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

Learn how budget deficits impact the national debt

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 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.

Key Takeaways

  • Budget deficits add to the national debt, while budget surpluses help to reduce the debt.
  • It can destabilize the economy when a country's debt-to-GDP ratio gets too big.
  • The debt is higher than the deficit because Congress borrows from retirement funds.
  • Looking at budget deficits by year shows how events are influenced the government's need to borrow and spend money.

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.

Note

Each year's budget deficit adds to the national debt, but Congress caps the debt limit. It increased the limit by $2.5 trillion to nearly $31.4 trillion in December 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.

FY Deficit (in billions) Debt Increase (in billions) Deficit-to-GDP Ratio 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 $3,100 $1,384 14.4% COVID-19 and 2020 recession
2021 $3,000 $1,584 13.2% COVID-19 (w/Vaccines)

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

Frequently Asked Questions (FAQs)

When is it considered good policy for the government to run a budget deficit?

Economists debate the merits of running a budget deficit, so there isn't one agreed-upon situation where a deficit is considered good or bad. Generally, a deficit is a byproduct of expansionary fiscal policy, which is designed to stimulate the economy and create jobs. If deficit spending achieves that goal within reasonable parameters, many economists would argue that it's been successful.

How can the government reduce the deficit?

The government can reduce the deficit by increasing revenues, decreasing spending, or both. It's a fine line, however. If the government pushes too far on either, its efforts can backfire and have the opposite effect.