What Is a Deficit?

In financial terms, a deficit occurs when expenses exceed revenues, imports exceed exports, or liabilities exceed assets. A deficit is synonymous with a shortfall or loss and is the opposite of a surplus. A deficit can occur when a government, company, or person spends m💃ore than it receives in a given period, usually a year.

Understanding Deficits

Whether the situation is personal, corporate, or governmental, running a deficit will reduce any current surplus or add to any existing debt load. For that reason, man🐈y people believe deficits are unsustainable over the long term.

On the other hand, the famous British economist John Maynard Keynes maintained that 澳洲幸运5官方开奖结果体彩网:fiscal deficits allow governments ☂to purchase goods and services that can help stimulate their economy—making deficits a useful tool for bringing nations out of recessions.

Propꦰonents of trade deficits say they allow countries to obtain more goods than they produce—at least for a period of time—and can also spur their domestic industries to become more competitive globally.

However, opponents of trade deficits argue that they provide jobs to foreign countries instead of creating them at home, hurting the domestic economy and its citizens. Also, many argue that governments should not incur fiscal deficits regularly because the cost of 澳洲幸运5官方开奖结果体彩网:servicing the debt uses up resources that the government mig🌠ht dep☂loy in more productive ways, such as providing education, housing, or public infrastructure.

Types of Government Deficits

The two primary types of deficits a naꦯtion can incur ar🎀e budget deficits and trade deficits.

Budget Deficit

A 澳洲幸运5官方开奖结果体彩网:budget deficit occurs when a government spends more in a given year than it collects in revenues, such as taxes. For example, if a government takes in $10 billion in revenue in a particular year and its expenditures for the same year are $12 billion, it is running a deficit of $2 billion. That deficit, added to those from previous years, constitutes the country's 澳洲幸运5官方开奖结果体彩网:national debt.

Trade Deficit

A 澳洲幸运5官方开奖结果体彩网:trade deficit exists when the value of a nation’s imports exceeds the 澳洲幸运5官方开奖结果体彩网:value of its exports. For example, if a country imports $3 billion in goods but only exports $2 billion worth, it has a trade deficit of $1 billion for that year. In effect, more money♋ is leaving the country than is coming in, which can cause a drop in the value of its currency as well as a reduction in jobs.

Other Deficit Terms

Along with trade and budgetꦡ deficits, these are some other deficit-related terms you may encounterꦦ:

• Current account deficit: When a country is importing more goods and services than it exports
• Cyclical deficits: When an economy is not performing well because of a down business cycle
• Deficit financing: The methods governments use to finance their budget deficits—such as issuing bonds or printing more money
• Deficit spending: When a government spends more than the revenue it collects during a certain period
• Fiscal deficits: When a government's total expenditures exceed the revenue that it generates, excluding money from borrowing
• Income deficit: A measurement used by the U.S. Census Bureau to reflect the dollar amount by which a family's income falls short of the poverty line
• Primary deficit: The fiscal deficit for the current year minus interest payments on previous borrowings
• Revenue deficit: The 澳洲幸运5官方开奖结果体彩网:shortfall of total revenue receipts compared with total revenue expenditures for a government
• Structural deficits: Occur when a country posts a deficit even though its economy is operating at its full potential
• Twin deficits: Occur when an economy has both a fiscal deficit and a current account deficit

Advantaꩲges and Disadvantages of Running a De♈ficit

Deficits are not always unintentional or a sign of a government or business in financial trouble. Businesses 澳洲💧幸运5官方开奖结果体彩网:may deliberately run budget deficits to maximize future earnings opportunities, such as retaining employees during slow months to ensu🔴re an𒁏 adequate workforce in busier times. Some governments also run deficits to finance large public projects or maintain programs for their citizens.

During a recession, a government may run a deficit intentionally by decreasing its sources of revenue, such as taxes, while maintaining or even increasing expenditures—on infrastructure, for example—to provide jobs and income. The theory is that these measures will boost the public's purchasing power and ultimately stimulate the economy. 

But deficits also carry risks. For governments, the adverse effects of running a deficit can include lower 澳洲幸运5官方开奖结果体彩网:economic growth rates or the 澳洲幸运5官方开奖结果体彩网:devaluation of the domestic currency. In the corporate world, running a deficit for too long a p🧸eriod 𝐆can reduce the company's share value or even put it out of business.

Today's Federal Budget Deficit in the US

In September 2024, the Congressional Budget Office (CBO) reported that the federal budget deficit stood at $1.9 trillion, $373 billion more than the deficit for the same period the previous year.

Regarding the national debt, the CBO projected that as of the end of 2024, federal debt held by the public (as opposed to the government itself) would reach 99% of GDP. The CBO also projected that debt will continue to climb, hitting 101.6% of GDP in 2025 and 122.4% in 2034.

The Bottom Line

A deficit occurs any time expenses exceed income. For personal finance, it's important to manage your financial deficits, ideally spending within your means and saving your money. Similarly, large government deficits aren't ideal but are sometimes necessary to fund government programs or public infrastructure.