Introduction to Finance

FIGURE 7.1
 The Federal 
Government Dollar, Fiscal 
Year 2014
WHERE IT GOES (OUTLAYS) . . . 
WHERE IT COMES FROM (INCOME). . . 
Social
Security and
other
Retirement
Taxes 29%
Personal
Income
Taxes
40%
Corporate
Income
Taxes
9%
Borrowing
to Cover
Deficit
14%
Excise, Estate,
and other
Taxes
8%
Law Enforcement
and General
Government
2%
Social
Security,
Medicare,
and other
Retirement
42%
Social
Programs
(including
Medicaid)
22%
Physical,
Human, and
Community
Development
5%
Net Interest
on the Debt
6%
National
Defense,
Veterans, and
Foreign Affairs
22%
Source: U.S. Department of the Treasury, Internal Revenue Service, http://www.irs.gov/.

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7.3 Role and Major Sources of Savings
173
Surplus budgets lasted for only four fi scal years (1998–2001), with annual budget defi cits 
again being the norm beginning in fi scal 2002. Defi cits exceeded $1 trillion annually for fi scal 
years 2009 through 2012, as fi scal policy responded to the perfect fi nancial storm created by 
the 2007–08 fi nancial crisis and the 2008–09 Great Recession. Annual defi cits have contin-
ued since then. On the one hand, fi scal policy can use a defi cit budget to stimulate economic 
activity. On the other hand, recent large annual defi cits have resulted in a rapidly growing 
national debt.
At the end of fi scal 2000, the national debt was $5.7 trillion. It increased to $18.2 trillion 
by the end of fi scal 2015, which was an increase of over three times. By early calendar 2016, 
the national debt exceeded $19.0 trillion for the fi rst time. When the size of the national debt 
was lower, Congress set