Executive Summary to the 2018 Financial Report of U.S. Government

Where We Are Now

Comparing the Budget and the Financial Report

The Budget of the United States Government (Budget) and the Financial Report present complementary perspectives on the Government’s financial position and condition.

• The Budget is the government’s primary financial planning and control tool. It accounts for past government receipts and spending, and includes the President’s proposed receipts and spending plan. Receipts are cash received by the U.S. government and spending is measured as outlays, or payments made by the government to the public. Receipts greater than outlays creates a budget surplus; and outlays greater than receipts creates a budget deficit.
• The Financial Report includes the government’s costs and revenues, assets and liabilities, and other important financial information. It compares the government’s revenues (amounts earned, but not necessarily collected), with costs (amounts incurred, but not necessarily paid) to derive net operating cost.

Chart 1 compares the Government’s budget deficit (receipts vs. outlays) and net operating cost (revenues vs. costs) for fiscal years 2014 - 2018. During fiscal year 2018:

• A $127.1 billion increase in outlays was offset in part by a $13.8 billion increase in receipts to increase the budget deficit by $113.3 billion (about 17.0 percent) to $779.0 billion.
• Net operating cost remained largely unchanged during fiscal year 2018 at $1.2 trillion, increasing by $5.4 billion or 0.5 percent. This is due mostly to a $10.1 billion or 0.2 percent increase in net cost which slightly more than offset a $9.7 billion or 0.3 percent increase in tax and other revenues.
• The $380.0 billion difference between the budget deficit and net operating cost is primarily due to accrued costs (incurred but not necessarily paid) related to increases in estimated federal employee and veteran benefits liabilities and certain other liabilities that are included in net operating cost, but not the budget deficit.

Costs and Revenues

The government’s “bottom line” net operating cost remained largely unchanged at $1.2 trillion during fiscal year 2018, increasing by $5.4 billion (0.5 percent). It is calculated as follows:

• Starting with total gross costs of $4.8 trillion, the government subtracts earned program revenues (e.g., Medicare premiums, national park entry fees, and postal service fees) and adjusts the balance for gains or losses from changes in actuarial assumptions used to estimate future federal employee and veterans benefits payments to derive its net cost before taxes and other revenues of $4.5 trillion (see Chart 2), an increase of $10.1 billion (0.2 percent) from fiscal year 2017. This net increase is the combined effect of many offsetting increases and decreases across the government. For example:
  • Entities administering federal employee and veterans benefits programs, including the Office of Personnel Management (OPM), Department of Veterans Affairs (VA), and Department of Defense (DOD) employ a complex series of assumptions, including but not limited to interest rates, beneficiary eligibility, life expectancy, and medical cost levels, to make actuarial projections of their long-term benefits liabilities. Changes in these assumptions can result in either losses (net cost increases) or gains (net cost decreases). Across the government, these net losses from changes in assumptions amounted to $125.2 billion in fiscal year 2018, a loss decrease (and a corresponding net cost decrease) of $231.3 billion compared to fiscal year 2017.
  • The Department of Energy’s (DOE) net cost increased by $99.6 billion, predominantly due changes in estimated environmental remediation costs.
  • Department of Health and Human Services (HHS) and Social Security Administration (SSA) net costs increased $56.4 billion and $39.5 billion, respectively, largely due to increases in benefit expenses from the social insurance programs administered by those entities (e.g., Medicare, Social Security).
  • At DOD, a $33.0 billion net cost increase includes a $39.2 billion decrease in earned revenues across the Department, as well as increases in the costs of procurement, personnel, and research and development. These increases were partially offset by a decrease in losses from changes in assumptions referenced above and a decrease in costs of military operations, readiness, and support.
  • Interest costs related to the federal debt held by the public increased by $61.0 billion due largely to an increase in the debt and average interest rates, as well as inflation adjustments on certain Treasury securities. Interest costs increased by 20.6 percent in 2018 from 2017 and by 37.4 percent over the past five years.

• The Government deducts tax and other revenues from net cost (with some adjustments) to derive its FY 2018 “bottom line” net operating cost of $1.2 trillion.
  • From Chart 3, total government tax and other revenues grew by $9.7 billion (0.3 percent) to about $3.4 trillion for fiscal year 2018.
  • Together, individual income tax and tax withholdings, and corporate taxes accounted for about 88.7 percent of total tax and other revenues in fiscal year 2018. Other revenues include Federal Reserve earnings, excise taxes, and customs duties.

Assets and Liabilities

Chart 4 summarizes the assets and liabilities that the Government reports on its balance sheet. As of September 30, 2018:

• Total assets ($3.8 trillion) consist mostly of $1.4 trillion in net loans receivable (primarily student loans) and $1.1 trillion in net property, plant, and equipment).
  • Other significant Government resources not reported on the balance sheet include stewardship assets, natural resources, and the Government’s power to tax and  set monetary policy.
• Total liabilities ($25.4 trillion) consist mostly of: (1) $15.8 trillion in federal debt securities held by the public and accrued interest and (2) $8.0 trillion in federal employee and veteran benefits payable.
  • The “public” consists of individuals, corporations, state and local governments, Federal Reserve Banks, foreign governments, and other entities outside the federal government.
• The Government also reports about $5.8 trillion of intragovernmental debt outstanding, which arises when one part of the Government borrows from another.
  • For example, government funds (e.g., Social Security and Medicare trust funds) typically must invest excess annual receipts, including interest earnings, in Treasury-issued federal debt securities. Although not reflected in Chart 4, these securities are included in the calculation of federal debt subject to the debt limit.
• Debt held by the public plus intragovernmental debt equals gross federal debt, which, with some adjustments, is subject to a statutory debt ceiling (“debt limit”).
  • At the end of FY 2018, debt subject to the statutory limit (DSL) was $21.5 trillion. Increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the government to continue to honor preexisting commitments.
  • Legislation most recently suspended the debt limit from February 9, 2018 through March 1, 2019. Effective March 2, 2019, the statutory debt limit was set at $22.0 trillion, and on March 4, 2019, the Secretary of the Treasury notified the Congress that the statutory debt limit would be reached on or after that day. When delays in raising the debt limit occur, Treasury implements “extraordinary measures” on a temporary basis, to enable the government to protect the full faith and credit of the United States by continuing to pay its bills. Treasury began taking these extraordinary measures on March 4, 2019.

Key Economic Trends

An examination of key macroeconomic indicators is essential to the discussion of the government’s financial performance. During fiscal year 2018, economic growth and the pace of job creation each accelerated, and the unemployment rate declined to a 49-year low. These and other economic and financial developments are discussed in greater detail in the Financial Report.