Congress approved the FY 2014 budget on December 18, 2013. It covers the remainder of FY 2014 and all of FY 2015. Normally, it would have been approved by September 30, before the next fiscal year started on October 1. However, ever since the 2010 mid-term elections, tea party Republicans have refused to use the normal budget process.
The President presented his proposed budget to Congress In the beginning of the year. It outlined the expected revenue and expenses. Instead of negotiating a final budget over the next nine months, or even approving a continuing resolution to keep the government running at current levels, they forced a government shutdown for 16 days. The government reopened when they finally agreed to enter a budget conference committee,
The FY 2013 budget was never approved, either. Instead, Congress passed two continuing resolutions to keep the government running until the end of the 2013 Fiscal Year. These resolutions also incorporated the spending reductions mandated by sequestration. Find out what was actually spent in FY 2013.
The FY 2012 budget wasn't approved until December 2011, two months behind schedule. The FY 2011 Budget didn't get approved until April 2011 -- six months behind schedule. Many government agencies almost had to shut down.
The federal budget is important to you because it spends your hard-earned tax dollars -- lot's of them! Find out where your money goes, why the government overspends each year, and how this impacts the economy and you.
The Federal government plans to take in $3.034 trillion for FY 2014. Most of the taxes are paid by you, either through income or payroll taxes:
- Income taxes contribute 46%.
- Social Security, Medicare and other payroll taxes are 34%.
- Corporate taxes are only 11%.
- Excise taxes, tariffs and other revenue make up the remaining 9%.
It's estimated that each taxpayer worked until April 18 this year to pay for all Federal revenue collected. This is known as Tax Freedom Day. Can you think of any other purchase you make that you've worked as hard and as long for?
For FY 2014, the government plans to spend $3.318 trillion -- more than the revenue being taken in. Most of this (61%) must pay for mandatory programs, such as Social Security, Medicare and Military Retirement benefits. These budget items are estimates of what will be spent to fulfill the laws that created them.
Part of the mandatory budget goes toward interest on the national debt. The U.S. has been lucky because interest payments are currently very low, thanks to a flight to safety that has increased demand for Treasury notes. When the economy gets better, Treasury yields will rise -- and so will interest payments.
The remaining 39% of spending must be divvied up to pay for everything else, known as discretionary spending. This is the amount that the President and Congress negotiate each year.
Mandatory spending is estimated at $2.308 trillion in FY 2014. Social Security is by far the biggest expense, at $860 billion. Medicare is next, at $524 billion, followed by Medicaid at $304 billion.
Social Security costs are currently 100% covered by payroll taxes, and interest on past payroll taxes that have been invested. Until 2010, there was more coming into the Social Security Trust Fund than being paid out. Thanks to interest on investments, the Trust Fund is still running a surplus. However, the Board of the Fund estimates that this surplus will be depleted by 2036. Social Security revenue, from payroll taxes and interest earned, will cover only 77% of the benefits promised to retirees.
Medicare is already underfunded. Medicare taxes don't pay for all benefits, so this program relies on general tax dollars to pay for a portion of it.
In FY 2014, the budget deficit is estimated to be $280 billion, the difference between $3.034 trillion in revenue and $3.318 trillion in spending. This is less than the deficit of $973 billion for FY 2013, and the record deficit set in FY 2009 of $1.4 trillion. However, is deficit spending still necessary to boost the economy? Is it worth the increase to the national debt? What areas should be cut? Is there enough of an incentive for lawmakers to cut, or will politicians who cut popular programs be cut, themselves, in the next election?
Each year, the deficit adds to the U.S. Debt, already more than $17 trillion. Over the long run, this puts downward pressure on the dollar, driving inflation in imports, and higher costs. More important, it's a tax on our children and grandchildren. This anticipated tax slows economic growth, like driving a car with the brakes on.
The Executive Office of Management and Budget (OMB) prepares the budget. The President submits it to Congress on or before the first Monday in February. Congress responds with spending appropriation bills that go to the President by June 30. The President has ten days to reply. Most important, the deadline for budget approval is September 30. Article updated January 15, 2014