The Federal Budget: Overview and Issues for FY2018 and Beyond

Summary

The federal budget is a central component of the congressional “power of the purse.” Each fiscal year, Congress and the President engage in a number of practices that influence short- and long-run revenue and expenditure trends. This report offers context for the current budget debate and tracks legislative events related to the federal budget.

In recent years, policies enacted to decrease spending along with a stronger economy have led to reduced budget deficits. The Budget Control Act of 2011 (BCA; P.L. 112-25) implemented several measures intended to reduce the deficit from FY2012 through FY2021. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240), the Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67), and the Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74) increased the discretionary budget authority levels permitted under the BCA for FY2013 through FY2017. Various deficit reduction measures were included to offset the costs of the changes to spending levels in that legislation.

The BCA will continue to affect spending limits in FY2018 and beyond, and Congress may debate enacting further modifications. The annual appropriations process, the statutory debt limit, and “tax extenders” each may draw congressional attention in FY2018. Additionally, Congress may choose to debate structural changes to the federal tax system, including reforms proposed by the House Committee on Ways and Means and the Trump Administration. Though federal budget deficits have stabilized in recent years, they remain well above their historical average.

The Trump Administration released its FY2018 budget on May 23, 2017. Proposed policy changes in the budget included reductions in individual and corporate income tax rates, increases in discretionary defense spending, and large decreases in mandatory spending other than Social Security and Medicare (with the largest budgetary effects resulting from decreases in Medicaid spending) and in nondefense discretionary programs.

Following passage of full-year FY2017 appropriations, Congress has turned its attention to the FY2018 budget. The Budget Committees in the House and Senate each develop a budget resolution as they receive information and testimony from a number of sources, including the Administration, the Congressional Budget Office, and congressional committees with jurisdiction over spending and revenues.

Trends resulting from current federal fiscal policies are generally thought by economists to be unsustainable in the long term. Projections suggest that achieving a sustainable long-term trajectory for the federal budget would require deficit reduction. Reductions in deficits could be accomplished through revenue increases, spending reductions, or some combination of the two.