1 Federal Deficits, Surpluses and the National Debt ©2006 South-Western College Publishing

2 What are the four stages of the budget process? Agency budget proposals Presidential budget submission First budget resolution Second budget resolution

3 What is the federal fiscal year? October 1 through September 30

4 What is the federal deficit? How much money the government borrows in any given fiscal year

5 What is the national debt? The total amount owed by the federal government to owners of government securities

6 National Debt Calculator

7 How does the U.S. Treasury borrow money? By selling Treasury bills, notes, and bonds, promising to make specified interest payments and to repay the loaned funds on a given date

8 Federal Expenditures and Tax Revenues Billions of dollars $2,000 $400 $800 $1,200 $1, Expenditures Revenues 0005

9 17 Percentage of GDP Federal Expenditures, Revenues, and Deficits as a Percentage of GDP Deficit Surplus Deficit

10 Deficit Billions of dollars Surplus $ Federal Budget Surpluses and Deficits

11 What has been done to curb the national debt? Tax increase Spending caps Line-item veto Debt ceiling

12 What happened to taxes in 1993? Raised the highest marginal tax rate from 31% to 36% Increased tax on gasoline by 4.3 cents per gallon

13 What happened to spending in 1993? Reduced military spending and and cut some entitlements, including Medicare, Medicaid, and food stamps

14 What is a debt ceiling? The legislated legal limit on the national debt

15 What usually happens when the debt pushes against the ceiling? Congress raises the ceiling to accommodate the budget deficit

$2 $3 $4 $5 $6 $7 National debt The National Debt 00 Trillions of dollars

National debt/GDP Percentage of GDP The National Debt as a Percentage of GDP

18 What is the internal national debt? The portion of the national debt owed to a nation’s own citizens

19 What is the external national debt? The portion of the national debt owed to foreign citizens

20 CanadaFranceSwedenU.S.AustraliaGermanyU.K.Japan Italy 164% 120% 74% 71% 67% 64% 61% 43% 21%

% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Federal Net Interest as a % of GDP Percentage of GDP

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23 What is the crowding-out effect? When federal government borrowing increases interest rates, the result is lower consumption and investments

24 Can the government go bankrupt? Yes, it’s possible No, the debt need never be paid off

25 Are we passing the debt burden to our children? Yes, especially if it continues to increase No, not as long as the debt is internally owned

26 Does government borrowing crowd out private-sector spending? Yes, the more the government borrows the less loanable funds for everyone else No, especially if it occurs during economic downturns