1. GOVT 2302 The Legislature Contemporary Issues

2. This week we focus on contemporary issues associated with Congress’ key power: The Power of the Purse

3. Recall that the increasing power of Parliament over the monarch was based on its power over the purse.

4. We will hit a variety of topics including: BudgetingTaxationSpendingBorrowingFiscal PolicyMonetary Policy

5. We will outline the budgeting process in the United States and Texas.

6. We will look at nature of the American economy and the manner in which governmental policies attempt to influence it.

7. Special attention will be paid to the U.S. and Texas Budgets (where money is drawn and where money is spent) and Budgetary Process

8. We will look at the nature and history of each, and come to terms with the current budgetary circumstances on each level.

10. Several constitutional clauses touch on related issues - taxing, borrowing, and such – but there is no language tying it all together.

11. The power of taxation – to collect revenue - is granted to Congress in the first part of Section 8 of Article 1 of the constitution. This is calledTaxing and Spending Clause

12. Article One, Section Eight, Clause OneThe Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States

13. As we will see below, a variety of taxes have been established and imposed over the course of American history. Each has its own set of controversies.

14. Note also that the authority to spend is not clearly stated – it is assumed.The U.S. Government can spend money on any of the delegated powers listed below.

15. It is worth noting that in certain Supreme Court cases (United States v Butler for example) the power to tax has also been judged to include the power to regulate. Certain taxes may be imposed not just because they collect revenue, but because they impact economic decisions.

16. Other cases argued that the clause allowed for any item related to the general welfare – with its own funding course – was constitutional. This applied to Social Security as argued in Helvering v. Davis.

17. The power to borrow money is established next.Article One, Section Eight, Clause TwoCongress shall have power . . . “To borrow Money on the credit of the United States;”

18. “When it borrows money ''on the credit of the United States,'' Congress creates a binding obligation to pay the debt as stipulated and cannot thereafter vary the terms of its agreement.”

19. As we will see further below, establishing a strong line of credit was a goal of Alexander Hamilton and a reason why he pushed for a quick settlement of revolutionary war debt.He made his argument in his First Report on the Public Credit.

20. Recent controversies over the raising of the debt ceiling brought renewed attention to Section 4 of the 14th Amendment.

21. “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

22. Borrowing money – or more specifically collecting money by selling bonds on the open market – pumps money into the economy that would not otherwise be collected through taxes. This creates debt.

23. There is no mention of the need to balance budgets. Hamilton argued that a degree of debt was to be expected as a consequence of the need to invest in public matters.

24. Recent efforts have been made to add a Balanced Budget Amendment – of some type – to the Constitution.

25. As we noted in the previous section, the constitutionally established bill making process says nothing about what happens internally, other than stating that bill for raising revenue (tax bills) must begin in the House of Representatives.

26. Article One, Section Seven, Clause One All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.

27. As we know from the previous section, the Ways and Means Committee has been developed in the House to receive and consider tax bills.

28. Only one other part of the Constitution touches on anything that comes close to a budgeting process.The Appropriations Clause

29. Article One, Section Nine, Clause Seven No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

30. Money cannot be spent unless it is drawn from the treasury upon passage of an appropriations bill.

31. Appropriations Committees have been developed in both the House and Senate. They have the ability to deny spending on items, even if those items had been approved by other legislation.

32. Budgeting

33. Since there is no budgeting process in place, there is no single mechanism for balancing revenue collection, spending, and borrowing. Often these decisions are made separately from each other. No authoritative mechanism exists to maintain a balance between them.

34. A budgeting process was not considered necessary until the level of government spending began to increase in the late 19th Century.

36. An early attempt to do so was in the Budget and Accounting Act of 1921.The bill established the Bureau of the Budget – which became the Office of Management and Budget (the OMB) in 1970.

37. The OMB is an executive branch agency which is intended to “assist the President in overseeing the preparation of the federal budget and to supervise its administration in Executive Branch agencies.”

38. The current process is based largely on what was established in the Congressional Budget and Impoundment Control Act of 1974.

39. The bill establishes the Congressional Budget Office (the CBO), which a legislative branch agency. It is the “scorekeeper” for Congress. It establishes the costs of different programs. (committee history here)

40. It is to provide Congress with: (1) objective, nonpartisan, and timely analysis to aid in economic and budgetary decisions on a wide array of programs covered by the federal budget, and (2) the information and estimates required by the Congressional budget process.

41. The bill also established that standing Budget Committees would be established in both the House and the Senate.

42. Note: Some past budget committee members have gone on to direct the Office of Management and Budget.Some members of Congress and the executive branch spend their careers on budgetary issues.

43. For links with further information on the evolution of the budgeting process click on these: - CQ Roll Call: Budget Process.- The process outlined by the Office of Management and Budget.- Budget Process Law Annotated: 1993 Edition.

44. Here is a brief walk through of the process

45. Note: the United States fiscal year begins on October 1 and ends on the following September 30.

46. The budgeting process begins the spring of the year before the start of the fiscal year within the executive branch when the Office of Management and Budget gives each executive branch agency guidance for how to submit their agency’s requests.

47. That September, each agency has to submit its budget request for the following fiscal year.

48. During the next two months - October and November - the OMB analyzes the proposals and submits responses. The agencies can appeal any changes by late January.

49. The presidents must submit his budget to Congress by the First Monday in February.

50. That January the CBO reports to the budget committees on the economic and budgetary outlook, then in February re-estimates the President’s budget based on its economic assumptions.