When $23 billion is small change Money: National deficits, debt, taxes, fiscal years, what do they mean to the average person? Probably not much -- in a universe calculated in trillions of dollars.

Sun Journal

October 12, 1997|By SUN STAFF

Good news from Washington:

The federal deficit is smaller than expected -- about $23 billion in the year that ended last month. Next year, if the economy remains strong, there may even be a surplus.

Why does it matter? Because when the government spends more than it collects in taxes, it has to borrow the difference. When it borrows, it competes for money with families borrowing for new homes and with businesses borrowing to expand. The competition for money raises interest rates, increasing the cost of borrowing for everyone.

In years of surplus, the national debt can shrink. It now stands at $5.4 trillion. Pay off $100 million a day seven days a week, and you erase the first trillion after 27 years.

Economists suggest that $5.4 trillion is not necessarily a worrisome number. By some measures, it's not even large, and the $23 billion deficit for fiscal 1997 is less than small change. They can seem small because the American economy is large: The $23 billion deficit represents about a third of 1 percent of the gross national product, or the value of all goods and services. The country has long experience with debt. The federal government recorded its first deficit in 1792. There were deficits during the War of 1812, the recession of 1837, the Civil War, the depression of the 1890s, World War I, the Great Depression and World War II.

They became a major political issue in the 1980s, when President Ronald Reagan and Congress agreed on tax cuts but not on spending cuts. Officials ended up cutting income tax rates, greatly increasing defense spending but making only small cuts in other programs. A recession then reduced corporate profits and household income, which reduced tax payments. The imbalance between income and spending grew larger.

In 1985, Congress passed legislation that promised to a balanced budget by 1991. In 1991, it was amended to postpone a balanced budget until 1993. The cost of of bailing out the savings and loan industry helped guarantee that the timetable wasn't met.

In 1990, Congress and President George Bush agreed to spending cuts and tax increases. But then came another recession. As government revenues fell, the deficit grew.

In 1993, Congress and President Clinton agreed to a new package of spending cuts and tax increases. They also agreed to continue a "pay-as-you-go" policy that began in 1990: For every new program approved by Congress, lawmakers also had to find the funds to pay for it. There were other significant budget agreements in 1996 and last spring.

There has also been the benefit of an unexpectedly good economy, generating unexpectedly large tax receipts. And it has allowed economists, the White House and members of Congress the luxury of dreaming about how best to spend a future surplus.

The federal debt explained

What is a fiscal year?

A 12-month accounting period, which in the case of the federal government doesn't start on Jan. 1. Washington's fiscal year begins Oct. 1 and ends Sept. 30. So fiscal '98 began Oct. 1, 1997, and will end Sept. 30, 1998. Fiscal '99 will start the next day -- akin to putting your old checkbook aside and opening a new, unsullied one, but with the same debts and assets you had the previous day.

What is a budget deficit?

The amount spent in a given fiscal year in excess of the revenues collected. In fiscal year 1997 (Oct. 1, 1996 through Sept. 30), Washington spent about $23 billion more than it collected in taxes and other revenues.

What is the national debt?

The total sum owed by the government. That is, the deficit from fiscal '97 and all previous years. As of Friday morning, that was $5,409,087,032,816.

How is the debt financed?

Just as with a bank loan or a credit card, the borrower has to pay interest and also repay the amount that was borrowed. The longer the borrower waits to repay the loan, the more interest he will owe. In the government's case, the money for interest payments has been raised by borrowing more: If you buy a Treasury note or U.S. Savings Bond or any other type of Treasury bond, you are lending money to the U.S. government, and you are repaid with interest. If the federal budget produces a surplus, as may happen as early as 1998, Congress could decide to use some of that money to reduce the debt.

Debt facts

Debt From day to day

10/1/1997 $5,420,505,789,573

10/2/1997 $5,387,382,191,644

10/3/1997 $5,411,881,420,892

10/6/1997 $5,413,432,617,300

10/7/1997 $5,415,085,048,979

10/8/1997 $5,412,240,204,620

Debt as a percentage of Gross National Product

(The lower the percentage, the smaller a country's burden of debt)

United States 49

Canada 67

France 41

Great Britain 44

Germany 49

Italy 111

Japan 17

Pub Date: 10/12/97

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