congress wanted to lift cash rapidly and repeatedly. Discovering project-by-project authorization too sluggish and cumbersome, Congress handed the Second Liberty Bond Act of 1917. This legislation established the combination “debt restrict” of $11.5 billion. Reasonably than having to approve every debt by itself phrases and weigh particular person borrowing selections, Congress successfully set an general ceiling and let the Treasury borrow as much as it as wanted. What started as non permanent wartime flexibility turned the everlasting car for federal borrowing.
The debt restrict doesn’t authorize spending or create any applications. It merely permits the Treasury to concern debt to finance spending approved and appropriated by Congress. As a result of the federal government runs a deficit in practically yearly, its collected debt routinely approaches the debt restrict. Then Congress should both 1) elevate the restrict, 2) quickly droop the restrict, or 3) renege on spending commitments it has already made.
The debt restrict capabilities just like the credit score restrict on the federal government’s bank card. In contrast to a private bank card’s spending restrict, nonetheless, Congress’s debt restrict is completely self-determined. Congress can, and does, elevate the debt restrict.
Persevering with Resolutions and Shutdowns
What occurs if Congress doesn’t enact its common appropriations payments by October 1? On this state of affairs, Congress can go a “Persevering with Decision” (CR), primarily giving itself extra time to go common appropriations payments whereas persevering with to fund the federal government at beforehand agreed-upon ranges. If it can not go a CR, then the affected companies enter right into a “authorities shutdown.”
The federal government shutdown is a surprisingly current creation. Two authorized developments produced it. As beforehand talked about, the 1974 Finances Act created the deadlines Congress is meant to satisfy. The second is a1980 opinion by Lawyer Basic Benjamin Civiletti deciphering the Antideficiency Act.
The Antideficiency Act forbids federal companies from spending or obligating cash that Congress has not appropriated. The unique intent of the legislation was to resolve a unique downside. Companies would ceaselessly spend their whole annual budgets within the early months of the 12 months, thereby making a “coercive deficit,” compelling Congress to both acceptable extra funds or watch important capabilities, equivalent to nationwide protection, shut down as a result of lack of funds.
Previous to 1980, companies would deal with a lapse in appropriations as a technicality and hold working on the idea that Congress would ultimately backfill the cash they wanted. Civiletti’s opinion was that the Antideficiency Act meant that when appropriations lapsed, affected companies are prohibited from persevering with non-essential operations and from incurring new obligations with out a authorized or emergency exemption that claims in any other case. In different phrases, a statute initially written to maintain the chief department from overspending turned the mechanism behind the trendy shutdown.
“Authorities shutdowns” didn’t exist previous to 1980, at the very least not within the fashionable sense. This helps clarify why a big majority of federal spending continues even throughout a shutdown: most federal spending is “necessary” and runs on everlasting legislation somewhat than annual appropriations. Social Safety, Medicare, and curiosity on the debt, for instance, are all paid with out interruption throughout a shutdown.
Equally, capabilities which might be deemed important, equivalent to the majority of nationwide protection, proceed working. Non-essential discretionary actions — nationwide parks, the Smithsonian, and elements of civilian companies — all ship their employees house.
Frequent shutdown drama outcomes from a deeper behavior: Congress’s reliance on stopgap funding. Since 1977, the primary 12 months that the Finances Act of 1974 took impact, Congress has handed greater than 200 persevering with resolutions as an alternative of finishing appropriations payments. The Authorities Accountability Workplace has documented the uncertainty and inefficiency this creates for the companies that should function underneath them, together with delayed hiring and duplicated contracting work, in the end costing taxpayers extra money in the long term. The funding struggle provides each events a possibility to lift cash, mobilize supporters, and vilify the opposite aspect, which is, partly, why spending deadlines so ceaselessly turn into political crises.
Is the Finances Course of Nonetheless Working?
This explainer highlights the large hole between how the finances course of is meant to work and the way it really works. On paper, the method is obvious and orderly. The President submits a proposal, the Finances Committees set the totals, and the Appropriations Committees divide the cash amongst particular applications. Express statutory deadlines ought to hold all the things transferring towards an October 1 end line. Sadly, Congress has reached that end line on schedule solely 4 instances since 1974.
The hole between what’s “on paper” and what occurs “in apply” reveals {that a} deadline carrying no penalty for lacking it’s little greater than a suggestion. A borrowing restrict that the identical physique can elevate each time it turns into inconvenient solely restrains that physique for so long as it desires to be restrained.
Then there may be the matter of the proportion of discretionary spending relative to necessary spending. The annual struggle towards the tip of the fiscal 12 months, full with shutdown deadlines and dueling press conferences, issues solely a couple of quarter of federal authorities spending. The remainder, equivalent to entitlement applications and curiosity funds on the debt, lies fully outdoors this course of underneath everlasting legislation and isn’t mentioned.
What needs to be clear from this explainer is that federal budgeting is a way more difficult activity than family budgeting. This complication shouldn’t be as a result of sum of money being spent, however stems from the method of figuring out how a lot cash to spend, on which particular tasks, and when. When policymakers declare to have handed a finances, or, extra generally, a seamless decision, that is actually simply the beginning of a protracted course of.
The federal finances course of is elaborate in its design, improvisational in its implementation, and largely silent about a lot of the cash Congress spends. Understanding this course of helps make clear the fiscal dysfunctions that come from Washington.
