US Budget Deficit by Year Compared to GDP, Debt Increase, and Events

A Look at Trends and the Deficit-Debt Dynamic

Image shows four multi-cultural people in business garb climbing a graph indicating that the deficit has been increasing. Bottom of the graph shows years 2006-2019
Image by Daniel Fishel © The Balance 2019

The U.S. budget deficit by year is how much more the federal government spends than it receives in revenue annually. The Congressional Budget Office (CBO) predicted that the COVID-19 pandemic would raise the fiscal year (FY) 2020 deficit to $3.7 trillion.

The CBO predicted the FY 2021 deficit to be $2.1 trillion. Before the pandemic, the FY 2020 deficit was projected to be $1.1 trillion. 

The largest prior deficit, $1.4 trillion, occurred in FY 2009.  Spending increased to combat the 2008 financial crisis. At the same time, tax receipts dropped due to the recession, decreasing revenue.

Three other programs—Social Security, Medicare, and Medicaid—also add a lot to the deficit. Payroll tax revenues cover all of Social Security, part of Medicare, and none of Medicaid. These are mandatory programs that can't be changed without an act of Congress.

Key Takeaways

  • Deficits add to the national debt, while surpluses reduce the debt
  • When a country's debt-to-GDP ratio gets too big, it destabilizes the economy
  • The annual debt is higher than the deficit because Congress borrows from retirement funds
  • Looking at deficits by year shows how events influenced America's need to borrow money

Deficit Trends

The deficit should be compared to the country's ability to pay it back. That ability is measured by the deficit divided by gross domestic product (GDP). The deficit-to-GDP ratio set a record of 26.9% in 1943 as the country geared up for World War II. The deficit then was only $55 billion, much lower than the record deficit of $3.7 trillion predicted for 2020. But the deficit-to-GDP ratio is much lower now at 17.9% since GDP is much higher than it was in 1943.

Each year's deficit adds to the national debt.

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 is too much debt for the economy to handle.

The 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 whether it's safe to buy the country's bonds. They think the government may not be able to pay back its debt.

Why the Deficit Is Less Than the Increase in the Debt

There's an important difference between the deficit and the debt, even though the terminology sounds similar.

The deficit has been less than the increase in the debt because Congress began borrowing from the Social Security Trust Fund surplus in 1987. The surplus was created by the baby boomer generation. They contributed more because there were more working people than retirees during their peak working years.

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

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 debt and GDP are given as of the end of the third quarter, specifically Sept. 30, of each year. This date coincides with the budget deficit's fiscal year. GDP in the years up to 1947 is not available for the third quarter, so year-end 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. The third column calculates the deficit/GDP. The fourth column describes the events that affected the deficit and debt.

FY Deficit (in billions) Debt Increase Deficit/GDP Events
1929 ($1) ($1) (0.7%) Market crash
1930 ($1) ($1) (0.8%) Smoot-Hawley
1931 $0 $1 0.6% Dust Bowl
1932 $3 $2 4.5% Hoover tax hike
1933 $3 $4 4.5% FDR New Deal
1934 $4 $4 5.4% GDP up 10.8%, debt also rose
1935 $3 $2 3.8% Social Security
1936 $4 $5 5.1% Tax hikes
1937 $2 $2 2.4% Depression returned, third New Deal
1938 $0 $1 0.1% Dust Bowl ended
1939 $3 $3 3.0% Depression ended
1940 $3 $3 2.8% Defense increased
1941 $5 $6 3.8% Pearl Harbor
1942 $21 $30 12.3% Battle of Midway
1943 $55 $64 26.9% Defense tripled
1944 $48 $58 21.2% Bretton Woods
1945 $48 $58 20.0% WWII ended
1946 $16 $10 7.0% Recession
1947 ($4) ($11) (1.6%) Cold War
1948 ($12) ($5) (4.3%) Recession
1949 ($1) $0 (0.2%) Recession
1950 $3 $4 1.0% Korean War
1951 ($6) ($2) (1.8%) Expansion
1952 $2 $4 0.4% Expansion
1953 $6 $7 1.7% Korean War ended, recession
1954 $1 $5 0.3% Recession, Eisenhower budgets
1955 $3 $3 0.7% Expansion
1956 ($4) ($1) (0.9%) Expansion
1957 ($3) ($2)  (0.7%) Recession
1958 $3 $5 0.6% Recession ended
1959 $13 $9 2.5% Fed raised rates
1960 $0 $1 (0.1%) Recession
1961 $3 $3 0.6% JFK & Bay of Pigs
1962 $7 $9 1.2% Cuban Missile Crisis
1963 $5 $8 0.7% U.S. aids Vietnam, JFK killed
1964 $6 $6 0.9% LBJ War on Poverty
1965 $1 $5 0.2% Medicare, Medicaid, Vietnam War
1966 $4 $3 0.5%  
1967 $9 $6 1.0% Expansion
1968 $25 $22 2.7% Moon landing
1969 ($3) $6 (0.3%) Nixon took office
1970 $3 $17 0.3% Recession
1971 $23 $27 2.0% Wage-price controls
1972 $23 $29 1.8% Stagflation
1973 $15 $31 1.0% End of gold standard
1974 $6 $17 0.4% Budget process created, Watergate
1975 $53 $58 3.2% Ford budget, Vietnam War ended
1976 $74 $87 3.9% Stagflation
1977 $54 $79 2.6% Stagflation
1978 $59 $73 2.5% Carter budget, Recession
1979 $41 $55 1.5% Recession
1980 $74 $81 2.6% Volcker raised rates to 20%
1981 $79 $90 2.5% Reagan tax cut
1982 $128 $144 3.8% Reagan increased spending
1983 $208 $235 5.7% Jobless rate was 10.8%
1984 $185 $195 4.6% Increased defense spending
1985 $212 $251 4.9% Increased defense spending
1986 $221 $302 4.8% Tax cut
1987 $150 $215 3.1% Market crash
1988 $155 $262 3.0% Fed raised rates
1989 $153 $255 2.7% S&L Crisis, Bush 41 budget
1990 $221 $376 3.7% Desert Storm
1991 $269 $432 4.4% Recession
1992 $290 $400 4.5% Expansion
1993 $255 $346 3.7% Clinton signed Budget Act
1994 $203 $282 2.8% Clinton budget
1995 $164 $281 2.1% Expansion
1996 $107 $251 1.3% Welfare reform
1997 $22 $188 0.3% Expansion
1998 ($69) $113 (0.8%) LTCM crisis, recession
1999 ($126) $130 (1.3%) Glass-Steagall repealed
2000 ($236) $18 (2.3%) Surplus
2001 ($128) $133 (1.2%) 9/11 attacks, EGTRRA
2002 $158 $421 1.4% War on Terror
2003 $378 $555 3.3% JGTRRA
2004 $413 $596 3.4% Iraq War
2005 $318 $554 2.4% Katrina, Bankruptcy Act
2006 $248 $574 1.8% Bernanke chairs Fed
2007 $161 $501 1.1% Bank crisis
2008 $459 $1,017 3.1% Bank bailout, QE
2009 $1,413 $1,885 9.8% Stimulus Act. Bank bailout cost $250B, ARRA added $253B
2010 $1,294 $1,652 8.6% Obama tax cuts, ACA, Simpson-Bowles
2011 $1,300 $1,228 8.3% Debt crisis, recession and tax cuts reduced revenue
2012 $1,087 $1,276 6.7% Fiscal cliff
2013 $680 $672 4.1% Sequester
2014 $485 $1,086 2.8% Debt ceiling crisis
2015 $438 $327 2.4% TPP, Iran deal
2016 $585 $1,422 3.1% Presidential race
2017 $665 $672 3.4% Trump Tax Act
2018 $779 $1,271 3.8% Deficit spending
2019 $984 $1,203 4.6% Government shutdown
2020 $1,083 $1,181 4.8% Budget before COVID-19
2020C $3,700 $4,226 17.9% With COVID-19 impact
2021 $966 $1,276 4.1% Budget before COVID-19
2021C $2,100 N.A. 9.8% With COVID-19 impact

Why the Deficit Matters

The federal deficit and debt are a concern for the country because the debt is held by those that 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 will not be able to pay. When that happens, debt holders demand higher interest to compensate for the higher risk. That 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: FY 2021 Budget
  • 2020 and 2021: Congressional Budget Office

Debt:

  • 1929 to 2020: U.S. Treasury Historical Tables
  • 2021: Congressional Budget Office

GDP: Bureau of Economic Analysis (BEA)

Article Sources

  1. Congressional Budget Office. "CBO’s Current Projections of Output, Employment, and Interest Rates and a Preliminary Look at Federal Deficits for 2020 and 2021." Accessed Oct. 8, 2020.

  2. Committee for a Responsible Budget. "Updated Budget Projections Show Fiscal Toll of COVID-19 Pandemic." Accessed Oct. 8, 2020.

  3. The White House. “A Budget For A Better America: Fiscal Year 2020,” Page 138. Table S-10. Accessed Oct. 8, 2020.

  4. Congressional Budget Office. "Monthly Budget Review, Fiscal Year 2009: A Congressional Budget Office Analysis." Accessed Oct. 8, 2020.

  5. Congressional Budget Office. "Budget and Economic Outlook: Fiscal Years 2011 to 2021." Accessed Oct. 8, 2020.

  6. St. Louis Fed, FRED. "Federal Surplus or Deficit [-] as Percent of Gross Domestic Product." Accessed Oct. 8, 2020.

  7. Congressional Budget Office. "CBO’s Current Projections of Output, Employment, and Interest Rates and a Preliminary Look at Federal Deficits for 2020 and 2021." Accessed Oct. 8, 2020.

  8. The World Bank. "Finding the Tipping Point--When Sovereign Debt Turns Bad." Accessed Oct. 8, 2020.

  9. Social Security. “Social Security Income, Cost, And Asset Reserves.” Accessed Oct. 6, 2020.

  10. Office of Management and Budget. “Historical Tables,” Download Table 1.1 - Summary of Receipts, Outlays, and Surpluses or Deficits: 1789-2021. Accessed Oct. 8, 2020.

  11. The White House. "FY 2011 Budget," Table S-10. Column "2009 Actual, ARRA," Row "Non-Security Agencies," The FY 2011 budget shows actual spending for FY 2009. Accessed Oct. 8, 2020.

  12. Office of Management and Budget. "FY 2018 Budget." Table S-1, Page 25. Accessed Oct. 8, 2020.

  13. Office of Management and Budget. "FY 2019 Budget," Table S-1, Page 117. Accessed Oct. 8, 2020.

  14. Office of Management and Budget. "FY 2020 Budget." Table S-1, Page 107. Accessed Oct. 8, 2020.

  15. The White House. “A Budget for America’s Future: FY 2021,” Table S-4, Page 112. Accessed Oct. 8, 2020.

  16. Treasury Direct. “Historical Debt Outstanding – Annual 1900-1949.” Accessed Oct. 8, 2020.

  17. BEA. “Table 1.1.5. Gross Domestic Product.” Accessed Oct. 8, 2020.