Business and Management
Instructor’s Name
Name of Student
The Budget System of the United States of America; Its Drawbacks and Advantages
Date
List of Sections
Abstract………………………………………………………..3
Introduction…………………………………………………..4a
Federal Budget Process………………………………………4b
Who decides the Budget………………………………………6a
Where the Money Comes From……………………………..6b
Where the Money Goes………………………………………7
Advantages of the Budgetary Process……………………….8
Disadvantages of the Budgetary Process……………………9a
Conclusion……………………………………………………9b
References……………………………………………………9c
Abstract
The budget process of the United States of America is essential in several ways. For instance, determination of the factions to be prioritized, the amounts of money to be allocated to these factions and how to raise the revenue are some of the aspects considered while making the US budget. The White House conducts the process, Senate and House of Representatives, thus ensuring efficiency. These three offices need to extensively consult and agree to come up with an appropriate budget devoid of excess unnecessary spending. The process has certain advantages, including ensuring that the government does not overspend. However, it may also cause negativities when the three offices fail to agree on the appropriate budgetary framework or in case of delayed budget making, thus jeopardizing the smooth running of the government.
Introduction
The government of the United States of America is out rightly tasked with the allocation of national resources among its various fundamental factions (Miller 2018). Enhancing national defense, safeguarding the territorial borders, provision of quality healthcare, education system, and promoting trade are just a tip of the various government responsibilities which rely solely on national resources. Critical decisions, therefore, have to be made regarding the amounts of money to pump into these multiple activities. All these decisions, however, are dependent upon the nation’s budget. Besides providing proper guidance on the allocation of national resources, the United States’ budget system outlines how the national income is raised and the exact amount to be spent by the government.
This script seeks to explain the federal budget process, answering vital questions such as where the national income comes from, the prime decision-maker of the budget, how the money is allocated as well as funds borrowing and the federal debt. Importantly, the script takes us through the advantages and disadvantages of the United States Budget System.
The Federal Budget Process
The Federal Budget Process contains three principal phases, all of which depend on one another (Solodukha & Matraeva 2016). These phases include: Formulating the presidential budget, action on the budget by Congress and the execution of the budget.
Formulating the Presidential Budget
In this phase, the President is obligated to make financial proposals with recommendations on the factions to be prioritized during the allocation of the national resources. The very first step usually is for the president to establish the budget and general guidelines on fiscal policies. These guidelines are fundamental in helping the Office of Management & Budget (OMB) and the various federal agencies in establishing policy directions in preparation for making financial requests. During this process, the president consults extensively with the director of OMB and other officials in the executive office of the president as regards information, proposals, evaluations, and policy decisions. This process usually begins during the spring of each year.
Towards December, government agencies submit their financial requests to OMB where the later critically reviews them and highlights issues to be addressed. The decisions made concerning the budgets must consider any statutory limitations on receipts and financial outlays. The United States law requires the president to submit his budget to Congress on the first Monday of January but not later than the first Monday of February.
Congressional Action on the Budget
Congress has an obligation to critically scrutinize the presidential budget for purposes of approving, modifying, or totally disapproving it. This it does by restating the levels of funding, deleting some programs on the budget, including some more applications, adding or reducing taxes and so on. Congress makes its final resolutions and passes the budget back to the president for approval.
Execution of the Budget
The Budget Enforcement Act (BEA) of 1990 has divided government expenditure into discretionary, direct spending, and interest on the debt. Discretionary spending encompasses funding for salaries and various operations for government agencies. Direct spending, otherwise referred to as mandatory spending comprises of Medicare & Medicaid payments, unemployment insurance benefits, farm price support, and so on. It is imperative to note that discretionary spending is usually constrained by dollar limits on total budget authority, while pay-as-you-go rules traditionally constrain direct expenditures.
Government officials are required by law to spend only the amounts specified in the budget and for the purposes outlined only. No expenditure is allowed to be effected in advance unless exclusive authority is provided under the law to do so.
Who Decides the Budget
The American democracy calls for total inclusivity of all Americans in deciding on fundamental aspects, including the crafting of the national budget. Although the citizens may not be directly involved in the process as it is principally conducted by the president and the congress, it is vital to note that both the president and congressional officials are elected by the American people. That in itself means that the decisions made as regards the budget process emanate from the American people.
There are five fundamental steps in the federal budget process; Presidential submission of a budget proposal to the Congress, The House and the Senate pass the budget resolution, the Congress comes up with sub-committees to appropriations bills, the Congress votes on the appropriation bills and finally, the president signs the appropriation bills into law. Suffice it to say, the decision concerning the budget directly depends on the president and the congress and indirectly depends on the American citizens.
Where the Money Comes From
Principally the United States government raises its revenue from taxes imposed on Americans, business, agencies, and many more (Guner & Ventura 2016). The government has several taxes, some of which fund specific programs while others fund the government in general. Notwithstanding, when all the charges are not sufficient to cover government expenses, the US government borrows money to supplement the taxes. Examples of taxes imposed by the American government include:
Income Taxes
These are taxes paid by working individuals in the United States. The wealthy individuals in society pay more income taxes than the middle-class and the more impoverished individuals.
Corporate Taxes
Are taxes paid by corporations depending on the amount of profit made.
Payroll Taxes
Are taxes deducted directly from the payroll and are designated as trust funds.
Borrowing
More often than not, government expenditure exceeds the revenue collected. This difference is usually catered for by the treasury in issuing bonds to the people. Any person is generally eligible to buy treasury bonds in the United States.
Where the Money Goes
As mentioned earlier, the US treasury subdivides its spending into mandatory, discretionary, and interest on the debt.
Discretionary Spending
Is the proportion of the budget decided on by Congress through the annual appropriations process every year. It includes funding for salaries and general running of the government agencies.
Mandatory Spending
Refers to the spending legislated by congress out of the annual appropriations. Caters for medical attention and related essential functions (Phaup 2019).
Interest on Debt
Refers to the interest paid by the government on its accumulated debt minus the attention it receives on its assets (Jackson & Victor 2015).
Advantages of the Budget Process
The US budget process enables policymakers to determine which factions of the government to prioritize as regards revenue allocation. This helps in establishing the amounts of money to allocate to the various government functions. In the long run, the budget process ensures that the government functions get appropriate funds for conducting government activities, thus attending to the needs of the citizens.
The budget process ensures checks and balances by reducing extravagant expenditure. This is usually effected when Congress eliminates specific programs made by the president or by reducing some allocations to a particularly reasonable level. On the other hand, if the congress makes unfavorable appropriations, the president is mandated not to sign the budget. This calls for both teams to sit together and agree on the best way forward.
Disadvantages of the Budget Process
In the process of passing the presidential proposal, congress may eliminate some vital programs proposed by the president, thus inhibiting national development. Furthermore, the congress house of representatives and the white house may fail to agree on the appropriate budgetary framework. This may jeopardize the smooth running of the country as it may result in delays in the budgetary process.
During the amendment of budgetary laws, discretionary spending caps were created to limit spending. However, these caps were allowed to expire without appropriate caps to replace them. This means that once they attain their expiry dates, those involved in the budget-making process may come up with policies that increase spending proportionately.
Conclusion
The budget-making process in the United States depends directly on the president and the congress and indirectly on the American people who elected them. The process is very fundamental as it determines the factions of the government to be prioritized and the amounts of money to be allocated to the various factions. The method also has a framework on how to collect revenue and ensures the smooth running of the government.
References
Guner, N., Lopez-Daneri, M., & Ventura, G. (2016). Heterogeneity and Government revenues: Higher taxes at the top?. Journal of Monetary Economics, 80, 69-85.
Jackson, T., & Victor, P. A. (2015). Does credit create a ‘growth imperative’? A quasi-stationary economy with interest-bearing debt. Ecological Economics, 120, 32-48.
http://gesd.free.fr/jacksonvictor.pdf
Miller, G. (2018). Performance-based budgeting. Routledge.
Phaup, M. (2019). Budgeting for Mandatory Spending: Prologue to Reform. Public Budgeting & Finance, 39(1), 24-44.
https://onlinelibrary.wiley.com/doi/pdf/10.1111/pbaf.12210
Solodukha, P. V., Vasiutina, E. S., Korolkova, N. A., Erokhin, S. G., Starostenko, V. K., & Matraeva, L. V. (2016). The fundamental contradiction of economic growth as a threat to the human capital reproduction process in Russia. International Journal of Economics and Financial Issues, 6(1S), 163-167.
https://dergipark.org.tr/download/article-file/363476