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What’s the Difference Between the Budget Deficit and the National Debt?

With the political battles raging in America, terms such as the budget deficit and the debt are in the news. Of all terms used, there is confusion between the budget deficit and the U.S. debt. What is the difference?

U.S. Budget Deficit

Often the terms are used together, separately and confused – by both reporters and those that should know better. The terms are also used, unfortunately, to confuse and either glorify or criticize certain politicians or political parties.

Before the question is answered, let’s look at the U.S. budget. The United States, just like any household or business, takes in money (taxes) and spends money (defense, social security, etc.) And like some households and businesses, the U.S. government can actually spend more than it brings in. Households and businesses spend more than they take in by using debt. Debt such as credit cards, bank loans, personal loans and such. The U.S. government spends more than it takes in by using debt as well. Though this debt is in the form of U.S. Treasury Bonds and Notes that pay interest to the holders of the bonds and notes.

Look at the graph below. Notice that the U.S. has spent more than it has taken in for the last 60 years – except for 4 years in the 1990’s. This shortfall of spending over tax receipts each budget year is referred to as the yearly budget “deficit”. This should not be confused with the U.S. “debt”. The debt is the accumulation of all of the deficits each year.

Graph from the CBO (Congressional Budget Office):

CBO Graph

U.S. Debt

So, put simply, the U.S. budget deficit is the yearly difference between the money coming in (taxes) and the money going out (spending). The “deficit”, is the accumulation (adding up) of all of these yearly budget deficits. Currently, in 2017, the budget deficit is over $600 Billion ($600,000,000,000). Which is then added to the U.S. debt of over $20 Trillion ($20,000,000,000,000). Big numbers!

So when a politician says that we should, “lower our budget deficit”, or pats themselves on the back for “lowering the U.S. deficit”, remember one thing. They are speaking of the annual budget shortfall (too much spending, not enough taxes.) They are not referring to the ever-growing U.S. debt.

Here is our current national debt:

Now have a nice day! 🙂

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