Deficits, Debt, and the Debt Limit in 2025 (CRS Report for Congress)
| Release Date |
Nov. 28, 2024 |
| Report Number |
IF12830 |
| Report Type |
In Focus |
| Authors |
Grant A. Driessen; Lida R. Weinstock |
| Source Agency |
Congressional Research Service |
Summary:
The Constitution empowers Congress with the authority to
manage federal spending, revenues, and borrowing through
its “power of the purse.” Deficit outcomes represent the
difference between total federal spending and revenues, and
add to debt levels that necessitate federal borrowing. This
In Focus summarizes federal deficit and debt
characteristics, trends, and related economic policy issues,
and also discusses the statutory debt limit.
The federal government incurs a budget deficit when
outlays (total outgoing payments) exceed revenues (monies
collected). If revenues are greater than outlays, the
government incurs a surplus. Deficits are measured over the
course of the fiscal year, which runs from October 1
through September 30. Deficits tend to decline in periods of
relatively high economic growth due to both increased
revenues (through a rise in earnings and subsequent tax
payments) and reduced outlays (through a decline in
demand for unemployment benefits and other programs),
with opposing changes leading to increased deficits in
lower growth periods.
Federal debt represents the accumulation of government
borrowing from private citizens, institutions, domestic, and
foreign governments. Debt levels increase when there are
budget deficits, net outflows for federal credit programs, or
increases in intragovernmental debt (debt that is held in
federal government accounts). The debt measurement
generally of most interest to economists is publicly-held
debt, which excludes intragovernmental debt. The
Department of the Treasury manages federal debt, with an
objective of borrowing at the least cost to the taxpayer over
time while maximizing transparency.
Changes in federal debt, primarily caused by deficits and
surpluses outcomes, reflect implicit policy choices
concerning the distribution of government activity across
generations. Net interest payments measure inflows and
outflows on interest from the federal debt and are included
in deficit and surplus outcomes.
Increases in real debt in one period may constrain the
choices available in later periods. In some cases, rising real
debt may also lead future generations to bear the financial
cost of choices made by previous generations without being
able to express opinion on the relative benefit of those
choices. Large and persistent debt levels may also reduce
public confidence in the government’s ability to fulfill its
borrowing obligations, which could increase long-term
borrowing costs.
