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

Is the US Deficit Really That Bad?

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 Fiscal Year 2020 U.S. budget deficit is expected to be $1.1 trillion. That's the largest deficit since 2012.

Spending was high in 2012 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.

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 the United States' need to borrow money.

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.

Fiscal Year 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 $3 4.5% Hoover tax hike
1933 $3 $3 4.5% FDR New Deal
1934 $4 $5 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 $3 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 $23 12.3% Battle of Midway
1943 $55 $64 26.9% Defense tripled
1944 $48 $64 21.2% Bretton Woods
1945 $48 $58 20.0% WWII ended
1946 $16 $11 7.0% Recession
1947 ($4) ($11) (1.6%) Cold War
1948 ($12) ($6) (4.2%) Recession
1949 ($1) $0 (0.2%) Recession
1950 $3 $5 1.0% Korean War
1951 ($6) ($2) (1.7%) 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) ($2) (0.9%) Expansion
1957 ($3) ($2)  (0.7%) Recession
1958 $3 $6 0.6% Recession ended
1959 $13 $8 2.4% Fed raised rates
1960 $0 $2 (0.1%) Recession
1961 $3 $3 0.6% JFK & Bay of Pigs
1962 $7 $10 1.2% Cuban Missile Crisis
1963 $5 $7 0.7% U.S. aids Vietnam, JFK killed
1964 $6 $6 0.9% LBJ War on Poverty
1965 $1 $6 0.2% Medicare, Medicaid, Vietnam War
1966 $4 $3 0.5%  
1967 $9 $6 1.0% Expansion
1968 $25 $21 2.6% 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 3.1% Ford budget, Vietnam War ended
1976 $74 $87 3.9% Stagflation
1977 $54 $78 2.5% 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 2.4% Reagan tax cut
1982 $128 $144 3.8% Reagan increased spending
1983 $208 $235 5.6% Jobless rate was 10.8%
1984 $185 $195 4.5% Increased defense spending
1985 $212 $256 4.8% Increased defense spending
1986 $221 $297 4.8% Tax cut
1987 $150 $225 3.1% Market crash
1988 $155 $252 2.9% Fed raised rates
1989 $153 $255 2.7% S&L Crisis, Bush 41 budget
1990 $221 $376 3.7% Desert Storm
1991 $269 $432 4.3% Recession
1992 $290 $399 4.4% Expansion
1993 $255 $347 3.7% Clinton signed Budget Act
1994 $203 $281 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 $578 1.8% Bernanke chairs Fed
2007 $161 $501 1.1% Bank crisis
2008 $459 $1,017 3.1% Bank bailout, QE
2009 $1,413 $1,632 9.8% Stimulus Act. Bank bailout cost $250B, ARRA added $253B
2010 $1,294 $1,905 8.6% Obama tax cuts, ACA, Simpson-Bowles
2011 $1,300 $1,229 8.3% Debt crisis, recession and tax cuts reduced revenue
2012 $1,087 $1,276 6.7% Fiscal cliff
2013 $679 $672 4.0% Sequester
2014 $485 $1,086 2.7% Debt ceiling crisis
2015 $438 $327 2.4% TPP, Iran deal
2016 $585 $1,423 3.1% Presidential race
2017 $665 $672 3.4% Trump Tax Act
2018 $779 $1,217 4.0% Deficit spending
2019 $1,092 $1,314 5.0% Government shutdown
2020 $1,101 $1,281 NA Military spending increased
2021 $1,068 $1,276 NA NA

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 2020 Budget, Table S-4, Office of Management and Budget.
  • Debt from 1929 to 2018: U.S. Treasury Historical Tables and U.S. Treasury, Debt to the Penny. 
  • Debt from 2019 to 2021: FY 2020 budget, Analytical Perspectives, Table 4-2. Federal Government Financing and Debt.
  • GDP and Personal Income, Table 1.1.5., U.S. Bureau of Economic Analysis.

Article Sources

  1. Whitehouse.gov. “A Budget For A Better America, Fiscal Year 2020,” Page 138. Table S-10. Accessed Jan. 21, 2020.

  2. The World Bank. "Finding the Tipping Point--When Sovereign Debt Turns Bad." Accessed Jan. 21, 2020.

  3. Social Security. “Social Security Income, Cost, And Asset Reserves.” Accessed Jan. 21, 2020.

  4. Office of Management And Budget, Whitehouse.gov. “Historical Tables.” Accessed Jan. 21, 2020.

  5. Obama 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 Jan. 21, 2020.

  6. Whitehouse.gov. “A Budget For A Better America, Fiscal Year 2020.” Accessed Jan. 21, 2020.

  7. Treasury Direct. “Historical Debt Outstanding – Annual 1900-1949.” Accessed Jan. 21, 2020.

  8. Treasury Direct. “The Debt To The Penny And Who Holds It." Accessed Jan. 21, 2020.

  9. Whitehouse.gov. “Federal Borrowing And Debt.” Accessed Jan. 21, 2020.

  10. BEA. “NIPA Tables, National Income And Product Accounts, National Data.” Accessed Jan. 21, 2020.