BUDGET DEFICIT

A budget is an estimate of expected income and expenses for a specific period of time. Governments, private businesses, and individuals use the budget-making process to establish financial goals. The completed budget is then used as a blueprint to monitor the progress toward those goals. If income or expenses are equal, a budget is in balance. But, depending on financial objectives, a budget might have a surplus or deficit. A surplus is created when an individual or organization has more income than expenses for a given time period and decides to set some of this money aside. For instance, an individual might make monthly payments into a college-savings plan that will be used in the future. A deficit is just the opposite and occurs when expenses are greater than income. As a consequence, money is borrowed from an outside source. For example, an individual who wants to buy a car may lack the necessary cash and so takes out a loan to cover the cost. If a deficit continues over a long period of time, it is called a chronic deficit.

During much of the 1970s, '80s, and '90s, the U.S. federal government had annual budget deficits that often exceeded $100 billion. In 1992, the federal government had an annual budget deficit of $290 billion. The result of these years of deficit spending was that by 1999, the United States had a national debt of approximately $5.5 trillion and paid $240 billion annually in interest to finance the debt. The purpose of the federal budget is to collect and spend the funds needed to carry out social, military, and economic policies. According to the Employment Act of 1946, the federal government has the responsibility to promote maximum employment, fight inflation, and encourage economic stability and growth. To achieve these aims, the federal government might spend more money than it receives in order to stimulate the economy. This type of fiscal policy creates a budget deficit. The federal government reversed this budget deficit spending in the late 1990s and began passing surplus budgets. By 2008, the federal government's annual budget is expected to reach a surplus of $251 billion. However, unless these annual surpluses are used to pay off the accumulated debt, the country will have an estimated federal debt of $6.3 trillion in 2003.

See also: Inflation