The Budget Deficit is the amount in a single calendar year that the government spends more than what it collects in revenue. For example, on an individual level, if you earned $30,000 in 2005 but spent $31,000, you would have a budget deficit of $1,000. The National Debt represents the sum of all prior deficits, including unpaid interest accumulated on the borrowed money. Returning to the individual example, if from 1995-2005 you had budget deficits of $1,000 a year, your debt would be $10,000 plus unpaid interest on the borrowed money.

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How Government Borrows Money