Major Budgeting Terms and Concepts

This is a partial listing of some of the major budget terms for the class. We will add to these terms as we go along

Fiscal policy- Collectively, all federal government policies on taxes, spending, and debt management: intended to promote the nation’s macroeconomic goals, particularly with respect to employment, gross national product, price level stability, and equilibrium in balance of payments. The budget process is a major vehicle for determining and implementing federal fiscal policy. The other major vehicle for determining and implementing federal fiscal policy. The other major component of federal macroeconomic policy is monetary policy.

Capital Budget- A budget that deals with large expenditures for capital items normally financed by borrowing. Usually, capital items have long-range returns and useful life spans, are relatively expensive, and have physical presence (for example, buildings, roads, and sewage systems).

Current Services Budget- An executive budget projection that alerts the Congress-especially the Congressional Budget Office, the budget committees, and the appropriation committees- to anticipate specific revenue, expenditure, and debt levels, assuming that current policy is unchanged. It also provides a baseline of comparison to the presidential budget.

Authorizing Legislation- Substantive legislation that sets up or continues the legal operation of a program or a program or agency, either indefinitely or for a specific period of time, or that sanctions a particular type of obligation or expenditure within a program. Authorizing legislation is normally a prerequisite for an appropriation. It may place a limit on the amount of budget authority to be included in appropriations acts or it may authorize the appropriation of "such sums as may be necessary." In some instances, authorizing legislation may provide authority to incur debts or to mandate payment to particular persons or political subdivisions of the country.

Zero-Based Budgeting- An approach to public budgeting in which each year’s activities are judged anew, with no reference to the policy precedents or dollar amounts of past years.

Rescission- The consequence of executive and legislative action that cancels budget authority previously provided by Congress before the time when the authority would have otherwise have lapsed (that is, when appropriated funds would have ceased to be available for obligation). The Congressional Budget and Impoundment Control Act of 1974 specifies that whenever the president determines that all or part of any budget authority will not be needed to carry out the full objectives or scope of programs for which the authority was provided, the president will propose to Congress that the funds be rescinded. Likewise, if all or part of any budget authority limited to a fiscal year- that is, annual appropriations, or budget authority of a multiyear appropriation in the last year of availability- is to be reserved from obligation for the entire fiscal year, a rescission will be proposed. Budget authority mat also be proposed for rescission for reasons of fiscal policy or other reasons. Generally, an amount proposed for rescission is withheld for up to 45 legislative days while the proposal is considered by Congress. All funds for rescission, including those withheld, must be reported to Congress in a special message. If both houses have not completed action on the rescission proposed by the president within 45 calendar days of continuous session, any funds withheld must be made available for obligation.

Crosswalk- any procedure for expressing the relationship between different classification of budgetary data, such as between appropriation accounts and government policy.

Cash Accounting System - (Cash basis of accounting)-The basis of accounting whereby revenues are recorded when received and expenditures (outlays) are recorded when paid, without regard to the accounting period in which the transactions occurred.

Accrual Accounting System (Accrual Basis of Accounting)- The basis of accounting under which revenues are recorded when goods are received and services performed, even though receipt of the of the revenue or payment of the expenditure may take place, in whole or part, in another accounting period.

Employment Act of 1946-federal legislation that called for economic planning and for a budget policy directed toward achieving maximum national employment and production.

Congressional Budget Office (CBO)- Federal office responsible for presenting the Congress with reasonable and viable forecasts of aggregate levels of spending and revenue. The office also makes cost estimates for proposed legislation reported to the floor and provides cost projections for all existing legislation.

Impoundment- any action or inaction by an officer or employee of the U.S. government that precludes the obligation or expenditure of budget authority provided by Congress. It is also the power of the president to withhold (refuse to spend) funds that have been appropriated by Congress.

Assets-Any item of economic value owned by a government unit. The item may be tangible (that is, physical and actual) or intangible (that is, a right to ownership, expressed in terms of cost or some other value).

Balance Sheet- an accounting statement designed to balance total assets, total liabilities, and fund balance.

Appropriation- A legislative authorization that permits government agencies to incur obligations and to make payments out of the treasury for specified purposes. An appropriation usually follows enactment of authorizing legislation. An appropriation act is the most common means of providing budget authority, but in some cases the authorizing legislation itself provides the budget authority. Appropriations do not represent cash actually set aside in the treasury for purposes specified in the appropriations act; they represent limitations of amounts that agencies may obligate during the period of time specified in the relevant appropriations act. Several types of appropriations are not counted as budget authority, since they do not provide authority to incur additional obligations. Examples of these include: (a) appropriations to liquidate contract authority; Congressional action to provide funds to pay obligations incurred against contract authority; (b) appropriations to reduce outstanding debt- Congressional action to provide funds for debt retirement; and (c) appropriations for refunds of receipts. There are 13 major appropriation bills passed by Congress that make up much of the federal budget. These appropriation bills correspond to the subcommittees of the appropriation committees in the House and Senate. 

Continuing Resolution- If a decision has not been reached on appropriations prior to the beginning of the current year, then Congress can pass a resolution that says that the government can continue to obligate and spend at last year’s budget levels or the lowest level passed by a chamber of Congress. The wording is usually framed to permit spending at the lowest amount the legislature is likely to pass.

Expenditures- Payment of an obligation.

Planning-Program-Based Budgeting- An attempt in the federal government and some state and local governments to bring more analysis into the budgeting process. It is not itself an analytical technique, but it stresses the use of analytical tools in deciding budget issues related to specific government programs.

Budget and Accounting Act of 1921- Federal legislation that provided for an executive budget for the national government and for an independent audit of government accounts.

Contract Authority- Statutory authority that permits obligations to be incurred in advance of appropriations or in anticipation of receipts to be credited to a revolving fund or other account. Contract authority is unfunded and most subsequently be funded by an appropriation to liquidate obligations incurred under the contract authority, or by the collection and use of receipts.

Line-Item Budget- A budget format that presents the exact amount planned to be spent for every separate good or service to be purchased.

Transfer Payments- Money moved from one government to another or to private persons. They often serve as automatic stabilizers built into the economy. These payments normally rise substantially during periods of recession and fall during periods of prosperity. For example, the unemployed receives unemployment compensation; in recessionary times they may eventually receive welfare and food stamps as well.

Balanced Budget Act of 1985-the Gramm-Rudman-Hollings Act, one of three major laws passed between 1974-1992to cure the budget crisis. The provisions of each law were complex and ineffective. It was established deficit reduction targets for specific fiscal year. The law left major loopholes such as funding the bail-out of the 1980s federal budget failures has meant the collapse of budget regularity, the encouragement of deceitful accounting practices, a premium on gimmicks that produce short-term improvement but do not ease the structural problem, strained relationships between the president and Congress, lessening the effective leadership of the president, Congressional congestion and frustration, overloading the ability of the political leaders to reach an effective solution, crowding out other important national concerns, and insufficient resources to respond to emerging issues and priorities.

Budget and Accounting Act of 1921- provided for a national budget and an independent audit of government accounts. The law specifically required the president to submit a budget, including estimates of expenditures, appropriations, and receipts for the ensuing fiscal year. The new legislation created the Bureau of the Budget (BOB) in the treasury department. This strengthened the role of the president. The Bureau of the Budget was later moved to the Executive Office of the President and ultimately became the Office of Management and Budget in 1970.

Bureau of the Budget- The Bureau, when directed by the president, shall make a detailed study of the departments and establishments for the purpose of enabling the president to determine what changes (with a view of securing greater economy and efficiency in the conduct of the public service) should be made in (1) the existing organization, activities, and methods of business of such departments or establishments, (2) the appropriations, (3) the assignment of certain activities to particular services, or (4) the regrouping of services. The results of such study shall be embodied in a report or reports to the president, who may transmit to Congress such report or reports or any part thereof with his recommendation on the matter covered thereby. The bureau creates the president’s budget. Agencies were required to submit their estimates and supporting information to BOB and were allowed no contact with Congress. Thus ensuring the presidents power.

Office of Management and Budget- (OMB) the major implementer of fiscal policy once decisions are made by Congress and the president. An office of the president set up in 1970 in succession to the bureau of the budget (founded in 1921) which is responsible for preparing the executive’s budget for presentation to Congress in January each year. After examination by the House and Senate committees, a concurrent resolution on the budget is announced by April 15 to be followed by legislation by May 15. Once the budget is passed, the OMB supervises and controls its administration and provides data on program performance.

Budget Enforcement Act of 1990- part of three major laws between 1974-1992 to cure the public budget crisis. This law sets targets within categories.

Progressive Tax-A tax whose rate rises as income or expenditures rises. The principle examples of these taxes are on personal and corporate incomes. Progressive taxes aim to achieve a more equal distribution of income post-tax than pre-tax.

Flat Rate Tax- An income tax which is at the same rate for every level of income. The justification for a tax of this kind is its simplicity and lack of disincentive effects inherent in some forms of tax progression. However, a flat rate tax is likely to be unfair burden on low-income groups if the rate at which it is levied is high.

Monetarism- A modern revival of the quantity theory of money, making use of modern neoclassical economics. It regards the money supply as the most important determinant of aggregate money income and reasserts the relevance of price theory of economics. In practice, most monetarists use the gradualist approach of aiming for a rate of monetary expansion, which will achieve long-term price stability. This school is associated with economist, Milton Friedman. 

Sequestration- 1. Spending cuts in the federal budget imposed under Gramm-Rudman-Hollings Law. 2. Temporary seizure of assets under a court order, e.g. of union funds under British employment legislation.

John Maynard Keynes- (1883-1946) In three books, he groped towards a theory which was to dominate western macroeconomics for over thirty years. A member of the Liberal party, he connected together the theories of the consumption function, aggregate demand, the multiplier, the marginal efficiency of capital, liquidity preference and expectations.

Keynesian Economics- Keynesian policy is most popularly regarded as the use of national budget deficits to maintain full employment. An emphasis on the importance of the investment multiplier, an assertion that the liquidity preference schedule is stable in the long run and unaffected by the actions of central banks and the insistence on the major importance of fiscal policy so that money and the rate of interest are of little importance to the management of the economy.

Laffer Curve- A graphical representation of the relationship between average tax rates and total tax revenues which asserts that above certain average tax rate of tax revenue will decline. The curve implies that, as there is a ceiling to the amount a government can raise, there is a limit to the public goods, which can be provided. The theory assumes that if the tax rate were zero, no taxes would be collected. Likewise, the theory assumes that if the tax rate were 100 percent, no tax revenues would be generated. 

Federal Reserve System- Established in 1913, it is the system that carries out the functions of a central bank for the United States. The original aims of the system were to give the country an elastic currency, to provide facilities for discounting commercial paper and to improve the supervision of banking.

Prime Rate of Interest- The rate of interest that us commercial banks charge medium and small sized firms for borrowing. Historically, this was the interest rate the most creditworthy customers of banks were charged but with the development of the commercial paper market, the largest customers borrow below the prime rate.

Regressive Tax- One, which falls disproportionately on lower income, groups. As income decreases, the average rate of tax increases. Many indirect taxes, e.g. excise duties and sales taxes, are regarded as regressive but the extent to which they are depends on the consumption patterns of different income groups. Poll taxes are the simplest case of regression.

Backdoor spending- Backdoor authority as well as mandatory spending legislation. That is, legislation that mandates the payment of benefits or entitlements, such as increases in veteran's compensation or pensions. Such mandatory legislation requires the subsequent enactment of appropriations.

Reconciliation Bill- (appropriation bill)- A legislation bill which authorizes expenditure for a particular purpose, e.g. defense. It has to be passed by both the House of Representative and the Senate. Annually all bills are expected to be reconciled by a Reconciliation Bill by the end of June; if reconciliation is impossible, then a continuing resolution is passed which permits Departments to continue at their current expenditure levels.

Concurrent Resolution- A resolution introduced in both houses of a legislature.

Supply-Side Economics- A major U.S. school of economics which inspired the economic policies of the U.S. under President Reagan and of the UK under Prime Minister Thatcher. Opposing the Keynesian view that aggregated demand is central to determining the level of economic activity, supply-siders place emphasis on aggregate supply. Thus there has been a revival in the respectability of Say’s Law and a concern for the disincentive effects of taxation. The Laffer curve has been a major innovation of the school. The adherents of supply-side economics and monetarism often coincide. The New Classical Economists have formalized many of their insights.

Demand-Side Economics - The opposite of supply-side economics. This theoretical framework holds that "demand" creates its own supply and views consumers to be (rather than producers) the central actors in an economy.  Demand-side economics includes the work of John M. Keynes and the monetarist theorists.

Phillips Curve- The relationship between unemployment and inflation so named by Samuelson and Solow after Phillips attempted to identify it in 1958 by plotting data on changes in money wage rates for the period 1861-1957 against the national unemployment rates. Later work on Phillips Curve sought to take into account incomes policies and inflationary expectations. The long run Phillips Curve is vertical at the natural rate of unemployment. In contemporary economics, the validity of the Phillips Curve has been questioned.

Performance versus Program Budgeting- Budget formats vary in their focus. Program Budgeting stresses management and planning to help budget officials move beyond the constraints of line-item and incrementalism toward a more rational and flexible decision-making that focuses on program results. Performance Budgeting is now required in most states. The major emphasis is on activities or programs. The idea is to focus attention on how efficiently and effectively work is being done rather than on what things are being required. Whereas line-item focuses on inputs, performance budgeting focuses on outputs. In short, Performance Budgeting measures work performance and how well agencies are achieving stated objectives.