Difference Between Revenue Deficit And Fiscal Deficit With Example, Implications And Comparison Chart

According to the Henry J. Kaiser Family Foundation, Medicare spending accounted for 15% of total federal spending in 2018 and is expected to reach 18% by 2029. The Biden administration is negotiating with lawmakers in Congress over about $2 trillion in additional spending on social and climate initiatives and debating how to pay for those programs. From the end of 2008 to 2019, the amount of federal debt held by the public nearly tripled. This report describes federal debt, various ways to measure it, CBO’s projections for the coming decade, and the consequences of its growth. Thanks to a strong economy, this year’s revenue through March had been running 6% above last year’s. Then COVID-19 hit, and revenues from April through August have come in 9% lower than last year, due to both the loss in economic activity and legislation responding to the pandemic.

  • The deficit tracker graphic is updated retroactively with official Treasury data, whereas the monthly text entries are not.
  • This deficit is 10% lower ($269 billion less) than over the same period in FY2020, but nearly triple the FY2019 deficit ($1.7 trillion greater).
  • Even this influx of taxes was overcome by monthly outlays that, at $624 billion, were 68% greater than last July’s.
  • Therefore, budget deficits, by definition, are equivalent to adding net financial assets to the private sector, whereas budget surpluses remove financial assets from the private sector.
  • Large and sustained federal budget deficits are harmful to the fiscal health of the United States.

Politicians and policymakers rely on fiscal deficits to expand popular policies, such as welfare programs and public works, without having to raise taxes or cut spending elsewhere in the budget. In this way, fiscal deficits also encourage rent-seeking and politically motivated appropriations. Many businesses implicitly support fiscal deficits if it means receiving public benefits. The federal government produced a monthly budget deficit of $211 billion in August, up from $108 billion during the same month last year. The cumulative Fiscal Year 2018 deficit now stands at $895 billion, exceeding by more than $100 billion CBO’s latest projection for that period. It is important to note that due to the calendar, payments of about $68 billion normally made in September were made in August.


Government bonds are considered to be extremely safe investments, so the interest rate paid on loans to the government represent risk-free investments against which nearly all other financial instruments must compete. If the government bonds are paying 2% interest, other types of financial assets must pay a high enough rate to entice buyers away from government bonds.

In the first two months of this fiscal year, the federal government has run a deficit of $430 billion, $87 billion more than at this point last fiscal year. Compared to this point last fiscal year, spending has run 9% higher while revenues have fallen by 3%. Increased spending so far this fiscal year has likewise mostly resulted from pandemic relief. About 60% of the increase in cumulative year-to-date spending has come from refundable tax credits (up $126 billion from this point last year) and unemployment insurance benefits (up $140 billion). Outlays from the Public Health and Social Services Emergency Fund are also up $26 billion compared to the first four months of fiscal year 2020, and Medicaid spending is $29 billion greater.

Revenue Deficit Across Tamil Nadu In India Fy 2012

This second-half pattern of revenues dragged down by economic losses and policy changes was present across many types of revenue. Nonwithheld income and payroll taxes also fell 7%, while corporate income taxes fell by 21%. Both of these declines were the sum of economic losses and legislative changes to lower tax burdens. Economic trends can influence the growth or shrinkage of fiscal deficits in several ways. Increased levels of economic activity generally lead to higher tax revenues, while government expenditures often increase during economic downturns because of higher outlays for social insurance programs such as unemployment benefits. Changes in tax rates, tax enforcement policies, levels of social benefits, and other government policy decisions can also have major effects on public debt.

She said on Friday that doing so would improve the “long-run fiscal and economic health” of the United States. CBO now projects that the total deficit this fiscal year will run to $3.3 trillion, more than triple last year’s and the largest deficit as a share of the economy since 1945. If you are interested in learning more and seeing how the federal spending and debt have changed over time, you can view the Historical Debt Outstanding dataset to see outstanding debt from 1789 to the current year. An alternative in countries which have fiat money is to address high levels of debt and a poor debt-to-GDP ratio by monetising the debt, essentially creating more money to be used to pay off the debt.

  • This deficit was the difference between revenues of $372 billion and spending of $496 billion.
  • Both conservative and liberal administrations tend to run heavy deficits in the name of tax cuts, stimulus spending, welfare, public good, infrastructure, war financing, and environmental protection.
  • Conversely, individual income and payroll tax payments through May were up 6 percent (or $109 billion) compared to the same point last year.
  • Until the early 20th century, most economists and government advisers favored balanced budgets or budget surpluses.
  • There must also be enough money circulating in the system to allow inflation to persist, so that inflation depends on monetary policy.
  • This increase in the interest rate makes private investment more expensive as well and less of it is used.

Historically, CBO’s preliminary data is accurate, often differing from Treasury’s final figures by only a few billion dollars, if at all. For example, CBO preliminarily reported that the total FY2019 deficit was $984 billion in their September 2019 review, matching the official figure that Treasury later reported. The federal government ran a deficit of $3.1 trillion in fiscal year 2020, more than triple the deficit for fiscal year 2019. This year’s deficit amounted to 15.2% of GDP, the greatest deficit as a share of the economy since 1945. Increased deficits also raise the amount of total income received, which raises the amount of saving done by individuals and corporations and thus the supply of loanable funds, lowering interest rates. Thus, crowding out is a problem only when the economy is already close to full employment (say, at about 4% unemployment) and the scope for increasing income and saving is blocked by resource constraints . If equilibrium is located on the classical range of the supply graph, an increase in government spending will lead to inflation without affecting unemployment.

Implications Of Fiscal Deficit

Disturbingly, federal interest payments on the debt spiked to $372 billion — up 20 percent ($62 billion) from FY 2017 — reflecting the largest year-over-year increase in over a decade (both in terms of nominal and inflation-adjusted dollars). The drop in revenue between last June and this one was due almost entirely to the administration delaying the deadline for quarterly tax payments from June 15 to July 15. Monthly revenue was down $93 billion compared to a year ago, of which $43 billion came from delaying corporate tax payments while $42 billion came from delaying individual and payroll tax payments. CBO expects most of this delayed revenue to eventually be collected, although some will be lost as businesses fail before the new payment deadlines. Revenues rose 3% from last December, thanks to greater individual income and payroll tax receipts. Total outlays through August, however, were 52% ($2.1 trillion) greater than they were over the same period in FY2019. Certain pandemic response efforts have contributed to high spending levels in recent months, including advanced Child Tax Credit payments, Coronavirus Relief Fund payments to state and local governments, and emergency rental relief.

Revenue Deficit

Notably, spending by the Department of Education was 107% higher than in September 2020. Spending on refundable tax credits increased $21 billion year-over-year primarily due to the monthly advanced Child Tax Credit payments authorized by the American Rescue Plan earlier this year. The increase was mostly caused by a 23% rise in income and payroll taxes and a 71% increase in corporate income tax receipts. The Congressional Budget Office estimates that the federal government ran a deficit of $193 billion in November, the second month of fiscal year 2022. This deficit was the difference between $474 billion of spending and $281 billion of revenue.

Unintentional Deficits

This written material will help you understand the difference between revenue deficit and fiscal deficit. A deficit spending unit describes how an economy or economic unit within an economy has spent more than it has earned over a given measurement period. Fiscal policy uses government spending and tax policies to influence macroeconomic conditions, including aggregate demand, employment, and inflation. Hamilton saw deficits as a means of asserting government influence similar to how war bonds helped Great Britain out-finance France during their 18th-century conflicts. This practice continued, and throughout history, governments have elected to borrow funds to finance their wars when raising taxes would have been insufficient or impractical. Even though the long-term macroeconomic impact of fiscal deficits is subject to debate, there is far less debate about certain immediate, short-term consequences.

To be precise it is a repayment burden in the future which do not match with any investment. Conventionally, the budgeting is classified into two accounts revenue account and capital account. It creates a stock of debt and interest liabilities and pushes the government to reduce expenditure. It is an indicator of dissavings by the government, as well as the utilization of savings of different sectors, to finance a certain portion of its consumption expenditure. A stimulus package is a package of economic measures put together by a government to stimulate a struggling economy. Should the government ever run out of willing borrowers, there is a genuine sense that deficits would be limited and default would become a possibility.

For example, the U.S. government budget deficit in 2011 was approximately 10% GDP (8.6% GDP of which was federal), offsetting a capital surplus of 4% GDP and a private sector surplus of 6% GDP. The Congressional Budget Office reported that the federal government generated a $737 billion deficit in April, the seventh month of fiscal year 2020. April’s deficit is a $897 billion swing from the $160 billion surplus recorded a year earlier in April 2019. April’s shortfall brings the total deficit so far this fiscal year to $1.48 trillion, which is 179% ($949 billion) higher than the same period last year. Total revenues so far in FY2020 decreased by 10% ($200 billion), while spending increased by 29% ($749 billion), compared to the same period last year. Accounting for timing shifts, about half the increase in outlays from last August to this one came from spending on unemployment insurance benefits. While that spending has soared compared to last year, it has dropped significantly from last month.

According to them, this would lead to continued “deterioration” of the debt-to-GDP ratio, a basic measure of the health of an economy and an indication of the country’s ability to pay off its debts. If private investment is stimulated, that increases the ability of the economy to supply output in the long run.

Tracking The Federal Deficit: May 2020

For this reason, August’s cumulative deficit is larger than it otherwise would have been, which will be offset by a lower deficit in September. Revenues rose 4% from last January, thanks to greater revenue from individual income, payroll, and corporate income tax revenue. This fiscal year’s revenues have held up in part because the pandemic recession has been so unequal. Lost jobs have overwhelmingly paid low wages, so total income—and the federal government’s revenue base—has fallen by much less than total employment. The tax filing season is delayed and COVID-19 has slowed down the IRS’s refund processing, meaning that many refunds comparable to those issued last February have not yet been issued in 2021, temporarily causing net revenues to look higher. Meanwhile, the American Rescue Plan will exempt some unemployment benefits from taxation, so a significant share of taxes already collected on these benefits will be refunded. Despite these transitory boosts to net revenue, the growth of federal revenue in the midst of such a deep contraction is impressive.

The additional borrowing required at the low point of the cycle is the cyclical deficit. By definition, the cyclical deficit will be entirely repaid by a cyclical surplus at the peak of the cycle. According to the sectoral balances framework, budget surpluses offset net saving; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Hence, continual budget deficits are necessary for a growing economy that wants to avoid deflation. Therefore, budget surpluses are required only when the economy has excessive aggregate demand, and is in danger of inflation. The government fiscal balance is one of three major sectoral balances in the national economy, the others being the foreign sector and the private sector. The sum of the surpluses or deficits across these three sectors must be zero by definition.

The Congressional Budget Office estimates that the federal government ran a deficit of $198 billion in August, the eleventh month of fiscal year 2020. This deficit—the difference between $223 billion of revenues and $420 billion of outlays—is $3 billion less than last August’s, although this apparent improvement is an illusion created by shifts in the timing of certain payments. Without these timing shifts, this August’s deficit would have been $106 billion (or 72%) greater than last August’s. The cumulative deficit in FY2020 has risen to $3.0 trillion, an increase of $1.9 trillion from this point last year. Either way, this October’s deficit is a large increase from last October’s figure of $134 billion.

As a result of which the government has to raise the funds from people or increase the rate of taxes in the future to pay the interest and principal loan amount, which ultimately gives rise to inflation. Revenue Deficit refers to the gap between government revenue expenditure and government revenue receipts, whereas Fiscal Deficit implies the gap between total expenditure and total non-debt receipts of the government. Conversely, Fiscal deficit is a measure that shows the degree of dependence of the government on borrowings. Fiscal Deficit reflects estimated borrowings by the country’s government, i.e. the higher the fiscal deficit, the more will be the government borrowings. Economic stimulus refers to attempts by governments or government agencies to financially kickstart growth during a difficult economic period.

In contrast, a one-time stimulus through deficit spending would suggest a lesser tax burden annually than the one-time deficit expenditure. Some economists have criticized the distinction between cyclical and structural deficits, contending that the business cycle is too difficult to measure to make cyclical analysis worthwhile. The meaning of “deficit” differs from that of “debt”, which is an accumulation of yearly deficits.

At this time they determined that despite a headline surplus of A$17.2 billion in 2006–07, there was an underlying structural deficit of around $3 billion, or 0.3% of GDP. With a cyclical surplus, at the high point of the business cycle government revenue will be expected to be higher and government expenditure lower, meaning revenue exceeds expenditure and the government experiences a surplus.

In June, the federal government produced a monthly budget deficit of $75 billion, bringing the cumulative Fiscal Year 2018 deficit to $607 billion. This year’s deficit is $84 billion higher than last year’s cumulative deficit over the same period. The primary reason on the spending side is interest payments, which have increased by 17 percent ($39 billion) through the month of June compared to the same period in 2017. Spending on the three largest mandatory programs—Social Security, Medicare, and Medicaid—has increased by 4 percent ($115 billion) versus the comparable period in 2017.

The federal deficit has now reached $738 billion so far this fiscal year, an increase of 120% over the same point last year . Compared to the same point last fiscal year, cumulative revenues have ticked up 1%, but cumulative spending has surged 27%—mostly due to the COVID-19 pandemic and the federal response to it. Growth in federal revenues remains robust, increasing 17% ($494 billion) compared to the same 10-month period in FY2020. This increase is indicative of a strengthening economy, with a steady inflow of individual income and payroll taxes from higher total wages and salaries, and corporate taxes from larger corporate profits, the latter of which increased 76% ($121 billion) year-over-year.

On average, through the economic cycle, most governments have tended to run budget deficits, as can be seen from the large debt balances accumulated by governments across the world. Otherwise the debt issuance can increase the level of public debt, private sector net worth, debt service , and interest rates. (See Crowding out below.) Deficit spending may, however, be consistent with public debt remaining stable as a proportion of GDP, depending on the level of GDP growth. Advocates of fiscal conservatism reject Keynesianism by arguing that government should always run a balanced budget , and that deficit spending is always bad policy. The neoclassical-inclined Chicago school of economics has supported fiscal conservative ideas.

The Congressional Budget Office reported that the federal government generated a $117 billion deficit in March, the sixth month of fiscal year 2020. March’s deficit is a $30 billion decrease from the $147 billion deficit recorded a year earlier in March 2019.