From the Deficit to the Debt Throughout United States history, the federal government has practiced deficit spending, or spending more than the revenues it collected.
Historically Historically, the largest federal deficits happened during World War II. The budget however, had a surplus by 1947, that lasted until the 1980s.
When the budget runs a deficit, the Treasury Department sells bonds to the public to raise money.
The federal debt is the total amount the government has borrowed from investors to finance its deficit spending over its long history.
The total federal debt has grown to over $14.2 trillion. Debt to the Penny (Daily History Search Application)Debt to the Penny (Daily History Search Application) That’s a stack of $100 bills over 6,800 miles high!
Impact of the National Debt The federal debt causes a transfer of purchasing power from the private to the public sector. The larger the federal debt, the larger the interest payments, and the more taxes needed to pay.
Taming the Deficit Congress tried to mandate a balanced budget in 1991 through the Gramm- Rudman-Hollings Act. Whip it, Good!
“Crowding-Out Effect” In selling bonds to raise money, the federal government competes with the private sector for scarce resources, leading to higher-than-normal interest rates. This is the “crowding-out effect”.
The Balanced Budget Agreement of 1997 Congress gave the president a line-item veto, but the Supreme Court found it unconstitutional. The Balanced Budget Agreement of 1997 followed, with rigid spending caps so Congress could balance the budget by 2002. In 1999 Congress increased defense spending and cut taxes; as a consequence, they had to cut popular programs such as health, education, and veterans’ programs.
External Shocks Due to the 2001 recession, September 11th, the war on terrorism, and the continued growth of entitlements, the government is facing record budget deficits.