April 8, 2025
By Marc Stier
The federal budget process was created by the Congressional Budget and Impoundment Control Act of 1974 to accomplish three things. The first was to force Congress to make decisions that take into account both revenues and expenditures with the hope that this would lead to lower deficits. The second was to enable the Senate to make decisions about budget issues by majority rule without the threat of filibuster. And the third was to re-assert Congress’s budget authority by prohibiting the president from not spending—that is, impounding—funds already appropriated by Congress without approval by both houses of Congress.
The budget process has three steps.
The first is the budget resolution. Each house must pass a budget resolution that sets overall spending and revenue numbers for the fiscal year beginning on the following October 1. Because it is a concurrent resolution, the budget resolution does not need the approval of the president. For the same reason, a budget resolution cannot enact legislation. Instead, it gives instructions or targets, directing the committees that write legislation on taxes and entitlement and that set federal appropriations to take action to meet overall budget goals. And it sets the reconciliation process in motion.
The budget resolution is not terribly detailed. It creates spending goals for eighteen budget functions and sets overall revenue targets for a minimum of five and sometimes for as many as ten years. Then it creates what are called 302 (a) allocations, distributing the appropriations in the eighteen budget functions by congressional committee. Because the House and Senate have different committee structures, there are two sets of 302 (a) allocations.[1]
Because there are two sets of 302 (a) allocations, the instructions to the House and Senate committees can be different so long as they are not contradictory. This year, because of the disagreements between the House and Senate, the budget resolution is taking advantage of this feature of the budget process to put off making important decisions about where budget cuts should be made. See our post on the recent Senate resolution for details.
In the second step of the process, the legislative committees take actions to meet the requirements of the budget resolution. Revenue decisions are under the control of the House Ways and Means Committee and Senate Finance Committee. Many of the expenditure changes are made by the Appropriations Committee, which controls most federal expenditures, also known as outlays. But when some programmatic changes are needed to change spending, especially for entitlement programs that do not require appropriations, other legislative changes are needed and are carried out by other committees.[2] For example, in the House, the Medicaid program is under the jurisdiction of the Energy and Commerce Committee, while Social Security and Medicare are under the jurisdiction of the Ways and Means Committee.
The budget resolution then sets up a reconciliation process. This involves the budget committees packaging the products of the legislative committees into one reconciliation bill that is then passed first by the House and then by the Senate. Unlike the budget resolution, there are no variants for the House and Senate. And both chambers must pass an identical bill. If they do not, informal negotiations take place and then each chamber can pass amendments that change their bill to confirm to the agreement reached between House and Senate. Or there can be a conference committee in which this negotiation takes place. When that happens, the conference committee will pass a new, revised budget resolution that is then taken up by and passed by the House and Senate.
Reconciliation is a limited process. Under the Byrd rule—named for long-time Senate Chair of the Appropriations Committee, Robert C. Byrd who devised it, a budget reconciliation bill can only change laws that, in the judgment of the Senate parliamentarian (subject to being overridden by a 60-vote majority by the Senate) have “direct” fiscal implications, that fiscal implications that are not “merely incidental” to the purpose of the law. A few years ago, provisions raising the minimum wage were excluded from a reconciliation bill because the parliamentarian ruled that they only have indirect fiscal implications. Also, Social Security may not be changed through the reconciliation process.
Because the reconciliation bill enacts legislation, it must be presented to and signed by the president to become law. If the president vetoes the reconciliation bill, the House and Senate must both pass it by a two-thirds vote for it to become law.
There are additional budgetary requirements designed to limits deficits created by reconciliation bills that have been added and removed from the process from time to time. We won’t go into them here. A good, more detailed, overview of the budget process with information about these limits can be found here: Center on Budget and Policy Priorities, Policy Basics: Introduction to the Federal Budget Process.
[1]. To be clear, “outlays” is basically a synonym for “expenditures.” It’s the amount of money that the federal government spends. When you read budget documents, you will also see the terms “authorization” and “appropriation.
[2]. Entitlements are programs that set up rules for the federal government to distribute money to people on the basis of certain criteria. The federal government is required to spend as much money as is needed to meet the obligations of the law. For example, the Social Security, Medicare, and Medicaid programs promise people to pay retirement and health care benefits. Other spending requires a two-step process. The program has to be authorized, that is created or renewed, by the substantive committee that has responsibility for that function of government. For example, farm subsidies are authorized by the Farm Bill, written by the House and Senate Agriculture Committees. Authorizations set an upper (and sometimes lower) limit on how much can be spent for each program. The Appropriations Committee gives the federal government permission to expend money (create outlays) up to a certain limit, which may be less than the amount authorized.