What's the Difference Between the Deficit and the Debt?
CREDIT: mokra | sxc.hu
Deficits and debts both entail a dearth of federal funds. But what's the difference between them?
Each year the United States government collects money, mostly in the form of income, social security and excise taxes paid by citizens. It also spends money each year, such as on social security and Medicare benefits, other social programs, the military, public infrastructure and interest payments on the debt. [How Federal Tax Dollars Are Spent]
If, in a given fiscal year, the government's tax revenues equal its expenditure, then it has balanced its budget. If the government collects more in revenues than it spends, it has a surplus. But if it spends more than it takes in, the shortfall is called the "deficit."
When there is a deficit, the U.S. Treasury must borrow the money needed for the government to pay its bills. According to the Treasury's website, it borrows the funds by selling Treasury securities such as T-bills, notes, Treasury Inflation-Protected securities and savings bonds to the public. These loans then become part of the total national debt.
In other words, the debt is the accumulation of deficits, plus interest.
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