What is the deficit vs national debt? Here's the difference and Trump's vs Clinton's plan

What is the deficit vs national debt? Here's the difference and Trump's vs Clinton's plan
Source: AP
Source: AP

The national debt and the country's deficit are easily confused and conflated economic concepts. They even trip up lawmakers sometimes.

Here's a breakdown: The deficit is the amount by which a government's expenses are greater than its revenue during a fiscal year. The debt is the total amount of money that the government owes to its creditors. 

Boiled down, a deficit is a one-year figure, debt is all money owed. Or in an analogy: The deficit is one tree, the debt is the forest.

If the deficit falls does it make a sound?
Source: 
Living Stills/Giphy

The two are related, but not correlated. Just because the deficit is reduced doesn't mean the debt is reduced. 

If the federal government runs deficits for multiple years — as we have done, with only a few exceptions, during the last 75 years — the deficits, plus the interest piling up on that borrowing, accumulate into the national debt.

Here's how the deficit and debt matter in this election.

The deficit just went up and that's no good.

This year's U.S. deficit, just announced on Oct. 14, is higher than it was last year: It is now $587 billion, up from $438 billion, which comprised 2.5% of gross domestic product (essentially, the economy).

This is not good: While running deficits can have upsides, particularly if they provide business stimulus, one of the best reasons to keep them low when times are good is that it is then easier to widen deficits by spending when you actually need to — say, during a recession, when you need to give out more food stamps.

Earlier this year, President Barack Obama sought to avoid adding to the deficit by increasing taxes on wealthy Americans — but Congress wouldn't play ball.

During previous years of Obama's presidency, annual deficits fell steadily.

The annual deficit shrank between 2009 and 2013.
Source: 
WhiteHouse.gov/Giphy

While Democratic presidential nominee Hillary Clinton uses stump speech language about raising taxes on the wealthiest Americans, she says she's going to use that cash to cover her new programs — not necessarily put it toward lowering the deficit. 

Republican presidential nominee Donald Trump often points to renegotiating trade deals as a way to reduce the deficit. But as Politico points out, that is unlikely to drop the deficit, even with new economic growth. And Trump's plan to dismantle the Affordable Care Act would likely increase deficits, according to the Congressional Budget Office.

U.S. debt keeps rising over time.

The federal debt is the whole amount of money that the U.S. government owes to its creditors. That's any individuals, businesses, governments and other groups that hold debt securities, such as government bonds. 

Currently national debt stands at about $19.7 trillion, with about $14.2 trillion of that held by the public and the rest held within the government. But that is only the federal debt. By the end of fiscal year 2016, total government debt in the U.S. — including federal, state and local debt, plus other liabilities — could hit $22.5 trillion.

High levels of debt, especially relative to GDP, can be a sign that a country's economy is at risk.

Trump has vowed to get rid of the national debt, but his statements on the topic have been contradictory: He mentioned renegotiating the national debt, for example, and then took it back. The New York Times reported on his original interest in renegotiating the debt — or buying back bonds at discounts after rates have risen. This is what companies at the risk of bankruptcy do: They might buy their own bonds back at $0.70 on the dollar, for example, to reduce debt owed.

Employing this strategy with the national debt would be dangerous, according to the Times, and most appropriate for a country at high risk of defaulting on its obligations. 

And to even threaten that would be a rejection of a principle that dates to Alexander Hamilton and the founding of the republic — that the United States' promise to make good on its obligations is ironclad. Threatening to repudiate American government debts could also arguably violate a provision of the 14th amendment of the Constitution.

The Committee for a Responsible Federal Budget reported that both candidates' plans would increase the national debt, but Trump's plan would make it larger. 

Clinton's policies would keep the national debt in line with current 10-year projections, the report finds: Her plan would bump up the debt by $200 billion over a decade, while Trump's plan would increase the debt by $5.3 trillion.

In other words, debt held by the public would comprise 86% of GDP under Clinton and 105% of GDP under Trump.

How much do you trust the information in this article?

Anna Bahney

Mic Money writer in Washington DC covering the daily saga of getting and spending. Toss tips my way at abahney@mic.com

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