All Issues
  Deficit and Debt
    Federal Deficit
    Federal Debt
    Central Issues
      Debt Ceiling
      Balanced Budget Amendment
      Social Entitlement Programs
    Candidates' Positions on the Deficit and Debt

The federal government does not make enough money to pay its bills. Count every penny of revenue from income taxes (most of the government's income), corporate taxes (much less but still a sizable fraction), and miscellany like import tariffs and earnings on assets (which make miniscule contributions), and compare it to the money it budgets for spending each year – you'll find that the government comes up short, by hundreds of billions of dollars, every time. The solution to this problem is to borrow money, and that's exactly what the US does; lots and lots of money, just to pay for regular annual expenditures.

For much of the nation's history, it wasn't like that – though it did begin that way. During the Revolutionary War, the rebelling American colonies took on large sums of debt to pay for their war effort against the British Empire. After the conflict, in the last decade of the eighteenth century, Alexander Hamilton (who was experienced in banking) sought to strengthen the fledgling dollar by refinancing the debt, so that it was now an obligation of the new federal government. But the United States returned the money it owed: careful financial planning and limited government operations were implemented, with a portion of revenue set aside each year for servicing principle and interest, and by the 1830s, the federal government had paid off its debt in full.

The United States – or specifically, the Union – borrowed money again to cover the Civil War, but paid it back by the turn of the 20th century. Then, following the now-familiar pattern of incurring wartime debt, money was taken out again for World War I. The obligation was modestly (not entirely) paid down, but when the Great Depression hit, President Hoover adopted a policy of borrowing money to offset basic national expenses. Things were never quite the same after that – unprecedented, costly social entitlement programs followed in the New Deal era, World War II rocketed the national deficit into orbit, and a country that had often operated without borrowing money began spending more than it took in as routine.

Today, the federal budget runs a deficit of about $500 billion each year. The shortfall for fiscal year 2016 is projected at $474 billion, while the all-time record was set in 2009, when a struggling economy put the United States $1.4 trillion in the hole. The current national debt, all deficits minus surpluses, stands at a little over $18 trillion.

Federal Deficit
The federal deficit is most succinctly defined as the total amount of money that the federal government spends, minus the amount of revenue it generates (from not only taxation, but other sources). In modern times, this is almost always a positive number, meaning that the government is spending money it does not have itself, but must borrow from others. For most years of the nation's history, however, the federal budget (the government's planned expenditures for a given year) has run no deficit whatsoever. Times of war have generally formed the exception to this rule, while the decades following the Great Depression have ushered in an era of consistent peacetime deficit spending. It is now typical for the federal government's annual expenses to outstrip its income.

Federal Debt
When the government wishes (or needs) to spend more money than it has, the solution is to borrow. This is generally accomplished through the issuance of US Treasury Bonds, which are “sold” for a dollar amount shown on their face. An individual or organization that buys such a bond is, effectively, lending their money to the government for a period of time. The time at which this loan comes due is known as the bond's “maturation date”, when the government must repay the amount shown on the document's face – meanwhile, in the years leading up to maturation, the government must finance its debt by making interest payments to the bond holder.

But rarely does the purchaser buy a bond directly from the government, hold it until maturity, and collect the principal of their loan. Bonds are not static; they are valued securities that are traded on the open market. Someone may be interested in selling their Treasury bond for less than its face value, because they do not wish to wait for maturation to collect their money. The buyer, meanwhile, would be someone willing to invest in the bond now in exchange for a greater payoff in the future, either at maturity or when they themselves are able to sell the bond yet again for more than they paid. The government owes money to whoever holds the bond, and has no say and no control over who buys and sells it.

While US Treasury Bonds are (like all securities) technically considered to carry a degree of risk, they are seen the world over as extremely safe investments. The federal government has very strong credit, and has never defaulted on its debt payments. In 2011, with the US embroiled in an economic crisis, the major credit rating agency Standard & Poor's downgraded the nation's credit rating from AAA (“outstanding” on its scale) to AA+ (“excellent”), citing concerns over instabilities in the government's policymaking endeavors. It was the first time such a downgrade has occurred, and it has not been duplicated by Moody's or Fitch Group – the other two primary world credit rating firms.

Of the $18.1 trillion currently owed by the federal government, $6.156 trillion – about 34% - is held by foreign investors. This includes individual citizens as well as governments of other countries and private institutions in those countries. Investors in China and Japan (with the slight edge going to China) hold far and away the most US debt of any foreign entity, weighing in at well over $1 trillion each. Oil exporters and Caribbean banks are next up, but trail the Asian nations substantially, each with less than $400 billion in holdings. The remaining 66% of the federal government's debt is held by domestic (American) investors, the Federal Reserve, and – somewhat humorously – the government itself. Various agencies within the government can, and do, lend money to one another.

Central Issues
Virtually all politicians – and many voters – have passionate feelings about the national deficit and how it should be handled. As a general rule, right-wing conservatives are opposed to deficit spending, sometimes declaring that it represents the government “living beyond its means” as responsible citizens are wise to avoid doing, while leftist liberals accept the presence of at least a modest deficit in order to pay for what they consider needed government operations.

Debt Ceiling
The so-called “debt ceiling” refers to a legislative limit on the amount of debt which the federal government may undertake. For most of the nation's history, no such limit existed – borrowing was authorized by Congress as needed (and, generally, paid off in relatively short order). In 1917, limited debt restrictions were imposed by the Second Liberty Bond Act, and in 1939, the first cap on total obligations was passed. There has been a federal debt ceiling in the United States ever since.

It is interesting to note that because the budget process is quite separate from any legislated restriction on debt accumulation, the debt ceiling cannot actually be used to legally prevent deficit spending, merely to stop the borrowing necessary to finance it. If a budget is passed calling for more expenses than can be satisfied by revenues and the debt ceiling's upper boundaries for money owed, Congress is tasked with finding a way to avoid a potentially catastrophic federal debt default. This disaster has loomed on the horizon several times, but has never actually materialized; in general, Congress simply raises the debt ceiling whenever additional funds are necessary for a given year's budget.

The debt ceiling has been criticized as ineffective and – given the fact that it can be adjusted as needed – ultimately meaningless. Supporters of the concept contend that it encourages care in federal spending and helps prevent irresponsible borrowing.

Balanced Budget Amendment
The vast majority of US states have passed amendments to their own constitutions requiring that the state budget be in balance, meaning that it calls for no deficit spending whatsoever. No such amendment exists in the national US constitution, but as far back as 1791, Thomas Jefferson wrote and spoke favorably of implementing one. The idea has had its supporters (and detractors) ever since.

Those favoring a balanced budget amendment are likely to defend it as responsible financial planning. They may claim that deficit spending is unsustainable, or sometimes will utilize a moral argument that likens the practice to creating a debt for children in the present to be unfairly obligated to pay off in the future.

Opponents of the proposal often say that a balanced budget amendment would be unenforceable. They point to the fact that congressional budgets are, ultimately, mere projections of spending for the coming fiscal year, and that there is no way to know for certain whether a deficit will necessary occur. They also cite the opinions of some economists, who have said that while excessive debt is harmful, modest borrowing can actually benefit an economy in times of recession.

Social Entitlement Programs
One of the chief reasons that the federal government is no longer able to function without taking on annual debt, social entitlement programs such as SNAP (food stamps), Social Security, and various forms of welfare are hotly controversial political issues. For various reasons mostly concerning precise definitions, it is difficult to quantify the figure in detail, but some 60% of the yearly federal budget – about $2.27 trillion - is appropriated for the maintenance of social entitlement programs. That's around 13.6% of the Gross Domestic Product, or GDP.

Those who oppose these programs or call for cuts in government spending on them, therefore, begin with a simple argument: they cost too much. These people may also invoke capitalism and claim that social entitlements interfere with the natural functioning of the free market, or that it is unfair for people who do not need the benefits to be forced to pay for those who do.

Supporters of social entitlement programs say that times have changed since the agrarian society that prevailed for most of the time before these programs were implemented, and that the modern United States no longer allows its citizens to go without. Like their opponents, they may also invoke the economy, saying that the entitlements are beneficial and stimulative rather than harmful.

Candidates' Positions on the Deficit and Debt

Hillary Clinton
Gary Johnson
Jill Stein
Donald Trump


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