DEFICITS AND DEBT

1. DEFICITS AND DEBT DEFINITIONS DEFICIT – ANNUAL AMOUNT THAT GOVERNMENT BORROWS (SIMILAR TO WHAT PUT ON CREDIT CARD IN A YEAR) DEBT – TOTAL AMOUNT OF BORROWING OVER ALL YEARS THAT’S NOT BEEN REPAID (SIMILAR TO CREDITCARD BALANCE)

2. MEASUREMENT BEST MEASURED AS A % OF GDP HERE – ANNUAL DEFICIT AS A % OF GDP HIGHEST DURING WAR PERIODS

3. TRENDS IN RELATIVE SIZE OF DEBT REDUCED RELATIVE SIZE OF DEBT AFTER WORLD WAR II HOWEVER, SINCE MID 1980S, RELATIVE SIZE HAS INCREASED

4. TRENDS IN FEDERAL BORROWING

5. IS GOVERNMENT BORROWING BAD? BORROWING IS A WAY TO MATCH USERS WITH PAYMENT APPLIES TO LONG-LASTING GOVERNMENT PROJECTS * ROADS, BRIDGES, PUBLIC BUILDINGS * MILITARY HARDWARE TAXPAYERS WHO USE THE PROJECT PAY FOR IT BUT LESS DEFENSIBLE IF USED TO FINANCE CURRENT CONSUMPTION

6. COSTS OF TOO MUCH BORROWING SAME AS FOR AN INDIVIDUAL HOUSEHOLD OR BUSINESS AS DEBT RISES, MORE MUST BE SPENT ON INTEREST ON THE DEBT MEANS LESS MONEY AVAILABLE TO BE SPENT ON OTHER THINGS (OPPORTUNITYCOST)

7. IS THERE A POINT AT WHICH THE DEBT BECOMES TOO COSTLY? SOURCE OF INTENSE RESEARCH BY ECONOMISTS ANSWER: WHEN DEBT TO GDP RATIO ENTERS THE 85% TO 100% RANGE - THEN REDUCESECONOMIC GROWTH RATE OF THE COUNTRY CALLED “TIPPING POINT”

8. OPERATING VS. CAPITAL BUDGET WOULD PREFER TO DIVIDE THE FEDERAL BUDGET INTO TWO PARTS OPERATING – FOR DAY TO DAY EXPENDITURE; MUST BE BALANCED CAPITAL- FOR LONG-LASTING PROJECTS; BORROWING CAN BE USED BUSINESSES AND STATE/LOCAL GOVERNMENTS USE

9. OTHER RECOMMENDATIONS TO CONTROL GOVERNMENT BORROWING REQUIRED BALANCED BUDGET RESTRICTIONS ON GROWTH OF SPENDING (POPULATION GROWTH + SOME REAL GROWTH) RESTRICT SPENDING AND TAXES TO A CERTAIN % OF GDP

10. POTENTIAL FIXES SPENDING: SLOW GROWTH OF BIG ENTITLEMENT PROGRAMS (“MEANS TEST”) TAXES: REDUCE DEDUCTIONS/CREDITS MAKE INCOME TAX MORE PROGRESSIV