President’s 2016 Budget

THE ISSUE
President's FY 2016 Budget
President Obama unveiled his nonbinding $3.99 trillion federal budget request to Congress for Fiscal Year 2016 on February 2, 2015. The overall budget plan includes a mixture of revenue increases and spending cuts. Also included are an ambitious public works program, a one-time tax on foreign profits kept overseas by corporations, tax credits for middle-class Americans, and a 1.3 percent pay raise for federal employees and troops.

The President's budget proposal:

  • Would use approximately $1.8 trillion in deficit-reducing measures to replace sequestration:
    • $640 billion from taxes raised mostly by eliminating deductions without raising rates, including:
      • Capping at 28% all itemized deductions, including the charitable deduction, for high-income earners
      • Implementing the "Buffett Rule" by creating a new "Fair Share Tax:" 30% minimum effective tax rate for joint-filing taxpayers on income in excess of $1 million Adjusted Gross Income (AGI).
    • $400 billion in health care savings from Medicare, Medicaid and other health programs such as the Affordable Care Act
    • $160 billion in higher income and Social Security taxes resulting from immigration reform
    • Additional savings from lower interest costs on the federal debt
  • Proposes to permanently set the estate tax at 2009 levels

Treatment of Charitable Deduction
President Obama's FY16 budget request again includes a provision to cap at 28 percent the value of itemized deductions, including the charitable deduction, for high-income taxpayers. This marks the seventh consecutive budget that the president has proposed capping the charitable deduction, which has never been adopted by Congress.

Analysis of the President’s Budget

  • Independent Sector summary (IS member password required)
  • Recording and slides from the February 13, 2015 Independent Sector digital workshop covering the details of the budget and its implications for the nonprofit sector (This content is available only to IS members or paid participants of this event.)
  • Administration FY 2016 budget overview
  • The Joint Committee on Taxation's report on the "Estimated Budget Effects of the Revenue Provisions Contained in the President’s Fiscal Year 2016 Budget Proposal" 
  • Congressional Budget Office report on "Updated Budget Projections: 2015 to 2025"
Tax Issues (IS member password required)
President Obama's FY16 budget again proposes capping the rate at 28 percent for which high-income earners may take itemized deductions, including the charitable deduction; includes an increase in the top capital gains tax rate to 28 percent, which would fall primarily on the richest one percent of Americans; sets the estate tax at 2009 levels; outlines numerous new or expanded tax breaks aimed at the middle class; implements a one-time mandatory tax on corporate foreign earnings; and seeks to lower the corporate federal income-tax rate by closing loopholes.
Spending Items (IS member password required)
President Obama’s FY16 budget of $3.99 trillion would fully reverse the sequester and sets total discretionary spending at $1.091 billion.  The budget proposes increased funding for several education and infrastructure-related initiatives, and includes: a public works program for upgrading roads, railroads and ports; an increase in research and development spending; a “substantial investment” across the educational spectrum; and the creation of a pilot project to allow for greater flexibility in the use of certain federal funding at the state and local level.

Background

What's in the Federal Budget?
The budget consists of three primary components:
  • Revenue – money coming in
  • Spending – money going out
  • Impact on the debt

Spending initiatives are then divided into three categories:

  • Mandatory or entitlement spending – for social safety net programs like Social Security, Medicaid, assistance and food programs for needy families, and the State Children's Health Insurance Program.
  • Defense discretionary spending – includes the salaries of soldiers and sailors, research and development, and the acquisition of weapons, vehicles, and other technology.
  • Non-defense discretionary spending – guides the operations of nearly every federal government agency and program and largely determines how much federal assistance state and local governments will receive. Spending categories include: agriculture, education, housing, health and human services, the environment, arts, and transportation.
The Federal Budget Process in Practice
In practice, each year varies -- Congress frequently modifies this schedule when it is unable to agree on a joint budget resolution or appropriations legislation. On the occasions when Congress and the President have not agreed on all 12 appropriations bills, Congress must pass a stop-gap measure, known as a continuing resolution, which provides temporary funding for all of the departments, agencies, and programs covered in the unfinished bills. Continuing resolutions can last for only a few weeks -- in order to provide the House, Senate, and President time to work out differences -- for the remainder of the session of Congress, or longer.

The Federal Budget - Legislative Process
Legislative activity on the federal budget generally takes place between the months of February and September, although spending and tax priorities contained within a budget document are often determined well before the president makes known his budget for the upcoming fiscal year.

February

On or by the first Monday in February, the President presents a budget proposal to Congress after the state of the union. The President's budget request includes proposed funding levels for discretionary and mandatory programs and changes to the tax code, as well as the level of deficit or surplus on which the government should run.

February through April

Taking into consideration the President's budget request and their own priorities, the House and Senate Budget Committees each develop a budget resolution outlining how much the government must spend according to 19 broad categories or budget "functions," how much revenue the government must collect, and the level of deficit or surplus on which the government will run. In particular, the resolution determines the total level of discretionary funding that will be available for the upcoming fiscal year. The full Senate and House each approve their respective resolutions, before meeting in conference to agree on a single, joint resolution, which does not require the President's approval.

April/May through Early Fall

The Appropriations Committees of each chamber consist of 12 subcommittees and set allocations for each one based on the budget resolution. Following hearings, each Subcommittee drafts a bill proposing spending levels for the programs and agencies under its jurisdiction, adhering to the overall discretionary spending level set by the budget resolution. After passage by the Subcommittee, the bill is sent to the full Appropriations Committee for passage.

Summer through Early Fall

Following passage by the Appropriations Committee, the individual appropriations bills are voted on separately in the House and Senate. After passage by their respective chambers, the bills are sent to a conference committee where the differences between the two chambers' bills are resolved.

September 30

The budget is enacted after the President has signed each individual appropriations bill.

Access Presidential budget proposals from previous years:

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