Money is power. In Washington, that isn't just a cliché; it is the literal foundation of the legal tug-of-war between the President and Congress. If you’ve ever wondered why the federal government almost shuts down every few months or why "the deficit" is a permanent fixture of the nightly news, you have to look at one specific, massive piece of legislation. It’s the Congressional Budget and Impoundment Control Act of 1974.
Before this law existed, the President basically did whatever he wanted with the money Congress gave him. It was a mess.
Richard Nixon was the catalyst. He started "impounding" funds—which is just a fancy way of saying he refused to spend money that Congress had already legally appropriated. He’d look at a program for clean water or low-income housing and just say, "Nah, I’m not spending that." This drove lawmakers crazy. They felt like their "power of the purse" was being hijacked by an imperial presidency. So, they fought back. The resulting law didn't just stop Nixon; it fundamentally rewired how the United States government functions on a day-to-day basis.
The Nixon Standoff and the Birth of the CBO
You have to understand the mood in 1974. Watergate was boiling over. Trust in the executive branch was at an all-time low. Congress decided it needed its own brain—a way to crunch numbers without relying on the President’s Office of Management and Budget (OMB).
That’s how we got the Congressional Budget Office (CBO).
Before the Congressional Budget and Impoundment Control Act of 1974, Congress was basically flying blind. They had to take the President's word for how much things cost. Imagine trying to manage a household budget where only your spouse has the login to the bank account, and they only tell you what they want you to know. The CBO changed that. It provided non-partisan, independent analysis. Today, when you hear a reporter say a bill will "cost $2 trillion over ten years," they are almost always citing a CBO "score."
It’s honestly impressive that the CBO has maintained its reputation for so long. Even though both parties yell at the CBO when they don't like the numbers, it remains the gold standard for fiscal honesty in a town that thrives on spin.
Rescissions vs. Deferrals: The Impoundment Fix
The "Impoundment" part of the act is what really clipped the President's wings. It created two categories for when a President wants to delay or cancel spending.
First, there are rescissions. This is when the President says, "I want to permanently cancel this spending." Under the 1974 law, the President can't just do it. He has to ask Congress. If Congress doesn't say "yes" within 45 days of continuous session, the President must spend the money. It’s a "use it or lose it" policy for the executive.
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Then you have deferrals. This is for temporary delays—maybe a project is running behind schedule. The President can defer spending for a bit, but he can't do it just because he hates the policy. And he definitely can't defer money past the end of the fiscal year.
This might sound like boring paperwork. It isn't. It's the reason why, when a President gets angry about a foreign aid package or a bridge in a rival's district, they usually end up signing the check anyway. The law forces their hand.
How the Budget Resolution Changed Everything
The 1974 Act also created the "Budget Resolution." This is supposed to be the blueprint for the year.
Usually, the process starts with the President's budget request in February. Then, the House and Senate Budget Committees are supposed to draft a concurrent resolution. This isn't a law—the President doesn't sign it—but it’s an internal agreement. It sets the total spending limits for the year.
Does it work? Well, sorta.
The law actually sets a deadline of April 15th for this resolution. If you’ve followed the news lately, you know they almost never hit that date. In fact, some years they don't pass a resolution at all. When that happens, the whole system starts to grind. Without a resolution, the "appropriations" committees—the people who actually write the checks—don't have a ceiling to work under.
This leads to the "Omnibus" bills we see now. Instead of 12 neat little spending bills passed one by one, everything gets crammed into a 4,000-page monster at 2:00 AM because the 1974 process broke down.
The Reconciliation Loophole
One of the most famous (or infamous) parts of the Congressional Budget and Impoundment Control Act of 1974 is a process called reconciliation.
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It was originally meant to be a boring way to "reconcile" existing laws with the new budget resolution. But in a hyper-polarized Senate, it became a superpower. Why? Because you can’t filibuster a reconciliation bill. You only need 51 votes to pass it.
Think about the biggest laws of the last few decades. The Bush tax cuts? Reconciliation. Parts of the Affordable Care Act? Reconciliation. The Trump tax cuts? Reconciliation. The Biden Inflation Reduction Act? You guessed it.
But there are strict rules, known as the Byrd Rule (named after Senator Robert Byrd). You can't just put anything in a reconciliation bill. It has to primarily affect the federal budget. If it's just a policy change that doesn't really move the needle on taxes or spending, the Senate Parliamentarian can "scrub" it out. This is why you often see weird things happen, like a minimum wage hike being stripped out of a larger bill—the 1974 Act's rules won't allow it.
The Shift in Power Dynamics
We have to acknowledge the unintended consequences.
While the act was meant to empower Congress, some experts argue it actually centralized power in the hands of leadership. Since the budget process is so complex, the average Member of Congress doesn't really have a say in the "big picture." The Speaker of the House and the Senate Majority Leader end up making the big calls.
Also, the rigid deadlines created by the Congressional Budget and Impoundment Control Act of 1974 have made "government by crisis" the norm. Because the act moved the start of the fiscal year from July 1st to October 1st (to give Congress more time), and yet they still can't finish on time, we are constantly living under "Continuing Resolutions."
These are temporary band-aids that keep the lights on but prevent agencies from starting new projects or planning for the future. It's an inefficient way to run the world's largest economy.
Why 1974 Matters in 2026
You might think a 50-year-old law is ancient history. It isn't.
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During the first Trump administration, the impoundment rules were at the heart of the first impeachment inquiry regarding aid to Ukraine. The GAO (Government Accountability Office) actually ruled that the administration had violated the 1974 Act by withholding that aid.
Every time a President complains about "wasteful spending" in a bill they just signed, they are bumping up against the ghost of 1974. They can't just cross out the lines they don't like. That’s called a "Line-Item Veto," and the Supreme Court ruled it unconstitutional in 1998 because it violated the principles established (in part) by the 1974 framework.
Misconceptions You Should Clear Up
Most people think "The Budget" is one single vote. It’s not.
The Congressional Budget and Impoundment Control Act of 1974 created a multi-step dance. First, you authorize a program (like saying "we should have an Air Force"). Then, you appropriate the money (saying "here is the cash for the planes"). Finally, the 1974 Act governs how that money is tracked and whether the President can refuse to spend it.
Another big myth: that the CBO is partisan. It’s headed by a director appointed by Congress, but its staff are career economists and data nerds. If they were truly partisan, the numbers wouldn't be used by both sides as the baseline for every debate.
Practical Insights for Navigating Federal Policy
Understanding this law is essential if you work in government contracting, non-profits, or even if you just care about your tax bracket. Here is what you need to keep in mind:
- Watch the CBO Score: If you want to know if a bill has a real chance of passing, look at the CBO's "cost estimate." If the "score" comes back way higher than expected, the bill is usually dead on arrival.
- The October 1st Deadline: Mark this on your calendar. It is the start of the fiscal year. If the appropriations bills aren't signed by then, a shutdown is technically triggered unless a "Continuing Resolution" is passed.
- Reconciliation Windows: Congress usually only gets one or two shots at reconciliation per year. These are the only times "big" legislation can pass with a simple majority in the Senate. If you are advocating for a policy, knowing if it fits the "Byrd Rule" is the difference between success and a procedural veto.
- Impoundment Alerts: If you see a President "freezing" funds for a program you care about, check the 45-day clock. Under the Act, they likely have to release those funds unless Congress specifically agrees to stop the spending.
The Congressional Budget and Impoundment Control Act of 1974 was born out of a constitutional crisis. It was a "declaration of independence" for the legislative branch. While it has created a complicated, often frustrating system of deadlines and technicalities, it remains the only thing keeping the executive branch from having total, unchecked control over the nation's wallet. Without it, the President wouldn't just be the Commander-in-Chief; they’d be the Chief Accountant, too. And history shows that's a dangerous amount of power for one person to hold.