Current U.S. Federal Budget Deficit

4 Reasons the U.S. Deficit Is Out of Control

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?

The U.S. Federal budget deficit is $503 billion as of the most current budget. That's for Fiscal Year 2017 which covers October 1, 2016 through September 30, 2017. The deficit occurs because U.S. government spending of $4.147 trillion is higher than its revenue of $3.644 trillion. 

4 Reasons for the Budget Deficits

Most people blame the deficits on the 2008 financial crisis.

But 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 nearly doubled annual military spending. It rose from $437.4 billion in 2003 to $855.1 billion in 2011. For more, see Military Budget.

Second, mandatory spending has increased. That means benefit payouts for Social Security, Medicare, and other mandated programs. It's 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. Lawmakers would be voted out of office by this powerful senior demographic.

Third, the $787 billion economic stimulus package added to the 2009 deficit. That's because it cut taxes, extended unemployment benefits, and funded public works projects to create jobs directly.

But this expansionary fiscal policy was needed to kick-start the economy out of recession. In fact, it did so 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 when it reached $2.775 trillion.

Why Does the Government Always Overspend?

The difference between the U.S. government and you is that the President and Congress plan to overspend. (Hopefully, you don't!) That's 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.
  2. There are many other countries, like China, willing to lend us the money.
  3. 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

A budget deficit is not an immediate crisis. In moderation it increases economic growth. It puts more money into the pockets of businesses and families. They spend and create a stronger economy. That makes other countries happy to lend to the U.S. government. 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 United States will make good on its debt. Lenders also became concerned in 2011 and in 2013. That's when tea party Republican Congressmen threatened to default on the U.S. debt

The Deficit Is Being Reduced

The government reduced the deficit for the FY 2016 budget. But 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. That's an improvement from FY 2009. Any deficit reduction necessitates painful and hotly disputed spending cuts or tax hikes. Nevertheless, it's still not a surplus and will add to the debt. 

Understand the Current Federal Budget

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