The difference (and the numbers) between debt and deficits

Global Business

The difference (and the numbers) between debt and deficits

Debt and deficit are two words and concepts that have been repeatedly bandied about in politics and the media. Most times, they’re spoken in the context of government spending.

And they’re frequently mistaken for each other. Here’s the difference between the two, from CGTN’s Ahmad Coo.

The deficit refers to the yearly difference between government spending and the revenue it collects. For instance- a government takes in revenue in the form of taxes, import duties and other income.

It also spends that money each year on things like defense and social security.

Takes this example: the government takes in $5 trillion in revenue but spends $10 trillion in 2017. That means its *deficit* is $5 trillion.

Since the government has to meet all its payments to keep the country running, it will have to borrow the difference.

To cover the shortfall, it will sell bonds, for example, that promise to give the buyer a certain amount of interest to be paid back in the future.

Debt is different: it’s the total amount of money the government owes which is the sum of past deficits- minus surpluses.

Back to our example and the $5 trillion deficit for 2017. If the economy also had a budget shortfall of $5 trillion in 2016, the government’s total debt in the past two years would be $10 trillion.

Ken Goldstein and Gordon Gray have a panel on debts and deficits

CGTN’s Susan Roberts spoke to Ken Goldstein, an economist from The Conference Board and Gordon Gray, director of Fiscal Policy from the American Action Forum. She asked them about debt and deficits, the difference between them, and whether they’re good for the economy or not.