Daily Gains Letter

Budget Deficit

A budget deficit is when more money is spent than there is taken in as income. When a government incurs a budget deficit, its spending programs are more than the revenue that it takes in from taxes, fees, and tariffs. If the government’s income is greater than its spending, then it is said to be running a budget surplus. When a government incurs several years of budget deficits, it then builds a debt, which is the accumulation of the deficits. The total budget deficit is made up of two parts: structural and cyclical. A cyclical deficit stems from the economy. As the economic performance varies, the tax revenues and social-spending programs are adjusted to the cyclical pulse of the economy. A structural deficit stems from the amount of spending in excess of the cyclical portion, after the cyclical portion is paid off.