What is a federal budget deficit?

A federal budget deficit occurs when government spending outpaces revenue or income from taxes, fees, and investments. Deficits add to the national debt or federal government debt. If government debt grows faster than gross domestic product (GDP), the debt-to-GDP ratio may balloon, possibly indicating a destabilizing economy.

What is an example of a budget deficit?

A budget deficit occurs when a government spends more in a given year than it collects in revenues, such as taxes. As a simple 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.

What happens if a budget deficit is not paid?

A budget deficit occurs when spending exceeds income. The term applies to governments, although individuals, companies, and other organizations can run deficits. A deficit must be paid. If it isn't, then it creates debt. Each year's deficit adds to the debt. As the debt grows, it increases the deficit in two ways. First, the must be paid each year.