2012   Financial Report of the United States Government

A Citizen's Guide to the Fiscal Year 2012 Financial Report of the United States Government

Where We Are Now

Comparing the Budget and the Financial Report

The Budget of the United States Government (Budget) is the Government's primary financial planning and control tool. It accounts for past Government receipts and spending, and presents the President's proposed receipt and spending plan. The Budget compares receipts, or cash received by the Government, with outlays, or payments made by the Government to the public, to derive a budget surplus (excess of receipts over outlays) or deficit (excess of outlays over receipts). Receipts and outlays are measured generally based on when the Government receives or dispenses cash.

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The Financial Report of the United States Government (Report) focuses on the Government's revenues and costs (what came in and what went out), assets and liabilities (what it owns and owes), and other important financial information. It compares revenues (what the Government has collected and expects to collect, but has not necessarily received), with its costs (what the Government has incurred, but has not necessarily paid) to derive net operating cost.

Chart 1 compares the Government's budget deficit and net operating cost for FY 2008-2012. The difference between the $1.1 trillion budget deficit and $1.3 trillion net operating cost in FY 2012 is predominantly due to: (1) non-cash costs associated with an increase in estimated liabilities related to Federal employee and veteran benefits, and (2) a partially offsetting decrease in costs associated with lower projected liabilities to the Government-Sponsored Enterprises (GSEs), specifically Fannie Mae and Freddie Mac. Together, the Budget and the Report present complementary perspectives on the Government's financial position and condition, and provide a valuable decision-making and management tool for the Nation's leaders.

What Came In and What Went Out

What came in? Chart 2 shows that increases in each of the three revenue categories (individual income tax and withholdings, corporate income taxes, and other revenue) combined to increase total Government revenues by $154.4 billion (6.5 percent) to just over $2.5 trillion for FY 2012. Together, individual and corporate taxes accounted for about 86 percent of total revenues. Other revenues include excise and unemployment taxes, and customs duties.

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What went out? The Government derives its net cost ($3.8 trillion in FY 2012) by subtracting revenues earned from Government programs (e.g., Medicare premiums, National park entry fees, and postal fees) from its gross costs and adjusts the amount for gains or losses from changes in actuarial assumptions used to estimate future liabilities for Federal employee and veteran benefits. The Government deducts taxes and other revenues shown in Chart 2, as well as adjustments for unmatched transactions and balances, from its net cost to arrive at its "bottom line" net operating cost, which increased by $3.7 billion (less than one-half of one percent), to remain essentially unchanged at $1.3 trillion in FY 2012. However, this minimal change includes significant offsetting changes, primarily: (1) a $292.1 billion increase in certain cost estimates for federal employee and veteran benefits; and (2) a $288.7 billion cost decrease1 associated with changes in Government liabilities to the GSEs.

Chart 3 shows that the largest contributors to the Government's net cost in FY 2012, as is the case in most years, include the Departments of Health and Human Services (HHS) and Defense (DoD) and the Social Security Administration (SSA). The bulk of HHS and SSA costs come from major social insurance and postemployment benefits programs administered by those agencies (e.g., Medicare for HHS, and Social Security for SSA). While much of DoD's total costs relate to military operations and personnel, most of the increase in DoD's cost during FY 2012 was attributed to its Military Retirement Fund and other benefits programs.

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What We Own and What We Owe

Chart 4 is a summary of what the Government owns in assets and what it owes in liabilities. As of September 30, 2012, the Government held about $2.7 trillion in assets, comprised mostly of net property, plant, and equipment ($855.0 billion) and a combined total of $1,009.1 billion in net loans receivable (e.g., student loans) and direct loans and investments associated with the Troubled Asset Relief Program (TARP) and the GSEs (which relate to the Government's economic recovery efforts). In recent years, with the ongoing wind-down of these programs, the balances of many of these investments have declined primarily through repayments and sales. Beyond these assets, other significant resources are available to the Government, including stewardship assets, such as natural resources, and the Government's power to tax and set monetary policy.

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The $18.8 trillion in total liabilities is comprised mostly of: (1) $11.3 trillion in Federal debt securities held by the public and accrued interest2 and (2) $6.3 trillion in Federal employee and veteran benefits payable. The Government also reports about $4.9 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) are typically required to invest excess annual receipts in Federal debt securities issued by the Treasury Department, thus creating liabilities of the Treasury and assets of the trust funds. These respective amounts are included in individual Treasury Department and investing agency financial statements, but offset each other when the Governmentwide consolidated financial statements are prepared.

The sum of debt held by the public and intragovernmental debt equals gross Federal debt, which, with some adjustments, is subject to a statutory ceiling (i.e., the debt limit), which was most recently raised by $1.2 trillion to $16.394 trillion in January 2012 pursuant to the Budget Control Act (BCA) of 2011. As of September 30, 2012, the Government's total debt outstanding subject to the debt limit was $16.027 trillion, $367 billion below the current limit. As budget deficits continue to occur, the Government will have to borrow more from the public. Instances where the debt held by the public increases faster than the economy3 for extended periods can pose additional challenges.

Footnotes

1Department of the Treasury's FY 2012 Annual Financial Report. (Back to Content)
2Debt held by the public and accrued interest, as reported on the Government's balance sheet, primarily consists of Treasury securities, net of unamortized discounts and premiums, and accrued interest. The "public" consists of individuals, corporations, state and local governments, Federal Reserve Banks, foreign governments, and other entities outside the Federal Government. (Back to Content)
3Considering key macroeconomic indicators can help place the discussion of the Government's financial results in a broader context. During FY 2012, the economy continued to grow, and at a faster rate than the previous year, job creation accelerated, and the unemployment rate declined. These and other economic and financial developments are discussed in greater detail in the Report. (Back to Content)


Last Updated:  February 27, 2013