Debt and Deficits - defined

One night during the 2008 presidential campaign, Doug and I were watching the local news when the anchor woman gave a lead-in for a story that made me laugh – scornfully. She said that candidate Obama had promised to cut the debt in half during his first four years in office! Doug even backed up the DVR box to be sure we had heard right. We had. Wow! That would be quite a feat, given our current national debt is nearing 13 trillion dollars!

The anchor woman made a common mistake, though it shouldn’t be common for a journalist – she confused debt with deficit. What Obama actually promised was to cut the DEFICIT in half in four years. (Hmmm….wonder what happened to that promise!)

Each year the government takes in a huge amount of money (revenue) in the form of taxes, tariffs, and various fees. Unfortunately, most years the government spends an even larger amount of money (expenditures). When it does so, we have a deficit for that year. The amount of the deficit is equal to the difference between revenue and expenditures in one fiscal year. (The government’s fiscal, or financial, year begins on October 1st of one year and ends on September 30th of the following year.)

It is possible, of course, that the government could take in more revenue than it spends in a year’s time. When it does, the difference is called a surplus. We had a surplus at the end of the Clinton administration. Largely due to the dot.com bubble, the economy was doing well and people were making money. Consequently, the government took in lots of money in the form of income and social security taxes. All this led to a 230 billion surplus in 2000.

Then George W. Bush became president, and over the next eight years, that 230 billion surplus turned into a 400 billion deficit. Bush came into office promising a tax cut. He argued that the surplus was the people’s money and should be returned to them. It sounded logical at the time, but the timing was bad. The dot.com bubble burst and the stock market took a real hit. The economy slowed, income and profits fell, and so did the taxes paid to the government. Then there was 9/11, leading to our involvement in two very expensive wars. Congress continued its wild spending, and Bush, not acting at all like a conservative Republican, vetoed none of it. He even asked for and got Medicare part D, the new prescription drug program that has increased Medicare costs substantially. All of this contributed to the growing deficit.

Unfortunately, the government has had a budget deficit most years since 1969. And all those deficits pile up. The accumulation of all the deficits over the years makes up our national debt – that nearly thirteen trillion dollar monstrosity. That is an incomprehensible amount of money. In last week’s column, I tried to describe a trillion dollars in terms we can actually relate to. Remember, a trillion is a million million. (Here’s a trivia question – what comes after the trillions? Answer – quintillions.)

The debt is growing rapidly. You can actually watch it tick off in real time on the Internet. Just go to www.usdebtclock.org and watch those numbers fly! The debt is increasing over 4 billion dollars a day, and your share of that debt is $41,904.

As for our current deficit, it is projected to be 1.3 trillion for 2010, by far the largest in history. George W. Bush was roundly criticized for his 400 billion deficit. Obama has blown it out of the water. He has spent trillions on bail-outs and stimulus – and there is now healthcare to pay for.

1.3 trillion, 13 trillion – these are just numbers, albeit very large ones. To have any real meaning, however, they must be put in context. I’ll save that for next week’s column.