Since the early twentieth century, the budget process has been characterized by annual deficits and mounting public debt. Deficits occur when government spending exceeds revenues (that is, the amount that it takes in). Since revenues and spending goals are estimated a year in advance of their enactment, these figures are frequently incorrect. This occurred most recently following the terrorist attacks of September 11, when tax revenues declined sharply and federal spending increased unexpectedly to fight the war on terrorism. Several years of surpluses (having more money than the amount needed for spending) were wiped out in a matter of months.

Sometimes the government will purposefully “deficit spend” in order to prevent the economy from going into a recession, or to bring it out of one. In both 2001 and 2003, a combination of tax cuts, increased discretionary spending, and one-time tax rebates were enacted to stimulate the economy. In 1993, a similar stimulus package was helpful in ending a two-year recession.

Public (or national) debt is the accumulation of years of deficits. As of 2003, the national debt exceeded $7 trillion, which is three times the size of the federal budget. Every year, one of the largest government expenditures — more than $200 billion — goes toward paying interest on the national debt. Were there no national debt, that expenditure could be used for other purposes. Some economists contend that large deficit spending stunts economic growth because it drives up long-term interest rates; others maintain that accumulated debt has no real impact on the economy.