CandleFocus Glossary Editor
Fiscal deficit is the difference between government income, mainly from taxes and other revenues, and government spending. It is one of the primary measures of the government's fiscal performance. When government spending exceeds its income in a given period, it results in a fiscal deficit.
In the U.S., the federal government creates a fiscal deficit by gathering less money from taxes and other revenues (excluding debt) than it spends on programs such as healthcare and defense. This deficit is then closed by borrowing from the public and external sources such as issuing bonds and Treasury bills. Government borrowing enables it to pay for public services and finance the deficit.
In recent years, the federal government has ran some of the highest annual deficits on record, causing the total amount of accumulated debt to grow rapidly. While some of this debt is held by government agencies, a large amount is held by foreign investors, mainly in the form of Treasury bonds.
For many years, the federal deficit has been a source of political debate. In recent times, the growth of the deficit was partially attributed to the Tax Cuts and Jobs Act of 2017, which cut taxes on personal and corporate income.
Nevertheless, in order to bring the deficit back to a healthy level, economists have proposed different solutions such as controlling government spending, reforming the tax system,and creating an environment of economic growth.
It is important to note that a balanced budget is not always feasible and even beneficial. And that running deficits in a controlled and responsible manner can be used as an effective way to promote economic activity. Governments should also ensure that their spending and borrowing is in line with their debt management policies.
Overall, the fiscal deficit is an important indicator of a government's fiscal health and must be monitored closely. A large deficit can harm a country's economy if it is allowed to get out of control, and can lead to higher taxes and slower economic growth. On the other hand, a smaller deficit can help improve the economy by freeing up resources that can be used for investment and growth.
In the U.S., the federal government creates a fiscal deficit by gathering less money from taxes and other revenues (excluding debt) than it spends on programs such as healthcare and defense. This deficit is then closed by borrowing from the public and external sources such as issuing bonds and Treasury bills. Government borrowing enables it to pay for public services and finance the deficit.
In recent years, the federal government has ran some of the highest annual deficits on record, causing the total amount of accumulated debt to grow rapidly. While some of this debt is held by government agencies, a large amount is held by foreign investors, mainly in the form of Treasury bonds.
For many years, the federal deficit has been a source of political debate. In recent times, the growth of the deficit was partially attributed to the Tax Cuts and Jobs Act of 2017, which cut taxes on personal and corporate income.
Nevertheless, in order to bring the deficit back to a healthy level, economists have proposed different solutions such as controlling government spending, reforming the tax system,and creating an environment of economic growth.
It is important to note that a balanced budget is not always feasible and even beneficial. And that running deficits in a controlled and responsible manner can be used as an effective way to promote economic activity. Governments should also ensure that their spending and borrowing is in line with their debt management policies.
Overall, the fiscal deficit is an important indicator of a government's fiscal health and must be monitored closely. A large deficit can harm a country's economy if it is allowed to get out of control, and can lead to higher taxes and slower economic growth. On the other hand, a smaller deficit can help improve the economy by freeing up resources that can be used for investment and growth.