What's The Difference Between Debt And Deficit? While Ireland's debt crisis drove thousands of protesters into the streets, Washington prepared for next week's release of the president's deficit commission report. Maya MacGuineas of the Committee for a Responsible Federal Budget gives us a primer on debt and deficits.
NPR logo

What's The Difference Between Debt And Deficit?

  • Download
  • <iframe src="https://www.npr.org/player/embed/131632282/131632279" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
What's The Difference Between Debt And Deficit?

What's The Difference Between Debt And Deficit?

  • Download
  • <iframe src="https://www.npr.org/player/embed/131632282/131632279" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


This is ALL THINGS CONSIDERED from NPR News. Guy Raz is away. I'm Audie Cornish.

(Soundbite of protest)

CORNISH: The sound of protesters in Ireland today, where the government has proposed dramatic spending cuts. While Dublin wrangles over its debt, lawmakers in D.C. will get an earful from President Obama's commission on fiscal responsibility next week. The goal is to prevent America from ending up as financially vulnerable as other nations. And that's our cover story today: mired in debt.

Europe, for instance, is frantically trying to contain a debt crisis that's taken Ireland as its latest victim. But the multibillion-dollar bailout plan from the E.U. and the International Monetary Fund comes with a price, a harsh austerity program that's drawn thousands of people to demonstrations in Dublin.

NPR's Philip Reeves files this report from the Irish capital.

PHILIP REEVES: They marched along the Liffey, the river that carves through the heart of Dublin, and came here to the general post office, the site in 1916 of an uprising against British rule on the path to Ireland's independence.

The crowd includes Kaitriona MacAonghusa and her 7-year-old daughter.

Ms. KAITRIONA MacAONGHUSA: Basically I'm here because I'm really angry at the state of the country. I think that a small percentage of the population through naked greed and stupidity, and being facilitated by the government with light regulation, have been allowed to ruin this country. And me and my children have to pay for that. And I really, really object.

REEVES: It's a freezing day. The crowd's peaceful but angry. It's angry about plans to cut 25,000 public sector jobs, and pay and pensions, and the minimum wage. These measures are part of the government's four-year program to shrink its huge budget deficit. They're required for Ireland to seal an IMF-E.U. bailout, now under negotiation, of more than $115 billion.

The unions organizing this protest say the people who'll really pay the price are those on low and medium incomes, people like Alan O'Mara, a 53-year-old civil servant, who now stands to lose a chunk of his pension.

Mr. ALAN O'MARA: You do things by the book. You work for 35 years. And everything you have worked for goes down the tubes, you know, you feel pretty angry.

REEVES: Ireland's coalition government's clinging to power with a wafer-thin majority. It's agreed to an election, but after parliament's approved the four-year plan and the IMF deal is finalized. The crowd wants the government to resign now.

(Soundbite of protest)

Unidentified Group: Out, out, out, out.

REEVES: There are reports tonight the IMF-E.U. bailout package will be announced tomorrow. Many here doubt it'll work. Among them, protester Rona Booth.

Ms. RONA BOOTH: It's ridiculous. The whole euro is going to come tumbling down. Every idiot, anybody with a bit of an education knows that. It's just like a house of cards waiting to fall in.

REEVES: Philip Reeves, NPR News, Dublin.

CORNISH: The situation in the U.S. isn't that dire, but expect a lot of shouting over the nation's fiscal health. So what do you need to know? For one thing, get a handle on the vocabulary, like the difference between the words debt and deficit. They don't mean exactly the same thing, though you wouldn't know it from the chatter in Washington.

Unidentified Man #1: ...of the president's deficit commission. I want to get to those commission proposals...

Unidentified Man #2: ...and the debt commission...

Unidentified Man #3: ...the deficit and the debt, which is...

Unidentified Woman #1: Stop being the runaway train of federal debt.

Unidentified Woman #2: The deficit is growing because we're spending too much money. And we've got to quit that stimulus spending; he's growing debt.

Unidentified Woman #3: Do you think people actually get it?

Unidentified Man #4: I don't think most Americans know...

Unidentified Man #5: ...the deficit skyrocket.

Unidentified Man #6: Taxpayers will get whacked.

Unidentified Man #5: Skyrocket again.

Unidentified Man #7: Stop the spending. Get the deficit under control. Reduce this debt.

Unidentified Man #8: Exit polls say the first priority for the new Congress should be to reduce the deficit, debt/deficit, debt/deficit. Let's give our viewers a basic vocabulary 101 on this.

Unidentified Man #9: I would say there are three categories.

CORNISH: It's a lot to sort through, so it's no wonder we heard this from people at a busy Maryland shopping center this week when we asked, what's the difference between the debt and the deficit?

Mr. JOHN MATSICK: There is a difference?

Unidentified Woman #4: I'm not sure that I could explain either one.

Ms. L.T. JONES: The only thing I can worry about right now is that I have debt.

(Soundbite of laughter)

Mr. MATSICK: No, I don't think I do know the difference.

Unidentified Woman #5: The national debt is how much we owe overall. And the deficit would be how much shortfall there is in the current budget.

CORNISH: That last one was actually pretty close. But for a deeper explanation, we spoke to Maya MacGuineas. She's a policy analyst with the New America Foundation and testifies regularly before Congress on fiscal policy issues.

In our Washington studio this week, I asked her what the difference is between the debt and the deficit.

Ms. MAYA MacGUINEAS (Policy Analyst, New America Foundation; President, Committee for a Responsible Federal Budget): So the deficit is how much the government borrows each year. It's how much more it spends than it takes in in revenues. And as a result, it has to borrow that amount through treasuries. It issues Treasury bills and bonds and notes, and that's what finances the deficit.

The debt is all the borrowing we've done, accumulated. So the debt is trillions and trillions of dollars because it's each year's deficit layered upon the previous years.

If we think about it from a family's perspective, the deficit is how much you borrow each year and put on your credit card. The debt is how much of a balance that you're carrying. And it's that debt that if it starts to grow too fast, relative to the economy or relative to your income if you're a household, that can really become problematic.

CORNISH: Is there any circumstance where having a deficit is a good thing?

Ms. MacGUINEAS: Absolutely. The reason that you want to have a budget surplus when the economy is strong is so that you have the flexibility to have a deficit when the economy is weak. But you don't want to have that in a ongoing basis. And right now, we have these projections that we will never ever balance the budget again, that we will always have deficits. Just like you can't go on borrowing forever in your own household, that's not sustainable for the federal government.

We put these policies in place before without paying for them, they're still there on the books and they're going to be exacerbated as more people are aging and health care costs are growing. So it's that annual deficit, that annual borrowing that we have to restructure our budget to bring it down.

CORNISH: You know, one thing that strikes me about the way the U.S. government has operated these last couple of decades is it's very close to the way a lot of Americans operate. I mean, lots of us still have a credit card and spend more than we really are taking in in terms of income. And lots of us have lots of debt. You know, whether it'd be our home or cars or whatever it is. Do you think other people are starting to make that analogy as well? I mean, do you think people are starting to think, well, the government is going to have to do some tough things, the way I have to do some tough things.

Ms. MacGUINEAS: Yeah. As somebody who was just doing her bills last night, I'm painfully familiar with looking at that and noticing that we are over-consumers as a country. We have been over-consuming for quite sometime now. And as a result, we're over-leveraged. That was true for households and it's true for the federal government.

And I think leverage or borrowing was the theme that really put us into this crisis that we recently endured. And in order to help get out of it, we've had to borrow more. That shifted this excessive borrowing out of households and housing to some extent and put it on the federal government. And that means we're not out of the woods yet. We have to figure out a way to not live beyond our means, both in the family level and in the federal government level.

CORNISH: Now, give us a little bit of history here. In 1990, the country had a pretty significant deficit. And by 2000, there was a little bit of a surplus. And now, in 2010, we have this huge deficit. What do you think is the Cliff Notes version of how we got from there to here?

Ms. MacGUINEAS: So in the '90s, we woke up to the concerns about deficits and debt. And members of Congress and the president sat down and hashed out some deals. And they did all the things that you have to do to bring deficits down. They raised taxes, they cut spending, they put strong budget rules in place to keep these things on track. And we made a lot of progress, progress that was really bolstered by a growing economy and a stock market bubble.

And we also, luckily, had the baby boomers in their prime working years. So we had a very good labor force, not something we're going to have in the future as more and more people are coming out of the labor force and retiring. But a lot of things came together and helped us get out of that fiscal hole and returned us to budget surpluses, which was great until it loosened Congress' resolve. And then, suddenly, it was tax cuts and spending increases everywhere. And...

CORNISH: They did what all of us do. They said, hey, I got a bonus.

Ms. MacGUINEAS: I got a little extra money.

CORNISH: What should we do with that extra money?

Ms. MacGUINEAS: Yeah. I got a bonus. Should I take a cruise or should I buy shoes? I know, I'll do both. And that's kind of what happened at the federal government level. It was Christmas. You know, we got everything we wanted. And the narrative in this country changed from fiscal responsibility to deficits don't matter. And that's where we spent a lot of time, and nobody tried to pay for the policies that they put in place.

CORNISH: Over the next few weeks or months, we're going to hear people use these terms, sometimes interchangeably, sometimes to bolster their argument one way or the other. What are some of the things you think people need to understand in order to get through this discussion and cut through what some of the lawmakers are out there saying?

Ms. MacGUINEAS: Well, in terms of deficit and debt, I don't think people should hold out for a plan that's going to balance the budget necessarily. But if we bring the debt down relative to the economy, bring that debt-to-GDP ratio back down, that is something that's going to be very, very helpful in keeping our economy strong.

Other things, I think, to watch out for are these kind of false promises. We're not going to grow our way out of these problems. We can't do it by cutting taxes more or spending more. You have people who are always making claims that sound great, you know, if only they were true, but it's wishful thinking.

And what we need to do is have a adult conversation about the different kinds of trade-offs. If you don't want to cut this in the government, do you want to pay more taxes? If you don't want to pay these taxes, do you want to pay other taxes? But budgetary trade-offs is going to be the real focus of the conversation going forward.

But I really think the co-chairs of this White House commission, Erskine Bowles and Al Simpson, have changed the game by putting forth an honest, straightforward plan about the kinds of things that will be involved. And hopefully, what we won't hear is more kind of empty promises about easy solutions and we'll refocus on the different ways that we can really bring the deficit down, bring the debt down and hopefully strengthen our economy by doing so.

CORNISH: That's Maya MacGuineas, president of the Committee for Responsible Budget, an advocacy group Washington, D.C. that promotes fiscal restraint.

Maya MacGuineas, thank you for talking with us.

Ms. MacGUINEAS: Thanks for having me.

Copyright © 2010 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.