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Recent Changes in Federal Debt and its Major Components, November 13, 2002 1 (November 13, 2002)

handle is hein.tera/crser0109 and id is 1 raw text is: Order Code RS20645 Updated November 13, 2002 CRS Report for Congress Received through the CRS Web Recent Changes in Federal Debt And Its Major Components Philip D. Winters Analyst in Government Finance Government and Finance Division Summary The government had surpluses in each of the four years 1998 through 2001. Over those years, the surpluses reduced federal debt held by the public, one of two components of total federal debt, by $453 billion. Debt held by government accounts, the other component of total federal debt, grew by $853 billion over the same four years. Total federal debt, the combination of the two components, increased by $401 billion during the period. Annual change in debt held by government accounts is not affected by the government's overall surplus or deficit. It is determined by law and government accounting practices. This report will be updated as events warrant. The continuing increase in total (or gross) federal debt in the face of budget surpluses during the 1998 through 2001 period produces an apparent budget paradox.' If deficits appear to make federal debt increase, as happened continuously over the previous three decades, why did the surpluses during those four years not make the debt fall? The answer to the question and the resolution of the apparent paradox is that the government's total surplus or deficit affects only the part of total federal debt that is held by the public. A deficit requires the government to borrow money from the public, increasing the amount of debt held by the public; a surplus allows the government to repay the public, reducing the amount of debt held by the public. The size of the remaining portion of federal debt, the portion held by government accounts, is determined by law and the accounting practices of the government and is not affected by the government's overall surplus or deficit. The government's surpluses over fiscal years 1998 through 2001 reduced federal debt held by the public by $452.8 billion.2 In the four years prior to the surpluses, 1994 Unless otherwise noted, all years referred to are fiscal years. Data are generally end-of-year or end-of-period; changes are generally measured from the end of one year to the end of the next. 2 The combination of constant and fairly rapid economic growth and declining deficits beginning in the mid-1990s caused a steep fall in debt held by the public as a share of gross domestic (continued...) Congressional Research Service **** The Library of Congress

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