deficits & debt

Facts

We hear about the deficit all the time - but how bad is it and what, for that matter, is a deficit? Some basics...

Definitions

Deficit – the deficit is how much more the federal government spends in a given year than it raises in revenue (through taxes, mostly) (Note: we're just talking about the budget deficit here; for info on the trade deficit, see our trade page)

Surplus – a surplus is how much more the federal government raises in a given year than it spends (the opposite of a deficit – happens rarely)

Debt – the total accumulation of past deficits – or, how much we owe. There are two kinds of debt that people talk about:

  • Public Debt – how much the federal government has borrowed from others - for example from you, if you own a government bond, or from foreign nations or individuals
  • Government Account Debt – also called “intergovernmental loans” – how much the Federal government has borrowed from its own savings accounts, such as Social Security *
  • Gross, or total, federal debt is what you get when you add the two together.

How much we're in it

Deficit

  • 2005: $318 billion CBO

Debt (May 2006) Treasury

  • Total - $8.3 trillion (62% of GDP)
  • Public Debt - $4.8 trillion (36% of GDP)
  • Government Account Debt – $3.5 trillion (27% of GDP)

Debt limit (how much debt Congress will let itself work up to, set in September, 2007): $9.8 trillion

Interest we pay on our debt (CBO - pdf): $184 billion (2004).

Debt & Deficit over the years

Source: CBO and OMB

Foreign Debt

(Treasury)

Of the $4.8 trillion in public debt (as of June, 2006) here is the foreign/domestic breakdown

  • $2.7 trillion – domestic (56%)
  • $2.1 trillion – foreign (44%)
  • Japan 34% of foreign
  • China 11.5% of foreign

foreign v. domestic debt since 2000

debt1:

source: Treasury

*For those who find "debt held by governmental accounts" a new and odd concept, you may want to think of the government's debt in terms of your own individual debt. If you, for example, spend more than you earn in a year, you can take out a loan from a bank (which would be like the "debt held by the public") or you may choose instead to dip into your retirement account (that would be the rough equivalent of "debt held by government accounts"). If you take money out of your retirement account, the only person you owe money to is yourself, or - you could say - your older self. Translated back to the government's accounts, "debt held by government accounts" is money the government borrows from its future self, or future generations.

Where the facts are from:

Miscellany

  • Douglas Holz-Eakin, the former head of the CBO, gives a stark picture of future budget crunches.

Facts pulled together with Steven Cytryn. Updated May, 2007.

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