A wide range of factors drive and influence the economic policies of the United States:laws, the

Constitution, lobbyists, the state of the global economy, and, ultimately, the people's willWe'll look at
how the U.S. Federal Budget, one of the world's most closely watched economic policies, is created.This
budget's creation process is repeated annually and provides an in-depth look at the power balance
between our federal government's Executive (President) and Legislative (Congress) branches.

The rules and procedures Congress must follow to pass spending and tax legislation are outlined in the
Congressional Budget Act of 1974.The Act mandates that Congress pass a budget resolution each year
that includes spending caps and revenue projections for the federal government.These spending caps
apply to all legislation that is passed, as well as any amendments that Congress may propose.

Many initiatives in economic policymaking begin with the President, and the Federal Budget is no
exception.A comprehensive budget for the upcoming fiscal year will be presented by the President to
Congress on the first Monday of February.The next fiscal year in the United States begins on October
1.The Office of Management and Budget (OMB) will draft the President's budget, which will outline
three important economic policies:

The President's overall fiscal policy is organized around three main guiding principles.How much the
federal government can spend for public purposes, how much it should receive in tax payments from
the public, and how much there will be of a difference between what it spends and what it gets will be
proposed by the President to Congress.Positive or negative, this difference will be a surplus or a deficit.

The president will specify his or her spending guidelines for various government departments, including
education, agriculture, health, and defense, among others.There will be specific amounts allocated to
each department's programs in the budget.The President's budget may include spending guidelines for
the upcoming fiscal year as well as amounts for the subsequent five years to inform lawmakers of the
general direction of his or her economic policies.

Finally, any proposed changes to the federal government's tax and spending policies will be announced
to Congress in the President's budget.Since the majority of government spending is predetermined by
federal laws and is carried out automatically, the President has very little control over it.However, he or
she must request a number of specific funding sources, discretionary spending, changes to entitlement
and social welfare programs like Social Security, and changes to the tax code.Since lawmakers frequently
engage in contentious debate regarding discretionary spending, we will examine it closely.

Government initiatives that must have their funding renewed annually are referred to as discretionary
programs.These programs are not funded by the federal government in the same way that Medicare
and Social Security are.Optional programs that the President deems crucial to the American economy
are referred to as discretionary programs.

The vast majority of the safeguard spending, while fundamental in many regards, is really optional
spending.Each of the numerous programs that are included in the defense budget needs to be renewed
each year as Congress evaluates whether or not it is necessary to continue funding them.Education,
health care, and numerous Department of Transportation programs are additional examples of
discretionary funding.

The amount and types of discretionary spending must go through a detailed process each year, as we
discussed in the section on how policies and laws are made. This gives both the House of
Representatives and the Senate a chance to look over the economic policies in the Federal Budget.More
specifically, the House Appropriations Committee and the Senate Appropriations Committee are the two
committees that have enormous authority over how all discretionary spending is handled.One of the
most prestigious positions in the federal government is frequently held on one of these committees.

The House Appropriations Committee must evaluate and approve all discretionary spending, and its
members cannot hold any other government position. This demonstrates the significance of the
committee's decisions.The Senate Appropriations Committee receives all discretionary spending
programs that have been approved and forwards them to the Senate for further consideration.

The House and Senate Budget Committees are responsible for drafting a budget resolution when
Congress receives the President's budget.The Federal Budget, which is due by April 15th, will pass with a
majority vote in both houses of Congress after the resolution is sent to them for a full vote.

The resolution for the budget is much more succinct than the President's initial request for the budget.It
will include summaries for each of the 19 major departments—or spending categories—that make up
the federal government.It is required to provide a report detailing the amount of money spent and
revenue collected for each category.After that, the Congressional Budget Resolution is put to a vote in
Congress.The Congressional Budget Act of 1974 mandates that the resolution include information
covering at least five years, though programs that lawmakers closely monitor typically include more
information.

A reconciliation bill is a piece of proposed legislation that has an impact on the Federal Budget that
Congress may introduce during the discussion of the Federal Budget.Each House's Budget Committee
will combine all of these reconciliation bills into a single bill, which is then brought to both Houses' floors
for a full vote.

The Pay As You Go rule, or PAYGO, is a law that says that any increase in money spent on entitlement
and social welfare programs like Medicare and Social Security must be compensated for (or paid for) by
more money paid in taxes or less money spent on other things.Only entitlement programs, not
discretionary ones, are subject to this rule.A member of the House may raise a point of order, which
automatically defeats the bill, if any increase to entitlement programs is proposed without an offset.If a
senator raises a point of order, the bill can be saved with 60 votes in favor.

The Congressional Approval: Following the completion of all committee work and the incorporation of
the reconciliation bills into the budget proposal, Congress will vote on the Federal Budget, which will
establish the United States' economic policy and priorities.