Deficits & National Debt Mr. Marinello * Chippewa Valley

Federal Deficit & Debt  Federal government spending falls into 1 of 3 categories:  Balanced budget: when there is no debt or overage  Budget surplus: when the government takes in more than it spends  Budget deficit: when the government spends more than it takes in  Deficits & surpluses refers to only one year.  Deficit spending: occurs when a government spends more than it collects in revenue for a specific budget year.  Annual deficits contribute to National debt: which is the total amount of money that the government owes.

Causes of the Deficit  National Emergencies  Wars, or catastrophic weather events  Need for Public Goods & Services  Public goods need to be funded: interstate highways, dams, airports.  Stabilization of the Economy  Government spending that is used to stimulate the economy: building roads, schools, parks.  Role of government in Society  Government programs: Social Security, Medicare, Medicaid, unemployment

Raising Money for Deficit Spending  When the federal government does not receive enough money from taxes to finance its spending, it can borrow money by issuing government bonds.  Savings bonds: most popular, mature in 20 years.  Treasury bonds: short-term bonds that mature in less than one year  Treasury notes: mature between 2 and 10 years  Treasury bills: mature in 30 years.  Bonds are purchased by anyone. Central banks of other countries make up over 40% on US bondholders, mainly Japan & China.

The National Debt  Trust Funds  The government borrows trust funds, which are funds being held for specific purposes to the used at a future date. Ex: Social Security, Medicare, Medicaid.  When trust funds accumulate surpluses by taking in more tax revenue than is needed, the surplus is invested in government bonds until the specific programs need the money.  The government is basically borrowing from itself to cover deficit spending.  Size of the National Debt  The current national debt is $16.3 trillion. In 2006 it was $8.4 trillion.

Attempts to Control Deficits & Debt  Set limits on discretionary spending & mandate that new spending required cuts elsewhere in the budget. “Pay-as- you-go”  Combo of tax increases & spending cuts.  Spending cuts in entitlement programs (Medicare, Social Security…)  All have had limited success, the government continues to struggle with how to control the national debt.