Fiscal Year 2016 Budget

THE ISSUE
Each year, after the State of the Union address is delivered, the President presents to Congress a budget proposal which represents the Administration's desired funding plan for the upcoming fiscal year, but which is nonbinding and does not receive a vote. Subsequently, 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 may spend, particularly the total level of discretionary funding that will be available for the upcoming fiscal year. Procedurally, next the full Senate and House should each approve their respective resolutions, before meeting in conference to agree on a single, joint resolution, which does not require the President's approval and does not have the force of law. (However, this process has often proved difficult and Congress has seldom completed action on the budget resolution by the April 15 target date specified in the Budget Act.) After agreeing to overall budget numbers, Congress proceeds to consider and pass Appropriations bills officially setting funding levels for the next fiscal year.

FISCAL YEAR 2016 BUDGETS
Congressional FY 2016 Budget
On April 29, 2015, Congressional Republican Leadership announced that negotiators had reached a deal to reconcile the competing House and Senate budget plans. While the two plans had been very similar, there were a few notable differences:

  • The Senate budget would reduce spending by $5.1 trillion over 10 years, slightly less than the House’s proposed $5.5 trillion in reductions over that period. Both chambers rely on repealing the Affordable Care Act, shifting more responsibility to the states for Medicaid and food stamps, and making changes to Medicare for the bulk of their savings.
  • While both budgets would keep military spending at the sequester level (an increase of 0.2%) for fiscal year 2016, the House plan proposed adding an extra $40 billion via a separate war fund called Overseas Contingency Operations, or OCO, that is not subject to the sequestration caps. The increase would also be contingent on offsetting spending curbs. Senate lawmakers instead called for creating a so-called reserve fund, essentially a placeholder to smooth budget accounting down the road if lawmakers could reach a deal on legislation to amend the spending caps, which are already set in law, to increase military spending.

The compromise budget, which passed both chambers on a party-line vote April 30, 2015, marks the first time since 2009 that Congress agreed to and passed a budget resolution.  While the legislation is not signed by the President and is therefore non-binding and without the force of law, it will help guide House and Senate appropriators as they go about their work of establishing specific funding levels for the upcoming fiscal year.  Specifically, the resolution asks lawmakers to:

  • Lower tax rates on individuals, families, corporations, and small businesses, although it doesn't specify specific rates.
  • Balance the budget in 10 years, under the assumption that the adjustments throughout the budget would produce a net economic benefit of at least $147 billion.
  • Repeal the Affordable Care Act (Obamacare) in its entirety. 
  • Reduce SNAP benefit payments by 15%, or roughly $100 million.
  • Adjust Medicare funding to subsidize private health insurance plans for seniors.
  • Increase defense spending by roughly $387 billion.

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:

  • Includes again 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.
  • 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

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"
    • Read the Treasury's revenue explanations for the President's FY15 budget

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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