Budget Issues: Treasury's Interest Rate Calculation Changes Page: 4 of 8
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Treasury officials said that the change when made in 1998 required about 40 staff
hours. Treasury informed the Congress and trust funds' trustees of the 1998 change.
In January 1999, the Treasury Assistant General Counsel for Banking and Finance
was asked for a legal opinion on whether the Secretary of the Treasury has the
authority to change the method of computing interest rates on intragovernmental
borrowings linked to the "average market yield." Because "average market yield" is
not defined by law, the Assistant General Counsel found that the Secretary of the
Treasury has discretion to compute interest rates on either a yield-to-maturity or a
yield-to-call basis. The Assistant General Counsel also found that if the Secretary of
the Treasury decided to change Treasury's policy to compute interest rates on a yield-
to-call basis, the Secretary of the Treasury has no obligation to apply the new policy
We agree with the conclusions of the Assistant General Counsel that the "average
market yield" language of the statute provides the Secretary with discretion in
computing interest rates, that computing interest rates on a yield-to-call basis is
permissible, and that the Secretary may apply such a change prospectively
Effects of Treasury's 1980 Changes on Social Security and Medicare
According to Treasury, its 1980 change increased the rates for the trust funds of
Social Security and Medicare in 1988, 1992, 1996, 1997 and 1998 by one-eighth of one
percentage point over what it would have been had the yield-to-call method been
used." Treasury estimated the revenue difference (i.e., the increased revenue credited
to the trust funds as a result of using yield-to-maturity for callable bonds traded above
par) was $1.4 billion for Social Security and $0.4 billion for Medicare. (See figure 1.)
'The two Social Security trust funds are Old-Age and Survivors Insurance and Disability
Insurance or OASDI; the two Medicare trust funds are Hospital Insurance (Part A) and
Supplementary Medical Insurance (Part B).
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.. (digital.library.unt.edu/ark:/67531/metadc295572/m1/4/: accessed April 22, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.