Introduction to Finance

LEARNING ACTIVITY
Go to the U.S. Treasury’s website, http://www.treasury.gov, and identify the mission and 
goals of the U.S. Department of the Treasury. Write a brief summary.
tax policy 
setting the level and 
structure of taxes to aff ect the 
economy

---

5.5 Treasury Deficit Financing and Debt Management Responsibilities
113
5.5
Treasury Deficit Financing and Debt 
Management Responsibilities
The U.S. government collects taxes (receipts) and makes expenditures (outlays) for national 
defense, social programs, and so forth. When receipts total more than outlays over a time 
period, such as a year, a budget surplus occurs. A budget defi cit exists when outlays are greater 
than receipts. 
Defi cit fi nancing
 
involves the U.S Treasury borrowing funds by selling govern-
ment (Treasury) securities to cover revenue shortfalls relative to expenditures. Large budget 
defi cits can result in government competition for private investment funds. 
Crowding out
 
occurs when there is a lack of funds for private borrowing due to the sale of Treasury secur-
ities to cover large budget defi cits. When defi cit fi nancing is so large that the private sector 
cannot or will not absorb the Treasury obligations off ered, the Fed may purchase a signifi cant 
portion of the issues.
Annual government expenditures have exceeded annual tax receipts each fi scal year 
(October 1 through September 30) since the end of the 1960s, with the exception of the four-
year period 1998–2001. For fi scal year 2001, receipts totaled $1,991,082 million and outlays 
were $1,862,846 million resulting in a surplus of $128,236 million, or $128.2 billion. In the 
eff ort to recover from the fi nancial crisis and the Great Recession, the fi scal 2009 budget 
defi cit peaked at more than $1.4 trillion, and annual defi cits remained above the $1.0 trillion 
level in fi scal years 2010, 2011, and 2012. Defi cits declined to under $700 billion in fi scal 
2013 and to less than $500 billion in fi scal year 2014. For fi scal year 2015, receipts totaled 
$3,249,886 million compared to outlays of $3,688,292 million for a defi cit of $438,406 million, 
or $438.4 billion.
4 
Specifi c sources of federal government receipts and specifi c types of outlays 
will be discussed in Chapter 7.
The U.S.