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1 1 (August 17, 2016)

handle is hein.crs/govceur0001 and id is 1 raw text is: &~ ~ riE SE .$rCh &~ ~ ~ August 17, 2016 The Federal Budget: Understanding Fiscal Outcomes The budgetary power of Congress is a core responsibility that affects national economic conditions and future policy choices. This In Focus summarizes the role of Congress in the federal budget process, describes the key budget categories, and discusses recent budgetary trends and projections. The legislative powers of Congress over the federal budget are collectively known as the power of the purse. These powers include the ability to collect and disburse resources and to borrow from the public, and are more formally defined as spending, revenues, and debt in federal budget terminology. Spending moves resources from the government to individuals, firms, and institutions. Revenues move resources in the opposite direction. Debt results from federal government borrowing. Budget outcomes (like how much revenue is raised or outlays are spent) are often measured annually over a fiscal year, which begins October 1 and ends September 30. Federal spending is measured in two ways. Budget authority allows for federal agencies to enter into obligations. Outlays are federal funds disbursed to fulfill obligations paid by the Treasury. For example, if Congress appropriates $1 million for a program through legislation, that $1 million represents budget authority. However, no outlays occur until Treasury makes payments from the $1 million appropriated by Congress. Typically there is a lag between when budget authority is granted and when outlays occur. In some cases, appropriated funds are never disbursed. Spending programs are often split into three components in budgeting discussions. Discretionary spending refers to spending that is controlled by appropriations acts. This includes most spending for defense programs and federal agencies, and is typically approved on an annual schedule known as the budget cycle. Mandatory spending represents federal spending controlled outside of appropriations acts. Social Security, Medicare, and Medicaid spending comprise most of mandatory spending, and are not usually tied to the budget cycle. Net interest spending equals government payments on federal debt offset by interest payments received from loans and federal trust funds. The amount of federal debt and interest rates determine the size of net interest payments. Federal revenues come from individual income taxes, corporate income taxes, payroll taxes, and many other sources. Income taxes include the individual income tax, which draws from a varying percentage of personal earnings; and the corporate income tax, which draws from a percentage of C corporation profits (varying by profit level). Payroll taxes are another major source of revenue, and include matching wage taxes on employers and employees that contribute to Social Security and Medicare trust funds. The government also receives money from hundreds of other taxes, fees, and fines, including excise taxes (taxes on certain consumption), estate and gift taxes (taxes on transfers of certain property), customs duties (taxes on imports), and Federal Reserve earnings. The federal government incurs a deficit when outlays exceed revenues in a given year. If instead federal revenues exceed outlays, then the difference generated is known as a surplus. As deficits and surpluses are measured over the course of a defined period of time (the fiscal year), they are sometimes referred to as flow variables. Debt measurements may be taken at any point in time and represent the accumulation of all previous net government borrowing activity (sometimes described as stock variables). Federal debt increases when there are net budget deficits and outflows made for federal credit programs and with increases in intragovernmental debt, which is generated by trust fund surpluses. Budget surpluses, net inflows to credit programs, and decreases in intragovernmental debt reduce federal debt. Figure I. Inflation-Adjusted Federal Surpluses and Deficits, FYI 962-FY201 5 (as a % of Gross Domestic Product) Source: Office of Management and Budget, Historical Tables, Table 1.2. Figure 1 shows the inflation-adjusted federal budget outcomes from FY1962 through FY2015. From FY1962 through FY2015, federal outlays exceeded revenues by an average of 2.6% of annual gross domestic product (GDP). (When comparing deficit and debt totals over time, measuring their values as a percentage of GDP helps to account for the effects of inflation.) Over those 54 years, K~:> XC' Xi Ths~~ IW% i? ~ p\w gnom ggmm mppm qq\ a , q 'S I 11LULANUALiN,

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