The US federal government is the largest single enterprise on the planet. It employs about 2.8 million people, has the largest armed forces on earth, owns 500 million acres of land, 7 billion barrels of oil and 53 billion Mcf of gas reserves, spends over $4.5 trillion annually and has more debt outstanding than any other entity by a wide margin. It governs, together with 50 states, the largest economy in the world with over $19 trillion of GDP in 2017.
The key functions of the President and Congress are taxing and spending. Each year, the President and his staff prepare a budget for the next fiscal year which outlines spending plans, forecasts expenditures, proposes changes in taxes and forecasts revenue collections. This budget is then delivered to both houses of congress. Within each house, the Democrats and Republicans and various caucuses all prepare their own versions of the budget and try, usually with success, to agree a budget. Members of the House and Senate then meet to work out the differences and a final “unified” budget is agreed.
This agreed budget is not the law. It is more like a fiscal plan used to shape the agenda for the year. All actual expenditures need to be appropriations approved by congress and all actual taxes need to be collected under the tax codes of the government, also approved by congress. As a result, actual expenditures and actual revenues differ from the budget.
Vermont, together with all the other states, prepare independent audits each year. The federal government does not. Instead, the Government Accountability Office (GAO) does a Financial Report of the United States Government. The key underlying departments of the government, like Health and Human Service, do have independent audits, but independent parties do not audit the consolidated financial report for the government as a whole.
The GAO does prepare a very detailed report that uses Generally Accepted Accounting Principals for governments prepared by the Accounting Standards Board. This report reflects actual expenditures, revenues, assets and liabilities on an accrual basis, just like any corporate financial report would do.
The budget of the federal government measures cash outflows and cash inflows for a given fiscal year. The GAO’s Financial Report of the United States measures revenues, expenses, assets and liabilities on an accrual basis. One major difference between the budget and the Financial Report is the timing of revenue and expense recognition. In the budget, when cash is paid or received, it is recognized. In the Financial Report, expenses are recognized when incurred, whether or not the bill has been paid, and revenues are recognized when earned, whether or not the cash has yet been received. A second major difference is the treatment of capital expenditures (new buildings, roads, equipment etc.). In the budget, this are treated as an expense when paid for. In the Financial Report, they are reflected in the balance sheet as an increase in assets.
In the fiscal year ended September 30, 2017, the federal government had a Unified Budget Deficit of $665.7 billion. In the Financial Report, the difference between total revenues and total expenses was a net operating loss of $1.156 trillion.
The difference is largely the result of accrued and unpaid expenses, mostly pension liability revaluations from changes in assumptions, that are included in the Financial Report but excluded from the Budget.
The tables below will show the GAO’s audited expenditures and revenues for fiscal years 2015, 2016 and 2017. In addition, a reconciliation of the GAO Financial Report to the Unified Budget for each year will be provided.
Total Federal Expenditures Fiscal Years 2015- 2017 ($ billions)
|Department||2017||2016||2015||2-Year Change (%)|
|Health and Human Services||1186.8||1,170.0||1,130.9||4.9%|
|Social Security Administration||999.1||982.1||945.0||5.7%|
|Interest on Public Debt||296.3||273.0||250.8||18.1%|
|Housing and Urban Development||70.9||31.2||32.7||116.8%|
|Defense Security Cooperation Agency||36.7||36.0||38.8||(5.4%)|
|(Gain) Loss from Changes in Assumptions||356.5||273.3||(19.3)|
|Total Audited Expenses||4,965.8||4,781.0||4,228.9||17.4%|
Source: Financial Report of the United States, Fiscal Years 2017 and 2016
Total Federal Revenues Fiscal Year 2015-2017 ($ billions)
|Department||2017||2016||2015||2-Year Change (%)|
|Individual Income/Payroll Tax||2,687.9||2,603.2||2,545.2||5.6%|
|Corporate Income Tax||299.1||294.3||339.8||(12.0%)|
|Estate and Gift Taxes||22.8||21.0||19.1||19.4%|
|Other taxes and Receipts||172.1||228.0||202.9||(15.2%)|
|Unmatched Transactions Adj.||2.6||11.7||5.1|
Source: Financial Report of the United States Fiscal Years 2016 and 2017
So, in fiscal year 2017, the federal government’s expenses exceeded its revenues by $1.156 trillion (the “Net Operating Loss”). As noted above, the Financial Report includes many accruals that are not yet paid or received in cash. The Unified Budget Deficit, $665.7 billion in 2017, provides a better estimate of federal deficit on a cash basis. A reconciliation of the government’s annual Net Operating Loss reported in the GAO Financial Report to the Unified Budget Deficit is provided below.
Reconciliation of Financial Report to Budget 2015-2017
|Net Operating Loss||(1,156.7)||(1,047.4)||(514.2)||Excess of Accrued Expenses Over Accrued Revenues From Financial Report|
|Change in Federal Employee and Veterans Benefits Payable||490.7||437.0||99.8||Reflects Increase in Estimate of Future Retiree Benefit Costs|
|Capital Expenditures, Net||(55.0)||(54.2)||(47.0)||Annual CAPEX Net of Asset Sales and Depreciation|
|Environmental and Disposal Liabilities||17.9||35.0||42.5||Reflects Increase in Estimate of Future Environmental Remediation Costs|
|Year-End Upward (Downward) Credit Reform Subsidy Re-estimates||15.5||22.2||(22.0)||Reflects Increase (Decrease) in Future Cost of Various Loan Subsidy Programs|
|Unified Budget Deficit||(665.7)||(587.4)||(438.9)||The Excess of Cash Expenditures Over Cash Receipts|
 The Financial Report of the United Sates Fiscal Year 2016, GAO