Federal Debt Basics
How large is the federal debt? View details
Total federal debt—also known as gross debt—is the amount of the federal government's outstanding debt issued by the Treasury and other federal government agencies. Total federal debt, which was about $16.1 trillion at the end of fiscal year Any yearly accounting period, regardless of its relationship to a calendar year. The fiscal year for the federal government begins on October 1 of each year and ends on September 30 of the following year; it is named by the calendar year in which it ends. Prior to fiscal year 1977, the federal government began its fiscal year on July 1 and ended it on June 30. 2012, consists of two components: (1) debt held by the publicFederal debt held by all investors outside of the federal government, including individuals, corporations, state or local governments, the Federal Reserve and foreign governments. and (2) debt held by government accountsFederal debt owed to government accounts, primarily to federal trust funds such as Social Security and Medicare. The cumulative surpluses, including interest earnings, of these trust funds and other government accounts have been invested in Treasury securities, almost always nonmarketable. Whenever a government account needs to spend more than it takes in from the public, the Treasury must provide cash to redeem debt held by the government account. Consequently, this reflects a future claim on the economy and taxpayers. (also known as intragovernmental debt holdings), such as the Social Security and Medicare trust funds.
Source: GAO analysis of data from the Department of the Treasury.
Notes: The figures presented above are from the Financial Report of the United States Government. This is available from GAO's webpage, http://www.gao.gov/financial.html. For daily updates on total federal debt outstanding, see http://www.treasurydirect.gov/NP/BPDLogin?application=np
What is debt held by the public? View details
Debt held by the public is the value of all federal securities sold to the public, i.e., investors outside of the federal government. When the government's spending exceeds its revenue, it must borrow to finance the difference. Thus, debt held by the public essentially represents the amount the federal government has borrowed to finance cumulative cash deficits. This debt is owed to a wide variety of investors, including international investors, domestic private investors, the Federal Reserve, and state and local governments.
Source: GAO analysis of data from the Federal Reserve, Financial Accounts of the United States.
What is debt held by government accounts? View details
Debt held by government accounts represents balances in the federal government's accounts—primarily trust funds—that accumulate surpluses. Trust fundsFederal budget accounts that are so designated by law. These accounts usually have a designated, or "earmarked," source of revenue. These revenues are authorized to be spent for the programs and activities supported by the trust funds. Examples are the Social Security and Medicare trust funds. are accounting mechanisms used to link dedicated collections with the expenditures of those receipts. Trust funds for Social Security, Medicare, Military Retirement and Health Care, and Civil Service Retirement and Disability account for the vast majority of the total debt held by government accounts.
Source: GAO analysis of Department of the Treasury data.
What is the difference between the two types of federal debt? View details
Debt held by the public essentially represents the amount the federal government has borrowed to finance cumulative cash deficits. Debt held by the public represents a claim on today’s taxpayers and absorbs resources from today’s economy. In addition, the interest paid on this debt may reduce budget flexibility because, unlike most of the budget, it cannot be controlled directly.
Debt held by government accounts represents the cumulative surpluses, including interest earnings, of these accounts that have been invested in Treasury securities. The special Treasury securities held in these government accounts represent legal obligations of the Treasury and are guaranteed for principal and interest by the full faith and credit of the U.S. government. This debt reflects a claim on future taxpayers and the economy. Whenever a government account needs to spend more than it takes in from the public, the Treasury must provide cash to redeem debt held by the government account. The government must obtain this cash by increasing taxes, cutting spending, borrowing more from the public, retiring less debt (if the budget is in surplus), or some combination thereof.
Debt held by the trust funds, such as Social Security and Medicare, is not equal to the future benefit costs implied by the current design of the programs and, therefore, does not fully capture the government's total future commitment to these programs. For additional information about trust funds, see GAO, Federal Trust and Other Earmarked Funds: Answers to Frequently Asked Questions.
Of the two types of federal debt, only debt held by the public is reported as a liabilityA probable future outflow or other sacrifice of resources as a result of past transactions or events. Generally, liabilities are thought of as amounts owed for items or services received, assets acquired, construction performed (regardless of whether invoices have been received), and amount received but not yet earned. on the consolidated financial statements of the United States governmentThe consolidated financial statements present consolidated and summarized financial information from the departments and other entities in the executive branch of the federal government. The federal government has also elected to present certain financial information from the legislative and judicial branches in the statements. These statements are part of the Financial Report of the United States Government, referred to as the Financial Report (FR). The goal of the FR is to make available to every American a comprehensive overview of the federal government's finances.. Debt held by government accounts is an asset to those accounts but a liability to the Treasury; they offset each other in the consolidated financial statements.
What is the debt limit? View details
Congress and the President have enacted laws to establish a limit on the amount of federal debt that can be outstanding at one time. The outstanding total federal debtThe total amount of outstanding federal debt, whether issued by the Treasury or other federal agencies and held by the public or federal government accounts. excluding some minor adjustments, is the measure that is subject to the federal debt limitA legal ceiling on the amount of outstanding total federal debt (excluding some minor adjustments), which must be raised periodically to accommodate additional federal borrowing.. The debt limit does not restrict Congress' ability to enact spending and revenue legislation that affect the level of debt or otherwise constrain fiscal policy; rather, the debt limit restricts the Department of the Treasury's authority to borrow to finance the decisions enacted by the Congress and the President (for more information, see Debt Limit: Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market). As a result, as the government nears the debt limit, Treasury often deviates from its normal cash and debt management operations. In the past, Treasury has taken a number of extraordinary actions such as temporarily disinvesting securities held as part of federal employees' retirement plans to meet the government's obligations as they came due without exceeding the debt limit, until the debt limit was raised. For more information on the debt limit and extraordinary actions, see:
- Debt Limit: Analysis of 2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs.
- Debt Ceiling: Analysis of Actions Taken During the 2003 Debt Issuance Suspension Period.
- Debt Ceiling: Analysis of Actions During the 2002 Debt Issuance Suspension Periods.
- Debt Ceiling: Analysis of Actions During the 1995-1996 Crisis.
Congress and the President may also enact laws that temporarily suspend the statutory debt limit, which they did twice in calendar year 2013, through provisions in the No Budget, No Pay Act of 2013 (Public Law 113-3, section 2) and the Default Prevention Act of 2013 (Public Law 113-46, section 1002).