[May 1996]

Debt?
Deficit?

What are they?
What's the difference?

The national debt...

...is the net accumulated borrowing by the federal government.

It's the difference between all the money that our federal government
has ever spent and all the revenue that it has ever collected since our
nation's inception.

The annual federal budget deficit...

...is the amount that our federal government borrows each year. [1]

It's the difference between what the federal government spends and
the revenue it receives during a particular year.

So each year's deficit is added to the existing debt. When revenue exceeds spending,
it's called a surplus, which subtracts from the debt.

Let's take a simple example:

Let's say that my total income adds up to $2,000 each month. However, I decide to live beyond my means by spending a total of $2,100 per month. In doing so, each month I chalk up a deficit of $100 -- which is funded by...oh let's say...a credit card.

$2,000 monthly income
-
$2,100 monthly spending
=
$100 monthly deficit

Let's further assume that my deficit spending continues in this manner throughout the year. By year's end I have accumulated $1,200 in new debt.

$100 monthly deficit
X
12 months
=
$1,200 new debt for the year

So at year's end my debt is $1,200 right?

Not necessarily!

Read on...

If I had lived within my means in past years and thus began the year debt free, then indeed my debt stands at $1,200. However, if at the beginning of the year I already had some credit card balances or other consumer debts, then my total debt would equal those debts plus the $1,200 of new debt. And so on...And so on...And so on...

A Time For Action

Now you can see why the national debt just keeps growing and growing. In early 1996 it will top $5 trillion (that's $5,000,000,000,000). Back in 1976 the national debt was $540 billion (minuscule by today's standards but quite shocking at the time). Since America's bicentennial, twenty years of whopping deficits have resulted in this near ten-fold increase in the debt. Today our annual interest payment of more than $200 billion eats up every dollar of income tax paid by everyone living west of the Missisippi River. This interest payment buys us nothing! Even if we balanced the budget tomorrow, this interest payment will stay with us...a penalty for past deficit spending. To eliminate it, we will actually need to run budget surplusses for many years in order to pay down the $5 trillion debt.

Wait...there's more to the story. Unless substantial reforms are made soon, when the baby boom generation begins to retire and collect old age federal entitlements, the debt will explode. A huge amount of our taxes will go to nothing but interest. Moreover, at today's taxation levels, every dollar that is collected will be gobbled up by entitlements and interest alone. Massive tax increases will be required just to pay for national security and non-entitlement programs (i.e., everything that we usually think of as government services). Our children and grandchildren will be left with the bill for our excesses.

If this situation concerns you, please continue to examine The Concord Coalition of Georgia Website to learn more. We're confident that the more you understand the situation, the more you will want to join us in our mission to break the toxic habit of federal deficit spending.

[1] The annual deficit is computed as the amount that the government borrows "from the public" each year. Currently the government borrows substantially more each year than the reported annual deficit. The source of this additional borrowing is the federal government's numerous "trust funds." The Social Security trust fund, which is currently taking in more than it is paying out, is the largest source of such borrowing. This borrowing is no less significant than borrowing from the pubic inasmuch as future tax payers will be required to replenish those accounts when the time comes to begin drawing upon them in a couple of decades. (One could make the case that trust fund borrowing is more significant than borrowing from the public because is bears a promise to repay the principal in a finite timeframe. In any case, all types of borrowing drain the wealth and add to the burden inherited by future generations.)