What's Going On With the Federal Budget?
The Supercommittee's recommendations -- assuming they are adopted into law -- won't go into effect until fiscal year 2013, (which begins Oct. 1, 2012). Currently, we're winding down fiscal year 2011. So what about fiscal year 2012, that begins a month from now?
The Obama administration has proposed a budget for fiscal 2012 that the president says will put "the nation on a path to live within our means so we can invest in our future -- by cutting wasteful spending and making tough choices on some things we cannot afford, while keeping the investments we need to grow the economy and create jobs."
But what must be remembered about the federal budget is that not all of it is up for negotiation. Rather, federal spending -- which for 2012 was budgeted at $3.7 trillion -- consists of two types of programs. There are the "mandatory" programs, which are mandated by law depending on who qualifies for them and thus can't be trimmed in the budgeting process, and include Social Security, Medicare, and retirement benefits for veterans. Then there is discretionary spending, areas which get hard-and-fast spending limits from Congress -- things like transportation, foreign aid, and military spending. (For more information on mandatory and discretionary spending, please see this article I wrote about the budget for fiscal year 2010, which explains both types of programs in more detail).
Another Decision-Making Deadline Approaches
Discretionary programs are funded with appropriations bills, which grant the government permission to spend specific amounts of money on specific programs. The various discretionary programs are divided up among a number of appropriations bills, and passage of each is required to keep its arm of government operating.
Under Obama's proposal, less than 40% of the $3.7 trillion budget is directed towards discretionary programs. Fully 57% goes toward mandatory programs, with 4.6% ($240 billion) dedicated to interest payments on the nation's $14 trillion debt. (The White House provides a detailed breakdown here). But this is just the administration's proposal: Congress will invariably have a lot to say about the final product.
The idea here is that Congress will pass a budget for fiscal year 2012 in October. Then, in late December, Congress will pass the Supercommittee's longer-term recommendations, and spend the rest of fiscal year 2012 figuring out how to implement them.
It's a complicated process, but one worth taking the time to understand. As Gretchen Hamel, executive director of Public Notice, a nonprofit, nonpartisan organization dedicated to educating Americans about economic policy, explains: "The potential consequences of government spending include higher taxes, inflation -- which means a higher price for everything we want to buy -- and also the possibility that the debt that we have to carry as a nation hampers our standing in the global marketplace. If we don't face it now, future generations have to face it, and the only way to hold our members of congress accountable is if the public is engaged and has the knowledge of what is happening."