Public Debt Explanation
Public debt is the total outstanding amount that the United States government has borrowed in order to assist in covering its expenses. The primary form of government revenue generation is taxation. However, when the government spends more than the tax revenues that are collected from U.S. citizens, it must borrow money to cover its additional expenses.
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The Effect of Budget Deficits
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Each year, the U.S. Congress enacts a budget that defines how much money will be spent on various government programs and expenses such as employee salaries, defense, Social Security and Medicare. Depending upon the expenses that are allocated, a budget can create one of three monetary situations: a surplus, an equal balance or a deficit. A surplus occurs when government expenses are less than the total tax revenues. A balanced budget occurs when the government expenses are equal to the tax revenues. A deficit occurs when the budget exceeds tax revenues. In a deficit scenario, the government must borrow funds to pay for the difference between the total budget amount and the income from tax revenues.
Sources of Government Borrowing
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When the government is facing a budget deficit, it will tap into various sources of financing. These sources are either categorized an internal or external modes of financing. Internal modes consist of borrowing from government administered trust funds that are designated for specific programs, such as Social Security. External sources of funding include bonds that are sold to the public and securities that are held by foreign nations or international financial organizations.
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The National Public Debt Ceiling
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The United States Congress traditionally agrees upon a national debt ceiling in an effort to control spending and ensure that its outstanding debts are manageable. As of January 2011, the debt ceiling was set at about $4.3 trillion dollars. As of this date, the national debt was about $300 billion dollars below the ceiling. It is estimated that the U.S. accumulates over $3 billion dollars of debt each day.
The Public Debt Debate
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The debate over whether to lower the national public debt or raise the national debt ceiling has traditionally been split down party lines between Democrats and Republicans. Many Democrats favor increased spending in an effort to continue providing public programs. Republicans tend to favor a reduction in the deficit by scaling back public benefits and revamping entitlement programs, such as Social Security and Medicare, which require an ever-increasing amount of funding each year.
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