U.S. Budget Deficit by Year Compared to GDP, the National Debt, and Events

The U.S. budget deficit is how much more the federal government spends annually than it receives in revenue during that same time period. The government spends money on federal programs like Social Security, Medicare, Medicaid, and more. This adds to the budget deficit, which then also adds to the national debt.

The Congressional Budget Office (CBO) predicted in February 2021 that the fiscal year (FY) 2021 deficit would be $2.3 trillion as a result of the COVID-19 pandemic. That deficit was expected to increase to $3.4 trillion after the American Rescue Plan was passed in March 2021.

The federal government's budget for fiscal year 2022 estimated that the fiscal year 2021 budget deficit would be almost $3.7 trillion. The CBO estimated by July 2021 that the fiscal year 2021 deficit would be $3 trillion. The budget deficit in 2020 was about $3.1 trillion, the largest in U.S. history.

The national debt was at $28.4 trillion by Oct. 1, 2021, when fiscal year 2022 began. On December 16, 2021, the debt exceeded $29 trillion for the first time. Budget deficits add to the national debt, and as that debt grows, its ratio to gross domestic product (GDP) gets too large, which can potentially destabilize the economy. A country's debt-to-GDP ratio is often used to measure economic growth.

Budget Deficit Trends in the US

The budget deficit should be compared to the country's ability to pay it back. That ability is measured by dividing the deficit by gross domestic product (GDP). The deficit-to-GDP ratio set a record of 27% in 1943 as the country geared up for World War II. The deficit was then only about $55 billion, and GDP was only $203 billion, both much lower than 2021 numbers.

The deficit-to-GDP ratio is much lower in 2021, even though we're working with trillions of dollars in budget deficits and GDP. That's because GDP is much higher than it was in 1943. GDP was $21.5 trillion at the end of 2021.

The national debt can negatively impact the economy if it gets too large. The level of debt is also compared to GDP to determine whether there's too much debt for the economy to handle.

This comparison is called the debt-to-GDP ratio (debt divided by GDP). The country reaches a tipping point if the ratio is more than 77%. That's when lenders begin to worry about whether it's safe to buy the country's bonds. They think the government may not be able to pay back its debt. The debt-to-GDP ratio was 125% at the end of 2021.

Why the Deficit Is Less Than the Increase in the Debt

There's an important difference between the deficit and debt. The deficit has been less than the increase in debt for years because Congress borrows from the Social Security Trust Fund surplus. There were more people working than there were retirees back in the 1980s, so a surplus was created.

Payroll tax contributions were greater than Social Security spending at that time, and that allowed the fund to invest the extra revenue in special Treasury bonds. Congress spent some of the surplus so it wouldn't have to issue as many new Treasury bonds. 

Budget Deficit by Year Since 1929

The deficit since 1929 is compared to the increase in the debt, nominal GDP, and national events in the table below.

The national debt and GDP are given as of the end of the third quarter of each year unless otherwise noted—specifically, September 30. The date coincides with the budget deficit's fiscal year-end. GDP for years up to 1947 isn't available for the third quarter, so annual figures are used.

The first column represents the fiscal year, followed by the deficit for that year in billions. The next column is how much the debt increased for that fiscal year, also in billions. The third column calculates the deficit-to-GDP ratio. It indicates that there was a surplus if numbers are in parentheses. The fourth column describes events that affected the deficit and debt.

GDP is as of June 30, 2021, for 2021. The national debt increase is from October 1, 2020, to June 30, 2021. The estimated fiscal year budget deficit is from the CBO and was released on July 1, 2021.

Why the Budget Deficit Matters

The federal deficit and debt are concerns for the country because the majority of the national debt is held by those who have purchased Treasury notes and other securities. A continuous deficit adds to the national debt, increasing the amount owed to security holders.

The concern is that the country won't be able to pay its debt off. Debt holders demand higher interest to compensate for the higher risk when that happens. This increases the cost of all interest rates and can cause a recession.

Resources for Table

Deficits:

• 1929 to 2015: Historical Tables, Table 1.1.
• Deficit for FY 2009 includes $253 billion from ARRA.
• 2016: U.S. FY 2018 Budget
• 2017: U.S. FY 2019 Budget
• 2018: U.S. FY 2020 Budget
• 2019: U.S. FY 2021 Budget
• 2020 and 2021: Congressional Budget Office
• 2021: Committee for a Responsible Federal Budget

Debt:

• 1929 to 2020: U.S. Treasury Historical Tables
• 2021: Congressional Budget Office
• 2021: Committee for a Responsible Federal Budget

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