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A Brief Introduction to the 96-912 GOV Revenue and Debt-Limit Legislation
Impoundment and Line-Item Veto The spending policies of the budget resolution generally are implemented through two different types of spending legislation. Policies involving discretionary spending are implemented in the context of annual appropriations acts, whereas policies affecting direct or mandatory spending (which, for the most part, involves entitlement programs) are carried out in substantive legislation. All discretionary spending is under the jurisdiction of the House and Senate Appropriations Committees. Direct spending is under the jurisdiction of the various legislative committees of the House and Senate; the House Ways and Means Committee and the Senate Finance Committee have the largest shares of direct spending jurisdiction. (Some entitlement programs, such as Medicaid, are funded in annual appropriations acts, but such spending is not considered to be discretionary.) The enforcement procedures under the congressional budget process, mentioned above, apply equally to discretionary and direct spending. In recent years, many of the most significant changes in direct spending programs, from a budgetary standpoint, have been made in the reconciliation process (see discussion below). The greatest number of spending decisions in any year occurs in the annual appropriations process. The Annual Appropriations Process An appropriations act is a law passed by Congress that provides federal agencies legal authority to incur obligations and the Treasury Department authority to make payments for designated purposes. The power of appropriation derives from the Constitution, which provides that 'No money shall be drawn from the Treasury but in consequence of appropriations made by law.' The power to appropriate is exclusively a legislative power; it functions as a limitation on the executive branch. An agency may not spend more than the amount appropriated to it, and it may use available funds only for the purposes and according to the conditions provided by Congress. The Constitution does not require annual appropriations, but since the First Congress the practice has been to make appropriations for a single fiscal year. Appropriations must be used (obligated) in the fiscal year for which they are provided, unless the law provides that they shall be available for a longer period of time. All provisions in an appropriations act, such as limitations on the use of funds, expire at the end of the fiscal year, unless the language of the act extends their period of effectiveness. In the federal government, an appropriation makes funds available for obligation; it does not usually require that outlays be made in any particular fiscal year. Outlays often ensue years after the appropriations are obligated. The President requests annual appropriations in his budget submitted in January or February of each year. In support of the President's appropriations requests, agencies submit justification materials to the House and Senate Appropriations committees. These materials provide considerably more detail than is contained in the President's budget and are used in support of agency testimony during Appropriations subcommittee hearings on the President's budget. Congress passes three main types of appropriations measures. Regular appropriations provide budget authority to agencies for the next fiscal year. Supplemental appropriations provide additional budget authority during the current fiscal year when the regular appropriation is insufficient or to finance activities not provided for in the regular appropriation. Continuing appropriations provide stop-gap (or full-year) funding for agencies that have not received a regular appropriation by the start of the fiscal year. In a typical session, Congress acts on more than 16 appropriations measures, including 13 regular appropriations bills and at least two supplemental appropriations measures. Because of recurring delays in the appropriations process, Congress typically passes one or more continuing appropriations each year. The scope and duration of these measures depend on the status of the regular appropriations bills and the degree of budgetary conflict between the President and Congress. In some years, a continuing appropriations measure has been turned into an omnibus measure for enactment of regular appropriations bills. By precedent, appropriations originate in the House of Representatives. In the House, appropriations measures are originated by the Appropriations Committee (when it marks up or reports the measure) rather than being introduced by a Member beforehand. Before the full Committee acts on the bill, it is considered in the relevant appropriations subcommittee (the House and Senate Appropriations committees have 13 parallel subcommittees). The House subcommittees typically hold extensive hearings on appropriations requests shortly after the President's budget is submitted. In marking up their appropriations bills, the various subcommittees are guided by the discretionary spending limits and the allocations made to them under Section 302 of the Congressional Budget Act of 1974. The Senate usually considers appropriations measures after they have been passed by the House. Hearings in the Senate Appropriations subcommittees generally are not as extensive as those held by counterpart subcommittees in the House. When the Senate (either in committee or on the floor) changes a House-passed appropriations measure, it does so by inserting consecutively-numbered amendments. The conference to resolve differences in the measures passed by the two chambers considers each of the numbered amendments. Congressional action on a measure is not complete until both the House and Senate have successfully disposed of all numbered amendments. The basic unit of an appropriation is an account. A single unnumbered paragraph in an appropriations act comprises one account and all provisions of that paragraph pertain to that account and to no other, unless the text expressly gives them broader scope. Any provision limiting the use of funds enacted in that paragraph is a restriction on that account alone. Over the years, appropriations have been consolidated into a relatively small number of accounts. It is typical for a federal agency to have a single account for all its expenses of operation and additional accounts for other purposes such as construction. Accordingly, most appropriation accounts encompass a number of activities or projects. The appropriation sometimes earmarks specific amounts to particular activities within the account, but the more common practice is to provide detailed information on the amounts intended for each activity in other sources (principally, the committee reports accompanying the measures). In addition to the substantive limitations (and other provisions) associated with each account, each appropriations act has 'general provisions' that apply to all of the accounts in a title or in the whole act. These general provisions appear as numbered sections, usually at the end of the title or the act. The standard appropriation is for a single fiscal year -- the funds have to be obligated during the fiscal year for which they are provided; they lapse if not obligated by the end of that year. An appropriation that does not mention the period during which the funds are to be available is a one-year appropriation. Congress also makes no-year appropriations by specifying that the funds shall remain available until expended. No-year funds are carried over to future years, even if they have not been obligated. Congress sometimes makes multiyear appropriations, which provide for funds to be available for two or more fiscal years. Appropriations measures also contain other types of provisions that serve specialized purposes. These include provisions that liquidate (pay off) obligations made pursuant to certain contract authority; reappropriate funds provided in previous years; transfer funds from one account to another; rescind funds (or release deferred funds); or set ceilings on the amount of obligations that can be made under permanent appropriations, on the amount of direct or guaranteed loans that can be made, or on the amount of administrative expenses that can be incurred during the fiscal year. In addition to providing funds, appropriations acts often contain substantive limitations on government agencies. Although appropriations accounts often span many activities, each agency supplements account-level data with detailed budget justifications. While agencies have discretion to vary their actual expenditures from the detailed supporting schedules, the Appropriations committees expect them to adhere to their justifications to the extent practicable. When an agency shifts funds from one program to another in the same account, it must go through reprogramming procedures. Less significant changes are handled informally, or by the agency unilaterally, but there has been a pronounced trend for Congress to hold agencies more closely to the spending patterns set forth in their budget justifications. Detailed information on how funds are to be spent, along with other directives or guidance, is provided in the reports accompanying the various appropriations measures. Agencies ordinarily abide by report language in spending the funds appropriated by Congress. The appropriations reports do not comment on every item of expenditure. Report language is most likely when the Appropriations Committee prefers to spend more or less on a particular item than the President has requested or when the committee wants to earmark funds for a particular project or activity. When a particular item is mentioned by the committee, there is a strong expectation that the agency will adhere to the instructions. In recent years, these instructions have tended to become more numerous and specific. Revenue and Debt-Limit Legislation Article I, Section 8 of the U.S. Constitution gives Congress the power to levy 'taxes, duties, imposts, and excises.' Section 7 of this Article requires that all revenue measures originate in the House of Representatives. In the House, revenue legislation is under the jurisdiction of the Ways and Means Committee; in the Senate, jurisdiction is held by the Finance Committee. While House rules bar other committees from reporting revenue legislation, sometimes another committee will report legislation levying user fees on a class that benefits from a particular service or program or that is being regulated by a federal agency. In many of these cases, the user fee legislation is referred subsequently to the Ways and Means Committee. Most revenues derive from existing provisions of the tax code or Social Security law, which continue in effect from year to year unless changed by Congress. This tax structure can be expected to produce increasing amounts of revenue in future years as the economy expands and incomes rise. Nevertheless, Congress usually makes some changes in the tax laws each year, either to raise or lower revenues or to redistribute the tax burden. Congress typically acts on revenue legislation pursuant to proposals in the President's budget. An early step in congressional work on revenue legislation is publication by CBO of its own estimates (developed in consultation with the Joint Committee on Taxation) of the revenue impact of the President's budget proposals. The congressional estimates often differ significantly from those presented in the President's budget. The revenue totals in the budget resolution establish the framework for subsequent action on revenue measures. Congress generally may not consider legislation increasing or decreasing revenues for the next fiscal year until it has adopted the budget resolution for that year. Congress sometimes waives this requirement -- in the House, usually by means of a special rule reported by the Rules Committee; in the Senate, usually by unanimous consent or by a waiver motion authorized by the Congressional Budget Act of 1974. The budget resolution contains only revenue totals and total recommended changes; it does not allocate these totals among revenue sources (although it does set out Medicare receipts separately), nor does it specify which provisions of the tax code are to be changed. These specific decisions are made in the revenue legislation reported by the House and Senate committees with jurisdiction over such matters. The House and Senate periodically consider major revenue measures, such as the Tax Reform Act of 1986, under their regular legislative procedures. However, as has been the case with direct spending programs, many of the most significant changes in revenue policy in recent years have been made in the context of the reconciliation process. Although revenue changes usually are incorporated into omnibus budget reconciliation measures, along with spending changes (and sometimes debt-limit increases), such revenue legislation may be considered on a separate legislative track (e.g., the Tax Equity and Fiscal Responsibility Act of 1982). Occasionally, congressional leaders may decide that the Senate should take the initiative on particular revenue matters. Congress can accommodate this strategy, without violating the constitutional requirement that revenue matters originate in the House, by attaching the Senate's revenue initiatives to a minor House-passed revenue bill. As a general matter, however, the House carefully guards its constitutional prerogative. In enacting revenue legislation, Congress often establishes or alters tax expenditures. The term 'tax expenditures' is defined in the Congressional Budget Act of 1974 to include revenue losses due to deductions, exemptions, credits, and other exceptions to the basic tax structure. Tax expenditures, as discussed previously, are a means by which the federal government pursues public objectives and can be regarded as alternatives to other policy instruments such as grants or loans. Tax expenditures are classified by budget function to facilitate the comparison of spending programs and tax expenditures. The Joint Committee on Taxation estimates the revenue effects of legislation changing tax expenditures, and it also publishes five-year projections of these provisions as an annual committee print. When the revenues collected by the federal government are not sufficient to cover its expenditures, it must finance the shortfall through borrowing. Federal borrowing is subject to a public debt limit established by statute. As long as the federal government continues to operate with a budget deficit, the public debt limit must be increased periodically. Failure to increase the debt limit in a timely manner could lead to inefficient, stop-gap financing practices by the Treasury Department and eventually to default. The frequency of congressional action to raise the debt limit has ranged in the past from several times in one year to once in several years. Legislation to raise the public debt limit falls under the jurisdiction of the House Ways and Means Committee and the Senate Finance Committee. Although consideration of such measures in the House usually is constrained through the use of special rules, Senate action sometimes is far-ranging with regard to the issues covered. In the past, the Senate has added many non-germane provisions to debt-limit measures, such as the Balanced Budget and Emergency Deficit Control Act of 1985. In 1979, the House amended its rules to provide for the automatic engrossment of a measure increasing the debt limit upon final adoption of the conference report on the budget resolution. The rule, House Rule XLIX (commonly referred to as the Gephardt rule, after its sponsor, Representative Richard Gephardt), was intended to facilitate quick action on debt increases. However, the Senate has no comparable rule and often considers such legislation thoroughly, if not at length. The House and Senate may enact debt-limit legislation originating under the Gephardt rule or arising under conventional legislative procedures. In some instances, Congress has enacted debt-limit increases as part of omnibus budget reconciliation legislation. Beginning in 1980, Congress has used reconciliation legislation to implement many of its most significant budget policies. Section 310 of the Congressional Budget Act of 1974 sets forth a special procedure for the development and consideration of reconciliation legislation. Reconciliation legislation is used by Congress to bring existing revenue and spending law into conformity with the policies in the budget resolution. Reconciliation is an optional process, but Congress has used it more years than not; during the 18 calendar years covering 1980 through 1997, 14 omnibus reconciliation measures were enacted into law. The reconciliation process has two stages: (1) the adoption of reconciliation instructions in the budget resolution; and (2) the enactment of reconciliation legislation that implements changes in revenue or spending laws. Although reconciliation has been used since 1980, specific procedures tend to vary from year to year. Reconciliation is used to change the amount of revenues, budget authority, or outlays generated by existing law. In a few instances, reconciliation has been used to adjust the public debt limit. On the spending side, the process focuses on entitlement laws; it may not be used, however, to impel changes in Social Security law. Reconciliation sometimes has been applied to discretionary authorizations (which are funded in annual appropriations acts), but this is not the usual practice. Reconciliation begins with a directive in a budget resolution instructing designated committees to report legislation changing existing law (or pending legislation). These instructions have three components: (1) they name the committee (or committees) that are directed to report legislation; (2) they specify the amounts by which existing laws are to be changed (but do not identify how these changes are to be made, which laws are to be altered, or the programs to be affected); and (3) they usually set a deadline by which the designated committees are to recommend the changes in law. The instructions typically cover the same fiscal years covered by the budget resolution, with separate dollar amounts specified for each of the years. The dollar amounts are computed with reference to the CBO baseline. Thus, a change represents the amount by which revenues or spending would increase or decrease from baseline levels as a result of changes made in existing law. This computation is itself based on assumptions about the future level of revenues or spending under current law (or policy) and about the dollar changes that would ensue from new legislation. Hence, the savings associated with the reconciliation process are assumed savings. The actual changes in revenues or spending may differ from those estimated when the reconciliation instructions are formulated. Although the instructions do not mention the programs to be changed, they are based on assumptions as to the savings or deficit reduction that would result from particular changes in revenue provisions or spending programs. These program assumptions are sometimes printed in the reports on the budget resolution. Even when the assumptions are not published, committees and Members usually have a good idea of the specific program changes contemplated by the reconciliation instructions. A committee has discretion to decide on the legislative changes to be recommended. It is not bound by the program changes recommended or assumed by the Budget committees in the reports accompanying the budget resolution. Further, a committee has to recommend legislation estimated to produce dollar changes for each category delineated in the instructions to it. Thus, it has to satisfy separately the instruction for budget authority and outlays for each fiscal year covered by the instructions. When a budget resolution containing a reconciliation instruction has been approved by Congress, the instruction has the status of an order by the House and Senate to designated committees to recommend legislation, usually by a date certain. It is expected that committees will carry out the instructions of their parent chamber, but the Congressional Budget Act of 1974 does not provide any sanctions against committees that fail to do so. Development and Consideration When more than one committee in the House and Senate is subject to reconciliation directives, the proposed legislative changes usually are consolidated by the Budget committees into an omnibus bill. The Congressional Budget Act of 1974 does not permit the Budget committees to revise substantively the legislation recommended by the committees of jurisdiction. This restriction pertains even when the Budget committees estimate that the proposed legislation will fall short of the dollar changes called for in the instructions. Sometimes, the Budget committees, working with the leadership, develop alternatives to the committee recommendations, to be offered as floor amendments, so as to achieve greater compliance with the reconciliation directives. The Congressional Budget Act of 1974 requires that amendments offered to reconciliation legislation in either the House or the Senate be deficit neutral. To meet this requirement, an amendment reducing revenues or increasing spending must offset these deficit increases by equivalent revenue increases or spending cuts. Additionally, non-germane amendments may not be offered in either chamber. During the first several years' experience with reconciliation, the legislation contained many provisions that were extraneous to the purpose of reducing the deficit. The reconciliation submissions of committees included such things as provisions that had no budgetary effect, that increased spending or reduced revenues, or that violated another committee's jurisdiction. In 1985, the Senate adopted the Byrd rule (named after its principal sponsor, Senator Robert C. Byrd) on a temporary basis as a means of curbing these practices. The Byrd rule has been extended and modified several times over the years. In 1990, the Byrd rule was incorporated into the Congressional Budget Act of 1974 as Section 313 and made permanent (2 U.S.C. 644). A Senator opposed to the inclusion of extraneous matter in reconciliation legislation has two principal options for dealing with the problem. First, the Senator may offer an amendment (or a motion to recommit the measure with instructions) that strikes such provisions from the legislation. Second, under the Byrd rule, the Senator may raise a point of order against extraneous matter. In general, a point of order authorized under the Byrd rule may be raised to strike extraneous matter already in the bill as reported or discharged (or in the conference report), or to prevent the incorporation of extraneous matter through the adoption of amendments or motions. A motion to waive the Byrd rule, or to sustain an appeal of the ruling of the chair on a point of order raised under the Byrd rule, requires the affirmative vote of three-fifths of the membership (60 Senators, if no seats are vacant). Although the House has no rule comparable to the Senate's Byrd rule, it may use other devices to control the inclusion of extraneous matter in reconciliation legislation. In particular, the House has used special rules to make in order amendments that strike such matter. Impoundment and Line-Item Veto Although an appropriation limits the amounts that can be spent, it also establishes the expectation that the available funds will be used to carry out authorized activities. Hence, when an agency fails to use all or part of an appropriation, it deviates from the intentions of Congress. The Impoundment Control Act of 1974 (Title X of the Congressional Budget and Impoundment Control Act of 1974, as amended) prescribes rules and procedures for instances in which available funds are impounded. An impoundment is an action or inaction by the President or a federal agency that delays or withholds the obligation or expenditure of budget authority provided in law. The Impoundment Control Act of 1974 divides impoundments into two categories and establishes distinct procedures for each. A deferral delays the use of funds; a rescission is a presidential request that Congress rescind (cancel) an appropriation or other form of budget authority. Deferral and rescission are exclusive and comprehensive categories; an impoundment is either a rescission or a deferral -- it cannot be both or something else. Although impoundments are defined broadly by the Impoundment Control Act of 1974, in practice they are limited to major actions that affect the level or rate of expenditure. If every 'action or inaction' -- the phrase used in the Impoundment Control Act of 1974 -- that slowed the rate of expenditure were deemed to be an impoundment, there probably would be many thousands of impoundments each year. In fact, at most only a few hundred are reported. As a general practice, only deliberate curtailments of expenditure are reported as impoundments; actions having other purposes that incidently affect the rate of spending are not recorded as impoundments. For example, if an agency were to delay the award of a contract because of a dispute with a vendor, the delay would not be an impoundment; if the delay were for the purpose of reducing an expenditure, it would be an impoundment. The line between routine administrative actions and impoundments is not clear and controversy occasionally arises as to whether a particular action constitutes an impoundment. A particularly difficult-to-identify impoundment occurs when the rate or level of spending is deliberately slowed through indirect administrative means. For example, if an agency cuts the size of the staff processing grant applications it might spend less on grants than the amount provided by Congress, even if it does not expressly impound the funds. These actions have come to be known as 'de facto' impoundments. Rescissions. To propose a rescission, the President must submit a message to Congress specifying the amount to be rescinded, the accounts and programs involved, the estimated fiscal and program effects, and the reasons for the rescission. Multiple rescissions can be grouped in a single message. After the message has been submitted to it, Congress has 45 days of 'continuous session' (usually a larger number of calendar days) during which it can pass a rescission bill. Congress may rescind all, part, or none of the amount proposed by the President. If Congress does not approve a rescission in legislation by the expiration of this period, the President must make the funds available for obligation and expenditure. If the President fails to release funds at the expiration of the 45-day period for proposed rescissions, the comptroller general may bring suit to compel their release. This has been a rare occurrence, however. Deferrals. To defer funds, the President submits a message to Congress setting forth the amount, the affected account and program, the reasons for the deferral, the estimated fiscal and program effects, and the period of time during which the funds are to be deferred. The President may not propose a deferral for a period of time beyond the end of the fiscal year, nor may he propose a deferral that would cause the funds to lapse or otherwise prevent an agency from spending appropriated funds prudently. In accounts where unobligated funds remain available beyond the fiscal year, the President may defer the funds again in the next fiscal year. At present, the President may defer only for the reasons set forth in the Antideficiency Act, including to provide for contingencies, to achieve savings made possible by or through changes in requirements or greater efficiency of operations, and as specifically provided by law. He may not defer funds for policy reasons (for example, to curtail overall federal spending or because he is opposed to a particular program). The comptroller general reviews all proposed rescissions and deferrals and advises Congress of their legality and possible budgetary and program effects. The comptroller general also notifies Congress of any rescission or deferral not reported by the President and may reclassify an improperly classified impoundment. In all cases, a notification to Congress by the comptroller general has the same legal effect as an impoundment message of the President. The Impoundment Control Act of 1974 provides for special types of legislation -- rescission bills and deferral resolutions -- for Congress to use in exercising its impoundment control powers. However, pursuant to court decisions that held the legislative veto to be unconstitutional, Congress may not use deferral resolutions to disapprove a deferral. Further, Congress has been reluctant to use rescission bills regularly. Congress, instead, usually acts on impoundment matters within the framework of the annual appropriations measures. During the 104th Congress, the Line Item Veto Act (P.L. 104-130; 110 Stat. 1200-1212) was enacted as an amendment to the Impoundment Control Act of 1974. Initially, proponents of the legislation had sought to empower the President to veto individual items of appropriation, largely as an antidote to what was perceived as unnecessary, wasteful, and unjustified spending added to appropriations bills by the House and Senate. This authority was widely described as comparable to that possessed by the governors of most states. The authority granted to the President under the Line Item Veto Act differs markedly from the veto authority available to most chief executives at the state level. First, the President may not veto individual parts of legislation. Under normal constitutional procedures, the President must approve or veto any measure in its entirety. His authority to use the line-item veto comes into play only after a measure has been signed into law. Second, this authority applies not only to annual appropriations, but extends to new entitlement spending and targeted tax benefits as well. The line-item veto authority is in effect for 8 years, from the beginning of 1997 through the end of of 2004. The Line Item Veto Act reverses the presumption underlying the process for the consideration of rescissions under the Impoundment Control Act of 1974. Under the Line Item Veto Act, presidential proposals take effect unless overturned by legislative action. The act authorizes the President to identify at enactment individual items in legislation that he may propose not go into effect. The identification is based not just upon the statutory language, but on the entire legislative history and documentation. The President must notify Congress promptly of his proposals and provide supporting information. Congress must respond within a limited period of time by enacting a law if it wants to disapprove the President's proposals; otherwise, they take effect permanently. President Clinton exercised line-item veto authority for the first time on August 11, 1997, in cancelling an item of direct spending in the Balanced Budget Act of 1997 and two limited tax benefits in the Taxpayer Relief Act of 1997. Later that session, he used the line-item veto to cancel dozens of discretionary spending projects in several of the regular appropriations acts for FY1998. (See Endnote 4.) The General Accounting Office is required by statute to develop, maintain, and publish periodically a budget glossary for the federal government. (This requirement, found in 31 U.S.C. 1112, was added to the Legislative Reorganization Act of 1970 by Section 801(a) of the Congressional Budget Act of 1974 (88 Stat. 327-328).) The most recent glossary, A Glossary of Terms Used in the Federal Budget Process (GAO/AFMD-2.1.1), was issued in January 1993. In addition to the GAO glossary, the Office of Management and Budget includes a glossary in its Analytical Perspectives volume of the annual budget submission, the Congressional Budget Office appends a glossary to its annual report on The Economic and Budget Outlook, and the Congressional Research Service's manual on the federal budget process (cited below) provides a glossary in Appendix D. Finally, many private publications contain budget glossaries. For example, terms associated with the legislative process, including many budgetary terms, are defined in Congressional Quarterly's American Congressional Dictionary (second edition), prepared originally by Walter Kravitz in 1993 and revised in 1997. Congressional Research Service Products The most extensive explanation of the federal budget process prepared by the Congressional Research Service is provided in the following reports:
As mentioned above, the 1991 CRS manual includes a budget glossary. The other two CRS reports update the explanation of the budget process through the 104th Congress. A fully revised and updated version of the manual will be issued in 1998. Many other CRS products and services, including reports and issues briefs, videotapes, and seminars, are available on different facets of the federal budget process. Endnotes (4) These actions are discussed in Congressional Budget Actions in 1997, by Robert Keith, CRS Issue Brief 97008, updated regularly.
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