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A budget deficit occurs when a government’s receipts fall short of its expenses. The government then issues Treasury securities to offset the shortfall and keep its programs running.

The United States’ national debt is essentially the sum of its budget deficits. Its main expenses include:

  • Healthcare programs, including Medicare and Medicaid
  • Social Security
  • Defense expenses
  • Other items, such as transportation, veteran benefits, international affairs, education and training, and more

The top items on the list are pure spends, meaning they’re not investments that can generate long-term benefits. Expenses for education and infrastructure development can generate returns through job and business creation. But those expenses are far down the list.

The government’s biggest sources of income are:

  • Individual income taxes
  • Social Security, retirement and payroll contributions
  • Corporate income taxes
  • Excise taxes

In recent years, the government has faced more expenses with less income, causing the national debt to climb.

Social Security expenditures are growing as more retirees live longer. Plus, parents are having fewer kids, limiting the pool of contributing workers.

Tax cuts introduced during George W. Bush’s presidency are holding down government income. Costs for Medicare and Medicaid have exceeded estimates, and economic stimulus and wars have been costly.

The bottom line is national debt is a necessary liability. But high levels of national debt for long periods of time have a severe impact on the overall economy.

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