Budget deficit vs. national debt

[American liberal]

Can anyone with a more thorough understanding of economic and accounting matters than me please help me understand the relationship between budget deficits/surpluses and the national debt?

In the late 1990s, the mainstream media reported that the budget deficit created by Reagan had been turned into a surplus thanks to Clinton's sound fiscal policy and that some of that surplus was being used to retire national debt. All good things, IMO.

Well, this guy from another web site I post to (an organic gardening site of all places) who calls himself a "Constitutionalist" says that the budget surplus was a hoax, that the national debt has continued to increase, therefore there could not be a surplus.

Here's the link http://forums.rodale.com/og/thread.jsp?forum=10&thread=17406

and text from the thread. Is this true? Please enlighten me.
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There is nothing really complicated about the national debt. It consists of the money borrowed from and owed to: (1) various government trust funds, including Social Security, and (2) the public, including individuals, corporations, state, local and foreign governments, and the Federal Reserve, typically in the form of bonds or other types of securities.
When the government takes in less revenue than it spends, which it does each and every year , it has to borrow the difference. The national debt is the accumulated total of annual budget deficits. It’s as simple as that.

The national debt increased each year during Clinton’s two terms, just as it did while Reagan, Carter, Ford, Nixon, etc., were in office.
So how did Clinton claim a budget surplus when the government actually took in less than it spent? Ooooohhhh, it was so easy. He just borrowed the money from off budget accounts such as Social Security and then used that money in his calculations. It’s the kind of accounting gimmickry that would land any businessmen in jail for fraud. Imagine looting your employees' pension plan each year and treating the money as operating receipts.
For the federal government, this is perfectly legal!!!

Social Security and other trust funds are just meaningless records of taxes that have been collected for future needs, spent for current desires, and then recorded and counted as an asset. Those “assets” are then counted as general revenues and (drum roll)...
WE HAVE A BUDGET SURPLUS.
But since the money was already spent and therefore doesn’t actually exist, the government has to borrow to pay its operating expenses, which results in (drum roll)...
AN INCREASE IN THE NATIONAL DEBT.

There was no such thing as a budget surplus. It’s just an accounting scam and has been for years.
When the Democrats had control of Congress, the Republicans attacked the idea of borrowing from Social Security and the other “trust funds”, but when the Republicans took control, they wanted a balanced budget so badly that they went right along with the fraud. Now it’s just a cheap inside joke, and the amazing thing is that the major news media (CNN for an example) plays right along with them.

[phantom power]

1. "debt" == total owed debt. "deficit" is one year budget shortfall

[damnraddem]

2. A budget deficit is what's being spent now, the debt is what's owed.

Just like if you are spending more than you make this week, you have a budget deficit -- if you've done it more than just this week, then you have debt built up to which you are adding. As I understand it, the feds WERE taking in more revenue than the feds were spending in some years of the Clinton administration, so had budget surpluses; which meant that the pre-existing debt might have been paid down, or not, but certainly was not eliminated. However, most of Clinton's 'surpluses' were projections into the future, assuming that revenues would continue to outstrip expenditures.

There are real issues with fed govt. debt accounting, however. All sorts of accounting tricks are pulled, so it's hard to know where anything stands. But the feds also don't get credit for assets acquired. For example, if you or I, or a company, spends in some way that could be considered an investment (e.g., buys property or capital equipment), the value of what is bought is considered an asset to offset some or all of the debt incurred. That is not true of the fed govt. If the fed govt. buys an asset, perhaps a piece of land, the expenditure goes into the negative column, and all that counts against it is tax or other revenue.

So, exactly when the govt. has a surplus or deficit is hard to know with precision -- but big surpluses and deficits can be known accurately to exist despite the lack of precision. Thus, the later Clinton years appear to be years of surplus, while the Dubya years have been years of gigantic deficits -- even if we don't know how big either were or are.

[Lefty48197]

3. The deficit belongs to George Bush. The debt belongs to Ronald Reagan

Correction: The debt belongs to our unborn grandchildren.

[idlisambar]

4. He's basically right.

Go to Fritz Hollings' discussion on the Federal budget for some discussion and charts...

http://hollings.senate.gov/debt.html


The bottom line is that the the national debt has increased every year since 1969, including the late 90's

A couple of caveats though...

The deficit was indeed quite small by the late 90's. The 2000 budget almost achieved balance, so it wasn't all accounting gimmickry or fraud.

The debt as a % of measured GDP did decrease during the 90's