Federal Debt vs. Annual Surplus

Federal Debt vs. Annual Surplus

Over the last several years, the size of the national debt has been increasingly brought to the forefront. Part of the reason for this, is because the amounts have begun to increase exponentially (especially during the last ten years). Evidence of this can be seen by looking no further than the extent of borrowing between: 1990 and 2011. As, it would increase from: $4.4 trillion (in 1990) to $12.4 trillion (in 2011). ("U.S. Government Spending," 2011) This is significant, because it is showing how federal spending is out of control. To fully understand why this is occurring requires: examining the different ways that the debt can increase when the government is running a surplus, the relationship between federal debt with surpluses / deficits and the impact that it will have on interest rates / taxes. Together, these different elements will provide the greatest insights as to the overall problems associated with controlling the national debt.

How is it possible for the Federal Debt to Increase in a Year when the Federal Government has a Surplus?

The way the federal government is able to run a deficit (during a year of surplus) is when: the total amounts of spending will exceed the revenues that they are receiving. This can occur with Congress, spending tremendous amounts of money on a number of different social or defense related projects. As, they are seeking to: provide additional services to the general public through existing programs (i.e. Medicare / Medicaid). While at the same time, they are building expensive weapons systems that are designed to provide the military with a tactical advantage on the battlefield. This is problematic, because it means that this will cause the federal government to spend more on these programs than anticipated (which will bring about rising levels of debt). (Cashell, 2010)

Explain the Relationship between Federal Debt and Annual Yearly Surpluses or Deficits.

The federal debt level is the total amount of money that the government owes to creditors (who are holding various Treasury securities). This amount is affected by: the surpluses and deficits that the government will run over the course of one year. When you seeing, consistent amounts of deficits or surpluses, this will have an impact on the debt level. As, this will cause the sum to: rise or fall, which is a sign of the underlying trends. Over the course of time, these patterns can cause the amounts of debt to increase (if there are large deficits). While the debt, will decline when the government is reporting consistent surpluses. This is significant, because it is showing how these two factors will have an impact on the size of the debt. (Cashell, 2010)

Discuss the Impact on Interest Rates and Future Tax Burdens