Actually, both the President and Congress do. In the United States, fiscal policy is directed by both the executive and legislative branches. In the executive branch, the two most influential offices in this regard belong to the President and the Secretary of the Treasury, although contemporary presidents often rely on a council of economic advisers as well. In the legislative branch, the U.S. Congress passes laws and appropriates spending for any fiscal policy measures. This process involves participation, deliberation, and approval from both the House of Representatives and the Senate. The so-called "Taxing and Spending Clause" of the U.S. Constitution, Article I, Section 8, Clause 1, authorizes Congress to levy taxes. However, the Constitution really only specifies two legitimate purposes for taxation: to pay the debts of the federal government and to provide for the common defense. Even though an argument could be made that the clause's provisions exclude the use of taxes for fiscal policy purposes, such as a tax-cut bill to expand the economy, basic macroeconomics suggests that any level of taxation has an impact on aggregate demand. The judicial branch of the government, though not normally involved, has a role to play too. The Supreme Court, or even lesser courts, can have an impact on fiscal policy by legitimizing, amending or declaring unconstitutional certain measures taken by the executive or legislative branches to affect the national economy. The power to spend to encourage certain outcomes has been generally interpreted as constitutional ever since the South Dakota v. Dole ruling by the U.S. Supreme Court in 1987. In this case, the court upheld the constitutionality of a federal statute that withheld federal highway funds from states whose legal drinking age did not conform to federal policy (a minimum drinking age of 21).
Fiscal policy refers to an economic strategy that utilizes the taxing and spending powers of the government to impact a nation's economy. It is distinct from monetary policy, which is usually set by a central bank and focuses on interest rates and the money supply. Contemporary fiscal policy is largely founded on the economic theories of John Maynard Keynes, the British economist who rose to prominence during the 1930s; many of his ideas in fact developed in response to the Great Depression sweeping the world. Running counter to classical economics' assumptions that economic swings and cycles were self-correcting, Keynes proposed that governments could stabilize the business cycle and regulate economic output by adjusting spending and tax policies. Per Keynesian economic theory, both government spending and tax cuts should boost aggregate demand, the level of consumption and investment in the economy, and help reduce unemployment. Generally speaking, expansionary fiscal policy in the U.S. has been pursued through a combination of spending public funds on politically attractive ends, such as infrastructure, job training or anti-poverty programs, and lowering taxes on all or some taxpayers. Fiscal policies in the U.S. are normally tied into each year's federal budget, which is proposed by the president and approved by Congress. However, there have been times when no budget has been proposed, thus making it more difficult for market participants to react and adjust to coming fiscal policy proposals. Once the budget is approved, Congress then develops "budget resolutions," which are used to set parameters for spending and tax policy. After resolutions are made, Congress begins the process of appropriating funds from the budget toward specific targets. These appropriations bills must be signed by the President before they can be enacted.
The Constitution places the power of the purse in Congress: “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law . . .” In specifying the activities on which public funds may be spent, Congress defines the contours of federal power. This requirement of legislative appropriation before public funds are spent is at the foundation of our constitutional order. Appropriations and Constitutional Separation-of-Powers The Appropriations Clause is not technically a grant of legislative power, because pursuant to the Necessary and Proper Clause (Article I, Section 8, Clause 1), Congress clearly has the power to specify the objects, amounts, and timing of federal spending—even if there were no Appropriations Clause. If Congress could not limit the Executive’s withdrawing of funds from the Treasury, then the constitutional grants of power to Congress to raise taxes (Article I, Section 8, Clause 1) and to borrow money (Article 1, Section 9, Clause 2) would be for naught because the Executive could effectively compel taxing and borrowing by spending at will. Rather, the Appropriations Clause creates a legislative duty that Congress exercise control and assume responsibility over the federal fisc. Congress’s “power of the purse” is at the foundation of our Constitution’s separation of powers, a constitutionally mandated check on Executive power. The Appropriations Clause would appear to categorically enjoin the President and federal agencies to spend funds only as appropriated by Congress. Even where the President believes that federal spending is urgently needed, spending in the absence of appropriations is constitutionally prohibited. Of course, where an emergency exists, a President may decide that principles more fundamental than the Constitution’s appropriations requirement justify spending. For instance, at the outbreak of the Civil War—with the Nation itself at risk—Lincoln ordered the expenditure of two million dollars in federal funds in advance of appropriations. Moreover, despite the categorical imperative of the Appropriations Clause, it would seem that Congress itself is constitutionally obligated to provide funding necessary for the President to undertake Executive powers specifically granted in Article II—to receive ambassadors, act as Commander in Chief, negotiate treaties, grant pardons, and the like. If Congress fails to provide necessary funds, then the grants of power to the President are themselves for naught. Scholars disagree on the extent to which Congress may use appropriations limitations to control the President’s exercise of discretion in carrying out his or her duty to “execute the law,” especially in the area of national security—though all agree that Congress may not, under the guise of exercising its “power of the purse,” interfere with indispensable executive (or judicial) functions. Nor may the President frustrate congressional mandates by refusing to spend directed funds. The constitutional processes for resolving such an impasse may well be political; no federal court has ever ordered Congress to appropriate funds for the Executive Branch (or for the Judicial Branch), whereas federal courts have exercised authority to direct state fiscal operations in order to effectuate federal constitutional guarantees, such as in the school-busing desegregation cases. On rare occasions, as in the case Train v. City of New York (1975), federal courts have also intervened to say that a President has no authority to withhold funds. Appropriations: Limits on Amount, Object, and Duration There are other critical aspects of the Appropriations Clause. An appropriation is often thought of as the specification of an amount of money. But an appropriation is more than a limitation as to how much money may be spent. The “Appropriations” required by the Constitution also must specify the powers, activities, and purposes—what we may call, simply, objects—for which the funds may be used. The specification of these objects is sometimes in an appropriations act itself (a so-called “rider”), but more usually is in the non-appropriations legislation establishing federal agencies or continuing particular programs—often called “authorization” acts. Critically, the mere creation of an agency or authorization of an activity does not, by itself, permit expenditure of federal funds. Spending requires another kind of authorization—that is, an appropriation. Congress has long codified this object requirement, requiring that “[a]ppropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law.” The latter phrase refers primarily to a variety of statutes that give executive agencies limited authority to “reprogram” line items within an appropriation under certain conditions. This practice does not contravene the Appropriations Clause, because reprogramming authority effectively expands the objects for which the appropriations are made. Another statute codifies the concept that appropriations must be spent within the time period specified by Congress. The Constitution specifically provides that the duration of appropriations for the “army” must be limited to two years (Article I, Section 8, Clause 12). From the First Congress, operating funds for federal agencies have usually been appropriated annually, but larger capital projects may have longer appropriation durations. Is “Backdoor Spending” Constitutional? There are a variety of other forms of federal spending authority besides statutes called “appropriations.” For instance, Congress has often authorized agencies to “obligate” federal funds which have not yet been appropriated. Such obligation authority is necessary because federal agencies subject to annual appropriations often must enter into multi-year contracts. There is no violation of the Appropriations Clause as long as funds are not paid until appropriated. In other statutes, Congress has indefinitely authorized federal agencies to spend Treasury funds or special-purpose taxes, fees, or forfeitures, without separate appropriation of such funds. Such “backdoor” spending, as it is often called, is usually without limitation as to amount or duration of spending but usually has effective limitations as to object. Payment of interest on the national debt has been “indefinitely” (no limitation as to amount) and “permanently” (no limitation as to duration) appropriated since 1847. Statutory entitlement programs—such as Social Security, unemployment payments, and certain agricultural subsidies—are likewise usually funded by an indefinite and permanent appropriation in the statute creating the program itself. The constitutional function of “Appropriations made by Law”—a legislative check on the Executive Branch and hence on the exercise of federal authority—is performed, if at all, at the creation of the entitlement program and by future Congresses in setting the rates and amounts of agency receipts and payments. However, at times Congress has created spending authority not only without “amount” or “time” limitations, but also arguably without an effective “object” limitation—where, for instance, the agency has broad, discretionary authority in some particular policy area. In such circumstances, although spending has been approved by Congress, it is not clear that the functional purposes of the appropriations clause have been met. There is, for instance, an indefinite, permanent appropriation for national intelligence activities, the “objects” of which are only partially specified in federal statutes. One questionable form of spending authority is open-ended authority to receive and spend donations and gifts (even gifts conditioned for a particular purpose), which Congress has granted to a variety of federal agencies, including the State Department. Loan guarantees and insurance schemes, like mortgages backed by the Federal Home Loan Banks, similarly function outside the appropriations process, notwithstanding the federal financial liability incurred. The Federal Reserve until recently was the only federal agency that has been given permanent, plenary authority to set its own budget, without congressional oversight; this approach has been justified because of the need to have a politically independent agency in charge of monetary fiscal policy. Congress effectively gave the same authority to the Consumer Financial Protection Bureau, created in 2010, by requiring the Federal Reserve to fund it; there have been recent efforts to subject that agency to the usual annual appropriations process. The Statement and Accounts Clause Article I, Section 9, Clause 7 has a second provision, which complements the requirement of appropriations: “and a regular Statement and Account of the Receipts and expenditures of all public Money shall be published from time to time.” Like the appropriations requirement, this requirement states not a power but a legislative duty that has been interpreted to require an annual budget. Justice Story explained the connection between the two requirements as well as anyone has, in Commentaries on the Constitution in 1840: The power to control and direct the appropriations constitutes a most useful and salutary check upon profusion and extravagance, as well as upon corrupt influence and public speculation. . . . [A]nd to make their responsibility complete and perfect, a regular account of the receipts and expenditures is required to be published, that the people may know, what money is expended, for what purposes, and by what authority. Since the Founding Era, Congress has largely delegated its duty under the Statement and Accounts Clause to Executive Branch agencies such as the Treasury Department and later the Office of Management and Budget. Those agencies in turn (and in some cases, by statutory mandate) have failed to include or report in full on a variety of “backdoor” federal spending programs, federal insurance liabilities, and spending and borrowing by semi-autonomous federal entities. Certain national security spending is also excluded from the annual budget process. While the Congressional Budget Office and Government Accountability Office seek to provide further budget accountability as agents of the legislative branch, the Statement and Accounts Clause has de facto fallen in the purview of the Executive. The two requirements discussed here are not self-enforcing and likely not judicially enforceable. They are only as good as Congress’s determination to abide by them. |
The Constitution gives the power to manage the spending of the federal government to what body
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