Appendix
DThe Treatment of Federal Receipts and Expenditures in the National Income and Product Accounts
The fiscal transactions of the federal government are recorded in two major sets of accounts that are conceptually quite different. The presentation generally used by executive branch agencies and the Congress and typically discussed in the press (and followed in this report) is the Budget of the United States Government, as reported by the Office of Management and Budget. The budget focuses on cash flows—revenues and outlays, or the collection of taxes and fees and the disbursement of cash for the various federal functions. The objectives of the budget are to provide information that can assist lawmakers in their policy deliberations, facilitate the management and control of federal activities, and help the Treasury manage its cash balances and determine its borrowing needs.
The national income and product accounts (NIPAs) also record the federal government’s transactions, but with different objectives. The NIPAs, which are produced by the Bureau of Economic Analysis (BEA), an agency within the Department of Commerce, are intended to provide a comprehensive measure of current production and related income generated by the U.S. economy.1 A well-known measure of current production in the NIPAs is gross domestic product (GDP). The accounts, which are used extensively in macroeconomic analysis, divide the economy into four major sectors—business, government, household, and the rest of the world (the foreign sector), each with its own set of accounts.2 The federal sector, which is the focus of this report, is one component of the government sector (the state and local sector is the other component).3 Because the aims of the NIPAs differ from those of the budget, the two accounting systems treat some government transactions very differently. On average, the differences cause receipts and expenditures in the NIPAs, as projected by the Congressional Budget Office (CBO), to be about 2 percent and 3 percent higher, respectively, than the corresponding budget totals for the 2009–2018 period.
Conceptual Differences Between the NIPAs’ Federal Sector and the Federal Budget
The budget of the federal government is best understood as an information and management tool. It focuses primarily on cash flows, recording for each fiscal period the inflow of revenues and the outflow of spending. The period of foremost interest in the budget is the federal fiscal year, which runs from October 1 through September 30. There are a few exceptions to the general rule of recording transactions on a cash basis, but they are designed to improve the usefulness of the budget as a decisionmaking tool. For example, when the federal government makes direct loans or provides loan guarantees (as with student loans), tracking cash flows gives a misleading view of current costs; therefore, under what is termed credit reform, the budget records the estimated subsidy costs at the time the loans are made.
The federal sector of the NIPAs has none of the planning and management goals of the budget. Instead, it focuses on displaying how the federal government fits into a general economic framework that describes current production and income within specific periods, the major sources of that production, and recipients of income by type. The main periods of interest for the NIPAs are calendar years and calendar quarters, although approximate totals for fiscal years can be derived from the quarterly estimates. (The tables in this appendix show fiscal year numbers.)
From the perspective of the NIPAs, the federal government is both a producer and a consumer. Its workforce uses purchased goods and services and government-owned capital (buildings, equipment, and software) to produce services for the public at large; because those services are consumed by the public, that consumption, by convention, is regarded as a federal consumption expenditure in the NIPAs. In addition, through its taxes and transfers, the federal government affects the resources available to the private sector. The purpose of the NIPAs is to record all of those activities consistently.
The federal sector of the NIPAs tracks how much the government spends on its consumption of goods and services, and it records the transfer of resources that occurs through taxes, payments to beneficiaries of federal programs, and federal interest payments. The federal sector’s contribution to GDP is presented elsewhere in the NIPAs (Table 1.1.5 in the accounts).
Differences in Accounting for Major Transactions
The accounting differences between the NIPAs and the federal budget stem from the conceptual differences discussed above. In attempting to properly incorporate federal transactions into the framework used to determine GDP, the NIPAs reflect judgments about the best treatment of such transactions as government investment, sales and purchases of existing assets, federal credit, and federal activities that resemble those of businesses, along with transactions involving U.S. territories. In some cases, the appropriate treatment may be to move a transaction from the federal sector to another place in the NIPAs or to exclude the transaction from the NIPAs entirely. In other cases, the appropriate treatment may involve recording as a receipt in the NIPAs an item that the federal budget reports as an offsetting (negative) budget outlay, or adjusting the timing of a federal transaction to better match the timing of related production or income flow.4
The Measurement of National Saving
Several conventions in the NIPAs are intended to show the federal government’s contribution to the NIPAs’ measure of national saving—net federal government saving (current receipts minus current expenditures). Two major departures from the budget are the treatment of federal investment spending (for such things as ships, computers, and office buildings) and the treatment of federal employees’ retirement programs. As a result of such differences, the concept of net federal saving in the NIPAs is akin to but not the same as the federal budget surplus.
Federal Investment. In the federal budget, outlays for investment purchases are treated like other cash outlays and thus are subtracted from budget revenues in determining the size of the federal deficit or surplus. By contrast, in the NIPAs, federal investment is not counted as federal spending for the purpose of measuring net federal government saving, because new purchases of federal capital (investments) do not measure the current inputs from the existing stock of capital that are used to provide government services.5 To approximate the cost of those
capital inputs, the NIPAs include in current federal expenditures an estimate of the depreciation (consumption of fixed capital) of the stock of federal capital. The treatment is conceptually similar to that applied to the corporate business sector, which uses depreciation rather than investment purchases to compute net corporate saving (retained earnings). In the federal budget, depreciation is not tracked. Table D-1, which provides a crosswalk between the budget and the NIPAs, shows that difference in coverage in the row labeled "Treatment of investment and depreciation."6
Federal Retirement. The transactions of federal employees’ retirement programs are also handled differently in the budget and in the NIPAs. In the budget, federal employees’ contributions for their retirement are recorded as revenues, whereas agencies’ contributions on behalf of their employees (as well as interest payments from the Treasury to trust funds) have no overall budgetary effect because they are simply transfers of funds between two government accounts.7 Benefit payments to federal retirees are recorded as outlays in the budget. By contrast, in the NIPAs, the aim is to make the measurement of saving by the federal government consistent with that of the private sector. Therefore, the NIPAs treat some of the transactions of federal retirement plans as part of the household sector.8 The receipts from federal employers’ retirement contributions (and the interest earned by retirement accounts) are considered part of workers’ personal income and thus are not recorded as federal transactions (receipts or negative expenditures). Employees’ contributions are not recorded as income in either the federal or the household sector but are considered transfers within the household sector.
On the outlay side, pension benefit payments to retirees are not recorded as federal expenditures in the NIPAs because they are treated as transfers from pension funds within the household sector. Some transactions, however, are treated as part of federal expenditures even though the corresponding receipts are recorded in the household sector. The government’s contributions to its workers’ retirement are counted as federal expenditures (as part of employees’ compensation), as is the interest paid to federal retirement accounts.9 The different treatment of retirement contributions by federal employees is shown in the top section of Table D-1 under "Receipts"; the different treatment of contributions by federal employers, interest earnings, and benefit payments is shown below that, under "Expenditures."
Relationship of the Budget to the Federal Sector of the NIPAs
TableD-1.38.1.htm