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Anonymous asked in Politics & GovernmentGovernment · 9 months ago

U.S. Deficit? In very simple terms, what does a Deficit mean? And what are the pros and cons of having one?

3 Answers

  • James
    Lv 7
    9 months ago

    You get a budget deficit when the government spends more money than it takes in. I can’t think of anything good about spending “other people’s money” you don’t have.

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  • Clive
    Lv 7
    9 months ago

    It simply means that the government spends more than it receives in taxes. The difference is the deficit. So if it were a business, it would be making a loss. We say deficit instead because the government isn't supposed to make a profit. So the jargon is that it makes a surplus or a deficit, not a profit or a loss.

    Now let's say you're the government. There are things you have to spend on, and if spending keeps going up people aren't going to like it if you have to cut it. Especially if it hits them personally, such as if they're on social security. And if you put taxes up to pay for more, people won't like that either. Plus Congress has to agree the annual budget so will they vote for it?

    How do we square this circle? The government PLANS to make a deficit each year! And plans to borrow the rest. If the deficit isn't too big, so it can afford to pay the interest on borrowing, this will work.

    And so the government can happily continue to run like this as long as the deficit each year stays small enough that it can "service" its borrowing, and it doesn't have to make too many unpopular cuts or raise taxes too much. It can do more than if we insisted it didn't borrow at all.

    However, a deficit adds to the national debt. So the national debt keeps getting bigger, it's now trillions of dollars, but again, as long as the amount of interest on that can fit in the government's budget, it will be fine, If there was a government that kept borrowing too much each year, eventually it wouldn't be able to afford to pay the interest and you're in deep doo-doo.

    Same as if you personally borrowed more from the bank than you could afford to fund - eventually the bank is going to start asking when it's going to get repayments. And could make you bankrupt.

    And that happened in Greece a few years ago. It had irresponsible governments that kept spending more than it could possibly afford out of taxes and a sensible amount of borrowing, and eventually it had to go begging to the EU for money to bail it out.

    Fortunately, whatever else you may think of the US government, it always gets good advice from the Treasury and won't be that stupid when it makes its budget. So the national debt is big but still affordable, and it won't plan to make the deficit TOO big so the debt won't go up too much each year.

    Imagine getting a mortgage to buy a house. You can't pay for a house in cash unless you're hugely rich, so you need to borrow. But it would be stupid to borrow more than you can afford in repayments on top of all the other bills you have, so that restricts what you can buy. And the bank will make sure of that - the financial crisis of 2008 was caused by them lending too much. So you need to borrow, but only what you can afford to repay. And the government does exactly the same thing on a much bigger scale.

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  • RICK
    Lv 7
    9 months ago

    A deficit is the amount you spend that exceeds what you take in. Most places measure them for a given period of time. The US government uses the fiscal year. The cons are each years deficit gets added to the debt the only pro is it allows the government to accomplish things even if the have no money. The problem in the US is they have deficits every year so the debt grows every year.

    Tax cuts that mainly benefit the rich (Reagan's, Bush's and Trumps) all increase thee size of the deficit/debt

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