What's Going On With the Federal Budget?

It has been a long, confusing summer for the federal budget. First there was the debt ceiling crisis. Then came the strange, twelve-person Deficit "Supercommittee," tasked with finding a whopping $1.5 trillion in spending cuts over the next 10 years.

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.

Sponsored Links
Remember the Federal Aviation Administration shut down earlier this summer? That's what happens when lawmakers can't agree on funding levels for an agency. And it's exactly what Congress wants to avoid. But passing appropriations bills can be tricky. In this instance, Congress has until Oct. 1 to get 12 (yes, 12!) appropriations bills passed, and some hotly contested areas are in play, including defense, homeland security, labor and veterans affairs. (For a complete list, check out this cool infographic. And yes, Congress frequently misses its deadlines and passes stopgap bills to keep the lights on. But one way or another, decision time is rapidly approaching.)

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."

Loren Berlin is a reporter with the AOL Huffington Post Media Group. She can be reached at loren.berlin@teamaol.com, on Twitter at @LorenBerlin, and on Facebook.

Top Tax Deductions for Consultants

Consultants are likely to have deductible business expenses that can help you save big on your taxes. A checklist can help you account for every deduction you’re entitled to use. Here are the top tax deductions for consultants.

Read More

Brought to you by TurboTax.com

Seven Things You Didn't Know About Taxes

You know your federal taxes pay for government programs and services, like roads and national defense. And you may even know the difference between FICA and income tax. But did you know if you want to buy sparklers in West Virginia, you can expect to pay a special fee?

Read More

Brought to you by TurboTax.com

2018 Tax Reform Impact: What You Should Know

Congress has passed the largest piece of tax reform legislation in more than three decades. The bill will affect the taxes of most taxpayers, but one key point to keep in mind is that for most people, the bill won't affect your taxes for 2017 (the one you file in 2018).

Read More

Brought to you by TurboTax.com

Video: How to Estimate the Value of Clothing for IRS Deductions

Learn how to estimate the value of clothing for IRS tax deductions as charitable donations. The value of clothing donations to charity are based on published lists of retail values or current thrift store prices. List your donation values on the Form 8283 with the help of TurboTax in this video on filing annual taxes.

Read More

Brought to you by TurboTax.com
Read Full Story