F ederal budget decisions express the priorities of Congress and reinforce its influence on federal policies. Making budgetary decisions for the federal government is a complex process and requires the balance of competing goals. The Great Recession adversely affected federal budget outcomes through revenue declines and spending increases from FY2008 through FY2013. The federal budget recorded a deficit of 9.8% of gross domestic product (GDP) in FY2009, the largest value since World War II. Subsequent improvement of the economy and implementation of policies designed to lower spending have improved the short-term budget outlook, though federal deficits remain at relatively high levels. In FY2017, the federal budget recorded a deficit of 3.5% of GDP, which was higher than the average deficit since FY1947 (2.7% of GDP). Over the next several years, projections of a continued decline in discretionary spending are more than offset by increases in mandatory spending, increases in net interest payments, and reductions in revenues, leading to a rise in federal deficits. Increases in the long-term cost of federal retirement and health care programs and debt servicing costs each contribute to upward pressure on federal spending levels. Operating these programs in their current form may pass on substantial economic burdens to future generations. Revenues are projected to decline as a percentage of GDP over the next several years before increasing later in the 10-year budget window as provisions enacted by the 2017 tax revision ( P.L. 115-97 ) are scheduled to expire. Congress and the President may consider proposals for deficit reduction if fiscal issues remain a key item on the legislative agenda. This report summarizes issues surrounding the federal budget, examines policy changes relevant to the budget framework for FY2019, and discusses recent major policy proposals included in the President's FY2019 budget. It concludes by addressing major short- and long-term fiscal challenges facing the federal government. Each fiscal year Congress and the President engage in a number of practices that influence short- and long-run revenue and expenditure trends. This section describes the budget cycle and explains how budget baselines are constructed. Budget baselines are used to measure how legislative changes affect the budget outlook and are integral to evaluating these policy choices. Action on a given year's federal budget, from initial formation by the Office of Management and Budget (OMB) until final audit, typically spans four calendar years. The executive agencies begin the budget process by compiling detailed budget requests, overseen by OMB. Agencies work on their budget requests in the calendar year before the budget submission, often during the spring and summer (about a year and a half before the fiscal year begins). The President usually submits the budget to Congress around the first Monday in February, or about eight months before the beginning of the fiscal year, although submissions are often later in the first year of an Administration. Congress typically begins formal consideration of a budget resolution once the President submits the budget request. The budget resolution is a plan, agreed to by the House and Senate, which establishes the framework for subsequent budgetary legislation. Because the budget resolution is a concurrent resolution, it is not sent to the President for approval. If the House of Representatives and Senate cannot agree on a budget resolution, a substitute measure known as a "deeming resolution" may be implemented by each chamber, which may give force to certain budget enforcement measures. House and Senate Appropriations Committees and their subcommittees usually begin reporting discretionary spending bills after the budget resolution is agreed upon. Appropriations Committees review agency funding requests and propose levels of budget authority (BA). Appropriations acts passed by Congress set the amount of BA available for specific programs and activities. Authorizing committees, which control mandatory spending, and committees with jurisdiction over revenues also play important roles in budget decisionmaking. During the fiscal year, Congress and OMB oversee the execution of the budget. Once the fiscal year ends on the following September 30, the Department of the Treasury and the Government Accountability Office (GAO) begin year-end audits. Budget baseline projections are used to project the future influence of current laws and measure the effect of future legislation on spending and revenues. They are not meant to predict future budget outcomes. Baseline projections are included in both the President's budget and the congressional budget resolution. It is important to understand the assumptions and components included in budget baselines. In some cases, slight changes in the underlying models or assumptions can lead to large effects on projected deficits, receipts, or expenditures. The Congressional Budget Office (CBO) computes current-law baseline projections using assumptions set out in budget enforcement legislation. On the revenue side of the budget, the 2017 tax revision ( P.L. 115-97 ; see additional discussion below) enacted several changes to individual and corporate income tax rates and to other tax policy provisions that are set to expire before the end of the 10-year budget baseline window. On the spending side, baseline discretionary spending levels are largely constrained by the caps and automatic spending reductions enacted as part of the Budget Control Act of 2011 (BCA; P.L. 112-25 ) and further modified on several occasions, most recently with the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ). Since the CBO baseline assumes that current law continues as scheduled, it incorporates policy provisions in current law that have historically been revised before taking effect. Specifically, the CBO baseline assumes that discretionary budget authority from FY2019 through FY2021 will be restricted by the caps as created by the BCA as amended, and that certain tax policy changes enacted in the 2017 tax revision and in other laws will expire as scheduled under current law. This leads to baseline projections of lower spending and higher revenue levels relative to a baseline that would reflect policy changes some would consider likely given past actions (sometimes referred to as a "current policy" baseline). In addition to these elements of current law, macroeconomic assumptions, including those related to GDP growth, inflation, and interest rates, will also affect the baseline estimates and projections. Minor changes in the economic or technical assumptions that are used to project the baseline also could result in significant changes in future deficit levels. A summary of budget outcomes in the latest CBO baseline is provided in Table 1 . CBO's current baseline projections, released in April 2018, show rising budget deficits over the next several years. This represents a reversal from the significant declines in inflation-adjusted deficits experienced in the past few fiscal years. Those declines were primarily due to continued increases in employment (which increased revenues collected from income and payroll taxes) and reductions in discretionary spending. While the baseline projections include continued declines in discretionary outlays, those reductions are more than offset by increases in mandatory spending. Mandatory spending increases are largely due to the rising cost of Social Security and Medicare programs, and declines in federal revenues. Baseline projections also include increases in debt held by the public (or debt held by all entities other than the federal government) throughout the 10-year budget window. Debt held by the public finances budget deficits and federal loan activity, and is a function of three things: (1) the size of existing debt, (2) economic growth, and (3) interest rates. Debt held by the public was 76.5% of GDP at the end of FY2017, and is projected to be 96.2% of GDP at the end of FY2028. CBO also provides projections based on alternative policy assumptions, which illustrate levels of spending and revenue if current policies continue rather than expire as scheduled under current law. If discretionary spending increased with inflation after FY2018 instead of proceeding in accordance with the limits instituted by the BCA and tax reductions in the 2017 tax revision are extended, CBO projects an increase in the budget deficit of almost $2,400 billion relative to the current-law baseline, exclusive of debt servicing costs, over the FY2019 to FY2028 period. Beyond the 10-year forecast window, federal deficits are expected to grow unless major policy changes are made. This is a result of increases in outlays largely attributable to rising health care and retirement costs combined with little to no change in projected revenue levels over that timeframe. Over the last seven decades, federal spending has accounted for an average of 19.3% of the economy (as measured by GDP), while federal revenues averaged roughly 17.2% of GDP. Spending has exceeded revenues in each fiscal year since FY2002, resulting in annual budget deficits. Between FY2009 and FY2012, spending and revenue deviated significantly from historical averages, primarily as a result of the economic downturn and policies enacted in response to financial turmoil. In FY2017, the U.S. government spent $3,982 billion and collected $3,316 billion in revenue. The resulting deficit of $665 billion, or 3.5% of GDP, was higher than the average deficit from FY1947 through FY2017 of 2.1% of GDP. The trends in revenues and outlays between FY1947 and FY2017 are shown in Figure 1 . Federal outlays are often divided into three categories: discretionary spending, mandatory spending, and net interest. Discretionary spending is controlled by the annual appropriations acts. Mandatory spending encompasses spending on entitlement programs and spending controlled by laws other than annual appropriations acts. Entitlement programs such as Social Security, Medicare, and Medicaid make up the bulk of mandatory spending. Congress sets eligibility requirements and benefits for entitlement programs, rather than appropriating a fixed sum each year. Therefore, if the eligibility requirements are met for a specific mandatory program, outlays are made without further congressional action. Net interest comprises the government's interest payments on the debt held by the public, offset by small amounts of interest income the government receives from certain loans and investments. In FY2000, total outlays equaled 17.6% of GDP, the lowest recorded level since FY1966. In FY2009, outlays peaked at 24.4% of GDP.