The U.S. Deficit, Surplus, and Debt Effects1

The U.S. Deficit, Surplus, and Debt Effects

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The U.S. Deficit, Surplus, and Debt Effects2

The U.S. Deficit, Surplus, and Debt Effects

Anytime there is a deficit, surplus, or debt there is someone or something it affects.

There can either be too much, too little, or money owed to someone. When something like that

happens, examples of people affected are taxpayers, future Social Security and Medicare users,

unemployed individuals, students, the United States financial reputation, exporters, importers,

or the GDP.

The U.S.’s deficit, surplus and debt have an effect on all taxpayers in one way or

another. The fact that a deficit will increase the debt of the U.S., and one deficit and debt does

have the same effect on the taxpayers. So there are four different areas which the debt and

deficit affects on the U.S. taxpayer: higher taxes, reduced benefits/ programs, higher interest

rates, and a weak dollar. The one thing these all have in common is less money in the taxpayers’

pocket, and this cause less money to be able to be spent or invested (How the U.S. National

Debt Affects You, 2012).

When the U.S. runs a surplus it can have different affect on the taxpayer, and is really

decide on how the government decides to use the surplus. There are different way that the

government choices to spend the surplus. They can spend the money to pay down the debt.

The government can choose to also to give the taxpayer a refund of some manor. The effect in

the short and long run means more money in the taxpayers pocket which means increase in

money for spending and investment (Hall, 2012).

Medicare contributes to the deficit under the Medicare Insurance (part B) program.

Medicare is an important part of the US public spending and no matter how the deficit is

The U.S. Deficit, Surplus, and Debt Effects3

calculated. (Newsgroup, 2012). Social security expenditures exceeded non-interest income in

2010 and 2011. The first such occurrence since 1983 and the deficit of non-interest income

relative to expenditures were $49 billion in 2010 and $45 billion in 2011. Patients are spending

more on health care then the system allows and is costing the government billions of dollars

each year. Social Security and Medicare programs equaled 8.5% of the GDP.

Unemployment has a big effect on the deficit because the government is paying more

benefits than they are bringing in revenue. Surplus employment is caused when minimum wage

laws and unions are selling a higher level than companies have to lay off employees to meet the

pay roll budget. Unemployment adds to the US debt because more need help paying bills, food

stamps, Medicare and all of these contribute to the US debt (USEconomy, 2012).

The U.S.’s deficit, surplus and debt have an effect on University of Phoenix student in

the fact that the increase in debt means less money for benefits or government program.

Money that is used for education for low income students come from government spending.

This money comes from taxes. When the tax money has to be spent on paying down the debt

and decreasing the deficit there is less money to be spent on education. One of the cuts that

has occurred from the cuts in spending is the limit that a student a student can get in Pell grants

over there life time. This affect the students and the University of Phoenix more because a large

number of student who are going to school on line who are adults. This important in the fact

that some of these adults have went to college when they were younger and are now needing

to return to school and do not have enough money left in their limit for the Pell Grant to allow

them to finish and they do not have the money to pay for school on their own. The increase in

The U.S. Deficit, Surplus, and Debt Effects4

interest rates makes the cost of repaying the loans higher. This is information that I know from

being one of these students. Another effect is started back when Ronald Regan was in office.

During his term if children were drawing Social Security benefits from their parents and turned

18 between graduating High School and starting college in the fall lost their benefits if they

were not already taking college class. At this time the benefits stop when you graduate high

school. In the case of a surplus the Government has more money to spend on government

spending and more money for on education as well as other government programs. The lower

interest rate lowers the cost for repaying college loans.

The U.S.’s deficit, surplus and debt have an effect United States financial reputation on

an international level because as we studied before all countries would like to have a higher

GDP instead of a lower one, so many countries require their net trades to be in the positive. It

is highly unlikely for all countries export’s to be in the positive margin since the countries

import has to be much greater than export for the country. An example of this could be the

when the US purchases imports from China, the US GDP and rate of employment will decrease

but the Yuan (China currency) increases.

As the worldwide economy has developed, and rivalry and trade deficits have ascended

out of control, many in the industrial world have taken action to stabilize the scales so to speak

and offer the same chances for all of the trade partners involved in international transactions.

One example of this action would be the North American Free Trade Agreement, or NAFTA.

NAFTA's purpose is to generate a trade balance, but many side effects have occurred this is

especially true in the United States auto industry. Theoretically, NAFTA, when first disclosed,

The U.S. Deficit, Surplus, and Debt Effects5

provided a great deal of potential; nevertheless, in the final enquiry, after the program took

place, the results proved to be just the opposite. Quite possibly the most imperative lesson to

learn from this situation is that free trade is never totally free-someone always pays.

Unfortunately, in this case, the US automobile industry has been forced to foot the bill.

An Italian importer of clothing will have a higher demand for their goods if the country

maintains a strong economy with little debt, when a country has a stronger economy the

demand for imports increases (Colander, 2010). However, if the country has a great deal of

debt the demand for imports will fall because of the weaker economy. Deficits drive up

inflation, which reduces the value of the dollar and increases the demand for imported goods.

This will increase demand for the clothing imports and drive up business (Colander, 2010). In

contrast, a surplus will decrease inflation driving up the value of the dollar, which will bring the

demand of imports down. Importers rely heavily on the status of the dollar in the world market

to base decisions on whether to import their goods. If the value of the dollar is too high

compared to the rest of the world importers will simply not have a chance in succeeding.

The Gross Domestic Product (GDP) is a measure of all the goods and services an

economy produces for a specific one-year period (Colander, 2010). The United States deficit,

surplus, and debt have a specific effect in relation to the GDP. Even when debt and deficits

increase the severity of the economic problem rests in the relation to the GDP. When the ratio

of debt to GDP is lower the economy grows stronger, even if the debt is growing larger. If the

ratio remains the same or reduces this is an indication of the economy growing and maintaining

its balance. Economists generally look at the ratio of debt, deficit, and surplus to GDP rather

The U.S. Deficit, Surplus, and Debt Effects6

than these factors on an individual level (Colander, 2010). Doing this allows to evaluate the

economic status relative to the size of the entire economy rather than one small piece.

So an excess or deficiency of something can be a good thing or a bad thing depending on

who it is affecting. It affects everyone from taxpayers, students, and the government. There

needs to be a balance so that the damage is not so great and so that it is beneficial to all

parties.

The U.S. Deficit, Surplus, and Debt Effects7

References

Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.

Hall, S. (2012). How Does a Government Budget Surplus Affect the Economy? Retrieved August

16, 2012, from EHow: http://www.ehow.com/about_6193482_government-budget-

surplus-affect-economy_.html

How the U.S. National Debt Affects You. (2012). Retrieved August 25, 2012, from

nodebttoday.com: http://www.nodebttoday.com/how-national-debt-affects-you.php

USEconomy. (2012). Retrieved from http://useconomy.about.com/