Tax expenditures are defined as "revenue losses attributable to provisions of the federal tax laws which allow a special exemption, exclusion, or deduction." So, it's the difference between what the government collects in taxes and what it would have collected without special exemptions.
For example, the government could send money to charities. Instead, it lets taxpayers deduct their contributions to charities from their income.
For example, instead of the government paying families who need to buy a home, they allow home owners to deduct from their income the amount they pay for mortgage.
Jimmy Carter called the tax system a "national disgrace", he said that businesspeople could deduct three-martini lunches, while ordinary workers, with coffee and a sandwich, couldn't. Overall, tax expenditures help the middle and upper classes, not the poor.
The largest part of the budget, which once was defense, now belongs to income security expenditures, meaning programs that help the elderly, the needy, and the poor.
In 1937, during the Great Depression, FDR passed the Social Security Act. That provided a minimal level of sustenance to retired Americans, saving them from poverty. In 1965, Congress added Medicare, which provided hospital and physician coverage to the elderly.
In 1945, 50 workers paid taxes to support one person on Social Security. In 1990, 3 workers supported each beneficiary. In 2055, when today's college students will be eligible to receive benefits, the ratio will only be 2:1. As Paul Light said "It was going broke fast." Eventually Social Security's costs will exceed its income from tax collections. Medicare is already losing money.
Incrementalism is the idea that the best predictor of this year's budget is last year's budget. So, this year's budget is last year's budget + a little bit. So, instead of arguing about the base budget, most of the debate surrounds the increment.
Take NASA; initially, its budget skyrocketed, before plummeting to a fraction of their initial size.
Sadly, not all budgets can be calculated. A lot of the federal budget has become uncontrollable. Most people think the government works like an allowance. They give an agency a random amount, say 5 billion dollars, and they must make that last one year. However, 2/3 of the budget does not work this way.
Uncontrollable expenditures result from policies that make a group automatically eligible for some benefit. For example, Social Security is not first-come, first-served until the allocated budget runs out, they support all eligible individuals. When the government is entitled to pay X benefits to Y people, that is known as an entitlement.
The Budgetary Process
The budgetary process is a very complex process responsible for a very important thing.
Interest groups have a deep interest in the national budget. Interest groups advocate for the funding of an agency.
Agencies always want more money. They send their requests to the Office of Management and Budget (OMB).
The Office of Management and Budget (OMB)
The OMB is responsible for creating the president's budget. That's why everyone goes to them, because they have a large amount of power when it comes to creating the budget.
In early February, the president unveils his proposed budget and tries to convince Congress will stick close to the recommendations.
The House Ways and Means Committee and the Senate Finance Committee write the tax codes, subject to the approval of Congress, which help fund the budget.
Budget Committees and the Congressional Budget Office (CBO)
The CBO, which is the congressional equivalent of the OMB, and its parent committees, the Senate and House Budget Committees, examine revenues and expenditures and propose resolutions to bind Congress within certain limits.
Appropriations Committees and their subcommittees
They decide who gets what, so they decide how much to spend on each policy issue.
The President's Budget
Until 1921, different agencies requested specific amounts of money from the Treasury, and those requests would be forwarded to Congress. Presidents played a very limited role in the budget.
In 1921, Congress wanted to pay off the debt they had accumulated during WWI, so they passed the Budget and Accounting Act, which made presidents propose a budget to Congress. It also created the Bureau of the Budget to help him. Richard Nixon later reorganized and renamed it the Office of Management and Budget (OMB).
For a long time, a subcommittee would approve each agency request, and then the total budget requests would be added up to produce a total budget.
In 1974, Congress passed the Congressional Budget and Impoundment Control Act of 1974. This was designed to reform the congressional budgetary process. It did multiple things
Fixed Budget Calendar
Each step in the budgetary process has a due date. In the past, if Congress failed to appropriate agencies until after the fiscal year ended, agencies went without a firm budget. Now, they must complete it by a certain date.
A Budget Committee in each House
So, there must be a House Budget Committee and Senate Budget Committee. Those two committees recommend target figures to Congress for the total budget size by April 1 of each year. So, the two committees draft a budget resolution, which details the congressional budget. Two weeks later, Congress must agree on the total size of the budget.
The Congressional Budget Office (CBO)
The CBO advises Congress on the consequences of its budget decisions and counters the OMB, which advises the president.
(Note: This is a condensed version of Chapter 14 of Government in America- George C. Edwards III)