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Policy Basics: Deficits, Debt, and Interest |
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From Center on Budget: Three important terms regarding the federal budget — deficits, debt, and interest — are often misunderstood. Deficits For any given year, the federal budget deficit is the amount of money the federal government spends (also known as outlays) minus the amount of money it takes in (also known as revenues). If the government takes in more money than it spends in a given year, the result is a surplus rather than a deficit. Debt Unlike the deficit, which drives the amount of money the government has to borrow in any single year, the national debt is the cumulative amount of money the government has had to borrow throughout our nation’s history. Each time the government runs a deficit, it increases the national debt; each time the government runs a surplus, it shrinks the debt. Interest Interest, the fee a lender charges a borrower for the use of the lender’s money, is the true cost of government borrowing. This cost is considerable. In 2008 the federal government paid roughly $250 billion in interest payments, or roughly the amount that it spent on education, transportation, and veterans’ programs combined.
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