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The Budget Process


The President’s role to prepare and deliver the national budget is one of the legislative duties of the President in national matters. Prior to 1920, it was the responsibility of the Congress to prepare its own budget. The Congress limited the authority and power of the presidency through controlling the resources that were at his disposal. The legislative dominance allowed the Congress to raise revenue through taxation and, in addition, make appropriations for national expenditures. 1921 is the year when these trends took a different direction and shifted the responsibility from the legislature to the executive. The Budgeting and Accounting Act of 1921 gave the President the authority to prepare the budget. Many Presidents, beginning with Warren G. Harding to Bill Clinton, have exercised their executive powers to propose budgets that suited their leadership. This paper examines the history of the budget process and how various American presidents used their power to control it.

The Budget Process

The national budget is an all-inclusive plan that the President submits to the Congress every fiscal year and that outlines how the government should spend or make money throughout that year. The budget making process is a two-stage process that involves the President and the Congress. The Constitution provides some guidelines on federal expenditures and revenues. These guidelines, however, are vague on matters of the budget process (Executive Office of the President of the United States, 2004). According to Chapter 2, Articles 1 to 8 of the Constitution, all finances taken from the treasury must be accompanied by the appropriate bill from the Congress. The article stipulates that the Congress was to account for all federal expenditure from time to time. It further stated that any appropriation towards military support expired after two years (Executive Office of the President of the United States, 2004). 

Various US departments and Agencies submitted their budget requests to the Congress directly. Thereafter, the Congress used the submissions to prepare the budget for the following year. The Congress was not limited to the budget submissions. It had the power to adjust the requests by increasing or decreasing expenditures on certain items to reach at a final, balanced state budget. The House of Representatives prepared all spending and sent them to the Senate. In this time, all the appropriations made in a single bill had the aim of achieving a balanced budget.

A balanced budget was not achieved in ten years during the period of legislative dominance over the federal budget (1989-1921). Federal expenditures surged during times of war, such as the Mexican and the Civil War, when it increased four and twenty times respectively (Fisher, 1979). After the Civil War, the Congress established budget appropriation committees to handle all expenditures. At this period of parliamentary dominance over the revenues and expenditures, the President had no role to play except to veto or sign legislation appropriations.

After the World War I, it was difficult for the Congress to control federal expenditures. There was a sharp increase in the expenditures from $0.725 billion in 1915 to $19 billion in 1920. During this time, public debt heightened from $1 billion in 1915 to $26 billion in 1920 (Fisher, 1979). There was much pressure and scrutiny towards the Congress prompting it to hand over its legislative role to the President.

In 1921, during the presidency of Warren G. Harding, the Congress created a new budgetary process with the passage of the Budgeting and Accounting Act. The Act handed over the responsibility of preparing the budget to the President. The Congress could not take on full budgetary responsibilities at any time. The Act required that the President prepare the national budget. It gave the President the responsibility to collect and assemble budget requests from departments and agencies. It barred the government departments and agencies from submitting their appropriation budgets to the Congress directly, as it was the tradition (House of Representatives, 1928). The Act enhanced the President’s authority to oversee the expenditures of the executive departments and agencies (House of Representatives, 1928).

Under the same Act, the Congress created the Bureau of the Budget, a new executive office that aided the President in preparing the federal budget. The Bureau of the Budget establishment was the beginning of an executive budget process. Congress gave the Bureau of the Budget the authority to collect, assemble, correlate, reduce, increase, or revise the estimates of several departments or agencies (Kahn, 1997). These reforms gave the President the power to control over two main stages of the budget. The President has the power to formulate and propose a budget. The President then prepares a proposed budget and presents it to the Congress. The President plays a primary role, while the Congress assumes a secondary role. Apart from that, the Act required the president to deliver a yearly budget message. This Act and message became the channel for many legislative requests by the President (Kahn, 1997).

The Act spurred an explosion that empowered the development of governments and Presidents (Fisher, 1979). American Presidents used these budgeting powers to redesign public policies. They included their legislative programs, such as the Great Society and the New Deal into the budget (Fisher, 1979). In the 1920s, the then Presidents did not use their new powers widely, but concentrated on costs in the budgets rather substance (Kahn, 1997).

President Franklin Roosevelt took over from the work of his predecessor, Warren G. Harding, and began to exercise control over the budget process. In early 1930s, Roosevelt used the Bureau of the Budget to examine a variety of legislations that various departments and agencies sent to the Congress. In early 1930s, the President created the Executive Office of the President (Thomas, Janson & Watson, 1994).

In an attempt to exercise his control over the budget, the President moved the Bureau of Budget into the Executive Office of the President from the former Department of Treasury. The Executive Office of the President became the biggest arm of the State House that aids the President to run the executive division (Thomas, Janson, & Watson, 1994). The Bureau of the Budget increased its prowess with time to examine the proposed testimony to Congress apart from the proposed legislation. It was also in charge of looking into bills and executive orders that awaited presidential veto or signature (Thomas, Janson, & Watson, 1994).

In 1970, President Richard Nixon further displayed his presidential control over the Budget process by transforming the Bureau of the Budget into the Office of Management and Budget. In so doing, he formalized the trend that his predecessors had begun (Hyde, 2002). Under the new name, the Office of Management and Budget enhanced the President’s powers to manage and control the executive branch at the same time, installing another new level of presidential appointees above the agency's category of career analysts (Hyde, 2002). Office of Management and Budget is the largest and now the most powerful group in the Executive Office. Its responsibilities include overseeing budgets and management of the executive branch. It also acts as an advisory board of the President on various issues.

At the same time, President Nixon exercised his executive powers and created the Domestic Council in the White House. This was a forum for cabinet-level members, which the President himself chaired. The Domestic Council and the Office of Management and Budget worked together in some aspects, such as national security.

Conflict between the executive and the legislature arms of the government over the control of budget began during Nixon’s presidency. The tension over expenditures for the Vietnam War increased hostility between the President and the Congress. President Nixon declined to spend billions of dollars that the Congress appropriated. The Congress regarded this as excessive exercise of presidential powers by Nixon. The outcome of this conflict was the Congressional Budget and Impoundment Control Act of 1974. This new budget law allowed the Congress to adopt a budgetary resolution reached by the Congress as well as revenue and expenditure goals.

In addition, the Congress under the Congressional Budget and Impoundment Control Act established the Congressional Budget Office and the House and Senate Committees that gave the Congress its budget recommendations including program analysis and economic assumptions. The Congress therefore, reduced reliance on the presidential budget estimates and recommendations.

Under the guidelines of the Congressional Budget and Impoundment Control Act of 1974, the Congress comes up with the Congressional Budget Resolution. This is a Congressional proposal that manages the federal government’s expenditure and revenue. The Resolution comprises budget estimates, new budget authorities, the net surplus or deficit, proposed outlays, and estimated public debt. This resolution does not need the presidential signature.

In 1981, Ronald Reagan introduced the Omnibus Budget Reconciliation Act of 1981 and the Economic Recovery Tax Act of 1981. These two Acts established the Reagan administration’s priorities as a reduction in domestic appending, tax cuts, and increased military expenditures. Reagan incorporated skilled veterans from earlier Republican administrations to Executive Office of the President (EOP). This enabled him to persuade Congress to approve a dramatic departure in fiscal policy: more than $35 billion in domestic program reductions; a multiyear package of nearly $750 billion in tax cuts; and a three-year, 27 percent increase in defense spending (Hyde, 2002).

In 1985, Reagan signed into law the Balanced Budget and Emergency Deficit Control Act, also called the Gramm-Rudman-Hollings. The act meant to balance the federal budget by 1991. The Act created a deficit reduction plan that would last for from 1986 to 1991, reducing the deficit targets every fiscal year until 1991, when the budget would balance. A half of the cuts would come from the defense and another half from the domestic discrepancy spending. Reagan opposed the 50 percent cuts in the defense spending. In 1986, the Supreme Court declared the Act unconstitutional based on the fact that the sequential reduction provided the Congress undue budgetary power.

In 1987, Reagan signed a revised Balanced Budget and Emergency Deficit Control Act of 1985, the Gramm-Rudman-Hollings II. The Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 codified the annual targets for reducing deficits. The new legislation included an automatic and across-the-board expenditure cuts to ensure achievements of the mandated deficit reductions. These automatic spending cuts were also known as "sequestration". The process involved the White House Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) providing accounting of recommended cuts to the United States Comptroller General, who is also the director of the Government Accountability Office (GAO) (Reischauer, 1997). The 1987 law amended the sequestration procedures and moved the sequestration authority from the Controller General to the Office of Management and Budget.

George W. Bush’s Presidency introduced the Budget Enforcement Act in 1990 that created the PAYGO system (pay-as-you-go). The Act came over after the conference between the administration of George Bush and the congressional moderates. Even though the Gramm-Rudman-Hollings laws assumed unpopular expenditure cuts, if there were no raise in revenues, President Bush threatened to veto any raised taxes, advocating instead for reductions in capital gains taxes. However, with emerging financial and economic crisis, Bush agreed to a call a conference in 1991 to avoid a forthcoming Graham-Rudman-Hollings cut amounting to $100 billion (Reischauer, 1997). Bush agreed in the conference that increases in taxes were required. The change in the course of policy by Bush brought on debate into the Republican Party and provided the Democrats with the opportunity to increase taxes without drawing extra attention. The Congress adopted the reconciliation procedure through the Omnibus Budget Reconciliation Act of 1990. The introduced bill entailed a $496 billion deficit reduction in five years (Reischauer, 1997). In addition to creating the PAYGO rules, it also designated 5-year caps for discretionary spending.

President Bill Clinton’s first budget incorporated the Deficit Reduction Act of 1993. Clinton proposed an increased tax on high-income earners, cut the appropriation spending in addition to the renewing of the Budget Enforcement Act of 1990. The increase in taxes was the highest in the history of USA. After his election in November 1992, Bill Clinton began to draw his focus on reducing the rising budget deficits.

President Clinton’s 1994 budget, submitted in 1993, recommended cutting spending and raising taxes to reduce the looming budget deficit (Fisher, 1979).  The budget proposal included an increase in the marginal tax rate for $180,000 income earners from 31 to 36 percent and another 10% for those with an annual income $250,000. The budget proposal made various changes that included an increase in corporate income tax to 36 percent for companies with annual earnings of $10 million (Fisher, 1979). It also proposed to end specific corporate subsidies, taxation on Social Security benefits for those with an annual income of $250,000, and an earned income tax credit for persons with an annual income of $30,000.  Clinton’s bill set the stage for enormous budgetary surpluses of the 20th century’s last decade (Fisher, 1979). This generated billions of dollars in revenue through the increased marginal tax rates for the federal government.

Since the times of Harding to Clinton, Presidents have exercised their powers differently in terms of government expenditures. Under the Congressional Budget and Impoundment Control Act of 1974 and Budget and Accounting Act of 1921, the President’s proposed budget has not tied the Congress, but the President’s draft budget carried most of the weight. Since the passage of the Budget and Accounting Act of 1921, the Presidents have enjoyed greater powers.

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