National Debt vs. Budget Deficit: What’s the Difference?

Making sense of the U.S. national debt and annual budget deficit

If you’re like me, the words “national debt” and “national deficit” bring with them an unshakeable feeling of gloom and doom. It’s not that I lay awake at night worried about the U.S. debt and deficit, but when they do cross my mind, I know that eventually we are all going to have to sacrifice in some way to deal with the financial irresponsibility of our leaders.

Rather than sticking our heads in the sand, however, now is a good time to understand the difference between our nation’s debt and its annual deficit. And then we’ll look at just how big the problem really is.

Annual Budget Deficit vs. National Debt

The United States of America spends a huge amount of money each year on all things that fall under the government’s umbrella. Some of the top spenders are:

  • Social work and welfare spending (including Medicare and Medicaid)
  • National defense
  • The Treasury department (which includes interest on the national debt)



In order to cover all this spending, which far exceeds the federal government’s total revenues each year, the government borrows money from investors. Investors buy US securities, effectively lending America the money it needs to cover the difference between its income and expenses.

This difference is formally known as the “budget deficit.” Deficit essentially means “short fall.” And for almost every year since 1969, America has reported a spending deficit. There were a few years, from 1998-2001, when a surplus was recorded.

The total amount of money America owes to its lenders constitutes the “national debt”. As with all debt, interest is the motivation for lenders to give up their money, and the national debt continues to accrue interest.

So for the deficit, think of the annual shortfall we have to borrow to get by each year. In contrast, the national debt is the accumulation of those shortfalls over the history of our country.

How Big are the Debt and Deficit

Now that we have a sense of the meaning of debt vs. deficit, let’s take a quick, albeit painful, look at this year’s debt and deficit projections. For the total U.S. debt, the image below was captured on November 13, 2010 from the TreasuryDirect.gov and shows the total U.S. debt:

U.S. National Debt

To get a sense of perspective, the table below shows the U.S. debt since 2000:

Date U.S. National Debt
09/30/2010 13,561,623,030,891.79
09/30/2009 11,909,829,003,511.75
09/30/2008 10,024,724,896,912.49
09/30/2007 9,007,653,372,262.48
09/30/2006 8,506,973,899,215.23
09/30/2005 7,932,709,661,723.50
09/30/2004 7,379,052,696,330.32
09/30/2003 6,783,231,062,743.62
09/30/2002 6,228,235,965,597.16
09/30/2001 5,807,463,412,200.06
09/30/2000 5,674,178,209,886.86

Now let’s take a look at the annual budget deficit numbers. The projected revenue for fiscal year 2011 is $2.57 trillion. Not bad, right? But wait!

The proposed budget for federal spending in 2011 is $3.83 trillion. Don’t get out your calculator, it probably doesn’t even go that high. The deficit here is $1.26 trillion dollars. That means that America will be looking for that $1.27 trillion in loans just this year to cover the short fall.

To give you an historical perspective, here is a bar chart of the U.S. budget deficit over the past 80 years:

U.S. Annual Deficit

Oh, and remember the interest we owe on every loan? Well, the line item for that expense alone is over $250 billion dollars.

What’s Your Share of the National Debt?

If every man, woman and child in the United States received an equal share of the US debt, how much would each pay?

Here’s a rough breakdown:

  • Assume the US population to be 310 million (according to the US census info).
  • Round the national debt to $13.4 trillion.

Dividing the debt by the population yields: $43,225 per person. And believe it or not, if you’d like to make a voluntary contribution to pay down the U.S. debt, you can. And before you scoff at such an idea, I should tell you that so far in 2010, the U.S. government has received $2,840,466.75 in voluntary contributions.

Photo Credit: Lotzman Katzman

Published or Updated: January 14, 2011
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Nick says:

    Your article about National Debt vs. Budget Deficit lists spending on social welfare as one of the biggest expenses of our country.

    This presentation overlooks the fact that these entitlement programs operate at a profit, adding to the Asset side of our Balance Sheet and increasing our Equity. (the government uses cash-based, not accrual-based accounting). Our National Debt would be lower if we were not spending that money on other things, like Defense.

    Our debt on our current Balance Sheet includes about $6 trillion dollars of money borrowed from entitlement trust accounts to fund annual expenses. When the time comes to spend that money it must either 1) come from current year revenues, or 2) be borrowed.

    This is not the fault of those programs or the math behind them. It is because this money has already been spent on other things (e.g., Defense).

    Further, your chart of the debt history does not take GDP into account, which puts this debt out of context. This link provides a better picture of the national debt (income vs expenses):

    http://zfacts.com/p/1195.html

    I am not sure how people use your web site, but it paints a misleading picture at best.

  2. Andy says:

    I disagree with the comment from Nick, most social welfare programs operate at a big loss, not even close to being profitable.

    Also, the chart on deficit history DOES take GDP into account, look at the chart again.

  3. TY says:

    Clearly Nick has a political ax to grind. ZFACTS is an embarrassingly left-leaning website. Trying to spin Social Security and other entitlement programs as profit-makers is ridiculous. Nick’s vision for America: First, Nick would dismantle our military institutions. Then, since he seems to think welfare runs as a profit-generator, nobody would have a job but would instead collect a welfare check. What a concept! We could then retire the national debt and live in utopia with no wars and no work!!

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