U.S. Federal Budget Deficit

The budget deficit is when the government spends more than it receives in revenue. In FY 2011 the deficit is projected to be $1.26 trillion, the difference between $3.83 trillion in spending and $2.57 trillion in revenue. Although this deficit huge, it is less than the $1.6 trillion deficit in FY 2010, and the $1.4 trillion deficit in FY 2009. (Source: OMB Table S-1)

The difference between the U.S. government and you is that the President and Congress plan to overspend. (Hopefully, you don't!) This is for three reasons:

1. The more the government spends, the more it stimulates the economy.
2. There are many other countries, like China, willing to lend us the money.
3. Politicians get elected for saving jobs. They lose elections for allowing unemployment to continue or raising taxes.

The recession makes the incentive to overspend is even greater. No one wants to risk throwing the economy back into recession.

On a year-by-year basis, a budget deficit is not really a concern. The U.S. government is like the world's best customer -- it buys a lot, and since its economy has been one of the world's strongest, it has always paid the debt back. However, as the debt continues to increase, eventually someone, somewhere, will get antsy and start to demand their money back. At this point, it could cause a panic, which would be devastating for the global economy...not to mention your finances.

The government is reducing the deficit by FY 2012, but has no intention of eliminating it. The Office of Management and Budget (OMB) forecasts a deficit of at least $700 billion a year through FY 2020. This is much higher than last year's budget, which forecast a deficit of at least $500 billion a year through 2019. Increased spending was needed last year to boost the economy out of recession. It may even be needed this year, to insure the economy doesn't falter. But, deficit spending is not needed beyond that, and should be reduced. (Updated February 1, 2010)