Stock Market Today: Dow Leads in a Mixed May Start for Stocks

The Dow Jones Industrial Average kicked off the month with a 0.7% gain to 34,113 on Monday that came despite a weaker-than-expected Institute of Supply Management manufacturing report.

Supply bottlenecks resulted in an April reading of 60.7 – a slower rate of expansion than March’s 64.7 reading indicated, but expansion nonetheless.

“Although the composite was a fair bit below expectations (Barclays 64.5; consensus 65.0), the decline comes off of a robust March reading that was the highest since 1983,” says Barclays economist Jonathan Millar. “Indeed, components of the composite continue to point to very strong growth, which comes as no surprise, given highly favorable demand conditions amid fiscal stimulus, easing of social distancing restrictions, and ongoing progress in vaccinations.”

We’re glad to see that at least some investors heeded our advice to ignore the urge to “sell in May and go away.” But stocks weren’t exactly up across the board. The Nasdaq Composite (-0.5% to 13,895) struggled, thanks to weakness in mega-cap tech and tech-esque names such as Tesla (TSLA, -3.5%), Amazon.com (AMZN, -2.3%) and Salesforce.com (CRM, -2.9%).

“For the first time in a while there is a clear value/cyclical bias while growth/tech is under pressure,” says Michael Reinking, senior market strategist for the New York Stock Exchange. “Tech wobbled last week despite blowout numbers from the mega-cap stocks. This is especially concerning as the rate environment remains in check.”

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Other action in the stock market today:

  • The S&P 500 gained 0.3% to 4,192.
  • The small-cap Russell 2000 also finished in the black, up 0.5% to 2,277.
  • Berkshire Hathaway (BRK.B, +1.7%) held its 2021 annual shareholder meeting this weekend. Chairman and CEO Warren Buffett and Executive Vice Chairman Charlie Munger addressed a number of topics, including trimming Berkshire’s stake in Apple (AAPL) in Q4 2020. “It was probably a mistake,” said Buffett, adding that AAPL’s stock price is a “huge, huge bargain” given how “indispensable” the company’s products are to people. Also of note: Berkshire grew fourth-quarter operating income by 20%, to $5.9 billion, while cash grew 5% to $145.4 billion.
  • Domino’s Pizza (DPZ, +2.6%) was a notable winner today. The pizza chain revealed an accelerated stock buyback program, saying in a regulatory filing that it will pay Barclays $1 billion in cash for roughly 2 million DPZ shares.
  • U.S. crude oil futures jumped 1.4% to end at $64.49 per barrel.
  • Gold futures snapped a four-day losing streak, adding 1.4% to settle at $1,791.80 an ounce.
  • The CBOE Volatility Index (VIX) declined 2.3% to 18.18.
  • Bitcoin prices improved by 1.1% to $57,530.32. More impressive was the 18.6% improvement in Ethereum, to $3,300.64 (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
stock chart for 050321stock chart for 050321

Another Big Week of Reports … And Dividends

What should investors be looking forward to this week?

On Thursday and Friday, we’ll get the latest weekly unemployment filings and April jobs data, respectively, but throughout the week, another heaping helping of earnings reports, anchored by the likes of General Motors (GM), Pfizer (PFE), Under Armour (UAA) and PayPal (PYPL).

And given that many companies tend to synchronize their dividend and buyback actions with their earnings reports, you also can expect plenty of news on the dividend-growth front.

In some cases, those raises might be token upticks meant to secure current or future membership in the Dividend Aristocrats. But others are bound to compete with this year’s most explosive payout hikes – improvements of 15%, 20% or even 30% that drastically change the income aspect of current shareholders’ investments. Ideally, of course, investors want the best of both worlds: income longevity and generosity.

These 10 dividend stocks just might fit the bill. This group of mostly blue-chip household names offer a strong history of payout increases, a sharp level of recent hikes compared to their peers, and the operational quality to continue affording these annual raises.

Kyle Woodley was long AMZN, CRM, PYPL and Ethereum as of this writing.

Source: kiplinger.com

What is a debt jubilee? – Lexington Law

A couple happily throws papers into the air.

A debt jubilee is when a country or large
organization cancels debt and clears it from the public record. Simply put,
it’s large-scale debt forgiveness. Some economists believe in enacting a
jubilee as a method of preventing a depression, while others believe in more
moderate approaches, such as direct-to-consumer stimulus checks.

Debt Jubilee (noun): When a country cancels debt and clears it from the public record.

What Might Cause a Debt Jubilee?

When debt-fueled spending is the catalyst for
stimulating the economy during hard times, concern rises over long-term
economic stability. Historically, calls for a debt jubilee have occurred when
nations have teetered on the edge of an economic depression. 

The conditions in which a debt jubilee may occur
are similar to those that would call for stimulus checks. The following
conditions may increase the likelihood of debt jubilee policies:

  • Increasing gaps in wealth
  • Sizable consumer debt
  • Mass bankruptcy
  • A public health crisis
  • Widespread job loss 
  • Sinking stocks

What Would a Debt Jubilee Look Like in America?

Countries have implemented large-scale debt relief in the past to stimulate the economy. For example, Iceland wrote off and subsidized massive amounts of mortgage debt after the country was hit particularly hard by the Great Recession in late 2008. 

Debt jubilee was an ancient practice carried out in Babylonia and Syria, and the concept of complete debt annulment isn’t necessarily feasible in modern-day America. However, some large-scale government-initiated debt relief practices in recent history are the closest equivalent we’ve seen. For example, American businesses and corporations implemented debt jubilee relief efforts such as US veteran bonuses during the Great Depression.

For a debt jubilee to happen in America today, banks would need to write off significant amounts of consumer debt—either student, credit card or mortgage debt or a combination of these—and erase it from credit reports. Because of this, many see debt jubilee as a modern method of redistributing equity and resources while fighting against monopolies and the extreme elite.

What Does a Debt Jubilee Mean for Consumers?

The goal of a debt jubilee in America would be to restore Americans’ ability to pay taxes and enjoy more disposable income by freeing them from crippling debt. A debt jubilee may also open up the conversation for what the ideal debt system looks like in America. Many are already advocating for a more just and equitable debt system, including practices such as:

  • Individual Voluntary Arrangements (IVAs): An alternative to declaring bankruptcy that involves a contractual agreement with creditors of a payment plan for unsecured debts.
  • Reduced stigmatization of bankruptcy: The view that bankruptcy is a viable option rather than a shameful one, and that sometimes outside factors are out of someone’s control.
  • Debt forgiveness for poorer countries: The refusal to exploit other nations and the ability to arrive at a mutual understanding with them to maintain peaceful relations.
Modern debt jubilee efforts may include: individual voluntary arrangements (IVAs), reduced stigmatization of bankruptcy and debt forgiveness for poorer countries.

While our expert team at Lexington Law can’t guarantee debt cancellation, we can help you take steps to get your credit in better shape. Explore our credit repair services to start your journey toward better financial health today. 


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Stock Market Today: Stocks Sag Despite Slew of Earnings Beats

Wall Street finished the week on a down note Friday, ignoring even more sterling first-quarter earnings reports.

John Butters, senior earnings analyst for FactSet, says that 60% of the S&P 500’s components have reported Q1 earnings, and, so far, 86% of those companies have reported a positive earnings-per-share surprise.

“If 86% is the final percentage, it will mark the highest percentage of S&P 500 companies reporting positive EPS surprises since FactSet began tracking this metric in 2008,” he says.

Estimates have been strong, too. “The second quarter marked the second-highest increase in the bottom-up EPS estimate during the first month of a quarter since FactSet began tracking this metric in 2002, trailing only Q1 2018 (+4.9%),” Butters adds.

Amazon.com (AMZN, -0.1%) was the latest to beat expectations, reporting profits of $15.79 per share that clobbered estimates for $9.45 and announcing a 44% surge in sales. Twitter (TWTR, -15.2%) earnings beat the Street as well, but shares plunged on disappointing numbers of “monetizable daily users” and Q2 revenue forecasts.

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The Dow Jones Industrial Average (-0.5% to 33,874), S&P 500 (-0.7% to 4,181) and Nasdaq Composite (-0.9% to 13,962) all finished in the red – and have effectively been flat over the past two weeks.

Ally Invest president Lule Demmissie suggests that investors are increasingly getting anxious. “The mindset has switched from ‘what could go right?’ to ‘what could go wrong?'” she says.

Other action in the stock market today:

  • Chevron (CVX, -3.6%) skidded after reporting first-quarter earnings. While Chevron beat on the bottom line, revenue fell short of expectations.
  • Fellow oil giant Exxon Mobil (XOM, -2.9%) also retreated today, as weakness in the energy sector overshadowed the company’s first profitable quarter in a year on stronger-than-expected revenue.
  • Skyworks Solutions (SWKS, -8.4%) was another post-earnings loser. The semiconductor name reported profit and revenue above estimates for its fiscal second quarter, but a tepid current-quarter outlook was the likely weight on shares.
  • The small-cap Russell 2000 dropped 1.3% to 2,266.
  • U.S. crude oil futures slumped 2.2% to settle at $63.58 per barrel.
  • Gold futures finished fractionally lower at $1,767.70 an ounce.
  • The CBOE Volatility Index (VIX) jumped 5.4% to 18.56.
  • Bitcoin prices plunged 4.5% to $55,470. $52,951. $57,031.60 (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

And a quick reminder to Warren Buffett faithful that Berkshire Hathaway’s (BRK.B) annual meeting, which we preview here, will take place Saturday.

stock chart for 043021stock chart for 043021

A Boffo 100 Days for Biden

Despite Friday’s losses, President Joe Biden has now presided over one of the best market performances ever during an American president’s first 100 days in office.

For instance, the 8.6% gain for the Dow since inauguration is the best 100-day rally for any president since Lyndon Johnson, who was inaugurated in November 1963 and enjoyed a 9.2% run after 100 days. Many individual-share gains have been far more generous; 25 stocks have popped between 39% and 97% in Biden’s first few months.

And the S&P 500’s performance, on an annualized basis, puts Biden among the best presidents for investors of all time at this early stage.

Will that hold up throughout his presidency? We simply have no way of knowing. But what we do know is that Biden has clearly telegraphed his various policy proposals, from the stimulus package that cleared Congress in March to his recently proposed American Jobs Plan, and that allows investors to identify potential winners should the votes go the president’s way.

Read on as we take a fresh look at many stocks (and a couple of funds) that should continue to benefit if Biden continues to score policy wins.

Source: kiplinger.com

What is a debt jubilee?

A couple happily throws papers into the air.

A debt jubilee is when a country or large
organization cancels debt and clears it from the public record. Simply put,
it’s large-scale debt forgiveness. Some economists believe in enacting a
jubilee as a method of preventing a depression, while others believe in more
moderate approaches, such as direct-to-consumer stimulus checks.

Debt Jubilee (noun): When a country cancels debt and clears it from the public record.

What Might Cause a Debt Jubilee?

When debt-fueled spending is the catalyst for
stimulating the economy during hard times, concern rises over long-term
economic stability. Historically, calls for a debt jubilee have occurred when
nations have teetered on the edge of an economic depression. 

The conditions in which a debt jubilee may occur
are similar to those that would call for stimulus checks. The following
conditions may increase the likelihood of debt jubilee policies:

  • Increasing gaps in wealth
  • Sizable consumer debt
  • Mass bankruptcy
  • A public health crisis
  • Widespread job loss 
  • Sinking stocks

What Would a Debt Jubilee Look Like in America?

Countries have implemented large-scale debt relief in the past to stimulate the economy. For example, Iceland wrote off and subsidized massive amounts of mortgage debt after the country was hit particularly hard by the Great Recession in late 2008. 

Debt jubilee was an ancient practice carried out in Babylonia and Syria, and the concept of complete debt annulment isn’t necessarily feasible in modern-day America. However, some large-scale government-initiated debt relief practices in recent history are the closest equivalent we’ve seen. For example, American businesses and corporations implemented debt jubilee relief efforts such as US veteran bonuses during the Great Depression.

For a debt jubilee to happen in America today, banks would need to write off significant amounts of consumer debt—either student, credit card or mortgage debt or a combination of these—and erase it from credit reports. Because of this, many see debt jubilee as a modern method of redistributing equity and resources while fighting against monopolies and the extreme elite.

What Does a Debt Jubilee Mean for Consumers?

The goal of a debt jubilee in America would be to restore Americans’ ability to pay taxes and enjoy more disposable income by freeing them from crippling debt. A debt jubilee may also open up the conversation for what the ideal debt system looks like in America. Many are already advocating for a more just and equitable debt system, including practices such as:

  • Individual Voluntary Arrangements (IVAs): An alternative to declaring bankruptcy that involves a contractual agreement with creditors of a payment plan for unsecured debts.
  • Reduced stigmatization of bankruptcy: The view that bankruptcy is a viable option rather than a shameful one, and that sometimes outside factors are out of someone’s control.
  • Debt forgiveness for poorer countries: The refusal to exploit other nations and the ability to arrive at a mutual understanding with them to maintain peaceful relations.
Modern debt jubilee efforts may include: individual voluntary arrangements (IVAs), reduced stigmatization of bankruptcy and debt forgiveness for poorer countries.

While our expert team at Lexington Law can’t guarantee debt cancellation, we can help you take steps to get your credit in better shape. Explore our credit repair services to start your journey toward better financial health today. 


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

The Stimulus Law Just Made it Way Cheaper to Buy ACA Health Insurance

There are times when it is extremely frustrating to deal with federal bureaucracy.

And then there are times when it works like a charm.

Eleven years after the passage of the Affordable Care Act, which gave every American the opportunity to acquire health insurance, the federal government found a way to make coverage more accessible. Thanks to the latest stimulus law, almost everyone who buys or has bought health insurance through the ACA exchange will see a decrease in their health premiums, according to a study by the Kaiser Family Foundation.

According to Health and Human Services, anyone earning $19,000 or less will not pay a premium at all, and people who make more than $19,000 will see a significant reduction in their premium, up to as much as $1,000 a month.

This change should help the millions of people who lost work due to the coronavirus pandemic — a staggering 20.6 million people, according to USA Today. While many people have managed to find work again, either with their former employer or a new one, millions remain unemployed or underemployed.

Here’s what you need to know about the latest changes to health premiums through the ACA.

What’s Changing and Who is Affected

This ACA coverage option will apply for 2021 and 2022, depending on your employment status. It does not apply to undocumented immigrants, or Americans who live in states that did not expand Medicaid under the Affordable Care Act. You will discover your coverage status when you apply for Obamacare.

The changes are also retroactive to Jan. 1, 2021, which means if you already have health insurance under the ACA, you will be refunded any amount you paid in the first three months of 2021 over your new, lower premium. Healthcare.gov warns that the changes to premium charges may take a while to get fully integrated into the system, so those who already have insurance through the ACA should continue to pay their current premium until the system updates, at which time refunds will be issued and a new premium will be established.

Health insurance under the Affordable Care Act covers the standard comprehensive benefits, which includes prescription drugs and mental health services.

What You Need to Apply

To apply for health coverage under the Affordable Care Act, you begin at www.healthcare.gov. But before you do that, you’ll need to assemble information you will be asked, and it is much like the information you assemble in order to file a tax return.

You will be asked:

  •  Your income from 2020. That includes your unemployment compensation. The online form you use to file certification for unemployment provides the information on the total amount you have received in unemployment benefits . Your income for the purposes of the ACA is identical to that listed on your tax form.
  • Less common income sources. If you withdrew money from a 401(k) or an Individual Retirement Account, that counts as income to the ACA as well.
  • Family information. You will also be asked for information about each person in your household, even those not applying for coverage under the ACA. This means you will need information on anyone who files taxes and any tax dependents in your household or in your care.

How the ACA Marketplace Differs from the IRS

The Internal Revenue Service asks for your tax information once a year, and changes in your tax status do not need to be reported until you fill out your next tax form.

But the ACA Marketplace is different in that regard. If, after you sign up for health care under the ACA, you get a job that offers you health coverage, you must contact the Marketplace immediately. Your premium will change if it is determined that your health care option from your employer is considered affordable (in today’s insurance market, that is not always the case).

Either way, you will be allowed to maintain your Marketplace coverage rather than take your employer-offered coverage. That will be a slightly complicated decision that is one of the benefits (or penalties, depending on how you look at things) of getting a job that offers health care coverage.

What if I am Paying for a COBRA Account?

COBRA is the federally guaranteed health insurance coverage program that allows workers who lose their employer-provided health insurance to extend coverage for a period of time.

Under the American Rescue Plan, your COBRA payments will be covered for six months.

Where to Ask Questions

Starting at www.healthcare.gov for answers about getting and paying for coverage under the ACA. There is also a toll-free phone number for Marketplace questions: 1-800-318-2596.

Unlike the IRS, getting questions answered about ACA coverage via a phone call is easy.

Kent McDill is a longtime journalist who has specialized in personal finance topics since 2013. He is a contributor to The Penny Hoarder.

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Source: thepennyhoarder.com

Will you get a second stimulus check? – Lexington Law

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

By mid-May 2020, the IRS had issued more than $218 billion in stimulus checks related to the CARES Act, and it was still working to ensure all eligible Americans received theirs. But in early August, 2020, almost five months after the CARES Act was passed, many people were wondering if they would receive a second stimulus check. Find out what’s known about stimulus checks and future financial assistance from the federal government in the article below.

Will There Be a Second Stimulus Check?

Judging on the number of bills being passed around Congress, there’s a possibility another stimulus act is coming, and it may come with a second round of stimulus checks. But the details—including how much the check will be worth and who will be eligible—depend on which of the acts ends up making it through.

Bills currently being discussed include:

By mid-May 2020, the IRS had issued more than $218 billion in stimulus checks related to the CARES Act.

The HEALS Act

The HEALS Act comes from the Republicans and is a stimulus package similar to the CARES Act. If this act passes in its current form it will include many of the details described below.

How Much Money Will People Get?

Yes, this act does include stimulus payments to many Americans. The details of how much and who might get what amount are included below.

  • Individuals making less than $75,000 per year will get $1,200.
  • Couples filing jointly and making less than $125,000 per year will get $2,400.
  • People making above those amounts may still get a check. The stimulus is reduced $5 for every $100 of income above those limits until it tapers off completely. So, someone making $80,000 per year would get $950, for example.
  • An additional $500 is also included for every dependent claimed on the person or couple’s tax return, which is different from the CARES Act, which excluded dependents over the age of 16.

Who Would Qualify?

The income and dependent restrictions explained above will determine who would qualify for the stimulus. Qualification would likely be based on tax returns or Social Security benefit statements as was the case with the CARES Act.

What Other Benefits Are Included?

The HEALS Act contains a number of other benefits and stimulus efforts for businesses, schools and workers. Some of the main provisions are highlighted below, but this is not a comprehensive list.

  • Additional unemployment benefits would be provided, but it would be less per week than under the CARES Act.
  • The act would expand the Paycheck Protection Program by another $190 billion and make it easier for businesses to comply with the payroll requirement.
  • A return-to-work bonus may be offered to unemployed workers who find new jobs.
  • Funds to schools to help support reopening efforts would be included.
  • Some protection against lawsuits related to COVID-19 would be provided for businesses.
  • The act also includes $16 billion in coronavirus testing support.

The HEROES Act

This is the stimulus act being proposed by the Democrats. It also includes stimulus payments and other benefits for individuals and businesses.

How Much Money Will People Get?

As with the other bills, the HEROES Act includes a round of stimulus payments for qualifying Americans. The details of the payment amounts being proposed are summarized below.

  • Individuals making less than $75,000 get a $1,200 check under this act.
  • Married people filing jointly making less than $125,000 total annually get a $2,400 check under this act.
  • The stimulus is reduced $5 for every $100 of income above those limits until it tapers off completely.
  • The HEROES Act provides $1,200 per dependent for the first three dependents for an individual or married couple with no age restrictions. So if you claim three children, you would get an additional $3,600 in stimulus funds.

Who Would Qualify?

The qualifications for stimulus checks would be similar to those under the HEALS and CARES Acts as represented above.

What Other Benefits Are Included?

Here are some of the other benefits included in the HEROES Act:

  • This act includes the same enhanced unemployment benefits available under CARES, just extended for a longer period of time.
  • The HEROES Act also includes expanded eligibility for the Paycheck Protection Program and a reduction in the payroll requirement.
  • An expansion and extension of the eviction moratorium and protections for renters is included in the HEROES Act but not the HEALS Act.
  • Funds to support school reopenings are also included in this act.

When Could a Second Stimulus Check Come?

When a second stimulus check might arrive depends heavily on when a bill is passed. Both the House and the Senate must pass the bill, and then it has to be signed by the president. But the hope is that it won’t take as long for the IRS to turn around payments as it did in March and April. Ideally it won’t—the IRS has now done this once already and has probably learned lessons and put a system in place that speeds up the second round.

In fact, Steven Mnuchin, the US Treasury Secretary, said that the IRS could start sending payments within a week of an act being passed. So, if the act is passed anytime in mid-September, for example, the checks could start rolling out before the calendar moved into October.

The Stimulus check process in 4 steps

Will This Be the Last Stimulus Check?

It’s pure speculation at this point to discuss a second, or even third or fourth stimulus check. But it’s not impossible. It likely depends on the state of the economy and job market as the COVID-19 pandemic continues. If future stimulus checks do come, though, they may become increasingly more targeted as time passes. For example, it’s possible stimulus funds might start to go to people who can demonstrate a need.

However, until this second act is passed and lawmakers move on to considering future bills, there’s simply no way to know.

Protecting Your Financial Status During COVID-19 and After

Whether you’re waiting for and relying on a second stimulus check or you’re beginning to see a light at the end of your own personal COVID-19 financial tunnel, it’s definitely important to keep an eye on your personal finances during these trying times. That can include checking your credit report to ensure all the information is accurate and disputing inaccurate items so they don’t drag down your score in the future. It can also include managing your debt, income and investments in the most responsible way. During COVID-19 and beyond, Lexington Law offers information that can help you navigate finances and plan for the future. Check out articles that range from student loans to mortgages, and consider our credit repair services if you need help getting your credit report back to rights.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

What Is a Budget Deficit? Deficit Causes & Solutions

If you pay attention to politics, work for a company, or are around accountants often, you’ve probably heard of a budget deficit. While the way people talk about budget deficits make them sound confusing and difficult, the concept is actually pretty simple: it’s when expenses exceed income. 

There’s a little more to it than that, and it helps to understand budget deficits more in context. In this post, we’ll explain what you need to know about budget deficits, so the next time it comes up, you can better understand the situation — whether that’s talking politics or figuring out your family budget. 

Read on for a full explainer, or just click on a link below to answer your specific question. 

Let’s start with a simple question. 

What is a Budget Deficit?

A budget deficit occurs when spending exceeds income — when the total amount of money that you’re spending is greater than the total amount of money that you’re bringing in. This can occur at small and large scales. For instance, your home budget might be running at a deficit if your total monthly expenses are more than your monthly household income.

Budget deficits happen in companies when the costs of operation are greater than revenue. The same basic principle applies: the company is running at a deficit because the total amount that they’re earning is less than what they owe. Just like at the individual level, this can result in debt. 

Lastly, it can also happen at the state level — like the California 2009 budget crisis — and at the national level. And when it does happen on that scale, it’s something that is often the subject of political debate. It’s a little more complicated when considering the national deficit, but the basic principle is the same: government revenue is less than government spending. Right now, the federal government of the US is running a deficit — it’s spending more than it is taking in. As of late 2020, the federal deficit was $3.3 trillion. This is caused by a few factors. 

Budget Deficit Causes

In the case of an individual or company, the causes of a deficit can be pretty clear: you’re spending more than you’re making. When it comes to the government, things can be a little more complicated. 

The exact causes of a government budget deficit can be hard to track down, but in general, they are caused by low taxes and high spending. That’s because the government’s main source of revenue is taxation, so having low tax income means that the government’s total income is low. 

National budget deficits can be caused by a number of factors:

  • Tax cuts that decrease revenue, such as those intended to boost large companies’ ability to hire employees
  • Low GDP (gross domestic product — the money being made in the country) resulting in low overall revenue, and so low tax revenue
  • Poorly-designed tax structures that under-tax high-earners and over-tax low-earners
  • High spending on many programs, like Medicare and Social Security
  • High military spending
  • High spending on subsidies to various industries

Just because something is one of the causes of the deficit does not mean it should be eliminated entirely. For instance, Medicare and Social Security are necessary for the country to function. But given that spending is also high in other areas, and that tax rates are lower than is necessary to fully cover expenses, government spending results in a deficit. 

What is the Impact of Government Deficit on the Economy?

Talk of the deficit can sound pretty abstract, but it has a number of effects that the average person might want to worry about. For instance, if the deficit were high enough, the government might seek to cut funding to important programs, such as Medicare or Social Security. The impact of the government budget on the economy can be severe if they cut programs like these that millions of people rely on. 

On the other hand, many investors and large corporations worry about the deficit because they fear it will urge the government to raise taxes on them. Ultimately, however, Brookings finds that the deficit is, for now, not something the average American needs to worry about. 

  • Budget deficits can have an effect on the value of government bonds. Read more about federal deficits and national bonds on our blog. 

That’s because it continues to be a debate among economists whether there is a level of debt that will hurt a nation’s economy. As of right now, the deficit seems not to be damaging the US economy. However, because economists are uncertain, no one knows if that will change. 

How Governments Reduce a Budget Deficit

One thing is certain: the government is often interested in a lower fiscal deficit when it grows too high. And right now, it’s about as high as it’s ever been. That’s led many different political groups to suggest their own methods of reducing the federal deficit. Here are some commonly-floated federal budget deficit solutions:

  • Increase taxes. Some groups want to increase federal revenue to offset the deficit. This could largely be achieved by increasing taxes, particularly on the wealthy, who, in spite of the deficit — and pandemic-induced recession — are still doing very well. Tax increases have downsides for politicians, however, as they are often unpopular, and proposing them can sometimes be a political disaster.
  • Increase growth. The government can also increase tax revenue by stimulating growth in the economy. When the economy is growing, people are making more money. And when there’s more money being made, there’s more money eligible for taxation, increasing the total tax revenue the government can collect. Increasing growth is tricky. Some believe cutting taxes increases growth, but there’s no evidence that that works. Others believe direct stimulus can help, but this can also put the government into more debt.

  • Cut spending. Cutting spending can come in a number of different forms. Some groups advocate for cutting spending on social programs like Social Security, Medicaid, and aid for state-based programs. Some advocate cutting the military budget, which is much higher than any other developed nation. Ultimately, this becomes a hotly contested political matter. 

As the deficit continues to grow, you’re likely to hear more and more arguments about what the best way to cut it might be. Ultimately, something will have to be done, even if in the short term it seems not to be damaging the economy or ordinary Americans’ finances. 

How You Can Guard Against a Budget Deficit

As we mentioned before, budget deficits aren’t just about the government — private individuals can experience deficits as well. Because of factors like loans and credit cards, some people might be running a deficit and not even know. 

Luckily, there are steps you can take to lower your fiscal deficit.

  • Know your monthly income. It’s important to keep tabs on the amount of money you’re bringing in each month. This is especially important if you work multiple jobs, work inconsistent hourly shifts, perform contract or freelance labor, or receive grants. Knowing the approximate or average amount you bring in each month is key.
  • Know your monthly expenses. Just as it’s important to know how much money you’re bringing in each month, you should also know how much money is going out. Monthly expenses, for most people, can be inconsistent. Your car doesn’t need a $300 repair every month (hopefully). So, it’s good to do your best to figure out the average amount you spend each month, then use that when assessing your finances.

  • Plan your spending to match your income. The last piece of the puzzle: once you know your money-out and money-in, you can plan expenses around the amount of money you’re bringing in. That way, you can ensure that you’re not draining your savings, living paycheck to paycheck, or running up a massive credit card debt to cover your costs of living. 

While all of this may sound complicated, especially those whose income and expenses can vary monthly, there’s actually a simple way to keep track: Mint. The Mint app monitors your money out and money in. All you have to do is connect your bank accounts and credit cards, and the app takes care of the rest. It also allows you to build your own budget and plan spending ahead of time, that way you can prevent falling into debt. 

Key takeaways

Here’s what to keep in mind as you think about budget deficits:

  • Budget deficits occur when expenses are greater than revenue.
  • They can occur at the individual, company, or governmental level
  • The national deficit is often politically important. As of late 2020, it stood at $3.3 trillion
  • However, economists are unsure whether a high deficit is bad for the economy, at least for now. 
  • There are two ways they can combat the deficit: increasing revenue through higher taxes and/or more economic activity, or cutting expenses by cutting back on government-run programs. 
  • At the individual level, you can prevent a budget deficit by carefully monitoring your income and expenses, budgeting, and ensuring that your expenses are less than your total income

Budget deficits sound scary, and knowing how to reduce a budget deficit can be confusing —  but they don’t have to be. With the right policies — whether personal or national — they can be managed. 

Sources

Congressional Budget Office | Brookings

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