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

The U.S. budget deficit by year is how much more the federal government spends than it receives in revenue annually. The government spends money on federal programs like Social Security, Medicare, Medicaid, and more, and they add to the budget deficit, which then also adds to the national debt.

In February 2021, the Congressional Budget Office (CBO) predicted that as a result of the COVID-19 pandemic, the fiscal year (FY) 2021 deficit would be $2.3 trillion. After the American Rescue Plan was passed in March 2021, that deficit was expected to increase to $3.4 trillion. In the federal government's budget for fiscal year 2022, it estimated that the fiscal year 2021 budget deficit would be almost $3.7 trillion. By July 2021, the CBO estimated 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.

By Oct. 1, 2021, when fiscal year 2022 began, the national debt was at $28.4 trillion. Budget deficits add to the national debt, and as that debt grows, its ratio to gross domestic product (GDP)—which is often used to measure economic growth—gets too large, as well. That can potentially destabilize the economy.

Budget Deficit Trends in the U.S.

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 then was only about $55 billion and GDP was only $203 billion, both much lower than 2021's numbers.

The deficit-to-GDP ratio is much lower now though 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. At the end of the second quarter of 2021, GDP was $22.74 trillion.

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. At the end of the second quarter of 2021, the debt-to-GDP ratio was 125%.

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 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 and 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 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—specifically, Sept. 30—of each year, unless otherwise noted. This date coincides with the budget deficit's fiscal year end. GDP for the years up to 1947 is not 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. If numbers are in parentheses, that indicates there was a surplus. The fourth column describes events that affected the deficit and debt.

For 2021, GDP is as of June 30, 2021; the national debt increase is from Oct. 1, 2020, to June 30, 2021; and the estimated fiscal year budget deficit is from the CBO, which 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 will not be able to pay its debt off. 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: 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