Surpluses and Federal Debt

Publication Date: March 1999

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics

Type:

Abstract:

The federal government had a surplus of $70 billion in fiscal year (FY) 1998 while total federal debt increased by $109 billion. Why did the debt increase even though the government had a surplus? The answer involves understanding what drives changes in the two components of federal debt, debt held by the public (such as that held by individuals, pension funds, banks, and insurance companies, among others) and debt held by government accounts (mostly in federal trust funds, such as Social Security). Debt held by the public declines when the government has a surplus. But when the government accounts that hold federal debt have surpluses, these surpluses increase debt held by government accounts. If the debt held by government accounts increases faster than debt held by the public decreases, total federal debt rises.

For the next decade, the expected overall surpluses will reduce the amount of debt held by the public. Debt held in government accounts will continue increasing since these accounts will continue to run surpluses. Because of this, total federal debt will continue growing through FY2005 and then fall through FY2009 (the end of the projection period), according to the CBO projections.