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Federal Debt and the Commitments of Federal Trust Funds [i] (October 2002)

handle is hein.congrec/cbo0723 and id is 1 raw text is: CBO LONG-RANGE FISCAL POLICY BRIEF A series of issue summaries from the Congressional Budget Office No. 4, October 25, 2002 Federal Debt and the Commitments of Federal Trust Funds Summary The debts of the U.S. government consist of money that the government owes to the public and money that the government owes to itself. Although the two types are typically combined in discussions of the overall debt, (nly the money that the government owes to the public has an impact on the economy. When the government borrows from the public, it reduces the amount of resources available in the financial markets for private investment. In contrast, the money that the government owes to itself has no impact on the markets because it represents debt owed from one Treasury account to another. Most of that internal debt is held in federal trust funds. Trust fund holdings, as internal liabilities between government accounts, are not assets of the government. Nor do they represent money owed to program recipients individually; payments to Social Security recipients and beneficiaries of other social insurance programs are based on a variety of rules set by law unrelated to trust fund holdings. A federal trust fund is basically an accounting device that measures the difference between the income designated for a specific program and the expenditures made to its beneficiaries. The accumulated difference, or balance, often represents a reserve of future spending authority for the program, but it is not a reserve of money for making payments. In the future, when receipts for such programs as Social Security fall below their expenditures, the legal authority to pay benefits will exist as long as their trust funds have balances, but the government will have to generate cash to pay benefits either by running a surplus in the rest of the budget--which would probably require cutting other spending or raising taxes--or by borrowing from the public. The Nature of Federal Debt The total outstanding debt of the federal government, often referred to as the gross federal debt, now stands at approximately $6.2 trillion. That figure is composed of $3.5 trillion in debt that the government owes to the public and $2.7 trillion in debt that the government owes to itself. Debt held by the public is the value of all the federal securities that have been sold to the public and are still outstanding--it represents the government's borrowing from the public. Businesses and the financial markets pay close attention to it because of its impact on the economy. When the Department of the Treasury sells securities--in effect, borrows from

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