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Debt versus Deficit: What’s the Difference?

August 5, 2004 — When you hear people talking about the national debt or the deficit, do you ever wonder what the difference is between those two terms? This is the second in a series of articles about the public debt.

This month, our question is:

What is the difference between the public debt and the deficit?

The deficit is the difference between the money Government takes in, called receipts, and what the Government spends, called outlays, each year. Receipts include the money the Government takes in from income, excise and social insurance taxes as well as fees and other income. Outlays include all Federal spending including social security and Medicare benefits along with all other spending ranging from medical research to interest payments on the debt. When there is a deficit, Treasury must borrow the money needed for the government to pay its bills.

We borrow the money by selling Treasury securities like T-bills, notes, Treasury Inflation-Protected securities and savings bonds to the public. Additionally, the Government Trust Funds are required by law to invest accumulated surpluses in Treasury securities. The Treasury securities issued to the public and to the Government Trust Funds (intragovernmental holdings) then become part of the total debt.

One way to think about the debt is as accumulated deficits. For information concerning the deficit, visit the Financial Management Service website to view the Monthly Treasury Statement of Receipts and Outlays of the United States Government. You can read more on this topic in the Federal Borrowing and Debt chapter of the Analytical Perspectives volume of the most recent budget.

Check our home page next month for another question about the public debt.

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