The fiscal transactions of the federal government are recorded in two major sets of accounts. One is The Budget of the United States Government, prepared by the Office of Management and Budget, which is the framework generally used by executive branch agencies and the Congress and as commonly discussed in the press. The other set of accounts is the national income and product accounts (NIPAs), produced by the Department of Commerce’s Bureau of Economic Analysis.
The purposes served by the budget and the NIPA accounting frameworks, the conceptual differences, and the relationship between those two sets of data are examined briefly below and more thoroughly in previous publications by the Congressional Budget Office (CBO). In March, CBO reported its latest baseline projections of federal revenues and outlays in the standard structure for budget accounting. This report presents those projections in the NIPA framework and shows the differences between the two presentations.
The Federal Budget
The budget of the federal government is best understood as an information and management tool. It focuses primarily on cash flows, recording the inflow of revenues and the outflow of spending over a given period. The main period of interest for the budget is the federal fiscal year, which runs from October 1 through September 30.
The budget incorporates a few exceptions to cash-based accounting, in cases in which policymakers have decided that alternative approaches would improve the budget’s usefulness as a decisionmaking tool. For example, when the federal government makes direct loans or provides loan guarantees, tracking cash flows gives a misleading view of true costs. Therefore, as specified in the Federal Credit Reform Act of 1990, the budget records, as outlays, estimates of subsidy costs at the time that loans are made. (Such subsidy costs are calculated as a net present value of all expected future cash flows related to a given loan; thus, each subsidy amount represents an accrual estimate as opposed to a point-in-time cash flow.)
The National Income and Product Accounts
The treatment of the federal sector in the NIPAs reflects none of the planning and management goals that underlie the budget. Instead, the NIPAs indicate how the federal government fits into a general economic framework, detailing current production and income over specific periods, the major sources of that production, and recipients of income resulting from current output.
The NIPAs primarily cover calendar years and calendar quarters, but totals for fiscal years can be derived from the quarterly estimates.
From the perspective of the NIPAs, the federal government is both a producer and a consumer. Its workforce uses purchased goods and services and government-owned capital (buildings, equipment, and software) to produce services for the public at large. Because those services are consumed by the public, such purchases, by convention, are regarded as federal consumption expenditures in the NIPAs. In addition, through its taxes and transfers, the federal government affects the resources available to the private sector. The NIPAs record all of those activities in a manner consistent with the treatment accorded to other sectors of the economy.
The conceptual differences that distinguish the NIPAs from the federal budget lead to accounting differences as well. In incorporating federal transactions into the framework used to determine gross domestic product, the NIPAs reflect judgments about how to best treat transactions such as government investment, the sale and purchase of existing assets, the provision of loans and guarantees, and federal activities that resemble those of businesses. In some cases, transactions are shifted from the federal sector to another sector of the NIPAs or are excluded from the NIPAs entirely. In other cases, the NIPAs record as a receipt an item that the federal budget reports as an offsetting collection (or negative outlay), or they adjust the timing of a federal transaction to better match the timing of the related production or income flow.
Under CBO’s baseline assumptions for the 2012–2022 period, receipts in the NIPAs are greater than revenues in the budget by about 4 percent and expenditures in the NIPAs exceed outlays in the budget by about 5 percent. Over that period, projected expenditures in the NIPAs exceed projected receipts by $4.6 trillion, compared with projected deficits of $4.1 trillion under standard budget accounting.