[Analytical Perspectives]
[Other Technical Presentations]
[16. National Income and Product Accounts]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 361]]

 
                16. NATIONAL INCOME AND PRODUCT ACCOUNTS

   The National Income and Product Accounts (NIPA) are an integrated set 
of measures of aggregate U.S. economic activity that are prepared by the 
Department of Commerce. One of the main purposes of the NIPA is to 
measure the Nation's total production of goods and services, known as 
gross domestic product (GDP), and the incomes generated in its 
production. Because the NIPA are widely used in economic analysis, it is 
important to show the NIPA presentation of Federal transactions and 
contrast it with the Budget.
   GDP is a measure of the Nation's final output, which excludes 
intermediate product to avoid double counting. Government consumption 
expenditures and gross investment are included in GDP as part of final 
output, together with personal consumption expenditures, gross private 
domestic investment, and net exports of goods and services. Other 
government expenditures--transfer payments, grants to State and local 
governments, subsidies, and net interest payments--are not final output 
and as such are not included in GDP; however, these transactions are 
recorded in the NIPA government receipts and expenditure account. This 
leaves only government consumption expenditures and gross investment--
State and local as well as Federal--to be included in final output.
   Federal transactions are included in the NIPA as part(1) of the 
government sector. (footnote (1) The other part of the government sector 
is a single consolidated set of transactions for all U.S. State and 
local units of government combined.) The Federal sector is designed to 
measure certain important economic effects of Federal transactions in a 
way that is consistent with the conceptual structure of the entire set 
of integrated accounts. The NIPA Federal sector is not itself a budget, 
because it is not a financial plan for proposing, determining, and 
controlling the fiscal activities of the Government. NIPA concepts 
differ in many ways from budget concepts, and therefore the NIPA 
presentation of Federal finances is significantly different from that of 
the budget.

               Differences Between the NIPA and the Budget

   Federal transactions in the NIPA are measured according to NIPA 
accounting concepts in order to be compatible with the purposes of the 
NIPA and other transactions recorded in the NIPA. As a result they 
differ from the budget in netting, timing, and coverage. These 
differences cause total receipts and expenditures in the NIPA to differ 
from total receipts and outlays in the budget. Differences in timing and 
coverage also cause the NIPA current surplus or deficit to differ from 
the budget surplus or deficit. Netting differences have equal effects on 
receipts and expenditures and thus have no effect on the current 
surplus/deficit. Besides these differences, the NIPA combine 
transactions into different categories from those used in the budget.
  October 1999 NIPA Revisions.--Comprehensive revisions to the NIPA 
introduced in October 1999 significantly changed the way Federal 
transactions are measured in the NIPA, and, since the budget did not 
change correspondingly, changed the ways in which the NIPA differ from 
the budget. The three most important changes were 1) the inclusion of 
computer software in investment (government and private) and the 
inclusion in consumption expenditures of a proxy for the services of 
software capital, measured as depreciation; 2) removal of transactions 
deemed ``capital transfers'' from the NIPA government sectors (which 
removes estate and gift taxes from both Federal and the State and local 
current receipts, and removes Federal grants for construction of fixed 
capital from Federal NIPA current expenditures); and 3) a revised 
treatment of government employee pension plans that treats their 
transactions analogously to those of private pension plans. Under the 
revised pension treatment, employer and employee contributions to 
government employee pension plans are now personal income (as if paid to 
a private pension plan in the household sector) rather than government 
receipts (contributions for social insurance); and pension benefit 
payments to former government employees are now simply transfers within 
the household sector rather than government expenditures (transfers to 
persons). The effects of these ``new'' changes are reflected in this 
section.
   Netting differences arise when the budget records certain 
transactions as offsets to outlays while they are recorded as receipts 
in the NIPA (or vice versa). The budget treats all income that comes to 
the Government due to its sovereign powers--mainly, but not exclusively, 
taxes--as governmental receipts. On the other hand, the budget offsets 
against outlays any income that arises from voluntary business-type 
transactions with the public. The NIPA generally follow this concept as 
well, and all income to government enterprises such as the Postal 
Service or the power administrations is offset against expenditures. 
However, the NIPA have a narrower definition of ``business-type 
transactions''. Rents, royalties, and regulatory or inspection fees 
(offsetting receipts in the budget) are recorded in the NIPA as 
Government receipts (business nontaxes). The NIPA include Medicare 
premiums as Government receipts, while the budget classifies them as 
business-type transactions (offsetting receipts).
   In the budget, any intragovernmental income from one account to 
another is offset against outlays rather than being recorded as a 
receipt. Government contributions for Federal employee social insurance 
(such as social security) is an example: the budget offsets these

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payments against outlays. In contrast, the NIPA treat the Federal 
Government like any other employer and show contributions for Federal 
employee social insurance as expenditures by the employing agencies and 
as governmental (rather than offsetting) receipts. The NIPA also impute 
certain transactions that are not explicit in the budget. For example, 
unemployment benefits for Federal employees are financed by direct 
appropriations rather than social insurance contributions. The NIPA 
impute social insurance contributions by employing agencies to finance 
these benefits--again, treating the Federal Government like any other 
employer.
   Timing differences for receipts occur because the NIPA generally 
record personal taxes and social insurance contributions when they are 
paid and business taxes when they accrue, while the budget generally 
records all receipts when they are received. When the NIPA attribute 
corporations' final settlement payments back to the quarter(s) in which 
the profits that gave rise to the tax liability were generated, 
significant timing differences with the budget arise. When the first of 
a month falls on a weekend, monthly benefit checks normally mailed on 
the first of the month may be mailed out a day or two earlier; the 
budget then reflects two payments in one month and none the next. On 
occasion, the budget totals reflect 13 monthly payments in one year and 
only 11 the next. NIPA expenditure figures always reflect 12 benefit 
payments per year--again giving rise to a timing difference compared to 
the budget.
   The budget and the NIPA also have coverage differences. The NIPA 
exclude transactions with U.S. territories. The NIPA also exclude the 
proceeds from the sales of nonproduced assets such as land. Bonuses paid 
on Outer Continental Shelf oil leases and proceeds from broadcast 
spectrum auctions are shown as offsetting receipts in the budget and are 
deducted from budget outlays. In the NIPA these transactions are 
excluded as an exchange of nonproduced assets with no production 
involved.
   A type of coverage difference arises on the expenditure side because 
of the NIPA treatment of government investment. The budget includes 
outlays for Federal investments as they are paid for, while the Federal 
sector of the NIPA instead excludes current investments but includes a 
depreciation charge on past investments (``consumption of general 
government fixed capital'') among ``current expenditures.'' The 
inclusion of depreciation on fixed capital (structures, equipment and 
software) in current expenditures is a proxy for the services of 
capital; i.e., for its contribution to government output of public 
services. The 1999 comprehensive revisions to the NIPA reclassified 
software as investment, adding to the measured size of both investments 
and capital consumption (government and private).
   The new treatment of government pension plan income and outgo in the 
1999 revisions also gives rise to a form of coverage difference. Where 
the budget treats employee payments to these pension plans as government 
receipts, and employer contributions as offsets to outlays, the NIPA now 
treat both as personal income, as if the pension plan were in the 
private (household) sector; the budget records a government check to a 
retired government employee as a current outlay, but under the new NIPA 
concepts, no government expenditure then occurs; the payment is treated 
as a transfer of income within the household sector.
   As part of the 1999 comprehensive revision of the NIPA, Federal 
investment grants to State and local governments (such as for interstate 
highway construction), investment subsidies to business, and forgiveness 
of debt owed by foreign governments are now excluded from the NIPA as 
being capital transfers. Likewise, estate and gift taxes, included in 
budget receipts, are now excluded from the NIPA as capital transfers.
   Financial transactions such as loan disbursements, loan repayments, 
loan asset sales, and loan guarantees are excluded from the NIPA on the 
grounds that such transactions simply involve an exchange of financial 
assets. In contrast, under the Federal Credit Reform Act of 1990, for 
direct loan obligations and loan guarantee commitments made after 1991, 
the budget records the estimated subsidy cost of the direct loan or loan 
guarantee as an outlay when the loan is disbursed. The cash flows with 
the public are recorded in nonbudgetary accounts as a means of financing 
the budget rather than as budgetary transactions themselves. This 
treatment recognizes that part of a Federal direct loan is an exchange 
of assets with equal value but part is a subsidy to the borrower. It 
also recognizes the subsidy normally granted by loan guarantees. In the 
NIPA, neither the subsidies nor the loan transactions are included; 
however, the NIPA include all interest transactions with the public, 
including net interest paid to the financing accounts.
   Deposit insurance outlays for resolving failed banks and thrift 
institutions are similarly excluded from the NIPA on the grounds that 
there are no offsetting current income flows from these transactions. In 
1991, this exclusion was the largest difference between the NIPA and the 
budget and tended to make the budget deficit larger than the NIPA 
current deficit. In subsequent years, as assets acquired from failed 
financial institutions were sold, these collections tended to make the 
budget deficit smaller than the NIPA current deficit.

                     Federal Sector Current Receipts

   Table 16-1 shows Federal current receipts in the four major 
categories used in the NIPA, which are similar to the budget categories 
but with significant differences.

            Table 16-1.  FEDERAL TRANSACTIONS IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS, 1999-2001
                                            (In billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                                                Estimate
                               Description                                    Actual   -------------------------
                                                                               1999         2000         2001
----------------------------------------------------------------------------------------------------------------
                             CURRENT RECEIPTS
Personal tax and nontax receipts.........................................       887.8        941.6        964.6
Corporate profits tax accruals...........................................       210.9        222.7        224.2
Indirect business tax and nontax accruals................................        99.4        107.5        116.4
Contributions for social insurance.......................................       644.0        681.1        713.6
                                                                          --------------------------------------
      Total current receipts.............................................     1,842.2      1,952.9      2,018.7
                                                                          ======================================
                           CURRENT EXPENDITURES

Consumption expenditures.................................................       460.7        483.6        486.3
  Defense................................................................       304.7        315.8        317.2
  Nondefense.............................................................       156.0        167.8        169.1
Transfer payments........................................................       741.3        771.7        819.9
  To persons.............................................................       732.6        762.3        808.3
  To the rest of the world...............................................         8.7          9.4         11.7
Grants-in-aid to State and local governments.............................       223.8        242.1        259.6
Net interest paid........................................................       264.8        258.5        247.1
Subsidies less current surplus of Government enterprises.................        36.4         38.8         28.5
Wage disbursements less accruals.........................................  ...........  ...........  ...........
                                                                          --------------------------------------
      Total current expenditures.........................................     1,727.0      1,794.8      1,841.4
                                                                          ======================================
      Current surplus or deficit (-).....................................       115.2        158.1        177.3

                                 ADDENDUM

Gross investment.........................................................        92.2        102.8        112.2
  Defense................................................................        51.9         56.9         60.9
  Nondefense.............................................................        40.3         45.9         51.3
----------------------------------------------------------------------------------------------------------------
* $50 million or less.

   Personal tax and nontax receipts is the largest category of current 
receipts. It is composed primarily of personal income taxes, but also 
includes fees, fines, and other receipts from persons.
   Corporate profits tax accruals differs in classification from the 
corresponding budget category primarily because the NIPA include the 
deposit of earnings of the Federal Reserve System as corporate profits 
taxes, while the budget treats these collections as miscella

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neous receipts. The timing difference between the NIPA and the budget is 
especially large for corporate receipts.
   Indirect business tax and nontax accruals is composed of excise 
taxes, customs duties, royalties, fines, and other receipts from 
business.
   Contributions for social insurance differs from the corresponding 
budget category primarily because: (1) the NIPA include Federal employer 
contributions for social insurance as a Government receipt, while the 
budget offsets these contributions against outlays as undistributed 
offsetting receipts; (2) the NIPA include premiums for Part B of 
Medicare as Government receipts, while the budget again nets them 
against outlays; (3) the NIPA treat government employee contributions to 
their pension plans as personal income, while the budget includes them 
in Government receipts; and (4) the NIPA impute contributions for 
Federal employees' unemployment insurance and workers' compensation.

                   Federal Sector Current Expenditures

   Table 16-1 shows current expenditures in the six major NIPA 
categories, which are very different from the budget categories.
   Government consumption expenditures are the goods and services 
purchased by the Federal Government in the current account, including 
compensation of employees and depreciation. Gross investment (shown as 
addendum items in Table 16-1) is thus excluded from current expenditures 
in computing the government current surplus or current deficit on a NIPA 
basis, whereas depreciation is included. The NIPA treat State and local 
investment and capital consumption in the same way--regardless of the 
extent to which it is financed with Federal aid (capital transfers) or 
from State and local own source receipts.
   Although gross investment is not included in government current 
expenditures, both government gross investment and current consumption 
expenditures (including depreciation) are included in total GDP, which 
makes the treatment of the government sectors in the NIPA similar to 
that of the private sector.
   Transfer payments are the largest expenditure category. Transfer 
payments to persons are mainly for income security and health programs, 
such as Social Security and Medicare. (Since the 1999 NIPA revisions, 
payment of pension benefits to former government employees is no longer 
included in transfer payments to persons.) Transfer payments to the rest 
of the world include grants to foreign governments and payments under 
Social Security and other similar programs to individuals living abroad.
   Grants-in-aid to State and local governments help finance a range of 
programs, including income security, Medicaid, education, and others 
(but capital transfers

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for construction of highways, airports, waste-water treatment plants and 
mass transit are now excluded).
   Net interest paid is the interest paid by the Government on its debt 
(excluding debt held by trust funds, other than Federal employee pension 
plans; and other Government accounts), less interest received on its 
loans.
   Subsidies less current surplus of Government enterprises consist of 
two elements: (1) subsidy payments for resident businesses (excluding 
subsidies for investment); and (2) the current surplus (or deficit) of 
``Government enterprises,'' such as the Postal Service, which are 
business-type operations of Government that usually appear in the budget 
as public enterprise revolving funds. Depreciation (consumption of 
enterprise fixed capital) is netted in calculating the current surplus 
of government enterprises.
   NIPA subsidies do not include the imputed credit subsidies estimated 
as budget outlays under credit reform. Rather, loans and guarantees are 
categorized as financial transactions and are excluded from the NIPA 
except for associated interest and fees.
   Wage disbursements less accruals is an adjustment that is necessary 
to the extent that the wages paid in a period differ from the amount 
earned in the period.

                       Differences in the Estimates

   Since the introduction of the unified budget in January 1968, NIPA 
current receipts have been less than budget receipts in most years, due 
principally to the fact that estate and gift taxes, which they exclude 
(as capital transfers) have exceeded Medicare premiums, which they 
include but budget receipts do not. NIPA current expenditures have 
usually been higher than budget outlays (from which the Medicare 
premiums and employer retirement contributions are netted out as 
offsetting receipts), despite the omission from NIPA expenditures of 
grants for capital construction and pension benefits payments to former 
government employees. However, two components of budget outlays are 
sometimes sufficiently large in combination to match the netting 
adjustments. These are financial transactions and payments to U.S. 
territories. Large outlays associated with resolving the failed savings 
and loan associations and banks in 1990 and 1991 caused those year's 
budget outlays to significantly exceed NIPA current expenditures. With 
the change in budgetary treatment of direct loans in 1992 under credit 
reform, one type of financial transaction--direct loans to the public--
has been recorded in the budget in a way that is closer to the NIPA 
treatment. Disbursement and repayment of loans are now recorded outside 
the budget as in the Federal sector of the NIPA, although, unlike the 
NIPA, credit subsidies are recorded as budget outlays.
  During the period 1968-1992, the budget deficit exceeded the Federal 
current deficit as measured in the NIPA nearly every year. The largest 
difference, $71 billion, occurred in 1991 as a result of resolving 
failed financial institutions as discussed above; the budget deficit was 
then $269.4 billion, while the NIPA current deficit ( from seasonally 
adjusted data) was $198.1 billion. In 1993-1997, the NIPA current 
account deficit was slightly above the budget deficit, while for 1998-
2001, the NIPA current account surplus is projected to be lower than the 
budget surplus.
  Table 16-1 displays Federal transactions using NIPA concepts with 
actual data for 1999 and estimates for 2000 and 2001 consistent with the 
Administration's budget proposals. Table 16-2 summarizes the reasons for 
differences between the data using budget concepts and NIPA concepts. 
Table 16-3 displays quarterly data using NIPA concepts beginning in 
October 1998.

                       Table 16-2.  RELATIONSHIP OF THE BUDGET TO THE FEDERAL SECTOR, NIPA
----------------------------------------------------------------------------------------------------------------
                                                                                                Estimate
                                                                              Actual   -------------------------
                                                                               1999         2000         2001
----------------------------------------------------------------------------------------------------------------
                             CURRENT RECEIPTS

Budget receipts..........................................................     1,827.5      1,956.3      2,019.0
  Contributions to government employee retirement plans..................        -4.5         -4.3         -3.9
  Capital transfers received.............................................       -27.7        -30.3        -32.2
  Other coverage differences.............................................        -7.0         -8.1         -8.5
  Netting and grossing...................................................        37.0         39.5         41.4
  Timing differences.....................................................        16.9         -0.1          3.0
    NIPA current receipts................................................     1,842.2      1,952.9      2,018.7
                                                                          ======================================
                               EXPENDITURES

Budget outlays...........................................................     1,703.0      1,789.6      1,835.0
  Government employee retirement plan transactions.......................        32.0         32.1         31.3
  Deposit insurance and other financial transactions.....................        -1.8         -4.2        -11.1
  Capital transfers paid.................................................       -31.3        -35.0        -37.3
  Net purchases of nonproduced assets....................................         1.0          1.6          3.3
  Net investment.........................................................        -2.4         -9.4        -15.6
  Other coverage differences.............................................       -13.0        -16.5        -14.5
  Netting and grossing differences.......................................        37.0         39.5         41.4
  Timing differences.....................................................         2.4         -2.9          8.9
    NIPA current expenditures............................................     1,727.0      1,794.8      1,841.4
----------------------------------------------------------------------------------------------------------------


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  Additional detailed estimates of current receipts and current 
expenditures will be published in a forthcoming issue of the Department 
of Commerce publication, the Survey of Current Business.

                                     

                   Table 16-3.  FEDERAL RECEIPTS AND EXPENDITURES IN THE NIPA, QUARTERLY, 1999
                          (In billions of dollars; seasonally adjusted at annual rates)
----------------------------------------------------------------------------------------------------------------
                                                                                   Actual
                                                          ------------------------------------------------------
                                                           Oct.-Dec.  Jan.-Mar.  Apr.-June    July-    Oct.-Dec.
                       Description                        ---------------------------------   Sept.   ----------
                                                                                           -----------
                                                              1998       1999       1999       1999       1999
----------------------------------------------------------------------------------------------------------------
                         RECEIPTS
Personal tax and nontax receipts.........................     868.1      877.9      892.1      908.0      922.3
Corporate profits tax accruals...........................     202.6      212.6      218.1      222.4         NA
Indirect business tax and nontax accruals................      99.6       99.5      100.0      101.5      102.7
Contributions for social insurance.......................     623.1      636.5      642.9      651.2      657.5
                                                          ------------------------------------------------------
      Total receipts.....................................   1,793.3    1,826.5    1,853.1    1,883.1         NA
                                                          ======================================================
                   CURRENT EXPENDITURES

Consumption expenditures.................................     460.0      467.0      465.2      458.7      492.7
  Defense................................................     303.4      304.6      300.8      312.1      326.1
  Nondefense.............................................     156.5      162.4      164.4      162.9      166.7
Transfer payments........................................     742.1      743.4      749.7      817.0      770.4
  Domestic (``to persons'')..............................     723.5      736.6      740.5      746.4      752.8
  Foreign................................................      18.7        6.8        9.2        8.5       17.6
Grants-in-aid to State and local governments.............     214.2      219.9      215.7      230.6      230.7
Net interest paid........................................     274.3      266.0      264.8      259.9      261.2
Subsidies less current surplus of Government enterprises.      42.9       32.6       39.5       29.0       51.3
Wage disbursements less accruals.........................  .........  .........  .........  .........  .........
                                                          ------------------------------------------------------
      Total current expenditures.........................   1,733.5    1,728.9    1,735.0    1,749.3    1,806.3
                                                          ======================================================
      Current deficit (-)................................      59.7       97.6      118.1      113.8         NA

                         ADDENDUM

Gross investment.........................................      60.0       60.7       56.8       73.2      101.8
  Defense................................................      49.5       51.2       53.5       53.4       57.3
  Nondefense.............................................      37.2       39.2       41.5       19.9       44.5
----------------------------------------------------------------------------------------------------------------
 NA = Not available.

 * $50 million or less.

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