The Congress of the United States O Congressional Budget Office

CBO

The Treatment of Federal Receipts and

Expenditures in the National Income and

Product Accounts

January 2007

A

PAPER
Note

Numbers in the tables and text of this report may not add up to totals because of rounding. 
Preface

This report describes how the treatment of federal receipts and expenditures in the 

national income and product accounts differs from the recording of federal revenues and outlays in the federal budget, as reported by the Office of Management and Budget. It is one of a 

series of reports that the Congressional Budget Office (CBO) issues each year to fulfill the 

requirement of section 202(e) of the Congressional Budget Act of 1974 for CBO to submit to 

the Committees on the Budget periodic reports about fiscal policy and to provide baseline 

projections of the federal budget. Most recently, in response to that requirement, CBO issued 

The Budget and Economic Outlook: Fiscal Years 2008 to 2017.

Frank Russek of CBO’s Macroeconomic Analysis Division and Luis Serna of CBO’s Budget 

Analysis Division wrote this report, under the supervision of Robert Dennis and Bob 

Sunshine. John Skeen edited the report, Kate Kelly proofread it, and Maureen Costantino 

prepared it for publication. Simone Thomas prepared the electronic version for CBO’s Web 

site (www.cbo.gov).

Peter R. Orszag

Director

January 2007

Contents

Conceptual Differences Between the NIPAs’ Federal Sector and the

Federal Budget 1

Differences in Accounting for Major Transactions 2

The Measurement of National Saving 2

Capital Transfers and Exchanges of Existing Assets 3

Credit Programs 6

Geographic Coverage 6

Universal Service Fund 6

Interest Receipts 6

Surpluses of Government Enterprises 6

Military Sales and Assistance in-Kind 6

National Flood Insurance Program 7

Timing Differences 7

Business Activities 8

Presentation of the Federal Government’s Receipts and

Expenditures in the NIPAs 8

Tables

1. Relationship of the Budget to the Federal Sector of the

National Income and Product Accounts 4

2. Baseline Receipts and Expenditures as Measured by the 

National Income and Product Accounts 9

The Treatment of Federal Receipts and

Expenditures in the National Income and

Product Accounts

The fiscal transactions of the federal government are 

recorded in two major sets of accounts that are conceptually quite different. The presentation generally used by 

executive branch agencies and the Congress and typically 

discussed in the press (and the one followed in this 

report) is the Budget of the United States Government, as 

reported by the Office of Management and Budget. The 

budget focuses on cash flows—revenues and outlays, or 

the collection of taxes and fees and the disbursement of 

cash for the various federal functions. The objectives of 

the budget are to provide information that can assist lawmakers in their policy deliberations; to facilitate the management and control of federal activities; and to help the 

Department of the Treasury manage its cash balances and 

determine its borrowing needs. 

The national income and product accounts (NIPAs) also 

record the federal government’s transactions, but with 

different objectives. The NIPAs, which are produced by 

the Bureau of Economic Analysis (BEA), an agency 

within the Department of Commerce, are intended to 

provide a comprehensive measure of current production 

and related income generated by the U.S. economy.1

 A 

well-known measure of current production in the NIPAs 

is gross domestic product (GDP). The accounts, which 

are used extensively in macroeconomic analysis, divide 

the economy into four major sectors—business, government, household, and the rest of the world (the foreign 

sector), each with its own set of accounts.2 The federal 

sector, which is the focus of this report, is one component 

of the government sector (the state and local sector is the 

other component).3

 Because the aims of the NIPAs differ 

from those of the budget, the two accounting systems 

treat some government transactions very differently. On 

average, the differences cause receipts and expenditures in 

the NIPAs, as projected by CBO, to be about 2 percent 

and 3 percent higher, respectively, than the corresponding 

budget totals for the 2008–2017 period.

Conceptual Differences Between the 

NIPAs’ Federal Sector and the

Federal Budget

The budget of the federal government is best understood 

as an information and management tool. It focuses primarily on cash flows, recording for each fiscal period the 

inflow of revenues and the outflow of spending. The 

period of foremost interest in the budget is the federal fiscal year, which runs from October 1 through September 

30. There are a few exceptions to the general rule of 

recording transactions on a cash basis, but they are 

designed to improve the usefulness of the budget as a 

decisionmaking tool. For example, when the federal gov1. The discussion of the national income and product accounts in 

this report generally refers to Table 3.2 in the accounts, “Federal 

Government Current Receipts and Expenditures,” which most 

closely resembles the presentation in the budget. For other discussions of the NIPAs, see Department of Commerce, Bureau of 

Economic Analysis, “Federal Budget Estimates for Fiscal Year 

2007,” Survey of Current Business (March 2006); and Budget of the 

United States Government, Fiscal Year 2007: Analytical Perspectives.

2. Some accounts in the NIPAs, such as the domestic capital account 

(which shows saving and investment), focus on components of 

gross domestic product or income rather than on a specific sector, 

and they bring together relevant information from all four sectors.

3. More formally, BEA regards the federal government and state and 

local governments as subsectors. The treatment of state and local 

governments’ transactions in the NIPAs closely resembles that of 

the federal government’s transactions.
2 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

ernment makes direct loans or provides loan guarantees 

(as with student loans), tracking cash flows would give a 

misleading view of current costs; therefore, under what is 

termed credit reform, the budget records the estimated 

subsidy costs at the time the loans are made.

The federal sector of the NIPAs possesses none of the 

planning and management goals of the budget. Instead, it 

focuses on displaying how the federal government fits 

into a general economic framework that describes current 

production and income within specific periods, the major 

sources of that production, and recipients of income by 

type. The main periods of interest for the NIPAs are calendar years and calendar quarters, although approximate 

totals for fiscal years can be derived from the quarterly 

estimates. (The tables in this report show fiscal year numbers.)

From the perspective of the NIPAs, the federal government is both a producer and a consumer: Its workforce 

uses purchased goods and services and governmentowned capital (buildings, equipment, and software) to 

produce services for the public at large; because those services are consumed by the public, by convention that 

consumption is regarded as federal consumption expenditures in the NIPAs. In addition, through its taxes and 

transfers, the federal government affects the resources 

available to the private sector. The purpose of the NIPAs 

is to record all of those activities in a consistent manner. 

The federal sector of the NIPAs tracks how much the 

government spends on its consumption of goods and services, and it records the transfer of resources that occurs 

through taxes, payments to beneficiaries of federal programs, and federal interest payments. The federal sector’s 

contribution to GDP is presented elsewhere in the NIPAs

(Table 1.1.5 in the accounts).

Differences in Accounting for

Major Transactions

The accounting differences between the NIPAs and the 

federal budget stem from the conceptual differences discussed above. In attempting to properly incorporate federal transactions into the framework used to determine 

GDP, the NIPAs reflect judgments about the best treatment of such transactions as government investment, 

sales and purchases of existing assets, federal credit, and 

federal activities that resemble those of businesses, along 

with transactions involving U.S. territories. In some 

cases, the appropriate treatment may be to move a transaction from the federal sector to another place in the 

NIPAs or to exclude the transaction from the NIPAs 

entirely. In other cases, the appropriate treatment may 

involve recording as a receipt in the NIPAs an item that 

the federal budget reports as an offsetting (negative) budget outlay or adjusting the timing of a federal transaction 

to better match the timing of related production or 

income flow.4

The Measurement of National Saving

Several conventions in the NIPAs are intended to show 

the federal government’s contribution to the NIPA measure of national saving—net federal government saving 

(current receipts minus current expenditures). Two major 

departures from the budget are the treatment of federal 

investment spending (for such things as ships, computers, 

and office buildings) and the treatment of federal 

employees’ retirement programs. As a result of such differences, the concept of net federal saving in the NIPAs

is akin to but not the same as the federal budget surplus. 

Federal Investment. In the federal budget, outlays for 

investment purchases are treated like other cash outlays 

and thus are subtracted from budget revenues in determining the size of the federal deficit or surplus. By contrast, in the NIPAs, federal investment is not counted as 

federal spending for the purpose of measuring net federal 

government saving, because new purchases of federal capital (investments) do not measure the current inputs from 

the existing stock of capital used to provide government 

services.5 To approximate the cost of those capital inputs, 

the NIPAs include in current federal expenditures an estimate of the depreciation (consumption of fixed capital) 

of the stock of federal capital. The treatment is conceptually similar to that applied to the corporate business sector, which uses depreciation rather than investment purchases to compute net corporate saving (retained 

4. The resulting differences between the numbers in the NIPAs and 

the budget are sometimes divided into three groups: coverage, 

timing, and netting. Although all three types of differences can 

affect total revenues or outlays, netting differences have no impact 

on the federal deficit or surplus because they affect revenues and 

outlays equally.

5. Federal investment is shown elsewhere in the NIPAs, along with 

private investment spending in the domestic capital account, 

which shows saving and investment (Table 5.1 in the accounts; 

see also Table 3.9.5, which shows both federal investment and 

consumption). 
THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS 3

earnings). In the federal budget, depreciation is not 

tracked. In Table 1, which provides a crosswalk between 

the budget and the NIPAs, that difference in coverage is 

shown under “Treatment of investment and depreciation.”6

Federal Retirement. The transactions of federal employees’ retirement programs are also handled differently in 

the budget and the NIPAs. In the budget, federal 

employees’ contributions for their retirement are recorded 

as revenues, whereas agencies’ contributions on behalf of 

their employees (as well as interest payments from the 

Treasury to trust funds) have no overall budgetary effect 

because they are simply transfers of funds between two 

government accounts.7 Benefit payments to federal retirees are recorded as outlays in the budget. By contrast, in 

the NIPAs, the aim is to make the measurement of saving 

by the federal government consistent with that of the private sector. Therefore, the NIPAs treat some of the transactions of federal retirement plans as part of the household sector.8

 The receipts from federal employers’ 

retirement contributions (and the interest earned by 

retirement accounts) are considered part of workers’ personal income and thus are not recorded as federal transactions (receipts or negative expenditures). Employees’ contributions are not recorded as income in either the federal 

or the household sector but are transfers within the 

household sector.

On the outlay side, pension benefit payments to retirees 

are not recorded as federal expenditures in the NIPAs 

because they are treated as transfers from pension funds 

within the household sector. Some transactions, however, 

are treated as part of federal expenditures even though the 

corresponding receipts are recorded in the household sector. The government’s contributions to its workers’ retirement are counted as federal expenditures (as part of 

employees’ compensation), as is the interest paid to federal retirement accounts. The different treatment of 

retirement contributions by federal employees shows up 

in Table 1 under “Receipts”; the different treatment of 

contributions by federal employers, interest earnings, and 

benefit payments is shown under “Expenditures.” 

Capital Transfers and Exchanges of Existing Assets

The NIPAs’ measure of current production and income is 

not affected by transactions that involve existing assets. 

Therefore, the NIPAs do not count capital transfers or 

asset exchanges as part of current federal receipts or 

expenditures, although the budget generally does include 

those transactions. The NIPAs define as capital transfers—and thus exclude—estate and gift taxes (which are 

taxes on private capital transfers), investment subsidies to 

businesses, and investment grants to state and local governments (for air transportation, highways, transit, and 

water treatment plants).9 Exchanges of existing assets 

include federal transactions for deposit insurance and 

sales and purchases of government assets (including assets 

that are not produced, such as land and the radio spectrum). In Table 1, those differences between the NIPAs’ 

federal sector and the budget accounts show up on the 

revenue side as estate and gift taxes and on the outlay side 

as capital transfers and lending and financial adjustments. 

6. The estimates and the presentation of the reconciliation between 

the budget and the NIPAs in Table 1 are based on CBO’s interpretation of the methodology for the accounts as detailed in Department of Commerce, Bureau of Economic Analysis, Survey of 

Current Business (June 2003), and in BEA’s reconciliation of the 

Administration’s budget for fiscal year 2007 and the accounts, 

published in the Survey of Current Business (March 2006).

7. In the budget, contributions by an agency for its employees’ retirement are considered outlays for that agency and offsetting receipts 

(negative outlays) for the trust funds. Thus, those intragovernmental transfers result in no net outlays or receipts for the total 

budget. That treatment is the same for the federal government’s 

contributions for Social Security and Medicare for its employees.

8. Transactions of the National Railroad Retirement Investment 

Trust are part of the federal sector in the NIPAs. In addition, 

Social Security contributions and benefit payments for both private and government employees are recorded in the federal sector 

as receipts and expenditures rather than moved to the household 

sector. 

9. Another type of capital transfer excluded by the Bureau of Economic Analysis in the national income and product accounts is 

the annual lump-sum payment from the Treasury to the Uniformed Services Retiree Health Care Fund—a trust fund begun in 

2003 to pay for benefits received by retired members of the armed 

forces who are eligible for Medicare and their dependents. Those 

payments to the trust fund are for accrued but unfunded liabilities 

for benefits attributable to work performed before 2003; BEA 

excludes those payments from federal expenditures because they 

are not related to current production. In the budget, those annual 

payments are recorded as outlays by the Treasury but as offsetting 

receipts (negative outlays) by the trust fund. Because those annual 

payments have no net impact on federal spending in either the 

NIPAs or the budget, there is no corresponding reconciliation 

item in Table 1.
4 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

Table 1. (Corrected as of February 5, 2007)

Relationship of the Budget to the Federal Sector of the National Income and 

Product Accounts

(Billions of dollars)

Continued

Actual

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

2,407 2,542 2,720 2,809 2,901 3,167 3,404 3,550 3,717 3,896 4,084 4,284

-4 -4 -4 -4 -4 -4 -4 -4 -3 -3 -3 -3

-28 -24 -25 -26 -21 -22 -50 -56 -62 -67 -73 -79

-4 -4 -4 -5 -5 -5 -5 -5 -6 -6 -6 -6

-8 -8 -9 -9 -9 -10 -10 -10 -10 -10 -10 -10 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

-44 -41 -42 -44 -39 -41 -68 -75 -81 -86 -92 -98

45 49 53 56 60 65 68 73 79 86 96 106

121 1 1 1 1 1 1 1 1 1

15 16 17 17 18 19 21 22 23 24 25 26

14 15 16 16 19 20 20 23 23 23 24 25

-2 -9 -7 -7 -7 -7 -7 -7 -7 -8 -7 -7

26 28 28 29 29 30 31 31 32 29 30 30 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

98 101 108 113 120 127 132 142 150 157 169 181

-3 3 0 0 7 3 -14 3 * 0 0 0

24 15 -10 1 -3 -6 -6 -2 1 2 2 2 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Total Differences 75 78 56 70 85 84 44 68 70 72 79 85

Receipts in the NIPAs 2,482 2,620 2,775 2,880 2,986 3,250 3,448 3,618 3,787 3,968 4,163 4,369

2,654 2,714 2,818 2,926 3,038 3,179 3,234 3,391 3,533 3,687 3,892 4,034

-20 -25 -27 -30 -31 -33 -34 -35 -36 -37 -39 -40

38 35 35 36 36 36 38 39 41 43 45 47

-49 -51 -53 -54 -55 -55 -56 -56 -57 -58 -59 -60

10 32 28 21 18 18 18 18 18 18 19 19

-14 -16 -16 -17 -18 -19 -19 -20 -21 -22 -24 -25

-7 -8 -8 -8 -8 -9 -9 -9 -9 -9 -9 -9 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

-43 -32 -41 -53 -59 -61 -62 -64 -65 -66 -67 -70

Revenues (Budget)a

Differences

Coverage

Receipts

Contributions for government 

employees' retirement

Estate and gift taxes

Geographic adjustments

Universal Service Fund receipts

Subtotal, coverage

Timing shift of corporate estimated

tax payments

Netting

Medicare premiums

Deposit insurance premiums

Government contributions for 

Subtotal, netting

Other adjustmentsb

Outlays (Budget)a

OASDI and HI for employees

Income receipts on assets

Surpluses of government enterprise

Other

Differences

Coverage

Treatment of investment and

depreciation 

Contributions for government

employees' retirement

Capital transfers

Lending and financial

adjustments

Geographic adjustments 

Universal Service Fund payments

Subtotal, coverage

Expenditures
THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS 5

Table 1.

Continued

(Billions of dollars)

Source: Congressional Budget Office.

Notes: * = between -$500 million and $500 million; OASDI = Old-Age, Survivors, and Disability Insurance; HI = Hospital Insurance.

a. Includes Social Security and the Postal Service.

b. Includes timing differences not shown elsewhere in the table, plus discrepancies between figures in the national income and product 

accounts (NIPAs) and in the budget that may diminish when the Bureau of Economic Analysis makes subsequent revisions. The figure for 

2006 reflects netting adjustments for hurricane relief and recovery.

c. Reflects timing adjustments for hurricane relief and recovery.

d. Includes coverage differences not shown elsewhere.

Actual

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

45 49 53 56 60 65 68 73 79 86 96 106

121 1 1 1 1 1 1 1 1 1

15 16 17 17 18 19 21 22 23 24 25 26

14 15 16 16 19 20 20 23 23 23 24 25

-2 -9 -7 -7 -7 -7 -7 -7 -7 -8 -7 -7

26 28 28 29 29 30 31 31 32 29 30 30

__ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

98 101 108 113 120 127 132 142 150 157 169 181

10 9 1 0 0 -28 27 1 0 0 -39 -3

-17 3 1 0 0 0 0 0 0 0 0 0

-36 11 8 14 15 15 17 15 18 20 22 24

___ ___ ___ ___ ___ ___ ____ ___ ____ ____ ___ ____

Total Differences 13 91 78 74 76 54 114 94 103 110 84 132

2,667 2,805 2,895 2,999 3,114 3,233 3,348 3,485 3,635 3,798 3,977 4,166

-248 -172 -98 -116 -137 -12 170 159 185 208 192 249

20 25 27 30 31 33 34 35 36 37 39 40

-42 -39 -39 -40 -40 -40 -41 -43 -44 -46 -48 -49

-28 -24 -25 -26 -21 -22 -50 -56 -62 -67 -73 -79

49 51 53 54 55 55 56 56 57 58 59 60

-10 -32 -28 -21 -18 -18 -18 -18 -18 -18 -19 -19

10 11 12 13 13 14 14 15 16 17 18 19

-1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

-1 -9 -1 9 20 20 -6 -11 -16 -21 -25 -28

-13 -6 -1 0 7 31 -41 3 * 0 39 3

17 -3 -1 0 0 0 0 0 0 0 0 0

60 5 -18 -13 -18 -21 -23 -17 -17 -18 -20 -22 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Total Differences 63 -13 -22 -3 9 30 -70 -26 -33 -38 -6 -47

-185 -185 -120 -120 -128 17 100 133 152 170 186 202

Netting

Medicare premiums

Differences (Continued)

Deposit insurance premiums

Government contributions for 

OASDI and HI for employees

Income receipts on assets

Budget Deficit (-) or Surplusa

Differences

Coverage

Surpluses of government enterprise

Other

Subtotal, netting

Expenditures in the NIPAs

Flood insurance adjustmentc

Other adjustmentsd

Timing adjustments

Treatment of investment and

depreciation

Contributions for government

employees' retirement

Estate and gift taxes

Capital transfers

Lending and financial 

adjustments

Other adjustmentsb

Net Federal Government Saving

Expenditures (Continued)

Net Federal Government Saving

Flood insurance adjustmentc

Timing adjustments

Geographic adjustments

Universal Service Fund

Subtotal, coverage
6 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

Credit Programs

For federal credit programs (loans and loan guarantees), 

only the estimated credit subsidy and administrative costs 

are included in outlays. Cash flows from loan disbursements, repayments, and interest, by contrast, are reported 

in what are termed financing accounts, which have no 

effect on outlays.

As in the budget, the NIPAs record administrative costs 

and generally exclude loan disbursements and repayments 

and other cash flows considered exchanges of existing 

assets or financial and lending transactions that are unrelated to current production. By contrast, the NIPAs do 

not record subsidy costs. In another departure from the 

budget, the NIPAs include the interest receipts from 

credit programs (as part of federal receipts). In Table 1, 

those differences in the treatment of credit programs are 

recorded in two places: Under “Expenditures,” the lending and financial adjustments show the differences in 

handling the loan subsidies; and under “Receipts,” the 

difference in treating loan interest is captured as part of 

income receipts on assets. 

Geographic Coverage

The NIPAs exclude all government transactions with 

Puerto Rico and the U.S. territories, whose current production, according to the NIPA definition, is not part of 

U.S. GDP. Because federal transfers dominate those 

transactions, their exclusion tends to increase the NIPAs’ 

depiction of net federal government saving in comparison 

with the budget’s measure of saving—the federal deficit 

or surplus. That difference in coverage is shown as geographic adjustments in Table 1.

Universal Service Fund 

The business activity of the Universal Service Fund, 

which provides resources to promote access to telecommunications, is recorded in the budget, but not in the 

NIPAs’ federal sector. The Universal Service Fund 

receives federally required payments from providers of 

interstate and international telecommunications services 

and disburses those funds to local providers that serve 

high-cost areas, low-income households, libraries, and 

schools, as well as to rural health care providers. The fund 

is administered by an independent nonprofit corporation (the Universal Service Administrative Company), 

which is regulated by the Federal Communications

Commission. 

Although the Universal Service Fund’s revenues and outlays appear in the federal budget, they have little net 

impact on the deficit or surplus. In the NIPAs, the fund’s 

receipts and payments are classified as intracorporate 

transfers (from one business to another). The difference 

in treatment of the Universal Service Fund is so labeled in 

Table 1.

Interest Receipts

In the NIPAs, federal interest receipts are grouped with 

other types of federal receipts (in the category designated 

“Income receipts on assets”) rather than netted against 

federal interest payments, as they are in the federal budget.10 BEA’s treatment is consistent with international 

accounting practices, under which interest receipts and 

payments are reported separately. That difference in the 

treatment of interest receipts in the NIPAs and in the federal budget raises the NIPAs’ measure of government 

receipts relative to federal budget revenues and increases 

the NIPAs’ measure of federal spending relative to budget 

outlays. However, because the difference in treatment 

affects receipts and expenditures in the NIPAs by exactly 

the same amount, it has no impact on the NIPAs’ measurement of net federal government saving. 

Surpluses of Government Enterprises

In the NIPAs, the surpluses of government enterprises, 

such as the Postal Service, are shown on a separate line as 

current receipts of the federal government. That treatment accords with international accounting standards, 

which generally advocate reporting spending on a gross, 

rather than a net, basis. By contrast, surpluses of government enterprises are treated as offsetting receipts (negative outlays) in the federal budget. 

Military Sales and Assistance in-Kind

The NIPAs attempt to identify contributions to GDP by 

sector. Therefore, they do not classify as part of federal 

consumption military purchases of equipment and services that are intended for sale or as gifts to foreign governments. Instead, those transactions are considered net 

exports in the NIPAs’ foreign transactions account (Table 

4.1 in the accounts). In the case of gifts, the transactions 

are also recorded in the federal sector of the NIPAs as a 

portion of transfers to the rest of the world—a classifica10. About half of the NIPAs’ interest receipts, mainly from penalties 

on late tax payments, are recorded as revenues in the federal 

budget.
THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS 7

tion that parallels their treatment as outlays in the federal 

budget. By contrast, military sales to foreign governments 

are recorded in the federal budget as outlays, while the 

proceeds from those sales are recorded as offsetting 

receipts (negative outlays). 

National Flood Insurance Program

In the federal budget, payments to beneficiaries covered 

by the National Flood Insurance Program are recorded 

as outlays. In the NIPAs, though, insurance losses by 

that federal government enterprise are normally recorded 

as offsets to current receipts (and thus a reduction in 

the current surpluses of government enterprises). In 

Table 1, that difference is included in “Netting” for both 

receipts and expenditures, and it is usually relatively 

small. 

Timing Differences 

As much as possible, the NIPAs attempt to measure 

income flows when income is earned (on an accrual basis) 

rather than when income is received (on a cash basis).11

For example, BEA attributes corporate tax payments to 

the year in which the liabilities are incurred rather than to 

the time when the payments are actually made. That 

approach makes sense in an integrated system of accounts 

that tracks both production and income because, on an 

accrual basis, the value of what is produced in a given 

period should—measurement problems aside—match 

the total income generated. However, the NIPAs are not 

entirely consistent in that respect: Personal tax payments 

are counted as they are made and are not attributed retroactively to the year in which the liabilities were incurred. 

Currently, BEA is engaged in research to develop methods for preparing accrual-based estimates of personal tax 

payments. 

Because the budget is recorded mostly on a cash basis and 

the NIPAs’ federal sector is recorded largely on an accrual 

basis, differences exist in a number of areas in the timing 

of recorded transactions. 

Corporate Taxes. Tax legislation sometimes temporarily 

shifts the timing of corporate tax payments (usually from 

the end of one fiscal year to the beginning of the next). 

The NIPAs exclude such timing shifts, which are not 

consistent with accrual accounting. The timing adjustments for the effects of the Tax Increase Prevention and 

Reconciliation Act of 2005 are shown as the timing shift 

of corporate estimated tax payments in Table 1. 

Although corporations make estimated tax payments 

throughout the year, any shortfalls (or overpayments) are 

corrected in the form of final payments (or refunds) in 

subsequent years. The NIPAs shift those final payments 

back to the year in which the corporate profits that gave 

rise to the tax liabilities were actually generated, whereas 

the budget records them on a cash basis. The results of 

that difference are difficult to identify for recent history 

and thus appear as part of “Other adjustments” under 

“Receipts” in Table 1.12

Personal Taxes. Although personal taxes are not recorded 

on an accrual basis in the NIPAs, BEA nevertheless 

attempts to avoid large, distorting upward or downward 

spikes in personal disposable income that result from timing quirks. Such quirks occur in April of each year, for 

example, when most final settlements for the previous 

year’s personal taxes are paid. In the NIPAs, therefore, 

those settlements are evenly spread over the four quarters 

of the calendar year in which they are paid. (As with 

accrual accounting, that treatment avoids spikes. Unlike 

accrual treatment, however, it does not move payments 

back to the year in which the liabilities were incurred.) 

Such “smoothing” can alter the relationship of the NIPAs 

and the budget accounts for fiscal years because it shifts 

some receipts into the last quarter of the calendar year 

and thus into the following fiscal year.13

Those adjustments are difficult to identify for recent history and thus are not shown separately in Table 1; they 

appear instead in the “Other adjustments” category under 

“Receipts.” 

11. See United Nations, System of National Accounts (1993), paragraph 3.19, which emphasizes reporting transactions on an 

accrual basis. Many of the conceptual changes to the national 

income and product accounts over time have been based on 

guidelines enumerated in that U.N. document. See also Department of Commerce, Bureau of Economic Analysis, “The NIPAs 

and the System of National Accounts,” Survey of Current Business 

(December 2004), pp. 17–32.

12. “Other adjustments” include timing differences not shown elsewhere in Table 1, plus discrepancies between figures in the NIPAs 

and the budget that may diminish when BEA makes subsequent 

revisions.

13. A change in the relationship between receipts in the budget and in 

the NIPAs is projected to occur following certain changes in tax 

laws, such as the changes scheduled to take effect in 2011 and 

assumed in CBO’s baseline for revenues. 
8 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

Transfers and Military Compensation. Timing adjustments are needed on the spending side of the NIPAs to 

align military compensation and government transfer 

payments—for example, veterans’ benefits, Supplemental 

Security Income (SSI) payments, and Medicare’s payments to providers—with income that is reported on an 

accrual basis in the NIPAs. Misalignments can occur 

because of acceleration in the timing of payments that 

result from quirks in the calendar or because of legislation 

designed to delay payments (as was the case for Medicare 

at the end of 2006). 

For example, although SSI payments are usually made on 

the first day of each month, they are sometimes made a 

day or more in advance. That situation typically occurs 

when the first day of the month falls on a weekend or 

holiday. If it occurs for the October benefits, the payments will be pushed into the previous fiscal year in the 

budget. In such cases, the NIPAs introduce a timing 

adjustment that effectively moves the payments back to 

the first day of the month. Hence, the NIPAs’ adjustment 

always ensures that there are exactly 12 monthly SSI payments in a year, whereas in the budget, there can be 11 in 

some years and 13 in others.

For military compensation, which is normally paid at the 

beginning and middle of each month but can sometimes, 

like SSI, be paid early to avoid weekends, the adjustment 

in the NIPAs always ensures 24 payments in a year. In the 

budget, by contrast, there can be 23 payments in some 

years and 25 in others. The timing adjustments for 

expenditures in Table 1 reflect that regularizing for transfers and for military pay. 

In another contrast with the federal budget, the NIPAs 

record Medicare payments on an accrual basis rather than 

on a cash basis. That treatment better illustrates the link 

between the underlying economic activity (the medical 

services provided) and the associated federal transactions 

(payment for those services), which can be several months 

apart. The timing adjustment, however, has only a small 

effect on the NIPA measure of net federal government 

saving. 

Business Activities 

The federal budget and the NIPAs both treat certain revenues as offsetting receipts (negative outlays) when they 

result from voluntary transactions with the public that 

resemble business activities, such as proceeds from the 

sale of government publications. However, the NIPAs 

generally have a stricter view of what resembles a business 

transaction. In particular, Medicare premiums, deposit 

insurance premiums, rents, royalties, and regulatory or 

inspection fees are deemed equivalent to business transactions in the budget but not in the NIPAs. Consequently, 

those transactions (negative outlays in the budget) are 

treated in the NIPAs as government receipts (contributions for government social insurance and current transfers from business—fines and fees). Those differences are 

recorded within “Netting” in Table 1. Because they affect 

total current receipts and total current expenditures by 

exactly the same amounts, they have no effect on the 

NIPAs’ measure of net federal government saving.

Presentation of the Federal

Government’s Receipts and

Expenditures in the NIPAs

As in the budget, the federal sector of the NIPAs 

classifies receipts by type, but the categories differ 

(see Table 2). The NIPAs’ classifications help to determine measures such as disposable income and corporate 

profits after taxes. There are five major categories of 

current receipts. The largest one, current tax receipts, 

includes taxes on personal income, taxes on corporate 

income, taxes on production and imports (excise taxes 

and customs duties), and taxes from the rest of the world. 

The next-largest category is contributions for government 

social insurance, which consists of Social Security taxes, 

Medicare taxes and premiums, and unemployment insurance taxes. The remaining categories are current transfer 

receipts (fines and fees), income receipts on assets (interest, rents, and royalties), and current surpluses of government enterprises (such as the Postal Service).

In the NIPAs, the government’s expenditures are classified according to their purpose. The major groups, which 

are much fewer than those in the federal budget, are consumption expenditures, or spending on goods and services, including costs of capital depreciation, (broken out 

for defense and nondefense spending); transfer payments 

(to individuals, governments, and the rest of the world); 

interest payments; and subsidies to businesses and to government enterprises. 

Consumption of goods and services (for both defense and 

nondefense purposes) consists of spending by the government for its immediate use in production. (The largest 

portion of such consumption is the compensation of 
THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS 9

Table 2. (Corrected as of February 5, 2007)

Baseline Receipts and Expenditures as Measured by the National Income and 

Product Accounts

(Billions of dollars)

Source: Congressional Budget Office.

a. Includes Social Security taxes, Medicare taxes and premiums, and unemployment insurance taxes.

b. Includes Social Security and the Postal Service.

Actual

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1,031 1,124 1,221 1,284 1,349 1,543 1,687 1,786 1,884 1,988 2,097 2,213

378 393 398 385 367 372 366 370 376 388 400 416

102 99 101 103 107 114 119 124 128 130 134 140

11 12 13 14 15 17 18 19 20 21 22 23 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

1,522 1,628 1,733 1,787 1,838 2,046 2,189 2,299 2,409 2,526 2,654 2,791

906 939 983 1,031 1,082 1,135 1,188 1,244 1,300 1,360 1,422 1,487

32 36 36 38 40 42 44 46 48 51 54 57

24 26 30 31 33 34 35 37 38 39 40 41

-2 -9 -7 -7 -7 -7 -7 -7 -7 -8 -7 -7 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

2,482 2,620 2,775 2,880 2,986 3,250 3,448 3,618 3,787 3,968 4,163 4,369

462 484 483 489 497 507 519 530 542 555 568 582

71 71 72 72 74 77 79 83 86 89 92 95

237 231 240 247 252 254 259 265 273 280 287 294

26 27 27 28 28 29 30 30 31 31 32 32 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____

797 813 822 837 852 866 887 907 931 955 979 1,003

1,144 1,235 1,295 1,360 1,431 1,506 1,576 1,671 1,772 1,884 2,009 2,146

333334444455 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

1,147 1,238 1,298 1,363 1,434 1,509 1,580 1,675 1,776 1,889 2,014 2,151

360 374 387 404 422 441 461 485 510 538 568 601

27 31 26 26 26 27 27 28 28 29 29 30 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

387 405 413 430 448 468 488 512 538 567 598 630

281 303 318 326 337 348 351 348 347 345 341 335

55 47 44 43 42 42 41 42 42 43 45 47 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

2,667 2,805 2,895 2,999 3,114 3,233 3,348 3,485 3,635 3,798 3,977 4,166

-185 -185 -120 -120 -128 17 100 133 152 170 186 202

Subsidies

Expenditures

Total Current

Net Federal Government Saving

Net Federal Government Saving

local governmentsb

To the rest of the world

Subtotal

Interest Paymentsb

To the rest of the world

Subtotal

Other transfer payments 

Grants-in-aid to state and

Subtotal

Current Transfer Payments

Government social benefits

To persons

Consumption of fixed capital

Nondefenseb

Consumption

Consumption of fixed capital

Expenditures

Consumption Expenditures

Defense

Consumption

Income Receipts on Assets

Current Surpluses of Government

Enterprises

Total Current Receipts

Contributions for Government

Subtotal

Social Insurancea

Current Transfer Receipts

Taxes on personal income

Taxes on corporate income

Taxes on production and imports

Taxes from the rest of the world

Receipts

Current Tax Receipts
10 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

military and civilian federal employees.) Among the government’s consumption expenditures, the consumption 

of fixed capital—depreciation—represents a partial measure of the services that the government receives from its 

stock of fixed assets, such as buildings or equipment.

Transfer payments (cash payments made directly to individuals and the rest of the world as well as grants to state 

and local governments or foreign nations) constitute 

another grouping. Most of the transfers to individuals

are for social benefits. Grants-in-aid are payments that 

the federal government makes to state or local governments, which generally use them for transfers (such as 

benefits provided by the Medicaid program) and consumption (such as the hiring of additional police officers). Grants-in-aid to the rest of the world include federal 

pur-chases of military equipment for delivery to foreign

governments. 

The NIPAs’ category for federal interest payments shows 

only payments and thus differs from the budget category 

labeled “net interest.” In the NIPAs, federal interest 

receipts are classified with other federal receipts. 

The NIPAs’ category labeled “subsidies” primarily consists of grants paid by the federal government to businesses, including state and local government enterprises 

such as public housing authorities. Federal housing and 

agricultural assistance have long dominated that category.

Net federal government saving in the NIPAs is the difference between the current receipts and the current expenditures of the federal sector.14 It is a component of net 

national saving (which also includes net saving by the 

state and local government sector, personal saving, and 

corporate retained earnings) and thus is a partial measure 

of how much of the nation’s income earned from current 

production is not consumed in the current period. Net 

federal saving (or dissaving) is akin to the federal surplus 

or deficit measured in the budget. However, net federal 

government saving is not a good indicator of federal borrowing requirements because, unlike the budget deficit or 

surplus, it is not a measure of cash flows.15

14. Gross federal saving—a component of gross national saving—

equals net federal saving plus depreciation (consumption of fixed 

capital).

15. As an addendum to the NIPAs’ Table 3.2, BEA publishes a measure labeled “net lending or net borrowing,” which is closer to a 

cash or financial measure in several ways. Like the budget, it 

includes investment purchases as expenditures because those purchases must be financed from current receipts or from federal borrowing. At the same time, it excludes consumption of fixed capital 

because those accounting charges are not a drain on current financial resources. In addition, it includes receipts from the sale of 

existing assets, as well as capital transfer receipts (for example, 

estate and gift taxes) and capital transfer payments (for example, 

investment grants to state and local governments), which are not 

part of current receipts or expenditures in the NIPAs but do affect 

cash flows. Despite those adjustments, net federal lending or borrowing in the NIPAs differs from the budget deficit or surplus 

because of all of the other differences in timing and coverage that 

distinguish the NIPAs from the budget. BEA presents those differences in Table 3.18, which is similar to Table 1 presented here.