Editor’s Note: Below are seven facts you really should know about debt and the budget deficit. The list comes to us from Our Fiscal Security, where this piece first appeared.
1. The deficit is the gap between what the government spends and the revenues it collects each year. We didn’t always run deficits. When President Clinton left office, the federal budget was running a surplus of $236 billion, or about 2% of the U.S. economy. And that extra revenue was being used to pay down the national debt. To understand how we moved from big surpluses to a growing deficit, it’s helpful to examine each of the major factors driving our nation’s current deficits.
2. Every million additional jobs we generate reduces the deficit by $54 billion.
3. It’s misleading (and dangerous) to confuse the short-term budget shortfall with the medium-term deficit or the long-term debt. Here’s a way of understanding it:
4. A bi-partisan taskforce has identified over $1 trillion in defense spending that could be saved over ten years to reduce the deficit without jeopardizing national security.
5. The claim that the United States faces over $63 trillion in liabilities, unfunded retirement and health care obligations is based on deceptive and misleading figures-which are based on projections of health care costs over 75 years, and assumes no changes in tax revenues or reductions in health care costs.
6. Most economists agree that debt held by the public — rather than gross debt — is the proper measure on which to focus because that’s what really affects the economy. Studies showing the U.S. near a debt “tipping point” of 90% of GDP make improper comparisons between the U.S and other countries.
7. Contrary to general belief, high debt does not necessarily lead to slow growth, but rather slow growth can lead to growth in debt.
photo credit: thanks to dbking via flickr
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