Federal Budget Spending

Before we get down to studying the Federal Budget spending it seems reasonable, from my point of view, to cover the whole process of Federal budget first and to make it clear what is Federal budget, how it works in practice and who are those legal powers who create it and control its implementation.

To start with, originally all principles for tax development and laws under which spending is guided were stipulated by the Congressional Budget Act passed in 1974. The cornerstone of that Act is the liability laid on the Congress to develop yearly a “budget resolution” under which limits on spending and on tax cuts are set (1, 2005).

Hence, the process of the federal budget in brief includes the following steps: it starts with the President’s request that is followed by the budget resolution, then the latter is enforced by the floor of the House and Senate and afterwards the so-called “budget reconciliation” procedure will follow, which is aimed at facilitating ratification of documents concerning spending and taxes.

Under more scrutiny, the first stage takes place on Monday of the second month of the current fiscal year (February) when the President submits to Congress a thoroughly drawn budget request for the next fiscal year, which starts on October 1 (1, 2005). This budget request is significant on the ground of three main functions it establishes.

First of all it gives instructions to the Congress on how much money should be allocated for public services, how much should be collected in the form of taxes as well as establishes the threshold to the surplus or deficit which is, in fact, a difference between two previous amounts. Second, the budget request highlights the President’s

Second, the budget request lays out the President’s preferences in spending, in other words, which fields of industry will get more funding and be more showered money upon (the priority list of the federal programs may include defense, education, agriculture, health, etc.). Furthermore, in general those priorities along with fiscal policy in a whole are set for the long-term period, let us say five years or even more.

And third, the main role of the submitted budget lies in indicating some recommendations and possible reforms and changes from the President’s side. Theoretically, the President does not have to do this as the most part of the budget is governed by some permanent legislation (this refers to the two-thirds of spending and including the three largest entitlement programs such as Medicare, Medicaid, and Social Security) (1, 2005).

Nevertheless, there is one point, which has to be requested by the head of the state, and this is funding for the ‘discretionary programs’ (by this term programs which are under jurisdiction of the House and Senate are denoted). All these programs are reviewed annually and decision id made on how much is needed for their operating next year. As examples of such programs one may name defense sector, education and so on. Simple calculation shows that such discretionary programs make up one third of the budget and spending for each of them is recommended by the President.

The above-mentioned second stage of the federal budget process, namely its resolution is carried out by the Congress as a consequence of its hearings. The main bodies entitled to draw the budget resolution are the House and Senate Budget Committees. Further, the resolution document can be amended and is passed by the majority of voices on the House and Senate floor. Note that in theory the resolution is to be ratified until April 15 but in fact it takes longer and sometimes it is not passed at all. In this case the previous resolution remains in force.

Probably, one would become interested in how does this resolution look like and the answer is rather simple as well as the document itself. It comprises a set of numbers that relate correspondingly to spending in 20 different categories (better known as “budget functions”) and to sum total of all revenue the government expects to collect within the period of the next several years.

Finally, the last stage of the budget is called budget reconciliation and its major purpose is to promote passing deficit-reducing legislation. What is more, reconciliation has either been employed twice during the Bush Administration (in years of 2001 and 2003) as a mechanism intended for not only facilitating deficit reducing but also passing tax-cutting legislation. Admittedly, a piece of such legislation is called ‘reconciliation bill’ that generally includes multiple provisions all of which affect the federal budget (1, 2005). Recently the Congress adopted the Deficit Reduction Act that contains $53.9 billion in budget savings during the next five years and is aimed at reducing the deficit (2, 2005). The budget savings are a part of the four-point plan to compensate for hurricane recovery and to reduce total spending (3, 2005).

The main feature of the current budget is that it shows the return of the federal deficit and hence the government is opposed to new challenges. The possible reason for such decline in economy and complicacy of the problem is that some of the introduced by President Bush tax cuts are impermanent and are likely to expire in the nearest future. For instance, the federal estate tax is being gradually reduced until the moment it disappears entirely in 2010 and obviously will return at its old level in 2011 unless the Congress votes again to remove it (4, 2005). Now comes the issue whether such deficit can be beneficial or whether it can have only pitiful consequences. Here one should note and distinguish between the budget deficit (the surplus of spending costs over the revenue for the given fiscal year) and the national debt (the total amount the government has borrowed (4, 2005).

According to the first group of economists budget deficits can be positive and used for good. When skillfully managed they can boost the economy because additional spending will for sure create some new working places and lowering the unemployment level in the country will simultaneously increase production and reduce its cost.

However, their opponents argue that surpluses and deficits mean little in such a huge economy. In addition, the administration points out that the current deficit totals to only 1.9 percent of the total economy (4, 2005).

Yet according to another economic thought borrowing money will sooner or later lead to the government raising interest rates and, thus, increasing the cost of such services as car loans and home mortgages. Furthermore, long-term deficits reduce the government’s ability to create new programs and adequately respond to new circumstances (4, 2005).

Each year since 1969, Congress has spent more money than received and had to borrow them. Hence, the total debt is now about $8,000,000,000,000 and it continues to grow.

And in the light of the above situation probably the only silver lining to hurricanes Katrina and Rita was the debate they opened concerning excessive federal spending (5, 2005). They proved that instead of saving money for the rainy day (which unfortunately have become rather numerous recently both literally and figuratively) the government wasted money on constructing cloud-castles and trying to realize most absurd and unfeasible plans. Hence as it appeared in media: “when Congress tried to pile Katrina-related spending on top of everything else, it turned out to be the proverbial last straw and sparked an overdue backlash” (5, 2005).

Nevertheless, according to the survey results, most Americans still pay more attention to what the government does rather than focus on how much he spends. Moreover, respondents stressed that there are much more significant issues than attempts to balance the budget among which are terrorism, the economy, education, Social Security and health care (5, 2005). The common belief is that in the long run President Bush’s tax cuts will help the economy to get out of the scrap.

However, I hold the view that the issue of budget spending should not be set aside because without any doubt the ways our government is trying to make for the improperly spent money will influence life of every U.S. citizen and the state of our economy in a whole.

And the primary soft spots are domestic discretionary programs. Though they have contributed little to the increase of deficit (increases in domestic discretionary programs represent only 7 percent whereas tax cuts constitute nearly half 48 percent of the cost of legislation that has increased the deficit since 2001) but the Administration’s budget calls for $214 billion in reductions over five years in domestic programs (6, 2005).

Another interesting thing is that for some incomprehensible reason the budget for the new fiscal year fails to provide figures for funding individual programs for years after 2006.  Such omission of information is of great importance as we may expect even deeper cuts in discretionary programs (to start with, it has been already notified and stipulated in the budget that in 2006 the budget would decrease funding for domestic discretionary programs by 5 percent). Eventually, by 2010 these cuts would reach 16 percent and this is not the superior limit.

With regard to the analysis conducted by the Center on Budget and Policy Priorities during which unpublished backup budget documents were examined, in 2010 the overall cuts in domestic appropriations would reach $66 billion — or 16 percent (in comparison to the current funding levels). Researchers also indicate the following cuts and their scope for the major discretionary programs:

To cut the long story short, the Administration uses unfair methods to hide its ulterior motives and by keeping information in secret or omitting it in significant documents keep the public ignorant of all the changes which are pending for us in the future.

Instead of cutting down funding of domestic discretionary programs the Administration would have better search for other ways out of this crisis situation.

President George W. Bush has promised to halve the budget deficit by the year of 2009. Nobody would argue that this is quite a praiseworthy goal, but to achieve it one would have also to come to terms with the fact that deficit is only the top of the iceberg. The real problem, which lies at the heart of it, is withdrawal of funds from the private sector and their unprofitable investment into less paying government sector. Therefore, the best and the only, from my standpoint, way to reduce the budget deficit is to cut excessive spending.

For example, the Congress could follow such five steps: freezing non-defense discretion­ary spending through 2009, capping farm subsidies for wealthy farmers, reducing the Medicaid growth rate to 5 percent, replacing the Medicare drug bene­fit with the drug card, and reducing entitlement spending by 3 per­cent by targeting waste, fraud, and abuse (7, 2005).

Of course, these reforms will not be easy to implement, as they will always affect some fields and people involved. After all those vain endeavors to find easy and simple ways out it is high time we resorted to some stronger and tougher measures.

First of all non-defense discretion­ary spending should be freezed in order to give the budgets opportunity to equalize. This does not mean that all programs should be treated equally and some of them should be given higher priority over the others and their funding should be quite to the contrary increased.

Second, as the largest US welfare program is connected with farming and two-thirds of all farm subsidies are distributed to the wealthiest 10 percent of farmers (7, 2005). However, obviously they hide most of their revenue and take advantage of existing governmental programs in accordance to which some of them are paid for producing more and at lower prices and others are paid for producing less and at higher prices. Thus, the government has found itself in a vicious circle and the only solution is to reduce farm subsidy cap from $360,000 to $250,000 (as was proposed by President George W. Bush) and even go further appointing a minimum income of 185 percent of the federal poverty level to every farmer and elaborate crop insurance (7, 2005).

Third, it is reasonable to cut Medicaid expenditure or at least combat power abuse within the framework of this third largest medical organization in the country (I mean fraud, abuse, whatever). Reducing its budget would enable the government to count (and spend) money in a more effective way and prompt to looking for some new methods of providing poor families with health care services.

Fourth, Medicare drug benefit is completely unaffordable and it is currently projected to cost $720 billion over the next decade (7, 2005). Therefore, an alternative way should be found. For instance, Medicare Discount Drug Card Program that was specially created to assist elderly people and to be a good analogue to the drug benefit. The pros of this card are that it provides discount or additional money for seniors to cover cost of drugs.

And the last but probably the most important step is to combat waste, fraud, and abuse. Yet in the 1980s, the Grace Commission focused attention on the vast amount of waste littered across government, such as the Department of Defense’s $640 toilet seat and $436 hammer (7, 2005). Besides, all necessary information is always at the government’s disposal (hundreds of GAO reports, general reports, and the Government Performance and Results Act reports are the evidence  (7, 2005).

To sum up, cutting spending is an arduous task but if we do not want our kids to continue paying interest for our debts we have to take some drastic measures and execute reforms in different sectors of the national economy in complex in order to get better results. Saving money has never been a vice and it is high time the Administration learned how to do it rather than spending taxpayers’ money.

In conclusion, the process of budget spending is rather intricate and difficult. However, the main indicator of the countries welfare is the level of deficit (which is a difference between spending and return). The return of the federal deficit is the main feature of this year’s budget and thus the government is opposed to new challenges. As the possible reason for such economic decline some researchers name the impermanent character of the tax cuts introduced by President Bush.

It is still a contradictory issue whether budget deficits can be beneficial or whether they do only harm.  But I share the view of those who considers that government should take swift and tough measures to reduce deficit. And here at hands is the process of budget reconciliation which major purpose is to promote passing deficit-reducing legislation. In fact, reconciliation has been either employed twice during the Bush Administration as a mechanism for passing tax-cutting legislation but its major function is of more interest.

Recently the Congress adopted the Deficit Reduction Act that contains $53.9 billion in budget savings during the next five years and is aimed at reducing the deficit. Such savings are a part of the four-point plan to compensate for hurricane recovery and to reduce total spending.

However, to my opinion the measures should be taken in complex and refer to all sectors of economy as obviously deficit is only the top of the iceberg and there are some more difficult and deep-rooted problems.

As an alternative to onset on domestic discretionary programs and reduction of their budget I suggest the Congress follow such five steps: freezing non-defense discretion­ary spending through 2009, capping farm subsidies for wealthy farmers, reducing the Medicaid growth rate to 5 percent, replacing the Medicare drug bene­fit with the drug card, and reducing entitlement spending by 3 per­cent by targeting waste, fraud, and abuse. These are not only mere words and they are based on results of research conducted by economists and taken from reliable sources.

We have to take care of our country now and make budget less expensive but more effective, otherwise our next generations will have to return our debts.

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