Some people confuse the terms  Deficit and Debt when talking about our nation’s finances.  I thought I would spend a second to describe the difference.

When we talk about the National Debt, we are talking about the amount of money that our government owes people, companies, and even foreign nations. This is comparable to a person having a home loan, several car loans, lots of credit card debt, and IOU notes written out to everyone in the neighborhood.

The National Budget Deficit is the amount of money the government spends more than the amount of money the government collects. A person having a budget deficit would likely be putting more debt onto a credit card than payments to pay it off. Every year the government works out the budget, that is, they decide how much money they are going to throw at what. When they’ve spent more money than is collected through taxes, they say, “Oh well, we’ll just take out more loans.” The National budget deficit is the amount by which our National debt increases.

When there is talk about “reducing the deficit,” they aren’t talking about reducing the national debt. They are just reducing the rate at which the government takes out new loans. “Cutting the deficit in half” is saying, “We are only going to take out half as many new loans this year.”