What's the difference between the debt and the deficit?

First of all, the federal government doesn't create money; that's one of the jobs of the Federal Reserve, the nation's central bank.

The Fed tries to influence the supply of money in the economy to promote noninflationary growth. Unless there is an increase in economic activity commensurate with the amount of money that is created, printing money to pay off the debt would make inflation worse. This would be, as the saying goes, "too much money chasing too few goods."

SOURCE: Federal Reserve Bank of New York

 

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The Debt Held by the Public, or public debt, is all federal debt held by individuals, corporations, state or local governments, foreign governments and other entities outside the U.S. Government, less Federal Financing Bank securities.

The types of securities held by the public include, but are not limited to, Treasury bills (T-bills), Treasury notes (T-notes), Treasury Inflation-Protected Securities (TIPS), U.S. Savings Bonds and State and Local Government Series securities.

SOURCE: Treasury Department

See also: FAQ: How much U.S. debt is owned by foreign countries?

 

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The public debt has increased by more than $500 billion each year since fiscal 2003, with increases of $1 trillion in fiscal 2008, $1.9 trillion in fiscal 2009 and $1.7 trillion in fiscal 2010.

SOURCE: Treasury Department

 

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As of January 2011, foreigners owned $4.45 trillion of U.S. debt, or approximately 47 percent of the debt held by the public of $9.49 trillion and 32 percent of the total debt of $14.1 trillion.

The largest holders were the central banks of China, Japan, the United Kingdom and Brazil.

The share held by foreign governments has grown over time, rising from 13 percent of the public debt in 1988 to 25 percent in 2007.

SOURCE: Treasury Department

 

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This budget request, developed by the president's Office of Management and Budget (OMB), plays three important roles.

First, it tells Congress what the president recommends for overall federal fiscal policy, as established by three main components: (1) how much money the federal government should spend on public purposes; (2) how much it should take in as tax revenues; and (3) how much of a deficit (or surplus) the federal government should run, which is simply the difference between (1) and (2). In most years, federal spending exceeds tax revenues and the resulting deficit is financed through borrowing.

Second, the budget request lays out the president's relative priorities for federal programs — how much he believes should be spent on defense, agriculture, education, health and so on. The president's budget is very specific, and recommends funding levels for individual federal programs or small groups of programs called "budget accounts." The budget typically sketches out fiscal policy and budget priorities not only for the coming year but for the next five years or more. It is also accompanied by historical tables that set out past budget figures.

The third role that the president's budget plays is to signal to Congress what spending and tax policy changes the president recommends. The president does not need to propose legislative changes for those parts of the budget that are governed by permanent law if he feels none are necessary. Nearly all of the federal tax code is set in permanent law, and will not expire. Similarly, more than one-half of federal spending — including the three largest entitlement programs (Medicare, Medicaid and Social Security) — is also permanently enacted. Interest paid on the national debt is also paid automatically, with no need for specific legislation. (There is, however, a separate "debt ceiling," which limits how much the Treasury can borrow. The debt ceiling is raised as necessary through separate legislation.)  

Source: Center on Budget and Policy Priorities

See also: President's budget

 

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By law, the Congressional Budget Office is required to produce a cost estimate for every bill reported by a congressional committee.

Each cost estimate of pending legislation assesses (1) the potential impact on spending subject to appropriation (also known as discretionary spending), (2) any impact on mandatory spending (also known as direct spending), and (3) any impact on federal revenues (incorporating estimates by the Joint Committee on Taxation for legislation that would change the federal tax code).

Because CBO's cost estimates are used to determine whether various budget proposals are consistent with the budget resolution, they've become an integral part of the legislative process.    

SOURCE: Congressional Budget Office

See also: Dynamic scoring; Scorekeeping

 

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The deficit is the difference between what the U.S. Government takes in from taxes and other revenues, called receipts, and the amount of money it spends, called outlays. The items included in the deficit are considered either on-budget or off-budget.

You can think of the total debt as accumulated deficits plus accumulated off-budget surpluses. The on-budget deficits require the U.S. Treasury to borrow money to raise cash needed to keep the government operating. It borrows the money by selling securities to the public.

The Treasury securities issued to the public and to the Government Trust Funds then become part of the total debt.

SOURCE: Treasury Department

 

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Frequently Asked Questions: National Debt

• How did the national debt get to be so big?
• What's the difference between the debt and the deficit?
  
• Why can't the government just print more money to get out of debt?
• How much U.S. debt is owned by foreign countries?

See all questions about the national debt. >>