Deficits Surpluses and The National Debt

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Main Idea

Deficit spending has helped create a national debt. Reading Strategy

Graphic Organizer As you read the section, describe the growth of the debt before and after 1970.

Key Terms deficit spending, federal debt, balanced budget, trust fund, crowding-out effect, pay-as-you-go provision, line-item veto, spending cap, entitlement

Objectives

After studying this section, you will be able to:

1. Explain how the federal deficit is related to the federal debt.

2. Relate the impact of the federal debt on the economy.

3. Describe past attempts to eliminate the federal deficit.

4. Describe entitlements.

Applying Economic Concepts

Deficit Spending When the government must borrow money to spend, deficit spending occurs. Read to learn why American taxpayers must pay the interest on that borrowed money.

CoverStorv

A Decade of Black Ink?

The 1998 fiscal year ended with the first federal budget surplus in three decades—$70 billion in black ink. And government forecasts project even larger surpluses in the coming decade.

Republicans in Congress are eyeing the government's swelling coffers to deliver long-sought tax cuts, while President Clinton has proposed devoting about

STr^~what exaggerate the s,e of the budgS siuplus because they include money generated by Social Security taxes and the Postal Service. . . .

_Mark Stencel, The Washington Post, January 30, 1999

Postal worker

The cover story reminds us that 1998 was the first time in 29 years that the federal budget had a surplus. While the surplus was due largely to the Social Security trust fund, it presented nevertheless a whole new range of possibilities and temptations for politicians.

From the Deficit to the Debt

|Vj|n Historically, the federal budget has been char-*M acterized by a remarkable amount of deficit spending-or spending in excess of revenues collected. Sometimes the government plans deficit spending. At other times, the government is forced to spend more than it collects because unexpected developments cause a drop in revenues or a rise in expenditures.

Figure 10.3 shows that the government projected a $117.3 billion surplus for fiscal year 2000. Budget projections are based partially on assumptions about the direction of the economy. If the economy has strong economic growth, the surplus

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