THE ISSUE
President's FY 2013 Budget
President Obama unveiled his nonbinding federal budget request to Congress for fiscal year 2013 on February 13, 2012. The $3.8 trillion budget plan includes a mixture of revenue increases and spending cuts, as well as investments in education, job creation, and infrastructure. The budget proposal:

• Reflects the discretionary budget caps created by the Budget Control Act of 2011
  
• Projects over $3 trillion in deficit reduction over 10 years through a series of revenue and spending proposals including:
• $1.5 trillion in new revenue:
• Expiration of 2001 and 2003 tax cuts for high-income taxpayers; Cap on itemized deductions, including the charitable deduction.
• Establishment of the "Buffett Rule" - 30% minimum effective tax rate for taxpayers with income in excess of $1 million. (Which should be implemented in a way that is “equitable, including not disadvantaging individuals who make large charitable contributions.”)
  
• Reinstating the estate tax at 2009 levels ($3.5 million individual exemption; 45% top rate) in 2013 once the current rates ($5 million individual exemption; 35% top rate) expire, raising an;estimated $118 billion in revenue over 10 years.
• $800 billion in "war-related savings"
• $278 billion in mandatory spending cuts
• $360 billion in entitlement cuts
• $278 billion in non-health mandatory cuts
• Reduces and eliminates 210 programs and other initiatives for a savings of $24 billion in FY 2013 and projects $520 billion in savings over 10 years.

Treatment of Charitable Deduction
President Obama's FY 2013 budget request again includes a provision to cap at 28 percent the value of itemized deductions, including the charitable deduction, for families earning over $250,000 per year. This marks the 4th consecutive budget and 7th time overall that the president has proposed capping the charitable deduction.

Analysis of the President’s Budget

• Independent Sector summary (IS member password required)
• Independent Sector statement on the budget
  
• FY 2013 Budget Analysis and Summary
  
• Administration FY 2013 budget fact sheet
• The Joint Committee on Taxation's June 18 analysis of the tax and revenue provisions

Tax Issues(IS member password required)
President Obama's FY 2013 budget assumes the continuation of 2001 and 2003 tax cuts for middle and lower-income taxpayers; calls for limiting the tax rate at which families earning over $250,000 a year may take itemized deductions, including the charitable deduction; implements the Buffet Rule provision that would effectively replace the current alternative minimum tax (AMT); reinstates the estate tax at 2009 levels in 2013 when the current rates expire; and calls for a single 1.35% excise tax rate on investment income of private foundations; and reinstates currently expired charitable incentives. The budget also proposes the reinstatement of the IRA charitable rollover and other expired giving incentives, as well as the creation of temporary 10% tax credit for for-profit and nonprofit employers that create jobs and increase wages. View the Treasury's revenue explanations.

Spending Items (IS member password required)
President Obama's FY 2013 budget of $3.8 trillion sets total discretionary spending at $1.2 trillion. The budget proposes increased funding for several education and infrastructure related initiatives, while adhering to the budgetary caps established by the Budget Control Act of 2011. The budget also includes targeted investments in programs that support low-income individuals, including LIHEAP, rental assistance, and food and nutrition benefits. View the Administration's proposed appropriations language and budget schedules.

Background
What's in the Federal Budget?
The budget consists of three primary components:

• Revenue – money coming in
• Spending – money going out
• Impact on the debt

Spending initiatives are then divided into three categories:

• Mandatory or entitlement spending – for social safety net programs like Social Security, Medicaid, assistance and food programs for needy families, and the State Children's Health Insurance Program.
  
• Defense discretionary spending – includes the salaries of soldiers and sailors, research and development, and the acquisition of weapons, vehicles, and other technology.
  
• Non-defense discretionary spending – guides the operations of nearly every federal government agency and program and largely determines how much federal assistance state and local governments will receive. Spending categories include: agriculture, education, housing, health and human services, the environment, arts, and transportation.

The Federal Budget Process in Practice
In practice, each year varies -- Congress frequently modifies this schedule when it is unable to agree on a joint budget resolution or appropriations legislation. On the occasions when Congress and the President have not agreed on all 12 appropriations bills, Congress must pass a stop-gap measure, known as a continuing resolution, which provides temporary funding for all of the departments, agencies, and programs covered in the unfinished bills. Continuing resolutions can last for only a few weeks -- in order to provide the House, Senate, and President time to work out differences -- for the remainder of the session of Congress, or longer.

The Federal Budget - Legislative Process
Legislative activity on the federal budget generally takes place between the months of February and September, although spending and tax priorities contained within a budget document are often determined well before the president makes known his budget for the upcoming fiscal year.

February	On or by the first Monday in February, the President presents a budget proposal to Congress after the state of the union. The President's budget request includes proposed funding levels for discretionary and mandatory programs and changes to the tax code, as well as the level of deficit or surplus on which the government should run.
February through April	Taking into consideration the President's budget request and their own priorities, the House and Senate Budget Committees each develop a budget resolution outlining how much the government must spend according to 19 broad categories or budget "functions," how much revenue the government must collect, and the level of deficit or surplus on which the government will run. In particular, the resolution determines the total level of discretionary funding that will be available for the upcoming fiscal year. The full Senate and House each approve their respective resolutions, before meeting in conference to agree on a single, joint resolution, which does not require the President's approval.
April/May through Early Fall	The Appropriations Committees of each chamber consist of 12 subcommittees and set allocations for each one based on the budget resolution. Following hearings, each Subcommittee drafts a bill proposing spending levels for the programs and agencies under its jurisdiction, adhering to the overall discretionary spending level set by the budget resolution. After passage by the Subcommittee, the bill is sent to the full Appropriations Committee for passage.
Summer through Early Fall	Following passage by the Appropriations Committee, the individual appropriations bills are voted on separately in the House and Senate. After passage by their respective chambers, the bills are sent to a conference committee where the differences between the two chambers' bills are resolved.
September 30	The budget is enacted after the President has signed each individual appropriations bill.