[Analytical Perspectives]
[Federal Borrowing and Debt]
[12. Federal Borrowing and Debt]
[From the U.S. Government Publishing Office, www.gpo.gov]
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FEDERAL BORROWING AND DEBT
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12. FEDERAL BORROWING AND DEBT
Debt is the largest legally binding obligation of the Federal
Government. At the end of 1999, the Government owed $3,633 billion of
principal to the people who had loaned it the money to pay for past
deficits. The gross Federal debt, which also includes the securities
held by trust funds and other Government accounts, was $5,606 billion.
This year, the Government is estimated to pay around $228 billion of
interest to the public on its debt.
Table 12-1. TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC
(Dollar amounts in billions)
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Debt held by the public Debt held by the public as Interest on debt held by
---------------------------- a percent of: the public as a percent
---------------------------- of: \3\
Fiscal year Current FY 1996 Credit ---------------------------
dollars dollars \1\ GDP market debt Total
\2\ outlays GDP
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1950........................ 219.0 1,260.9 80.1 55.3 11.4 1.8
1955........................ 226.6 1,143.9 57.3 43.3 7.6 1.3
1960........................ 236.8 1,062.5 45.6 33.8 8.5 1.5
1965........................ 260.8 1,093.4 37.9 26.9 8.1 1.4
1970........................ 283.2 987.1 27.9 20.8 7.9 1.5
1975........................ 394.7 1,012.6 25.3 18.4 7.5 1.6
1980........................ 711.9 1,264.1 26.1 18.5 10.6 2.3
1981........................ 789.4 1,278.8 25.8 18.6 12.0 2.7
1982........................ 924.6 1,401.6 28.6 19.8 13.6 3.1
1983........................ 1,137.3 1,650.2 33.0 21.9 13.8 3.3
1984........................ 1,307.0 1,828.3 34.0 22.1 15.7 3.5
1985........................ 1,507.4 2,041.9 36.4 22.3 16.2 3.7
1986........................ 1,740.8 2,303.2 39.6 22.6 16.1 3.6
1987........................ 1,889.9 2,435.8 40.6 22.3 16.0 3.5
1988........................ 2,051.8 2,562.2 40.9 22.2 16.2 3.5
1989........................ 2,191.0 2,634.0 40.5 22.0 16.5 3.5
1990........................ 2,411.8 2,793.4 42.0 22.6 16.2 3.6
1991........................ 2,689.3 3,003.8 45.4 24.1 16.2 3.7
1992........................ 3,000.1 3,275.2 48.2 25.7 15.5 3.5
1993........................ 3,248.8 3,458.7 49.5 26.6 14.9 3.2
1994........................ 3,433.4 3,573.9 49.4 26.7 14.4 3.1
1995........................ 3,604.8 3,674.2 49.2 26.7 15.8 3.3
1996........................ 3,734.5 3,734.5 48.5 26.2 15.8 3.3
1997........................ 3,772.8 3,709.8 46.1 25.2 15.7 3.1
1998........................ 3,721.6 3,612.5 43.1 23.3 15.1 3.0
1999 estimate............... 3,632.9 3,481.5 39.9 21.7 13.8 2.6
2000 estimate............... 3,475.9 3,282.5 36.3 ............ 12.7 2.5
2001 estimate............... 3,305.0 3,059.6 32.9 ............ 11.9 2.2
2002 estimate............... 3,133.7 2,843.6 29.8 ............ 11.0 2.0
2003 estimate............... 2,963.2 2,635.8 27.0 ............ 10.1 1.8
2004 estimate............... 2,780.7 2,424.9 24.2 ............ 9.2 1.6
2005 estimate............... 2,577.5 2,203.6 21.3 ............ 8.2 1.4
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\1\ Debt in current dollars deflated by the GDP chain-type price index with fiscal year 1996 equal to 100.
\2\ Total credit market debt owed by domestic nonfinancial sectors, modified to be consistent with budget
concepts for the measurement of Federal debt. Financial sectors are omitted to avoid double counting, since
financial intermediaries borrow in the credit market primarily in order to finance lending in the credit
market. Source: Federal Reserve Board flow of funds accounts. Projections are not available.
\3\ Interest on debt held by the public is estimated as the interest on the public debt less the ``interest
received by trust funds'' (subfunction 901 less subfunctions 902 and 903). It does not include the
comparatively small amount of interest on agency debt or the offsets for interest on public debt received by
other Government accounts (revolving funds and special funds).
After 28 consecutive years of deficits financed mainly by borrowing
from the public, the Government had a $69 billion unified budget surplus
in 1998 and repaid $51 billion of publicly held debt. In 1999, the
Government did even better, achieving a $124 billion surplus and
repaying $89 billion of publicly held debt. This was a large improvement
in its fiscal position from the record $290 billion deficit in 1992. The
steady decline in deficits since that year and the eventual surplus were
due in large part to the strong economic expansion and the budget
discipline of the Omnibus Budget Reconciliation Act of 1993 and the
Balanced Budget Act of 1987. The surpluses projected in this budget
would substantially reduce Federal debt held by the public over the next
few years both, in dollar amount and relative to the size of the
Nation's gross domestic product (GDP). It is projected that the publicly
held debt will be fully repaid in 2013.
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Trends in Federal Debt
Federal debt held by the public has increased five-fold since 1980,
as shown in Table 12-1. In 1980, it was $711.9 billion; by the end of
1999, it stood at $3,632.9 billion. The data in this table are
supplemented for earlier years by Tables 7.1-7.3 in Historical Tables,
which is published as a separate volume of the budget.
After the end of World War II, Federal debt peaked at 109 percent of
GDP in 1946. From then until the 1970s, Federal debt grew gradually,
but, due to inflation, it declined in real terms. Because of an
expanding economy as well as inflation, Federal debt as a percentage of
GDP decreased almost every year. With households borrowing heavily to
buy homes and consumer durables, and with businesses borrowing heavily
to buy plant and equipment, Federal debt also decreased almost every
year as a percentage of the total credit market debt outstanding. The
cumulative effect was impressive. From 1950 to 1975, debt held by the
public declined from 80.1 percent of GDP to 25.3 percent, and from 55.3
percent of credit market debt to 18.4 percent. Despite rising interest
rates, interest outlays became a smaller share of the budget and were
roughly stable as a percentage of GDP.
During the 1970s, large budget deficits emerged as the economy was
disrupted by oil shocks and inflation. The nominal amount of Federal
debt more than doubled, and, despite high inflation, the real value of
Federal debt increased by a fourth. Federal debt relative to GDP and
credit market debt stopped declining after the middle of the decade, but
they did not increase to any significant degree.
The growth of Federal debt held by the public accelerated during the
early 1980s due to very large budget deficits. Because the deficits
continued to be large until a few years ago, debt continued to grow
substantially. With inflation reduced, the rapid growth in nominal debt
meant a rapid growth in real debt as well. The ratio of Federal debt to
GDP rose from 26.1 percent in 1980 to 49.5 percent in 1993, the highest
ratio since the mid-1950s. The ratio of Federal debt to credit market
debt also rose, though to a much lesser extent, from 18.5 percent to
26.6 percent. Interest outlays on debt held by the public, calculated as
a percentage of either total Federal outlays or GDP, increased by about
two-fifths.
The growth of Federal debt held by the public was decelerating by the
mid-1990s, however, and in 1998 the amount of debt outstanding fell for
the first time since the last budget surplus in 1969. Since 1993 the
debt has declined markedly relative to either GDP or total credit market
debt. Table 12-1 shows that debt as a percentage of GDP is estimated to
decline significantly more in the next few years, falling from 39.9
percent in 1999 to 21.3 percent in 2005. The improvement in the last few
years reflects the deficit reduction package enacted by the Omnibus
Budget Reconciliation Act of 1993, subsequent steps to maintain fiscal
discipline, and the long economic expansion that was facilitated by this
fiscal policy. The further estimated improvement reflects the
expectation that economic growth will continue without accelerating
inflation for the foreseeable future. \1\ Interest outlays on the debt
held by the public are estimated to decline substantially in
relationship to either total outlays or GDP over the next six years.
Under the projections shown in the next table, the publicly held debt
will be fully repaid in 2013.
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\1\ Chapter 1 of this volume, ``Economic Assumptions,'' reviews recent
economic developments and explains the economic assumptions for this
budget.
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Debt Held by the Public, Gross Federal Debt, and Liabilities Other Than
Debt
The Federal Government issues debt securities for two principal
purposes. First, it borrows from the public to finance the Federal
deficit. \2\ Second, it issues debt to Government accounts, primarily
trust funds, that accumulate surpluses. By law, trust fund surpluses
generally must be invested in Federal securities. The gross Federal debt
is defined to consist of both the debt held by the public and the debt
held by Government accounts. Nearly all the Federal debt has been issued
by the Treasury and is formally called ``public debt,'' but a small
portion has been issued by other Government agencies and is called
``agency debt.'' \3\
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\2\ Debt held by the public was measured until 1988 as the par value
(or face value) of the security, which is the principal amount due at
maturity. (The only exception was savings bonds.) However, most Treasury
securities are sold at a discount from par, and some are sold at a
premium. Treasury debt held by the public is now measured as the sales
price plus the amortized discount (or less the amortized premium). At
the time of sale, the value equals the sales price. Subsequently, the
value equals the sales price plus the amount of the discount that has
been amortized up to that time. In equivalent terms, the measured value
of the debt equals par less the unamortized discount. (For a security
sold at a premium, the definition is symmetrical.) Agency debt, except
for zero-coupon certificates, is recorded at par. For further analysis
of these concepts, see Special Analysis E, ``Borrowing and Debt,'' in
Special Analyses, Budget of the United States Government, Fiscal Year
1990, pp. E-5 to E-8, although some of the practices it describes have
been changed. In 1997 Treasury began to sell inflation-indexed notes and
bonds. The recorded value of these securities includes a periodic
adjustment for inflation.
\3\ The term ``agency debt'' is defined more narrowly in the budget
than customarily in the securities market, where it includes not only
the debt of the Federal agencies listed in Table 12-3 but also the debt
of the Government-sponsored enterprises listed in Table 8-11 at the end
of Chapter 8 and certain Government-guaranteed securities.
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Borrowing from the public, whether by the Treasury or by some other
Federal agency, has a significant impact on the economy. Borrowing from
the public is normally a good approximation of the Federal demand on
credit markets. Even if the proceeds are used productively for tangible
or intangible investment, the Federal demand on credit markets has to be
financed out of the saving of households and businesses, the State and
local sector, or the rest of the world. Federal borrowing thereby
competes with the borrowing of other sectors for financial resources in
the credit market, and tends to increase interest rates and reduce
private capital accumulation. Borrowing from the public thus affects the
size and composition of assets held by the private sector and the
perceived wealth of the public. It also increases the amount of taxes
required to pay interest to the public on Federal debt. Borrowing from
the public is therefore an important concern of Federal fiscal policy.
\4\
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\4\ The Federal sector of the national income and product accounts
provides a measure of the current surplus or deficit that can be used to
analyze the effect of Federal fiscal policy on national saving within
the framework of an integrated set of measures of aggregate U.S.
economic activity. The Federal sector and its differences from the
budget are discussed in chapter 16 of this volume, ``National Income and
Product Accounts.'' Also see chapter 6 of this volume, Part IV, the
section on the analysis of saving and investment.
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[[Page 271]]
Issuing debt securities to Government accounts performs an essential
function in accounting for the operation of these funds. The balances of
debt represent the cumulative surpluses of these funds due to the excess
of their tax receipts and other collections compared to their spending.
These balances can be used in later years for future payments to the
public. The interest on the debt compensates these funds--and the
members of the public who pay earmarked taxes or user fees into these
funds--for spending some of the funds' collections at a later time than
when they receive the money. Public policy may deliberately run
surpluses and accumulate debt in trust funds and other Government
accounts in anticipation of future spending.
However, issuing debt to Government accounts does not have any of the
economic effects of borrowing from the public. It is an internal
transaction of the Government, made between two accounts that are both
within the Government itself. It is not a current transaction of the
Government with the public; it does not compete with the private sector
for available funds in the credit market; it does not provide the
account with resources other than a legal claim on the U.S. Treasury;
and it does not represent the estimated amount of the account's future
transactions with the public. For example, if the account records the
transactions of a social insurance program, the debt that it holds does
not represent the actuarial present value of expected future benefits
for either the current participants or a larger group. The future
transactions of Federal social insurance and employee retirement
programs, which own over four-fifths of the debt held by Government
accounts, are important in their own right and need to be considered
separately. This can be done through information published in actuarial
and financial reports for these programs. \5\ Debt held by the public is
therefore a better concept than gross Federal debt for analyzing the
effect of the budget on the economy.
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\5\ Extensive actuarial analyses of the social security and medicare
programs are published in the annual reports of the boards of trustees
of these funds. Annual actuarial reports are also prepared for Federal
employee retirement funds. A summary of actuarial estimates for these
and other programs is prepared annually by the Financial Management
Service, Department of the Treasury, in ``Statement of Liabilities and
Other Financial Commitments of the United States Government.'' The
estimates in that report are not, however, all comparable with one
another in concept or actuarial assumptions.
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Debt securities do not encompass all the liabilities of the Federal
Government. For example, accounts payable occur in the normal course of
buying goods and services; social security benefits are due as of the
end of the month but, according to statute, are payable as of the
beginning of the next month; loan guarantee liabilities are incurred
when the Government guarantees the payment of interest and principal on
private loans; and liabilities for future pension payments are incurred
as part of the current compensation for the services performed by
Federal civilian and military employees in producing Government outputs.
Like debt securities sold in the credit market, these liabilities have
their own distinctive effects on the economy. Federal liabilities are
analyzed within the broader conceptual framework of Federal resources
and responsibilities in chapter 2 of this volume, ``Stewardship: Toward
a Federal Balance Sheet.'' The different types of liabilities are
reported annually in the financial statements of the major Federal
agencies and in the Financial Report of the United States Government.
\6\
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\6\ The Financial Report (formerly Consolidated Financial Statements)
is published annually by the Financial Management Service, Department of
the Treasury.
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Borrowing and Government Deficits
Table 12-2 summarizes Federal borrowing and debt from 1999 through
2013. In 1999 the Government repaid $89 billion of debt held by the
public, and the debt outstanding decreased to $3,633 billion. The
Treasury issued $186 billion of debt to Government accounts, and gross
Federal debt increased to $5,606 billion.
Debt held by the public.--Table 12-2 shows the relationship between
borrowing from the public and the Federal surplus or deficit. Borrowing
from the public depends both on the Federal Government's expenditure
programs and tax laws, and on economic conditions. The sensitivity of
the budget to economic conditions is analyzed in chapter 1 of this
volume.
Before 2001, the total or unified budget surplus consists of the on-
budget surplus and the surplus of the off-budget entities, which have
been excluded from the budget by law. Under present law, the off-budget
Federal entities are the Social Security trust funds (old-age and
survivors insurance and disability insurance) and the Postal Service
fund. The table entry for the off-budget surplus is called the ``Social
Security solvency lock-box,'' because the Administration proposes that
the future off-budget surpluses be reserved for debt reduction.\7\
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\7\ These proposals are part of a broader budget framework proposal
discussed in chapter 13, ``Preview Report.''
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Table 12-2. FEDERAL GOVERNMENT FINANCING AND DEBT \1\
(In billions of dollars)
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Estimate
1999 -----------------------------------------------------------------------------------------------------------------------------
Actual 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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Financing:
Surplus or deficit (-)................................. 124 167 184 186 185 195 215 256 292 314 329 363 403 443 479
(Social Security solvency lock-box: Off-budget)...... 124 148 160 172 184 195 214 224 239 250 260 272 280 295 309
(Social Security interest savings transfer).......... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... 100 118 138
(Medicare solvency debt reduction reserve)........... ....... ....... 15 13 ....... ....... ....... 30 52 64 69 91 22 30 32
(On-budget).......................................... 1 19 9 1 * * 2 1 1 * * * * * *
Means of financing other than borrowing from the public:
Changes in: \2\
Treasury operating cash balance.................... -18 16 ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... .......
Checks outstanding, deposit funds, etc. \3\........ -6 1 2 ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... .......
Seigniorage on coins................................. 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2
Less: Social Security equity purchases............... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... ....... -52 -66 -83
Less: Net financing disbursements:
Direct loan financing accounts.................... -19 -29 -18 -18 -17 -16 -16 -16 -16 -15 -15 -15 -16 -16 -16
Guaranteed loan financing accounts................ 5 * 1 1 1 2 2 2 2 2 2 2 3 3 3
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Total, means of financing other than borrowing -36 -9 -13 -15 -14 -12 -12 -12 -12 -12 -11 -11 -63 -78 -95
from the public.................................
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Total, repayment of publicly held debt......... 89 157 171 171 170 183 203 243 280 302 318 352 340 365 384
Change in debt held by the public \4\.................. -89 -157 -171 -171 -170 -183 -203 -243 -280 -302 -318 -352 -340 -365 -384
Debt Subject to Statutory Limitation, End of Year:
Debt issued by Treasury................................ 5,578 5,658 5,742 5,828 5,921 6,009 6,096 6,185 6,268 6,347 6,424 6,502 6,595 6,693 6,794
Adjustment for Treasury debt not subject to limitation -15 -15 -15 -15 -15 -15 -15 -15 -15 -15 -15 -15 -15 -15 -15
and agency debt subject to limitation \5\.............
Adjustment for discount and premium \6\................ 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6
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Total, debt subject to statutory limitation \7\..... 5,568 5,648 5,732 5,819 5,912 5,999 6,086 6,175 6,258 6,337 6,414 6,492 6,585 6,683 6,785
Debt Outstanding, End of Year:
Gross Federal debt:
Debt issued by Treasury.............................. 5,578 5,658 5,742 5,828 5,921 6,009 6,096 6,185 6,268 6,347 6,424 6,502 6,595 6,693 6,794
Debt issued by other agencies........................ 29 28 27 27 25 24 23 22 20 20 20 20 20 20 20
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Total, gross Federal debt.......................... 5,606 5,686 5,769 5,855 5,947 6,034 6,118 6,206 6,288 6,367 6,444 6,522 6,615 6,713 6,815
Held by:
Debt securities held as assets by Government accounts 1,973 2,210 2,464 2,721 2,984 3,253 3,541 3,872 4,234 4,615 5,010 5,440 5,873 6,335 6,821
Social Security.................................... 855 1,004 1,164 1,338 1,522 1,717 1,930 2,154 2,392 2,641 2,899 3,170 3,498 3,843 4,206
Federal employee retirement........................ 643 681 717 754 789 824 858 891 922 952 980 1,006 1,034 1,063 1,093
Other.............................................. 475 525 582 630 672 712 752 828 920 1,023 1,131 1,263 1,341 1,429 1,523
Debt securities held as assets by the public \8\..... 3,633 3,476 3,305 3,134 2,963 2,781 2,578 2,334 2,054 1,752 1,434 1,082 742 377 ** \9\
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* $500 million or less.
\1\ Almost all Treasury securities held by the public and zero-coupon bonds held by Government accounts are measured at sales price plus amortized discount or less amortized premium. Almost
all Agency debt is measured at face value. Almost all Treasury securities in the Government account series are measured at face value less unrealized discount (if any).
\2\ A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing a deficit and therefore would have a positive sign. An increase in checks outstanding or
deposit fund balances (which are liabilities) would also be a means of financing a deficit and therefore would also have a positive sign.
\3\ Besides checks outstanding and deposit funds, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing rights, and, as offsets,
cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of gold.
\4\ Includes a $355 million reclassification of debt in 2000. Indian tribal funds that are owned by the Indian tribes and held and managed in a fiduciary capacity by the Government on the
tribes' behalf were reclassified from trust funds to deposit funds as of October 1, 1999, and their holdings of Treasury securities were accordingly reclassified from debt held by Government
accounts to debt held by the public.
\5\ Consists primarily of Federal Financing Bank debt.
\6\ Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized discount on Government account series securities.
\7\ The statutory debt limit is $5,950 billion.
\8\ At the end of 1999, the Federal Reserve Banks held $489 billion of Federal securities and the rest of the public held $3,144 billion. Debt held by the Federal Reserve Banks is not
estimated for future years.
\9\ Total debt will be fully redeemed in 2013. Policy decisions will be required on use of the surplus once debt has been redeemed.
[[Page 273]]
Beginning in 2001, the surplus section of this table shows the effect
of the Administration's proposal to reserve part of the on-budget
surplus for Medicare solvency and for catastrophic prescription drug
coverage. Called ``Medicare Solvency Debt Reduction Reserve,'' these
amounts would not be available for spending under the budget resolution
or on the PAYGO scorecard. They would be available only for debt
reduction, pending their use for Medicare or the catastrophic
prescription drug program. Beginning in 2011, the surplus section of
this table also shows the Social Security interest savings transfer,
which is the proposed payment from the general fund to the Social
Security trust funds due to the on-budget interest savings from the
cumulative Social Security surplus. Table 12-2 therefore shows the
unified budget surplus divided among the Social Security solvency lock-
box (off-budget surplus), Social Security interest savings transfer,
Medicare Solvency Debt Reduction Reserve, and the on-budget surplus.
Social security, which comprises almost all of the off-budget totals,
accounted for nearly all the unified budget surplus in 1999. It is
estimated to have large and rising surpluses throughout the projection
period, continuing to account for a major part of the estimated unified
budget surplus. This will be used to repay the publicly held debt, which
decreases from $3,633 billion at the end of 1999 to $1,082 billion at
the end of 2010 and is fully repaid in 2013. \8\
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\8\ For further explanation of the off-budget Federal entities, see
chapter 19, ``Off-Budget Federal Entities and Non-Budgetary
Activities.''
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The Government's ability to repay debt held by the public, or its
need to borrow, depends on the size of the total surplus or deficit and
on several other factors--such as the net financing disbursements of
credit programs, and changes in the level of cash balances held by the
Treasury. As shown in Table 12-2, these other factors--which are
formally called ``means of financing other than borrowing from the
public''--can either increase or decrease the Government's repayment of
debt. (An increase in its ability to repay debt is represented by a
positive sign, like the surplus; a decrease is represented by a negative
sign, like a deficit.) In 1999 the surplus was $124 billion and the
``other means of financing'' were -$36 billion, so the Government was
able to repay $89 billion of publicly held debt. In 2000 the surplus is
estimated to grow to $167 billion, and the ``other means of financing''
are estimated to decline in absolute value to -$9 billion. As a result,
the estimated repayment of debt held by the public increases to $158
billion. In 2001 and later years, the estimated surplus increases
substantially, as a result of which the Government repays large and
generally increasing amounts of debt each year.
When the surplus or deficit is large, it is usually a good
approximation to say that ``the surplus is used to repay debt held by
the public'' or ``the deficit is financed by borrowing from the
public.'' Over the last 10 years, the cumulative deficit was $1,339
billion and the increase in debt held by the public was $1,442--very
similar amounts. The other factors added a total of $103 billion of
borrowing over that period, an average of $10 billion per year. The
variation was wide, ranging from additional borrowing (or lower
repayment) of $36 billion to reduced borrowing of $18 billion. The other
factors that affect borrowing do not depend on the size of the surplus
or deficit. Thus, when the surplus or deficit is moderate in size, the
other factors that affect borrowing may account for a large proportion
of the change in Federal debt held by the public.
Many of these other factors are small in most years compared to
borrowing from the public, even when the surplus or deficit is
relatively small. This is because they are limited by their own nature.
Decreases in cash balances, for example, while they may occasionally be
large, are inherently limited by past accumulations, which themselves
required financing when they were built up.
However, three other factors in the ``other means of financing'' may
be relatively large over longer periods. The first is premiums and
discounts on debt buybacks. The Treasury Department plans to buy back
some outstanding notes and bonds as part of its effort to manage the
reduction of the publicly held debt. The premiums and discounts will be
recorded outside the budget totals as a ``means of financing other than
borrowing from the public.'' The Treasury has made no firm decision
about the timing or the amount of buybacks at this time. Because it is
impossible to develop a firm plan prior to completion of the initial
operations, this budget includes no estimate of future buyback premiums.
When the buybacks do occur, future budgets will record any premium
payments or discount collections as a means of financing, and will
present them in a separate entry in this table. This classification is
discussed in a section of chapter 24, ``Budget System and Concepts and
Glossary.''
The second such factor is equity purchases by the Social Security
trust fund, which the Administration proposes to begin in 2011. They are
recorded as an ``other means of financing'' rather than an outlay.
The third such factor was created by the Federal Credit Reform Act of
1990. Budget outlays for direct loans and loan guarantees consist of the
estimated subsidy cost of the loans or guarantees at the time when the
direct loans or guaranteed loans are disbursed. The cash flows to and
from the public resulting from these loans and guarantees are not costs
to the Government except for those costs already included in budget
outlays. Therefore, they are non-budgetary in nature and are recorded as
transactions of the non-budgetary financing account for each credit
program. \9\ The net cash flows of the financing accounts, including
intragovernmental transactions as well as transactions with the public,
are called ``net financing disbursements.'' They are defined in the same
way as the ``out
[[Page 274]]
lays'' of a budgetary account and therefore affect the ability to repay
debt held by the public, or the requirements for borrowing from the
public, in the same way as the surplus or deficit.
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\9\ The Federal Credit Reform Act of 1990 (sec. 505(b)) requires that
the financing accounts be non-budgetary. As explained in chapter 19,
``Off-Budget Federal Entities and Non-Budgetary Activities,'' they are
non-budgetary in concept because they do not measure cost. For
additional discussion of credit reform, see chapter 24 of this volume,
``Budget System and Concepts and Glossary,'' and the other references
cited in chapter 19.
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The net financing disbursements are partly due to intragovernmental
transactions with budgetary accounts (the receipt of subsidy payment and
the receipt or payment of interest), and partly due to transactions with
the public (disbursement and repayment of loans, receipt of interest and
fees, payment of default claims, and so forth). An intragovernmental
transaction does not affect Federal borrowing from the public. (Although
the surplus or deficit changes, the net financing disbursements change
in an equal amount with the opposite sign, so the effects cancel out on
a net basis.) On the other hand, financing account disbursements to the
public increase the requirement for borrowing from the public in the
same way as an increase in budget outlays for cash payments to the
public. Financing account receipts from the public can be used to
finance the payment of the Government's obligations, and therefore
reduce the requirement for Federal borrowing from the public in the same
way as an increase in budget receipts.
In the early years of credit reform, the financing accounts had
little net effect on borrowing requirements, but their impact began to
become large in the middle 1990s. By 1999 they required $13 billion of
financing, and thus reduced the repayment of debt by this amount; they
are estimated to reduce debt repayment by $28 billion in 2000 and by
around $13-16 billion per year subsequently. The expansion from the
early years was mainly because of the growth of the direct student loan
program. Since direct loans require cash disbursements equal to the full
amount of the loans when the loans are made, Federal borrowing
requirements are initially increased. Later, when the loans are repaid,
Federal borrowing requirements will decrease.
Debt held by Government accounts.--The amount of Federal debt issued
to Government accounts depends largely on the surpluses of the trust
funds, both on-budget and off-budget, which owned 94 percent of the
total Federal debt held by Government accounts at the end of 1999. In
2001, for example, the total trust fund surplus is estimated to be $241
billion, and Government accounts are estimated to invest $253 billion in
Federal securities. The difference is because some revolving funds and
special funds also hold Federal debt, and because the trust funds may
change the amount of their cash assets not currently invested. The
amounts of debt held in major accounts and the annual investments are
shown in Table 12-4.
Agency Debt
Several Federal agencies, shown in Table 12-3, sell debt securities
to the public and to other Government accounts. During 1999, agencies
borrowed $2.4 billion from the public. Agency debt is only one percent
of Federal debt held by the public.
Table 12-3. AGENCY DEBT
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Borrowing or repayment (-) of
debt Debt end
--------------------------------- of 2001
1999 2000 2001 estimate
actual estimate estimate
----------------------------------------------------------------------------------------------------------------
Borrowing from the public:
Housing and Urban Development:
Federal Housing Administration.................................. -59 4 ......... 118
Small Business Administration:
Participation certificates: Section 505 development company..... ......... ......... ......... 7
Architect of the Capitol.......................................... -2 -2 -2 171
Farm Credit System Financial Assistance Corporation............... -397 -89 ......... 775
Federal Deposit Insurance Corporation:
FSLIC Resolution Fund........................................... ......... ......... ......... 63
National Archives................................................. -5 -6 -6 265
Tennessee Valley Authority........................................ 2,892 -304 -657 25,417
-------------------------------------------
Total, borrowing from the public................................ 2,429 -397 -665 26,816
===========================================
Borrowing from other funds:
Postal Service Fund \2\........................................... -83 -83 ......... 551
Tennessee Valley Authority \2\.................................... -3,200 ......... ......... .........
-------------------------------------------
Total, borrowing from other funds............................... -3,283 -83 ......... 551
===========================================
Total, agency borrowing......................................... -854 -480 -665 27,367
----------------------------------------------------------------------------------------------------------------
\1\ In previous years this table reported $13.312 million of monetary credits outstanding for the Department of
Interior, Bureau of Land Management. It has been determined that these securities were redeemed by the end of
1991. The historical data have been revised as of 1991, but it has not been possible to revise the data for
earlier years.
\2\ The Postal Service and TVA debt held by other funds is the result of the FFB swapping Postal Service and TVA
securities with the Civil Service Retirement and Disability trust fund during 1996 in exchange for Treasury
securities having an equal present value. See the narrative for further explanation.
The reasons for issuing agency debt differ considerably from one
agency to another. The predominant agency borrower is the Tennessee
Valley Authority, which had borrowed $26.4 billion from the public as of
the end of 1999, or 93 percent of the total for all
[[Page 275]]
agencies. TVA sells debt primarily to finance capital expenditures and
to refund other issues of its existing debt. Almost all of the agency
borrowing in 1999 and the debt repayment in 2000-01 is due to TVA.
The Federal Housing Administration, on the other hand, has for many
years issued both checks and debentures as means of paying claims to the
public that arise from defaults on FHA-insured mortgages. Issuing
debentures to pay the Government's bills is equivalent to borrowing from
the public and then paying the bills by disbursing the cash borrowed, so
the transaction is recorded as being simultaneously an outlay and a
borrowing. The debentures are therefore classified as agency debt. The
borrowing by FHA and a few other agencies that have engaged in similar
transactions is thus inherent in the way that their programs operate.
\10\
---------------------------------------------------------------------------
\10\ The debt securities of the FSLIC Resolution fund were also issued
as a means of paying specified bills. The budgetary treatment of these
and similar securities is further explained in Special Analysis E of the
1989 Budget, pp. E-25 to E-26; and Special Analysis E of the 1988
Budget, pp. E-27 to E-28.
---------------------------------------------------------------------------
Some types of lease-purchase contracts are equivalent to direct
Federal construction financed by Federal borrowing. A number of years
ago, the Federal Government guaranteed the debt used to finance the
construction of buildings for the National Archives and the Architect of
the Capitol, and has exercised full control over the design,
construction, and operation of the buildings. The construction
expenditures and interest were therefore classified as Federal outlays,
and the borrowing was classified as Federal agency borrowing from the
public.
The proper budgetary treatment of lease-purchases was further
examined in connection with the Budget Enforcement Act of 1990. Several
changes were made. Among other decisions, it was determined that outlays
for a lease-purchase in which the Government assumes substantial risk
will be recorded in an amount equal to the asset cost over the period
during which the contractor constructs, manufactures, or purchases the
asset; if the asset already exists, the outlays will be recorded when
the contract is signed. Agency borrowing will be recorded each year to
the extent of these outlays. The agency debt will subsequently be
redeemed over the lease payment period by a portion of the annual lease
payments. This rule was effective starting in 1991. However, no lease-
purchase agreements in which the Government assumes substantial risk
have yet been authorized or are estimated for 2000 or 2001. The new
budgetary treatment was reviewed in connection with the Balanced Budget
Act of 1997. Some clarifications were made, but there were no
substantive changes from existing practice.
The amount of agency securities sold to the public has been reduced
by borrowing from the Federal Financing Bank (FFB). The FFB is an entity
within the Treasury Department, one of whose purposes is to substitute
Treasury borrowing for agency borrowing from the public. It has the
authority to purchase agency debt and finance these purchases by
borrowing from the Treasury. Agency borrowing from the FFB is not
included in gross Federal debt. It would be double counting to add
together (a) the agency borrowing from the FFB and (b) the Treasury
borrowing from the public that was needed to provide the FFB with the
funds to lend to the agencies.
The debt of the agencies that borrow from the FFB is not subject to
the statutory debt limitation. This enabled Treasury to raise additional
cash to avoid default during the dispute with Congress over the budget
and the debt limit four years ago. In February 1996, FFB swapped most of
its holdings of TVA and Postal Service debt to the Civil Service
Retirement and Disability trust fund (CSRDF) in exchange for Treasury
securities. The TVA and Postal Service securities acquired by CSRDF are
included in gross Federal debt shown in Table 12-2, are included in
Table 12-3 as amounts that agencies borrowed from other funds, and are
included in Table 12-4 as agency debt held by Government accounts.
Including agency debt held by Government accounts in gross Federal debt
is not double counting, because Treasury did not have to borrow from the
public in order for these accounts to buy the securities. Moreover, the
TVA and Postal Service securities acquired by CSRDF replaced Treasury
securities, which had been counted in gross Federal debt. It is assumed
for purposes of the budget estimates that CSRDF will hold the agency
debt until maturity (or call date), at which time the principal
repayments will be invested in Treasury securities. \11\
---------------------------------------------------------------------------
\11\ For further discussion of the debt limit dispute and the swap of
securities between the FFB and CSRDF, see Analytical Perspectives,
Budget of the United States Government, Fiscal Year 1998, pp. 222 and
225.
---------------------------------------------------------------------------
TVA prepaid its entire $3.2 billion of debt securities held by CSRDF
in October 1998. The Omnibus Consolidated and Emergency Appropriations
Act of 1999 permitted TVA to prepay this debt at par and provided an
appropriation to FFB to cover the prepayment charge otherwise owed. (The
appropriation to FFB was used to make CSRDF whole.) The Act also
prohibited TVA from borrowing from the FFB in the future. TVA financed
the prepayment by borrowing from the public. As a result, its debt held
by the public increased $2.9 billion in 1999, while its total debt
decreased by $0.3 billion.
Debt Held by Government Accounts
Trust funds, and some public enterprise revolving funds and special
funds, accumulate cash in excess of current requirements in order to
meet future obligations. These cash surpluses are invested mostly in
Treasury debt and, to a very small extent, in agency debt.
Investment by trust funds and other Government accounts has risen
greatly over the past two decades. It was $216.1 billion in 1999, as
shown in Table 12-4, and it is estimated to rise to $253.5 billion in
2001. The holdings of Federal securities by Government accounts are
estimated to grow to $2,464.7 billion by the end of 2001, or 43 percent
of the gross Federal debt. This percentage is estimated to rise further
in the following years as the budget surpluses reduce the debt
[[Page 276]]
held by the public and the trust funds continue to accumulate surpluses.
Table 12-4. DEBT HELD BY GOVERNMENT ACCOUNTS \1\
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
Investment or disinvestment (-) Holdings
---------------------------------------------------- end of
Description 1999 2000 2001 2001
actual estimate estimate estimate
----------------------------------------------------------------------------------------------------------------
Investment in Treasury debt:
Energy: Nuclear waste disposal fund \1\....... 548 1,190 1,012 10,136
Health and Human Services:
Federal hospital insurance trust fund....... 35,517 9,677 37,827 201,271
Federal supplementary medical insurance -12,973 17,956 -3,795 40,689
trust fund.................................
Vaccine injury compensation trust fund...... 145 97 87 1,615
Housing and Urban Development:
Federal Housing Administration mutual 598 3,700 4,600 23,242
mortgage fund..............................
Other HUD................................... 369 409 365 6,765
Interior: Abandoned Mine Reclamation fund..... 97 50 76 1,891
Labor:
Unemployment trust fund..................... 6,716 8,042 7,716 93,116
Pension Benefit Guaranty Corporation........ 599 1,121 1,504 11,921
State: Foreign Service retirement and 581 556 568 11,255
disability trust fund........................
Transportation:
Highway trust fund.......................... 10,157 3,354 817 32,254
Airport and airway trust fund............... 3,864 919 863 14,196
Oil spill liability trust fund.............. -56 94 -68 1,088
Treasury: Exchange stabilization fund......... -748 762 800 16,794
Veterans Affairs:
National service life insurance trust fund.. -55 -161 -209 11,584
Other trust funds........................... 37 20 32 1,848
Federal funds............................... -7 -9 -17 525
Defense-Civil:
Military retirement trust fund.............. 7,431 5,059 6,439 152,772
Harbor maintenance trust fund............... 329 ......... ......... 1,603
Environmental Protection Agency:
Hazardous substance trust fund.............. -702 32 1,565 6,190
Leaking underground storage tank trust fund. 225 102 215 1,775
International Assistance Programs:
Overseas Private Investment Corporation..... 241 118 18 3,220
Office of Personnel Management:
Civil Service retirement and disability 33,883 30,623 29,526 540,789
trust fund.................................
Employees life insurance fund............... 1,379 979 1,321 23,055
Employees health benefits fund.............. -430 -226 -146 5,463
Social Security Administration:
Federal old-age and survivors insurance 108,944 129,116 138,292 1,029,634
trust fund \2\.............................
Federal disability insurance trust fund \2\. 15,670 20,547 21,810 135,023
Farm Credit System Insurance Corporation:
Farm Credit Insurance Fund.................. 60 143 ......... 1,519
Federal Deposit Insurance Corporation:
Bank Insurance fund......................... 914 665 ......... 29,024
FSLIC Resolution fund....................... 217 531 -85 2,750
Savings Association Insurance fund.......... 542 391 374 10,909
National Credit Union Administration: Share 250 490 450 5,068
insurance fund...............................
Postal Service fund \2\....................... -191 ......... ......... 809
Railroad Retirement Board trust funds \1\..... 176 1,089 883 19,239
Other Federal funds........................... 1,062 175 456 7,572
Other trust funds............................. 3,590 -210 203 8,631
Unrealized discount \1\....................... 376 ......... ......... -1,808
---------------------------------------------------------------
Total, investment in Treasury debt \1\.... 219,353 237,401 253,499 2,463,426
===============================================================
Investment in agency debt:
Office of Personnel Management:
Civil Service retirement and disability -3,283 -83 ......... 551
trust fund.................................
---------------------------------------------------------------
Total, investment in agency debt................ -3,283 -83 ......... 551
===============================================================
Total, investment in Federal debt \1\........... 216,070 237,318 253,499 2,463,977
===============================================================
[[Page 277]]
MEMORANDUM
Investment by Federal funds (on-budget)......... 4,741 9,736 9,553 131,336
Investment by Federal funds (off-budget)........ -191 ......... ......... 809
Investment by trust funds (on-budget)........... 86,529 77,919 83,844 1,168,984
Investment by trust funds (off-budget).......... 124,615 149,663 160,102 1,164,657
Unrealized discount \1\......................... 376 ......... ......... -1,808
----------------------------------------------------------------------------------------------------------------
\1\ Debt held by Government accounts is measured at face value except for the Treasury zero-coupon bonds held by
the Nuclear Waste Disposal fund and the Railroad Retirement Board (Rail Industry Pension Fund), which are
recorded at market or redemption price; and the unrealized discount on Government account series, which is not
distributed by account. Changes are not estimated in the unamortized discount of the zero-coupon bonds or the
unrealized discount. If recorded at face value, the debt held by the Nuclear Waste Disposal fund would be $7.3
billion higher than recorded in this table at the end of 1999 and the debt held by the Railroad Retirement
Board would be $7.1 billion higher.
\2\ Off-budget Federal entity.
The large investment by Government accounts is concentrated among a
few trust funds. The two social security trust funds--old-age and
survivors insurance and disability insurance--have a large combined
surplus and invest an increasing amount each year: a total of $434.4
billion during 1999-2001, which constitutes 61 percent of the total
estimated investment by Government accounts.
In addition to these two funds, the largest investment is by the
Federal employee retirement and disability trust funds. The principal
trust fund for Federal civilian employees is the civil service
retirement and disability trust fund, which accounts for 13 percent of
the total investment by Government accounts during 1999-2001. The
military retirement trust fund accounts for 3 percent. Altogether,
social security and these two retirement funds account for 77 percent of
the investment by all Government accounts during this period. At the end
of 2001, they are estimated to own 75 percent of the total debt held by
Government accounts. The largest other holdings are by the hospital
insurance trust fund and the unemployment trust fund.
Technical note on debt reclassifications.--Two holdings of debt have
been reclassified from debt held by Government accounts to debt held by
the public. Both involve deposit funds. Deposit funds are non-budgetary
accounts that record amounts held by the Government temporarily until
ownership is determined (such as earnest money paid by bidders for
mineral leases) or held by the Government as an agent for others (such
as State income taxes withheld from Federal employees' salaries and not
yet paid to the States). Because the amounts are not owned by the
Government, the transactions of deposit funds are not included in the
unified budget receipts, outlays, and surplus or deficit, and the
Treasury securities held by deposit funds have normally been included in
debt held by the public rather than debt held by Government accounts.
\12\
---------------------------------------------------------------------------
\12\ Deposit funds are further discussed in a section of chapter 24,
``Budget System and Concepts and Glossary.''
---------------------------------------------------------------------------
The first reclassification was from applying this dividing line more
consistently. Since 1977, two or three deposit funds have been
classified as Government accounts, the largest being for Outer
Continental Shelf receipts whose ownership was in dispute. The Treasury
securities held by these deposit funds have been reclassified as debt
held by the public, rather than debt held by Government accounts, and
the historical data have been revised retroactively to 1977. The amount
reclassified as of September 30, 1999, was $1,742 million.
Second, Indian tribal funds that are owned by Indian tribes and held
and managed by the Government in a fiduciary capacity on the tribes'
behalf were reclassified from trust funds (within the budget) to deposit
funds as of October 1, 1999, and their holdings of Treasury securities
were accordingly reclassified from debt held by Government accounts to
debt held by the public. The amount of the securities reclassified was
$355 million, which, as noted in footnote 4 to table 12-2, means that
the decrease in publicly held debt in 2000 will be $355 million less
than the repayment of debt. The change in classification is explained in
chapter 15, ``Trust Funds and Federal Funds.''
Technical note on measurement.--The Treasury securities held by
Government accounts consist almost entirely of the Government account
series. Most were issued at par value (face value), and the securities
issued at a discount or premium have traditionally been recorded at par
in the OMB and Treasury reports on Federal debt. However, there are two
kinds of exceptions. First, in 1991, Treasury began to issue zero-coupon
bonds to a very few Government accounts. Because the purchase price is a
small fraction of par value and the amounts are large, the holdings are
recorded in table 12-4 at purchase price plus amortized discount. The
only two Government accounts currently affected are the Nuclear Waste
Disposal fund in the Department of Energy, and the Rail Industry Pension
fund under the Railroad Retirement Board. The total unamortized discount
of these zero-coupon bonds was $8.5 billion at the end of 1999.
Second, in September 1993 Treasury began to subtract the unrealized
discount on other Government account series securities in calculating
``net federal securities held as investments of government accounts.''
Unlike the discount recorded for zero-coupon bonds or for any debt held
by the public, this discount is the amount
[[Page 278]]
at the time of issue and is not amortized over the term of the security.
In Table 12-4 it is shown as a separate item at the end of the table and
not distributed by account. The amount was $1.8 billion at the end of
1999.
Limitations on Federal Debt
Definition of debt subject to limit.--Statutory limitations have
usually been placed on Federal debt. Until World War I, the Congress
ordinarily authorized a specific amount of debt for each separate issue.
Beginning with the Second Liberty Bond Act of 1917, however, the nature
of the limitation was modified in several steps until it developed into
a ceiling on the total amount of most Federal debt outstanding. This
last type of limitation has been in effect since 1941. The limit
currently applies to most debt issued by the Treasury since September
1917, whether held by the public or by Government accounts; and other
debt issued by Federal agencies that, according to explicit statute, is
guaranteed as to principal and interest by the United States Government.
The middle part of Table 12-2 compares total Treasury debt with the
amount of Federal debt that is subject to the limit. Most of the
Treasury debt not subject to limit was issued by the FFB (Federal
Financing Bank). The FFB is authorized to have outstanding up to $15
billion of publicly issued debt, and this amount was issued several
years ago to the Civil Service Retirement and Disability trust fund. The
remaining Treasury debt not subject to limit consists almost entirely of
silver certificates and other currencies no longer being issued.
The sole type of agency debt currently subject to the general limit
is the debentures issued by the Federal Housing Administration, which
were only $114 million at the end of 1999. Some of the other agency
debt, however, is subject to its own statutory limit. For example, the
Tennessee Valley Authority is limited to $30 billion of securities
outstanding.
The comparison between Treasury debt and debt subject to limit also
includes an adjustment for measurement differences in the treatment of
discounts and premiums. As explained elsewhere in this chapter, debt
securities may be sold at a discount or premium, and the measurement of
debt may take this into account rather than recording the face value of
the securities. However, the measurement differs between gross Federal
debt (and its components) and the statutory definition of debt subject
to limit. An adjustment is needed to derive debt subject to limit (as
defined by law) from Treasury debt, and this adjustment is defined in
footnote 6 to Table 12-2. The amount is relatively small: $5.5 billion
at the end of 1999 compared to the total discount (less premium) of
$78.7 billion on all Treasury securities.
Methods of changing the debt limit.--The statutory debt limit has
frequently been changed. Since 1960, Congress has passed 68 separate
acts to raise the limit, extend the duration of a temporary increase, or
revise the definition. \13\
---------------------------------------------------------------------------
\13\ The Acts and the statutory limits since 1940 are enumerated in
Historical Tables, Budget of the United States Government, table 7.3.
---------------------------------------------------------------------------
The statutory limit can be changed by normal legislative procedures.
It can also be changed as a consequence of the annual congressional
budget resolution, which is not itself a law. The budget resolution
includes a provision specifying the appropriate level of the debt
subject to limit at the end of each fiscal year. The rules of the House
of Representatives provide that, when the budget resolution is adopted
by both Houses of the Congress, the vote in the House of Representatives
is deemed to have been a vote in favor of a joint resolution setting the
statutory limit at the level specified in the budget resolution. The
joint resolution is transmitted to the Senate for further action. It may
be amended in the Senate to change the debt limit provision or in any
other way. If it passes both Houses of the Congress, it is sent to the
President for his signature. This method directly relates the decision
on the debt limit to the decisions on the Federal deficit and other
factors that determine the change in the debt subject to limit. Both
methods have been used numerous times.
Recent changes in the debt limit.--Major increases in the debt limit
were enacted as part of the deficit reduction packages in the Omnibus
Budget Reconciliation Acts of 1990 and 1993. Both changes in law were
preceded by one or more temporary increases in the limit before
agreement was reached on the debt and the deficit reduction measures
together. Both increases in the debt limit were large enough to last
over two years without a further change in law, the longest times
without an increase since the period from 1946 to 1954.
The debt again approached the limit in 1995, and the limit again
became part of the larger issue of deficit reduction. During an extended
period of dispute between the President and the Congress, the Treasury
Department took a number of administrative actions to keep within the
limit and the Congress passed two acts providing temporary exemptions
from the limit. In March 1996, although agreement had not been reached
on deficit reduction, Congress passed the Contract with America
Advancement Act of 1996, one provision of which increased the debt limit
from $4,900 billion to $5,500 billion. The President signed the bill
into law on March 29.
During 1997, unlike 1996, the President and the Congress reached
agreement on a plan to balance the budget. This included a sufficient
increase in the debt limit to accommodate Government finances for longer
than possible under the limit enacted in the previous year, even though
the amount of debt at that time was considerably under the limit. As a
result, the Balanced Budget Act of 1997, which the President signed into
law on August 5, 1997, increased the debt limit to
[[Page 279]]
$5,950 billion. According to the estimates in Table 12-2, the debt limit
will not be reached until 2004.
Federal funds financing and the change in debt subject to limit.--The
change in debt held by the public, as shown in Table 12-2, is determined
primarily by the total Government deficit or surplus. The debt subject
to limit, however, includes not only debt held by the public but also
debt held by Government accounts. The change in debt subject to limit is
therefore determined both by the factors that determine the total
Government deficit or surplus and by the factors that determine the
change in debt held by Government accounts.
Table 12-5. FEDERAL FUNDS FINANCING AND CHANGE IN DEBT SUBJECT TO STATUTORY LIMIT
(In billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimate
Description 1999 -----------------------------------------------------------------
actual 2000 2001 2002 2003 2004 2005
--------------------------------------------------------------------------------------------------------------------------------------------------------
Federal funds surplus or deficit (-).................... -88.3 -57.6 -57.3 -71.8 -77.6 -74.3 -72.5
Means of financing other than borrowing:
Change in: \1\
Treasury operating cash balance..................... -17.6 16.5 ......... ......... ......... ......... .........
Checks outstanding, etc. \2\........................ -4.3 -2.3 -1.0 ......... ......... ......... .........
Deposit fund balances \3\........................... 0.1 ......... ......... ......... ......... ......... .........
Seigniorage on coins.................................. 1.0 1.4 1.6 1.6 1.6 1.6 1.6
Less: Net financing disbursements:
Direct loan financing accounts...................... -18.6 -28.9 -17.7 -17.6 -17.2 -15.7 -15.6
Guaranteed loan financing accounts.................. 5.2 0.4 1.3 1.4 1.5 1.6 1.7
Total, means of financing other than borrowing.... -34.1 -12.6 -15.8 -14.6 -14.2 -12.5 -12.3
===============================================================================================
Decrease or increase (-) in Federal debt held by Federal -4.9 -9.8 -9.6 ......... ......... ......... .........
funds..................................................
Increase or decrease (-) in Federal debt not subject to -0.8 -0.5 -0.7 -0.8 -1.1 -0.9 -1.8
limit..................................................
===============================================================================================
Total, requirement for Federal funds borrowing 128.1 80.4 83.3 87.2 92.9 87.7 86.6
subject to debt limit..............................
===============================================================================================
Adjustment for change in discount or premium \4\........ 0.1 ......... ......... ......... ......... ......... .........
Adjustment for reclassification of debt................. ............................ 0.4 ......... ......... ......... ......... .........
Increase in debt subject to limit....................... 128.2 80.7 83.3 87.2 92.9 87.7 86.6
ADDENDUM
Debt subject to statutory limit \5\..................... 5,567.7 5,648.4 5,731.7 5,818.6 5,911.5 5,999.2 6,085.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing the deficit and therefore would have a positive
sign. An increase in checks outstanding or deposit fund balances (which are liabilities) would also be a means of financing the deficit and would
therefore also have a positive sign.
\2\ Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing
rights, and, as offsets, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of
gold.
\3\ Does not include investment in Federal debt securities by deposit funds.
\4\ Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized discount
on Government account series securities.
\5\ The statutory debt limit is $5,950 billion.
The budget is composed of two groups of funds, Federal funds and
trust funds. The Federal funds, in the main, are derived from tax
receipts and borrowing and are used for the general purposes of the
Government. The trust funds, on the other hand, are financed by taxes or
other collections earmarked by law for specified purposes, such as
paying social security benefits or making grants to State governments
for highway construction. \14\
---------------------------------------------------------------------------
\14\ For further discussion of the trust funds and Federal funds
groups, see chapter 15, ``Trust Funds and Federal Funds.''
---------------------------------------------------------------------------
A Federal funds deficit must generally be financed by borrowing,
either by selling securities to the public or by issuing securities to
Government accounts that are not within the Federal funds group. Federal
funds borrowing consists almost entirely of the Treasury issuing
securities that are subject to the statutory debt limit. Trust fund
surpluses are almost entirely invested in these securities, and trust
funds hold most of the debt held by Government accounts. Very little
debt subject to statutory limit is issued for other reasons. The change
in debt subject to limit is therefore determined primarily by the
Federal funds deficit, which is equal to the difference between the
total Government surplus and the trust fund surplus.
Table 12-5 derives the change in debt subject to limit. In 2001 the
Federal funds deficit is estimated to be $57.3 billion, and other
factors increase the requirement to borrow subject to limit by $26.0
billion. The largest other factor ($17.7 billion) is the direct loan
financing accounts. As explained in an earlier section, their net
financing disbursements are excluded from the budget by law because they
do not represent a cost to the Government, but they have to be financed
and they are currently sizable. The next largest factor ($9.6 billion)
is investment in Treasury securities by revolving funds and special
funds in the Federal funds group. As a result of all these factors, the
debt subject to limit is estimated to increase by $83.3 billion, in
contrast to a $170.9 billion decrease in debt held by the public.
The budget surplus or deficit equals the sum of the Federal funds
surplus or deficit and the trust fund surplus or deficit. The trust
funds currently have a large surplus, as they have had for a number of
years, and it is estimated to grow throughout the projection period.
[[Page 280]]
The Federal funds, in contrast, as shown in Table 12-5, continue to have
a deficit every year over this period. Mainly because of the Federal
funds deficit, the debt subject to limit continues to increase every
year while the debt held by the public decreases. This can be seen by
comparing the annual increase in debt subject to limit in Table 12-5
with the annual decrease in debt held by the public in Table 12-2. In
2005, for example, when the Government has a $215.4 billion total
surplus and the debt held by the public decreases by $203.2 billion, the
debt subject to limit increases by $86.6 billion. From the end of 1999
to 2005, debt held by the public decreases by $1,055 billion while debt
subject to limit increases by $518 billion.
Debt Held by Foreign Residents
During most of American history, the Federal debt was held almost
entirely by individuals and institutions within the United States. In
the late 1960s, as shown in Table 12-6, foreign holdings were just over
$10.0 billion, less than 5 percent of the total Federal debt held by the
public.
Table 12-6. FOREIGN HOLDINGS OF FEDERAL DEBT
(Dollar amounts in billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Debt held by the public Borrowing from the Interest on debt held by the
---------------------------------- public public
Fiscal year ------------------------------------------------------------
Total Foreign \1\ Percentage Percentage
foreign Total \2\ Foreign \1\ Total \3\ Foreign \4\ foreign
--------------------------------------------------------------------------------------------------------------------------------------------------------
1965..................................................... 260.8 12.3 4.7 3.9 0.3 9.6 0.5 4.9
1966..................................................... 263.7 11.6 4.4 2.9 -0.7 10.1 0.5 5.1
1967..................................................... 266.6 11.4 4.3 2.9 -0.2 11.1 0.6 5.1
1968..................................................... 289.5 10.7 3.7 22.9 -0.7 11.9 0.7 5.6
1969..................................................... 278.1 10.3 3.7 -1.3 -0.4 13.5 0.7 5.3
1970..................................................... 283.2 14.0 5.0 3.5 3.8 15.4 0.8 5.5
1971..................................................... 303.0 31.8 10.5 19.8 17.8 16.2 1.3 7.9
1972..................................................... 322.4 49.2 15.2 19.3 17.3 16.8 2.4 14.2
1973..................................................... 340.9 59.4 17.4 18.5 10.3 18.7 3.2 17.2
1974..................................................... 343.7 56.8 16.5 2.8 -2.6 22.7 4.1 17.9
1975..................................................... 394.7 66.0 16.7 51.0 9.2 25.0 4.5 18.2
1976..................................................... 477.4 69.8 14.6 82.2 3.8 29.3 4.4 15.1
TQ....................................................... 495.5 74.6 15.1 18.1 4.9 7.8 1.2 14.9
1977..................................................... 549.1 95.5 17.4 53.6 20.9 33.8 5.1 15.0
1978..................................................... 607.1 121.0 19.9 58.0 25.4 40.2 7.9 19.5
1979 \5\................................................. 640.3 120.3 18.8 33.2 -0.7 49.9 10.7 21.5
1980..................................................... 711.9 121.7 17.1 71.6 1.4 62.8 11.0 17.5
1981..................................................... 789.4 130.7 16.6 77.5 9.0 81.7 16.4 20.1
1982..................................................... 914.6 140.6 15.2 135.2 9.9 101.2 18.7 18.5
1983..................................................... 1,137.3 160.1 14.1 212.7 19.5 111.6 19.2 17.2
1984..................................................... 1,307.0 175.5 13.4 169.7 15.4 133.5 20.3 15.2
1985 \5\................................................. 1,507.4 222.9 14.8 200.3 47.4 152.9 23.0 15.1
1986..................................................... 1,740.8 265.5 15.3 233.4 42.7 159.3 24.2 15.2
1987..................................................... 1,889.9 279.5 14.8 149.2 14.0 160.4 25.7 16.0
1988..................................................... 2,051.8 345.9 16.9 161.9 66.4 172.3 29.9 17.4
1989..................................................... 2,191.0 394.9 18.0 139.1 49.0 189.0 37.1 19.6
1990 \5\................................................. 2,411.8 440.3 18.3 220.9 45.4 202.4 40.2 19.9
1991..................................................... 2,689.3 477.3 17.7 277.5 37.0 214.8 41.3 19.2
1992..................................................... 3,000.1 535.2 17.8 310.8 57.9 214.5 39.3 18.3
1993..................................................... 3,248.8 591.3 18.2 247.4 56.1 210.2 39.0 18.6
1994..................................................... 3,433.4 655.8 19.1 184.7 64.5 210.6 41.9 19.9
1995 \5\................................................. 3,604.8 800.4 22.2 171.3 144.6 239.2 54.5 22.8
1996..................................................... 3,734.5 978.1 26.2 129.7 177.7 246.6 63.7 25.8
1997..................................................... 3,772.8 1,218.2 32.3 38.3 240.0 250.8 84.2 33.6
1998..................................................... 3,721.6 1,216.9 32.7 -51.2 -1.2 250.0 91.3 36.5
1999..................................................... 3,632.9 1,281.3 35.3 -88.7 57.1 234.9 92.7 39.5
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\1\ Estimated by Treasury Department. These estimates exclude agency debt, the holdings of which are believed to be small. The data on foreign holdings
are not recorded by methods that are strictly comparable with the data on debt held by the public. Projections are not available.
\2\ Borrowing from the public is defined as equal to the change in debt held by the public from the beginning of the year to the end, except to the
extent that the amount of debt is changed by reclassification.
\3\ Estimated as interest on the public debt less ``interest received by trust funds'' (subfunction 901 less subfunctions 902 and 903). Does not include
the comparatively small amount of interest on agency debt or the offsets for interest on public debt received by other Government accounts (revolving
funds and special funds).
\4\ Estimated by Bureau of Economic Analysis, Department of Commerce. These estimates include small amounts of interest from other sources, including
the debt of Government-sponsored enterprises, which are not part of the Federal Government.
\5\ Benchmark revisions reduced the estimated foreign holdings of Federal debt as of December 1978; increased the estimated foreign holdings as of
December 1984 and December 1989; and reduced the estimated holdings as of December 1994. As a result, the data on foreign holdings in different time
periods are not strictly comparable, and the ``borrowing'' from foreign residents in 1979, 1985, 1989, and 1995 reflects the benchmark revision as
well as the net purchases of Federal debt securities.
Foreign holdings began to grow significantly starting in 1970. This
increase has been almost entirely due to foreign decisions, both
official and private, rather
[[Page 281]]
than the direct marketing of these securities to foreign residents. At
the end of fiscal year 1999 foreign holdings of Treasury debt were
$1,281.3 billion, which was 35 percent of the total debt held by the
public. \15\ Foreign central banks owned 43 percent of the Federal debt
held by foreign residents; private investors owned nearly all the rest.
All the Federal debt held by foreign residents is denominated in
dollars.
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\15\ The amounts of debt reported by the Bureau of Economic Analysis,
Department of Commerce, are different, but similar in size, due to a
different method of valuing the securities.
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Although the amount of Federal debt held by foreign residents grew
greatly over this period, the proportion they own, after growing
abruptly in the very early 1970s, did not change much again until about
1995. During 1995-97, however, foreign holdings increased on average by
about $200 billion each year, considerably more than total Federal
borrowing from the public. \16\ As a result, the Federal debt held by
individuals and institutions within the United States decreased in
absolute amount during those years, and the percentage of Federal debt
held by foreign residents grew from 19 percent at the end of 1994 to 32
percent at the end of 1997. The rapid growth of foreign debt holdings
ceased in 1998 and turned into a slight decline, almost the only year
with a decrease since 1970. In 1999, the debt held by foreigners
increased again. Because total debt held by the public decreased in 1998
and 1999, the percentage held by foreigners continued to rise in both
years.
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\16\ Table 12-6 shows foreign holdings increasing by only $144.6
billion in 1995. However, as explained in footnote 5 to that table, a
benchmark revision reduced the estimated holdings as of December 1994
(by $47.9 billion). Because debt estimates were not revised
retroactively, the increase in 1995 was more than the table shows.
Before the benchmark revision, the increase was estimated to be $192.6
billion.
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Foreign holdings of Federal debt are about one-fifth of the foreign-
owned assets in the United States. The foreign purchases of Federal debt
securities do not measure the full impact of the capital inflow from
abroad on the market for Federal debt securities. The capital inflow
supplies additional funds to the credit market generally, and thus
affects the market for Federal debt. For example, the capital inflow
includes deposits in U.S. financial intermediaries that themselves buy
Federal debt.
Federal, Federally Guaranteed, and Other Federally Assisted Borrowing
The effect of the Government on borrowing in the credit market arises
not only from its own borrowing to finance Federal operations but also
from its assistance to certain borrowing by the public. The Government
guarantees borrowing by private and other non-Federal lenders, which is
another term for guaranteed lending. In addition to its guarantees, it
has established private corporations called ``Government-sponsored
enterprises,'' or GSEs, to provide financial intermediation for
specified public purposes; it exempts the interest on most State and
local government debt from income tax; and it insures the deposits of
banks and thrift institutions, which themselves make loans.
Federal credit programs and other forms of assistance are discussed
in chapter 8, ``Credit and Insurance.'' Detailed data are presented in
tables at the end of that chapter. Table 12-7 brings together the totals
of Federal and federally guaranteed borrowing and lending and shows the
trends since 1965 in terms of both dollar amounts and, more
significantly, as percentages of total credit market borrowing or
lending by domestic nonfinancial sectors. The Federal and federally
guaranteed lending is recorded at the principal amount. It does not
measure the degree of subsidy provided by the credit assistance, nor
does it indicate the extent to which the credit assistance changed the
allocation of financial and real resources. Tables 8-11 and 8-12 in
chapter 8 summarize GSE borrowing and lending.
Table 12-7 shows that the participation rate for Federal and
federally guaranteed borrowing trended strongly upward from the 1960s to
the early 1990s, though with cyclical variation. The trend was dominated
by Federal borrowing to finance the growing deficit. Federally
guaranteed borrowing, though much larger in absolute terms in 1990 than
1965, was smaller as a percentage of total new borrowing in the credit
market. The participation rate has declined sharply since the early
1990s due to the budget surplus and was a negative amount in 1999. These
results do not reflect the credit assistance that the Federal Government
provides by other means.
[[Page 282]]
Table 12-7. FEDERAL AND FEDERALLY GUARANTEED PARTICIPATION IN THE CREDIT MARKET
(Dollar amounts in billions)
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Actual Estimate
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1965 1970 1975 1980 1985 1990 1995 1996 1997 1998 1999 1999 2000
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Total net borrowing in credit 66.8 88.2 169.6 336.9 829.3 704.1 720.4 727.1 713.5 975.3 1,091.4 ....... .......
market \1\........................
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Federal borrowing from the public.. 3.9 3.5 51.0 71.6 200.3 220.9 171.3 129.7 38.3 -51.2 -88.7 -157.1 -170.9
Guaranteed borrowing............... 5.0 7.8 8.6 31.6 21.6 40.7 26.2 89.9 57.8 58.5 60.8 93.6 94.9
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Total, Federal and federally 8.9 11.3 59.6 103.2 221.9 261.6 197.5 219.6 96.1 7.3 -27.9 -63.5 -76.0
guaranteed borrowing............
Borrowing participation rate 13.3 12.8 35.1 30.6 26.8 37.2 27.4 30.2 13.5 0.7 -2.6 ....... .......
(percent).........................
====================================================================================================================
Total net lending in credit market 66.8 88.2 169.6 336.9 829.3 704.1 720.4 727.1 713.5 975.3 1,091.4 ....... .......
\1\...............................
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Direct loans....................... 2.0 3.0 12.7 24.2 28.0 2.8 1.6 4.0 12.8 6.8 13.4 14.1 9.9
Guaranteed loans................... 5.0 7.8 8.6 31.6 21.6 40.7 26.2 89.9 57.8 58.5 60.8 93.6 94.9
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Total, Federal and federally 7.0 10.8 21.3 55.8 49.6 43.5 27.8 93.9 70.6 65.3 74.2 107.7 104.8
guaranteed lending..............
Lending participation rate 10.5 12.2 12.6 16.6 6.0 6.2 3.9 12.9 9.9 6.7 6.8 ....... .......
(percent).........................
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\1\ Total net borrowing (or lending) in credit market by domestic nonfinancial sectors, excluding equities. Credit market borrowing (lending) is the
acquisition (loan) of funds other than equities through formal credit channels. Financial sectors are omitted from the series used in this table to
avoid double counting, because financial intermediaries borrow in the credit market primarily to finance lending in the credit market. Equities, trade
credit, security credit, and other sources of funds are also excluded from this series. Source: Federal Reserve Board flow of funds accounts.
Projections are not available.