Federal Revenues and Spending, 1950-2008

Often, the national debt is mistakenly thought to be another term for the federal budget deficit.   Here are questions and answers to help you understand the debt: How was the national debt acquired?   It is an accumulation of money borrowed to cover deficits, which occur in years when federal revenues fall below spending. When did the U.S. Treasury first go into the red?   The national debt is as old as the nation.   Until relatively recently, wars were principally responsible for major increases in the debt.   It stood at $75 million in 1791, the result of the new federal government's borrowing to repay Revolutionary War costs. The debt reached $1 billion for the first time in 1863, reflecting Civil War outlays, which eventually pushed the total to $2.8 billion in 1866; $27 billion in 1919 for World War I; and $270 billion in 1946 following World War II. It grew relatively slowly over the first post-World War II generation but began soaring in 1981 as spending for social programs and defense skyrocketed.

Why does the debt concern so many people?   Many business people and economists say heavy government borrowing absorbs capital that would be better invested in the private economy.   They also argue that it is unfair for the current generation to run up massive obligations that future generations will have to meet on top of their own commitments.

Another perspective holds that many projects financed by government borrowing -- such as defense and highways -- are economically sound ises of investment capital.

To whom does the U.S. government owe this debt?   The gross national debt has two components -- debt held by the public, now $3.8 trillion, and debt held by government accounts, now $1.7 trillion.

What is "the public" in this sense?   The debt held by the public consists of marketable securities sold by the Treasury Department, primarily to individuals, banks, corporations, investment funds, and insurance companies in this country,

Foreign central banks are also major buyers.

How can the government owe money to "government accounts"?   This part of the debt represents obligations of one government agency, the Treasury Department, to various federal trust funds that collect money for purposes such as Social Security payments, highway construction, and federal employees' pensions.   Under current law, those trust funds must use surpluses to buy interest-bearing, nonmarketable securities from the Treasury Department.   The money is then used for general government purposes.

How much is the interest on all this?   Gross interest on the national debt will be about $366 billion this year, when the government's interest payments to Social Security and other government accounts are considered, says the Treasury Department.   The more common figure is the interest due to nongovernment holders of debt -- both foreign and domestic; it will be about $244 billion this year.