Budget Issues: Treasury's Interest Rate Calculation Changes Page: 1 of 8
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United States
G A O General Accounting Office
Washington, D.C. 20548
Accounting and Information
Management Division
B-282159
May 28, 1999
The Honorable Bill Archer
Chairman
Committee on Ways and Means
House of Representatives
Subject: Budget Issues: Treasury's Interest Rate Calculation Changes
Dear Mr. Chairman:
The Secretary of the Treasury informed the Congress in a letter dated December 18,
1998, about Treasury's decision to change the calculation of the interest rates used
since 1980 to determine the investment returns for a number of government trust
funds, including Social Security and Medicare. You asked us to determine (1) how
and why Treasury changed its rules for calculating interest rates in 1980 and 1998, (2)
the effects of these changes on the unified budget and on the financial status of Social
Security and Medicare trust funds, and (3) what other trust funds were affected by
Treasury's decision. This report presents information, which was provided in a
briefing to your office in April 1999. Also, as part of the audit of the Bureau of the
Public Debt's fiscal year 1999 Schedule of Federal Debt, we will review whether
Treasury's methods for calculating interest rates on certain trust funds are being
applied correctly.
Background
Treasury sets the interest rate earned on trust fund balances for Social Security and
Medicare using a statutory formula. The interest rate is to be equal, at the time of
issue, to the average market yield on outstanding marketable government securities
not due or redeemable for at least 4 years. Although the formula is set by statute, the
law does not define the specific method to calculate the yield to be used, except that
it must be based on market quotations.
The Federal Reserve Bank of New York provides the market quotations that Treasury
uses to calculate market yields. The prevalent market practice for calculating yields
takes into account whether Treasury securities are callable or noncallable-meaning
whether or not Treasury may redeem the securities prior to their stated maturity date.GAO/AIMD-99-194R Treasury's Interest Rate Calculation Changes
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United States. General Accounting Office. Budget Issues: Treasury's Interest Rate Calculation Changes, text, May 28, 1999; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc295572/m1/1/: accessed March 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.