On-Budget Versus Off-Budget

While the difference between discretionary and mandatory spending in the federal budget is frequently discussed, some may not know that spending can also be categorized as on-budget or off-budget. Both categories are accounted for under the “unified” federal budget, which is made up of every kind of spending and revenue across the Federal Government.

Off-Budget Defined

While the majority of federal programs are on-budget, there are currently two federal programs that are statutorily off-budget: Social Security and the United States Postal Service.

Objective of Off-Budget

The intended purpose of having programs off-budget was to shield them from annual budgetary pressures and to prevent Congress from tapping into these funds to offset other spending. Off-budget treatment also limits Congress from using these funds to mask increased deficit spending in other areas of the government or to circumvent annual spending caps that could lead to automatic cuts or sequestration.

Legislative History

The current off-budget funds and accounts are codified in statute and were placed off-budget as a result of actions by Congress. Current off-budget treatment of the Postal Service was established by the Omnibus Budget Reconciliation Act of 1989. Off-budget treatment of the Social Security trust funds originated as a result of the 1985 Balanced Budget and Emergency Deficit Control Act. However, the specific off-budget designation was enacted in the Omnibus Budget Reconciliation Act of 1990. The Budget Enforcement Act, included in the 1990 omnibus package, formally prohibited the inclusion of Social Security from calculations of on-budget federal deficits.

Off-Budget vs. Spending Caps

The most common misconception with regards to off-budget spending has to do with the statutory spending caps. While certain spending is considered “outside” or exempt from these annual discretionary spending caps – such as Overseas Contingency Operations/Global War on Terrorism (OCO/GWOT), Disaster Relief, and designated emergency spending – this spending is still considered on-budget and included in the annual calculations of federal deficits.

Off-Budget vs. Non-Budgetary

There is also a difference between off-budget entities – Social Security and the Postal Service – and activities that are classified as non-budgetary. These non-budgetary federal activities are characterized as such because they do not involve a direct allocation of federal resources. Examples are the Federal Reserve, Government-Sponsored Enterprises (GSEs), and deposit funds owned by Native American tribes.

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