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

The U.S. budget deficit by year is how much more the federal government spends than it receives in revenue annually. The Fiscal Year 2021 U.S. budget deficit was budgeted at $1.1 trillion.

The largest deficit, $1.5 trillion, occurred in FY 2010. Spending increased to combat the 2008 financial crisis. Tax receipts dropped due to the recession at the same time, decreasing revenue. While revenues are expected to be the highest in U.S. history in FY 2020, President Donald Trump and Congress ramped up deficit spending to pay for record-high levels of military spending.

Social Security, Medicare, and Medicaid are mandatory programs that are also expensive. Payroll tax revenues cover all of Social Security, part of Medicare, and none of Medicaid.

Deficit Trends

The deficit should be compared to the country's ability to pay it back, and that ability is measured by gross domestic product.

Each year's deficit adds to the national debt. As debt increases, it can negatively impact the economy if it gets too large. The level of debt is compared to the gross domestic product 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.

Congressional Spending and 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. of 30 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 that year in billions. The next column is how much the debt increased by for that fiscal year. The third column calculates the deficit/GDP. The fourth column describes the events that affected the deficit and debt.

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

• Deficit from 1929 to 2017: Historical Tables, Table 1.1, Office of Management and Budget.
• Deficit for FY 2009 includes $253 billion from ARRA.
• Deficit from 2018 to 2021: FY 2021 Budget, Table S-4, Office of Management and Budget.
• Debt from 1929 to 2019: U.S. Treasury Historical Tables and U.S. Treasury, Debt to the Penny. 
• Debt from 2019 to 2021: FY 2021 Budget, Table S-10, Office of Management and Budget.
• GDP and Personal Income, Table 1.1.5., U.S. Bureau of Economic Analysis.
• COVID-19 Impact: Congressional Budget Office