The Budget Deficit – 101

Posted on January 30, 2013 by John Blackstock

The dictionary defines deficit as a “shortage of something needed or required.” In the case of the U.S. Federal budget deficit, the term refers to the difference between the amount of money collected through taxes and earned interest, and the amount of money the government spends each fiscal year. Inflow compared to outflow. A simple concept.

Unlike your operating budget, which you’ve no doubt spent many hours developing — taking into account projected sales volumes, expenses and allowing for anticipated ups and downs in your marketplace — the Federal government has not agreed upon a Federal budget for several years. Therefore, the measure of the Federal deficit is a “budget-less figure.” Furthermore, its value relies only on how one chooses to measure the deficit.

Consider first that economists and politicians often disagree on the definition of the budget deficit. For example, one might argue that the deficit does not take into account the assets of the Federal government. Adding salable Federal assets – such as national parks that could be sold and privatized – would have substantial impact on how the deficit could be reported. (Assets currently are not part of the deficit formula).

Alternately, some politicians argue about the very definition of the Federal deficit. Some claim, for example, that Social Security does not affect the deficit whatsoever and should not be included in its calculation. Yet the Congressional Budget Office reports that Social Security payments to retirees and those on disability (SSI) payments exceeded Social Security tax collections as far back as 2010. Which perspective prevails when the government reports on the deficit, and which figures reaches the media?

Like so much in government, politics and economics, the words one uses and the definitions one chooses determine the numbers that will be reported and discussed. The key here is to recognize that in spite of differing philosophies and points of view, the deficit is what drives the demand for more taxation on one hand, and reduced spending on the other. The deficit is, for most, a figure that should be reduced to zero.

How simple it would be if you could run your businesses without first having to develop a budget; without much concern over spending money you don’t have; not caring about borrowing and creating liabilities you may or may not ever be able to meet.

However, virtually every business person I work with is hard at work creating the opposite of a deficit: a budget surplus. That surplus is what allows you to grow, take on new markets and products and to expand. It’s the engine that fuels our economy. If you would like help for your business on how to create more surplus, or any of the steps that lead to it, feel free to contact me.

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