Where We Are Now
The government’s financial position and condition have traditionally been expressed through the Budget of the U.S. Government (Budget), focusing on surpluses, deficits, and debt. However, this primarily cash-based discussion of the government’s net outlays (deficit) or net receipts (surplus) tells only part of the story. The government’s accrual-based net position, (the difference between its assets and liabilities), and its “bottom line” net operating cost (the difference between its revenues and costs) are also key financial indicators. Refer to the financial statements, disclosures, and other information in this Financial Report, as well as in the individual entities’ Agency Financial Reports (AFRs) for more information.
The government’s net costs, assets, liabilities, and budget deficit were restated to correct errors as part of Department of Defense1 (DOD) and Security Assistance Accounts (SAA) efforts to improve financial reporting. See the Management’s Discussion and Analysis (MD&A) section and Note 1.V - Corrections of Errors for more information.
Comparing the Budget and the Financial Report
The Budget and the Financial Report present complementary perspectives on the government’s financial position and condition.
- The Budget is the government’s primary financial planning and control tool. It accounts for past government receipts and spending and includes the President’s proposed receipts and spending plan. Receipts are cash received by the U.S. government and spending is measured as outlays, or payments made by the federal government to the public or entities outside the government. When total receipts exceed outlays, there is a budget surplus; conversely, if total outlays exceed total receipts, there is a budget deficit.
- The Financial Report includes the government’s costs and revenues, assets and liabilities, and other important financial information. It compares the government’s revenues (amounts earned, but not necessarily collected), with costs (amounts incurred, but not necessarily paid) to derive net operating cost.
Chart 1 compares the government’s budget deficit (receipts vs. outlays) and net operating cost (revenues vs. costs) for FYs 2021 - 2025. During FY 2025:
- A $316.5 billion increase in receipts, more than offset a $275.1 billion increase in outlays resulting in a $41.4 billion (2.3 percent) decrease in the budget deficit from $1,816.8 billion to $1,775.4 billion.
- Net operating cost decreased $292.0 billion or 12.2 percent from $2.4 trillion to $2.1 trillion, due mostly to a $25.3 billion or 0.3 percent decrease in net cost combined with a $266.7 billion or 5.4 percent increase in tax and other unearned revenues.
The $317.8 billion difference between the budget deficit and net operating cost for FY 2025 is primarily due to accrued costs (incurred but not necessarily paid) that are included in net operating cost, but not the budget deficit. These are primarily actuarial costs related to federal employee and veteran benefits programs, particularly at Department of Veterans Affairs (VA), DOD, and Office of Personnel Management (OPM). Other sources of differences include but are not limited to: 1) increases in PP&E, including acquisitions, depreciation, and revaluation and disposals; 2) decreases in advances and prepayments made by the federal government; 3) the accrual of non-cash earned revenue related to investments in Government-Sponsored Enterprises (GSEs); and 4) a timing difference when credit program costs are recorded in the budget versus net operating cost.
Costs and Revenues
The government’s “bottom line” net operating cost decreased $292.0 billion (12.2 percent) during FY 2025 to $2.1 trillion. It is calculated as follows:
Starting with total gross costs of $8.1 trillion, the government subtracts earned program revenues (e.g., Medicare premiums, national park entry fees, and postal service fees) and adjusts for gains or losses from changes in actuarial assumptions used to estimate future federal employee and veteran benefits payments to derive its net cost before taxes and other unearned revenues of $7.3 trillion (see Chart 2), a decrease of $25.3 billion (0.3 percent) from FY 2024. This net decrease is the combined effect of many offsetting increases and decreases across the government. For example:
- Education net costs decreased $269.3 billion due largely to significant changes in loan program subsidy cost estimates.
- Entities administering federal employee and veteran benefits programs, including the VA, DOD, and OPM employ a complex series of assumptions to make actuarial projections of their long-term benefits liabilities. These assumptions include but are not limited to interest rates, beneficiary eligibility, life expectancy, and medical cost levels. Changes in these assumptions can result in either losses (net cost increases) or gains (net cost decreases). Across the government, these net losses from changes in assumptions amounted to $18.6 billion in FY 2025, a loss decrease (and a corresponding net cost decrease) of $265.0 billion compared to FY 2024. For example:
- A $275.1 billion net cost decrease at OPM was attributed primarily to a $180.4 billion gain from assumptions changes in FY 2025 as compared to an $83.8 billion loss in FY 2024 for both OPM’s retirement and health programs. Gains were attributed to updated mortality assumptions, among other factors.
- A $50.2 billion net cost increase at VA included a $6.5 billion increase in VA’s gain from changes in assumptions from $37.7 billion in FY 2024 to $44.2 billion in FY 2025. VA net costs increased overall due in large part to an increase of more than four million veterans’ compensation payments as well as expansion of medical services pursuant to implementation of the Sergeant First Class Heath Robinson Honoring Our Promise to Address Comprehensive Toxins (PACT) Act.
- A DOD net cost increase of $18.9 billion includes the effect of a $5.2 billion loss increase from changes in assumptions. However, most of DOD’s net costs included those related to military operations, readiness and support, procurement, personnel, and Research and Development (R&D).
- A $148.1 billion net cost increase at HHS mostly due to increases in: 1) Medicare benefit expenses (including Supplementary Medical Insurance (SMI) and Hospital Insurance (HI)) due to increases in the number of beneficiaries, the rate of benefits paid, and in prescription drug spending; and 2) Medicaid benefit expenses where enrollees slightly decreased, but costs increased.
- Social Security Administration (SSA) net costs increased $125.2 billion due largely to a 2.1 million person increase in the number of Old-Age and Survivors Insurance (OASI) beneficiaries, combined with a 2.5 percent Cost of Living Adjustment (COLA) provided to beneficiaries in 2025.
- A $74.5 billion increase in Treasury net costs was largely due to an increase in the liquidation of advances associated with Treasury’s pandemic relief programs. Treasury issued advance payments to cover anticipated qualified incurred costs; these advances are subsequently recognized as expenses as the recipients incur the qualified costs.
- Interest costs related to federal debt securities held by the public increased $78.0 billion due largely to an increase in the outstanding debt held by the public.
The government deducts tax and other revenues from net cost (with some adjustments) to derive its FY 2025 “bottom line” net operating cost of $2.1 trillion.
- From Chart 3, total government tax and other unearned revenues increased by $266.7 billion (5.4 percent) to about $5.2 trillion for FY 2025 due primarily to an increase in individual income tax collections partially offset by a decrease in corporate tax collections.
- Together, individual income tax and tax withholdings, and corporate income taxes accounted for about 91.4 percent of total tax and other unearned revenues in FY 2025. Other unearned revenues include Federal Reserve earnings, excise taxes, and customs duties. Notably, the increase in revenues includes the effect of a $133.9 billion (275.3 percent) increase in custom duties to $210.3 billion pursuant to multiple tariffs implemented during FY 2025.
Assets and Liabilities
Chart 4 summarizes the assets and liabilities that the government reports on its Balance Sheet. As of September 30, 2025:
- 84.1 percent of the federal government’s total assets ($6.1 trillion) consist of: 1) $1.2 trillion in cash and monetary assets; 2) $504.2 billion in inventory and related property; 3) $2.0 trillion in loans receivable, net (primarily student loans); and 4) $1.4 trillion in net PP&E.
- Cash and monetary assets ($1.2 trillion) is comprised largely of the operating cash of the U.S. government. Operating cash held by Treasury increased $1.1 billion (0.1 percent) to $871.9 billion during FY 2025.
- Inventory and related property ($504.2 billion) includes: 1) inventory, which is tangible personal property that is either held for sale, in the process of production for sale, or to be consumed in the production of goods for sale or in the provision of services for a fee; 2) operating materials and supplies (OM&S), or tangible personal property to be consumed in normal operations (e.g., spare and repair parts, ammunition, and tactical missiles); and 3) stockpiles, or strategic and critical materials held due to statutory requirements for use in national defense, conservation, or local/national emergencies.
- Loans receivable, net ($2.0 trillion) is comprised of loans provided by multiple agencies, including Education and Small Business Administration (SBA), to promote the nation’s welfare by making financing available to segments of the population not served adequately by non-federal institutions or otherwise providing for certain activities or investments. Loans Receivable also includes Treasury’s $96.4 billion in notes issued by trusts created by Federal Deposit Insurance Corporation (FDIC) in its receivership capacity and backed by a guarantee from the FDIC in its corporate capacity.
- Federal government PP&E includes many of the physical resources that are vital to the federal government’s ongoing operations, including buildings, structures, facilities, equipment, internal use software, and general-purpose land. DOD comprises approximately 70.2 percent of the government’s reported PP&E of $1.4 trillion as of September 30, 2025.
- Other significant government resources not reported on the Balance Sheet include the government’s power to tax and set monetary policy, natural resources, and stewardship assets. Stewardship assets, including heritage assets and stewardship land, benefit the nation (e.g., national monuments, national parks) and are intended to be held indefinitely.
- Total liabilities ($47.8 trillion) consist mostly of: 1) $30.3 trillion in federal debt and interest payable; and 2) $15.5 trillion in federal employee and veteran benefits payable.
- Federal debt held by the public is debt held outside of the government by individuals, corporations, state and local governments, the Federal Reserve System (FR System), foreign governments, and other non-federal entities.
- The government borrows from the public (increases federal debt levels) to finance deficits. During FY 2025, federal debt held by the public increased $2.0 trillion (7.0 percent) to $30.3 trillion.
- The government also reports about $7.3 trillion of intra-governmental debt outstanding, which arises when one part of the government borrows from another. For example, government funds (e.g., Social Security and Medicare Trust Funds) typically must invest excess receipts, including interest earnings, in Treasury-issued federal debt securities. Although not reflected in Chart 4, these securities are included in the calculation of federal debt subject to the debt limit.
- Federal debt held by the public plus intra-governmental debt equals gross federal debt, which with some adjustments, is subject to a statutory debt ceiling ("debt limit"). On June 3, 2023, Public Law (P.L.) 118-5 was enacted suspending the debt limit through January 1, 2025. On January 21, 2025, a delay in raising the debt limit commenced at which time Treasury undertook extraordinary measures to avoid exceeding the statutory debt limit. On July 4, 2025, Congress and the President enacted P.L. 119-21, commonly referred to as the One Big Beautiful Bill Act (OBBBA). Prominent components of P.L. 119-21 are Working Family Tax Cuts (WFTC), which provide federal income tax deductions for certain income from Social Security benefits, overtime, and tips (P.L. 119-21). P.L. 119-21 raised the debt limit from $36,104.0 billion to $41,104.0 billion. On July 7, 2025, Treasury discontinued the use of extraordinary measures and resumed normal debt management operations. At the end of FY 2025, debt subject to the statutory limit was $37.5 trillion. Increasing or suspending the debt limit does not increase spending or authorize new spending; rather, it permits the government to continue to honor pre-existing commitments (see Note 12—Federal Debt and Interest Payable).
- Federal employee and veteran benefits payable ($15.5 trillion) represents the amounts of benefits payable by agencies that administer the government’s pension and other benefit plans for its military and civilian employees.
The federal workforce experienced significant change during 2025, including from Reductions in Force (RIF) and implementation of the “Deferred Resignation Program” (DRP). The DRP allowed eligible employees to resign voluntarily while receiving paid administrative leave (salary and benefits) from employees’ DRP effective date through fiscal or calendar-year end 2025. According to OPM’s website, during calendar-year 2025, “the government hired roughly 68,000 people this year, while approximately 317,000 employees left the government.” 2
See Note 29—Subsequent Events for information about events that occurred after the end of the fiscal year that may affect the government’s financial position and condition.
Key Economic Trends
An analysis of U.S. economic performance provides useful background when evaluating the government’s financial statements. U.S. economic performance and other economic and financial developments are discussed in the Management’s Discussion and Analysis section of the Financial Report.
Footnotes
1 As referenced in the FY 2025 DOD AFR, this report refers to the Department of Defense (DOD) in accordance with statutory requirements. While mindful of Executive Order 14347 and ongoing legal determinations regarding the Department’s name, this report utilizes the designation “Department of Defense” because the DOD AFR and this Financial Report are statutorily mandated reports, all relevant legislation designates the Department as the “Department of Defense,” and the funding for programs discussed in the DOD AFR was issued to DOD. (Back to Content)
2 https://www.opm.gov/news/secrets-of-opm/everyone-has-a-plan-until-you-step-into-the-ring/ (Back to Content)