The process of making the United States’ budget often begins with the presidential proposal to the Congress that is responsible of recommending the funding levels for the given financial year. However, the Congress, which passes annual budgetary laws, submits the drafted budget to both Houses and the president for authorisation. Congressional decisions are governed by the rules and regulations pertaining to the federal budget process (Allen, Thomas, & Open University, 2009). After the Congress passes the budget, the budget committee sets the spending limits, while the committee of the Senate approves individual appropriation bills that allocate funds to various programs in the federal government.
The Budget Making 2011
When the Congress declines to pass the annual budget, as it has happened since 2009, a number of appropriation bills have to be passed as “stop gap” measures, after which they are sent to the president for approval. There are various government agencies that provide budgetary data and analysis to ease the budget preparation process. These agencies include the treasury, office of budget management, Congressional Budget Office, and the Government Accountability Office. In addition to these bodies, there are also other source groups in the civil society that help the policy makers in streamlining the requirements of the budget (Bailit, Roddy, & National Academy for State Health Policy, 2012). They help the government in making corrections where necessary by providing an alternative financial budget in each year.
The United States federal budget of 2012-2013 was strongly devoted to reduce the sending capacity by 405 and increase the revenue collection measures by a double digit. However, the cost-cutting technique encountered a strong resistance from the affected stakeholders and government department. Despite their resistance, various government agencies have managed to draft a potential budget reduction bill that will ensure the US federal budget reduces by 40% and continue with a lean budget in coming years.
These proposals are in line with the mission of the Republican agendas that are pushed forward by president Obama. According to Kuttner (2012), in 2010, Obama promised to reduce the annual budgetary deficit to a more sustainable level that will support certain areas. The proposal, commonly referred to as Paul Ryan’s Plan, was often debated during the 2012 presidential campaign.
Several bipartisan economic activists have recommended the necessary steps that would lead us to the Promised Land. The Boyles-Simpson Commission recommended a deep cut on military and domestic spending as the best method of eliminating tax breaks. However, the plan did not get the majority votes required in order to be directly sent to Congress, and so part of it was rejected. The aim of the budget reduction proposal is to ensure a more sustainable selective cut in public spending. This will also ensure there is an increased support to specific areas like education and energy for economic growth. Though the plan did not have specific proposals to strap in spending of programs such as social security, Medicaid and Medicare, we expect to make an increase in their future deficits.
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The 2012 budget should be projected to reduce the deficit by $1.1 trillion running over ten years and prevent a repeat of the late 2000s recession. By the end of July 2011, the president and the legislative chambers agreed on the debt limit legislation, which guaranteed $2.4 trillion in immediate and eventual debt limit increase. According the proposed reduction in budget, a mandated $917 billion spending cuts will be made in a period of ten years, of which $21 billion will be included in the 2012-2013 financial year’s budget. The Congress has to make a choice in attempting to accept Joint Select Committee of Deficit Reduction on cutting the deficit by between $1.2 and $1.5 trillion. To do this, an increase in revenue or accepting automated budget cuts would be a better option for the economy.
Reducing wasteful expenditures
Cutting wasteful expenditure and creating administrative savings methods is not only an exercise limited to the Committee on the Budget. Everyone has to play their part to ensure there is a sustained effort for wealth creation. As part of the efforts to rebuild a more responsible government, the federal administration has begun to cut on wasteful spending programs that do not strengthen and streamline the governmental operations. The justification behind this action is to save public money and improve performance. It also ensures that the government is more responsive to the needs of people. These reforms assist in cracking down fraud and errors in public budgeting and cutting unauthorized payments. This public wastage will reduce by $50 billion towards the end of 2012 and, by the beginning of 2013, will halt the production of excess money.
To begin with, it seemed wise to reduce unnecessary expenditure on travels and printing and then cut contract costs for the first time in many decades. This would save the economy a great fortune that will eventually result in government saving the taxpayers billions of dollars to invest in real estate and other areas.
The intended cuts, consolidations, and savings that are detailed in this volume will build on these proposed government efforts. While dealt with on their own, these measures will not solve our long-term fiscal problems or reverse the irresponsible policy decisions applied over the years, but the sound management of these policies will push the economy to a great step forward. As visionary economists, we have to invest in programs that are workable, that shape the existing programs and abandon wasteful efforts. We must make tough decisions on where to invest our taxpayer dollars in this era of tight discretionary caps. It is not going to be easy, but these choices can help us deliver a more effective, efficient, and accountable government for Americans.
The Federal Budget for Fiscal Year 2013
The budgetary committee is in a situation of make-or-break for middle-class people and many others who are trying to reach it. After ten years of eroded middle-class security, when those at the top have seen their income rise inconsistently, the country is heading to an economic recession, which can be hard to recover from. It is the right time to correct the situation and build a lasting economic progress.
The president’s budget of 2013 builds on the principle that the country can do its best if everyone gets a fair share, plays under the same rules, and performs their equal roles. The economy must be transformed from focusing on speculations, spending and borrowing to one based on a solid foundation of education and innovation. This means that the nation must take a path destined to living within its means by cutting and eliminating wasteful spending, while promoting the investments required to keep the economy growing and creating jobs. The new budget targets scarce federal resources in the areas critical for economic growth and restoring the security of the middle class by educating and informing the American workers through innovation, research, and development.
Developing an Alternative Budget
The civil society and other concerned groups have engaged the central bank in a row over the soundness of the budgets prepared. For more than one decade now, they have prepared an alternative budget to make corrections on the federal budget and recommended the best measures to take in order to control structural weaknesses. The alternative budget takes into account the inconvenient truth of climate change and the consequences of widening inequality and poverty around the world.
The “budget of the rest of us”, as it is commonly called, addresses the structural weaknesses in the economy and provides the building blocks to ensure prosperity in the end. It is a blueprint that has helped Canada evade high unemployment, chronic insecurity, depressed incomes, and shattered dreams of the young generation over the last decade. This budget has decisively injected a higher level of demand in the economy with a major public initiative in investment that focuses on research and development, health, infrastructure, public transit, childcare, housing, renewable energy, and building retrofits.
The alternative financial budget is a carefully targeted plan that focuses on boosting productivity, creating high value adding jobs, and stimulating private investment. These activities are aimed at improving the quality of lives of the citizens by reducing the widening gap of inequality. If the strategies of alternative budgeting are accepted, there is a high likelihood that the government will begin to restore people’s trust in it, which has been profoundly shaken over the years.
Elements to address in restructuring the budgetary allocation
(i) Fiscal and macroeconomic framework
It has now been the fourth consecutive year since the global economic stagnation began. The possibility of imminent collapse of banks has been swapped with the possibilities of default in sovereign debts by the same leaders who bailed the banks out. For instance, the risk of Greek defaulting on its long-term interest rates has risen over the prohibitive 20%. The European banks are now negotiating on the possibility of taking 70% of cuts on their Greek bonds by trading their old bonds into new ones, which are worth half or less its value. In order to roll out the Greek debt, Greece’s government is relying on the tools provided by the European Union for financial stability, which is a fund guaranteed by France and Germany to obtain long-term interest rate. The quid pro quo demands that Greece institute a massive cut in its government expenditure that can be achieved by slashing social programs. This includes laying off a number of public workers or drastically reducing their pay to ensure balanced books of account.
Even with no repeat of the 2008 financial crisis, the EU continues to drive down the economic growth and, paradoxically, prolong the debt crisis. Due to the lack of individual currency and central banks from each country are reluctant to dramatically expand their balance sheets to stimulate growth and income, it is probable that the debt crisis may exceed 2013.
(ii) Path out of stagnation
The present slow growth situation, weak wage growth and inadequate demand have developed for quite some time. Successive cuts in tax, especially on the corporate sector, have eroded the federal government’s ability to control the neighboring Canada’s economy to ensure a gain from the economic growth. A continued loophole in the tax system continues to increase the after-tax income inequality.
The challenges of the lost decade due to stagnated growth and real wages have not been a result of the federal deficit. However, they have resulted from a structural shift from the stabilizing influence of the government’s aggregate demand, which has reduced significantly. Though this is not such a serious problem, the economic growth has been strong with low unemployment, which becomes more significant when counter-cyclical spending is required. When the business and consumer confidence levels fall, the economic growth can be impaired without necessarily having a government support in the economy.
(iii) Fair and progressive taxation
The federal government has enacted a serious cut to public programs in order to reduce the deficit, while at the same time reducing the tax rates for highly profitable companies. The better way is that the federal government revenue is a share of the economy of 3% lower than a decade ago. Much of these can be attributed to low corporate taxes that reduce taxes on higher incomes. Business friendly firms have also come to realize that the tax system has to be fair and more progressive. All of these can be achieved through the following measures:
(a) Increase the tax rate on top income earners
(b) Remove unfair tax preferences and tax havens, as well as close tax loopholes
(c) Apply transaction taxes on financial activities
(d) Introduce a tax on inheritance of large estates
(e) Introduce progressive and smart tax system
This alternative federal budget proposes such tax reforms and tax cuts to remove financial erosion of federal government revenue, which has led to the high deficit level. Tax cuts and loopholes are now being used as a measure to rationalize public spending. Tax cuts, especially for the rich, have coincided with a growing inequality in income share of the top 1%, while the majority income has stagnated.
(iv) Current issues and the AFB’s response
(a) Simplify the tax system but broaden the tax base when closing the regressive and ineffective tax loopholes.
Instead of providing direct funding for public transit, arts, and education programs, the government should create a specialized tax preference and credits in these and other areas. While some tax deductions and credits are considered progressive and effective, others are more costly and less effective methods of achieving the federal objectives.
(b) Invest in infrastructure and health services that support safe and healthy communities.
Physical security carries economic potential that is intimately connected to economic prosperity and must have the support of the central government. National infrastructure, particularly as regards housing, education, water and emergency services, requires a significant amount of investment. According to some estimates, in order to fill the gap for the First Nations education facility, 40 more schools have to be built at an average cost of $12.5 million each.
Federal budget cut details
According to the magazine, Washington promises to reduce automatically the recurrent budgetary expenses by $109 billion in January 2013 through to September 2013. These budgetary reductions include a broad cut the military, US embassy security and food safety. The White House and the members of Congress report that they would like to avoid the cuts, but so far, little progress has been made on consensus regarding the replacement and other measures on deficit reduction.
As part of the agreement, the White House requires the spending cuts and the Congress is to increase the ceilings for the federal budget in 2012. The two governmental bodies agreed to put $1.2 trillion reduction measures in nine years that was set to begin in January 2013, unless another plan is brought up by the Congress. The budgetary cuts were designed to have significant effects on the departments affected and thus propel the lawmakers to replace them with a package that is less erroneous in deficit reduction. Before this bill was made into law, the White House had resisted initially, with the worries that it could become a dilution of efforts to sound administration.
Over the nine years of the cost-cutting plan, the cuts to most avoidable spending programs would total $984 billion, while the government intended to spend $216 billion less in payment of interest on the federal debts. The White House went through the federal budget word by word analyzing how the reduction of 9% on military expenditure and other related programs would affect the planned government operations. There was little discretion for the White House under the law to determine where the cuts will fall.
For instance, a reduction of $129 million would be included per year on security, maintenance, and construction of U.S embassies in the world. However, to their dismay, there were bipartisan calls pleading the government to beef up security in its embassies following the violence that led to the death of the ambassador of Libya.
According to a senior administrator at the Treasury, there would be a sizable cut in the federal workforce with no specific figures. However, some federal spending is exemptible from the cuts, such as allowances on members of the military services, social security, and Medicare benefits. The cut package is a blunt and indiscriminate tool, which may achieve the necessary deficit reduction objective.
In order to achieve the much-anticipated lean budget in ten years’ time, strategic measures in spending must be taken. The government has to employ a budget cut technique to all avoidable units of government or completely do away with redundant agencies that do not add value to the nation’s economy.
Justifiable Cuts in the Federal Budget
In order to have a sustainable economy, we must learn to live within our means and restore our fiscal accountability and responsibilities entirely across all government agencies. This means that we have to make more painful cuts in the budget for a more sustainable fiscal performance (Hunnicutt, 2010). Since the president took office in 2008, he has done just that. In the previous three budgets, the president had identified an average of over 150 terminations and reductions that saved an average of $25 billion annually. The cuts were ranging from the termination of oil and gas subsidies to leveraging of technology (Arestis, Baddeley, & McCombie, 2010). This has made treasury transactions more paperless and thus improved their efficiency.
The recent administration has seen about 15-20% of their suggested discretionary cuts being approved by the Congress, with 60% of the proposed cuts became law in 2010. In 2012, the budget proposed $25 billion discretionary reductions and terminations, but the Congress reduced the programs to $23 billion, which represented 92% of the requested expenditure cuts.
The president signed into law the Budget Control Act in August. This Act will generate an approximate of one trillion dollars in deficit reduction in the next decade though applied discretionary spending caps. To meet these caps, it requires a reduction of the overall discretionary spending rate for another year. In fact, comparing the discretionary spending of 2010 with those of 2011, there is a clear 4% decrease. To meet the caps, it calls for complete elimination of ineffective and duplicated programs that the administration would otherwise fund in the absence of a tight fiscal environment. Some of the proposed reductions and cuts in the budget include.
Department of Agriculture
AMS microbiological data program (MDP)
There is a proposal to terminate the Agricultural marketing Service’s (AMS’s) Microbiological Data Program due to its limited impact. This is a low priority program as it has little impact and is not important to the central mission of the AMS, which is to enhance a competitive and efficient marketing of agro-based products.
The enacted budget in 2012 for this program was 5 million dollars; the requested change in 2013 to totally terminate financing for the program will result in 5 million of saved dollars. The justification to this budget termination is that MDP collects, enters, analyzes data, and reports on the food-borne pathogens on specific agricultural commodities through cooperation with the Department of Agriculture. To develop the 2013 budget, the Department of Agriculture (USDA) took a strict stance on the activities supporting its core mission. In light of this, the Department has determined MDP has no impact and not closely aligned with AMS’s core mission of facilitating an efficient and competitive marketing of agricultural products (Organisation for Economic Co-operation and Development, 2006).
Agricultural Marketing Service
The US budget 2013 proposes a complete termination of agricultural marketing service on Record Keeping Program (PRP). According to the department’s priority list, PRP is a low priority program that is not very important to the core mission of AMS which, as mentioned in (i) above, is to facilitate efficient and competitive strategies in marketing of agricultural products.
The justification for this change is that PRP makes use of the federal services to conduct record compliance inspection in the private sector. Currently, there are 27 states and two more territories under the federal pesticide program. The Department of Agriculture is determined to abort this service as it is not closely aligned with the goals of AMS mission. Therefore, the 2013 budget is set to eliminate funding to PRP, thus saving $2 million in expenditures.
Alaska Conveyance Program
Obama’s administration proposes to cut off financing of the Bureau of Lands Management (BLM) Alaska conveyance program, which will become a part of the endeavour to re-evaluate and streamline the finance conveyance process. Therefore, the available resources will be focused on completing the goal of passing the title to 150 million acres as the agency recommends.
The reason that makes the government choose to do away with this budget activity is to transfer to the state of Alaska 150 million acres of land through the Alaska conveyance program. Since 1960, the conveyance work has been an on-going concern, but the Alaskan Land Transfer Acceleration Act of 2004 granted new authorities to BLM that allowed it to streamline land conveyance and improve business practices and lowering of costs. The administration will evaluate the most available options for addition program reforms to finally complete the transfer in a timely manner. This may include legislations to convert the interim conveyance process into the final patents. This will save an addition of $29 million of taxpayers’ money, which may be diverted to other development projects.
Department of health-Area Health Education Centres
The public funds administration has declined to fund AHECs from financial year 2013. Instead, it has proposed to prioritise its workforce on training programs that directly result from an increase in the number of primary healthcare providers. In any financial year, the government spends $27 million to fund this training. The program supports a form of partnership between the schools of medicine and nursing with AHECs to encourage more people to join the health profession. This also exposes health students to training in underserved areas; the continuing students are provided with existing education as well. These activities are not directly aimed at training new providers and thus do not increase the number of trained providers. The 2013 budget focuses its resources on activities that are more related to addressing the primary shortage of care providers. Many programs have established infrastructure with local and state support. It is estimated that these sources of funding may as well support these activities and other social programs.
Department of State and Other International Programs – Cutting Support for Eurasia, Central Asia, and Europe
According to the Economic Crisis (2010), the United States has for a long time been funding the weak governments of some countries in Central Asia, Europe, and Eurasia. This has been largely due to the humanitarian concerns, which has been causing unnecessary unease on the budget of the United States. The administration proposes a transition program for projects previously aimed at funding such countries; this foreign assistance accounts for a significant proportion of the US budget commitments. This change indicates achievement in foreign assistance and need to focus attention to the highest global priorities.
In 2012, the budgetary allocation in foreign assistance amounted to $627 million and, due to a shift in attention, the 2013 budget proposes to allocate $514 million. This accounts for about 18% reduction from the previous budget.
The justification for this reduction is that the United States remains engaged with the three regions using its diplomatic and financial resources to assist in advancing the national security and addressing difficult challenges in regional development. Likewise, a successful transition in the past has improved the US market democracy over time and thus decreased the regional assistance levels. 11 of these countries have graduated from the United States development assistance, 12 joined the NATO, and 10 have complied with the requirements of the European Union (Hiber, 2010).
In this context, there is a tightly contested constraint over budget allocation. The budget also proposes a notable decrease in resources for previously funded programs. These changes are an indication to focus on the highest global priorities in a constrained budget environment.
Environmental Protection Agency (EPA) – cuts on beach grants
In 2013, the administration has proposed to terminate this funding on EPA beach grant. These grants assisted the territories, tribes, and states to implement water quality monitoring and public awareness programs at the coastal and great lakes beaches. The EPA has collaborated with territorial and state governments for a decade in order to implement beach monitoring programs. Consequently, a number of these non-federal agencies have now gained the ability and knowledge on the importance of beach areas to the local economy. Non-federal agencies have significantly continued to provide incentives for well-established and routine activities based on the importance of the area to the federal economy. Termination of these projects will save the federal government a fortune of $10 million each year, which will then be allocated to other internal development projects.
Department of the Interior – Construction of The Bureau of Indian Affairs
In 2013, the administration proposes to reduce financial assistance for the Bureau of Indian Affairs construction programs. The reduction primarily focuses on BIE’s funded education facilities. Notable progress has been made to replace or rehabilitate such facilities over the last decade. About 70% of the schools have been successfully funded to undergo either full replacement or major repair and improvement. In the year 2012, the budgetary allocation for this project was 124 million US dollars, but the proposal will have it reduced to 106 million in 2013. This will amount to a 15% reduction from the previous year. This decision will allow the program to proceed with major development in repair works and concentrate its efforts on completing the projects that have already started. This program will have a substantial amount of money in unobligated balances as provided in the past.
The government and other major key players in the financial and economic sectors should engage their efforts in these activities. Definitely, by the end of ten years, the United States of America will have regained its glory and taken back its economic role in the world. Americans will have been done away with the shame of being called a dying superpower. I believe in Obama and the principles of the Democrats. The support that the American citizens accord to their leaders is the surest way to believe that cost reduction, high revenues, and a lean budget economy are achievable.
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