How Does the U.S. Federal Government Determine Spending?

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Congress and the president of the United States work together to complete the budget of the United States government that determines federal spending for each fiscal year. The budget allocates more than $3.45 trillion (fiscal year 2010) in federal government spending.

See “How Are Your Tax Dollars Used by the Federal Government” for more information on federal spending.

The president’s part of the budget process

By law, the president must submit a proposed federal budget to Congress in February of each year, for the next fiscal year that begins on October 1. The president assembles the budget based on recommendations from federal agencies and the Office of Management and Budget (OMB).

During the previous fall, federal agencies submit budget requests to OMB with detailed program costs. OMB sends revisions back to the agencies in a process called “passback” in November or December of every year. Agencies have a short time to appeal OMB’s decisions before the final president’s budget is completed and submitted to Congress by the February deadline.

OMB prepares the budget submission for Congress as well as explanatory materials and detailed appendices that are available to the public.

Congress considers the president’s budget

Congress receives the proposed budget and first passes a budget resolution, which is a framework outlining how members of Congress will make decisions about spending and taxes. The budget resolution is based on analysis done each year in March by the Congressional Budget Office (CBO). The budget resolution identifies levels of total revenue and spending, calculates any surplus or deficit and provides spending targets for both mandatory and discretionary spending.

Mandatory spending is set

After approving the budget resolution, the House and Senate may consider legislation to change the eligibility rules or participant funding levels for mandatory programs. Mandatory spending, sometimes called “direct spending,” includes mostly entitlement programs that are funded by eligibility rules or payment rules, authorized by permanent laws. Mandatory spending is not dependent on an annual appropriations bill. Congress may change the eligibility and participant funding levels at any time.

Discretionary spending included in appropriations bills

At the same time, Congress begins consideration of the annual appropriations bills for discretionary spending. Discretionary spending is divided among twelve subject areas with appropriations bills that fall under the jurisdiction of their respective House and Senate appropriations subcommittees:

  • Agriculture

  • Commerce, Justice and Science

  • Defense

  • Energy and Water

  • Financial Services

  • Homeland Security

  • Interior and Environment

  • Labor, Health and Education

  • Legislative Branch

  • Military Construction and Veterans Affairs

  • State and Foreign Operations

  • Transportation, Housing and Urban Development

Appropriations hearings and passage by Congress

The appropriations subcommittees begin hearings in April of each year and approve appropriations bills that pass the House and Senate on a rolling basis from May to September of every year. Both the House and Senate will pass their own versions of each bill, which will then be combined in a process called conference. In conference, leaders of the House and Senate negotiate and agree on a final version for every appropriations bill, which is then approved by each chamber.

Often, conference appropriations bills are combined into an omnibus appropriations bill that includes funding for many different agencies. Some years, Congress is unable to complete work by the October 1 deadline and will pass a continuing resolution that funds the government until Congress can approve a final appropriations bill for the next fiscal year.

The president signs the budget

Once a final appropriations bill passes both the House and the Senate, the bill is sent to the president for his signature. The president may veto the bill and send it back to Congress or sign it into law. After the president’s signature, federal agencies then execute spending in their respective programs.

The Office of Management and Budget, the General Accounting Office, congressional committees and agency personnel closely monitor the budget and spending to ensure programs comply with spending limits and use funds only for the purposes authorized by Congress.

The Washington Post publishes a helpful interactive graphic that summarizes the federal budget process.

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