Deficit Law and Legal Definition

Deficit in general terms refers to a shortage, or inbalance in an amount due.When used in reference to a business or governmental budget, it refers to the situation of having more expenditures than income. The federal deficit is the amount by which federal expenditures exceed federal revenues. Some economists, known as "deficit hawks," believe that a reversion to deficit spending would pose a major problem. They argue that running deficits would lead to even larger annual debt payments. To make these high payments, the government would have to increase taxes or eliminate popular government programs like Social Security. The inevitable result would be a steady decline in the standard of living for future generations of Americans. To prevent this, they believe that deficits must be avoided.

Other economists, known as "deficit doves," believe that federal deficit spending and debt are both healthy for the economy. They argue that the national debt must be compared to national wealth. In particular, it should be compared to the Gross Domestic Product (GDP)—the total amount of wealth the country produces in one year.