I get that we have overspent in Congress. But who do we owe exactly? And what is the difference between the deficit and the debt? I know these aren’t really tax questions but you talk about it on your blog so I thought you might know.
What great questions!
Yep, I definitely do talk about the deficit quite a bit on my site – that’s because tax policy (especially whether to raise or lower taxes) is often dependent upon our deficit levels.
Here’s the quick difference between deficit and debt:
1, The federal deficit is the overage of expenditures versus revenue/receipts in a fiscal year. In simple terms, if we spend more than we make, we have a deficit. If we were to spend what we took in (imagine that!), we’d have a “balanced budget”. And if we were to take in more than we spent, we’d have a surplus.
The deficit is recalculated every year based upon the shortfall or surplus each month. If we have a deficit, the Treasury borrows money to make up the slack. The Treasury does this by selling securities like T-bills, notes and savings bonds.
The deficit for the current fiscal year (as of last month) is $319.4 billion, more than twice what it was for the same period in 2007.
2, The federal debt is more or less the aggregate of all of the deficits that we amass. So if we owe $800 million one year (and it’s not repaid) and we owe $500 million in another year (and it’s not repaid), we have a debt of $1.3 billion. Make sense? And since this money represents borrowed money, we also pay interest on it.
According to the US National Debt Clock, our debt as of June 28, around 5:30 p.m. is $9,371,491,730,059.48. The National Debt Clock has calculated that the debt has increased an average of $1.33 billion (yes with a b) per day since September 28, 2007!
Yowza, that’s a lot.
If you want to see the breakdown by kind of debt and year (among other goodies) you can view the latest info from the federal Treasury Bulletin.
Now to the other part of your question: who owns the federal debt? A lot of folks have been making a great deal of noise about the fact that China owns a lot of our debt (not a good thing). That’s partly true. As of June 2007 (the last time this data was made available), 45% of the debt was held by the US Government in other capacities; 28% was held by private US citizens and an astounding 27% is held by foreigners. The British, Japanese and Chinese hold most of this segment of the debt. You can get some great perspective at The Skeptical Optimist – he has all of this info in a nice chart. You can also see a nice breakdown from the Treasury of those foreign governments that we owe money to in the form of securities.
My favorite part of the chart? The footnote that clarifies that those who have purchased the fourth most US securities are “Oil Exporters” including Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria. Huh? How did we get to the point where we owe Iraq money?? But I digress…
At any rate, I hope that this answers your question. Thanks for reading!
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl!