A deficit happens when spending exceeds the amount of money coming in. In other words, a deficit refers to a shortage of money. Individuals, organizations, and governments can all run deficits.
Governments experience deficits when tax revenues are low (due high unemployment, an aging population, and other factors) and/or government spending exceeds tax levels.
There are three ways to counter deficit:
1. Generate more income
A government running a deficit can generate more income by increasing taxes and fees. An individual can generate more income by finding a job or founding an organization to increase personal cash flow.
2. Decrease expenses
A government can decrease expenses by cutting programs that gobble up money. For example, past US politicians have implemented cuts to social programs including welfare, state hospitals, and schools. Individuals can decrease expenses by downgrading their lifestyle.
3. Borrow money
Governments can finance their deficits by issuing bonds, which essentially allow investors to buy debt in exchange for a low interest rate. Individuals can borrow money through credit cards, bank or business loans, cash advances, or other methods.