What is the Difference Between the U.S. National Debt and the Deficit?
We hear national debt, deficit, and budget bandied about by politicians and others all the time, especially during the presidential campaign season. But what are the differences and how do they affect us?
The national debt is all the debt that has been accrued since the founding of our country. The federal budget is based on the income the government takes in and the expenses that it has from spending. It it takes in more than it spends, it is called a surplus. If it spends more than it takes in, it's called a deficit. If it takes in the same amout it spends, it's called balancing the budget.
National Debt Incurred by Each President
The graph below shows the national debt that has been incurred by each president since this country has been founded. The values at the top of each column are what the national debt was for that president at the end of his term. The numbers above each president's name are the length of time in office. Notice, the values are in billions until we get to Reagan and then they are in trillions. An America Trillion is 1,000 billion. A British Trillion is million billion. I just added that because I know hub pages are read internationally.
The implication in this graph is that each new president inherits the debt and deficit of the previous president. So when presidents say they are going to balance the budget, what are they really talking about?
The national debt for Obama is now about 19 Trillion. That means that if Hillary or Trump wins the election, they start their first day in office with a national debt of at least 19 trillion dollars.
The Federal Budget
The next three slides show the federal budget. The first one shows both the income and outgo in each category and the deficit. It is somewhat difficult to read in its entirety. Therefore, the second slide is an enlargement of the income side of the equation and third slide is an enlargement of the spending side of the equation.
Notice that the total revenue is 2.57 trillion, while the total spending is 3.83 trillion. This leaves a deficit of 1.27 trillion that gets added to the national debt. To learn about the debt ceiling, read my hub on What is the Fiscal Cliff?
Income Side of Federal Budget.
Notice that the biggest sources of income are from individual taxes, corporate taxes and social security and other payroll taxes.
Spending Side of the Equation
Notice the biggest part of spending is for defense, discretionary, and social security. It is also important to note the interest on the debt is 251 billion. That interest gets added to the national debt as well as the deficit of 1.27 trillion is also added to the national debt.
It is important to note that social security is not only on the income side (934 billion) but on the spending side (730 billion). To learn more about social security and the trust fund, read my hub on Understanding Social Security.
One of the ways the Congressional Budget Office (CBO) measures the impact of the National Debt on our economy is by the percentage of national debt to the Gross Domestic Product (GDP). This chart shows that percentage from the time the country was founded to current. It also includes the CBO's projections to 2030. Notice that after World War II, the percentage dropped way off and it was low under Nixon, Carter, and Clinton. There are two projections included. The CBO's Extended Baseline Scenario is the projection if the current legislation stays in place with minor policy changes. The CBO's Alternative Fiscal Scenario is if there are major policy changes as a result of political dynamics.
National Debt Vs Gross Domestic Product
President Clinton and the Surplus Budget
How did President Clinton have a surplus budget? He did it by raising taxes on upper income tax payers and cutting some discretionary spending. There was also a very powerful influence from the dot com stock boom which brought in additional revenues in the form of capital gains.
Reducing the Deficit
Each president and congress talk about reducing the deficit and/or balancing the budget. There are really only two variables that have to be dealt with: income (taxes) and spending (expenses). But there is one sub-variable on the spending side of the equation and that is interest on the debt. The country is so far in debt that it can't even pay the interest on the debt. It has to take on more debt by issuing different types of bonds to various public, private, and foreign entities.
Various scenarios have been put forth to reduce the deficit. They include the following:
- Lowering taxes and cutting spending
- Raising taxes and cutting spending
- Lowering taxes and raising spending
- Raising taxes and raising spending
All of these scenarios will have an impact on the economy and job creation. But given the amount of debt that has been created, I don't see any of these being able to reduce the deficit by any great degree. It begs many questions:
- Have we come to a way of life, where we will live with debt for the foreseeable future?
- Does it really matter that we have a debt and deficit if the government can issues bonds that create more debt?
- Are we in a vicious cycle of debt creation?
- When a person or organization cannot pay their bills, they are bankrupt. Is this country bankrupt, but the government won't tell us?
- Should the government be compared to a business if it can create money by issuing bonds?
Before I wrote this article, I didn't know the difference between the national debt and the deficit. But after doing the research and creating the article, I have learned a lot about the issues and I hope you have as well. I'm looking forward to your general comments as well as comments regarding the accuracy and facts.
National Debt Clock
All the charts I have presented are based on static information. However, all of these values are dynamic and are ever changing. Here is the a link to the National Debt Clock where you can view all the statistics in real time.
At the Republican National Convention, they showed the national debt as if Obama owned it. Can you imagine who ever becomes president will inherit that debt?
For more information about the national debt and deficit, read this excellent article by a fellow hubber. http://aufait.hubpages.com/hub/US-national-debt-explained-what-debt-includes-why-it-is-not-a-worry