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Political Economy
Posted at 10:41 AM ET, 04/29/2011

Budget, debt ceiling glossary: A cheat sheet for understanding the debates


Tony Burke, a member of Young Americans for Liberty, asks UC Irvine students to sign a petition to Congress protesting the national debt. (JEBB HARRIS - AP)
With its constant twists and turns, the debate over the 2012 budget has grown more complicated and confusing than ever — to the point where even the budget process itself has gotten lost in the tangle. For those who want some clarity on debt ceilings and continuing resolutions, here’s a primer on what they’re talking about on Capitol Hill:

Appropriations and authorization
Budget authority
Bush-era tax cuts
Continuing resolution/continuing appropriations
Debt ceiling/debt limit
Default
Deficit
Entitlements
Fiscal year
Gang of Six
Medicaid
Medicare
National Commission on Fiscal Responsibility and Reform
National debt/public debt
Simpson-Bowles
Social Security
Stopgap budget bill

Authorization and appropriations

These are the two steps of the federal spending process. Once Congress receives the president’s budget, lawmakers can authorize funding for a federal agency or program by enacting legislation. The amount authorized can be clear-cut or indefinite (e.g. “such sums as may be necessary”) and can be good for a fiscal year or multiple years. A federal agency or program can then tap funds from Treasury once Congress passes an appropriations measure. This is done annually. Appropriations measures establish an agency’s budget authority, which gives that agency responsibility to spend the funds based on specified criteria.

Not all federal agencies and programs go through this two-step process. Some programs, such as Social Security and Medicare, are entitlements, which means that the federal government is required to pay benefits to everyone who qualifies, regardless of cost.

Interactive Graphic: A primer on the federal budget process

Interactive Graphic: How spending and revenue changed over time

Interactive Graphic: 30 years of spending priorities

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Bush-era tax cuts


President George W. Bush renewed his fight for hundreds of billions of dollars in tax cuts over the next decade on April 15, 2003. (SUSAN WALSH - ASSOCIATED PRESS)
The tax cuts refer to two laws passed in 2001 and 2003 during George W. Bush’s administration that reduced taxes for virtually every American. The first, which constituted the largest tax cut in a generation, reduced most income tax rates and eliminated the estate tax. It cut revenues by a projected $1.35 trillion through 2010. The smaller 2003 bill, which sought to return $350 billion to taxpayers through 2010, reduced taxes on capital gains and dividends.

Bush and the GOP say the laws have helped to bolster the economy and add jobs. Critics of the tax cuts say that they give outsized benefits to wealthy Americans and deprive the government of needed revenue at a time of record annual deficits. Despite strong opposition from some members of his own party, President Obama in December signed into law an $858 billion package that maintained the Bush tax cuts for two years. The law also called for a one-year payroll tax holiday and extended emergency unemployment benefits. Many see the short-term extension as a stopgap measure that gives leaders a chance to devise a major overhaul of the federal tax code.

Read: Analysis: Deficit talk gets serious

Read: Biden deficit task force off to rocky start

Read: S&P lowers its outlook on U.S. debt

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Budget authority

This is the responsibility given to government agencies by law for how to spend federal funds. With budget authority, Congress can specify the amount of funds available to an agency and for how long.

Read: How do $38.5B in cuts become $350M?

Read: CBO report reduces initial impact of budget deal

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Continuing resolution/continuing appropriations

Legislation used by Congress to fund federal agencies and programs at current or reduced levels until formal appropriations measures are passed. On April 9, President Obama signed a continuing resolution, or stopgap bill, into law to avert a government shutdown that would have affected 800,000 workers.

Read: Rubin: CR confusion

Read: No win-win deal?

Read: Summary of fiscal 2011 continuing resolution

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Debt ceiling or debt limit

The debt ceiling is the legal limit on borrowing by the government. Before 1917, Congress had to approve each issuance of debt as it came up. To give the Treasury more flexibility in borrowing, lawmakers established a limit covering nearly all government debt. The ceiling has been raised almost 100 times since then. Under George W. Bush, the national debt soared with the costs of wars in Iraq and Afghanistan, the new tax cuts and higher spending on government programs. The debt has climbed even higher under President Obama, fueled by a massive $814 billion economic stimulus package and the collapse of tax revenues during the recession.

Today, the United States is facing a debt limit of $14.3 trillion. Treasury Secretary Timothy F. Geithner has warned that if the limit is not raised by early July the nation may default on its debt obligations, roiling global financial markets. Republican lawmakers say they need a commitment from the White House for more spending cuts in exchange for voting to raise the limit. The White House has rejected the inclusion of spending caps or other changes to the budget process in legislation, arguing that ensuring the government’s solvency is too important to be held hostage to other issues. Vice President Biden is leading talks with lawmakers in hopes of reaching a compromise on deficit reduction that could clear the way for the debt limit vote to go forward.

Motion Graphic: Showdown over the debt ceiling

Read: Why is everyone in Washington talking about the debt ceiling?

Graphic: Raising the debt ceiling

Video: The Fast-Fix: Dealing with the debt

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Default

Default means the failure to make good on financial obligations. The U.S. debt is more than $14 billion, within striking distance of the legal limit on borrowing. On April 4, Treasury Secretary Timothy F. Geithner warned lawmakers that if they don’t raise the debt limit, he would be forced to make do with using tax revenues, which come nowhere near covering the nation’s bills. Some Republicans argue that Geithner could avoid default by paying interest to the nation’s creditors before other obligations. But Treasury officials say they will be forced to halt payment if they can no longer borrow, and that the failure to meet any commitment would be viewed by the market as a default, potentially triggering another financial crisis.

Read: Treasury plans for debt showdown

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Deficit

The nation’s deficit represents the annual gap between spending and revenue. When a government runs a budget deficit, it means it has spent more money in a given fiscal period than it has brought in. According to a recent estimate from the nonpartisan Congressional Budget Office, the federal government will incur a $1.5 trillion deficit this year, which would be the widest budget gap in U.S. history. The CBO projects that the gap will narrow as the economy recovers, tax collections return to normal levels and the government stops spending so much on food stamps, unemployment support and health care for the poor. However, without significant changes in federal tax and/or spending policy, deficits will remain elevated throughout the decade, adding around $10 trillion to the national debt by 2021. A political consensus has emerged in Washington that such skyrocketing deficits would pose serious economic risk. Obama and congressional Republicans have offered plans for trimming borrowing over the next 10 to 12 years by an estimated $4 trillion to $4.4 trillion dollars.

Read: Poll: More see budget deficit as big problem

Read: Gerson: How serious are we really about the deficit?

Read: Klein: No on taxes = yes on deficits

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Entitlements

Any federal programs that guarantee payment to individuals who meet a certain criteria set by law are called entitlements. These programs include Social Security, Medicare, Medicaid, veterans’ compensation and pensions. Payouts for these programs, especially Social Security, constitute more than half of all federal government spending.

Read: Two very different approaches to a budget deal

Read: Dems have called for entitlement reforms, GOP has rejected tax increases

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Fiscal year

The fiscal year covers a 12-month period that a business, government or other entities use as a framework for their yearly accounting statements. For the U.S. government, the fiscal year is the period that begins on October 1 and ends on September 30.

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Gang of Six


This combination image from file photos shows the six-member bipartisan group of U.S. senators, referred to as the “Gang of Six.” They are, clockwise from top left, Sen. Tom Coburn, R-Okla., Sen. Dick Durbin, D-Ill., Sen. Saxby Chambliss, R-Ga., Sen. Mark Warner, D-Va., Sen. Kent Conrad, D-N.D., and Sen. Mike Crapo, R-Idaho. (AP)
The so-called Gang of Six is an influential group of three Senate Democrats and three Republicans who have been holding closed-door talks to come up with a comprehensive plan to trim borrowing by $4 trillion over the next decade. The group includes Democratic Sens. Mark Warner, the former Virginia governor who famously balanced the state’s budget; Kent Conrad of North Dakota, the chairman of the Senate Budget Committee who has long championed fiscal reform and is one of the Senate’s leading liberals; and Richard J. Durbin of Illinois, the assistant majority leader and a close Obama ally. The Gang of Six also includes some of the Senate’s most conservative Republicans: Saxby Chambliss of Georgia, a personal friend of House Speaker John A. Boehner (R-Ohio); Tom Coburn of Oklahoma, who counts both Boehner and Obama among his friends; and Mike Crapo of Idaho, a close adviser to Senate Minority Leader Mitch McConnell (R-Ky.). Four of the group’s members served on the National Commission on Fiscal Responsibility and Reform, the independent panel that Obama created to tackle the deficit last year. Using the commission’s recommendations as a template, the Gang of Six is devising a strategy to cut spending in all categories, including defense and entitlement programs, while encouraging a rewrite of the tax code that would lower tax rates but raise revenue.

Read: ‘Gang of 6’ takes deficit fight to public

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Medicaid

This joint federal-state health entitlement program serves certain categories of people with lower incomes such as children, pregnant women and people with disabilities. The number of people on Medicaid has soared in recent years to more than 50 million, putting an enormous strain on state budgets. The Congressional Budget Office forecasts that nearly 100 million Americans will be on Medicaid by 2021. Republicans have proposed making Medicaid into a program that provides block grants to states. That would save money because the amount of federal funding would not vary according to how much a state spends. Opponents say it would also force states to dramatically scale back the program, pushing as many as 11 million people who need the aid off coverage by 2021.

Read: Wonkbook: The GOP hearts ObamaCare?

Read: Klein:What cutting Medicaid means

Read: Klein: Guidelines for controlling health-care costs

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Medicare


Seniors attend a "Medicare Monday" seminar at the Holly Creek retirement community in Centennial, Colo. (John Moore - GETTY IMAGES)
Medicare is a health insurance program managed by the U.S. government for people over 65 years of age and for younger people with certain disabilities. Since the entitlement program was created by the Social Security Act of 1965, Medicare spending has been consuming an increasingly larger share of the federal budget. Funding for the program has become a major source of debate in budget talks. There are now more than 47 million beneficiaries of Medicare. The August 2010 Medicare Trustees’ report warned that the program will run out of money by 2029. In his House budget proposal, Rep. Paul Ryan (R-Wis.) proposes ending Medicare as an open-ended entitlement starting in 2022. It would then be converted to a system of premium supports that would pay part of the cost of private insurance for new retirees. Obama and congressional Democrats have attacked this plan, citing a CBO analysis that said the measure would sharply increase health costs for most people over 65.

Read: Klein: RyanCare vs. the public option

Read: GOP faces tough questions on Medicare

Read: Klein: The wrong argument on health-care costs

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National Commission on Fiscal Responsibility and Reform

Last year, Obama created a presidential commission to study “policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.” Obama directed the commission to balance the budget - not counting interest on the debt - by 2015.

Read: Bowles and Simpson: There’s still hope for dealing with debt

Read: Obama turns to deficit commission’s blueprint for reducing debt

Read:: The commission’s ‘Moment of Truth’ report

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National debt

This is the amount of money the federal government owes to creditors. When Congress approves spending and tax policies that create budget deficits, the Treasury must borrow money to cover the excess costs. The debt is the accumulation of many years of deficit spending. The United States owes creditors a little over $14.2 trillion. About $4.6 trillion is owed to other government accounts, particularly the Social Security trust fund. The rest -- known as publicly held debt -- is owed to outside investors, including individuals, pension plans, financial institutions here and abroad, and foreign governments such as China and Japan. While the entire debt is subject to the legal limit on borrowing, economists typically consider only the publicly-held debt when assessing the nation’s fiscal condition.

The national debt clock

This is one of the many debt clocks that exist. There is no official debt clock or one that the government endorses.

Read: S&P lowers its outlook on U.S. debt

Graphic: Raising the debt ceiling

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Simpson-Bowles


National Commission on Fiscal Responsibility and Reform Co-Chairmen Alan Simpson, right, and Erskine Bowles, testify on Capitol Hill March 8. (J. Scott Applewhite - AP)
In November, former Clinton White House chief of staff Erskine Bowles and former Wyoming senator Alan Simpson, co-chairmen of the National Commission on Fiscal Responsibility and Reform, released a plan to reduce the nation’s budget deficit. The blueprint would curb increases in Social Security benefits, slash spending at the Pentagon and other agencies and wipe out more than $100 billion a year in popular tax breaks for individuals and businesses. Among the panel’s suggestions for slicing $3.8 trillion from deficits over the next decade are ending the tax deduction for mortgage interest claimed by many homeowners and eliminating the tax-free status of employer-provided health insurance. The co-chairs also proposed raising the early retirement age for Social Security from 62 to 64, and the normal retirement age from 67 to 69, for today’s toddlers. The plan infuriated liberals, but the basic framework survived when the commission issued its final report in December.

Read: Wonkbook: Ryan, Obama, Simpson-Bowles would all bust debt ceiling

Read: Klein: Simpson-Bowles on health-care costs

Read: Klein: Ryan vs. Simpson-Bowles

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Social Security


Trays of social security checks await mailing from the U.S. Treasury. (Bradley C Bower - AP)
The nation’s largest entitlement program, Social Security paid out more in benefits than it received from payroll taxes for the first time last year. The program will now have to begin drawing down savings in its trust fund. That money is forecast to be drained by 2037, when the program will have only enough revenue to pay 75 percent of scheduled benefits. Social Security spending will begin to affect the broader budget picture long before then, however, as Congress is forced either to raise taxes or cut spending to pay off its debt to the trust fund and cover the full cost of benefits. Neither Obama nor House Republicans have been willing to embrace significant reforms to the program. However, the Senate’s Gang of Six is discussing a plan to make Social Security solvent as part of its deliberations.

Read: Fact Checker: Excessive rhetoric on Social Security

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Stopgap budget bill

See definition for continuing resolution.

By Washington Post editors  |  10:41 AM ET, 04/29/2011

 
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