U.S. Government Deficits: Causes, Scale, and Impact
This paper examines the United States federal budget deficit, exploring why the government has historically spent more than it collects in revenue and how that practice is sustained through mechanisms such as raising the debt ceiling. Drawing on sources including the Congressional Budget Office, Forbes, and academic economics, the paper discusses the true scale of U.S. debt — including unfunded retirement liabilities — and considers arguments both for and against deficit spending. It also reviews how political decisions, tax policy, war expenditures, and economic downturns have shaped the deficit over recent decades, ultimately questioning whether a large federal deficit is necessarily a negative outcome for the economy.
- Introduction: The Deficit Debate: Framing questions about chronic U.S. deficit spending
- How Large Is the U.S. Deficit?: Official vs. true scale of national debt
- Why the Government Can Spend More Than It Earns: Debt ceiling mechanism and borrowing authority
- Political Decisions and Their Effect on the Deficit: Clinton surplus, Bush tax cuts, and war costs
- Are Federal Deficits Necessarily Bad?: Deficits as private-sector wealth creation
- Conclusion: Deficits are complex, not inherently negative
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What makes this paper effective
- The paper draws on a range of credible sources — including a peer-reviewed economics textbook, the CBO, Forbes, and major news outlets — to support its claims about deficit spending from multiple angles.
- It effectively balances political context (Romney vs. Obama rhetoric) with substantive economic analysis, showing the gap between campaign messaging and policy reality.
- The paper presents both sides of the deficit debate fairly, acknowledging the costs of interest payments while also citing the private-sector wealth argument from Harvey's Forbes piece.
Key academic technique demonstrated
The paper demonstrates the technique of source synthesis — weaving together journalistic, governmental, and textbook sources to build a cohesive argument rather than treating each source in isolation. By contrasting the "official" deficit figure with the broader liability-inclusive estimate, it also models critical evaluation of government accounting distinctions.
Structure breakdown
The paper opens with framing questions that drive the inquiry, then moves through four substantive sections: the scale of the deficit, the legal and policy mechanisms that permit deficit spending, the political history shaping it, and an economic counterargument to the view that deficits are purely harmful. A brief conclusion ties these threads together. The structure is straightforward and well-suited to an introductory economics essay.
Introduction: The Deficit Debate
Why is it that the U.S. government can spend more than it brings in through taxes and other revenue? What are the specific reasons why the U.S. can consistently and continuously operate its programs and conduct official business while running a huge deficit? These questions will be examined in the sections that follow.
A May 2012 article in The Economist quotes Republican presidential candidate Mitt Romney saying that the U.S. government has "a moral responsibility not to spend more than we take in" (Economist, 2012, p. 1). The article reminds Romney that if what he is saying is true, then America is "a thoroughly depraved and immoral country," because in 76 of the past 100 years "the U.S. government has spent more than it has taken in" (Economist, p. 1). In fact, in 26 of the past 30 years the government has spent more than it received in taxes. The article specifically notes that the last five Republican presidents — Nixon, Ford, Reagan, Bush, and Bush — all "violated this putative moral responsibility with joyful abandon" (Economist, p. 1).
While Romney hoped to make political hay with his pronouncement that government debts are immoral, the truth is that he endorsed the proposed budget of running mate Paul Ryan, which includes "massive tax cuts that will dramatically increase the federal deficit." Voters can therefore see that political rhetoric is just that — rhetoric — and that addressing the deficit requires deeper thinking (Economist, p. 2).
How Large Is the U.S. Deficit?
How large is the current U.S. deficit? Overall, it stands at approximately $16 trillion, according to Kimberly Amadeo writing for About.com, a New York Times publication. The Congressional Budget Office (CBO) projected the federal deficit for 2012 to be $1.1 trillion. However, Dennis Cauchon reported in USA Today (2012) that $5 trillion was added to the U.S. deficit in 2011 alone. That larger figure is based on including the cost of "promised retirement benefits" to Congress and the public. It also incorporates "liabilities for Social Security, Medicare, and other retirement programs." While that $5 trillion figure is the more realistic measure, the government is only required to calculate and report the "official deficit," which was $1.3 trillion (Cauchon, p. 1).
Cauchon quotes Sheila Weinberg of the Institute for Truth in Accounting: "By law, the federal government can't tell the truth." She is referring to the gap between the working number ($1.3 trillion) and the real number when retirement program obligations are included ($5 trillion) (Cauchon, p. 1). This distinction between official and comprehensive deficit figures is central to understanding the true scale of the nation's fiscal obligations.
Why the Government Can Spend More Than It Earns
The U.S. government can spend more than it brings in because deficit spending has been an operative federal policy for many years. When a government cannot pay all of its fiscally mandated obligations, it cannot simply issue IOUs to the entities it owes money to. Instead, it borrows. When more money must be borrowed, the federal government raises the debt ceiling. It is up to Congress to approve any such increase; unless Congress does so — which it has done 74 times since 1962 — the Department of the Treasury does not have the legal authority to borrow additional funds (Sahadi, 2011).
Economics professor Robert L. Sexton writes in his textbook Exploring Economics that budget deficits "can be important" since they offer the government "flexibility to respond appropriately to changing economic circumstances" (Sexton, 2010, p. 782). For example, deficits may be helpful during an economic downturn or a national emergency. When taxes are cut and government spending increases, the deficit grows larger, Sexton explains.
Conclusion
The issues surrounding federal debt and spending money that the federal government does not have are not that complicated, although clearly the general public is not fully conversant with the accounting that accompanies deficits, borrowing, and spending. Romney and Obama may bicker with each other over the deficit, but the voting public — when aware of the true facts — should take some comfort in knowing that a large federal deficit is not necessarily a bad thing in every respect.
Works Cited
Amadeo, Kimberly. (2012). The U.S. Debt and How It Got So Big. About.com. Retrieved October 31, 2012, from
Congressional Budget Office. (2012). CBO's Major Budget Reports. Retrieved October 31, 2012, from http://www.cbo.gov/publications/43648.
Cauchon, Dennis. (2012). Real federal deficit dwarfs official tally. USA Today. Retrieved October 31, 2012, from http://usatoday30.usatoday.com.
Economist. (2012). Romney and Obama: Truth in campaign advertising. Retrieved October 31, 2012, from
Harvey, John T. (2012). Why You Should Love Government Deficits. Forbes. Retrieved October 31, 2012, from http://www.forbes.com.
Sahadi, Jeanne. (2011). U.S. hits debt ceiling. CNN Money. Retrieved October 31, 2012, from http://money.cnn.com.
Sexton, Robert L. (2010). Exploring Economics. Independence, KY: Cengage Learning.
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