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 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.

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.

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.

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)