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 2006

A

PAPER

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 2006).

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

CBO’s Budget Analysis Division wrote this report under the supervision of Robert Dennis 

and Bob Sunshine. Christine Bogusz edited and proofread the report, and Maureen Costantino prepared it for publication. Lenny Skutnik printed copies of the report, and Simone 

Thomas prepared the electronic version for CBO’s Web site (www.cbo.gov).

Donald B. Marron

Acting Director

September 2006

Contents

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

National Flood Insurance Program 7

Timing Differences 7

Business Activities 9

Presentation of the Federal Government’s Receipts and 

Expenditures in the NIPAs 9

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 10

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 the Congressional Budget Office’s Budget and Economic Outlook) 

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 document, 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 3 percent higher than the corresponding budget 

totals for the 2007-2016 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 2016.4

 Consequently, CBO’s NIPA estimates 

through 2016 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 be unlikely to have a major impact 

on the broad outlines of those baseline projections. 

1. The discussion of the national income and product accounts in

this document 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 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.

4. See Congressional Budget Office, The Budget and Economic Outlook: An Update (August 2006). 
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 the estimated subsidy costs and federal administrative expenses 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 document show fiscal year 

numbers.)

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) 

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)—because new purchases of federal capital (investments) do not measure the 

current inputs from the existing stock of capital used to

5. See Table 1.1.5 in the NIPAs.

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

provide government services.7 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.8 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.”9

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.10 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.11 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). 

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. 

Therefore, 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 destruction of business capital by Hurricanes Katrina and 

Rita was recorded in the NIPAs as a large increase in the consumption of fixed capital (CFC) by the business sector. For the 

government sector, however, BEA did not follow that treatment. 

Because CFC is captured in the accounts as “value added” by 

the government, a surge in CFC to reflect the catastrophic loss of 

capital would increase GDP—which is inconsistent with actual 

events. Consequently, the loss of federal capital resulting from 

the hurricanes was not recorded in the NIPAs when it occurred. 

However, BEA will remove the lost capital from the stock of 

government-owned fixed assets, and future estimates of federal 

CFC will be reduced correspondingly.

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

10. 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.

11. 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)

Continued

Actual

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2,154 2,403 2,515 2,672 2,775 2,890 3,156 3,398 3,555 3,733 3,922 4,118

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

-25 -28 -24 -26 -27 -21 -21 -52 -57 -62 -70 -75

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

-7 -8 -8 -8 -9 -9 -9 -9 -9 -9 -9 -10 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

-40 -44 -41 -43 -45 -39 -39 -70 -75 -81 -89 -94

38 45 56 62 66 70 75 80 87 97 108 122

* 1* 111111111

14 15 16 16 17 18 19 20 21 22 22 23

14 14 17 19 19 20 21 21 23 23 23 24

-4 -3 -6 -6 -6 -6 -6 -6 -6 -6 -7 -7

21 27 28 29 29 30 30 31 32 32 30 31 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

83 99 112 122 126 132 139 146 157 168 178 194

-5 -3 3 0 0 7 3 -14 3 * 0 0

-18 23 * -9 -1 * -7 -5 -2 1 2 2 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

Total Differences 20 75 74 69 80 100 97 57 84 89 91 101

Receipts in the NIPAs 2,174 2,478 2,588 2,741 2,855 2,990 3,253 3,455 3,639 3,822 4,013 4,219

2,472 2,663 2,801 2,945 3,079 3,217 3,382 3,451 3,631 3,797 3,979 4,211

-15 -23 -26 -27 -30 -32 -33 -34 -35 -36 -37 -39

36 36 34 34 34 35 36 37 39 41 43 45

-45 -49 -52 -54 -55 -55 -56 -57 -57 -58 -59 -60

12 17 31 26 29 19 18 19 18 19 19 20

-14 -15 -16 -17 -18 -19 -20 -20 -22 -23 -24 -25

-6 -7 -7 -8 -8 -8 -8 -8 -8 -9 -9 -9 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

-32 -42 -36 -46 -47 -60 -63 -64 -65 -66 -67 -68

Expenditures

adjustments

Geographic adjustments 

Universal Service Fund payments

Subtotal, coverage

Contributions for government

employees' retirement

Capital transfers

Lending and financial

Differences

Coverage

Treatment of investment and

depreciation 

Other adjustmentsb

Outlays (Budget)a

OASDI and HI for employees

Income receipts on assets

Surpluses of government enterprises

Other

Universal Service Fund receipts

Subtotal, coverage

Timing shift of corporate estimated

tax payments

Netting

Medicare premiums

Deposit insurance premiums

Government contributions for 

Subtotal, netting

Contributions for government 

employees' retirement

Estate and gift taxes

Geographic adjustments

Revenues (Budget)a

Differences

Coverage

Receipts
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.

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.

b. Include timing differences not shown elsewhere in Table 1, plus discrepancies between figures in the NIPAs and in the budget that may 

diminish when BEA makes subsequent revisions. The figure for 2005 reflects netting adjustments for hurricane relief and recovery.

c. Reflects timing adjustments for hurricane relief and recovery.

d. Include coverage differences not shown elsewhere in Table 1, plus discrepancies in 2006 between figures in the NIPAs and in the budget 

that may diminish when BEA makes subsequent revisions.

Actual

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

38 45 56 62 66 70 75 80 87 97 108 122

* 1* 111111111

14 15 16 16 17 18 19 20 21 22 22 23

14 14 17 19 19 20 21 21 23 23 23 24

-4 -3 -6 -6 -6 -6 -6 -6 -6 -6 -7 -7

21 27 28 29 29 30 30 31 32 32 30 31 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

83 99 112 122 126 132 139 146 157 168 178 194

-15 13 6 0 0 0 -30 30 0 0 0 -43

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

2 -46 * 4 5 8 10 10 12 15 17 20 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Total Differences 37 7 80 80 83 81 57 122 104 117 128 102

2,509 2,670 2,880 3,025 3,163 3,298 3,439 3,573 3,735 3,914 4,107 4,313

-318 -260 -286 -273 -304 -328 -227 -54 -76 -64 -56 -93

15 23 26 27 30 32 33 34 35 36 37 39

-40 -40 -39 -38 -38 -39 -40 -41 -43 -44 -46 -48

-25 -28 -24 -26 -27 -21 -21 -52 -57 -62 -70 -75

45 49 52 54 55 55 56 57 57 58 59 60

-12 -17 -31 -26 -29 -19 -18 -19 -18 -19 -19 -20

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

-1 0 -1 -1 -1 -1 -1 -1 -1 -1 -1 -1 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

-9 -2 -5 3 2 21 24 -6 -10 -15 -22 -25

11 -16 -3 0 0 7 33 -44 3 * 0 43

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

-20 69 -1 -13 -5 -9 -17 -15 -14 -13 -15 -18

___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___

Total Differences -17 68 -6 -10 -3 19 40 -65 -21 -28 -37 -1

-335 -192 -292 -283 -308 -308 -187 -119 -96 -92 -94 -94

Other adjustmentsb

Net Federal Government Saving

Expenditures (Continued)

Net Federal Government Saving

Flood insurance adjustmentc

Timing adjustments

Geographic adjustments

Universal Service Fund

Subtotal, coverage

Estate and gift taxes

Capital transfers

Lending and financial 

adjustments

Treatment of investment and

depreciation

Contributions for government

employees' retirement

Budget Deficit (-) or Surplusa

Differences

Coverage

Surpluses of government enterprises

Other

Subtotal, netting

Expenditures in the NIPAs

Flood insurance adjustmentc

Other adjustmentsd

Timing adjustments

Deposit insurance premiums

Government contributions for 

OASDI and HI for employees

Income receipts on assets

Netting

Medicare premiums

Differences (Continued)
6 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

plants).12 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

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). 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). 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.13 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 

12. 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 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, and 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.

13. 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

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 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). 

National Flood Insurance Program

In the federal budget, payments to beneficiaries covered 

by the National Flood Insurance Program (NFIP) 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 captured under netting for both 

receipts and expenditures, and it is usually relatively 

small. 

The flood-related damages caused by Hurricanes Katrina 

and Rita were catastrophic rather than normal, however, 

so BEA is treating the NFIP’s insurance losses differently, 

in two important ways.14 First, an estimate of the increased liabilities of the NFIP is recorded for the fiscal 

year in which the destruction occurred—that is, on an accrual basis—not for the fiscal years in which the benefit 

payments will be made. Second, the increased liabilities 

do not show up in the NIPAs as a reduction in the surpluses of government enterprises, but as offsets to current 

transfer receipts from businesses (such as certain fees paid 

to the government)—because private insurance companies make the payments to policyholders, and the federal 

government reimburses the private companies. 

In the federal budget, however, there is no difference in 

the treatment of normal losses and catastrophic losses: the 

costs are recorded when payments are actually made. Because the bulk of the payments for the recent hurricanes 

will be made in fiscal year 2006, the federal budget will 

record most of the outlays in that year. In Table 1, the 

netting and timing differences for those payments are 

part of “Other adjustments” under “Receipts” and are 

shown as the adjustment for flood insurance under “Expenditures.”

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).15

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 retro14. The treatment parallels that in the business sector of the NIPAs,

which distinguishes between catastrophic and normal insurance

losses, because insurance premiums are generally set to cover

normal losses, while catastrophic losses are covered by reserve

funds or reinsurance. See Brent R. Moulton and Eugene P.

Seskin, “Preview of the 2003 Comprehensive Revision of the

National Income and Product Accounts: Changes in Definitions

and Classifications,” Survey of Current Business (Department 

of Commerce, Bureau of Economic Analysis, June 2003), pp. 17-

34; and Baoline Chen and Dennis J. Fixler, “Measuring the Services of Property-Casualty Insurance in the NIPAs,” Survey of 

Current Business (Department of Commerce, Bureau of Economic 

Analysis, October 2003), pp. 10-26.

15. 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.
8 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

actively 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 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 1.16

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.17

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, 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 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 

16. “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.

17. 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 increases in tax rates and other changes scheduled 

to take effect in 2011 and assumed in CBO’s baseline for revenues. 
THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS 9

(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).

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. 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 long dominated that category.
10 THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS

Table 2.

Projections of 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

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

893 1,035 1,121 1,213 1,286 1,362 1,555 1,695 1,803 1,908 2,017 2,135

304 378 363 358 342 341 346 345 353 362 373 386

100 102 90 100 104 107 112 117 121 125 127 131

11 11 11 12 13 14 16 18 19 20 21 22 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

1,308 1,525 1,585 1,682 1,745 1,823 2,029 2,175 2,296 2,415 2,538 2,674

841 900 944 995 1,046 1,099 1,153 1,208 1,266 1,328 1,392 1,459

7 33 36 37 38 40 42 44 46 49 52 54

23 23 28 32 32 33 34 34 37 37 38 39

-4 -3 -6 -6 -6 -6 -6 -6 -6 -6 -7 -7

2,174 2,478 2,588 2,741 2,855 2,990 3,253 3,455 3,639 3,822 4,013 4,219

442 465 502 519 533 545 557 570 583 596 610 624

67 70 71 72 73 75 77 80 84 87 90 93

224 236 249 259 269 276 283 289 297 305 313 322

25 25 26 26 27 27 28 28 29 30 30 31 ____ ____ ____ ____ ____ ____ ____ ____ ____ _____ _____ _____

758 796 848 876 901 924 945 968 992 1,017 1,043 1,070

1,063 1,146 1,249 1,322 1,396 1,474 1,555 1,631 1,734 1,850 1,976 2,112

333444445556 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

1,066 1,149 1,252 1,325 1,400 1,478 1,559 1,635 1,739 1,855 1,981 2,118

360 361 387 405 428 449 470 493 518 545 575 606

30 28 26 25 26 26 26 27 27 28 28 29 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

390 390 413 430 454 475 496 519 545 573 603 635

241 279 314 340 357 373 392 404 411 421 431 441

53 56 52 52 50 48 47 47 48 48 49 49 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

2,509 2,670 2,880 3,025 3,163 3,298 3,439 3,573 3,735 3,914 4,107 4,313

-335 -192 -292 -283 -308 -308 -187 -119 -96 -92 -94 -94

Net Federal Government Saving

Net Federal Government Saving

Subtotal

Interest Paymentsb

Subsidies

Expenditures

Total Current

Other transfer payments 

Grants-in-aid to state and

local governmentsb

To the rest of the world

Government social benefits

To persons

To the rest of the world

Subtotal

Consumption

Consumption of fixed capital

Subtotal

Current Transfer Payments

Defense

Consumption

Consumption of fixed capital

Nondefenseb

Enterprises

Total Current Receipts

Expenditures

Consumption Expenditures

Social Insurancea

Current Transfer Receipts

Income Receipts on Assets

Current Surpluses of Government

Taxes on production and imports

Taxes from the rest of the world

Contributions for Government

Subtotal

Receipts

Current Tax Receipts

Taxes on personal income

Taxes on corporate income
THE TREATMENT OF FEDERAL RECEIPTS AND EXPENDITURES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS 11

Net federal government saving in the NIPAs is the difference between the current receipts and the current expenditures of the federal sector.18 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.19

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

equals net federal saving plus depreciation (consumption of fixed 

capital).

19. 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.


INSIDE MAIL

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

WASHINGTON, DC 20515