4.3 Key Federal Budget Laws

There are some key laws associated with federal budgeting in the United States. Before we present those key laws, let us present some terminology used:

  • Impoundment refers to the decision of the President to withdraw funds.
  • Rescission is the proposal by the President to withdraw funds. It requires a majority vote of approval by Congress within 45 days.
  • Deferrals are “…temporary delays in the release of funds for obligation.” The maximum delay is until the end of the fiscal year. Like the rescission, a deferral requires approval by Congress as well.

More information on rescissions and deferrals can be found in Judicial Review of Rescissions and Deferrals Under the Impoundment Control Act.

Constitution (Article 1, Section 9):

No Money shall be drawn from the Treasury, but in consequence of appropriations made by law; and a regular statement and account of the receipts and expenditures of all public money shall be published from time to time.

Anti-Deficiency Act (earliest version 1870): The Anti-Deficiency Act prohibits departments to spend more than appropriated by Congress.

Budget and Accounting Act of 1921: The Budget and Accounting Act of 1921 created the Bureau of Budget (which is now called OMB) and the GAO. It set the start of the fiscal year to July 1 (which is now October 1). In addition, it established a national budget system and independent audits of government accounts.

Congressional Budget and Impoundment Control Act of 1974: The Congressional Budget and Impoundment Control Act of 1974 established budget committees in both the House and Senate,as well as created the Congressional Budget Office (CBO). These committees and the CBO were tasked with enhancing the legislative branch’s ability to analyze, oversee, and manage federal fiscal policies.

The Act required the President’s budget to include a functional classification, which we have mentioned previously, to organize federal spending by purpose (e.g., defense, education, healthcare). The Act also replaced the practice of impoundment—where the President could withhold spending of funds appropriated by Congress—with rescission and deferral. Finally, the Act shifted the start of the fiscal year from July 1 to October 1.

Gramm-Rudman-Hollings Act: Also known as Balanced Budget and Emergency Deficit Control Act of 1985 established deficit targets to balance the federal budget by 1991. The mechansim to meet the target was called sequestration (“cancellation of budgetary resources”). It triggers automatic spending cuts if total discretionary appropriations exceed budget spending thresholds. It affects all departments and programs by an equal percentage. The original version was ruled unconstitutional by the Supreme Court because it violates the Constitution’s command that Congress play no direct role in the execution of the laws.

Budget Enforcement Act (BEA): The BEA was part of the Omnibus Budget Reconciliation Act of 1990. It is a replacement of the Balanced Budget and Emergency Deficit Control Act of 1987 (previous version from 1985) and establishes upper limits on discretionary spending. The Act expired in 2002. The BEA institutionalized so-called (pay-as-you-go) PAYGO rules as a way to manage the federal deficit by requiring offsets for any new spending or tax cuts, making it a central part of fiscal discipline in the 1990s. PAYGO requires that any new legislation affecting mandatory spending or tax revenue must not increase the federal deficit. Specifically, if Congress enacts a law that either increases entitlement spending or decreases revenues (such as through tax cuts), the cost must be offset by either cuts to other mandatory spending programs or by increases in revenue (e.g., through tax hikes). This means that any new spending initiatives or tax reductions must be “paid for” to ensure fiscal discipline and prevent adding to the national debt. Put differently, it required policy changes to be deficit-neutral or deficit-reducing.

Statutory Pay-As-You-Go Act of 2010 (“PAYGO”)

  • Prevention of new tax cuts or entitlement spending legislation from increasing deficits

Budget Control Act of 2011

  • Reintroduction of discretionary spending limits with sequestration
  • Balanced budget amendment

Bipartisan Budget Acts of 2013 and 2015

  • Relaxation of upper limits imposed by Budget Control Act 2011 due to excessive restrictiveness