The words debt and deficit come up frequently in discussions about the policy decisions that lawmakers face and are often confused for one another. So what exactly are the differences between the deficit and the debt? Show What Is the Federal Budget Deficit?The deficit is the annual difference between government spending and government revenue. Every year, the government takes in revenues in the form of taxes and other income, and spends money on various programs, such as national defense, Social Security, and healthcare. If the government spends more than it takes in, then it runs a deficit. If the government takes in more than it spends, it runs a surplus. TWEET THIS The U.S. government has run a deficit since 1970 in all but four years (1998 – 2001), and is projected to run trillion-dollar deficits over the next 10 years. What Is the Federal Debt?The debt is the total amount of money the U.S. government owes. It represents the accumulation of past deficits, minus surpluses. Debt is like the balance on your credit card statement, which shows the total amount you have accrued over time. At the end of fiscal year 2022, the Congressional Budget Office estimates that debt held by the public will equal $24.2 trillion, or 98 percent of GDP. TWEET THIS Historically, periods with spikes in deficits and corresponding increases in the national debt have been periods associated with war or a severe economic downturn. Today, deficits have become the norm and are no longer caused by periodic spikes in wartime or recession-related spending, but rather by a long-term, structural mismatch between spending and revenues. Looking ForwardBy addressing that mismatch, policymakers can put our nation on a better path for economic growth, opportunity, and prosperity. A strong fiscal foundation creates positive conditions for growth, including increased access to capital, more resources for public and private investments in our future, improved consumer and business confidence, and a stronger safety net. No single approach will be perfect in everyone’s eyes, but leaders can draw upon the many good ideas that have been put forward from across the ideological spectrum in order to help ensure a brighter economic future for the next generation. Related: Top 10 Reasons Why The National Debt Matters IntroductionDefinitions and BasicsGovernment Debt and Deficits, from the Concise Encyclopedia of Economics
Federal Debt, from the Concise Encyclopedia of Economics
Federal Deficit, from the Concise Encyclopedia of Economics
There are two separate official agencies devoted to making estimates of the Federal budget and its effects: the Office of Management and Budget (OMB) on behalf of the President, and the Congressional Budget Office (CBO) on behalf of Congress.
What is a Budget Deficit?, by Shawn Grimsley. Study.com
In the News and ExamplesHennessey on the Debt Ceiling and the Budget Process. EconTalk podcast, July 25, 2011.
How Big is the U.S. Debt? YouTube video, LearnLiberty.org.
Boudreaux on Public Debt. EconTalk podcast, March 26, 2012.
Can We Balance the Budget By Raising Taxes? YouTube video, LearnLiberty.org.
Do government budget deficits matter? Government Debt and Deficits, from the Concise Encyclopedia of Economics
Measuring the government budget deficit: Federal Deficit, from the Concise Encyclopedia of Economics
A Little History: Primary Sources and ReferencesDoes It Matter How You Pay for a State Dinner? A Lesson on Ricardian Equivalence, by Morgan Rose. Teacher’s Corner at Econlib
Taxes Paid by the Producer, by David Ricardo. Chapter 29 in On the Principles of Political Economy and Taxation.
Advanced ResourcesRelated TopicsEconomic Institutions How does budget surplus affect national debt?A surplus implies the government has extra funds. These funds can be allocated toward public debt, which reduces interest rates and helps the economy. A budget surplus can be used to reduce taxes, start new programs or fund existing programs such as Social Security or Medicare.
What happens when there is a budget deficit?A budget deficit can lead to higher levels of borrowing, higher interest payments, and low reinvestment, which will result in lower revenue during the following year. The opposite of a budget deficit is a budget surplus.
What is meant by a budget surplus and a budget deficit?A budget surplus is when extra money is left over in a budget after expenses are paid. A budget deficit occurs when the federal government spends more money that it collects in revenue.
What is the relationship between a budget deficit and the national debt?Debt is any money that is owed to someone else while the term deficit refers to a situation where expenses exceed revenues or liabilities exceed assets. Put simply, debt is the accumulation of years of deficit and the occasional surplus.
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