If you’re watching the news lately you may have seen politicians yelling words like federal debt and federal deficit. You may have also seen someone bang their first on a podium screaming debt ceiling. Well if you don’t know what these terms mean sit back and relax and prepare to learn.
The federal deficit is the amount by which the government’s expenses exceed its tax revenues. The national debt is the total of all deficits in the past, minus the amount the government has repaid since.
The federal government has run a deficit in 45 out of the last 50 years. There are many factors that determine the size of a budget deficit in any given year. Two main ones are the health of the economy and the tax and spending policies that congress decides.
For example, during the recent recession, many American’s become eligible for mandatory spending programs like food stamps and unemployment benefits, which lead to an automatic increase in spending. Simultaneously during this time tax revenues decrease because American’s and corporations were making less and paying less in taxes.
Additionally, during a recession congress may intentionally increase government spending in order to stimulate the economy. In 2009 at the time of the Great Recession, the federal deficit spiked to 9.8 percent.
Tax policy another main factor in determining whether the US runs a deficit or surplus. If the government raises taxes it increases the amount of money it brings in. In 1993 congress raised taxes for the highest income taxpayers, which contributed to the US running a surplus from 1998 to 2001.
So the next time you see politicians talking about the debt and deficit, know that if the government keeps over spending, you may get stuck with the bill.