What is the difference between the two types of federal debt?

Debt held by the public essentially represents the amount the federal government has borrowed to finance cumulative cash deficits. Debt held by the public represents a claim on today’s taxpayers and absorbs resources from today’s economy. In addition, the interest paid on this debt may reduce budget flexibility because, unlike most of the budget, it cannot be controlled directly.

Debt held by government accounts represents the cumulative surpluses, including interest earnings, of these accounts that have been invested in Treasury securities. The special Treasury securities held in these government accounts represent legal obligations of the Treasury and are guaranteed for principal and interest by the full faith and credit of the U.S. government. This debt reflects a claim on future taxpayers and the economy. Whenever a government account needs to spend more than it takes in from the public, the Treasury must provide cash to redeem debt held by the government account. The government must obtain this cash by increasing taxes, cutting spending, borrowing more from the public, retiring less debt (if the budget is in surplus), or some combination thereof.

Debt held by the trust funds, such as Social Security and Medicare, is not equal to the future benefit costs implied by the current design of the programs and, therefore, does not fully capture the government's total future commitment to these programs. For additional information about trust funds, see GAO, Federal Trust and Other Earmarked Funds: Answers to Frequently Asked Questions.

Of the two types of federal debt, only debt held by the public is reported as a liabilityA probable future outflow or other sacrifice of resources as a result of past transactions or events. Generally, liabilities are thought of as amounts owed for items or services received, assets acquired, construction performed (regardless of whether invoices have been received), and amount received but not yet earned. on the consolidated financial statements of the United States governmentThe consolidated financial statements present consolidated and summarized financial information from the departments and other entities in the executive branch of the federal government. The federal government has also elected to present certain financial information from the legislative and judicial branches in the statements. These statements are part of the Financial Report of the United States Government, referred to as the Financial Report (FR). The goal of the FR is to make available to every American a comprehensive overview of the federal government's finances.. Debt held by government accounts is an asset to those accounts but a liability to the Treasury; they offset each other in the consolidated financial statements.

What is debt held by the public?

Debt held by the public is the value of all federal securities sold to the public, i.e., investors outside of the federal government. When the government's spending exceeds its revenue, it must borrow to finance the difference. Thus, debt held by the public essentially represents the amount the federal government has borrowed to finance cumulative cash deficits. This debt is owed to a wide variety of investors, including international investors, domestic private investors, the Federal Reserve, and state and local governments.

Estimated Ownership of Debt Held by the Public ($11.3 Trillion at End of Fiscal Year 2012)

Source: GAO analysis of data from the Federal Reserve, Financial Accounts of the United States.

Estimated Ownership of Federal Debt Held by the Public data:txt pdf

What is debt held by government accounts?

Debt held by government accounts represents balances in the federal government's accounts—primarily trust funds—that accumulate surpluses. Trust fundsFederal budget accounts that are so designated by law. These accounts usually have a designated, or "earmarked," source of revenue. These revenues are authorized to be spent for the programs and activities supported by the trust funds. Examples are the Social Security and Medicare trust funds. are accounting mechanisms used to link dedicated collections with the expenditures of those receipts. Trust funds for Social Security, Medicare, Military Retirement and Health Care, and Civil Service Retirement and Disability account for the vast majority of the total debt held by government accounts.

Distribution of Federal Debt Held by Government Accounts ($4.8 Trillion at End of Fiscal Year 2012)

Source: GAO analysis of Department of the Treasury data.

Notes: See Financial Audit: Bureau of the Public Debt's Fiscal Years 2012 and 2011 Schedules of Federal Debt.

Distribution of Federal Debt Held by Government Accounts data: txt pdf