Federal Budget – At a Glance
The federal budget process is a structured sequence through which the U.S. government plans its annual spending and revenue collection. This process involves multiple steps and key players, including the president, Congress, and various federal agencies.
Five Major Steps of the Federal Budget
Understanding this process is crucial for citizens who wish to engage with and influence how public funds are allocated and spent.
Federal Budget – Quick Facts
The federal budget is the government’s official financial plan for a fiscal year. It details how much money the government expects to collect—mainly through income, corporate, and payroll taxes—and how that money will be spent. It includes funding for national defense, public health, education, infrastructure, welfare programs, and interest on the national debt. It also sets the economic priorities for the country and reflects the administration’s policy goals.
Just like a household or business, the government needs a budget to plan and control its spending. A budget helps set priorities, avoid waste, maintain services, and promote long-term economic health. It also prevents agencies from spending without congressional approval, ensuring transparency and accountability. Without it, the government risks overspending, underfunding critical areas, or even shutting down.
The budget is a collaborative process involving both the executive and legislative branches. It begins with the President, who submits a budget proposal, but Congress has the final say. The Office of Management and Budget (OMB) helps the President develop the proposal, while Congress (especially the House and Senate Budget and Appropriations Committees) drafts and passes the actual laws that determine federal spending.
The federal budget is developed annually, but the process spans over a year. The new fiscal year begins on October 1 and ends on September 30 of the next year. Some elements of the budget—like mandatory spending—are on autopilot and only updated occasionally, while discretionary spending is debated and approved each year.
Each year, usually by the first Monday in February, the President submits a detailed budget request to Congress. This proposal outlines funding priorities, tax policies, economic assumptions, and any new programs the administration wants to introduce. While Congress is not required to adopt the President’s budget, it serves as a powerful guide for legislative negotiations.
Congress has the ultimate authority to tax and spend. It reviews the President’s proposal, then drafts a budget resolution that sets overall spending limits. From there, congressional committees write appropriations bills that decide how much each department and program receives. Congress must approve these bills and send them to the President to be signed into law.
These committees are responsible for drafting the annual budget resolution. They examine the president’s proposal, hold hearings, and produce a framework that outlines total federal spending, revenue levels, and the deficit. The resolution doesn’t fund specific programs but sets the stage for the appropriations process.
The “power of the purse” refers to Congress’s constitutional authority to control federal spending. Article I, Section 9 of the U.S. Constitution states that no money can be drawn from the Treasury without a law passed by Congress. In practice, this means the House of Representatives initiates spending bills, and both chambers must agree before any funds are released.
1. President’s Budget Request – Sent to Congress by early February.
2. Congressional Budget Resolution – Sets overall spending and revenue targets.
3. Appropriations Process – 12 subcommittees draft funding bills by sector (e.g., defense, education).
4. Passage by House and Senate – Each chamber votes on the bills.
5. Reconciliation and Signature – Differences are resolved, and the final bills are sent to the President to be signed into law.
If Congress doesn’t pass all necessary funding bills by October 1, the government risks a shutdown—a temporary halt to non-essential federal operations. To prevent this, Congress often passes a Continuing Resolution (CR), which keeps the government funded at existing levels for a short time while negotiations continue.
A Continuing Resolution (CR) is a temporary law passed by Congress that maintains funding for federal agencies at the previous year’s levels when the full budget has not been enacted in time. It’s a stopgap measure to avoid government shutdowns, though it often delays new projects or program changes.
Read more about a Continuing Resolution
Mandatory Spending is set by existing laws and doesn’t require annual approval. It includes programs like Social Security, Medicare, and Medicaid.
Discretionary Spending is decided annually through the appropriations process. It includes defense, education, infrastructure, scientific research, and environmental programs.
Entitlement programs guarantee benefits to individuals who meet specific eligibility requirements. These programs—like Social Security and Medicare—are funded mainly through payroll taxes and operate outside the annual budget cycle. Congress must change the underlying laws to alter these programs.
Appropriations bills are the laws that allow federal agencies to spend money. There are 12 regular appropriations bills, each covering a different area of government (e.g., defense, agriculture, health). These bills must be passed by both chambers and signed by the President before funds can be spent.
An omnibus bill is a large legislative package that combines multiple appropriations bills—or other legislative measures—into one vote. It’s often used to speed up the process near deadlines but can reduce transparency and make it harder to hold lawmakers accountable for individual provisions.
Read more about an omnibus bill.
Reconciliation is a powerful legislative tool that allows certain budget-related bills (typically involving taxes, spending, or the debt limit) to pass the Senate with a simple majority—bypassing the 60-vote filibuster rule. It’s used for major reforms like the Affordable Care Act and the Trump-era tax cuts but is limited to provisions that directly affect the federal budget.
The CBO is a nonpartisan agency that provides economic forecasts, cost estimates of legislation, and analysis of budget proposals. Lawmakers rely on CBO “scores” to understand how a bill would affect the federal deficit, debt, and economy.
Even with a budget, the government can run a deficit if spending exceeds revenue. These yearly deficits add up over time to create the national debt. Contributing factors include tax cuts, increased military spending, rising healthcare costs, and interest on previous debt.
The budget process involves hundreds of agencies, trillions of dollars, multiple committees, two chambers of Congress, and political negotiation. It balances short-term needs with long-term goals, while also navigating legal, economic, and political constraints.
Shutdowns occur when Congress fails to pass funding bills or CRs by the fiscal deadline. Agencies must stop all non-essential services, affecting national parks, passport services, research grants, and federal employee pay.
Disagreements over taxes, defense, social programs, and the size of government often lead to gridlock. With polarization, even routine budget decisions can become political standoffs, especially when tied to broader policy debates or election-year dynamics.
The federal budget impacts everything from the roads you drive on to the air you breathe, your access to healthcare, education grants, and more. It also affects the economy, job creation, inflation, and the national debt, which can influence interest rates and long-term fiscal health.
Absolutely. Citizens can advocate for specific priorities by voting, contacting their representatives, participating in public forums, and supporting advocacy organizations. Lawmakers pay attention to constituents’ views, especially when issues are communicated clearly and consistently.