U.S. National Deficit

Our National Deficit

The national deficit is the amount of money our government owes, or the difference between the government expenditure and income. The government comes up with this number by using the federal budget. This takes the amount of the government’s income and subtracts their expenditures from that particular number. Whatever the total for the day is gets added to the total national debt, and it builds and grows daily. There is a difference between the national deficit and the national debt. The national deficit is however much more expenses there were than income for the day. The national debt is what is carried over from year to year. Our national debt as of November 5, 2005 at 3:35 pm is approximately $8,032,346,276,421 and is growing by the second.

There have been some cases where the deficit was lower one day than it had been the previous day, called a surplus; but this does not mean that the total national deficit will decrease. This only means that instead of adding a lot more to the national deficit, the government will only add a smaller amount than they did the day before. The way it works is every day some of the deficit is paid off. There is also more deficit created daily. If the government pays off more deficit than it makes for the day, there will be a surplus for the day. In the case of a surplus, the government uses that money to pay off past debt instead of having to borrow more money from the public.

There are two types of surpluses. In the budget, there is a section that is Social Security related and another section which, obviously, is not. The part that deals with the Social Security is off-budget, meaning that a surplus in that section is known as the off-budget surplus. Similarly, the part that does not deal with Social Security is known as the on-budget part, so a surplus there is called an on-budget surplus.

There are several divisions of the deficit. First, there is the difference between the debt the government owes the public and the debt it owes itself. The public debt is the amount of money the government borrows from the public, either through taxes or securities. The debt the government owes itself is in the form of special programs, such as Social Security, or spending in specific areas like veterans. There are also two types of government expenses. First, there is discretionary, which the government sets a limit for. Then, there is mandatory, where the government determines who meets the eligibility for benefits.

The national debt began in 1790 with war debts from the Revolutionary War. Before then, there was no national debt, and after that point the debt has increased greatly because of more war debt and things such as inflation. The amount of debt fluctuates year by year. For example, between the years 1977 and 1981, the deficit was below $100 billion. Between 1982 and 1991, the deficit increased to around $425 billion. Over the next few years, (1992-2001) the deficit dropped back down to below $100 billion, then shot up to about $600 billion between 2002 and 2004. Congress expected there to be a ten year period of surpluses which led to a tax cut. However, in 2002 there was a recession and the terrorist attacks on September 11 which, together, caused the government to spend more and borrow more boosting the deficit back up. In addition, George W. Bush deciding to take up arms against Iraq was also a very costly measure.

You might be asking yourself where the deficit came from or why we have it. The government borrows money one year. The following year, they have to pay the money back, with interest equaling about $1.5 billion per day. If they do not have the money to pay back their loan, they must borrow more money. This builds and builds and builds, leading to a higher amount of money owed along with more interest. This is all caused by the fact that the government spends more money than it makes.

And where does the government get the money to pay off the deficit? When there is a deficit, the government has to borrow money from the public. They do this in the form of taxes. The government might increase taxes or use more of our tax dollars to put towards the deficit instead of putting them towards things such as Social Security. Not only are we affected in that it is our tax dollars being used to pay off the deficit, or how the government invests it, but also by the future taxes. If the national deficit is lowered, that will lead to lower interest rates, better jobs and wages, and lower taxes. This leaves more money for us to save.

Sometimes, the money that is borrowed is invested in ways that will benefit future generations. An example of this is the infrastructure investments that the government takes part in, such as: roads, electric, sewer, telecommunications and so on. In those cases, the national debt is for a good cause. If, however, the government is not wise in how they invest the money borrowed, it will do nothing but make matters worse for upcoming generations. Some of the things which the government invests in, or the things which allocate the national debt, are Treasury bills, notes, and bonds.

Steps have been taken to lower the deficit, but it is still very high. Some of these steps have been putting a limit on government spending, the Social Security lockbox, and the Debt Reduction Act of 2000. The Social Security lockbox is a way of making sure that the money set aside for citizens’ retirements is not spent for something else. The Debt Reduction Act of 2000 set aside a separate account for paying off the national debt. Any extra money for the year goes into this special account and is put towards paying off deficit. These were successful from 1998-2001, but after that the deficit sky-rocketed back up. There are certain specific events that affected the deficit dramatically. For example, World War I increased the deficit by about $25 billion, the Great Depression increased it by about $33 billion, and World War II increased it by about $222 billion.

Some argue that a step the government should take in order to lower the deficit is to make the government balance its budget