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Impact of Trust Fund Programs on Federal Budget Surpluses and Deficits 1 (November 2002)

handle is hein.congrec/cbo8621 and id is 1 raw text is: A series of issue summaries from the Congressional Budget O0fie NO. 5, NOVEMBER 4,2002 The Impact of Trust Fund Programs on Federal Budget Surpluses and Deficits Summary A11lthough currtly11 the Federal budget1C IS InI deCICIt, federalI truLSt funId programdIIs aS a groupJ appelar to berunga ,urplus. Unider the Congressional Budget Office' Slatest budg I et Pro Ject IonI s, the IC omIIIb IneId IIcomeI of the2 trust fundI (s IS efs1Itimted to exceed their_ cumlIatIive CepedI[its by% $ 3.4 trillion1 overi thc next1 10 yefars. How eVer-, muILch OF trust flunds' in1comeI comes not from sources outside the goveM eniII Ct buI t fromII cred Its fr-omII one g overnmenI C t accout III to anlother, or i11ntraglovernmentilal itansferS. ConsequlyI1V suIch tranIsfer-s have no0 effefct Onl wIhher1 the overnmentCI Is running an1,11 overall surplus or deficit. InI assessing thecash flowN that trust fund program1s generate, if one conisiders only1 theC portionl of thecir in1comei that reprsent recis to [1th overnmentCI, theC truLSt fundICs are pr1ojcted to runII a cula)LLtive deficit ofS $1.2 trillion oveCr the necxt 10 years. Trust fund accounlting, w\hich creditsinag er eta tranIsfer-s to truLst fund1C prIogramIIs, IS desined to show legal meaCSureS Of sp~en~ 1di authority anld oulays% , no0t the gOv- einent'sI ICCII rcit ad expenIditures for suIch prIogramIIs. Currenltly, trust funld meiasures of incomec anld expen~ditures aedistor-ting the eff2cts that the programs hlave Conl the fed- eratl budget. Their apparentCI sulu)Ls relies, on both aIcItl rceipts anld theC governmilent's promlise to pay mloneyv to itself. Ini fact, mnore money is going out of the Trecasury f-or- trust funld programns than1 Is Coming in1, aInd this im1b'alnce only% grow0%S largerl aIs one looks out into0 theC future1-. Trust Funds in the Budget Trust fund programs differ in a number of ways from other government programs. Many trust fund programs, including Social Security and Medicare, have distinct revenue authori- ties to finance, or help finance, the benefits that they provide or functions that they serve. And that income, when received by the Treasury, is accounted for by crediting federal securi- ties to the trust fund accounts. Notably. those securities represent the government's promise to pay money to itself. F or some of the larger funds, the securities basically serve as spending authority: as long as the fund has a balance, the Department of the Treasury has the legal authority to make program expenditures. Further, trust fund balances may change continuously as the programs receive new distinct tax revenues and fees and as interest on their security holdings accrues. The receipts themselves are deposited in the Treasury, and program expenditures are made from the Treasury. So while trust fund programs' sources of spending authority and ac- counting may differ from those of other federal activities, the programs affect the overall financial condition of the govern- ment in the same manner as all other programs-through the income and expenditures of the Treasury. Overall, federal trust fund programs now appear to be run- ning a large surplus, and the rest of the government is run- ning a deficit. People may therefore have the impression that the excess income generated for those programs is supporting activities beyond tihe ones for which they were initended or, perhaps, that if it was not for these programs, the govern- ment',s overall (or unified) budget deficit would be larger. Under the Congressional Budget Office's August 2002 bud- get projections, the combined income of the various federal trust funds is projected to exceed their expenditures by $219 billion in fiscal year 2003, and all other activities are expected to run a deficit of $364 billion. An overall budget deficit of $145 billion represents the difference between the two pro- jections. The quick conclusion that one might draw is that federal trust funds are favorably affecting the budget and that other governmental activities are draining it. 1. One exception is the Highway Trust Fund, which no longer earns interest on its balance. The various highway programs also are subject to limits set by annual appropriations (in addition to the limit estab- lished by the balance of the trust fund).

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