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Surpluses, and the National Debt l. From Deficits to Debt A. Predicting the Deficit- What factors affect the accuracy of the deficit projection? ; The way expenditures are reported and changes in the economy B. Deficits Add to the Debt- What is the only way the annual budget can lower the federal debt? -By generating surplus C. A Growing Public Debt- Why do most economists tend to disregard trust fund balances? – Because trust fund balances represent money the government owes to itself D.
Public vs.. Private Debt- How much of the public debt is owed by foreigners? – 15 to 20 percent updated Statistics Below: About 35% Now! II. Impact of the National Debt A. Transferring Purchasing Power- What happens to the purchasing power of individuals as a consequence of the national debt? – it diminishes B. Reducing Economic Incentives- How can government spending reduce economic incentive? – If It appears to spend money In a way that taxpayers would consider careless C.
Crowding Out- What is the crowding-out effect? – When there is heavy government borrowing, it drives up the interest rates and causes private borrowers to be “crowded out” of the market because they are unable to afford the higher Interest rates. D. Redistributing income- How can national debt and the tax structure affect the distribution of Income? – When the government taxes the high-income population and then spends the collected revenue on the poor, Income Is redistributed; the verse is also true.
Ill. Reducing Deficits and the Debt A. Legislative Failures- What was the 1990 Budget Enforcement Act’s main feature? – a “pay-as-you-go” provision helped to account for the 1998 budget surplus? – the fact that the individual income tax became more progressive C. Reducing Spending- What is the connection between entitlements and mandatory spending in the federal budget? – Entitlements are considered “mandatory spending”; however, Congress can choose to revise them.