Analyzing Governmental Budgets (under construction)
Budgets are to those who work for government what election returns are to politicians: a matter of life and death. Administrative agencies and departments typically prepare annual budgets as proposals to be approved by Congress, state legislatures, city councils, county legislatures, boards of education and other elected bodies. An actual budget, usually accompanied supporting material justifying proposed changes, is a financial plan indicating planned receipts (revenues) and outlays (or expenditures) for a fiscal year. (Fiscal years are like real years in length, but often begin on July 1st, or in the case of the Federal Government since 1973, on October 1st.). At a minimum, a budget will often list revenue and expenditure items for a) the previous year's budget, b) the previous year's actual revenues and expenditures, c) the current year's budget, and d) the proposed budget.
Cross-National Budget Comparisons
The best source of cross national data on government budgets is the Organization of Economic Cooperation and Development (OECD). The OECD provides economic, social and political statistical data for 30 member countries (and 70 associated countries) and makes a considerable effort to impose common statistical definitions and practices across its member countries.
| Size of Government | Health Care Expenditures |
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To control for differences in national currencies to account for difference in price levels across countries, statistics on government expenditure and program spending are often measured as a percentage of GDP, or in US dollars adjusted for "purchasing power parity". 1
Typically, the President submits his annual budget proposal to the Congress in early February for the fiscal year that will begin on October 1st. On February 2, 2004, President Bush submitted the FY 2005. to complete the budget approval process, Congress will then pass a) an overall Budget Resolution, a setting the broad outlines of taxes and spending, b) 13 appropriations bills allocating revenues and specifying spending to each Federal department, and c) other legislation affecting taxes and revenues (tax measures, unlike the appropriations bills may be for more than one year.
The budget proposal itself is a thick volume containing previous years' receipts (revenue) and outlays (expenditure) broken down by department, agency, function and subfunctions, estimates of the current year receipts and outlays and forecasts consistent with changes the president is proposing. The text of the budget explains the various budget proposals and the assumptions that the estimates are based on. Because future revenues and (to a lesser extent) expenditures often depend on changing economic conditions, the proposal also contains an analysis of these economic assumptions.
Even though it is only a proposal, the president's proposed budget is often the best source of statistical data for any analysis of patterns of government spending and taxation as it is the one place where all of the data for the whole government is presented in a consistent annual basis. Especially if there is split partisan control of the two Houses of Congress, the Congressional Budget Resolutions are sometimes not passed by both houses; final appropriations bills are sometimes delayed many months into the fiscal year.
Budget deficits and debt.
Perhaps the most frequently presented federal budgetary indicators are the trends in budget surplus and deficit and the Federal government debt. The surplus and deficits measure the difference between the receipts and outlays in a given year; the debt -- how much the Federal Government owes -- measures the accumulated deficits and surpluses. In recent decades, deficits have often been in the range of 100 to 300 billion dollars. The national debt is expected to reach 8 trillion dollars sometime in FY 2005.
In order to make a political point about what the "real" budget deficit, the budget document makes a distinction between revenues and expenditures that are classified as "on-budget" and "off-budget". This, however, is a meaningless distinction; always use the combined total budget numbers.
| Figure B1: Budget Surplus\Deficits | |
 (percent of GDP) |
 (Current dollars, Billions) |
| Figure B2: Gross Federal Debt | |
 (% of GDP) |
 (Current dollars, Trillions) |
| source: Budget of the United States
Government: Historical Tables Fiscal Year 2005 http://www.gpoaccess.gov/usbudget/fy05/hist.html (tables 1.1, 1.2 and 7.1) see more
recent data: Historical Tables Fiscal Year 2007 |
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Time series budget trends are often displayed in current dollars, but better picture of the magnitude of the deficits and debt over time is to display the indicators as a percentage of GDP, as shown in figure B1 and B2.
The budget contains six years' of estimated data (the current year and the estimates for the five next years); these data are often widely off the mark both because of unanticipated spending but mostly because of "rosy scenario" economic forecasts. No president has ever forecast and economic recession in his budget proposal. More often than not budget proposals concede that we will probably have deficits for a couple more years, but that they will gradually decline. Figure B3 show the deficit forecasts for each of the budgets proposed by President George W. Bush. Each trendline begins with the actual deficit for the year that ended the previous September 31st, the deficit estimate for the current year, and the deficit forecast for the next five years. Thus, the third data point on each of these trendlines is the anticipated deficit for the forthcoming fiscal year. The point directly above each of these points are what he had predicted the year before.
| Figure B3: Bush Budget Proposals |
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The Composition of the Budget:
Many budget presentations begin with pie charts of the distribution of revenues by source and expenditures by spending classification. Note in Figure B4 how much more insight into the budget a nice time series chart provides.
| B4: Receipts by Source | |
 source: Budget of the United States Government: Historical Tables Fiscal Year 2005, table 2.2 see more recent data:
Historical Tables Fiscal Year 2007 |
On the spending side, it is important to be aware of the two different spending classification used in the Federal budget. The "agency" classification involves the appropriation for each of the Federal departments (Defense, Justice, Agriculture) and units of government. Note, however, that departments often have overlapping functions; the Energy department budget, for example, includes substantial appropriations for nuclear weapons; the Department of Agriculture budget includes agricultural subsidies but also spending for Food Stamps and other food programs. To get a better idea of budgetary priorities, it is often better to use the "functional" classification of the budget (which includes a supra-function, function and subfunction classification).
| B5: Outlays by Agency and Function | |
 By Agency |
 By function |
Getting the data:
The government printing office provides a budget website which contains budget proposals from recent previous administration. Most of the time series data are contained in the Historical Tables, Budget of the United States Government, Fiscal Year 2005. (the data are available in Excel on a spreadsheet page) All budget documents, including documents that are released at a future date, will be available for downloading in several formats from the Internet on the Office of Management and Budget's budget website.
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Notes:
1 Robert Sarh, "Using Inflation-Adjusted Dollars in Analyzing Political Developments," PSOnline (4/17/04) http://www.apsanet.org/PS/april04/sahr.pdf
Exercises: For each of the following exercises, prepare table or chart representing the indicator and prepare a one page written summary of the results.
1. Prepare a table or chart showing the change in the Gross Federal Debt for each presidential administration since Truman's. Use either debt in current dollars (Table 7.1, column D) or the % of GDP data (Table 7.1, column G). Prepare a 250-word summary of your findings on the record of Democratic and Republican presidents on reducing or increasing the Federal Debt.
http://www.gpoaccess.gov/usbudget/fy06/hist.html
To determine which years' budget each president is responsible for:
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President Reagan was elected in 1980, and took office in January 1981. His first budget was the FY 1982 (the fiscal year started October 1, 1981). His last budget was FY1989. Calculate the change in the debt from FY1981 to FY 1989.
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To calculate the change in the debt during his term of office, subtract the FY1981 budget deficit from the FY 1989 deficit. (or calculate the percentage change).
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Be sure to answer this question: On average how much has the federal debt increased under Republican and Democratic administrations?
2. Using the same methodology as in exercise 1, compare change in outlays under Democrat and Republican administrations for one of these variables (note use functional classifications in section 3).
- Total federal outlays,
- Defense outlays,
- Agricultural outlays,
- Education outlays
Standardize your indicator using a %percentage of total budget measure (data at the bottom of table, a percentage of GDP measure (in table 10).
3. In this essay Timothy Noah discusses the implications of using the GDP deflator when analyzing defense spending and suggests that adjusting the spending data for inflation would be a better indicator. Prepare a chart showing defense spending as a percent of GDP and inflation adjusted dollars and evaluate Noah's argument. Typically general government spending is adjusted for inflation to constant dollars based on the GDP (chained) Price Index. As shown in table 10.1 of the Historical Tables.
4. Using the subfunction data in table 3.2 , calculate the following indicators, prepare a time series chart and an analysis of one of the following indicators:
- % percentage of the military budget spent on research and development (or other subfunction).
- Military assistance as a % of total foreign aid (subfunctions 151 and 152)
- Outlays for space flight (252) as a percentage of the total federal budget.
5. Using the function data (table 3.2) prepare a 2-trendline time series chart comparing outlays across different federal functions (e.g., Education and Defense).