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Financial Report of the United States Government

Management's Discussion & Analysis

The Government's Financial Position and Condition

This Financial Report presents the government’s financial position at the end of the fiscal year, explains how and why the financial position changed during the year, and discusses the government’s financial condition and how it may change in the future.

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Table 1:
The Federal Government's Financial Position and Condition
  2021 2020* Increase/
(Decrease)
$
Increase/
(Decrease)
%
FINANCIAL MEASURES (Dollars in Billions)
Gross Cost  $(7,294.7)  $(7,195.1) $99.6 1.4%
  Less: Earned Revenue $ 462.3  $461.6 $0.7  0.2%
  Gain/(Loss) from Changes in Assumptions  $(518.4) $(679.5)  $(161.1) (23.7%)
Net Cost  $(7,350.8)  $(7,413.0)  $ (62.2) (0.8%)
Less: Total Tax and Other Unearned Revenues  $4,255.9  $3,571.6  $ 684.3 19.2%
Net Operating Cost  $(3,094.9)  $(3,841.4)  $(746.5) (19.4%)
Budget Deficit  $(2,775.6)  $(3,131.9)  $(356.3) (11.4%)
Assets:        
  Cash & Other Monetary Assets $ 475.0  $1,926.9  $(1,451.9) (75.3%)
  Accounts Receivable, Net $ 401.0  $321.2 $79.8 24.8%
  Loans Receivable, Net  $1,651.0  $1,577.4 $73.6 4.7%
  General Property, Plant and Equipment, Net  $1,176.9  $1,139.9 $37.0  3.2%
  Other  $1,189.7  $990.3  $ 199.4  20.1%
Total Assets  $4,893.6  $5,955.7  $(1,062.1) (17.8)%
Liabilities:        
  Federal Debt and Interest Payable  $(22,344.8)  $ (21,082.9) $1,261.9 6.0%
  Federal Employee & Veteran Benefits Payable $(10,183.0)  $(9,415.5)  $ 767.5 8.2%
  Other  $(2,249.9)  $(2,245.6) $4.3  0.2%
Total Liabilities  $(34,777.7)  $ (32,744.0) $2,033.7 6.2%
Unmatched Transactions & Balances1 $(1.7) $ (3.1) $(1.4) (45.2%)
Net Position  $(29,885.8)  $ (26,791.4) $3,094.4 11.5%
SUSTAINABILITY MEASURES (Dollars in Trillions)
Social Insurance Net Expenditures:        
  Social Security (OASDI) $(22.7) $(19.7) $3.0 15.2%
  Medicare (Parts A, B, & D) $(48.2)  $(45.7)  $2.5  5.5%
  Other $(0.1) $(0.1) $-  0.0%
Total Social Insurance Net Expenditures   $(71.0)  $(65.5)  $5.5  8.4%
Total Federal Non-Interest Net Expenditures   $(97.6)  $(79.5) $18.1  22.8%
75-Year Fiscal Gap (Percent of Gross Domestic Product)2  (6.2%)   (5.4%)   0.8% 14.8%
1 Unmatched transactions and balances are net adjustments needed to balance the financial statements and are due primairly to unresolved intra-governmental differences. Net unmatched transactions and balances of $0.2 billion for FY 2021 and $11.5 billion for FY 2020 are also included in the Statements of Operations and Changes in Net Position. See Financial Statement Note 1.U.
2 To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipts increases that amounts to 6.2 percent of GDP on average is needed (5.4 percent of GDP on average in 2020). See Financial Statement Note 26.
*Restated (see Financial Statement Note 1.V and Note 1.W)

Table 1 on the previous page and the following summarize the federal government’s financial position:

  • This Financial Report includes discussion and analysis of the significant impact that the federal government’s response to the COVID-19 pandemic had on the government’s financial position during FY 2021.
  • During FY 2021, the budget deficit decreased by $356.3 billion (11.4 percent) to $2.8 trillion and net operating cost decreased by $746.5 billion (19.4 percent) to $3.1 trillion.
  • The government’s gross costs of $7.3 trillion, less $462.3 billion in revenues earned for goods and services provided to the public (e.g., Medicare premiums, national park entry fees, and postal service fees), plus $518.4 billion in net losses from changes in assumptions (e.g., interest rates, inflation, disability claims rates) yields the government’s net cost of $7.4 trillion, a slight decrease of $62.2 billion or 0.8 percent compared to FY 2020.
  • Deducting $4.3 trillion in tax and other revenues results in a “bottom line” net operating cost of $3.1 trillion for FY 2021, a decrease of $746.5 billion or 19.4 percent compared to FY 2020.
  • Comparing total FY 2021 government assets of $4.9 trillion to total liabilities of $34.8 trillion (comprised mostly of $22.3 trillion in federal debt and interest payable3, and $10.2 trillion of federal employee and veteran benefits payable) yields a negative net position of $29.9 trillion.
  • The budget deficit is primarily financed through borrowing from the public. As of September 30, 2021, debt held by the public, excluding accrued interest, was $22.3 trillion. This amount, plus intra-governmental debt ($6.2 trillion) equals gross federal debt, which, with some adjustments, is subject to the statutory debt limit. As of September 30, 2021, the government’s total debt subject to the debt limit was $28.4 trillion. Congress and the President most recently increased the debt limit by $480.0 billion in October 2021 and by $2.5 trillion in December 2021.

This Financial Report also contains information about projected impacts on the government’s future financial condition. Under federal accounting rules, social insurance amounts as reported in both the SLTFP and in the SOSI are not considered liabilities of the government. From Table 1:

  • The SLTFP shows that the PV4 of total non-interest spending, including Social Security, Medicare, Medicaid, defense, and education, etc., over the next 75 years, under current policy, is projected to exceed the PV of total receipts by $97.6 trillion (total federal non-interest net expenditures from Table 1).
  • The SOSI shows that the PV of the government’s expenditures for Social Security and Medicare Parts A, B and D, and other social insurance programs over 75 years is projected to exceed social insurance revenues5 by about $71.0 trillion, a $5.5 trillion increase over 2020 social insurance projections.
  • The Social Insurance and Total Federal Non-Interest Net Expenditures measures in Table 1 differ primarily because total non-interest net expenditures from the SLTFP include the effects of general revenues and non-social insurance spending, neither of which is included in the SOSI.

The government’s current financial position and long-term financial condition can be evaluated both in dollar terms and in relation to the economy as a whole. GDP is a measure of the size of the nation’s economy in terms of the total value of all final goods and services that are produced in a year. Considering financial results relative to GDP is a useful indicator of the economy’s capacity to sustain the government’s many programs. For example:

  • The budget deficit decreased from $3.1 trillion in FY 2020 to $2.8 trillion in FY 2021. The deficit-to-GDP ratio similarly decreased from 15.0 percent in FY 2020 to 12.4 percent in 2021.
  • The budget deficit is primarily financed through borrowing from the public. As of September 30, 2021, the $22.3 trillion in debt held by the public, excluding accrued interest, equates to just under 100 percent of GDP.
  • The 2021 SOSI projection of $71.0 trillion net PV excess of expenditures over receipts over 75 years represents about 4.4 percent of the PV of GDP over 75 years. The excess of total projected non-interest spending over receipts of $97.6 trillion from the SLTFP represents 5.7 percent of GDP over 75 years. As discussed in this Financial Report, changes in these projections can, in turn, have a significant impact on projected debt as a percent of GDP.
  • To prevent the debt-to-GDP ratio from rising over the next 75 years, a combination of non-interest spending reductions and receipts increases that amounts to 6.2 percent of GDP on average is needed (5.4 percent of GDP on average in the 2020 projections). The fiscal gap represents 32.4 percent of 75-year PV receipts and 25.0 percent of 75-year PV non-interest spending.

FY 2021 Financial Statement Audit Results

For FY 2021, GAO issued a disclaimer of audit opinion on the accrual-based, government-wide financial statements, as it has for the past 24 years, due to certain material weaknesses in internal control over financial reporting and other limitations on the scope of its work. In addition, GAO issued a disclaimer of opinion on the sustainability financial statements due to significant uncertainties primarily related to the achievement of projected reductions in Medicare cost growth and certain other limitations. GAO’s audit report on page 228 of this Financial Report, discusses GAO’s findings.

In FY 2021, 21 of the 24 entities required to issue audited financial statements under the CFO Act received unmodified audit opinions, as did 13 of 16 additional significant consolidation entities (see Table 11 and Appendix A).6

The Government-wide Reporting Entity

This Financial Report includes the financial status and activities of the executive, legislative, and judicial branches of the federal government. SFFAS No. 47, Reporting Entity, provides criteria for identifying organizations that are consolidation entities, disclosure entities, and related parties. Such criteria are summarized in Note 1.A, Significant Accounting Policies, Reporting Entity, and in Appendix A, which lists the entities included in this Financial Report by these categories. The assets, liabilities, results of operations, and related activity for consolidation entities are consolidated in the financial statements.

Fannie Mae and Freddie Mac meet the criteria for disclosure entities and, consequently, are not consolidated into the government’s financial statements. However, the values of the investments in such entities, changes in value, and related activity with these entities are included in the consolidated financial statements. The FR System and the SPVs are disclosure entities and are not consolidated into the government’s financial statements. See Note 1.A and Note 28—Disclosure Entities and Related Parties for additional information. In addition, per SFFAS No. 31, Accounting for Fiduciary Activities, fiduciary funds are not consolidated in the government financial statements.7

Most significant consolidation entities prepare financial statements that include financial and performance related information, as well as Annual Performance Reports. More information may be obtained from entities’ websites indicated in Appendix A and at https://www.performance.gov/.

The following pages contain a more detailed discussion of the government’s financial results for FY 2021, the budget, the economy, the debt, and a long-term perspective about fiscal sustainability, including the government’s ability to meet its social insurance benefits obligations. The information in this Financial Report, when combined with the Budget, collectively presents information on the government’s financial position and condition.

Accounting Differences Between the Budget and the Financial Report

Each year, the Administration issues two reports that detail the government’s financial results: the Budget and this Financial Report. The exhibit on the following page provides the key characteristics and differences between the two documents.

Treasury generally prepares the financial statements in this Financial Report on an accrual basis of accounting as prescribed by GAAP for federal entities.8 These principles are tailored to the government’s unique characteristics and circumstances. For example, entities prepare a uniquely structured “Statement of Net Cost,” which is intended to present net government resources used in its operations. Also, unique to government is the preparation of separate statements to reconcile differences and articulate the relationship between the budget and financial accounting results.

Budget of the U.S. Government Financial Report of the U.S. Government
Prepared primarily on a "cash basis"
  • Initiative-based and prospective: focus on current and future initiatives planned and how resources will be used to fund them.
  • Receipts (“cash in”), taxes and other collections recorded when received.
  • Outlays (“cash out”), largely recorded when payment is made.
Prepared on an "accrual basis" and "modified cash basis"
  • Entity-based and retrospective – prior and present resources used to implement initiatives.
  • Revenue: Tax revenue (more than 90.0 percent of total revenue) recognized on modified cash basis (see Financial Statement Note 1.B). Remainder recognized when earned, but not necessarily received.
  • Costs: recognized when incurred, but not necessarily paid.

Budget Deficit vs. Net Operating Cost

Three key components of the U.S. budget process are: 1) appropriations; 2) obligations; and 3) outlays. An appropriation is a provision of law authorizing the expenditure of funds for a given purpose. Rescissions and cancellations are reductions in law of budgetary resources. They are considered to be permanent reductions unless legislation clearly indicates that the reduction is temporary. Once funds are appropriated by Congress, Treasury issues warrants that officially establish the amounts available to be obligated and spent (i.e., expended or outlayed) by each agency. An agency’s obligation of funds is a binding agreement to outlay funds for a particular purpose immediately or in the future. The budget deficit is measured as the excess of outlays, or payments made by the government, over receipts, or cash received by the government.

Net operating cost, calculated on an accrual basis, is the excess of costs (what the government has incurred but has not necessarily paid) over revenues (what the government has collected and expects to collect but has not necessarily received). As shown in Chart 1, net operating cost typically exceeds the budget deficit due largely to the inclusion of cost accruals associated with increases in estimated liabilities for the government’s postemployment benefit programs for its military and civilian employees and veterans as well as environmental liabilities.
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The government’s primarily cash-based9 budget deficit decreased by $356.3 billion (about 11.4 percent) from approximately $3.1 trillion in FY 2020 to about $2.8 trillion in FY 2021 due to an increase in receipts that exceeded an increase in outlays in FY 2021. The $626.0 billion (18.3 percent) increase in receipts can be attributed primarily to higher net individual and corporation income taxes from the improved economy. Outlays increased $269.7 billion (4.1 percent). The increase reflects continued spending from laws enacted during the previous administration, such as the CARES Act and the CAA, and programs created or enhanced by the ARP to provide relief to Americans and support the economy.10

With some adjustments, Treasury’s September 2021 MTS provides fiscal year-end receipts, spending, and deficit information for this Report. The MTS presents primarily cash-based spending, or outlays, for the fiscal year in a number of ways, including by month, by entity, and by budget function classification. The federal budget is divided into approximately 20 categories, or budget functions, as a means of organizing federal spending by primary purpose (e.g., National Defense, Transportation, and Health). Multiple entities may contribute to one or more budget functions, and a single budget function may be associated with only one entity. For example, DOD, DHS, DOE, and multiple other entities administer programs that are critical to the broader functional classification of National Defense. DOD, OPM, and many other entities also administer Income Security programs (e.g., retirement benefits, housing, financial assistance). By comparison, the Medicare program is a budget function category unto itself and is administered exclusively at the federal level by HHS. Federal spending information by budget function and other categorizations may be found in the September 2021 MTS.11

The government’s largely accrual-based net operating cost decreased by $746.5 billion (19.4 percent) to $3.1 trillion during FY 2021. As explained below, net operating costs are affected by changes in both revenues and costs.

The Reconciliation of Net Operating Cost and Budget Deficit statement articulates the relationship between the government’s accrual-based net operating cost and the primarily cash-based budget deficit. The difference between the government’s budget deficit and net operating cost is typically impacted by many variables. For example, from Table 2, the $319.3 billion net difference for FY 2021 is largely affected by: 1) a $767.5 billion net increase in liabilities for federal employee and veteran benefits payable (see Note 14—Federal Employee and Veteran Benefits Payable); 2) a $112.0 billion increase in value of the government’s investments in GSEs (see Note 9—Investments in Government-Sponsored Enterprises); 3) a $150.7 billion increase in advances and prepayments attributed mostly to advances and prepayments for certain COVID-19 related programs (see Note 10—Advances and Prepayments); 4) a $68.0 billion increase in net taxes receivable (see Note 3—Accounts Receivable, Net); and 5) a $75.1 billion timing difference between when credit reform costs are recorded in the budget versus net operating cost (see Note 4—Loans Receivable, Net and Loan Guarantee Liabilities).

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Table 2: Net Operating Cost vs. Budget Deficit
Dollars in Billions 2021 2020*
Net Operating Cost  $(3,094.9)  $(3,841.4)
Changes in:
  Federal Employee and Veteran Benefits Payable  $767.5  $ 975.2
  Investments in Government-Sponsored Enterprises  $(112.0)  $3.2
  Advances and Prepayments  $(150.7)  $(150.6)
  Taxes Receivable  $(68.0)  $ (91.1)
Timing Differences - Credit Reform Costs  $(75.1) $44.9
Other, Net  $(42.4)  $ (72.1)
Subtotal - Net Difference:  $319.3  $ 709.5
Budget Deficit  $(2,775.6)  $(3,131.9)
*Restated

The Federal Government’s Response to the Pandemic

On March 11, 2020, a novel strain of the Coronavirus (COVID-19) was declared a pandemic by the WHO. A national emergency was declared in the U.S. on March 13, 2020. The global spread of COVID-19, which continued through FY 2021, resulted in a severe global health and economic crisis. During FY 2020 and FY 2021, the federal government took broad action to protect public health from the effects of the unprecedented pandemic, enacting several major pieces of legislation, including:

These laws address the health and economic effects of COVID-19, providing assistance to American workers and families, small businesses, and state, local, tribal governments, and preserving jobs for American industry. As indicated here and in the Financial Report, the federal government’s response to the pandemic continued to have significant effects on the federal government’s budgetary and financial results.

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Table 3: COVID-19 Response From Relief Laws (FYs 2020-2021)
  Appropriations
Dollars in Billions FY 2021* FY 2020 Total
FY 2020-2021*
 Department of the Treasury   $632.8  $975.0  $1,607.8
 Small Business Administration   $242.8  $751.8  $994.6
 Department of Labor   $451.5  $394.3  $845.8
 Department of Health and Human Services   $233.7  $250.4  $484.1
 Department of Education   $251.1 $31.0  $282.1
 Department of Agriculture  $91.3 $73.2  $164.5
 Department of Homeland Security  $70.0 $45.9  $115.9
 Department of Transportation  $70.2 $36.0  $106.2
 Other   $165.1 $76.0  $241.1
 Total  $2,208.5 $2,633.6 $4,842.1
*Net of rescissions, transfers, and other adjustments, including rescissions enacted in FY 2021, but which affected 2020 amounts. Does not include indirect appropriations related to COVID-19 activity.
Source: Appropriation Warrants. See Note 30—COVID-19 Activity and Agency Financial Reports for additional information.

Table 3 summarizes the more than $4.8 trillion in appropriations, net of rescissions, enacted for key pandemic-related assistance programs as of September 30, 2021 (i.e., during FY 2020 and FY 2021) by federal agency. Examples of FY 2021 efforts are summarized below.

  • Treasury received COVID-19 appropriations of $1.2 trillion under the CAA and ARP in FY 2021 and $975.0 billion under the CARES Act in FY 2020. In FY 2021, the CAA eliminated Treasury’s ability to make new loans and investments and rescinded $478.8 billion of $500 billion provided to Treasury under the CARES Act. These changes and the return of unused and permanent authority and obligation adjustments of $71.2 billion resulted in the net appropriations amount of $632.8 billion for FY 2021 shown in Table 3 above. Treasury funding supports several efforts, including $587.0 billion for refundable tax credits (recovery rebates or EIP) in FY 2021. In FY 2021, IRS disbursed $569.5 billion of EIPs to eligible recipients in every state and territory and at foreign addresses. In addition, appropriations of $428.5 billion ($25.0 billion CAA and $403.5 billion ARP) provided for payments to state, local, territorial, and tribal governments to cover eligible costs incurred in response to the pandemic through several funds including: 1) SLFRF; 2) Coronavirus Capital Projects Funds; 3) ERA; 4) HAF; 5) State Small Business Credit Initiative; and 6) Local Assistance and Tribal Consistency Fund. In addition, pursuant to the CARES Act, in response to the COVID-19 pandemic, the government invested in SPVs established by the Federal Reserve Board through the FRBNY and FRBB during FY 2020 for the purpose of enhancing the liquidity of the U.S. financial system.
  • SBA received appropriations of $389.3 billion in FY 2021 and $751.8 billion in FY 2020. FY 2021 appropriation totals were reduced by a $146.5 billion rescission under the CAA of amounts appropriated under the CARES Act, resulting in net appropriations for FY 2021 of $242.8 billion as shown in Table 3 above. SBA appropriations primarily funded two programs: 1) the PPP, a loan guarantee program designed to provide a direct incentive for small businesses to retain employees by providing loan forgiveness for amounts used for eligible expenses for payroll and benefit costs, interest on mortgages, rent, and utilities; and 2) SBA also provides loans to small business owners through the EIDL program.
  • DOL received $451.5 billion in funding in FY 2021 under ARP and $394.3 billion in FY 2020 under the CARES Act. Through multiple UI programs, DOL expands states’ ability to provide UI for many workers impacted by the pandemic, including for workers who are not eligible for regular/traditional unemployment benefits. These programs include, but are not limited to: 1) the FPUC program; 2) the PUA program; and 3) the Short-term Compensation program.
  • Through the PHSSEF and other efforts, HHS provides broad support, including, but not limited to: reimbursements to health care providers for expenses or lost revenues attributable to the pandemic, and support for the development and purchase of vaccines, therapeutic treatment, testing, and medical supplies. In FY 2021, HHS received $233.7 billion and $250.4 billion COVID-19 response-related funding in FYs 2021 and 2020, respectively. These funds support testing, contact tracing, surveillance, containment, mitigation to monitor and suppress the spread of COVID-19, as well as support for COVID-19 vaccination programs; and ARP funding provided supplemental relief funding to workers and families for nationwide testing sites and community vaccination sites as well as addressing disparities in obtaining quality healthcare.
  • Education COVID-19 appropriations funded a variety of programs administered primarily through grant programs. COVID-19 relief legislation and administrative actions also provided support for student loan borrowers primarily by temporarily suspending nearly all federal loan payments.
  • USDA received CAA, ARP, and supplemental CARES Act appropriations in the amount of $91.3 billion in FY 2021 and $73.2 billion in CARES Act funding in FY 2020. This funding extended modifications to federal nutrition assistance programs; funded programs to support agricultural producers, growers, and processors; and provided additional relief to address the continued impact of COVID-19 on the economy, public health, state and local governments, individuals, and businesses.
  • DHS received supplemental appropriations of $70.0 billion under CAA and ARP in FY 2021, and $45.9 billion under the CARES Act in FY 2020. DHS funding supports a wide range of efforts including FEMA’s Disaster Relief Fund. FEMA is authorized to provide many types of assistance including, but not limited to Public Assistance for emergency protective measures, including vaccination activities, direct federal assistance, personal protective equipment, state and local Emergency Operations Center operations, non-congregate sheltering, medical field stations, medical ships, personnel to support medical sites, National Guard deployments, and crisis counseling.
  • DOT received $70.2 billion ($27.0 billion CAA and $43.2 billion ARP) of supplemental COVID-19 appropriations in FY 2021 and $36.0 billion of supplemental appropriations under the CARES Act in FY 2020. DOT funding supports the maintaining and continuing of operations and business needs of various transportation systems in response to COVID-19.
  • Many other agencies and programs comprise the “Other” amount shown in Table 3. Note 30—COVID-19 Activity and agency financial statements provide additional details concerning federal agency pandemic response efforts.

Budgetary activity, such as appropriations, obligations, and outlays are different from, but related to financial activity, such as costs, assets, and liabilities. As agencies implement programs, appropriations, obligations, and outlays precipitate a wide range of financial effects, including the incurrence of program costs, and the creation of or changes in assets such as advances or loans receivable, or liabilities such as loan guarantees. These corresponding financial effects stemming from pandemic relief and economic recovery efforts, and the federal government’s operations in general are discussed in the following section.

The Government’s Net Position: “Where We Are”

The government’s financial position and condition have traditionally been expressed through the Budget, focusing on surpluses, deficits, and debt. However, this primarily cash-based discussion of the government’s net outlays (deficit) or net receipts (surplus) tells only part of the story. The government’s accrual-based net position, (the difference between its assets and liabilities, adjusted for unmatched transactions and balances), and its “bottom line” net operating cost (the difference between its revenues and costs) are also key financial indicators.

Financial Effects of the Federal Government’s Pandemic Response

The financial effects of the government’s response to the COVID-19 pandemic have been broad, impacting many agencies in a variety of ways and to varying degrees. The following include brief discussions of some of the more significant effects of the pandemic on the government’s financial results for FY 2021. Please refer to Note 30—COVID-19 Activity and other disclosures in this Financial Report, as well as in the individual entities’ financial statements for more information.

Costs and Revenues

The government’s Statement of Operations and Changes in Net Position, much like a corporation’s income statement, shows the government’s “bottom line” and its impact on net position (i.e., assets net of liabilities, adjusted for unmatched transactions and balances). To derive the government’s “bottom line” net operating cost, the Statement of Net Cost first shows how much it costs to operate the federal government, recognizing expenses when incurred, regardless of when payment is made (accrual basis). It shows the derivation of the government’s net cost or the net of: 1) gross costs, or the costs of goods produced and services rendered by the government; 2) the earned revenues generated by those goods and services during the fiscal year; and 3) gains or losses from changes in actuarial assumptions used to estimate certain liabilities. This amount, in turn, is offset against the government’s taxes and other revenue reported in the Statement of Operations and Changes in Net Position to calculate the “bottom line” or net operating cost.

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Table 4: Gross Cost, Revenues, Net Cost, and Net Operating Cost
Dollars in Billions 2021 2020* Increase/
$
(Decrease)
%
Gross Cost  $(7,294.7)  $(7,195.1)  $99.6 1.4%
  Less: Earned Revenue  $ 462.3  $ 461.6  $  0.7 0.2%
  Gain/(Loss) from Changes in Assumptions  $(518.4)  $(679.5)  $(161.1) (23.7%)
Net Cost $(7,350.8)  $(7,413.0)  $(62.2) (0.8%)
  Less: Tax and Other Revenue  $4,255.9  $3,571.6  $684.3 19.2%
Net Operating Cost  $(3,094.9)  $(3,841.4)  $(746.5) (19.4%)
*Restated (See Financial Statement Note 1.V and Note 1.W)

Table 4 shows that the government’s “bottom line” net operating cost decreased $746.5 billion (19.4 percent) during 2021 from $3.8 trillion to $3.1 trillion. This decrease is due mostly to a slight $62.2 billion (0.8 percent) decrease in entity net costs, offset by a $684.3 billion (19.2 percent) increase in tax and other revenues over the past fiscal year as discussed in the following.

Gross Cost and Net Cost

The Statement of Net Cost starts with the government’s total gross costs of $7.3 trillion, subtracts revenues earned for goods and services provided (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 certain liabilities, including federal employee and veteran benefits to derive its net cost of $7.4 trillion, a slight $62.2 billion (0.8 percent) decrease compared to FY 2020.

Typically, the annual change in the government’s net cost is the result of a variety of offsetting increases and decreases across entities. As referenced earlier, these amounts continue to be impacted by the ongoing federal government’s response to the COVID-19 pandemic and the related economic recovery. Including these amounts, offsetting changes in federal entity net cost during FY 2021 included:

  • A $211.6 billion decrease in SBA net costs largely driven by a $230.0 billion decrease in loan subsidy costs, including reestimates, attributable to the PPP and Debt Relief programs under the CARES Act. As noted earlier, the PPP provides loan forgiveness for amounts used for eligible expenses for payroll and benefit costs. Under the Debt Relief program, SBA pays six months of principal, interest, and any associated fees that borrowers owe for all current loans in regular servicing status in its 7(a), 504, and Microloan programs, as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020.
  • The $270.1 billion increase in Treasury net costs is largely due to disbursement during FY 2021 of $569.5 billion in refundable tax credits (also referred to as EIP) to eligible recipients in every state and territory and at foreign addresses, compared to $274.7 billion of EIP disbursements during FY 2020, which is partially offset by a $112.0 billion net cost reduction in FY 2021 that is attributable to the increase in liquidation preference of the GSEs senior preferred stock of $31.9 billion and FV gains on the investment in GSEs of $80.1 billion. The increase in GSE senior preferred stock FV is primarily a result of GSE higher projected cash flows, a decrease in the market value of GSEs’ other equity securities that comprise its total equity, and a lower discount rate.
  • A $100.8 billion net cost increase at HHS was driven largely by $115.4 billion total cost increases across Medicare and Medicaid. Of note, a $63.2 billion increase in Medicaid net cost was largely attributable to a $57.0 billion benefit expense increase related to higher grant awards to states to continue COVID-19 relief efforts. Medicare HI and SMI program benefits expenses also increased. These cost increases were offset by a net decrease in other program costs primarily due to the PHSSEF receiving less funding for COVID-19 relief during FY 2021.
  • A significant portion of the $96.4 billion decrease at DOL is attributable to a $100.7 billion decrease in Income Maintenance programs costs, primarily due to decreases in unemployment benefits as less jobless claims are filed. DOL costs related to the COVID-19 pandemic were $313.0 and $352.2 billion in FYs 2021 and 2020, respectively, comprised mostly of unemployment benefit expenses for programs implemented in FY 2020 and extended into FY 2021.
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  • Entities administering federal employee and veteran benefits programs 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 $518.4 billion in FY 2021, a loss decrease (and a corresponding net cost decrease) of $161.1 billion compared to FY 2020. The primary entities that administer programs impacted by these assumptions – typically federal employee pension and benefit programs – are the OPM, DOD, and VA. All three of these entities recorded losses from changes in assumptions in the amounts of $84.9 billion, $346.3 billion, and $82.8 billion, respectively. These actuarial estimates and the resulting gains or losses from changes in assumptions can sometimes cause significant swings in total entity costs from year to year. For example, for FY 2021, changes in net cost at OPM ($30.6 billion increase), DOD ($144.8 billion increase), and VA ($291.8 billion decrease) were impacted by the changes in gains or losses from assumption changes at these entities.
  • While most of the $144.8 billion increase in DOD net costs is primarily due to a $100.2 billion loss increase from changes in assumptions as referenced above, the majority of DOD’s net costs included military operations, readiness, and support; procurement; military personnel; and R&D, which collectively increased.
  • A $36.5 billion increase at SSA, due to a 1.4 percent increase in the number of OASI beneficiaries, combined with a 1.3 percent COLA provided to beneficiaries in 2021. These increases were offset by cost decreases for the DI and Supplemental Security Income benefits programs primarily due to a decrease in the number of beneficiaries.
  •  A $291.8 billion decrease in VA net cost was impacted largely by a decrease in losses from changes in assumptions underlying VA’s compensation, burial, education, and VR&E benefits programs. These assumption changes included, but were not limited to a lower than anticipated numbers of veterans, offset by changes in discount rate and COLA assumptions.
  • A $20.9 billion increase in interest on debt held by the public due largely to an increase in inflation adjustments and an increase in outstanding debt held by the public.

Chart 2 shows the composition of the government’s net cost for FY 2021. In FY 2021, approximately 85 percent of the federal government’s total net cost came from only seven agencies (HHS, SSA, VA, DOD, Treasury, DOL, and SBA), and interest on the debt. The other 150-plus entities included in the government’s FY 2021 Statement of Net Cost accounted for a combined 15 percent of the government’s total net cost for FY 2021. Chart 3 shows the five-year trend in these costs, illustrating the significant impact that the pandemic had on certain agency costs as summarized above. Aside from pandemic relief costs, as discussed above, HHS and SSA net costs for FY 2021 ($1.5 trillion and $1.2 trillion, respectively) are largely attributable to major social insurance programs administered by these entities. VA net costs of $693.4 billion support health, education and other benefits programs for our nation’s Veterans. DOD net costs of $890.6 billion relate primarily to operations, readiness, and support; personnel; research; procurement; and retirement and health benefits. Treasury net costs of $830.8 billion support a broad array of programs that promote conditions for sustaining economic growth and stability, protecting the integrity of our Nation’s financial system, and effectively managing the U.S. government’s finances and resources. SBA net costs of $347.4 billion support agency programs and services that enable the establishment and vitality of small businesses and by providing assistance in the economic recovery of communities after disasters.

Tax and Other Revenues

As noted earlier, tax and other revenues from the Statement of Operations and Changes in Net Position are deducted from total net cost to derive the government’s “bottom line” net operating cost. Chart 4 shows that total tax and other revenue increased by $684.3 billion or 19.2 percent to $4.3 trillion for FY 2021. This increase is attributable mainly to an overall growth in income taxes collections, partially offset by increased refunds. Taxes receivable, which consist of unpaid assessments due from taxpayers, unpaid taxes related to IRC section 965, and deferred payments for employer’s share of FICA Social Security resulting from the CARES Act, increased $68.0 billion during FY 2021. This increase was principally due to the two-year deferral of FICA Social Security taxes. Earned revenues from Table 4 are not considered “taxes and other revenue” and, thus, are not shown in Chart 4. Individual income tax and tax withholdings and corporate income taxes accounted for about 77.0 percent and 10.7 percent of total revenue, respectively in FY 2021; other revenues from Chart 4 include Federal Reserve earnings, excise taxes, unemployment taxes, and customs duties.

As previously shown in Table 4, the increase in tax and other revenue combined with the decrease in net cost, yielded a $746.5 billion decrease to the government’s bottom line net operating cost to $3.1 trillion for FY 2021.

Please refer to Note 30—COVID-19 Activity, as well as the FY 2021 entities financial statements for additional information about the pandemic’s effects on the federal government’s costs and revenues.

Tax Expenditures

Tax and other revenues reported reflect the effects of tax expenditures, which are special exclusions, exemptions, deductions, tax credits, preferential tax rates, and tax deferrals that allow individuals and businesses to reduce taxes they may otherwise owe. Tax expenditures may be viewed as alternatives to other policy instruments, such as spending or regulatory programs. For example, the government supports college attendance through both spending programs and tax expenditures. The government uses Pell Grants to help low- and moderate-income students afford college and allows certain funds used to meet college expenses to grow tax free in special college savings accounts. Tax expenditures may include deductions and exclusions which reduce the amount of income subject to tax (e.g., deductions for personal residence mortgage interest). Tax credits, which reduce tax liability dollar for dollar for the amount of credit (e.g., child tax credit), are also considered tax expenditures. Tax expenditures may also allow taxpayers to defer tax liability.

Receipts in the calculation of surplus or deficit, and tax revenues in the calculation of net position, reflect the effect of tax expenditures. As discussed in more detail in the Other Information section of this Financial Report, tax expenditures will generally lower federal government receipts although tax expenditure estimates do not necessarily equal the increase in federal revenues (or the change in the budget balance) that would result from repealing these special provisions.

Tax expenditures are reported annually in the Analytical Perspectives of the Budget. In addition, current and past tax expenditure estimates and descriptions can be found at the following location from Treasury’s Office of Tax Policy: https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures.

Assets and Liabilities

The government’s net position at the end of the fiscal year is derived by netting the government’s assets against its liabilities, as presented in the Balance Sheet (summarized in Table 5)12 . The Balance Sheet does not include the financial value of the government’s sovereign powers to tax, regulate commerce, or set monetary policy or value of nonoperational resources of the government, such as national and natural resources, for which the government is a steward. In addition, as is the case with the Statement of Operations and Changes in Net Position, the Balance Sheet includes a separate presentation of the portion of net position related to funds from dedicated collections. Moreover, the government’s exposures are broader than the liabilities presented on the Balance Sheet. The government’s future social insurance exposures (e.g., Medicare and Social Security) as well as other fiscal projections, commitments and contingencies, are reported in separate statements and disclosures. This information is discussed later in this MD&A section, the financial statements, and RSI sections of this Financial Report.

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Table 5: Assets and Liabilities
      Increase/(Decrease)
Dollars in Billions 2021 2020* $ %
Assets        
Cash and Other Monetary Assets  $ 475.0  $ 1,926.9  $(1,451.9) (75.3%)
Accounts Receivable, Net  $ 401.0  $321.2  $79.8 24.8%
Loans Receivable, Net  $ 1,651.0  $1,577.4  $73.6 4.7%
General Property, Plant, and Equipment, Net  $ 1,176.9  $1,139.9  $37.0 3.2%
Other    $ 1,189.7  $990.3  $199.4 20.1%
Total Assets   $ 4,893.6  $5,955.7  $(1,062.1) (17.8%)
Less: Liabilities, comprised of:       
Federal Debt and Interest Payable   $(22,344.8)  $(21,082.9)  $ 1,261.9 6.0%
Federal Employee & Veteran Benefits Payable   $(10,183.0)  $(9,415.5)  $767.5 8.2%
Other    $ (2,249.9)  $(2,245.6) $4.3 0.2%
Total Liabilities   $(34,777.7)  $(32,744.0)  $2,033.7 6.2%
Unmatched Transactions and Balances1 $(1.7) $(3.1)  $(1.4) (45.2%)
Net Position   $(29,885.8)  $(26,791.4)  $3,094.4 11.5%
*Restated (See Financial Statement Note 1.V and Note 1.W)

1Unmatched transactions and balances are net adjustments needed to balance the financial statements and are due primairly to unresolved intra-governmental differences. Net unmatched transactions and balances of $0.2 billion for FY 2021 and $11.5 billion for FY 2020 are also included in the Statements of Operations and Changes in Net Position. See Financial Statement Note 1.U.

Assets

From Table 5, as of September 30, 2021, more than three-fourths of the government’s $4.9 trillion in reported assets is comprised of: 1) cash and other monetary assets ($475.0 billion); 2) accounts receivable, net ($401.0 billion); 3) net loans receivable ($1.7 trillion); and 4) net PP&E ($1.2 trillion).13 Chart 5 compares the balances of these and other Balance Sheet amounts as of September 30, 2021 and 2020, some of which were substantially impacted by the pandemic response.

Cash and other monetary assets ($475.0 billion) is comprised largely of the operating cash of the U.S. government. Operating cash held by Treasury decreased $1.6 trillion (88.8 percent) to $198.4 billion during FY 2021 due to Treasury maintaining an elevated cash balance in FY 2020 to maintain prudent liquidity in light of the size and relative uncertainty of COVID-19 related outflows, combined with needing to reduce the cash balance to well under Treasury’s prudent policy level at the end of FY 2021 due to debt ceiling constraints (see Note 2—Cash and Other Monetary Assets).

Treasury comprises approximately 76.0 percent of the government’s reported accounts receivable, net, mostly in the form of reported taxes receivable, which consist of unpaid assessments due from taxpayers, unpaid taxes related to IRC section 965, and deferred payments for employer’s share of FICA taxes pursuant to the CARES Act. Other accounts receivable, gross increased significantly year to year, primarily as a result of DOL’s $18.6 billion increase in benefit overpayments from programs related to COVID-19 as well as a $7.0 billion increase to HHS receivables, primarily due to Medicare (see Note 3—Accounts Receivable, Net).

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The federal government’s direct loans and loan guarantee programs are used to promote the nation’s welfare by making financing available to segments of the population not served adequately by non-federal institutions, or otherwise providing for certain activities or investments. For those unable to afford credit at the market rate, federal credit programs provide subsidies in the form of direct loans offered at an interest rate lower than the market rate. For those to whom non-federal financial institutions are reluctant to grant credit because of the high risk involved, federal credit programs guarantee the payment of these non-federal loans and absorb the cost of defaults. For example, Education supports individuals engaged in education programs through a variety of student loan, grant and other assistance programs. USDA administers loan programs to support the nation’s farming and agriculture community. HUD loan programs support affordable homeownership, as well as the construction and rehabilitation of housing projects for the elderly and persons with disabilities. SBA loan programs enable the establishment and vitality of small businesses and assist in the economic recovery of communities after disasters. Significant changes to the federal government’s loans receivable, net, and loan guarantees liability, as discussed in Note 4, include:

  • Education’s Federal Direct Student Loan Program accounted for $1.1 trillion (66.9 percent) of total loans receivable, net. Education has loan programs that are authorized by Title IV of the Higher Education Act of 1965. The William D. Ford Federal Direct Loan Program (referred to as the Direct Loan Program), was established in FY 1994 and offered four types of educational loans: Stafford, Unsubsidized Stafford, Parent Loan for Undergraduate Students, and consolidation loans. During FY 2021, Education direct loan disbursements to eligible borrowers decreased by approximately $12.6 billion to $104.8 billion. While the CARES Act provision supporting student loan borrowers by temporarily suspending nearly all federal student loan payments expired on September 30, 2020, administrative action temporarily suspended payments during FY 2021. In addition, all federal wage garnishments and collections actions for borrowers with federally held loans in default were halted.
  • SBA’s credit program receivables comprise business and disaster direct loans and defaulted business loans purchased per the terms of SBA’s loan guaranty programs, offset by an allowance for related program subsidy costs. The CARES Act provides funding for SBA to offer low-interest EIDL for working capital to small businesses suffering substantial economic injury as a result of COVID-19 that can be used to pay fixed debts, payroll, accounts payable and other bills that cannot be paid because of the disaster’s impact. These receivables increased to $244.1 billion during FY 2021, stemming from a $62.6 billion increase in direct disaster COVID-19 EIDL funded loans primarily funded from the CARES Act. The loan guarantee PPP provides loan forgiveness for amounts used for eligible expenses for payroll and benefit costs, interest on mortgages, and rent, and utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. The loan guarantee liability for Small Business Loan Programs which includes the PPP decreased by $284.9 billion primarily due to SBA forgiveness payments to PPP lenders. For additional information on each specific loan program refer to SBA’s financial statements.

Federal government general PP&E includes many of the physical resources that are vital to the federal government’s ongoing operations, including buildings, structures, facilities, equipment, internal use software, and general purpose land. DOD comprises approximately 68.8 percent of the government’s reported general PP&E of $1.2 trillion as of September 30, 2021. See Note 6—General Property, Plant, and Equipment, Net.

“Other” Assets of $1.2 trillion in Table 5 and Chart 5 includes: 1) $369.3 billion in “Advances and Prepayments”; and 2) $26.4 billion of “Investments in SPVs”. The $150.7 billion increase in advances and prepayments is largely due to disbursements by Treasury to states, local, territorial, and tribal governments pursuant to the CRF, SLFRF, ERA, and HAF programs to cover eligible costs recipients incur in response to the pandemic (see Note 10—Advances and Prepayments).

In addition, in response to the COVID-19 pandemic, under Section 4003 of the CARES Act, Treasury holds equity investments in SPVs established through the FRBNY and FRBB for the purpose of enhancing the liquidity of the U.S. financial system. These non-federal investment holdings are reported at their FV on the Balance Sheet, and changes in the valuation of these investments are recorded on the Statement of Net Cost. These investments decreased by $82.0 billion during FY 2021 primarily due to an aggregate $86.1 billion of capital contributions that was returned to Treasury by the Federal Reserve in connection with interim and final distributions made pursuant to the amended SPV LLC Agreements. See Note 8—Investments in Special Purpose Vehicles, and Note 30—COVID-19 Activity, as well as Treasury’s FY 2021 financial statements for additional information.

Please refer to Note 30—COVID-19 Activity, as well as the FY 2021 entities’ financial statements for additional information about the pandemic’s effects on the federal government’s assets and liabilities over the past fiscal year.

In addition, as indicated earlier, Note 31—Subsequent Events, discusses the financial effects of significant events that occurred following the end of the fiscal year, but prior to issuance of this Financial Report. These and other subsequent events and their effects are discussed in Note 31.

Liabilities

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As indicated in Table 5 and Chart 6, of the government’s $34.8 trillion in total liabilities, the largest liability is federal debt and interest payable, the balance of which increased by $1.3 trillion (6.0 percent) to $22.3 trillion as of September 30, 2021.

The other major component of the government’s liabilities is federal employee and veteran benefits payable (i.e., the government’s pension and other benefit plans for its military and civilian employees), which increased $767.5 billion (8.2 percent) during FY 2021, to about $10.2 trillion. This total amount is comprised of $2.9 trillion in benefits payable for the current and retired civilian workforce, and $7.3 trillion for the military and veterans. OPM administers the largest civilian pension plan, covering more than 2.8 million active employees, including the Postal Service, and more than 2.7 million annuitants, including survivors. The DOD military pension plan covers about 2.1 million current military personnel (including active service, reserve, and National Guard) and approximately 2.3 million retirees and survivors.

Federal Debt

The budget surplus or deficit is the difference between total federal spending and receipts (e.g., taxes) in a given year. The government borrows from the public (increases federal debt levels) to finance deficits. During a budget surplus (i.e., when receipts exceed spending), the government typically uses those excess funds to reduce the debt held by the public. The Statement of Changes in Cash Balance from Budget and Other Activities reports how the annual budget surplus or deficit relates to the federal government’s borrowing and changes in cash and other monetary assets. It also explains how a budget surplus or deficit normally affects changes in debt balances.

The government’s federal debt and interest payable (Balance Sheet liability), which is comprised of publicly-held debt and accrued interest payable, increased $1.3 trillion (6.0 percent) to $22.3 trillion as of September 30, 2021. It is comprised of Treasury securities, such as bills, notes, and bonds, net of unamortized discounts and premiums issued or sold to the public; and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, FRB, foreign governments, and other entities outside the federal government. As indicated above, budget surpluses have typically resulted in borrowing reductions, and budget deficits have conversely yielded borrowing increases. However, the government’s debt operations are generally much more complex. Each year, trillions of dollars of debt matures and new debt is issued to take its place. In FY 2021, new borrowings were $20.4 trillion, and repayments of maturing debt held by the public were $19.2 trillion, both increases from FY 2020.

In addition to debt held by the public, the government has about $6.2 trillion in intra-governmental debt outstanding, which arises when one part of the government borrows from another. It represents debt issued by Treasury and held by government accounts, including the Social Security ($2.9 trillion) and Medicare ($306.9 billion) trust funds. Intra-governmental debt is primarily held in government trust funds in the form of special nonmarketable securities by various parts of the government. Laws establishing government trust funds generally require excess trust fund receipts (including interest earnings) over disbursements to be invested in these special securities. Because these amounts are both liabilities of Treasury and assets of the government trust funds, they are eliminated as part of the consolidation process for the government-wide financial statements (see Financial Statement Note 13). When those securities are redeemed, e.g., to pay Social Security benefits, the government must obtain the resources necessary to reimburse the trust funds. The sum of debt held by the public and intra-governmental debt equals gross federal debt, which (with some adjustments), is subject to a statutory ceiling (i.e., the debt limit). Note that when intra-government debt decreases, debt held by the public will increase by an equal amount (if the general account of the U.S. government is in deficit), so that there is no net effect on gross federal debt. At the end of FY 2021, debt subject to the statutory limit was $28.4 trillion14 (see sidebar).

Sidebar: Prior to 1917, Congress approved each debt issuance. In 1917, to facilitate planning in World War I, Congress and the President established a dollar ceiling for federal borrowing. With the Public Debt Act of 1941 (P.L. 77-7), Congress and the President set an overall limit of $65 billion on Treasury debt obligations that could be outstanding at any one time. Since then, Congress and the President have enacted a number of measures affecting the debt limit, including several in recent years. Congress and the President most recently increased the debt limit by $2.5 trillion in December 2021 with the enactment of P.L. 117-73. It is important to note that increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the U.S. to continue to honor pre-existing commitments to its citizens, businesses, and investors domestically and around the world.

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The federal debt held by the public measured as a percent of GDP (debt-to-GDP ratio) (Chart 7) compares the country’s debt to the size of its economy, making this measure sensitive to changes in both. Over time, the debt-to-GDP ratio has varied widely:

  • For most of the nation’s history, through the first half of the 20th century, the debt-to-GDP ratio has tended to increase during wartime and decline during peacetime.
  • Chart 7 shows that wartime spending and borrowing pushed the debt-to-GDP ratio to an all-time high of 106 percent in 1946, soon after the end of World War II, but it decreased rapidly in the post-war years.
  • The ratio grew rapidly from the mid-1970s until the early 1990s. Strong economic growth and fundamental fiscal decisions, including measures to reduce the federal deficit and implementation of binding PAYGO rules (which require that new tax or spending laws not add to the deficit), generated a significant decline in the debt-to-GDP ratio, from a peak of 48 percent in FYs 1993-1995, to 31 percent in 2001.
  • During the first decade of the 21st century, PAYGO rules were allowed to lapse, significant tax cuts were implemented, entitlements were expanded, and spending related to defense and homeland security increased. By September 2008, the debt-to-GDP ratio was 39 percent of GDP.
  • PAYGO rules were reinstated in 2010, but the extraordinary demands of the last economic and fiscal crisis and the consequent actions taken by the federal government, combined with slower economic growth in the wake of the crisis, pushed the debt-to-GDP ratio up to 74 percent by the end of FY 2014.
  • The debt was approximately 100 percent of GDP at the end of FY 2021 similar, but slightly below the debt-to-GDP ratio at the end of FY 2020. This ratio decreased slightly during FY 2021, because GDP, which increased as the economy continued to recover from the effects of the pandemic, grew faster than the debt.15 From Chart 7, since 1940, the average debt-to-GDP ratio is 49 percent.

The Economy in FY 2021

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Table 6: National Economic Indicators*
FY 2021 FY 2020
Real GDP Growth 4.9% (2.9%)
Personal Consumption Expenditures 7.0% (2.8%)
Average monthly payroll job change (thousands) 475 (801)
Unemployment rate (percent, end of period) 4.7% 7.9%
CPI 5.4% 1.4%
CPI, excluding food and energy 4.0% 1.7%
Real Disposable Personal Income (1.1%) 5.6%
Real Average Hourly Earnings (0.4%) 3.2%
*Some FY 2020 data may differ from the FY 2020 Financial Report due to updates and revisions.

An analysis of U.S. economic performance provides useful background when evaluating the government’s financial statements. During the last two fiscal years, the economy’s performance has been deeply affected by the COVID-19 global pandemic as well as the U.S. government’s extensive measures to prevent infection, support consumers and businesses, and restore growth.

Reflecting the brunt of restrictions implemented after the pandemic’s onset in early 2020, the economy contracted by 2.9 percent during FY 2020. Real GDP dropped sharply over the second and third quarters of the fiscal year, as state and local governments implemented stay-at-home orders and required non-essential businesses to close, in order to protect the public and mitigate the impact of the pandemic on health care resources. The U.S. government responded quickly to support American households and small businesses during the pandemic; by late March 2020, three economic aid packages were passed totaling roughly $2.7 trillion. These measures included EIPs, expanded eligibility for unemployment insurance payments, delays in tax and loan payments, and implemented a moratorium on evictions. In addition, Treasury and the SBA launched the PPP – a forgivable loan for small businesses – in March 2020 and received a supplemental appropriation before the first round of applications closed in September 2020. Due to these measures and the rescission of stay-at-home orders, the economy grew in the final quarter of FY 2020 at the fastest quarterly pace in 70 years, accompanied by rapid payroll job and wage growth.

The recovery’s momentum continued in FY 2021, with the help of additional government financial support the widespread distribution of vaccines, and the reopening of industries that were hardest hit by the pandemic. Another economic aid package of roughly $900.0 billion was passed in December 2020, which funded smaller EIPs and a second draw of PPP loans for small businesses. Then early in calendar 2021, President Biden signed the ARP into law. The ARP provided an additional $1.9 trillion in economic aid, primarily through EIPs and direct aid to low-to middle-income families and to the economically vulnerable. It also assisted state and local governments, provided additional funding for addressing COVID-19 infections and vaccinating the population, created new loans and grants for small businesses, and extended the deadline for PPP applications.

As summarized in Table 6, the U.S. economy grew briskly in FY 2021 after the contraction in FY 2020. Real (i.e., inflation-adjusted) GDP surged by 4.9 percent over the four quarters of FY 2021, after declining by 2.9 percent during the previous fiscal year. Business fixed investment and PCE rebounded from the temporary collapses seen in the previous fiscal year, and residential investment, government spending, and net exports all continued to support growth to varying degrees. Over the four quarters of FY 2021, business fixed investment expanded by 9.0 percent, swinging sharply from the 7.0 percent drop over the previous four quarters and supported in part by rising oil prices. PCE grew 7.0 percent, reflecting the two rounds of federal financial support as well as pent-up demand as more sectors opened; PCE growth in FY 2021 stood in sharp contrast with the 2.8 percent decline during FY 2020 as domestic demand collapsed.

Residential investment continued to provide consistently strong support for the economy, growing 5.4 percent in FY 2021, after a 7.7 percent gain in FY 2020. Government spending grew more slowly in the latest fiscal year, rising 0.6 percent after a 2.1 percent advance during FY 2020. This deceleration masks the significant further steps undertaken by the U.S. government during the FY 2021 to support the economy, which were largely transfers to households and businesses rather than direct government spending. Net exports posed less of a drag on growth during FY 2021, shaving 1.2 percentage points from real GDP after subtracting 3.3 percentage points during the previous fiscal year. Inventory investment contributed positively to growth in both fiscal years, adding 6.8 percentage points to growth during FY 2020 and adding 2.1 percentage points in the latest fiscal year, as inventories began to be drawn down to meet rising consumption.

The imposition of stay-at-home orders and mandated business closures brought about a severe decline in economic activity in FY 2020, such that more than 22 million payroll jobs were lost over March and April 2020, and the unemployment rate jumped to post-World War II high of 14.7 percent. Thereafter, job creation resumed more quickly than expected, and by the end of FY 2020, the unemployment rate had dropped 6.8 percentage points from the peak to 7.9 percent, and a total of 11.1 million jobs, or 50.6 percent of the total lost, had been recovered. Labor markets continued to improve, if at a slower pace, during FY 2021. By the end of the fiscal year, the unemployment rate had dropped another 3.2 percentage points to 4.7 percent, and a further 5.7 million jobs had been recovered. At the end of FY 2021, the unemployment rate stood only 1.2 percentage points above the half-century low of 3.5 percent registered just before the pandemic’s onset, and nearly 76.4 percent of the jobs lost during March and April 2020 had been recovered.

Headline inflation slowed during FY 2020, as the effects of lower oil prices and reduced consumption offset an acceleration in food price inflation. Core inflation (which excludes food and energy) also slowed in FY 2020. However, inflation at the headline and core levels accelerated during FY 2021, reflecting an array of upward but partly temporary pressures, including increased demand for durable goods, supply-side disruptions, the reopening of many service industries, and rising oil prices. The CPI rose 5.4 percent over the 12 months of FY 2021, picking up markedly from the 1.4 percent pace during the previous fiscal year. Core inflation was 4.0 percent over the fiscal year ending September 2021, accelerating from the 1.7 percent pace during FY 2020.

A more rapid pace of inflation offset small but positive gains in income growth during FY 2021, resulting in an erosion of purchasing power in real terms. Real Disposable Personal Income declined 1.1 percent over the 12 months of FY 2021, after advancing 5.6 percent during the previous fiscal year. The pace of nominal average hourly earnings growth increased noticeably in FY 2020, reflecting the temporary unemployment of lower wage workers, and then accelerated further in FY 2021 as labor shortages developed. Faster inflation eroded wages in real terms for most industries, save where nominal wage growth gains were sufficient to offset, such as in the leisure and hospitality sector. Overall, real average hourly earnings declined 0.4 percent during FY 2021, after advancing 3.2 percent during the previous fiscal year. Growth of non-farm labor productivity declined 0.5 percent over the four quarters of FY 2021, after growing 3.6 percent during FY 2020, but the deterioration in the latest fiscal year reflected growth in output that was offset by a faster advance in hours worked, as more workers were rehired.

Footnotes

3 On the government’s Balance Sheet, federal debt and interest payable consists of Treasury securities, net of unamortized discounts and premiums, and accrued interest payable. The “public” consists of individuals, corporations, state and local governments, FRB, foreign governments, and other entities outside the federal government. (Back to Content)

4 PVs recognize that a dollar paid or collected in the future is worth less than a dollar today because a dollar today could be invested and earn interest. To calculate a PV, future amounts are thus reduced using an assumed interest rate, and those reduced amounts are summed. (Back to Content)

5 Social Security is funded by the payroll taxes and revenue from taxation of benefits. Medicare Part A is funded by the payroll taxes, revenue from taxation of benefits, and premiums that support those programs. Medicare Parts B and D are primarily financed by transfers from the General Fund, which are presented, and by accounting convention, eliminated in the SOSI. For the FYs 2021 and 2020 SOSI, the amounts eliminated totaled $43.2 trillion and $40.9 trillion, respectively. (Back to Content)

6 The 21 entities include the HHS, which received disclaimers of opinions on its 2021, 2020, 2019, 2018, and 2017 SOSI and its 2021 and 2020 SCSIA. The 13 entities include the FDIC, the NCUA, and the FCSIC, which operate on a calendar year basis (December 31 year-end). Statistic reflects 2020 audit results for these organizations if 2021 results are not available. (Back to Content)

7 See Note 24—Fiduciary Activities.(Back to Content)

8 Under GAAP, most U.S. government revenues are recognized on a ‘modified cash’ basis, (see Financial Statement Note 1.B). The SOSI presents the PV of the estimated future revenues and expenditures for scheduled benefits over the next 75 years for the Social Security, Medicare, RRP; and 25 years for the Black Lung program. The SLTFP presents the 75-year PV of the projected future receipts and non-interest spending for the federal government. (Back to Content)

9 Interest outlays on Treasury debt held by the public are recorded in the budget when interest accrues, not when the interest payment is made. For federal credit programs, outlays are recorded when loans are disbursed, in an amount representing the PV cost to the government, commonly referred to as credit subsidy cost. Credit subsidy cost excludes administrative costs. (Back to Content)

10 10/22/21 press release – Joint Statement by Secretary of the Treasury Janet L. Yellen and Acting Director of the Office of Management and Budget Shalanda D. Young on Budget Results for Fiscal Year 2021. Note that some amounts in this Financial Report reflect updates subsequent to publication of the press release. (Back to Content)

11 Final MTS for FY 2021 through September 30, 2021 and Other Periods. (Back to Content)

12 As shown in Table 5, the government’s Balance Sheet includes an adjustment for unmatched transactions and balances, which represent unresolved differences in intra-governmental activity and balances between federal entities. These amounts are described in greater detail in the Other Information section of this Financial Report. (Back to Content)

13 For financial reporting purposes, other than multi-use heritage assets, stewardship assets of the government are not recorded as part of PP&E. Stewardship assets are comprised of stewardship land and heritage assets. Stewardship land consists of public domain land (e.g., national parks, wildlife refuges). Heritage assets include national monuments and historical sites that among other characteristics are of historical, natural, cultural, educational, or artistic significance. See Note 27—Stewardship PP&E. (Back to Content)

14 During FY 2021, Treasury faced a delay in raising the statutory debt limit that required it to depart from its normal debt management procedures and to invoke legal authorities to avoid exceeding the statutory debt limit. During these periods, extraordinary measures taken by Treasury have resulted in federal debt securities not being issued to certain federal government accounts with the securities being restored including lost interest to the affected federal government accounts subsequent to the end of the delay period. On August 2, 2019, the BBA of 2019 (P.L. 116-37) was enacted suspending the statutory debt limit through July 31, 2021. A delay in raising the statutory debt limit occurred from August 1, 2021 through September 30, 2021. During the period of August 2, 2021 through September 30, 2021, Treasury departed from their normal debt management operations and undertook extraordinary measures to avoid exceeding the statutory debt limit. On October 14, 2021, P.L. 117-50 was enacted which raised the statutory debt limit by $480.0 billion, from $28,401.5 billion to $28,881.5 billion. Even with this increase, extraordinary measures continued in order for Treasury to manage below the debt limit. On December 16, 2021, Congress and the President increased the debt limit by $2.5 trillion to $31.4 trillion with the enactment of P.L. 117-73. See Note 13—Federal Debt and Interest Payable and Note 31—Subsequent Events for additional information. (Back to Content)

15 The increase in debt of $1.3 trillion was less than the FY 2021 deficit of $2.8 trillion primarily because of a $1.6 trillion decrease in the government’s cash balance. (Back to Content)

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Last modified 03/31/22