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The Basics: Understanding Concepts Behind the Budget Battle

Lots of people like to argue about government spending. But not everyone is well-versed on the terminology. Here’s a friendly guide you can share about the basic terms being tossed around in the debate about a government shutdown, raising the debt ceiling and cutting federal spending.

What’s a budget deficit? The deficit is the difference between government spending (on everything from defense to Social Security) and government revenue (brought in through taxes, fees, etc) over a set amount of time. Through the first 11 months of the fiscal year ending Sept. 30, the federal government spent about $3.2 trillion and brought in a little less than $2.5 trillion in taxes and other receipts. So the deficit reached $755 billion, down from nearly $1.2 trillion during the same period a year earlier. Overall deficits peaked in 2009 amid fallout from the 2007-2009 recession. They declined slowly until this year, when higher taxes and a modestly improving economy narrowed the gap at a faster pace. The final deficit figure for the current fiscal year (Oct. 1, 2012, to Sept. 30, 2013) will likely be the smallest since 2008.

What is debt? Debt is the accumulation of deficits. Any budget deficit, no matter how small, leads to more total government debt when the Treasury sells debt (bills, notes and bonds) to cover the shortfall between revenue and spending. Federal debt has been growing steadily for decades. As of Thursday, total debt outstanding was about $16.7 trillion including the government bonds in the Social Security Trust Fund.

There is no serious proposal in Congress to immediately, completely eliminate deficits or turn them into surpluses. Therefore, debt will continue to rise for the foreseeable future even if deficits continue to shrink. Only surpluses can shrink debt.

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