Global Report Eco 252

8/13/2019 Global Report Eco 252

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Global / Written Report

The U.S. Deficit at Its Lowest in Five Years

Prepared by

Diane McDonald

Prepared for

Mrs. Parsons

ECO 252

November 24, 2013


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The U.S. Deficit at Its Lowest in Five Years

The U.S. deficit dropped below $1 trillion for the first time in 5 years. Higher tax rates and a

growing economy increased earnings to its highest level recorded. First let me explain what a deficit is.

A deficit is when government spends (outlays) more than what it receives (receipts) for each fiscal

year. The deficit for 2013 fiscal year which began October 1, 2012 to September 30, 2013 totaled $680

billion, down from $1.089 trillion the previous year. The deficit decreased to 4.1% of the GDP (Gross

Domestic Product), down from 6.8% in 2012. The deficit rose at 10.1% GDP in 2009. In 2002-2008 it

placed between 1.2% and 3.5%. Its estimated the U.S. Treasury collected $2.774 trillion. The highest

level on record, up 13% from 2012. The U.S. Treasury attributes the increase to a stronger economy,

increased wages, and higher taxes. Revenues equaled 16.7% of GDP and spending totaled 20.8%. U.S.

spending, at $3.454 trillion is lower than the previous year because of less spending on unemployment

benefits, troops cutbacks in Afghanistan, and automatic sequester spending cuts. Treasury Secretary

Jacob Lew says the nations deficit fell for the past 4 years. The fastest pace of decline over a sustained

period since World War II. In 2008, the deficit was $458.55 billion. In 2007, it was $160.70 billion. The

last time the government ran a surplus was in 2001. In September, 2013 the government surplus was

$75.07 billion. Revenues totaled $301.44 billion and spending totaled $226.37 billion.

The federal government generates returns through income, excise, and social insurance taxes

and fees (U.S. Department of Treasurys Bureau of the Public Debt). Spending includes Social Security

and Medicare Benefits as well as other expendables. The deficit for October generated $91.59 billion

compared to $120.00 billion in 2012. Thats a $95.0 billion deficit (Dow Jones Economists). Its

reported spending fell 5% in October to $290.52 billion. Mainly because of the government shutdown


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and mandatory sequester spending cuts. Income climbed 8% to $198.93 billion. The highest level for

an October recorded. Its forecasted that annual deficits will continue shrinking through the year 2015

if current laws were to remain in place (Congressional Budget Office).

Lets not confuse the federal deficitwith the federal debt. The federal debt is the amount of

money the government owes itself in private and public debt. Money it borrows from securities, like

the Social Security Trust Fund. These are not added to the deficit but the deficit is added to the debt.

The Treasury sells treasury bonds to raise money to cover the deficit. These bonds are sold to the

public. The U.S. debt surpassed $17 trillion on October 17, 2013. Nearly three times the $6 trillion in

the year 2000. The deficit is affected by the debt in a number of ways. One, the debt gives an

indication of the exact deficit each year by comparing the recent year to last years debt. Two, interest

from the debt is added to the deficit. Nearly 5% of the budget is allocated to debt interest payments.

In 2011, debt interest reached $454 billion, $451 billion in 2008, but it dropped to $248 billion by the

2013 fiscal year. And third, the debt decreases tax revenue which increases the deficit in the long run.

But higher interest costs can hurt economic growth.

Initially, deficit spending and consequent debt boosts economic. Deficit spending adds liquidity

into the economy by driving up production and creating jobs. The consequent debt can be damaging to

the economy in the long haul due to factors such as high interest rates from the debt to Social Security

providing less stimulation by slowing down the economy. On October 17, 2013, congress agreed on an

expansion to give The U.S. Treasury permission to issue debt through February 7, 2014. If not passed,

The Treasury wouldnt be able to pay bills. An estimated $30 billion in cash was left in The U.S.

Treasury. Bills that were due by U.S. Treasury:

October 23: $12 billion in Social Security benefits. October 31: $6 billion interest payments, $3 billion federal wages, and $2 billionMedicare providers.


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November 1: $58 billion Social Security/ Disability benefits, Medicare and Military pay. November 14: $12 billion in Social Security benefits. November 15: $29 billion Interest payment on Treasuries. If not paid the U.S. would

have defaulted on its debt for the first time in history.

Economists say the deficit dropped 37% in one year. The economy is strengthen and is better

off than a year ago. Unemployment rate is at 7.3%. The economy added 204,000 jobs in the month of

October (The Labor Department). Even though the percentage of people in the workforce is at its

lowest in 35 years theres hope for an even more recovering economy. To mainly focus on the deficit

could cause more harm than good. Deficits are reduced by less spending and raising taxes. Focus should

be put more on the debt rather than the deficit. The contributing factor is deciding how to reduce the

deficit. More taxes and less spending or less taxes and more spending. Congress has the inevitable task

of deciding how to better resolve this issue to control the federal budget.


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Global / Written Report

References

Sparshott, Jeffery. Economy, Taxes Help Shrink U.S. Deficit; Falls Below $1 Trillion forFirst Time in Five Years. Wall Street Journal (Online) 30 Oct. 2013: The Wall Street

Journal. Web. 31 Oct. 2013

Sparshott, Jeffery. U.S. Budget Deficit Narrows in October. Wall Street Journal (Online)13 Nov. 2013: The Wall Street Journal. Web. 14 Nov. 2013

Amadeo, Kimberly. How the U.S. Debt and Deficit Differ and How They Affect EachOther. About. Com U.S. Economy. Web. 22 Oct. 2013

Spencer, Jim. What Is the National Debt? About. Com U.S. Economy. Web. 2013

Amadeo, Kimberly. U.S. Debt Ceiling. What it is, and what happens If Its Not Raised?The 2013 Debt Ceiling Crisis. About. Com U.S. Economy. Web. 4 Nov. 2013

Murse, Tom. National Debt versus Deficit. About. Com U.S. Government Info. Web.2013

Mui, Ylan Q. Economy Added 204,000 Jobs in October; Unemployment Rate Ticks Upto 7.3 Percent. The Washington Post. 2013: Newspaper Source. Web. 2013 David

Nakamura Contributed to This Report

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