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

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

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

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

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

6. 6 National Debt Calculator www.brillig.com/debt_clock

7. 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. 8 Federal Expenditures and Tax Revenues Billions of dollars $2,000 $400 $800 $1,200 $1,600 65 7075 80 85 90 95 Expenditures Revenues 0005

9. 9 17 Percentage of GDP 18 24 19 20 21 22 23 1985199020002003 Federal Expenditures, Revenues, and Deficits as a Percentage of GDP Deficit Surplus Deficit

10. 10 Deficit Billions of dollars Surplus -150 -100 200 -50 0 50 100 150 $+250 65 7075 80 85 9095 0005 Federal Budget Surpluses and Deficits

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

12. 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. 13 What happened to spending in 1993? Reduced military spending and and cut some entitlements, including Medicare, Medicaid, and food stamps

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

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

16. 16 0540506070 8090 $2 $3 $4 $5 $6 $7 National debt The National Debt 00 Trillions of dollars

17. 17 05 20 40 60 80 100 National debt/GDP 120 140 150 Percentage of GDP The National Debt as a Percentage of GDP 40 50 6070809000

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

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

20. 20 CanadaFranceSwedenU.S.AustraliaGermanyU.K.Japan 25 50 75 100 125 150 175 Italy 164% 120% 74% 71% 67% 64% 61% 43% 21%

21. 21 05 50 60 70809000.05% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Federal Net Interest as a % of GDP Percentage of GDP

22. 22

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

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

25. 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. 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