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Jul 26, 2017

National Debt vs. State Debt

Do you know how different state and national debt are? How about budget deficit or budget surplus? Budget deficit is an important term used when the amount of money spent exceeds the amount of money received. A budget surplus is when the amount of money received exceeds the amount of money spent. The last time the United States recorded budget surpluses was between 1998–2001, under President Bill Clinton (CNN.com). This article explains the details between the two debt systems, budget deficit and surplus, and how government debt is dealt with in the United States of America.

What is the National Debt?

National debt increases when government spending exceeds revenue received from taxpayers. It is the amount of money the federal government has accumulated in budget deficits over the years. The United States government has had a fluctuating public debt almost every year since its formation in 1789 (Wikipedia.org).

How the Feds Deal with National Debt

Whenever the federal government receives a budget deficit in a year that means the government has spent more money than it received from tax revenue and fees. During a budget deficit, the U.S. Treasury might try to balance the budget by borrowing money or selling Treasury securities (e.g. inflation-protected securities, savings bonds, foreign investing, etc.). Usual times of budget deficits and increased federal debt occurs during wars and/or recessions. The usual goal when establishing the national budget is to spend less than the expected tax/fee it will receive, but is rarely successful. (ThoughtCo.com)

What is State Debt?

State (or local) debt is the amount of money from budget deficits that each state has accrued. State debt is a different subject than national debt because of the balanced budget provision that 49 of the 50 states has in place. The balanced budget provision is a constitutional amendment that requires states not to spend more than their income.

Every U.S. state (other than Vermont) has some form of the balanced budget provision applied to its operating budget. Some states, such as Indiana, have an exception to the amendment for temporary and casual deficits which prevents the requirement that the end year’s budget must be balanced. Oregon also has a modified budget amendment which refunds money that is more than 2% of the annual budget revenue to taxpayers. (NCSL.org)

 

Sources

CNN.com: http://politicalticker.blogs.cnn.com/2010/02/03/cnn-fact-check-the-last-president-to-balance-the-budget/
Wikipedia.org: https://en.wikipedia.org/wiki/National_debt_of_the_United_States
ThoughtCo.com: https://www.thoughtco.com/national-debt-vs-federal-deficit-3321460
NCSL.org: http://www.ncsl.org/research/fiscal-policy/state-balanced-budget-requirements-provisions-and.aspx

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