Define the term “structural deficit” and explain its long term effect on future budgets.

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Government deficits can be made up of two kinds of deficit.  These are structural deficits and cyclical deficits.  Cyclical deficits exist because the economy is bad.  Tax receipts drop as incomes drop.  Things like unemployment benefits cost the government more because more people are unemployed.  This causes deficit spending that...

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Government deficits can be made up of two kinds of deficit.  These are structural deficits and cyclical deficits.  Cyclical deficits exist because the economy is bad.  Tax receipts drop as incomes drop.  Things like unemployment benefits cost the government more because more people are unemployed.  This causes deficit spending that has come about because of economic weakness.  Structural deficits are deficits that exist even if the economy is strong.  These are deficits that come about simply because the government chooses to spend more than it can take in even when the economy is at a high point.

Structural deficits affect future budgets because they make it more likely that we will have deficits in the future.  Let us say that the government borrows a lot of money even though economic times are good. This raises the amount that we owe as a country.  It also raises the amount that we have to pay in debt service (interest payments) in the future.  This cuts in to future budgets.  It means that future Congresses will have less room to spend money because more money will have to go to debt service.  This can make it very hard for Congress to fund new programs that might seem necessary in the future or to pay for unforeseen events like wars or disasters.  In short, when we run a structural deficit, we build up debt that will tie our hands in the future. 

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