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

September 2005

A

REPORT
Notes

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

Unless otherwise specified, all years referred to are federal fiscal years.
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: An Update (August 2005).

Frank Russek of CBO’s Macroeconomic Analysis Division and Barry Blom of CBO’s

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

Sunshine. Loretta Lettner edited the report, Christine Bogusz proofread it, and Maureen

Costantino prepared it for publication. Simone Thomas prepared the electronic version for 

CBO’s Web site.

Douglas Holtz-Eakin

Director

September 2005

Conceptual Differences Between the NIPAs’ Federal Sector and the

Federal Budget 2

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 7

Military Sales and Assistance In-Kind 7

Timing Differences 7

Business Activities 8

Presentation of the Federal Government’s Receipts and

Expenditures in the NIPAs 8

CONTENTS

Tables

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

Income and Product Accounts 4

2. Projections of 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, or 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 the Congressional Budget 

Office (CBO), to exceed the corresponding budget totals 

by roughly 3 percent for the 2006-2015 period. 

The numbers in this report that derive from the national 

income and product accounts reflect BEA’s most recent 

revisions to data in the federal sector. Those historical revisions, which are usually made in July of each year for 

the most recent three-year period, were not available 

when CBO updated its baseline economic projections 

through 2015.4 Consequently, CBO’s NIPA estimates 

through 2015 for federal receipts and expenditures do 

not take into account how BEA’s revisions would have 

altered CBO’s underlying baseline economic projections. 

CBO’s preliminary assessment, however, indicates that 

the revised data would have had little impact on the major aspects of those baseline projections.

1. 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 Bureau of Economic Analysis, “Federal 

Budget Estimates for Fiscal Year 2006,” Survey of Current Business 

(March 2005); and Office of Management and Budget, Budget 

of the United States Government, Fiscal Year 2006: Analytical Perspectives (February 2005).

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 bring together relevant information from all four sectors.

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

4. See Congressional Budget Office, The Budget and Economic 

Outlook: An Update (August 2005).
2 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

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 government makes 

direct loans or provides loan guarantees (as with student 

loans), tracking cash flows would give a misleading view 

of costs; under what is termed credit reform, the budget 

records federal administrative expenses and 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 and what 

happens to that production and income. 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.

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

produces government services, and its purchases consume 

some of the nation’s production. 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 consumption purchases, 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.5

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 

flows.6

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. Two major departures from the 

budget are the treatment of federal investment spending 

(for such things as ships, computers, and office buildings) 

5. As part of its comprehensive revisions to the national income and 

product accounts officially implemented in December 2003, the 

Bureau of Economic Analysis explicitly recognizes the services 

produced by the government as part of gross domestic product 

and treats the government’s purchases of goods and services 

(which are part of the business sector’s contribution to GDP) as 

intermediate inputs to the production of government services. 

(Thus, the NIPAs now handle transactions in the government 

sector similarly to those in the business sector.) The changes shift 

the composition of GDP away from goods and toward services, 

because the government’s purchases of goods are now classified 

as inputs to a new component of GDP—government services. 

Although that revised treatment changes the relative importance 

of different components of GDP as reported in Table 1.1.5 in the 

accounts (“Gross Domestic Product and Income”), it does not 

change the level of GDP or the transactions reported in the 

NIPAs’ federal sector (Table 3.2 in the accounts).

6. 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.
THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS 3

and the treatment of federal employees’ retirement

programs. 

In the federal budget, outlays for investment purchases 

are treated like other cash outlays and thus are subtracted 

from budget revenues to determine 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 (current 

receipts minus current expenditures).7

 That is because 

new purchases of federal capital (investments) do not 

measure the current inputs from the existing stock of capital used to provide government services. 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 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.”8

The transactions of federal employees’ retirement programs are also handled very 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.9 Benefit payments to 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, except for the Railroad Retirement Fund, as 

part of the household sector.10 The receipts from federal 

employers’ and employees’ retirement contributions (and 

the interest earned by retirement accounts) are considered 

part of the personal income of workers and thus are not 

recorded as federal transactions (receipts or negative expenditures). That arrangement parallels the treatment for 

the private 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 current production and income 

rather than transactions that involve existing assets. Thus, 

the NIPAs do not count capital transfers or asset exchanges as part of 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

7. 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).

8. 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 revised 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 2006, published in the 

Survey of Current Business (March 2005).

9. 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 Social Security and Medicare contributions by the federal government for its employees.

10. 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.
4 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

Table 1.

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

Product Accounts

(Billions of dollars)

Table 1. Relationship of the Budget to the Federal Sector of the National Income and Product Accounts

Continued

Actual

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

1,880 2,142 2,280 2,396 2,526 2,675 2,817 3,075 3,312 3,481 3,660 3,848

-5 -4 -4 -4 -4 -4 -3 -3 -3 -3 -2 -2

-25 -24 -27 -25 -27 -27 -21 -21 -43 -47 -53 -59

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

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

__ __ __ __ __ __ __ __ __ __ __ __

-40 -39 -43 -41 -43 -44 -37 -37 -60 -64 -70 -76

-1 -5 0 0 0 0 0 0 0 0 0 0

32 38 56 63 67 71 78 85 93 102 113 125

**1111222222

14 14 15 16 17 18 19 20 21 23 24 25

14 15 17 17 18 19 19 19 20 20 21 22

* -1 2 1 3 3 4 4 4 4 4 4

18 25 26 26 26 26 26 27 28 28 29 27

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

79 91 118 124 133 139 147 157 167 179 193 205

15 -5 -11 -1 0 0 -5 -1 -6 1 1 1

Total Differences 53 43 63 82 90 96 105 119 101 116 124 130

Receipts in the NIPAs 1,933 2,185 2,343 2,478 2,616 2,771 2,922 3,194 3,413 3,597 3,784 3,978

2,292 2,473 2,595 2,721 2,860 2,997 3,134 3,293 3,390 3,561 3,726 3,905

-12 -13 -14 -16 -18 -21 -23 -26 -28 -31 -34 -37

32 38 38 37 38 39 40 41 43 44 46 47

-45 -47 -50 -53 -55 -55 -56 -57 -58 -59 -59 -61

17 13 11 21 22 12 13 13 14 14 14 15

-13 -13 -14 -14 -15 -16 -16 -17 -18 -19 -20 -21

-3 -6 -7 -7 -7 -7 -7 -7 -7 -8 -8 -8

-3 -17 -12 -8 -12 -12 -10 -8 -8 -5 -1 -1

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

-26 -44 -48 -40 -47 -60 -60 -53 -63 -63 -62 -65

2 -14 6 10 0 0 0 -16 16 0 0 0

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

OASDI and HI for employees

Surpluses of government enterprises

Netting

Medicare premiums

Deposit insurance premiums

Government contributions for 

Other

Subtotal, netting

Other adjustments

Income receipts on assets

Expenditures

employees' retirement

Capital transfers

Lending and financial

Treatment of investment and

depreciation 

Contributions for government

Outlays (Budget)a

Differences

Coverage

adjustments

Geographic adjustments 

Universal Service Fund payments

Other 

Subtotal, coverage

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

Table 1.

Continued

Source: Congressional Budget Office.

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

a. Includes Social Security and the Postal Service.

Actual

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

32 38 56 63 67 71 78 85 93 102 113 125

**1111222222

14 14 15 16 17 18 19 20 21 23 24 25

14 15 17 17 18 19 19 19 20 20 21 22

* -1 2 1 3 3 4 4 4 4 4 4

18 25 26 26 26 26 26 27 28 28 29 27

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

79 91 118 124 133 139 147 157 167 179 193 205

Total Differences 55 33 76 95 85 80 88 88 120 116 131 140

2,348 2,506 2,671 2,815 2,945 3,076 3,221 3,373 3,510 3,677 3,856 4,045

-412 -331 -314 -324 -335 -321 -317 -218 -78 -80 -66 -57

12 13 14 16 18 21 23 26 28 31 34 37

-37 -43 -42 -41 -41 -42 -43 -44 -46 -47 -48 -49

-25 -24 -27 -25 -27 -27 -21 -21 -43 -47 -53 -59

45 47 50 53 55 55 56 57 58 59 59 61

-17 -13 -11 -21 -22 -12 -13 -13 -14 -14 -14 -15

9 9 9 10 10 11 11 12 12 13 14 14

-3 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1

3 17 12 8 12 12 10 8 8 5 1 1 __ __ __ __ __ __ __ __ __ __ __ __

-14 5 5 -1 5 16 22 24 3 -1 -8 -11

-3 9 -6 -10 0 0 0 16 -16 0 0 0

15 -5 -11 -1 0 0 -5 -1 -6 1 1 1

Total Differences -2 10 -13 -12 5 16 17 40 -19 * -7 -10

-414 -322 -327 -337 -330 -305 -299 -178 -97 -80 -73 -67

Netting

Medicare premiums

Deposit insurance premiums

Differences (continued)

Government contributions for 

OASDI and HI for employees

Income receipts on assets

Surpluses of government enterprises

Treatment of investment and

Other

Subtotal, netting

Expenditures in the NIPAs

Net Federal Government Saving

Estate and gift taxes

Capital transfers

Lending and financial 

depreciation

Contributions for government

employees' retirement

Budget Deficit (-)a

Differences

Coverage

adjustments

Other adjustments

Net Federal Government Saving

Subtotal, coverage

Geographic adjustments

Universal Service Fund

Other

Timing adjustments
6 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

plants).11 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. 

Credit Programs

The budget is not affected by all of the transactions related to federal loans and loan guarantees—just by federal 

administrative costs and the estimated cost of subsidies. 

Loan disbursements, loan repayments, and interest are 

reported in what are termed financing accounts, which 

have no effect on revenues or outlays.

As with 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 

unrelated to current production. By contrast, however, 

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). 

Those differences in the treatment of credit programs are 

recorded in two places: under “Expenditures” in Table 1, 

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 NIPAs’ 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) and are not recorded in the federal sector of the accounts. 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.12 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 

11. Another type of capital transfer recognized 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 Medicare-eligible and their dependents. 

Those payments to the trust fund are for accrued but unfunded 

liabilities for benefits attributable to work performed before 2003. 

BEA now excludes those payments from federal expenditures 

because they are not related to current production. Thus, those 

payments have no impact on net federal saving. 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.

12. About half of NIPA 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

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 

under federal government current receipts. 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 classification 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). 

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).13

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. 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. 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 Economic Growth and Tax 

Relief Reconciliation Act of 2001 and the Jobs and 

Growth Tax Relief Reconciliation Act of 2003 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 1.14

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 

13. 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.

14. “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.
8 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

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.15 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.” 

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 delays in payments or quirks in the calendar. 

For example, although SSI payments are usually made on 

the first day of each month, the checks are sometimes 

mailed 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 payments, 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 paid at the beginning and middle of each month, 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 NIPAs’ 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 under “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, 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). As discussed above, those surpluses, as well as interest and some other receipts, were previously recorded on 

the expenditure side of the NIPAs’ federal sector as offsetting (negative) expenditures. 

15. Alterations in the relationship between the budget and NIPA 

receipts are projected to occur, for example, following certain tax 

law changes, such as the increases in tax rates and other changes 

scheduled to take effect in 2011 and assumed in CBO’s receipts 

baseline. 
THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS 9

Table 2.

Projections of Baseline Receipts and Expenditures as Measured by the National 

Income and Product Accounts 

(Billions of dollars)

Table 2. Projections of Baseline Receipts and Expenditures as Measured by the National Income and Product Accounts

Source: Congressional Budget Office.

Note: * = between zero and $500 million.

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

Actual 

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

785 905 992 1,070 1,150 1,235 1,323 1,520 1,664 1,769 1,873 1,983

208 275 266 267 269 285 289 299 309 321 333 346

93 97 103 107 111 114 117 122 126 130 134 136

9 10 10 11 12 13 14 16 18 19 20 21 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

1,094 1,287 1,371 1,455 1,542 1,646 1,743 1,957 2,117 2,239 2,360 2,486

789 845 911 961 1,008 1,056 1,110 1,164 1,220 1,279 1,340 1,404

28 31 33 34 34 36 37 39 41 43 46 48

22 24 27 27 28 29 29 30 31 32 34 35

* -1 2 1 3 3 4 4 4 4 4 4 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

1,933 2,185 2,343 2,478 2,616 2,771 2,922 3,194 3,413 3,597 3,784 3,978

411 441 468 474 484 495 507 519 530 543 556 569

63 67 68 68 69 70 71 72 73 74 74 75

213 225 234 240 246 252 258 264 270 277 284 292

24 25 25 25 26 26 27 27 27 28 28 29 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

711 758 795 808 826 843 862 882 900 921 943 965

1,000 1,063 1,149 1,236 1,295 1,361 1,437 1,522 1,598 1,705 1,819 1,940

333334444455 ____ ____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

1,003 1,066 1,153 1,239 1,298 1,364 1,441 1,526 1,602 1,709 1,823 1,945

347 360 371 387 406 426 450 475 502 532 564 598

25 28 29 28 27 26 26 27 27 28 29 29 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

372 389 401 414 433 453 476 502 530 560 592 627

219 243 272 304 342 370 396 417 432 441 452 461

43 51 50 50 47 46 46 45 46 46 47 47 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

2,348 2,506 2,671 2,815 2,945 3,076 3,221 3,373 3,510 3,677 3,856 4,045

-414 -322 -327 -337 -330 -305 -299 -178 -97 -80 -73 -67

Interest Payments

Subsidies

Net Federal Government Saving

Net Federal Government Saving

Current Expenditures

Current Tax Receipts

Consumption of fixed capital

Subtotal

Government social benefits

Consumption of fixed capital

Nondefense

Consumption

Taxes on production and imports

Consumption

Receipts

Personal current taxes

Taxes on corporate income

Subtotal

Subtotal

To the rest of the world

Other transfer payments 

Grants-in-aid to state and

local governments

Income Receipts on Assets

To the rest of the world

Current Transfer Payments

Consumption Expenditures

Taxes from the rest of the world

Subtotal

Current Surpluses of Government

Enterprises

Defense

Current Receipts

To persons

Expenditures

Contributions for Government

Social Insurancea

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

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 purchases of goods and services (broken out for defense and nondefense purchases); 

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 purchases made by the 

government for its immediate use in production. (The 

largest portion of such consumption is the compensation 

of 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.16 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). Grantsin-aid to foreigners include federal purchases of military 

equipment for delivery to foreign governments. 

The NIPAs’ category for federal interest payments shows 

only payments and thus differs from the budget, which 

contains a 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 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.17 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 not a good indicator of 

federal borrowing requirements because, unlike the budget deficit or surplus, it is not a measure of cash flows.18

16. In its July 2005 data revisions, the Bureau of Economic Analysis 

published a revised estimate of government social benefits to 

individuals for 2004 that was significantly above its previously 

reported estimate, mainly reflecting an upward revision to its 

estimate of Medicare benefits. See Department of Commerce, 

Bureau of Economic Analysis, “Annual Revision of the National 

Income and Product Accounts: Annual Estimates, 2002-2004, 

and Quarterly Estimates, 2001:1-2005:2,” Survey of Current 

Business (August 2005). 

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

equals net federal saving plus depreciation (consumption of fixed 

capital).

18. As an addendum in NIPA 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 (depreciation) because those accounting charges are not a drain on current financial resources. In addition, it includes receipts from the 

sale of assets that are not produced, 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 NIPA Table 3.18, which is similar to Table 1 presented here.