Balancing The Budget

Key Terms

Balanced Budget Amendment Ever a favorite of Republicans, the measure would codify a balanced budget in federal law, forcing lawmakers not to overspend revenues -- that is, not to run a deficit. The House passed a version in the 104th Congress which would allow an escape hatch in times of emergency if three-fifths of House members approved. Constitutional amendments do not require presidential signature but need two-thirds majority approval in both the congressional bodies before being sent to state legislatures for ratification. Three-fourths of the states must ratify. The Senate voted 65-35 for the amendment, one vote shy of the needed total. President Clinton's aggressive lobbying against the balanced budget amendment played a key role in its defeat. Republicans are likely to revive the measure, and having picked up three Senate seats, seem poised to win congressional approval.

Budget Authority The authority for federal agencies to spend or otherwise obligate money, accomplished through enactment into law of appropriations bills. Budget authority is similar to putting money in a checking account; outlays occur when checks are written and cashed.

Budget Outlays Money that is actually spent in a given fiscal year, as opposed to money that is appropriated for that year. One year's budget authority can result in outlays over several years, and the outlays in any given year result from a mix of budget authority from that and prior years.

Deficit When lawmakers commit to spend more than the federal government receives in revenues, the difference is borrowed and becomes that year's deficit. There is a crucial distinction between the national deficit and the national debt: when the deficit goes down in a given year, it merely means lawmakers are borrowing less. Each year's deficit gets added to the national debt, which currently stands at roughly $5 trillion.

Discretionary Spending Each year lawmakers reconsider and reauthorize the funding for most areas of the federal government including Congress, the Environmental Protection Agency, the Department of Education, the military, and the Commerce Department. About a third of the total outlays of the government fall under discretionary spending.

Fiscal Year Congress writes a budget each year that spans Oct. 1 of the current year to Sept. 30 of the next. Lawmakers will be working this year on a budget for fiscal 1998.

Mandatory Spending About two-thirds of federal spending is on autopilot, codified outlays for the entitlement programs of Medicare, Medicaid, food stamps, federal pensions and Social Security. These spending levels remain unchanged year-to-year absent a change in the law.

National Debt The amount of money the U.S. government owes its creditors stands at roughly $5 trillion. Each year that the federal government spends more than it takes in revenues, that amount (the deficit) is added to the federal debt. To many, the main problem with deficit spending isn't the borrowing per se, but the debt the government accumulates. As the debt rises, the government spends an increasing amount simply to pay the interest on the debt. Some scholars say the high debt and deficit raise interest rates.

Pay-as-you-go Rule (PAYGO) This rule requires that all tax cuts, new entitlement programs or expansions of existing entitlement programs be budget-neutral -- offset either by additional taxes or cuts in existing entitlement programs.

Reconciliation The process by which tax laws and spending programs are changed, or reconciled, to reach outlay and revenue targets set in the congressional budget resolution. Established by the 1974 Congressional Budget Act, it was first used in 1980. The last reconciliation bill was the welfare overhaul bill enacted in 1996 (PL 104-193). A much broader bill, which aimed to balance the budget in seven years, was passed in 1995, but President Clinton vetoed it.

Rescission If Congress or the White House wants to cancel items in the budget, a bill to rescind the item must be passed by lawmakers and signed by the president.

Revenues Taxes, customs duties, some user fees and most other receipts paid to the federal government. Some receipts and user fees show up as "negative outlays," however, and do not count as revenue.

Sequester The cancellation of spending authority as a disciplinary measure to corral spending above pre-set limits. Appropriations that exceed annual spending caps can trigger a sequester that would cut all appropriations by the amount of the excess. Similarly, tax cuts or new or expanded entitlement spending programs that are not offset under pay-as-you-go rules would trigger a sequester of non-exempt entitlement programs.

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