Budget Deficits and National Debt

Budget Deficits and National Debt

1. How large is the current U.S. budget deficit and how has it changed over the last few years?

Budget deficits arise when Government outlays (Spending) exceeds revenues (Receipts). The deficit is the annual fiscal year difference between what the United States Government collects in form of taxes and other revenues and the amount of its spend(Schiller, 2010). The Treasury department declared in October of this year that the budget deficit for 2012 totaled to $1.1 trillion dollars (cbsnews.com). According to the Keynesian Theory, use of budget to stabilize the economy implies that federal expenditures and receipts won’t always be equal. Prior to World War II the budget was in as much deficit as it was in surplus. Since the past thirty years budget deficits have been overwhelmingly the rule and not the exception, except for the period of 1998 to 2001, when a budget surplus was achieved(Schiller, 2010). The federal budget has been in deficit since 2002 and has been exceptionally high since 2008. During the Bush administration the broad tax cuts implemented, the war against Iraq and Afghanistan and funding of a huge drug research lead to the budget deficit of 2008. The deep recession of 2008-9, caused the yearly imbalance to top $1 trillion. Higher spending on unemployment insurance payments and food stamps and a sharp contraction in tax revenues widened the deficits. In order to boost the sluggish economy, the Obama administration extended the Bush Tax cuts by another two years that also contributed to the growing budget deficit (Curtsinger 2011). The budget deficit was at $459 billion in 2008, rose to $1.8 trillion in 2009, $1.3 trillion in 2010 and $1.2 trillion in 2011. Though the Budget deficits are over one trillion, it is seen that the 2012 and 2011 deficits are lower than the previous years. This is a result of the larger tax revenues from, corporations and individuals, in a gradually strengthening economy. During 2012 the Government spending fell 1.7 percent to $3.5 trillion. The decline resulted from less defense spending with the winding down of US Military involvement in Iraq (cbsnews.com). The re-elected Obama Government is working on a budget plan for the next four years that would enable to reduce the deficit by $4 trillion over the next decade byending the Bush-era income tax cuts for higher-income Americans and by restraining the growth of spending(cbsnew.com).

2. What is the total amount of U.S. debt and how has this changed in the last few years? Who holds this debt?

The national debt has grown significantly in recent years due to rising annual deficits. As of end of September 2012 the US debt is at $16 trillion dollars and has increase by 60% since 2008, when it was just short of $10 trillion(Boccia, 2012) In early 2000s the national