Current U.S. Federal Budget Deficit

How It Impacts the US Economy

Obama, With Former Presidents Bush And Clinton, Speaks On Haiti
Presidents Bush and Obama ran up the highest budget deficits, dollar-wise.. Photo: Brendan Smialowski/Getty Images

What Is the Current Deficit?

For Fiscal Year 2017 (October 1, 2016 - September 30, 2017) the U.S. Federal budget deficit is $503 billion. U.S. government spending of $4.147 trillion is higher than its revenue of $3.644 trillion. 

What Causes Budget Deficits?

Most people blame the deficits on the 2008 financial crisis. However, that's only half the real story. These huge deficits were a result of four factors, and only the last two were related to the recession.

First, the attacks on 9/11 led to the War on Terror. That doubled annual military spending from 

Second, mandatory spending has increased. Spending to pay benefits for Social Security, Medicare and other mandated programs has exceeded $2 trillion a year since FY 2011. These payments consume most of the revenue in each year. They cannot be changed without an act of Congress. This is difficult to do politically, since any benefits that are cut will take money out of the pockets of current beneficiaries.

Third, the $787 billion economic stimulus package cut taxes, extended unemployment benefits, and funded public works projects to create jobs directly. This expansionary fiscal policy was needed to kick-start the economy out of recession, which it did in the second quarter of 2009.

Fourth, the recession reduced Federal income. As the economy tanked, so did tax revenues. Government income fell from its pre-recession record of $2.568 trillion in FY 2007 to $2.1 trillion in FY 2009.

It didn't recover until FY 2013, reaching $2.775 trillion.

Why the Government Overspends

The difference between the U.S. government and you is that the President and Congress plan to overspend. (Hopefully, you don't!) This is for three reasons:

  1. The more the government spends, the more it stimulates the economy. That's because government spending is, itself, a component of GDP.
  1. There are many other countries, like China, willing to lend us the money.
  2. Politicians get elected for creating jobs and growing the economy. They lose elections when unemployment is high and for raising taxes.

When You Should Be Concerned

On a year-by-year basis, a budget deficit is not really a concern. The U.S. government is like the world's best customer -- it buys a lot, and since its economy has been one of the world's strongest, it has always paid the debt back.

It's only when the debt-to-GDP ratio  approaches or exceeds 100% that owners of the debt become concerned. That's because they might wonder whether the U.S will be able to make good on its debt. They also became concerned when tea party Republicans in Congress hinted it might default on its debt, as in 2011 and again in 2013. 

The Deficit Is Being Reduced

The government has reduced the deficit for the FY 2016 budget. However, it has no intention of eliminating it. The Office of Management and Budget (OMB) forecasts a deficit of at least $450 -$500 billion a year through FY 2024.

Although it's an improvement, and necessitates painful and hotly disputed spending cuts and tax hikes, it's still not a surplus and will add to the debt. Article updated February 23, 2016.

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