Appendix
B
Trust Funds and Measures of Debt
The federal government uses a number of accounting mechanisms to link earmarked receipts (money designated for a specific purpose) with the expenditure of those resources. Trust funds—for example, those for Social Security—are one such mechanism. Others include special funds (such as the Department of Defense’s fund used to finance its health care program for military retirees) and revolving funds (for example, the federal employees’ life insurance fund). Trust funds are simply those designated as such by law, and there is no substantive difference between trust funds and those other types of funds.
Trust funds and other government funds with receipts in excess of amounts needed for current expenditures are credited with nonmarketable Treasury debt known as government account series securities. Currently, about $3.9 trillion in such securities is outstanding, which is a measure of how much receipts have exceeded outlays over time for the programs financed through those funds. The value of outstanding government account securities—that is, debt held by government accounts—is combined with the amount of debt held by the public (described in Chapter 1) in two measures of the government’s debt: gross federal debt and debt subject to limit.
In total, the federal budget includes more than 200 trust funds, although fewer than a dozen account for most of the government’s trust fund dollars. Among the largest are the two Social Security trust funds (the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund) and the funds dedicated to civil service retirement, Medicare’s Hospital Insurance program (Part A), and military retirement.
When a trust fund receives payroll taxes or other income that is not currently needed to pay benefits, the Treasury credits the fund and uses the excess cash for other purposes. As a result, the government borrows less from the public than it would in the absence of those excess funds. The process is reversed when revenues for a trust fund program fall short of expenses.
Including in the budget totals the cash receipts and expenditures of trust funds along with those of other federal programs is useful for assessing how federal activities affect the economy and capital markets. Therefore, the Congressional Budget Office (CBO), the Administration’s Office of Management and Budget, and many other fiscal analysts focus on the total deficit or surplus rather than on the deficit or surplus with or without particular trust funds.
In CBO’s current baseline, trust funds as a whole are projected to run a surplus of $262 billion in 2008 (see Table B-1). That balance is affected, however, by interest and other sums transferred from other parts of the budget. Such intragovernmental transfers, which are projected to total $544 billion in 2008, reallocate costs from one category of the budget to another but do not directly change the total deficit or the government’s borrowing needs. If intragovernmental transfers are excluded and only income from sources outside the government is counted, the trust funds as a whole are projected to run annual deficits from 2008 through 2018 that grow from $281 billion to $700 billion; about two-thirds of those deficits is attributable to the Medicare trust funds.
CBO’s Baseline Projections of Trust Fund Surpluses
Source: Congressional Budget Office.
Note: * = between -$500 million and $500 million.
b. Primarily trust funds for railroad workers' retirement, federal employees' health and life insurance, Superfund, and various insurance programs for veterans.
c. Includes interest paid to trust funds, payments from the Treasury's general fund to the Supplementary Medical Insurance program, the employer's share of payments for employees’ retirement, lump-sum payments to the Civil Service and Military Retirement Trust Funds, taxes on Social Security benefits, and smaller miscellaneous payments.
Although the full budgetary impact of the aging of the baby-boom generation will not be felt during the 2008–2018 period, CBO’s baseline provides an initial indication of those coming budgetary pressures. Examining the differences over the next 10 years between projected receipts and outlays for the Social Security trust funds reveals those strains. Receipts, excluding interest, are projected to exceed expenditures in each year of the period, but under current policies, the amount by which they do so will peak at $86 billion in 2012 and then decline steadily to about $13 billion in 2018 (see Figure B-1). The net surplus of the Social Security trust funds, including interest payments, will peak in 2016 and decline thereafter. As a result, the capacity of the Social Security system to offset some of the deficit in the rest of the budget will begin to dwindle.
CBO’s Baseline Projections of Surpluses in Social Security’s Trust Funds
Source: Congressional Budget Office.
Debt held by the public (which is discussed in Chapter 1) is the most meaningful measure to use in assessing the relationship between federal debt and the economy because it represents the amount that the government has borrowed in the financial markets to pay for its operations and activities; such borrowing competes with other participants in credit markets for financial resources. By contrast, debt held by trust funds and other government accounts represents internal transactions of the government and has no effect on credit markets. Combined, debt held by the public and debt held by government accounts are the basis of two other measures of debt: gross federal debt and debt subject to limit.
Gross federal debt comprises both debt held by the public and debt issued to government accounts. CBO projects that under current law, gross federal debt will increase in every year of the 2009–2018 period, reaching $12.7 trillion in 2018—roughly 40 percent more than its total of $9.0 trillion at the end of 2007 (see Table B-2). Nearly all of that increase reflects debt held by government accounts, which is projected to grow from $3.9 trillion in 2007 to $7.7 trillion in 2018.
CBO’s Baseline Projections of Federal Debt
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Actual |
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2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
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Debt Held by the Public |
5,035 |
5,232 |
5,443 |
5,698 |
5,827 |
5,751 |
5,701 |
5,613 |
5,503 |
5,414 |
5,269 |
5,050 |
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Debt Held by Government Accounts |
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Social Security |
2,181 |
2,378 |
2,577 |
2,788 |
3,014 |
3,252 |
3,496 |
3,746 |
4,000 |
4,254 |
4,506 |
4,755 |
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Other government accounts a |
1,735 |
1,822 |
1,910 |
2,009 |
2,109 |
2,233 |
2,343 |
2,457 |
2,573 |
2,673 |
2,781 |
2,899 |
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Total |
3,916 |
4,200 |
4,487 |
4,797 |
5,123 |
5,485 |
5,839 |
6,203 |
6,573 |
6,927 |
7,287 |
7,654 |
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Gross Federal Debt |
8,951 |
9,432 |
9,930 |
10,495 |
10,950 |
11,236 |
11,540 |
11,817 |
12,076 |
12,341 |
12,556 |
12,704 |
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Debt Subject to Limitb |
8,921 |
9,403 |
9,901 |
10,466 |
10,921 |
11,207 |
11,511 |
11,788 |
12,048 |
12,313 |
12,528 |
12,676 |
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Source: Congressional Budget Office.
Note: Figures are as of the end of the year.
b. Differs from the gross federal debt primarily because debt issued by agencies other than the Treasury is excluded from the debt limit. The current debt limit is $9,815 billion.
The Treasury’s authority to issue debt is restricted by a statutory ceiling. Although that limit covers both debt held by the public and that held by government accounts, it does not include debt issued by agencies other than the Treasury (such as the $23 billion in debt issued by the Tennessee Valley Authority and the $14 billion issued by the Federal Financing Bank).1 The current debt ceiling, which was set in September 2007 in Public Law 110-91, is $9.815 trillion. By CBO’s estimates, under current policies, that ceiling will be reached in the spring or summer of 2009 (see Figure B-2). That point will occur sooner if changes in law reduce projected revenues or increase spending over the next 18 months.
CBO’s Baseline Projection of Debt Subject to Limit, October 2006 to September 2009
Source: Congressional Budget Office.
The Federal Financing Bank is a government entity that was established to centralize and reduce the cost of federal borrowing. In 2004, the bank issued $14 billion in securities to the Civil Service Retirement and Disability Fund when the Treasury’s borrowing reached the $7.384 trillion ceiling on debt.
